Fix
Simplify
Perform
2020
ANNUAL REPORT
3943 Westpac AR20 Cov-p33_V40.indd 1
3943 Westpac AR20 Cov-p33_V40.indd 1
31/10/20 4:44 pm
31/10/20 4:44 pm
About this report
Westpac’s 2020 Annual Report is our primary statutory and regulatory
reporting disclosure. It comprises information about our activities,
strategy, and financial and non-financial results over the reporting period.
Westpac’s annual reporting suite
Our annual reporting suite brings together the Group’s financial, non-
financial, risk and sustainability performance for the year. It includes our
Annual Report, FY20 Financial Results Announcement, FY20 Investor
Discussion Pack, Pillar 3 Report, Sustainability Performance Report, and
our Corporate Governance Statement. Access the full suite online at
www.westpac.com.au/2020annualreport.
Navigating this report
Read more or refer to another
report for more information
Case study
Westpac Banking Corporation
ABN 33 007 457 141
Rebuilding after bushfires
St.George customer, Lyn Grey,
and Ulladulla branch manager,
Lloyd Pigram, at Lyn’s property
on the NSW South Coast.
Full story on page 31.
3943 Westpac AR20 Cov-p33_V40.indd 2
3943 Westpac AR20 Cov-p33_V40.indd 2
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT
1
STRATEGIC REVIEW
It’s been a challenging year and we should have done
better. We’ve taken accountability for our shortcomings
and are working to fix our mistakes, simplify the business
and restore performance. We’ve made progress, but
there’s much to do to restore value, and the trust you’ve
placed in us. Here is our plan.
CONTENTS
1 STRATEGIC REVIEW
Strategic Report
About Westpac
2020 Year in review
Chairman’s report
Chief Executive Officer’s report
Performance review
External environment
Our strategy
Our priorities
Building a sustainable future
Corporate Governance
Directors’ Report
Board of Directors
Executive team
Remuneration Report
Information on Westpac
Significant developments
2 GROUP PERFORMANCE
Five year summary
Reading this report
Review of Group operations
Income statement review
Balance sheet review
01
01
02
04
06
08
10
12
14
18
34
52
56
57
61
70
101
102
111
112
115
117
120
125
Capital resources
Divisional performance
Consumer
Business
Westpac Institutional Bank
Westpac New Zealand
Specialist Businesses
Group Businesses
Risk and risk management
Risk management
Risk factors
Other Westpac business
information
3 FINANCIAL STATEMENTS
Financial statements
Notes to the financial statements
Statutory statements
4 SHAREHOLDER INFORMATION
Shareholding information
Additional information
Information for shareholders
Glossary of abbreviations
and defined terms
Contact us
339
inside back cover
129
131
135
136
138
139
141
143
144
144
151
164
167
168
174
311
321
322
332
336
Strategic Report
In this Annual Report a reference to ‘Westpac’, ‘Group’, ‘Westpac Group’, ‘we’, ‘us’ and ‘our’ is to Westpac Banking Corporation ABN 33 007 457 141
and its subsidiaries unless it clearly means just Westpac Banking Corporation. All figures in this Annual Report are for the 12 months ended
30 September 2020 unless otherwise indicated. All comparisons are against results for the 12 months ended 30 September 2019 unless otherwise
indicated. All dollar amounts are in Australian dollars unless otherwise indicated. For certain information about the basis of preparing the financial
information in this Annual Report see ‘Reading this report’ in Section 2. In addition, this Annual Report contains statements that constitute
‘forward-looking statements’ within the meaning of Section 21E of the US Securities Exchange Act of 1934. For an explanation of forward-looking
statements and the risks, uncertainties and assumptions to which they are subject, see ‘Reading this report’ in Section 2. Information contained in
or accessible through the websites mentioned in this Annual Report does not form part of this report unless we specifically state that it is incorporated
by reference and forms part of this report. All references in this report to websites are inactive textual references and are for information only.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 1
3943 Westpac AR20 Cov-p33_V40.indd 1
31/10/20 4:44 pm
31/10/20 4:44 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
2
ABOUT WESTPAC
Founded in 1817, Westpac is Australia’s
first bank and oldest company.
DIVISION
OVERVIEW
FY20 CASH EARNINGS
CONSUMER
Serves the banking needs of consumers in Australia
including the sales and service of banking products,
from mortgages, credit cards, personal loans and
savings to deposit products. Also works with Business,
Westpac Institutional Bank (WIB), and Specialist
Businesses in the sales, service and referral of certain
financial services and products including general and
life insurance, superannuation, platforms, auto lending
and foreign exchange.
$2,746m
BUSINESS
Serves the banking needs of small-to-medium
businesses and commercial and agribusiness
customers across Australia. Also supports the
banking needs of high net worth individuals in
our Private Wealth business.
$734m
WESTPAC
INSTITUTIONAL
BANK
Delivers a broad range of financial services
to commercial, corporate, institutional and
government customers operating in, and with
connections to, Australia and New Zealand.
$332m
NEW ZEALAND
Delivers banking, wealth and insurance services
to consumer, business, and institutional customers
across New Zealand.
$612m
GROUP
BUSINESSES
SPECIALIST
BUSINESSES
Includes Treasury, Technology and Core Support,
which comprises Group support functions of
Australian banking operations, property services,
strategy, finance, risk, compliance, legal, human
resources, and customer and corporate relations.
($1,310m)
Brings together the Group’s non-core Australian
businesses, including superannuation, wealth
platforms, investments, auto finance, general
insurance, life insurance, lenders mortgage
insurance, along with our operations in Fiji
and Papua New Guinea.
($506m)
REPORTED
PROFIT
$2,290m
TOTAL CASH
EARNINGS1
$2,608m
3943 Westpac AR20 Cov-p33_V40.indd 2
3943 Westpac AR20 Cov-p33_V40.indd 2
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT 3
With our portfolio of brands, we provide over 14.1 million2 customers with a full
range of banking services. We also provide selected insurance, superannuation and
wealth platform services to consumers and businesses. Our market capitalisation is
$61 billion with $912 billion of total assets (at 30 September 2020).
FY20 CASH EARNINGS
BRANDS
$2,746m
MARKET SHARE
AUSTRALIA
Household
deposits3
21%
Business
credit4
16%
Customers
12.1m
NEW ZEALAND
Consumer
lending6
19%
Customers
1.3m
Mortgage4
22%
Wealth
platforms5
18%
Deposits6
18%
Westpac Pacific
1 Refer to page 10 for a reconciliation of reported profit to
cash earnings.
2 Includes Westpac Pacific customers.
3 APRA Banking Statistics, September 2020.
4 RBA Financial Aggregates, September 2020.
5 Strategic Insights, June 2020. All Master Funds Admin.
6 RBNZ, September 2020.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 3
3943 Westpac AR20 Cov-p33_V40.indd 3
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
4
2020
Year in review
This year has been challenging, overshadowed by the
AUSTRAC proceedings, bushfires and storms, and
COVID-19. Through it all, we have remained focused
on helping customers, employees, and the Australian
and New Zealand economies.
The AUSTRAC issues highlighted shortcomings in our
management of financial crime risk and have been a
catalyst for change across the Group. In the last year,
we have refreshed our Board and Executive Team, are
refocusing on core banking, and are accelerating our
program to address shortcomings in our management
of risk. Change is underway, but there is a lot to do.
The Group’s financial results were disappointing.
Reported profit was $2,290 million, down 66%. Cash
earnings were $2,608 million, down 62%. Much of
the decline resulted from our operating environment,
where we faced lower margins and higher impairment
charges – a direct result of COVID-19. However, the
poor result was also due to higher costs related to the
AUSTRAC proceedings along with asset write-downs
from businesses we plan to exit.
Nevertheless, our balance sheet remained strong.
Our capital ratios are in the top quartile of banks
globally and funding and liquidity ratios are
comfortably ahead of regulatory minimums.
Amplified by COVID-19, our share price declined over
the year and dividends were significantly lower. Our
three priorities of fix, simplify and perform underpin
our plans to fix the issues, simplify our business and
improve performance. Progress over the year included:
— Five new Group Executives;
— Establishing our new Specialist Businesses division
bringing together non-core activities;
— Launching our new Lines of Business operating
model to clarify responsibility and accountability
for end-to-end performance;
— Implementing structural and operational changes
to the management of risk; and
— Commencing our CORE program bringing
together initiatives to improve non-financial
risk management.
With a committed team and priorities to fix, simplify,
and perform, we are confident that we are on the
path to become a simpler, stronger bank.
Customers
Financial
HIGHS
Supporting customers during
COVID-19
~175,000
Mortgage deferral packages
~40,000
Deferrals for businesses
Strong balance sheet
CET1 capital ratio
11.13%
Net Stable
Funding Ratio
122%
1,9801
Bushfire recovery support
packages
Long-dated complaints
93%
#1
Business Banking NPS ranking2, 3
LOWS
#3
Consumer NPS ranking4
Efficiency savings
$400m+
$1.2bn
Notable Items after tax,
excluding AUSTRAC
Delays responding
to customers given increased
queries during COVID-19
No 2020 interim
dividend
Mortgage 90+ day
delinquencies up
68 basis points to
1.50%
Final dividend per share
31c
Share price5
43%
Bushfire recovery packages at 31 March 2020.
1
2 Net Promoter Score measures the net likelihood of recommendation to others of the customer’s main financial institution for retail or business banking. Net
Promoter ScoreSMis a trademark of Bain & Co Inc., SatmetrixSystems, Inc., and Mr Frederick Reichheld. Using a 11 point numerical scale where 10 is ‘Extremely
likely’ and 0 is ‘Extremely unlikely’, Net Promoter Score is calculated by subtracting the percentage of Detractors (0-6) from the percentage of Promoters (9-10).
3 Source: DBM Consultants Business Atlas, March – August 2020, 6MMA. MFI customers, all businesses.
4 Source: DBM Consultants Consumer Atlas, March – August 2020, 6MMA. MFI Westpac Group customers.
5 Based on 30 September 2020 vs 30 September 2019 closing share prices.
3943 Westpac AR20 Cov-p33_V40.indd 4
3943 Westpac AR20 Cov-p33_V40.indd 4
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT 5
Operations
Risk
Sustainability
Employees
Launched
New
Westpac
app
Branch and ATM availability
during COVID-19
>90%
Strengthened infrastructure,
major system outages more
than halved
Bringing
1,000
jobs back to Australia
Mortgage balances
declining
2%
Complexity of IT
infrastructure – long
timeframe to fix
New Board Legal, Regulatory,
Compliance & Conduct
Committee
New Financial Crime function
with Group Executive
reporting to CEO
400+
new Risk, Compliance and
Financial Crime employees
Updated position
statements:
— Climate Change
— Human Rights
$10.1bn
lending to climate
change solutions
$150m+
in community investment6
Employee commitment
index8
73%
Supported people
working from home
at the peak of COVID-19
22,000
Women in leadership9
50%
#1
largest financier to greenfield
renewable energy projects in
Australia for the past three
years7
9.4%
of employees using
Employee Access Program
for confidential counseling
and coaching
Inadequate transaction
monitoring to help identify
potential child exploitation
Remuneration consequences
following review of AUSTRAC
matters10
$20m
Board and Executive departures
AUSTRAC’s Statement
of Claim and provision
for penalty of
$1.3bn
Additional
$500m
APRA capital overlay
for risk deficiencies
Credit impairment charge
$3.2bn
$2.4bn
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
6 Excludes commercial sponsorships.
7 IJGlobal, September 2020.
8 Six-month rolling average.
9 Proportion of women (permanent and maximum term) in leadership roles across the Group, including the CEO, Group Executives, General Managers, senior
leaders with significant influence on business outcomes (direct reports to General Managers and their direct reports), large (3+) team people leaders three
levels below General Manager, and Bank and Assistant Bank Managers.
10 Refer to explanation in Remuneration Report in the Directors’ Report.
3943 Westpac AR20 Cov-p33_V40.indd 5
3943 Westpac AR20 Cov-p33_V40.indd 5
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
6
CHAIRMAN’S REPORT
Dear fellow shareholders,
I am very pleased to have become the Chairman of
such an important Australian company as Westpac
in what has become a difficult time for us and the
industry more broadly.
The country, the banking sector and Westpac have
been here before, but in different circumstances, and
as before, recovery will re-emerge.
This is my first Annual Report letter to you as Chairman,
and there are three messages I would like to deliver.
The first is to express my disappointment at a number of
issues we are facing, in particular, the AUSTRAC matters,
subdued financial performance, as well as our inability to
pay a first half dividend this year. Despite the subdued
economic environment, these issues are partly of our
own making, and therefore simply not good enough.
For this I apologise sincerely on behalf of the Company.
The decision on the first half dividend was particularly
disappointing for shareholders, especially those relying
on dividends. Many shareholders have written to me
expressing their disappointment and anger at this, as
well as at the loss of the value of their investments.
Shareholders legitimately are aggrieved and deserve
better outcomes.
I am fully aware that in a low growth environment, a solid
dividend yield is important to total shareholder return.
We have been able to declare a final dividend of 31 cents
per share. This dividend represents a payout ratio of
49% of our Full Year 2020 statutory earnings.
It is important we work quickly towards a consistent
dividend each half by improving the performance of
our portfolio of businesses and maintaining our capital
strength. With respect to the latter, our capital position
remains strong and we have options to ensure we
maintain capital strength, without resorting to external
sources.
It is my role as Chairman, that of my Board colleagues,
and our management team to assist the country and our
customers to manage through this difficult period. As
we undertake this task, we must fix our issues and boost
performance and shareholder value. We are committed
to seeing this through, and we have made good progress
already.
We are taking firm and urgent steps to resolve matters.
While we can continue to address some issues quickly,
many will however take time, and I ask for your patience,
which I believe will be rewarded. I look forward to
updating you on this progress.
The second is while there remain matters to fix, we
are primarily focused on the future. I am genuinely
pleased at the way the Board and management have
responded to these past challenges as well as setting
out a new agenda for the Company. While it may not yet
be transparent externally, there has been considerable
progress over the past six months, which will set a new
foundation for the Company.
Westpac’s heritage and foundations are strong, and
there is much we can build upon, particularly our strong
core domestic franchises.
There have been few times in history where we have
needed to move so rapidly. Circumstances are different
now, and our approach must change.
Third, we are well advanced to improve the way we
manage and respond to the challenges before us.
For example, we have moved from committee-based
decision making, to faster decision making with clear
individual accountabilities.
3943 Westpac AR20 Cov-p33_V40.indd 6
3943 Westpac AR20 Cov-p33_V40.indd 6
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT 7
It is important we work quickly
towards a consistent dividend
each half by improving
performance of our portfolio of
businesses and maintaining our
capital strength.”
This included cancelling all short-term variable reward
for the Group Executive Team this year. With the
AUSTRAC proceedings settled and remuneration
consequences applied, we must now look ahead and
implement the necessary change to rebuild Westpac.
We have also changed the way the Board works, taking
steps to improve processes and oversight, to ensure
we are focusing on all elements of success including
strategy, management, customer service, economic
performance, capital, dividends and importantly given
our current regulatory issues, financial and non-financial
risk management compliance and culture. With respect
to compliance, we have established a new Board
Legal, Regulatory and Compliance Committee to give
greater focus to this area and have also given separate
management focus to these functions.
We have made changes to the conduct of Board and
committee meetings, to improve decision making and
allow us to focus on the most important matters.
All of these changes have been necessary as a
foundation to ensure we get and put things right, get
them done, ensure they have been done and don’t
happen again.
During the year, Brian Hartzer, our former CEO, stepped
down, a number of Directors retired from the Board –
Lindsay Maxsted our former Chairman, Ewen Crouch and
Anita Fung, Non-executive Directors – and Alison Deans
has elected to step down at this year’s Annual General
Meeting. I would like to take this opportunity to thank
them for their service to the Company.
Looking forward, it is unfortunate that COVID-19, and its
impact, will likely be with us for a while yet. It will take
some time before we fully understand the impact on
our customers and the bank. This said, while uncertainty
remains, we are working hard to produce better results
in 2021, but it is unlikely that we will see a return to
a more normal situation until 2022, at the earliest.
Rest assured, the Board and management are fully
committed to restoring Westpac to its rightful position
at the earliest possibility, and I am confident that this will
happen.
Your sincerely,
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
Immediately on my appointment and that of the CEO, we
announced a strategy reset to get back to core banking.
We transferred several businesses into a new division
and many of these will be exited, adding additional
capital strength. This will also help us to become leaner,
more agile and more accountable while maintaining our
caring and helping orientation. Managing fewer things
should also ensure we do them better and resolve issues
more quickly.
We are also responding to an increasingly digital world
and making it easier for customers to do business
with us online and with mobile technology. A great
example has been the completion of our new generation
Westpac Banking app that will be available to all iPhone
customers in the year ahead.
In designing and delivering our strategy, there is no
substitute for having a best-in-class management team
and Board.
The Board was renewed with the appointments of
Chris Lynch and Michael Hawker during the year. Chris
has a strong management and finance background,
having been the CFO at both Rio Tinto and BHP, as well
as the CEO of Transurban. Mike is a highly experienced
director and given his extensive financial services
experience will complement the Board’s skills. As part
of the Board’s renewal we expect to appoint additional
Directors in the period ahead, adding to the Board’s
skills, experience and diversity.
We’ve already made significant changes to the
management team, including the appointment of
Peter King as CEO. Peter’s experience in banking,
and of Westpac, is extensive, and he has a strong
execution bias, as have the team overall.
Peter has announced and implemented a new business-
line management structure which will give the heads of
these businesses, end-to-end personal accountability
for progress and results, and he has also launched
comprehensive business and cultural transformation
programmes across the Group.
Central to our change has been to improve
accountability, and this year significant consequences
were applied in relation to the AUSTRAC matters.
In addition to the management and Board changes,
remuneration consequences of more than $20 million1
were applied to decrease remuneration outcomes across
38 executives, managers and other employees.
1 Refer to explanation in Remuneration Report in the Directors’ Report.
John McFarlane
Chairman
3943 Westpac AR20 Cov-p33_V40.indd 7
3943 Westpac AR20 Cov-p33_V40.indd 7
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
8
CEO’S REPORT
Dear shareholders,
This has been a year like no other. COVID-19’s impact
has been profound and has created challenges for
many individuals and companies. The sharp decline
in economic growth, low interest rates and higher
impairment charges have materially impacted the
sector’s and our earnings.
At the same time, our own issues, including responding
to our shortcomings in risk management – particularly
in financial crime – have contributed to lower earnings.
These factors saw dividends and the value of your
investment fall.
You expected more from Westpac and we apologise for
letting you down. I recognise the distress lower dividends
caused to many shareholders, especially retirees. I
assure you that while it will take some time, we are doing
everything we can to fix things and rebuild Westpac.
I do not underestimate the importance of leading
Australia’s oldest company at such a pivotal moment
– it is a great privilege. Having spent the best part of
my career at Westpac, I know this Company has strong
foundations and deeply committed people, and so I am
confident we will fix our issues, simplify our business
and perform for our stakeholders.
Turning things around
On 20 November 2019, AUSTRAC commenced civil
proceedings against Westpac in relation to alleged
contraventions of the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006 (Cth). This had
a major impact this year, highlighting weaknesses in
our management of financial crime. We have taken
responsibility for our failings and in September this year,
we reached an agreement with AUSTRAC to resolve the
proceedings. As part of the settlement, Westpac agreed
to pay a civil penalty of $1.3 billion, which the Court
has approved.
While this is a significant cost for shareholders, the overall
settlement is an important step forward, allowing us to
direct our energy to getting back on track.
We have investigated the underlying issues, and we
know we need to do better. We carried out a number of
internal reviews including an assessment of management
accountability in relation to the issues raised in the
AUSTRAC proceedings and the adequacy of Westpac’s
financial crime program. We also established an
independent Advisory Panel to review Board governance
and Board accountability in relation to the issues raised in
the AUSTRAC proceedings and reassessed our 2018 Culture,
Governance and Accountability self-assessment program.
The recommendations and findings of these reviews were
published on 4 June and 17 July 2020 respectively.
Complexity has been at the heart of our issues – in our
systems, processes, and businesses. Accountability was
often not clear, and the right skills and capabilities were
lacking in some areas. We didn’t have the right culture
and we were too reactive and slow to respond when
issues emerged.
For change to be effective it must start at the top.
There has been significant change at the executive level
with the team renewed. We have sharpened our focus on
Australia and New Zealand and are moving back to core
banking, with our Specialist Businesses division bringing
our non-core businesses together.
We have enhanced our operating structures by
implementing a Lines of Business model which aligns
our businesses to our major customer offers such as
mortgages, everyday banking, or business lending.
Individuals are now responsible for each Line of Business,
including financial performance, risk management and
customer outcomes. This model aims to improve decision
making, creates clear end-to-end accountability for
our activities, streamlines management and speeds
up decision making.
3943 Westpac AR20 Cov-p33_V40.indd 8
3943 Westpac AR20 Cov-p33_V40.indd 8
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT 9
These changes are complemented by our new purpose
and values and will help guide our cultural change.
We have also made changes in risk management, including
the creation of a new role – Group Executive, Financial
Crime, Compliance and Conduct, and added significant
skills and resources to our risk management areas. Fixing
our management of risk is a key priority.
We have made good progress in improving our financial
crime program and are making Company-wide changes
through our Customer Outcomes and Risk Excellence
program. This program deals with the source of our issues,
seeking to strengthen non-financial risk management and
improve our risk culture.
I am confident that these changes are steering Westpac
in the right direction, towards becoming a simpler and
stronger bank. The turnaround will take some years, but we
are determined to rebuild value and importantly, your trust.
Helping customers when they need it most
Against this backdrop, I am very proud of how our people
stepped up to support customers through COVID-19,
and the bushfires and floods that affected large parts of
Australia this year. We worked hard to support customers
through this time, changing our operations to remain open,
diverting resources to areas of most need and providing a
range of tailored support packages.
With the bushfires, in addition to the many employees
working on the front line, our teams worked tirelessly
to ensure customers could access their funds while also
providing emergency grants to those most affected.
Around 2,000 relief packages were provided.
With COVID-19, our focus was doing everything we could
to keep our people safe while supporting customers. We
kept as many branches as we could open while enabling
around 22,000 employees to work from home. We
provided customers with special interest rates, certain
fee waivers, and temporary loans and supported over
215,000 consumer and business customers with repayment
deferrals.
While there were a few setbacks through the year, such
as increased wait times and delays to loan processing,
we have (and will continue to) supported customers
through this uncertain time.
Performance
Our financial performance this year was disappointing.
The Group’s reported profit was $2,290 million down 66%
(or $2,608 million in cash earnings, down 62%), partly a
result of our operating environment including low interest
rates, materially higher impairment charges and higher
costs from navigating COVID-19. The AUSTRAC settlement,
further remediation costs, asset writedowns and high risk
and compliance costs also contributed. The larger impacts
on results included:
— Impairment charges of $3,178 million, reflecting an
increase in provisions for expected credit losses due
to COVID-19 impacts;
— $1,442 million after tax in provisions for AUSTRAC
proceedings including a civil penalty of $1,300 million;
and
— Additional provisions for customer refunds, repayments,
associated costs and litigation items of $440 million
after tax.
I do not underestimate the
importance of leading Australia’s
oldest company at such a pivotal
moment – it is a great privilege.”
Despite the strength of our franchise, lending stalled over
the year. While demand was lower, we did not keep pace
with the market – particularly in our core mortgage portfolio.
Net interest margins were also down due principally to low
interest rates and a highly competitive market.
However, our balance sheet remains strong. Key liquidity
and funding ratios are above target, and our CET1 capital
ratio was 11.13% – the highest level for at least the last
20 years. This strength made possible the payment of the
final dividend, albeit reduced, and allows us to continue
supporting customers and the economy through this
challenging time.
We remain comfortable with our current capital ratios and
have buffers to absorb a potential further deterioration
in asset quality. Capital will also be generated as we exit
activities in our Specialist Businesses division.
Looking ahead
In the near term, growth is already benefitting from the
reopening of the economy. Next year we expect that
to continue, albeit at a slower pace. Risks around the
containment of the virus, the gradual unwinding of support
measures, and prospects for the global economy emphasise
the high uncertainty we will continue to experience.
Growth in financial services will also be challenged,
particularly in a persistent low interest rate environment.
Impairment charges are also likely to remain elevated as
consumer and business defaults rise following stimulus
measures unwind.
With our three priorities of fix, simplify and perform we are
becoming a simpler and stronger bank focused on our core
consumer, business and institutional segments. Through
our program of change we are implementing our new
Lines of Business operating model, strengthening our risk
management capability, finalising customer remediation,
enhancing our risk culture and simplifying where we operate.
Finally, I want to thank our people. I know how deeply
many have been affected by our issues this year. Despite
the challenges our people have worked incredibly hard
and always maintained their passion to help each other
and customers.
Importantly, we move ahead with a strong balance sheet
and the financial resources and commitment to continue
supporting customers and shareholders through this
difficult time.
Yours sincerely,
Peter King
CEO
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 9
3943 Westpac AR20 Cov-p33_V40.indd 9
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
10
WESTPAC GROUP 2020 ANNUAL REPORT
PERFORMANCE REVIEW
FY20 performance
overview
Westpac Group delivered a net profit attributable
to owners of Westpac Banking Corporation for
Full Year 2020 of $2,290 million, a decrease of
$4,494 million, down 66%.
Much of the decline can be traced back to the impact
of COVID-19 on customers and on our business. This
included a material increase in impairment charges
as we put aside provisions for the estimated impact
of potential future credit losses. Earnings were also
impacted by our own issues, including the costs
associated with the AUSTRAC matters.
In assessing performance, we use ‘cash earnings’
– a measure of profit determined by adjusting
reported earnings by three factors:
1. Material items that do not reflect ongoing
performance;
2. Some items that may not be considered when
WESTPAC MEASURES OF PROFIT ($m)
Reported Net Profit Cash earnings
8,095
8,065
6,784
6,849
2,290
2,608
FY18
FY19
FY20
To further explain performance, we have identified a
number of major items that do not reflect underlying
performance. These are ‘notable items’ and in
FY20 were $2,619 million and included:
— Provisions and costs associated with the AUSTRAC
proceedings $1,442 million after tax;
determining dividends, including the amortisation
of intangible items, treasury shares or economic
hedging impacts; and
— Provisions for customer refunds, repayments,
associated costs and litigation items $440 million
after tax;
3. Accounting classifications between individual items
that do not impact reported results.
— The write-down of intangible items $614 million; and
— The net impact of major asset sales and revaluations
$123 million.
The charts on the next page are presented on a cash
earnings basis.
REPORTED NET PROFIT ATTRIBUTABLE TO OWNERS OF WESTPAC ($m)
Net interest income
Non interest income
Net operating income
Operating expenses
Net profit before impairment charges and income tax
Impairment charges
Profit before income tax
Income tax expense
Net profit for the period
Profit attributable to non-controlling interests (NCI)
Net profit attributable to owners of WBC
Total cash earnings adjustments (post tax)
Cash earnings
Add back notable items
Cash earnings excluding notable items
FULL YEAR
SEPT 2020
FULL YEAR
SEPT 2019
% MOV’T
SEPT 20
– SEPT 19
16,696
3,487
20,183
16,907
3,742
20,649
(12,739)
(10,106)
7,444
(3,178)
4,266
(1,974)
2,292
(2)
2,290
318
2,608
2,619
5,227
10,543
(794)
9,749
(2,959)
6,790
(6)
6,784
65
6,849
1,047
7,896
(1)
(7)
(2)
26
(29)
large
(56)
(33)
(66)
(67)
(66)
large
(62)
150
(34)
3943 Westpac AR20 Cov-p33_V40.indd 10
3943 Westpac AR20 Cov-p33_V40.indd 10
31/10/20 4:44 pm
31/10/20 4:44 pm
ASSET QUALITY (%)
Stressed exposures to total committed exposures
1.9
1.1
1.2
Sept 18
Sept 19
Sept 20
WESTPAC GROUP 2020 ANNUAL REPORT
11
CASH EARNINGS FY19-FY20 ($m)
Average assets higher
(mostly liquid assets) net
interest margins down
Higher risk and compliance spending and
costs of responding to COVID-19 impacts
including more customer support resources
1,047
7,896
(68)
(636)
6,849
(591)
(2,384)
Lower activity, fee
waivers (supporting
customers) along with
a lower insurance and
wealth contribution
1,010
5,227
(2,619)
Provisions for higher
expected credit losses
related to COVID-19
Down 34%
Down 62%
2,608
FY19
Add back
notable
items
FY19
ex-notable
items
Net
interest
income
Non-
interest
income
Expenses
Impairment
charges
Tax
& NCI1
FY20
ex-notable
items
Notable
items
FY20
GROSS LENDING ($bn)
Australian
housing
Australian
businesses
Australian
personal
New
Zealand
Other
overseas
NET INTEREST MARGINS (%)
Cash earnings basis
16
74
23
154
445
17
78
21
152
449
11
82
17
148
441
2.22
2.12
Low interest
rates, strong
competition
2.08
Sept 18
Sept 19
Sept 20
Sept 18
Sept 19
Sept 20
ASSET QUALITY (%)
Stressed exposures to total committed exposures
1.9
STRONG BALANCE SHEET (%)
Common equity tier 1 capital ratio
Reported Internationally comparable
16.14
15.85
Top quartile of
banks globally
16.50
1.1
1.2
10.63
10.67
11.13
Sept 18
Sept 19
Sept 20
Sept 18
Sept 19
Sept 20
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 11
3943 Westpac AR20 Cov-p33_V40.indd 11
31/10/20 4:44 pm
31/10/20 4:44 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
12
EXTERNAL ENVIRONMENT
External environment
2020 has been the most challenging year for the
banking system since the early 1990s recession.
This has been largely due to the direct and indirect
impacts of the COVID-19 pandemic which, at 30
September 2020, contributed to around one million
deaths from over 32 million confirmed cases worldwide1.
While Australia and New Zealand acted decisively to
control the health risks of the pandemic, the lockdowns
have had a profound impact on our economies.
Both nations are in recession, Australia for the first time
in almost 30 years. Further spikes in infection rates may
increase restrictions already in place and considerable
uncertainty remains around when State and international
border restrictions will be lifted.
Government bodies and financial institutions have
worked together to help mitigate COVID’s impact and
maintain financial stability. Governments and central
banks have provided unprecedented levels of fiscal
and monetary stimulus, while banks have supported
customers with substantial hardship packages.
Not surprisingly, the environment for most businesses
is challenging; including financial services companies.
Unemployment has increased significantly, and
underemployment is also high, consumer sentiment
has only recently recovered from the record lows
during the height of the pandemic while business
investment is still contracting.
Financial services companies have experienced lower
returns, driven by very low interest rates, less activity,
and higher impairment provisions in anticipation of a
rise in customer defaults.
At the same time, the sector continues to face intense
regulatory and legal scrutiny. Regulators are investigating
several sector and company specific matters, including
those that emerged in the Royal Commission into
Misconduct in the Banking, Superannuation and Financial
Services Industry. These have led to some class actions.
In particular, ASIC has indicated it is pursuing a number
of potential cases which may lead to additional actions.
In response, financial service companies are focusing on
raising governance, culture and accountability standards.
Competition
The Group operates in a highly competitive environment.
We serve the banking and risk management needs of
consumers, small businesses, corporate and institutional
customers and compete with a large number of providers
across every product and service. Competitors in
Australia and New Zealand include banks (both domestic
and global), investment banks, credit unions, building
societies, finance companies, mortgage originators,
card issuers, buy now pay later firms and other money
lenders, fund administration companies, industry funds,
insurance companies, online financial services providers,
and technology companies.
Our competitive position is determined by many
factors including:
— the quality, range, innovation and pricing of
products and services;
— digital and technology solutions;
— customer service and convenience;
— the effectiveness of, and access to, distribution
channels;
— brand reputation and preference;
— the type of customers served; and
— the talent and experience of our employees.
Digital innovation is also redefining the competitive
landscape. This has accelerated through the COVID-19
pandemic, as customers move away from physical
outlets to online services.
In Australia and New Zealand competition for deposits
and lending remains fierce. Apart from the number of
providers and the range of product and service options,
slowing demand and a rise in liquidity from monetary
stimulus has heightened competitive intensity. While
the pandemic has reduced the local focus of some
international institutions, digital finance providers
have added to competitive intensity across a range
of products and services.
Outlook
The outlook for 2021 is uncertain. COVID-19’s path
remains unpredictable and the risk of outbreaks is ever
present. While government assistance has provided
a buffer to the economic impacts, this initial support
is scheduled to unwind and is likely to be replaced by
other more targeted support. The Federal Budget, which
featured personal tax cuts and investment incentives, has
been an important addition but further fiscal stimulus
may be required.
Against this backdrop, we expect GDP in Australia to
increase by around 4% in the year to September 2021,
a rebound from the significant decline of around 5%
expected in the year to September quarter of 2020. The
outlook remains challenging. In the near term, growth is
already benefitting from the reopening of the economy.
Next year we expect that to continue, albeit at a slower
pace. Risks around the ongoing containment of the
virus, the gradual unwinding of the extensive support
measures, and prospects for the global economy
emphasise the unusually high uncertainty we will
continue to experience.
While some government programs will be wound back,
both fiscal and monetary policy are likely to remain
highly stimulatory until unemployment falls below
6% – a key focus of the Australian Government.
Unemployment is expected to increase in the latter
months of 2020 to around 8%. While this is better than
initial expectations, it is expected to remain between
7% to 8% in 2021. If the economy continues to reopen,
1 WHO Coronavirus Disease (COVID-19) Dashboard (996,000 deaths at 28 September 2020).
3943 Westpac AR20 Cov-p33_V40.indd 12
3943 Westpac AR20 Cov-p33_V40.indd 12
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT 13
jobs growth will lift but the pace of recovery will likely
be slow due to the restructuring of businesses, sluggish
demand, and the need to rebalance government support.
New Zealand’s response to COVID-19 has proven
effective, with activity bouncing back from the initial
lockdowns and unemployment remaining closer to
4%. Nevertheless, GDP growth in 2021 is expected to
remain below levels recorded in 2019 due to a lack of
international tourism and offshore students along with
limited immigration; all these factors have been good
contributors to GDP in recent years.
Australian house prices have already fallen by around
3% from the peak in April 2020. Low interest rates and
a supportive financial system able to maintain activity
will likely support the housing market. While the impact
of the rundown of banks’ deferred loans is uncertain, it
is likely customers will be provided with significant time
to get back on their feet. Once stressed loans reduce, a
recovery in house prices is anticipated in 2022 and 2023.
Banking and financial services conditions will remain
challenging with slower growth, margin pressure from
low interest rates and the deterioration in asset quality
as companies and individuals continue to experience
reduced income.
Credit growth for the Australian financial system was 2%
for the year to September 2020, down from 2.7% a year
earlier. Total credit growth is expected to slow to around
0.5% to September 2021. Housing credit growth is likely
to be little changed at 3.2%, while business credit growth
is expected to decline with subdued investment. Personal
credit, which has been in decline for some years, is
expected to fall further in 2021 as consumers remain
cautious on debt and use alternative sources of financial
credit.
Near zero interest rates will continue to weigh on banks
and place pressure on net interest margins. The Reserve
Bank of Australia (RBA) has indicated that the cash rate
will not be increased until progress is made towards
full employment and inflation is sustained within the
2% to 3% target band. Very low interest rates are
therefore likely to remain for some time and with them,
margin pressure.
The RBA has offered banks a Term Funding Facility
(TFF) to support lending, particularly to businesses.
The TFF is capped for each bank and allows them to
borrow from the RBA for three years at 0.25%. The
facility is expected to be in place until at least June 2021
and will support the Group’s term wholesale funding
needs for much of the coming year. At 30 September
2020, we have drawn down $18 billion of the TFF.
The Reserve Bank of New Zealand (RBNZ) has been
similarly downbeat, committing to maintain its overnight
cash rate at 0.25% until at least March 2021. The RBNZ
has also flagged that it could take the rate below zero if
further stimulus were required.
Fee income may reduce as fee waivers linked to the
pandemic continue and overall growth remains low.
Wealth and insurance income is also likely to fall, due
to changes in life insurance markets (less cover and
higher reinsurance costs), and strong competition in
wealth platforms.
In the period ahead, the economic impacts of COVID-19
are expected to lead to higher defaults by consumers
and increased business bankruptcies. To date, these
impacts have been cushioned by the supportive
industry measures to defer repayments and from
government stimulus. The banking sector’s approach to
the completion of deferrals and the potential for further
government action may limit any shock to the economy
as other support measures unwind.
In 2020, impairment provisions materially increased
to account for higher expected losses and are likely to
remain elevated into 2021.
Westpac has devoted significant time and effort to
improving the management of risk over the year,
including in non-financial risk and financial crime. This
will continue in the year ahead which will likely see costs
remain high. While Westpac has resolved some legal
cases through the year it is possible that regulators may
take further legal action on matters currently under
investigation or on new matters. This is discussed further
in the risk management and risk factors section.
Consistent with our focus on Australian and New Zealand
banking, we set up our Specialist Businesses division this
year to manage activities not expected to be long-term
strategic options for us. We are looking at alternatives
for these businesses, including sale. The timing of any
sale and settlement will depend on a range of factors but
some transactions may occur in the year ahead.
We remain well capitalised with a CET1 capital ratio of
11.13%. This ratio may ease from a rise in risk weighted
assets as customer stress increases. This will however be
partially offset by efforts to improve capital efficiency
and may include the sale of businesses. Regardless, we
expect to manage our capital position to keep our CET1
capital ratio comfortably above regulatory minimums.
We remain committed to supporting customers and
the economy through these challenging times. Our
immediate priority is to fix our outstanding issues,
including improving risk management, enhancing our
culture, and completing remediation. We have committed
to simplify, focusing on our markets of Australia and
New Zealand, exiting non-core businesses, and reducing
our product set. We also expect to complete the
implementation of our Lines of Business operating model
to clarify responsibilities and accountability. Finally, we
are focused on performance, restoring growth in our
key products including mortgages and business loans,
enhancing returns and resetting our cost base.
Importantly, our strong balance sheet, committed team
and solid customer franchise position us to see these
plans through.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 13
3943 Westpac AR20 Cov-p33_V40.indd 13
31/10/20 4:44 pm
31/10/20 4:44 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
14
WESTPAC GROUP 2020 ANNUAL REPORT
OUR STRATEGY
OUR
PRIORITIES
WHAT THIS
MEANS
WHAT IT
INVOLVES
Our strategy supports
our purpose, harnesses
our strengths and refocuses
where change is required.
We have sharpened the
markets and products in
which we operate,
returning to banking,
and our home markets of
Australia and New Zealand
leveraging our portfolio
of brands.
Our focus is on consumers,
businesses and institutional
– segments we know well.
Our three priorities
recognise our need to
address our shortcomings,
reshape the business to
concentrate on our core
businesses and markets
while lifting service and
creating a stronger
performance ethic. This
will help us to become a
simpler, stronger bank.
Our
purpose
Helping
Australians and
New Zealanders
succeed.
Our
focus
Banking for Australian
and New Zealand
consumers, businesses
and institutional
customers.
Fix
Simplify
Perform
3943 Westpac AR20 Cov-p33_V40.indd 14
3943 Westpac AR20 Cov-p33_V40.indd 14
31/10/20 4:44 pm
31/10/20 4:44 pm
Addressing our
shortcomings by materially
improving our management
of risk and risk culture,
reducing customer pain
— Risk management
— Culture, including
risk culture
— Customer remediation
points, completing historical
— IT complexity
customer remediation
program, and reducing
the complexity of our
technology.
— Reduce customer
pain points
Returning to our core
businesses of banking in
— Exit non-core businesses
and consolidate
Australia and New Zealand,
international locations
Trusted to do the
right thing
— Rationalise products
LEADING CHANGE
including exiting some
businesses and international
locations. Rationalising
products and simplifying
processes to make it easier
for customers.
— Implement Line of
Business operating model
— Transform using digital
and data
Improving performance by
— Customer service –
building customer loyalty
and growth through service,
sharpening our focus on
returns, and resetting our
cost base. A strong balance
sheet and engaged
workforce form the
foundations of performance.
market leading
— Mortgage growth
— Enhance returns,
optimise capital
— Strong balance sheet
— Re-set cost base
OUR VALUES –
WHAT YOU CAN
EXPECT
HELPFUL
Passionate about
providing a great
customer experience
ETHICAL
Determined to make it
better and be better
PERFORMING
Accountable
to get it done
SIMPLE
Inspired to keep it
simple and easy
DELIVERING FOR OUR STAKEHOLDERS1
CUSTOMERS
EMPLOYEES
SHAREHOLDERS
THE ECONOMY
Generating appropriate returns
Supporting the financial system
Delivering financial services
to consumers, businesses and
institutions in Australia and
New Zealand.
— Trusted with over $555bn
in customer deposits
— Supported over $693bn
in lending
Creating an environment
where the best people
want to work.
— Paid over $5.0bn
to 40,225 employees
— 50% women
in leadership roles2
— Recognised by the
Bloomberg Gender
Equality Index for the
4th consecutive year
over the long-term, including for
families who directly own almost
half of our total shares on issue.
— Our strong balance sheet
positions us to manage the
downturn and deliver
— Earnings per share 63.7 cents,
or 72.5 cents (cash earning
basis); dividends 31 cents
per share
long-term shareholder value
— Supported customers through COVID-19:
Banks play an important role in supporting
the economy through lending, deposits,
and the efficient flow of funds.
Supporting Australia and New Zealand
around 175,000 mortgage deferrals and
around 40,000 businesses with deferrals
— One of the first banks to enable access to
data as part of the 'Open Banking' initiative
— A major contributor of New Payments
Platform transactions
One of Australia's largest tax payers
— Westpac paid over $4bn6 globally in various
taxes during 2020, 99.7% of which were paid
in Australia and New Zealand (including the
Major Bank Levy).
— Our effective tax rate for 2020 was 46%
or 56% including the Major Bank Levy.
COMMUNITIES
SUPPLIERS
Support local communities.
— Over $150m in community
investment3
— 1m+ participants in
financial education
— Westpac Foundation4 grants to
social enterprises helped create
719 jobs5 for vulnerable Australians
Choosing suppliers responsibly
and paying them on time.
— Procured goods and services
worth $6.5bn with $5.9m
in spend towards Indigenous-
owned businesses
— Delivering on our 2023 Human
Rights Action Plan and working
to eliminate risk of modern
slavery across our business
operations and supply chain
THE
ENVIRONMENT
Supporting the transition
to a climate resilient future.
— $10.1bn lending to climate
1 All figures for FY20.
change solutions
— Climate Change Position
2 Proportion of women (permanent and maximum term) in leadership roles
across the Group, including the CEO, Group Executives, General Managers,
senior leaders with significant influence on business outcomes (direct reports
to General Managers and their direct reports), large (3+) team people leaders
three levels below General Manager, and Bank and Assistant Bank Managers.
Statement and 2023 Action Plan
3 Excludes commercial sponsorships.
4 Westpac Foundation is administered by Westpac Community Limited (ABN 34
086 862 795) as trustee for Westpac Community Trust (ABN 53 265 036 982).
The Westpac Community Trust is a Public Ancillary Fund, endorsed by the ATO as
a Deductible Gift Recipient. None of Westpac Foundation, Westpac Community
Trust Limited nor the Westpac Community Trust are part of Westpac Group.
Westpac provides administrative support, skilled volunteering, donations and
funding for operational costs of Westpac Foundation.
5 Jobs created through the Westpac Foundation job creation grants to social
enterprises are for the year ended 30 June 2020.
6 The majority (76%) of the tax paid comprises corporate income tax. Other taxes
paid include the Major Bank Levy, non-recoverable GST, payroll tax and fringe
benefits tax.
OUR STRATEGY
OUR
PRIORITIES
WHAT THIS
MEANS
WHAT IT
INVOLVES
Addressing our
shortcomings by materially
improving our management
of risk and risk culture,
reducing customer pain
points, completing historical
customer remediation
program, and reducing
the complexity of our
technology.
— Risk management
— Culture, including
risk culture
— Customer remediation
— IT complexity
— Reduce customer
pain points
WESTPAC GROUP 2020 ANNUAL REPORT
15
OUR VALUES –
WHAT YOU CAN
EXPECT
HELPFUL
Passionate about
providing a great
customer experience
ETHICAL
Returning to our core
businesses of banking in
Australia and New Zealand,
including exiting some
businesses and international
locations. Rationalising
products and simplifying
processes to make it easier
for customers.
— Exit non-core businesses
and consolidate
international locations
Trusted to do the
right thing
— Rationalise products
LEADING CHANGE
— Implement Line of
Business operating model
— Transform using digital
and data
Improving performance by
building customer loyalty
and growth through service,
sharpening our focus on
returns, and resetting our
cost base. A strong balance
sheet and engaged
workforce form the
foundations of performance.
— Customer service –
market leading
— Mortgage growth
— Enhance returns,
optimise capital
— Strong balance sheet
— Re-set cost base
Determined to make it
better and be better
PERFORMING
Accountable
to get it done
SIMPLE
Inspired to keep it
simple and easy
Our strategy supports
our purpose, harnesses
our strengths and refocuses
where change is required.
We have sharpened the
markets and products in
which we operate,
returning to banking,
and our home markets of
Australia and New Zealand
leveraging our portfolio
of brands.
Our focus is on consumers,
businesses and institutional
– segments we know well.
Our three priorities
recognise our need to
address our shortcomings,
reshape the business to
concentrate on our core
businesses and markets
while lifting service and
creating a stronger
performance ethic. This
will help us to become a
simpler, stronger bank.
Our
purpose
Helping
Australians and
New Zealanders
succeed.
Our
focus
Banking for Australian
and New Zealand
consumers, businesses
and institutional
customers.
Fix
Simplify
Perform
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 15
3943 Westpac AR20 Cov-p33_V40.indd 15
31/10/20 4:44 pm
31/10/20 4:44 pm
DELIVERING FOR OUR STAKEHOLDERS1
CUSTOMERS
EMPLOYEES
SHAREHOLDERS
THE ECONOMY
Generating appropriate returns
Supporting the financial system
Delivering financial services
to consumers, businesses and
institutions in Australia and
New Zealand.
— Trusted with over $555bn
in customer deposits
— Supported over $693bn
in lending
Creating an environment
where the best people
want to work.
— Paid over $5.0bn
to 40,225 employees
— 50% women
in leadership roles2
— Recognised by the
Bloomberg Gender
Equality Index for the
4th consecutive year
over the long-term, including for
families who directly own almost
half of our total shares on issue.
— Our strong balance sheet
positions us to manage the
downturn and deliver
— Earnings per share 63.7 cents,
or 72.5 cents (cash earning
basis); dividends 31 cents
per share
long-term shareholder value
— Supported customers through COVID-19:
Banks play an important role in supporting
the economy through lending, deposits,
and the efficient flow of funds.
Supporting Australia and New Zealand
around 175,000 mortgage deferrals and
around 40,000 businesses with deferrals
— One of the first banks to enable access to
data as part of the 'Open Banking' initiative
— A major contributor of New Payments
Platform transactions
One of Australia's largest tax payers
— Westpac paid over $4bn6 globally in various
taxes during 2020, 99.7% of which were paid
in Australia and New Zealand (including the
Major Bank Levy).
— Our effective tax rate for 2020 was 46%
or 56% including the Major Bank Levy.
COMMUNITIES
SUPPLIERS
Support local communities.
— Over $150m in community
investment3
— 1m+ participants in
financial education
— Westpac Foundation4 grants to
social enterprises helped create
719 jobs5 for vulnerable Australians
Choosing suppliers responsibly
and paying them on time.
— Procured goods and services
worth $6.5bn with $5.9m
in spend towards Indigenous-
owned businesses
— Delivering on our 2023 Human
Rights Action Plan and working
to eliminate risk of modern
slavery across our business
operations and supply chain
THE
ENVIRONMENT
Supporting the transition
to a climate resilient future.
— $10.1bn lending to climate
1 All figures for FY20.
change solutions
— Climate Change Position
2 Proportion of women (permanent and maximum term) in leadership roles
across the Group, including the CEO, Group Executives, General Managers,
senior leaders with significant influence on business outcomes (direct reports
to General Managers and their direct reports), large (3+) team people leaders
three levels below General Manager, and Bank and Assistant Bank Managers.
Statement and 2023 Action Plan
3 Excludes commercial sponsorships.
4 Westpac Foundation is administered by Westpac Community Limited (ABN 34
086 862 795) as trustee for Westpac Community Trust (ABN 53 265 036 982).
The Westpac Community Trust is a Public Ancillary Fund, endorsed by the ATO as
a Deductible Gift Recipient. None of Westpac Foundation, Westpac Community
Trust Limited nor the Westpac Community Trust are part of Westpac Group.
Westpac provides administrative support, skilled volunteering, donations and
funding for operational costs of Westpac Foundation.
5 Jobs created through the Westpac Foundation job creation grants to social
enterprises are for the year ended 30 June 2020.
6 The majority (76%) of the tax paid comprises corporate income tax. Other taxes
paid include the Major Bank Levy, non-recoverable GST, payroll tax and fringe
benefits tax.
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
16
WESTPAC GROUP 2020 ANNUAL REPORT
3943 Westpac AR20 Cov-p33_V40.indd 16
3943 Westpac AR20 Cov-p33_V40.indd 16
31/10/20 4:45 pm
31/10/20 4:45 pm
— Risk management— Culture, including risk culture— Customer remediation— IT complexity— Reduce customer pain points— Exit non-core businesses and consolidate international locations— Rationalise products— Implement Line of Business operating model— Transform using digital and data— Customer service – market leading— Mortgage growth— Enhance returns, optimise capital— Strong balance sheet— Re-set cost base1 All figures for FY20.2 Proportion of women (permanent and maximum term) in leadership roles across the Group, including the CEO, Group Executives, General Managers, senior leaders with significant influence on business outcomes (direct reports to General Managers and their direct reports), large (3+) team people leaders three levels below General Manager, and Bank and Assistant Bank Managers.3 Excludes commercial sponsorships.4 Westpac Foundation is administered by Westpac Community Limited (ABN 34 086 862 795) as trustee for Westpac Community Trust (ABN 53 265 036 982). The Westpac Community Trust is a Public Ancillary Fund, endorsed by the ATO as a Deductible Gift Recipient. None of Westpac Foundation, Westpac Community Trust Limited nor the Westpac Community Trust are part of Westpac Group. Westpac provides administrative support, skilled volunteering, donations and funding for operational costs of Westpac Foundation.5 Jobs created through the Westpac Foundation job creation grants to social enterprises are for the year ended 30 June 2020.6 The majority (76%) of the tax paid comprises corporate income tax. Other taxes paid include the Major Bank Levy, non-recoverable GST, payroll tax and fringe benefits tax.Addressing our shortcomings by materially improving our management of risk and risk culture, reducing customer pain points, completing historical customer remediation program, and reducing the complexity of our technology.Returning to our core businesses of banking in Australia and New Zealand, including exiting some businesses and international locations. Rationalising products and simplifying processes to make it easierfor customers.Improving performance by building customer loyalty and growth through service, sharpening our focus on returns, and resetting our cost base. A strong balance sheet and engaged workforce form the foundations of performance.WHAT THIS MEANSOUR PRIORITIESWHAT IT INVOLVES CUSTOMERS EMPLOYEESSHAREHOLDERSTHE ECONOMYCOMMUNITIESTHE ENVIRONMENTSUPPLIERSOUR VALUES – WHAT YOU CAN EXPECTHELPFULETHICALLEADING CHANGEPERFORMINGSIMPLEPassionate about providing a great customer experienceTrusted to do the right thingDetermined to make it better and be betterAccountable to get it doneInspired to keep it simple and easyChoosing suppliers responsibly and paying them on time.— Procured goods and services worth $6.5bn with $5.9m in spend towards Indigenous-owned businesses— Delivering on our 2023 Human Rights Action Plan and working to eliminate risk of modern slavery across our business operations and supply chain Supporting the transition to a climate resilient future.— $10.1bn lending to climate change solutions— Climate Change Position Statement and 2023 Action PlanSupport local communities. — Over $150m in community investment3 — 1m+ participants in financial education— Westpac Foundation4 grants to social enterprises helped create 719 jobs5 for vulnerable AustraliansCreating an environment where the best people want to work. — Paid over $5.0bn to 40,225 employees— 50% women in leadership roles2— Recognised by the Bloomberg Gender Equality Index for the 4th consecutive year Generating appropriate returns over the long-term, including for families who directly own almost half of our total shares on issue.— Our strong balance sheet positions us to manage the downturn and deliver long-term shareholder value — Earnings per share 63.7 cents, or 72.5 cents (cash earning basis); dividends 31 cents per shareDelivering financial services to consumers, businesses and institutions in Australia and New Zealand.— Trusted with over $555bn in customer deposits— Supported over $693bn in lending Supporting the financial systemBanks play an important role in supporting the economy through lending, deposits, and the efficient flow of funds.Supporting Australia and New Zealand — Supported customers through COVID-19: around 175,000 mortgage deferrals and around 40,000 businesses with deferrals— One of the first banks to enable access to data as part of the 'Open Banking' initiative— A major contributor of New Payments Platform transactionsOne of Australia's largest tax payers— Westpac paid over $4bn6 globally in various taxes during 2020, 99.7% of which were paid in Australia and New Zealand (including the Major Bank Levy).— Our effective tax rate for 2020 was 46% or 56% including the Major Bank Levy.PerformSimplifyFixHelping Australians and New Zealanders succeed.OurpurposeBanking for Australian and New Zealand consumers, businesses and institutional customers.Our focus OUR STRATEGYDELIVERING FOR OUR STAKEHOLDERS1Our strategy supports our purpose, harnesses our strengths and refocuses where change is required. We have sharpened the markets and products in which we operate, returning to banking, and our home markets of Australia and New Zealand leveraging our portfolio of brands.Our focus is on consumers, businesses and institutional – segments we know well. Our three priorities recognise our need to address our shortcomings, reshape the business to concentrate on our core businesses and markets while lifting service and creating a stronger performance ethic. This will help us to become a simpler, stronger bank. WESTPAC GROUP 2020 ANNUAL REPORT
17
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 17
3943 Westpac AR20 Cov-p33_V40.indd 17
31/10/20 4:45 pm
31/10/20 4:45 pm
— Risk management— Culture, including risk culture— Customer remediation— IT complexity— Reduce customer pain points— Exit non-core businesses and consolidate international locations— Rationalise products— Implement Line of Business operating model— Transform using digital and data— Customer service – market leading— Mortgage growth— Enhance returns, optimise capital— Strong balance sheet— Re-set cost base1 All figures for FY20.2 Proportion of women (permanent and maximum term) in leadership roles across the Group, including the CEO, Group Executives, General Managers, senior leaders with significant influence on business outcomes (direct reports to General Managers and their direct reports), large (3+) team people leaders three levels below General Manager, and Bank and Assistant Bank Managers.3 Excludes commercial sponsorships.4 Westpac Foundation is administered by Westpac Community Limited (ABN 34 086 862 795) as trustee for Westpac Community Trust (ABN 53 265 036 982). The Westpac Community Trust is a Public Ancillary Fund, endorsed by the ATO as a Deductible Gift Recipient. None of Westpac Foundation, Westpac Community Trust Limited nor the Westpac Community Trust are part of Westpac Group. Westpac provides administrative support, skilled volunteering, donations and funding for operational costs of Westpac Foundation.5 Jobs created through the Westpac Foundation job creation grants to social enterprises are for the year ended 30 June 2020.6 The majority (76%) of the tax paid comprises corporate income tax. Other taxes paid include the Major Bank Levy, non-recoverable GST, payroll tax and fringe benefits tax.Addressing our shortcomings by materially improving our management of risk and risk culture, reducing customer pain points, completing historical customer remediation program, and reducing the complexity of our technology.Returning to our core businesses of banking in Australia and New Zealand, including exiting some businesses and international locations. Rationalising products and simplifying processes to make it easierfor customers.Improving performance by building customer loyalty and growth through service, sharpening our focus on returns, and resetting our cost base. A strong balance sheet and engaged workforce form the foundations of performance.WHAT THIS MEANSOUR PRIORITIESWHAT IT INVOLVES CUSTOMERS EMPLOYEESSHAREHOLDERSTHE ECONOMYCOMMUNITIESTHE ENVIRONMENTSUPPLIERSOUR VALUES – WHAT YOU CAN EXPECTHELPFULETHICALLEADING CHANGEPERFORMINGSIMPLEPassionate about providing a great customer experienceTrusted to do the right thingDetermined to make it better and be betterAccountable to get it doneInspired to keep it simple and easyChoosing suppliers responsibly and paying them on time.— Procured goods and services worth $6.5bn with $5.9m in spend towards Indigenous-owned businesses— Delivering on our 2023 Human Rights Action Plan and working to eliminate risk of modern slavery across our business operations and supply chain Supporting the transition to a climate resilient future.— $10.1bn lending to climate change solutions— Climate Change Position Statement and 2023 Action PlanSupport local communities. — Over $150m in community investment3 — 1m+ participants in financial education— Westpac Foundation4 grants to social enterprises helped create 719 jobs5 for vulnerable AustraliansCreating an environment where the best people want to work. — Paid over $5.0bn to 40,225 employees— 50% women in leadership roles2— Recognised by the Bloomberg Gender Equality Index for the 4th consecutive year Generating appropriate returns over the long-term, including for families who directly own almost half of our total shares on issue.— Our strong balance sheet positions us to manage the downturn and deliver long-term shareholder value — Earnings per share 63.7 cents, or 72.5 cents (cash earning basis); dividends 31 cents per shareDelivering financial services to consumers, businesses and institutions in Australia and New Zealand.— Trusted with over $555bn in customer deposits— Supported over $693bn in lending Supporting the financial systemBanks play an important role in supporting the economy through lending, deposits, and the efficient flow of funds.Supporting Australia and New Zealand — Supported customers through COVID-19: around 175,000 mortgage deferrals and around 40,000 businesses with deferrals— One of the first banks to enable access to data as part of the 'Open Banking' initiative— A major contributor of New Payments Platform transactionsOne of Australia's largest tax payers— Westpac paid over $4bn6 globally in various taxes during 2020, 99.7% of which were paid in Australia and New Zealand (including the Major Bank Levy).— Our effective tax rate for 2020 was 46% or 56% including the Major Bank Levy.PerformSimplifyFixHelping Australians and New Zealanders succeed.OurpurposeBanking for Australian and New Zealand consumers, businesses and institutional customers.Our focus OUR STRATEGYDELIVERING FOR OUR STAKEHOLDERS1Our strategy supports our purpose, harnesses our strengths and refocuses where change is required. We have sharpened the markets and products in which we operate, returning to banking, and our home markets of Australia and New Zealand leveraging our portfolio of brands.Our focus is on consumers, businesses and institutional – segments we know well. Our three priorities recognise our need to address our shortcomings, reshape the business to concentrate on our core businesses and markets while lifting service and creating a stronger performance ethic. This will help us to become a simpler, stronger bank.1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
18
WESTPAC GROUP 2020 ANNUAL REPORT
OUR PRIORITIES
Fix
Addressing our shortcomings
by materially improving our
management of risk and risk
culture, reducing customer pain
points, completing our historical
customer remediation program
and reducing the complexity of
our technology systems.
James Grant,
Westpac Group
Financial Controller
3943 Westpac AR20 Cov-p33_V40.indd 18
3943 Westpac AR20 Cov-p33_V40.indd 18
31/10/20 4:45 pm
31/10/20 4:45 pm
19
A new function for
Financial Crime,
Compliance &
Conduct was created
Enhanced risk
management
framework
In the past, Westpac’s management of
risk has been considered a strength,
particularly in our management of capital,
funding, liquidity, and credit risk.
While we retain a strong balance sheet,
several inquiries, including the Royal
Commission into Misconduct in the
Banking, Superannuation and Financial
Services Industry, the AUSTRAC
proceedings and our own assessments have
highlighted weaknesses in our management
of risk; particularly non-financial risk.
Our weaknesses were initially highlighted in
our Culture Governance and Accountability
self-assessment (CGA self-assessment)
completed in 2018. Our CGA self-
assessment included 45 recommendations
and a program to respond commenced
soon after. However, following the
AUSTRAC proceedings, APRA asked
Westpac to reassess these plans to ensure
that they remained ‘fit for purpose’.
We released our reassessment (CGA
reassessment) on 17 July 2020, reinforcing
the initial findings but also identifying that
our risk culture was reactive and immature
and that the three lines of defence
model (model defining risk management
responsibilities) was not well understood.
It was also clear that we had become too
complex and where issues were uncovered
we were slow to act.
The Group has been exposed to compliance
failures, regulatory breaches, customer
remediation and legal actions. See pages
22 to 23 for a detailed account of the
AUSTRAC matters.
We have accepted our shortcomings and
are seeking to materially lift our standards
and fix the issues identified.
The first step has been to refine our
operating structure. A new function for
Financial Crime, Conduct and Compliance
has been created to increase the focus
and resources devoted to this important
area. The Group Executive for this division
reports directly to the CEO. We have also
enhanced our risk management framework
(for identifying, assessing and managing
risk), and increased our risk management
resources.
We have accepted our
shortcomings and have
commenced a number
of programs that seek
to materially lift our
standards and fix the
issues identified.”
Following the CGA reassessment we
established the Customer Outcomes and
Risk Excellence (CORE) program. The
program is designed to improve non-
financial risk oversight (including from our
initial CGA self-assessment), lift risk culture,
and strengthen our risk management
framework. The program has 14 streams
of work under three categories:
1. Direction and tone set by Board and
Group Executive – initiatives that set
clear tone and direction from leadership
to promote a proactive risk culture.
2. Clear risk boundaries for decision-
making – simplifying risk management
frameworks and increasing capability
and resources in the Risk function.
3. Accountable and empowered people –
providing additional training and support
for employees to help them understand
they all have a role in managing risk
and driving clearer accountability and
decision-making.
Progress over the year includes
400+
new Risk, Compliance and
Financial Crime employees
CORE program
underway
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 19
3943 Westpac AR20 Cov-p33_V40.indd 19
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
20
A strong risk culture includes
being clear on accountability
and creating an environment
where it is safe to speak up.”
Updated Code of
Conduct rolled out
Strengthening risk culture
Remediating customers
We have continued to review our products,
processes and policies where we have not
got it right for customers. Where problems
have been identified, we have committed
to fix them and refund customers. This task
is significant as it often involves individual
customers over many years. The Group
incurred an after-tax cost of $440 million
for provisions for estimated customer
refunds and payments, and litigation and
associated costs in FY2020. Major items
included:
— Certain business customers who were
provided with business loans where
they should have been provided loans
covered by the National Consumer
Credit Protection Act and the National
Credit Code;
— Compensation to platform customers
who were not advised of certain
corporate actions, and may have
been able to benefit; and
— Where certain wealth fees were
inadequately disclosed.
2m+
customers received over
$280 million in refunds in FY20
The strength of risk management in a
company is underpinned by its risk culture.
A strong risk culture is an environment
where everyone can identify the risks they
are responsible for, are alert to changing
or new risks and pro-actively address risks
when they emerge. It also includes being
clear on accountability and feeling safe
to speak up.
Strengthening risk culture is a focus for
the Group and a key element of our CORE
program. Our new Lines of Business
operating model is establishing end-to-
end responsibility for customer outcomes
and improving our risk culture by clarifying
accountabilities. In addition, our 3LOD
model is supporting these structural
changes by lifting risk capability and
bench-strength across the Group.
Other changes to improve risk culture
include:
— New risk culture framework to better
define risk roles and responsibilities;
— Launch of an online tool to assess
a division’s current risk culture and
compare to our target, helping us identify
and prioritise areas for improvement;
— New Risk Fundamentals training program
being rolled out to all employees – to
ensure everyone understands the risk
culture we are seeking to develop;
— Risk culture dashboard to consistently
measure our progress; and
— Updating our Code of Conduct
reinforcing the importance of
speaking up.
3943 Westpac AR20 Cov-p33_V40.indd 20
3943 Westpac AR20 Cov-p33_V40.indd 20
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT
21
93%
reduction of long
dated complaints
74%
Australian Banking1
complaints resolved
in 5 days compared
to 68% in FY19
Reducing customer pain points
In 2018, we centralised the management
of complaints to improve how they are
identified, logged and resolved. This
included a shift in culture to see complaints
as an opportunity to learn and do better.
This heightened focus has contributed to
an increase in the number of complaints we
capture, while making significant progress
on improving how they are managed. In
FY20, we received 169,674 complaints, a
145% increase on FY19. In addition, we have:
— Reduced average time to resolution
for complaints to 6.5 days, from 9 days
in FY19;
— Reduced the number of long
dated complaints (45+ days old)
from 288 to 21 at 30 September 2020;
and
— Solved 63% of complaints on the same
day in September 2020 compared to
56% in September 2019.
Importantly, insights from better complaint
management have led to a number of
process improvements – reducing pain
points for customers.
Redoubling our efforts to remove
IT complexity
We started a program to reduce complexity
some years ago, which prioritised the
upgrade of our technology infrastructure
while commencing the development of our
customer service hub (which will become
the consumer bank’s central product
on-boarding platform). At the same time,
we have sought to ensure our customer
interface has kept pace with customer
demands. This program has successfully
strengthened the stability, speed and
security of our systems and helped ensure
the bank remained open for business
through the COVID-19 pandemic and
support customers via digital channels.
Having upgraded much of our technology
infrastructure, in 2020 we developed a
detailed technology roadmap for the next
phase of our transformation to build a
single, multi-brand operating environment.
That roadmap extends for over multiple
years, recognising that technology will
change and we must be flexible. Significant
work is still required but our development
plan is clear.
CASE
STUDY
1 Australian Banking includes Consumer and Business division products.
TRANSFORMING OUR COMPLAINTS PROCESS
This year we launched ‘Resolve’, a new centralised customer complaints
management platform that brings together nine systems into one and makes
it easier for our people to log and resolve complaints.
In 2018, we changed the way we think about complaints to improve the way
we identify, manage and resolve them. However, our multiple legacy systems
were holding us back. Resolve has changed that by creating a single platform
and an intuitive dashboard for bankers.
“This has been a huge opportunity to significantly improve the customer
experience”, says Lisa Pogonoski, Westpac’s General Manager of Customer
Solutions. “Having our people work on one system provides a common view
of complaints and a single source of data.”
From 2021, customers will have direct access to the system, enabling them to
log and track the progress of their complaint. Over time, we will apply artificial
intelligence to help bankers and customers navigate through the complaints
process to reach a guided resolution that will be much faster.
“Resolve supports the fundamental change to how we think about complaints,”
says Lisa. “Its simple and comprehensive functionality allows employees to
own complaints and supports them to get the best outcome for customers.”
This year we have halved the time it takes to fix long dated complaints and
with Resolve we are planning for another step down.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 21
3943 Westpac AR20 Cov-p33_V40.indd 21
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
22
AUSTRAC PROCEEDINGS EXPLAINED
AUSTRAC proceedings
overview
The AUSTRAC proceedings have
been discussed in various parts of our
Annual Report. With this overview we
aim to provide a snapshot of what
happened, the issues highlighted and
what we’re doing to fix them.
The issues highlighted by AUSTRAC in their
Statement of Claim in November 2019 deeply
disappointed shareholders, customers, and the
community, as well as Westpac’s employees.
The proceedings have become a catalyst for change
at Westpac. We have acknowledged our failings
and are deeply sorry for what occurred. We have
investigated the issues and are determined to fix
our shortcomings. A broader change program is
underway to address the root causes.
Following the AUSTRAC Statement of Claim and
recognising the seriousness of the issues:
— The former CEO stepped down and the Board
determined to forfeit all of his unvested equity;
— The former Chairman brought forward his
retirement; and
— A former Non-executive Director and Chairman of
the Board Risk & Compliance Committee did not
seek re-election.
On 24 September 2020, we reached an agreement
with AUSTRAC to resolve the proceedings, subject
to Court approval. The resolution involved the filing
of a Statement of Agreed Facts and Admissions
(SAFA) with the Court, which on 21 October 2020
approved the payment of a civil penalty of $1.3 billion
for the admitted contraventions of the Anti-Money
Laundering and Counter-Terrorism Financing Act
2006 (Cth) (AML/CTF Act).
What happened
On 20 November 2019, AUSTRAC commenced
civil proceedings in the Federal Court of Australia
against Westpac in relation to alleged contraventions
of the AML/CTF Act. The SAFA filed with the
Court is available on our website. In summary, it
acknowledged that we had not:
— Maintained an AML/CTF Program that
fully complied with the requirements of the
AML/CTF Rules;
— Reported over 19.5 million International
Funds Transfer Instructions (IFTIs) on time;
— Included all required information about the
payer in relation to over 76,000 IFTIs that
were reported on time;
— Passed on all relevant information in relation
to approximately 10,500 IFTIs;
— Kept appropriate records relating to over
3.5 million IFTIs;
— Appropriately assessed the risks posed by
our correspondent banks; and
— Appropriately monitored a number of customers’
transactions for child exploitation risk.
While we failed in our obligations, the SAFA
acknowledged that the contraventions were not
the result of any deliberate intention to breach the
AML/CTF Act.
We carried out a review of these matters to be clear
on what had occurred, understand the root cause,
and determine accountability. We also commissioned
a review by an external Advisory Panel into Board
Governance of AML/CTF obligations. The outcomes
of these reviews, including the Advisory Panel report,
were released in June 2020 and are also available on
our website.
The main findings of the reviews were that some
areas of AML/CTF risk were not sufficiently
understood; there were unclear end-to-end
accountabilities for managing AML/CTF compliance;
and there was a lack of sufficient AML/CTF expertise
and resourcing.
The Advisory Panel found that the way the Board
organised its general governance responsibilities
was mainstream and fit for purpose. They noted that,
with the benefit of hindsight, and noting the Board’s
escalating focus in the area, Directors could have
recognised earlier the systemic nature of some of the
financial crime issues Westpac was facing. They also
found that reporting to the Board on financial crime
matters was at times unintentionally incomplete
and inaccurate.
3943 Westpac AR20 Cov-p33_V40.indd 22
3943 Westpac AR20 Cov-p33_V40.indd 22
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 23
Monitoring and assessing transactions
One of the most serious allegations made by
AUSTRAC related to the way we monitored
transactions for potential child exploitation risks.
In summary, Westpac is required to monitor
transactions and submit suspicious matter reports
to AUSTRAC if it identifies that certain patterns of
transactions are indicative of child exploitation.
While we had monitoring in place, we should
have implemented more robust monitoring of
transactions for this risk earlier than we did.
Since the AUSTRAC proceedings, we have
further updated our monitoring, reassessed prior
transactions and submitted additional suspicious
matter reports to AUSTRAC.
Taking accountability
A range of remuneration consequences were
applied to 38 individuals, totalling over $20 million1.
This included cancelling 2020 short-term variable
reward (STVR) for the Group Executive team and,
in some instances, adjusting prior year awards that
had yet to vest. Consequences were not able to be
applied to some individuals as they had already left
the organisation and had no deferred remuneration
outstanding.
Fixing our mistakes
Within days of AUSTRAC’s allegations, we released
a Response Plan which detailed our areas of focus.
Immediate fixes: This included closing the two
products that were the main source of our failings
and reporting a small number of outstanding IFTIs
to AUSTRAC.
Lifting anti-money laundering and risk management
standards: We commenced a program to elevate
the importance of financial crime across the Group,
with more resources, increased seniority, and
greater oversight. We also updated our transaction
monitoring rules and enhanced oversight of the
processes.
Developments include:
— Establishing a Board Legal, Regulatory &
Compliance Committee;
— Elevating the Financial Crime, Compliance and
Conduct function, with the Group Executive
reporting directly to the CEO;
— Increasing risk resources, including adding over
200 additional employees to our financial crime
team; and
The AUSTRAC proceedings
have become a catalyst for
change at Westpac.”
Established a Board Legal,
Regulatory & Compliance
Committee
$24m
committed to two
significant partnerships
to reduce the human
impact of financial crime
— Strengthening the management of financial crime
risks including our policies, data feeding systems,
processes and controls.
In addition, our broader plans to improve risk
management across the organisation will complement
the improved capability we are building in financial
crime, including enhancing our risk culture.
Safer Children, Safer Communities
We have also established a Safer Children, Safer
Communities work program to help reduce the human
impact of financial crime with a particular focus on
child safeguarding, guided by experts in human rights,
child safety, online safety and law enforcement. This
year, we established multi-year funding partnerships
with International Justice Mission and Save the Children
(Australia), and launched a new Impact Grants program.
For more about this, see page 40.
1 Refer to explanation in Remuneration Report in the Directors’ Report.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 23
3943 Westpac AR20 Cov-p33_V40.indd 23
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
24
24
WESTPAC GROUP 2020 ANNUAL REPORT
OUR PRIORITIES
Simplify
Returning to our core businesses
of banking in Australia and New
Zealand, including exiting some
businesses and international
locations. Rationalising products
and simplifying processes to make
it easier for customers to bank
with us.
3943 Westpac AR20 Cov-p33_V40.indd 24
3943 Westpac AR20 Cov-p33_V40.indd 24
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 25
Specialist Businesses
revenue contribution
to Group1
8%
Becoming a simpler bank
Complexity has been the source of many
of our issues. We expanded into areas
where we did not have a competitive
advantage or scale to compete effectively
and we lost traction in some of our core
businesses.
At the same time, our operating model
became too diffused. That is, decision
making was unclear, and we tended to
manage via committee and businesses
were not run end-to-end. This inclusive
management approach, while collaborative,
tended to dilute accountability and slow
decision making.
Fundamental change is underway, and we
are now clear on the locations, markets
and businesses in which we will operate.
Changes include:
— Setting up the Specialist Businesses
division to hold the businesses which we
do not view ourselves as the long-term
owners of;
— Consolidating our international
operations to focus more on the areas
where we can best support customers.
As a result, we will exit operations in
Beijing, Shanghai, Hong Kong, Mumbai
and Jakarta; and
— Moving to a Lines of Business operating
model. Under this model, each line (a
major customer offering) has end-to-
end responsibility for that business.
For example, in our Mortgages Line
of Business a Managing Director is
responsible for the entire mortgage
process from origination, pricing, credit
assessment and service.
We are clear on the
locations, markets and
businesses in which we
will operate.”
NEW OPERATING MODEL – LINES OF BUSINESS
CONSUMER
Customer
engagement
BUSINESS
Customer
engagement
WIB
Mortgages
Everyday Banking
Consumer Finance
Business Lending
Cash Management
Private Wealth
Customer
engagement
Corporate and Institutional
Banking
Financial Markets
Global Transactional Services
SPECIALIST BUSINESSES
Customer
engagement
Insurance
Superannuation, Platforms
and Investments
Auto and Vendor Finance
Westpac Pacific
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 Cash earnings excluding notable items.
3943 Westpac AR20 Cov-p33_V40.indd 25
3943 Westpac AR20 Cov-p33_V40.indd 25
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
26
To improve customer service, we
must simplify the way we operate;
this includes streamlining our
products and digitising processes.”
Inspired to keep it
simple and easy
WIB
— Simplifying our Global Transaction Service
product platform and refocusing on core
capabilities; and
— Reducing the number of correspondent
banks we transact with.
Westpac New Zealand
— Removed eight consumer products
including four discontinued home
loan products; and
— Migrated 12,000 credit card customers
from three discontinued products.
Wealth and insurance
— Continued to migrate customers and funds
from BT Wrap to the more modern and
flexible BT Panorama platform (transition
to be completed in FY21); and
— Moved 16 super products into our new
BT Super product (to be completed
by the end of 2021).
Simplifying products for customers
To improve customer service, we must
simplify the way we operate; this includes
streamlining our products and digitising
processes.
One such initiative is the migration of
customers to newer and more flexible
products which will ultimately allow us
to close a raft of legacy products that
are no longer for sale.
Other initiatives contributing to simpler
and better customer experience in
FY20 include:
Consumer
— Implemented over 50 changes to
our mortgage process to streamline
applications; and
— Removed 40 fees (out of ~200)
from over 40 systems – 20 more
will go in FY21.
Business
— Migrated around 14,000 St.George
Everyday Banking accounts and
closed five products;
— Removed 11 fees across Westpac,
St.George, Bank of Melbourne
and Bank SA products; and
— Simplified our Merchant offering,
including the closure of 29 legacy
products.
3943 Westpac AR20 Cov-p33_V40.indd 26
3943 Westpac AR20 Cov-p33_V40.indd 26
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 27
Transforming digital
We are modernising and simplifying our
technology, using digital to streamline
and automate processes and lift our data
capabilities to support risk management
and a better customer experience.
The events of this year have emphasised
the need to operate using online channels.
Our people have responded to a huge
increase in demand for online services.
Developments this year have included:
— Opening new accounts and providing
card access to elderly customers to avoid
having to enter a branch;
— Developing online forms to manage
customer demand for payment deferrals;
— Expanding the use of the new payments
platform for St.George customers;
— Introducing a COVID-19 chatbot to better
assist Australian customers with queries;
— Being one of the first banks to enable
access to data as part of the Open
Banking initiative;
— Launching (with other Australian banks)
a new blockchain technology to digitise
the bank guarantee process;
— Expanding WIB’s digital banking
platform – to make it easier for
corporates to manage their balance
sheets; and
— Creating new digital processes in
New Zealand including digital credit
submissions, complaints capture, and
online forms for COVID-19 related
assistance.
We are using digital
to streamline and
automate processes
CASE
STUDY
Central to our digital transformation has
been the need to improve data quality and
data management. We have established a
data quality and management assessment
dashboard, a series of metrics assessing
data quality and our data infrastructure. All
the metrics improved over the year due to:
— Introducing more central oversight to
data quality and management;
— Implementing data quality measurement
and monitoring across the Group; and
— Implementing a new data certification
process for new and changed processes.
NEW MOBILE APP BRINGS SIMPLICITY
Westpac’s new app launched to 240,000 customers at the end of the year. It
will be available to all customers who use iPhones in early 2021 and an Android
version is expected to be rolled out by the end of that year. The app simplifies
what customers do most and makes everything else easier. Developed in
collaboration with Apple and Google, customers can initiate payments without
opening the app via Apple’s intelligent assistant Siri. Other features include drag
and drop transfers, finding things quicker with ‘smart search’, start Apple Pay
setup with a single tap, establishing a ‘card hub’ that keeps track of plastic and
personalising the app with wallpapers. More features will be rolled out in 2021.
“Our Digital and GroupTech teams have listened to customers and reimagined
our mobile banking experience. Customers told us they wanted simpler and
faster banking. We’ve simplified the navigation and payments are faster to
friends and family,” says Martine Jager, Chief Digital & Marketing Officer. “This
is a significant leap for Westpac and sets a solid foundation for us to build on
in the future with more features and experiences.”
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 27
3943 Westpac AR20 Cov-p33_V40.indd 27
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
28
28
WESTPAC GROUP 2020 ANNUAL REPORT
OUR PRIORITIES
Perform
Improving performance by building
customer loyalty and growth
through service, sharpening our
focus on returns, and resetting our
cost base. A strong balance sheet
and engaged workforce form the
foundation of performance.
Holly Rogers,
Westpac Personal
Banking Advisor
3943 Westpac AR20 Cov-p33_V40.indd 28
3943 Westpac AR20 Cov-p33_V40.indd 28
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 29
We are focused on
simplifying and streamlining
our operations so our
people can get on and do
what they do best, serve
customers.”
DIGITAL ENHANCEMENTS DURING
COVID-19
The impact of COVID-19 was both
significant and rapid. Thousands of
customers needed urgent help when they
had to stop work or close their business.
The rise in requests led to increased
call wait times which was frustrating for
customers.
In response, we created a digital solution
for customers to apply for an immediate
repayment deferral online or via mobile,
giving instant cash flow relief. It also
allowed customers to exit or extend their
support package.
This new solution helped many Australians
find peace of mind in a time of immense
stress. It also freed up the time of our
people to support those customers with
more complex solutions.
“I’m incredibly proud of the way our people
rallied to help customers in need – it’s a
great example of how digital can simplify
and instantly make it easier for customers,”
says Dhiren Kulkarni – who leads our
Consumer Digital team.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
Helping when it matters – a core
commitment
Helping Australians and New Zealanders
succeed has been behind our success for
over 200 years.
However, this year’s challenges and
uncertainties have tested us. While we
retained our number one service ranking in
Business Banking1,2 against the other major
Australian banks, we remained at number
three in Consumer3. In New Zealand we are
fourth of the major banks in service but we
have been closing the gap this year.
Our people have been behind our success
in Business banking, responding to the
environment and working tirelessly to
support customers and businesses through
the ups and downs of the year.
Australian Consumer NPS has improved
over the year but our rank has not
increased. In part, this was because we
did not adequately keep up with increased
demands for assistance in our Contact
Centres. In addition, some of our offshore
partners were disrupted by lockdowns,
which impacted service in mortgages.
Supporting customers when it matters
most is one of our core commitments
and strengths. Our people stepped up to
the extraordinary events of the year, by
ensuring we remained open for business,
by supporting customers in their transition
to contactless banking and by helping
customers establish loan repayment
deferral arrangements.
We are focused on simplifying and
streamlining our operations so our people
can get on and do what they do best.
#1
Business Banking
NPS ranking2
#3
Consumer NPS
ranking3
1 Net Promoter Score measures the net likelihood of recommendation to others
of the customer’s main financial institution for retail or business banking.
Net Promoter ScoreSMis a trademark of Bain & Co Inc., SatmetrixSystems,
Inc., and Mr Frederick Reichheld. Using a 11 point numerical scale where
10 is ‘Extremely likely’ and 0 is ‘Extremely unlikely’, Net Promoter Score
is calculated by subtracting the percentage of Detractors (0-6) from the
percentage of Promoters (9-10).
2 Source: DBM Consultants Business Atlas, March – August 2020, 6MMA.
MFI customers, all businesses.
3 Source: DBM Consultants Consumer Atlas, March – August 2020, 6MMA.
MFI Westpac Group customers.
3943 Westpac AR20 Cov-p33_V40.indd 29
3943 Westpac AR20 Cov-p33_V40.indd 29
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
30
Helping customers
through COVID-19
and natural disasters
COVID-19 has changed many aspects of
life, including how we bank. Cities have
at times been deserted, the use of cash
has dramatically fallen, and demands
on our contact centres have escalated.
Vulnerable customers, many of whom
prefer face-to-face banking, have not
been able to visit branches. In short,
many customers are doing it tough.
We were the first major bank to offer
customers a COVID-19 relief package on
11 February 2020 and responded quickly
by redirecting resources to where they
were needed most; closing some branches,
and helping customers adopt to new ways
of banking.
We worked hard to help those in financial
difficulty by providing repayment deferrals
and bridging facilities for businesses ahead
of government support payments. Many
customers still need support and we will
continue to work constructively with them
to determine the most appropriate options.
Workplace COVID-19 hygiene and safety
measures in place, including temperature
checking stations
SUPPORTING CUSTOMERS
~175k
mortgage deferral
packages
~40k
deferrals for
businesses
~220k
early release
superannuation
applications paid
PROVIDING CRITICAL BANKING SERVICES AND INFRASTRUCTURE
>90%
of branch network
remained open1
1.5k
new employees
recruited to our
customer service teams2
SUPPORTING EMPLOYEES TO WORK EFFECTIVELY
~22k
(85%) employees
working from home1
1.3m
masks provided
to employees
1m+
hours of audio
and video calls
Updated policies and standards to help protect
the physical and mental health of our people
STANDING BEHIND THE ECONOMY AND COMMUNITIES
Supported local community
organisations and social enterprises
through Westpac Foundation grants
and other charitable donations
Maintained focus on
customers and communities
affected by bushfires
1 At the peak of the COVID-19 restrictions across Australia.
2 March to September 2020.
3943 Westpac AR20 Cov-p33_V40.indd 30
3943 Westpac AR20 Cov-p33_V40.indd 30
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 31
CASE
STUDY
Many Australians faced
the impacts of prolonged
drought, devastating
bushfires and storms
over the year. We helped
customers through a range
of support packages.”
Lloyd Pigram, St.George
Ulladulla branch manager,
with customer, Lyn Grey, at
her Lake Conjola property
Recovering from natural disasters
HELPING THROUGH BUSHFIRES
Over the year, many Australians faced the
impacts of prolonged drought as well as
devastating bushfires and storms. Large
areas of bushland, numerous farms, and
townships were severely affected. In some
cases, communities were evacuated and
homes and businesses destroyed.
We helped customers back onto their
feet through a range of customer support
packages, including:
Drought – extended our support to
customers under a new drought assistance
package; and a $100 million fund to provide
carry-on finance loans of up to $1 million
to existing eligible Westpac agribusiness
customers at a heavily discounted variable
interest rate.
Bushfires – provided $3.8 million in
emergency cash grants to customers; and
around 1,980 disaster relief packages.
We also received 603 home and contents
insurance claims, with total claims from
bushfires currently estimated at over
$37 million.
In addition, we donated over $1.4 million to
community groups and charities, including
Financial Counselling Australia, State-based
volunteer fire services and the Foundation
for Rural and Regional Renewal.
For more on our bushfire response, see our
Sustainability Performance section on page 37.
On New Year’s Eve in 2019, bushfires ravaged the NSW South
Coast and swept through the seaside village of Lake Conjola.
Many properties were taken, including the home of St.George
customers, Lyn and her 92-year-old mother, Sharon.
“We lost everything. All that was left of our family home of
25 years was a pile of ash and rubble. Our photos, our memories
– everything,” says Lyn.
Lyn has been a St.George customer since 1980, when she
bought her first home. Since then, Lyn and Sharon have kept
close ties with their local Ulladulla branch. As part of their
weekly trip to town, they stop in to see the team and branch
manager, Lloyd Pigram.
When Lloyd heard the news, he got straight in touch, and
arranged a $2,000 emergency grant to help the family
back onto their feet.
“Lloyd has been a great support, and the grant really helped
us through the early stages,” says Lyn.
Lyn and Sharon’s property has been cleared and they are
waiting for planning approval before building starts on their
new home.
“Like a number of other customers, Lyn and Sharon have been
through so much,” says Lloyd. “It’s been humbling to witness
their resilience. They deserve every second of happiness their
new home brings.”
$2,000
emergency grant provided by St.George
Bank to help get back on their feet
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 31
3943 Westpac AR20 Cov-p33_V40.indd 31
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
32
A clear purpose
Helping Australians and
New Zealanders succeed
In 2020, our people
developed a new
purpose, which has
been supported by a
refreshed set of values
and behaviours.
Our five values – helpful,
ethical, leading change,
performing, simple (or
HELPS) – guide the way and
help us achieve our purpose
‘Helping Australians and
New Zealanders succeed’.
A set of behaviours brings
these values to life, making
it clear for employees what
is expected of them.
HELPFUL
Passionate about
providing a great
customer experience
ETHICAL
Trusted to do the
right thing
LEADING CHANGE
Determined to make it
better and be better
PERFORMING
Accountable
to get it done
SIMPLE
Inspired to keep it
simple and easy
A motivated workforce with a
strong performance ethic
Great service is underpinned by a highly
motivated workforce who are capable,
engaged and driven by a set of clear values.
In responding to the challenges of the year,
our people have lived our values of being
helpful and ethical, caring for customers
in difficulty.
However, some elements of our culture
have held us back, particularly in the area
of risk. This was highlighted in our 2018
Culture, Governance and Accountability
(CGA) self-assessment.
This is now changing. We have commenced
a culture program that will build on our
strengths of helping when it matters, care
and empathy. The program focuses on
creating a simpler and stronger business
with high-performing teams where
everyone knows their role in delivering for
customers, and is able to constructively
challenge and raise issues early. At the
same time, it will help us to turn around
the aspects of our culture that are holding
us back, such as complexity, slow decision
making and diluted accountability.
Our new purpose and simplified values
and behaviours also support this cultural
change.
Despite the challenges faced over the year,
employee loyalty and support has been
little changed. Employee commitment was
73% at September 2020, up from 72% at
the end of FY19.
3943 Westpac AR20 Cov-p33_V40.indd 32
3943 Westpac AR20 Cov-p33_V40.indd 32
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 33
Strong balance sheet and
improved capital efficiency
Maintaining the strength of our balance
sheet while improving capital efficiency
is critical in this environment. To maintain
capital strength, we had to make some
difficult decisions over the year including
raising capital in November 2019, and not
paying the 2020 interim dividend.
We recognise that many shareholders
rely on dividends, especially self-funded
retirees. However, given the environment
and circumstances at the time, this decision
was considered to be in the best long-term
interests of Westpac and of shareholders.
Our capital position is strong and our CET1
capital ratio was 11.13% at 30 September
2020. Funding and liquidity also remain
robust, and well above APRA’s minimums.
This solid foundation allows us to continue
supporting customers and the economy
through this challenging time.
Improved capital efficiency will also emerge
as we exit businesses in our Specialist
Businesses division. In addition to not being
core to our future, these activities typically
have capital returns below the Group
average. We are also reconsidering other
low-returning products/services where a
path to acceptable returns is difficult to
achieve.
Restoring mortgage growth
Since 2019, our mortgage portfolio has grown
below system. This is a result of several factors
including accelerated repayments, the early
implementation of expanded mortgage
assessment criteria in 2019, operational
issues in processing mortgages including
the shut-down of certain offshore partners.
Restoring mortgage growth is a priority and
our Mortgages Line of Business has helped to
identify issues in our processes. We are now
implementing the necessary changes which
aim to improve growth relative to system in
the year ahead.
Productivity – a continual focus
As growth slows, improving efficiency becomes
even more important. Over recent years we have
improved efficiency by between $300 million
and $500 million annually. In 2020, we saved
over $400 million of costs, although this was
offset by inflationary cost increases, higher risk
and compliance costs and additional resources
devoted to our COVID-19 response.
While our priority remains supporting customers
through this difficult time, we have not lost
sight of the need to reset our cost base and
fundamentally improve efficiency. In part,
efficiency will likely improve as we simplify our
business and reduce complexity. Additional
opportunities are also expected to emerge from
digital, and assessing opportunities to reduce
our corporate footprint. We plan to announce a
cost reset program in 2021.
Restoring mortgage
growth is a key
priority
CASE
STUDY
SHIFTING FOCUS DURING COVID-19
Manly Spirits founders, Vanessa and David Whittaker (pictured), made
some fast decisions this year to keep their business operating. With a
tasting bar in Brookvale in Sydney’s northern beaches, the craft spirits
distillery has built a strong local following. Its spirits are also sold across
Australia through independent and large retailers with international exports
growing rapidly.
“Our customers love our products and that’s reflected in our rate of growth
over the last five years,” says David. “Before COVID-19 hit, we had just taken
on more bar staff and extended our business loan to expand the production
of dark spirits.”
With the pandemic came social distancing and bar closures and the
business shifted its focus to retail outlets. It also diverted resources to the
manufacture of sanitiser, supplying hospitals and the Rural Fire Service,
among others.
“Our capabilities in manufacturing and alcohol along with Westpac’s
financial support allowed us to pivot quickly,” says David. “This kept
our people employed and revenue flowing while meeting an important
community need.”
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20 Cov-p33_V40.indd 33
3943 Westpac AR20 Cov-p33_V40.indd 33
31/10/20 4:45 pm
31/10/20 4:45 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
34
WESTPAC GROUP 2020 ANNUAL REPORT
3943 Westpac AR20_34-55_V40.indd 34
3943 Westpac AR20_34-55_V40.indd 34
31/10/20 4:46 pm
31/10/20 4:46 pm
BUILDING ASUSTAINABLE FUTUREAs one of Australia’s largest financial institutions, we recognise our role in helping to create positive social, economic and environmental impact. Every year, through our sustainability materiality assessment process, we identify the business opportunities and challenges that matter most to our stakeholders. This helps inform our approach to how we create long-term sustainable value for our customers, employees, suppliers, shareholders and communities.2020 most material sustainability topicsFounding bank and signatory to the Principles for Responsible Banking announced in September 2019.Supporter of the United Nation’s SustainableDevelopment Goals (SDGs) and its agenda for action on improving the wellbeing of present and future generations.Signatory to the Business Coalition Statement on Climate in 2015, which highlights our support for the Paris Climate Agreement to limit global warming to less than two degrees Celsius above pre-industrial levels.Founding signatory to the United Nations Global Compact and a supporter of the UN’s ‘Protect, Respect, Remedy’ framework.Climate change reporting aligned to the recommendations of the Task Force on Climate-related Financial Disclosures. 1 GRI Index available in 2020 Sustainability Appendix.For more information on our sustainability performance and sustainability materiality assessment process, including further commentary on our material topics, see our 2020 Sustainability Performance Report.Our 2018-2020 Sustainability StrategyWe update our sustainability strategy every three years. Our last sustainability strategy was launched in 2017 and centred on three priorities where we believed we could have the greatest impact and create sustainable long-term value by:The following pages assess our progress on this strategy in its final year, ahead of the launch of our 2021-2023 Sustainability Strategy. We have made good progress over the last three years meeting or exceeding over 80% of the measures set in 20172. Helping people make better financial decisionsCultureFundamentalsHelping people by being there when it matters most to themHelping people create a prosperous nation Our approach to identifying our material sustainability topics is aligned to the Global Reporting Initiative (GRI) Standards (2016)1 and the AA1000 AccountAbility Principles Standard (2018). Conduct and culturePoor conduct has eroded public trust in Westpac and the financial services sector. In response, we have plans in place designed to strengthen our culture, and improve our processes to deliver better customer outcomes.Governance and risk management We have enhanced our governance this year and are building a stronger risk management capability. This change is critical to the reputation and financial strength of the Group.Financial performanceDelivering sound financial performance and a strong balance sheet underpins our ability to support customers, the economy and the Group’s long-term success.Changing regulatory landscapeSupervision and regulation in the financial services sector continues to evolve, creating change and complexity in how we operate.Customer satisfaction and experienceCustomers want banking to be easier, simpler and more efficient. At the same time, customer needs are becoming more complex.Customer vulnerability and hardshipOur ability to support customers in times of hardship and anticipate when they are vulnerable allows us to help when it matters most.Customer safety and accessMaintaining an environment where customers can safely and conveniently access our products and services.Digital product and service transformationDigitisation creates opportunities to improve efficiency and deliver new and improved services where, how and when customers choose to engage with us.Information security and data privacyMaintaining confidentiality and the security of our systems and data is paramount in retaining the trust and confidence of our stakeholders.Workforce wellbeing and talent retentionMaintaining a secure, flexible and supportive workplace helps us attract, retain and develop our people.Climate change risks and opportunitiesAs a major financial institution, we have an important role in managing the risks and opportunities of climate change. Supporting communities in need As an integral service provider in the communities in which we operate, we support those in need including in times of emergency and recovery. We also support initiatives that address complex societal and economic issues.Human rights business riskWe seek to positively impact human rights in our value chain through our role as an employer in fostering inclusion and diversity, our lending, understanding our role in supporting Indigenous communities, our investments in funds, and through our supply chain.2 Total number of measures met divided bytotal number of measures. WESTPAC GROUP 2020 ANNUAL REPORT
35
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20_34-55_V40.indd 35
3943 Westpac AR20_34-55_V40.indd 35
31/10/20 4:46 pm
31/10/20 4:46 pm
BUILDINGASUSTAINABLE FUTUREAs one of Australia’s largest financial institutions, we recognise our role in helping to create positive social, economic and environmental impact. Every year, through our sustainability materiality assessment process, we identify the business opportunities and challenges that matter most to our stakeholders. This helps inform our approach to how we create long-term sustainable value for our customers, employees, suppliers, shareholders and communities.2020 most material sustainability topicsFounding bank and signatory to the Principles for Responsible Banking announced in September 2019.Supporter of the United Nation’s Sustainable Development Goals (SDGs) and its agenda for action on improving the wellbeing of present and future generations.Signatory to the Business Coalition Statement on Climate in 2015, which highlights our support for the Paris Climate Agreement to limit global warming to less than two degrees Celsius above pre-industrial levels.Founding signatory to the United Nations Global Compact and a supporter of the UN’s ‘Protect, Respect, Remedy’ framework.Climate change reporting aligned to the recommendations of the Task Force on Climate-related Financial Disclosures. 1 GRI Index available in 2020 Sustainability Appendix.For more information on our sustainability performance and sustainability materiality assessment process, including further commentary on our material topics, see our 2020 Sustainability Performance Report.Our 2018-2020 Sustainability StrategyWe update our sustainability strategy every three years. Our last sustainability strategy was launched in 2017 and centred on three priorities where we believed we could have the greatest impact and create sustainable long-term value by:The following pages assess our progress on this strategy in its final year, ahead of the launch of our 2021-2023 Sustainability Strategy. We have made good progress over the last three years meeting or exceeding over 80% of the measures set in 20172. Helping people make better financial decisionsCultureFundamentalsHelping people by being there when it matters most to themHelping people create a prosperous nation Our approach to identifying our material sustainability topics is aligned to the Global Reporting Initiative (GRI) Standards (2016)1 and the AA1000 AccountAbility Principles Standard (2018). Conduct and culturePoor conduct has eroded public trust inWestpac and the financial services sector. In response, we have plans in place designedto strengthen our culture, and improve our processes to deliver better customer outcomes.Governance and risk management We have enhanced our governance this year and are building a stronger risk management capability. This change is critical to the reputation and financial strength of the Group.Financial performanceDelivering sound financial performance and a strong balance sheet underpins our ability to support customers, the economy and the Group’s long-term success.Changing regulatory landscapeSupervision and regulation in the financial services sector continues toevolve, creating change and complexity in how we operate.Customer satisfaction and experienceCustomers want banking to be easier, simpler and more efficient. At the same time, customer needs are becoming morecomplex.Customer vulnerability and hardshipOur ability to support customers in times of hardship and anticipate when they are vulnerable allows us to help when it matters most.Customer safety and accessMaintaining an environment where customers can safely and conveniently access our products and services.Digital product and service transformationDigitisation creates opportunities to improve efficiency and deliver new and improved serviceswhere, how and when customers choose toengage with us.Information security and data privacyMaintaining confidentiality and the security ofour systems and data is paramount in retaining the trust and confidence of our stakeholders.Workforce wellbeing and talent retentionMaintaining a secure, flexible and supportiveworkplace helps us attract, retain and develop our people.Climate change risks and opportunitiesAs a major financial institution, we havean important role in managing the risks and opportunities of climate change. Supporting communities in need As an integral service provider in the communities in which we operate, we support those in need including in times of emergency and recovery. We also support initiatives thataddress complex societal and economic issues.Human rights business riskWe seek to positively impact human rights in our value chain through our role as an employer in fostering inclusion and diversity, our lending, understanding our role in supporting Indigenous communities, our investments in funds, and through our supply chain.2 Total number of measures met divided by total number of measures.1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
36
WESTPAC GROUP 2020 ANNUAL REPORT
BUILDING A SUSTAINABLE FUTURE
Sustainability
performance
progress
Progress highlights in the
final year of our 2018-2020
Sustainability Strategy.
New and simpler products and services
Customers want simpler, smarter and
smoother banking. We continue to
review our products and processes
to reduce complexity and improve
service. To improve the home ownership
experience, we now have digital tools to
help customers prepare for their first home
loan appointment, upload documents,
accept a loan offer in one click and track
their application via online banking through
to settlement, with reminders and alerts.
With 80% of digital customers using their
phone for banking, we are rolling out a new
Westpac personal banking app, designed
for a faster and easier experience, with more
intuitive navigation and quicker payments.
Helping people
make better
financial decisions
During the past year we delivered a range
of financial education programs reaching
an estimated one million individuals, as well
as businesses, not for-profit organisations
and community groups through Westpac’s
Davidson Institute in Australia and
the Managing Your Money program in
New Zealand. Together with the launch of
a new online platform, we introduced new
easy to understand content, including a
financial fitness course.
Other initiatives include financial capability
resources for young Australians via Year 13
and through our new Instagram TV channel;
women via Ruby Connection; and older
Australians via Starts at 60.
Alignment to the sustainable
development goals
4 QUALITY
EDUCATION
8 DECENT WORK AND
ECONOMIC GROWTH
10 REDUCED
INEQUALITES
17 PARTNERSHIPS
FOR THIS GOALS
3943 Westpac AR20_34-55_V40.indd 36
3943 Westpac AR20_34-55_V40.indd 36
31/10/20 4:46 pm
31/10/20 4:46 pm
37
Helping those in need of extra care
We continue to improve support for
customers in vulnerable circumstances.
This year, we introduced an enterprise-
wide standard to help our people
support customers in vulnerable
circumstances. In addition, we developed
our Family or Domestic Violence Position
Statement, which outlines the principles
we apply when supporting affected
customers.
We offer a variety of resources to assist
customers and their families experiencing
challenging circumstances such as the
loss of a loved one, divorce or separation,
or elder financial abuse. Following
the COVID-19 restrictions, we offered
support for elderly customers and people
experiencing vulnerability to set up
contactless banking.
Remote banking support
Westpac Remote Services supports
Aboriginal and Torres Strait Islander
customers in remote communities who
may face geographic, language and cultural
barriers to accessing financial services.
First piloted in 2018, this year we
expanded Yuri Ingkarninthi, our Indigenous
Connection call centre, to customers
in all States and Territories, conducting
over 18,000 customer conversations to
support a variety of remote banking needs.
These included access to cards or cash,
establishing telephone and internet banking
and resolving issues related to scams
and fraud.
Alignment to the sustainable
development goals
8 DECENT WORK AND
ECONOMIC GROWTH
10 REDUCED
INEQUALITITIES
17 PARTNERSHIPS
FOR THE GOALS
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
Helping people
by being there
when it matters
most to them
Our teams are working hard to support
customers, communities and the
economy throughout the COVID-19
pandemic. Our initial response focused
on protecting our people and customers
while remaining open for business and
putting in place a range of customer
support packages such as mortgage and
business loan deferrals. Our focus has now
shifted to working with customers who
need more individual support.
Before COVID-19, many customers and
communities were, and continue to be,
impacted by drought and last summer’s
devastating bushfires. Support packages
included mortgage and business loan
deferrals, emergency cash grants and
a $100 million fund to provide carry-on
finance loans of up to $1 million to existing
eligible drought affected agribusiness
customers at a discounted variable
interest rate.
We approved over 75,000 applications
for financial assistance from customers
experiencing financial hardship in FY20.
Supporting more than
24,000 customers
experiencing
vulnerability through
our specialist teams
3943 Westpac AR20_34-55_V40.indd 37
3943 Westpac AR20_34-55_V40.indd 37
31/10/20 4:46 pm
31/10/20 4:46 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
38
Helping people
create a prosperous
nation
To help our people develop their skills, we
provide a range of structured and self-
paced learning experiences, including
virtual coaching support to help bankers
have great customer conversations and
deepen relationships.
We have also partnered with leading
universities to offer employees a range
of micro-credentials in disciplines such
as risk, lending and service.
719 jobs
Westpac Foundation1 grants to
social enterprises helped create
719 jobs2 for vulnerable Australians
Delivered over $150 million
in community investment3
Helping create jobs for vulnerable
Australians
Westpac Foundation1 paid $2.3 million in
grants to help organisations that provide
employment, education and training support
for some of Australia’s most vulnerable.
Given COVID-19’s impact, the Foundation
brought forward grant payments and
expanded its non-financial support, working
with industry partners to offer access to
pro bono skills.
This year, Westpac Foundation also
partnered with the Foundation for Rural
and Regional Renewal (FRRR) to award
grants to 50 community organisations in
rural, regional and remote communities
affected by drought, bushfires and
COVID-19.
CASE
STUDY
THE BREAD AND BUTTER PROJECT
The Bread and Butter Project is
Australia’s first social enterprise bakery,
investing all its profits into training and
employment for refugees and asylum
seekers. As a wholesale bakery, the
closures of cafes and restaurants due
to COVID-19 initially resulted in a
60% loss in revenue.
With Westpac Foundation’s support,
the Project expanded its distribution to
Woolworths Metro stores. This helped
the bakery increase sales and keep its
bakers and trainees employed.
1 Refer to footnote on page 17.
2 Jobs created through the Westpac Foundation job creation grants to social enterprises are for the year ended 30 June 2020.
3 Excludes commercial sponsorships.
3943 Westpac AR20_34-55_V40.indd 38
3943 Westpac AR20_34-55_V40.indd 38
31/10/20 4:46 pm
31/10/20 4:46 pm
WESTPAC GROUP 2020 ANNUAL REPORT CASE
STUDY
A QUANTUM ALPHABET
Quantum physicist and Westpac Scholar Dr Jacquiline
Romero believes the key to online security could lie in
a ‘quantum alphabet’ made not from letters, but from
different shapes of light. Dr Romero is exploring its
potential through her Westpac Research Fellowship
at The University of Queensland.
“I plan to use my Fellowship as an opportunity to
showcase what is possible and inspire young scientists
to follow their passion.”
“The Fellowship is expanding my network both inside
and outside of academia, which encourages a broader
conversation beyond physics. Talking to others in the
Westpac Scholars network, you get a sense that they
sincerely want to help you achieve your vision. That
backing helps me be bolder and more ambitious.”
39
I plan to use my
Fellowship as an
opportunity to
showcase what is
possible and inspire
young scientists to
follow their passion.”
Dr Jacquiline Romero, Westpac Scholar
Tomorrow’s leaders
Westpac Scholars Trust4 awards
100 scholarships each year to individuals
who have the ideas and drive to help shape
the future of Australia. Since beginning in
2014, Westpac Scholars Trust has awarded
scholarships valued at $24.6 million in
partnership with 22 universities across
Australia.
Westpac Scholars are talented Australians
focused on tackling a range of issues, from
finding treatments to rare diseases, to
creating innovative businesses that help
solve social problems. Today there are
almost 500 Westpac Scholars.
$3.9m
In full year 2020 Westpac Scholars
Trust awarded $3.9 million in
educational scholarships to the
next 64 Westpac Scholars
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
4 Westpac Scholars Trust (ABN 35 600 251 071) is administered by Westpac Scholars Limited (ABN 72 168 847 041) as trustee for the Westpac
Scholars Trust. Westpac Scholars Trust is a private charitable trust and neither the Trust nor the Trustee are part of Westpac Group. Westpac provides
administrative support, skilled volunteering, and funding for operational costs of Westpac Scholars Trust.
3943 Westpac AR20_34-55_V40.indd 39
3943 Westpac AR20_34-55_V40.indd 39
31/10/20 4:46 pm
31/10/20 4:46 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
40
Australia’s largest
financier of greenfield
renewable energy
projects for the past
three years5 - see
Climate change on
page 46 for more
information
Social and affordable housing
During the year we were joint lead
managers for National Housing Finance and
Investment Corporation (NHFIC) on two
social bonds, including the largest social
bond by an Australian issuer. Funds raised
by the bonds will support community
housing providers across New South Wales,
Queensland, South Australia, Tasmania,
Victoria and Western Australia, financing
over 4,700 properties, including over
1,100 new dwellings.
Our lending to the social and affordable
housing sector increased to $1.7 billion6.
This reflects a change in market dynamics,
with funding sources to the sector more
diversified. We continue to support
NHFIC and its clients.
Safer Children, Safer Communities
One of the commitments in our Response
Plan to the AUSTRAC proceedings was
to develop a program to help reduce
the human impact of financial crime.
The program involves a series of actions
and investments we intend to deliver in
Australia and across the Asia Pacific Region
over three years to make a meaningful
impact on child safety and protection.
To guide our approach, we established
the Safer Children, Safer Communities
Roundtable of experts in human rights,
child safety, online safety and law
enforcement.
Progress this year included developing
strategic partnerships with International
Justice Mission to provide $18 million
over three years to tackle online sexual
exploitation of children in the Philippines,
and with Save the Children (Australia) to
provide $6 million over six years to support
the delivery of its ‘Protect Children –
Philippines’ project.
We are working with an international
non-government organisation to invest
$25 million in cross-industry data sharing
projects to better detect, monitor, report
and prevent harm to children associated
with financial crime.
Most recently, we launched a new Impact
Grants program, allocating $9.2 million to
support community organisations and not-
for-profits working across a range of child
safety and protection initiatives in Australia.
Principles for Responsible Banking
In 2017, we were a founding bank and
signatory to the Principles for Responsible
Banking (PRB), an initiative of the United
Nations Environment Programme Finance
Initiative (UNEP FI). Last year, we became
the first bank globally to report in
alignment with the draft principles.
For this year’s PRB Index, see the
2020 Sustainability Appendix.
Alignment to the sustainable
development goals
4 QUALITY
EDUCATION
8 DECENT WORK AND
ECONOMIC GROWTH
9 INDUSTRY,INNOVATION AND
INFRASTRUCTURE
10 REDUCED
INEQUALITIES
1 SUSTAINABLE CITIES
AND COMMUNITIES
12 RESPONSIBLE
CONSUMPTION
AND PRODUCTION
13 CLIMATE
ACTION
17 PARTNERSHIPS
FOR THE GOALS
5 Source: IJGlobal, September 2020.
6 Refers to the cumulative Total Approved Exposure to customers in the Social and Affordable Housing sector since 2013.
For full definition, see the 2020 Sustainability Appendix.
3943 Westpac AR20_34-55_V40.indd 40
3943 Westpac AR20_34-55_V40.indd 40
31/10/20 4:46 pm
31/10/20 4:46 pm
WESTPAC GROUP 2020 ANNUAL REPORT Average time to
resolution for
complaints7 is
6.5 days, compared
to 9 days in 2019
A culture that is
caring, inclusive
and innovative
We are working to address the culture
shortcomings outlined in the Culture,
Governance and Accountability (CGA)
self-assessment, with a program that
builds on our strengths of caring and
empathy, while turning around aspects of
our culture which have held us back, such
as complexity and diluted accountability.
Our new purpose and simplified values
and behaviours are also supporting this
cultural change.
Promoting an inclusive society,
where our workforce reflects
our customers
Recognising and embracing the diversity
of our people helps us to create an
inclusive culture where employees feel
they belong, are encouraged to bring new
ideas and understand the diversity of the
communities we serve.
We have introduced a new Cultural
Diversity Leadership Shadowing Program,
with 210 employees participating in the
first year.
Westpac was included in the Bloomberg
Gender Equality Index for the fourth
consecutive year.
We welcomed 115 new Aboriginal or Torres
Strait Islander employees and increased
the regional footprint of our Aboriginal and
Torres Strait Islander traineeship program,
which provides paid full-time or school-
based traineeships to build experience in
financial services.
We also launched the second intake of
our Tailored Talent program for those
on the Autism spectrum. This program
received Autism Australia’s 2020 Aspect
Advancement Award.
Improving the way we resolve
customer issues
Over the past two years, we have made
significant changes to the management
of customer complaints, both in terms
of our processes and by identifying and
addressing root cause issues that lead
to complaints.
Initiatives include complaints skilling
sessions for bankers with a focus on first
point resolution, an updated Complaints
Management Standard and continuing
to make information on how to make a
complaint easier to find. We have also
rolled out a new complaints management
system to help improve the customer
experience and for better compliance
and reporting.
We also continue to refund customers
where we have not got it right through
our customer remediation programs.
41
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
7 Group Internal Dispute Resolution complaints excluding WIB complaints.
3943 Westpac AR20_34-55_V40.indd 41
3943 Westpac AR20_34-55_V40.indd 41
31/10/20 4:46 pm
31/10/20 4:46 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
42
Continuing to
make progress on
the sustainability
fundamentals
Health, safety and wellbeing
Our priority through COVID-19 has been
to protect our people while remaining
open for business. We have implemented
a range of measures to support the health
and wellbeing of employees, including
enhanced cleaning, providing personal
protective equipment, temperature
checks in larger sites and installation of
polycarbonate screens in branches. Where
possible, employees are working remotely,
with over 20,000 working from home. We
also introduced special leave provisions to
address illness, self-isolation and changing
childcare responsibilities.
Over 2,000 leaders have completed training
in the early intervention and prevention of
mental ill-health, and the importance of
supportive leadership. Since COVID-19, we
have introduced new health and wellbeing
resources, including for parents and carers
balancing home and work commitments,
and for employees exposed to increased
risks of domestic and family violence.
SUSTAINABILITY-LINKED LOAN
Westpac NZ and Contact Energy
entered into a $50 million, four-year
sustainability-linked loan facility, one
of the first of its kind in New Zealand.
The loan’s incentive targets align with
continual improvement in Contact
Energy’s Environmental Social and
Governance (ESG) performance,
including assessment of its climate
strategy, electricity generation mix,
corporate governance and stakeholder
engagement.
Sustainable lending and investment
Many corporate and institutional customers
are moving to more sustainable business
models. We offer a range of sustainable
finance products and services to
support them in the transition, including
sustainability-linked loans that incentivise
borrowers to meet pre-determined
sustainability targets.
During the year, we updated our
Sustainability Risk Management Framework
and ESG Credit Risk Policy, developed tools
to support bankers when considering ESG
risks, and enhanced our position statements
including on climate and human rights.
Human rights
See Human rights on page 44.
3943 Westpac AR20_34-55_V40.indd 42
3943 Westpac AR20_34-55_V40.indd 42
31/10/20 4:46 pm
31/10/20 4:46 pm
WESTPAC GROUP 2020 ANNUAL REPORT 43
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
C02
Maintained carbon
neutral status
75%
Renewable energy
represents 75% of
our lending to the
electricity sector
A+
A+ rating for BT’s
sustainable investment
strategy and governance
through the Principles
for Responsible
Investment (PRI)
Environment1
We are committed to reducing the climate
change impacts of our operations. We
achieved an 11% reduction in Scope 1 and
Scope 2 greenhouse gas emissions in 2020
compared to 2019, and a 27% reduction
since 20162. The reduction over the last four
years has been driven by commercial and
retail site consolidation and refurbishments
as well as onsite solar installations. Reduced
staff numbers at corporate sites due to
the COVID-19 pandemic contributed
approximately 2% of the reported reduction
in Scope 1 and 2 emissions this year.
Responsible sourcing
We work with over 8,600 supplier partners
and during the year procured goods and
services worth $6.5 billion across Australia
and New Zealand.
In response to the Modern Slavery Act 2018
(Cth), we have published a new Responsible
Sourcing Code of Conduct, updated our
Responsible Sourcing assessment tool
to increase our ability to identify risks of
modern slavery and expanded the scope
of our assessment activities to suppliers in
high risk categories, outside of our Top 100
by spend. We have commenced a redesign
of the Responsible Sourcing Program to
enhance our methods of identifying ESG
risks and take steps to mitigate and manage
ESG risks across different industries and
deeper into our supply chain.
Our supplier inclusion and diversity
program has continued to grow with
$19 million spent with diverse suppliers
during the year, including $5.9 million
with Indigenous-owned businesses.
Community and social impact
Through our community programs,
we support our employees to make
a difference in the issues and causes
important to them. More than 3,000
employees participated in our volunteering
programs, sharing their skills or time to
support community partners and social
enterprises.
In addition, over $2.7 million was donated
to more than 780 charities through our
Matching Gifts program, which matches
employee donations to eligible Australian
charities dollar-for-dollar.
FIRST GREEN LOAN IN
SUPERANNUATION
This year, we launched Australia’s
first green loan developed for the
superannuation sector. Working with
Local Government Super, the $65 million
green loan was structured by determining
which buildings in its Local Government
Property Fund met international
standards for green buildings set
by the Climate Bonds Initiative.
Environmental footprint data as at 30 June 2020, unless otherwise stated.
1
2 FY16 Scope 1 and 2 baseline: 147,620 tCO2 -e.
For more detailed information on our
sustainability approach, performance and metrics,
please visit westpac.com.au/sustainability or see
our 2020 Sustainability Performance Report and
Sustainability Appendix.
3943 Westpac AR20_34-55_V40.indd 43
3943 Westpac AR20_34-55_V40.indd 43
31/10/20 4:46 pm
31/10/20 4:46 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
44
WESTPAC GROUP 2020 ANNUAL REPORT
BUILDING A SUSTAINABLE FUTURE
Human rights
Respecting and advancing human
rights helps us to achieve our
vision to help Australians and
New Zealanders succeed. It
reflects our belief that all people
are entitled to basic rights and
freedoms without discrimination.
Our Human Rights
Position Statement
and 2023 Action
Plan:
Our commitment
to human rights
Commits to 19 specific
actions over the next
three years; and
Sets out the principles
that guide our
approach and helps
stakeholders identify
the specific policies,
frameworks and other
documents where
those principles are
applied in practice.
As a major financial institution, we
understand that through our activities we
may impact on human rights, whether in
our role as a financial services provider,
lender, purchaser of goods and services,
employer, or supporter of communities.
We recognise we have both a responsibility
to respect human rights, and opportunities
to positively impact human rights, across
our value chain. In particular, Westpac
acknowledges and has taken accountability
for its inadequate transaction monitoring
to help identify potential child exploitation.
Every three years, we review and update
our Human Rights Position Statement and
Action Plan (Human Rights Action Plan)
to lay out the principles that guide our
approach and help stakeholders identify
the specific policies, frameworks and other
documents where those principles are
applied in practice.
In May, we published our third Human
Rights Position Statement since 2015,
together with our 2023 Action Plan.
This sets out nineteen specific actions to
be addressed over the next three years for
how we will more deeply embed respect
for human rights into our business and
business relationships, in line with the
UN Guiding Principles on Business and
Human Rights.
Governance and oversight
The Westpac Group Board has oversight
of our approach to human rights and our
management of human rights risks. Our
Human Rights Action Plan is reviewed by
the Executive Team and approved by the
Board every three years.
The Board Risk Committee considers and
approves Westpac’s Sustainability Risk
Management Framework (which includes
human rights risks) every two years.
The implementation and management
of Westpac’s approach to human rights
is led by Group Executives.
3943 Westpac AR20_34-55_V40.indd 44
3943 Westpac AR20_34-55_V40.indd 44
31/10/20 4:46 pm
31/10/20 4:46 pm
45
Supported the
psychological health
and safety of our
workforce, particularly
in light of the impacts
of bushfires and
COVID-19
Identifying our salient human rights issues
Salient human rights issues are the human rights at risk of the most severe negative
impact through a company’s activities and business relations. The following salient
human rights have been identified as key focus areas:
ROLE
SALIENT HUMAN RIGHTS
Financial services provider
Lender
Employer
— Customers experiencing vulnerability due to COVID-19,
serious illness and natural disasters, including bushfires
— Use of our services to adversely impact on human rights
— Access to services by Indigenous populations
— Information security and data privacy
— Labour rights and land-related human rights
— Work related mental ill-health
— Exclusion and discrimination
Purchaser of goods and
services
— Unfair wages and working conditions
— Modern slavery in our operations and supply chain
Managing human rights issues
This year, we took a number of important
steps to uplift our respect for human rights, in
line with the Human Rights Action Plan:
— delivered extra level of care and sensitivity
in the way we serve and support customers
experiencing vulnerability;
— progressed a significant multi-year program
of work to address management of financial
crime risks, including those associated with
child exploitation;
— commenced a series of actions and
investments in Australia and across the Asia
Pacific region through our Safer Children,
Safer Communities work program;
— updated our ESG Credit Risk Policy and
our position on certain sensitive sectors to
include further guidance on human rights
risks and to further embed the principle
of ‘risk to people’ as well as risk to the
business;
— supported the psychological health and
safety of our workforce, particularly in light
of bushfires and COVID-19; and
— published our Slavery and Human
Trafficking Statement for the 2019 financial
year in accordance with the Modern Slavery
Act 2015 (UK) and made progress to meet
the requirements of the newly commenced
Australian Modern Slavery Act 2018 (Cth).
TAKING ACTION ON MODERN
SLAVERY
In response to the Modern
Slavery Act 2018 (Cth), this year
we have taken steps to embed
its requirements across our
operations and supply chain.
These include:
— identifying ways to better
address modern slavery risk;
— conducting a modern slavery
risk assessment; and
— identifying areas for industry
collaboration.
For more detailed information, see our 2020 Sustainability Performance Report,
Sustainability Appendix and Sustainability Datasheet.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20_34-55_V40.indd 45
3943 Westpac AR20_34-55_V40.indd 45
31/10/20 4:46 pm
31/10/20 4:46 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
46
WESTPAC GROUP 2020 ANNUAL REPORT
BUILDING A SUSTAINABLE FUTURE
Climate change
Westpac recognises that climate
change is one of the most
significant issues that will impact
the long-term prosperity of the
global economy and our way of life.
Bomen Solar Farm in Wagga Wagga, NSW
Climate-related
financial disclosure
We are committed to managing our
business in alignment with the Paris
Agreement and the need to transition to
a net zero emissions economy by 2050.
There is continued development in the
climate change agenda and increasing
interest from investors, regulators,
customers and the community in our
approach to this issue. This year, we
further integrated management of climate
change impacts into our business.
Since 2018, the Group has published
disclosures in line with the
recommendations of the Task Force on
Climate-related Financial Disclosures
(TCFD) and our performance against these
recommendations is summarised below.
3943 Westpac AR20_34-55_V40.indd 46
3943 Westpac AR20_34-55_V40.indd 46
31/10/20 4:46 pm
31/10/20 4:46 pm
47
Climate change: Strategy
Key achievements from our 2020 Climate Action Plan over the year:
CLIMATE CHANGE SOLUTIONS
Provide finance to
back climate change
solutions
— Increased lending to climate change solutions, taking total committed
exposure to $10.1 billion, exceeding our target1 of $10 billion by 2020; and
— Facilitated $4.8 billion for climate change solutions, exceeding our
2020 target of $3 billion.
SUPPORT BUSINESSES
Support businesses
that manage their
climate-related risks
— Reduced the emissions intensity of our lending to the electricity
generation sector from 0.36 tCO2 -e/MWh in 2017 to 0.25 tCO2 -e/MWh
exceeding our 2020 target of 0.30 tCO2 -e/MWh;
— Maintained our commitment to stringent lending standards in the
thermal coal mining sector;
— Supported customers’ transition strategies through sustainable finance
structures, such as sustainability-linked loans – see case study page 42;
and
— Through BT2, continued our involvement in Climate Action 100+, an
investor-led initiative to engage systemically important greenhouse
gas emitters and help achieve the goals of the Paris Agreement.
HELP CUSTOMERS
Help individual
customers respond
to climate change
— Provided over 3,400 natural disaster relief packages to assist customers
affected by floods, bushfires and other disasters over the year – see
page 31 for further details; and
— Westpac New Zealand launched a Warm Up Home Loan, offering
up to NZ$10,000 interest-free, for five years, to make homes healthier
and more energy efficient.
IMPROVE DISCLOSURE
Improve and disclose
our climate change
performance
— Reduced Scope 1 and 2 emissions by 27% since 20163 exceeding our
reduction target of 9% by 2020;
— Commenced renewable electricity supply from Bomen Solar Farm
in Q4 2020. We expect to source over 45% of our annual electricity
requirement from renewables in 2021, and are on track to meet our
commitment of 100% by 2025;
— Westpac New Zealand became New Zealand’s first Toitū carbon zero
certified bank in 2020; and
— Released our updated Climate Change Position Statement and 2023
Action Plan.
POLICY ADVOCACY
Advocate for policies
that stimulate
investment in climate
change solutions
— Actively engaged in industry initiatives on key climate change themes,
including through the UN Principles for Responsible Banking, Australian
Sustainable Finance Initiative, Australian Business Roundtable for
Disaster Resilience and Safer Communities, and Climate Measurement
Standards Initiative (CMSI).
1 Progress and targets for lending to climate solutions are reported on an ‘as-at’, non-cumulative basis.
2 BT’s annual climate-related disclosure can be found at bt.com.au/sustainability.
3 FY16 Scope 1 and 2 baseline: 147,620 tCO2 -e.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20_34-55_V40.indd 47
3943 Westpac AR20_34-55_V40.indd 47
31/10/20 4:46 pm
31/10/20 4:46 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
48
Aim to provide
$3.5 billion new lending
to climate change
solutions by 2023 and
$15 billion by 2030
Climate change update (continued)
Strategy update
In May, we released our updated Climate
Change Position Statement and 2023
Action Plan (Climate Action Plan)1. Our
updated Climate Action Plan describes
the principles that underpin our climate
change strategy, recognising that:
— a transition to a net zero emissions
economy is required by 2050;
— economic growth and emissions
reductions are complementary goals;
— addressing climate change creates
opportunities;
— climate-related risk is a financial risk; and
— collective action, transparency and
disclosure matter.
To address climate change risk and
opportunities, our Climate Action Plan
identifies three areas where we expect
to direct our attention over the short,
medium and long-term. We will:
— help customers and communities
respond to climate change;
— improve the climate change performance
of our operations; and
— support initiatives and policies to achieve
the goals of the Paris Agreement.
The Climate Action Plan also identifies
areas where we will continue to improve our
oversight, risk management and disclosure
of climate change risks and opportunities.
Oversight
The Board has oversight of the Group’s
approach to and management of climate
change and receives twice-yearly updates.
Our Climate Action Plan is approved by the
Board every three years. The Board Risk
Committee considers and approves our
Sustainability Risk Management Framework
(which includes climate change risks) every
two years.
The management of our response to
climate change is led by Group Executives.
The Sustainability Council (Council),
sponsored by the Group Executive,
Customer and Corporate Relations,
comprises senior leaders from across the
Group with responsibility for managing
Westpac’s sustainability agenda, including
climate change.
The Council meets at least quarterly and has
climate change as a standing agenda item.
The Council reports to the Executive Team
and Board through twice-yearly updates.
Various committees oversee different
elements of our climate change strategy:
— the Sustainable Finance Committee
coordinates initiatives to achieve
Westpac’s climate change solutions
targets. It reports to the Council;
— the Climate Change Risk Committee
oversees work to identify and manage the
potential impact on credit exposures from
climate change-related transition and
physical risks across the Group. It reports
to the Group Credit Risk Committee; and
— the Environment Management Committee
oversees strategies and initiatives to
reduce our environmental footprint,
particularly targets on energy and
emissions. It reports to the Council.
Divisional risk committees consider the
climate change dimensions of our business
activities as required.
During the year, the Board:
— attended a training workshop led by
industry experts to discuss climate
change risks, investor expectations
and directors’ duties;
— approved the Group’s fourth Climate
Action Plan in April 2020; and
— noted a summary of developments in
climate change in its six-monthly update.
To enhance oversight of climate change we:
— aligned the Climate Change Risk
Committee, chaired by the Group Chief
Credit Officer, to be a sub-committee
of the Group Credit Risk Committee to
improve oversight of climate-related
financial risks;
— implemented climate change updates to
risk forums for major customer-facing
divisions including Westpac Institutional
Bank (WIB), Business division, Consumer
division and Westpac New Zealand
Limited; and
— commenced work to enhance climate
change reporting to the Board.
1
Westpac’s Climate Change Position Statement and 2023 Action Plan does not apply to investments made where a Westpac Group entity is acting as a
trustee (for example Responsible Super Entity licensee or Responsible Entity) or insurer. The governance and strategies for ESG risk in these portfolios
(including climate change) are the responsibility of the relevant board and management of these entities.
3943 Westpac AR20_34-55_V40.indd 48
3943 Westpac AR20_34-55_V40.indd 48
31/10/20 4:46 pm
31/10/20 4:46 pm
WESTPAC GROUP 2020 ANNUAL REPORT 49
Risks associated
with climate change
have environmental,
social and economic
dimensions and are
predicted to impact all
aspects of society.
Bomen Solar Farm in Wagga Wagga, NSW
Managing climate-related risks
Climate change risks are managed within
the Group’s risk management framework.
We seek to understand the potential for
climate-related transition, physical and
litigation risks to impact our business, in
particular the possible impact on credit risk,
regulatory and reporting obligations, and
our reputation.
Through our Climate Action Plan, we set out
criteria for lending to emissions-intensive
and climate-vulnerable sectors, supporting
customers that are in, or reliant on, these
sectors and who assess the financial
implications of climate change on their
business, including how their strategies are
likely to perform under various forward-
looking scenarios, and demonstrate a
rigorous approach to governance, strategy
setting, risk management and reporting.
We review our Sustainability Risk
Management Framework, risk appetite
measures and policies ensuring the criteria
set out in the Climate Action Plan are
integrated. These criteria are applied at the
portfolio, customer and transaction level
where appropriate. Escalation of climate-
related risks to relevant divisional risk
committees occurs in accordance with the
Sustainability Risk Management Framework.
If the identified risks are not within risk
appetite then the application of conditions
to manage the risks may be considered, or
the transaction may be declined.
CLIMATE CHANGE RISK COMMITTEE
We updated our Climate Change Risk Committee (CCRC) to improve oversight of
climate-related financial risks. The CCRC met three times during the year.
Now chaired by the Group Chief Credit Officer and reporting to the Group Credit
Risk Committee, the CCRC’s objectives are to:
— oversee identification, quantification and management of climate-related risks;
— integrate climate-related risks into risk management frameworks, lending policies
and lending guidelines;
— design, execute and integrate climate scenario analysis and portfolio resilience
testing;
— support climate change disclosures and reporting; and
— facilitate continuous improvement in climate-related risk management.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20_34-55_V40.indd 49
3943 Westpac AR20_34-55_V40.indd 49
31/10/20 4:46 pm
31/10/20 4:46 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
50
Westpac has long understood that
climate-related risk is a financial risk.
This is one of the reasons why we
have been taking action on this issue
for over a decade.
This year we improved climate-related
risk management by:
— establishing ‘Sustainability’ as a Level 1
Risk in the Group Risk Taxonomy
to enhance our focus on material
sustainability risks including climate
change;
— realigning ownership of the Sustainability
Risk Management Framework from
Group Sustainability to Risk to improve
integration with Group-wide risk
approaches;
— initiating a review of our Sustainability
Risk Management Framework, Risk
Appetite Statements and ESG Credit
Policy to integrate the criteria set out
in our new Climate Action Plan;
— analysing the credit characteristics
of lending in industry sectors and
postcodes which may face higher risks
by 2050 under climate change scenarios
developed in 2018 and 2019;
— completing Westpac New Zealand’s first
climate risk disclosures in line with TCFD
recommendations; and
— conducting a physical risk assessment
of the impact of sea level rise on
coastal flooding and erosion on the
Westpac New Zealand residential
mortgage book.
Scenario analysis
Since 2016, Westpac has evolved its scenario
analysis to inform its assessment of climate-
related risks and opportunities over the short,
medium and long-term. The findings from
our scenario analysis informed our current
Climate Action Plan which outlines a range
of commitments to help customers and
communities respond to climate change.
We continue to assess1:
— the resilience of our Australian Business
and Institutional2 lending to transition risks
using 1.5 and 2-degrees scenarios; and
— the potential impact of climate-related
physical risks on the Australian mortgage
portfolio3 arising from global warming
scenarios of both 2 and 4-degrees.
As at 30 September 2020:
— the share of our current Australian Business
and Institutional portfolio exposed
to sectors which may face relatively
higher growth constraints4 at 2030 and
2050 under climate change transition
scenarios (1.5-degrees and 2-degrees) is
shown below:
1.5-degrees scenario
2-degrees scenario
2030
1.9%
0.9%
2050
3.4%
2.8%
— the share of our current Australian
mortgage portfolio in postcodes which
by 2050 are likely to be exposed to
higher physical risks under a 4-degrees
scenario is approximately 1.7%.
As part of our Climate Action Plan, further
work underway includes:
— assessing climate-related physical risks
on our Australian agribusiness portfolio
and how we can continue to support our
customers to respond;
— updating our assessment of physical risk in
our Australian mortgage book and how we
can help customers become more climate-
resilient;
— integrating climate change considerations
into our stress-testing capability; and
— analysing lending across the energy sector,
including a ‘deep dive’ on the oil and gas
sector under Paris-aligned scenarios –
see next page.
Using scenarios developed in 2018 and 2019 – for further details see pages 118-120 of our 2019 Annual Report.
1
2 Excludes retail, sovereign and bank exposures.
3 Excludes RAMS and Equity Access.
4 Sectors whose medium (2030) and long-term (2050) performance under a scenario deviated by more than one standard deviation below average
GDP growth were classified as ‘higher risk’.
3943 Westpac AR20_34-55_V40.indd 50
3943 Westpac AR20_34-55_V40.indd 50
31/10/20 4:46 pm
31/10/20 4:46 pm
WESTPAC GROUP 2020 ANNUAL REPORT 51
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
Energy sector focus
Our focus on the energy sector recognises its critical role in the transition to a low carbon economy and our
role in supporting this change. During the year we undertook further analysis to expand disclosure of our total
committed exposure to the energy sector value chain in WIB5.
Mining and
Extraction
Transport
Electricity
Generation6
LNG Terminal
$0.57 billion
Oil and Gas
Extraction
$2.22 billion
Exploration
$0.56 billion
Coal
Coal
Rail
$0.28 billion
Port
$0.44 billion
Metallurgical
coal
$0.21 billion
Metallurgical
coal in diversified
miners7
$0.03 billion
Thermal coal
$0.30 billion
Uranium
$0.03 billion
Gas
$0.67 billion
Black coal
$0.27 billion
Brown coal
$0.03 billion
Liquid fuel
$0.12 billion
Hydro
$1.30 billion
Other renewables
$1.89 billion
Oil and Gas
Refining
$2.02 billion
Distribution
and Retail
Electricity
and Gas6
Networks
$4.53 billion
Retailers
$0.77 billion
Oil and Gas
$1.32 billion
In addition to the criteria for financing activities in the energy sector set out in our Climate Action
Plan, we have commenced work to further understand the role of oil and gas in the transition to a low
carbon economy. More extensive climate change disclosures can be found in our 2020 Sustainability
Performance Report.
5 All figures are Total Committed Exposures (TCE) at 30 September 2020 for WIB only.
6 Australia and New Zealand only. Customers with operations across several sectors are attributed across those activities based on business segment
contribution.
7 Coal exposures within diversified miners are apportioned by the percentage EBITDA contribution of coal in their latest annual financial statements.
Thermal coal exposures within diversified miners are immaterial.
3943 Westpac AR20_34-55_V40.indd 51
3943 Westpac AR20_34-55_V40.indd 51
31/10/20 4:46 pm
31/10/20 4:46 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
52
CORPORATE GOVERNANCE
Our corporate
governance
approach
Corporate governance is the framework
of systems, policies and processes by
which we operate, make decisions and
hold people to account.
The framework establishes the roles
and responsibilities of Westpac’s Board
and management. It also establishes
the systems, policies and processes
for monitoring and evaluating Board
and management performance and
the practices for corporate reporting,
disclosure, remuneration, risk management
and engagement of security holders.
Our approach to corporate governance is
based on a set of values and behaviours
that underpin our day-to-day activities and
are designed to promote transparency, fair
dealing and the protection of stakeholder
interests. It includes aspiring to the highest
standards of corporate governance,
which Westpac sees as fundamental to
the sustainability of our business and
our performance.
WESTPAC’S BOARD AND BOARD COMMITTEE STRUCTURE
Board
Delegation
Accountability
Independent Assurance
Chief Executive Officer
External
Auditors
Group
Audit
Legal or other
professional advice
Accountability
Group Executives
Assurance,
Oversight through
Reporting
Board Committees
Delegation
Delegation
Nominations
& Governance
Remuneration
Audit
Provide assurance
on the remuneration
disclosures in the
Remuneration Report
Provide assurance on
risk components of
the annual report and
interim/annual financial
results announcements
Risk
Technology
Sub-Committee
Provide relevant periodic assurances
and reports (as appropriate)
Legal, Regulatory
& Compliance
Provide relevant reports (as appropriate)
3943 Westpac AR20_34-55_V40.indd 52
3943 Westpac AR20_34-55_V40.indd 52
31/10/20 4:46 pm
31/10/20 4:46 pm
WESTPAC GROUP 2020 ANNUAL REPORT 53
The Board also established a Board Legal,
Regulatory & Compliance Committee as
a new sub-committee of the Board Risk
Committee to assist with overseeing
management of financial crime risk, material
litigation and regulatory investigations,
customer remediation activities, compliance
and conduct risk.
In addition, the Board is overseeing broader
change across the Company, which in FY20
included:
— appointing a new CEO and overseeing
changes to, and succession planning of,
the Executive Team, including the creation
of three new Group Executive roles;
— overseeing the Group’s response to the
COVID-19 pandemic;
— overseeing the establishment of the
Specialist Businesses division which has
undertaken a strategic review of certain
businesses to simplify Westpac’s portfolio;
— overseeing the implementation of a new
Lines of Business operating model to
clarify responsibilities and accountability
for end-to-end performance;
— reviewing the findings of the reassessment
of the Culture, Governance and
Accountability program and overseeing
the CORE program that has been set up to
address, among other things, weaknesses
in our management of risk and our risk
culture; and
— approving a Code of Conduct, a new
purpose ‘Helping Australians and
New Zealanders succeed’, a new set of
values ‘Helpful, Ethical, Leading Change,
Performing and Simple’ and a set of
behaviours to bring those values to life.
Board’s areas of focus in FY20
This has been a significant year for Westpac,
and has included an investigation by Westpac
into its anti-money laundering and counter-
terrorism financing (AML/CTF) compliance
failures following the filing of AUSTRAC’s
Statement of Claim and the reassessment of
our Culture, Governance and Accountability
program as required by APRA. One of the
main conclusions of the reassessment was that
aspects of our non-financial risk culture were
‘immature and reactive’. These events have led
to a number of changes across the Company.
The Group is focused on improving its risk
management capability and risk culture,
including through its Customer Outcomes
and Risk Excellence (CORE) program. The
Board is responsible for the governance of the
program, with oversight of the CORE program
workstreams by the Board Legal, Regulatory
& Compliance Committee. Further information
on the CORE program can be found on
page 19 and 20.
Much of the Board’s focus in 2020 (with
assistance from its Committees) stemmed
from these developments and included
seeking to understand the root cause of
issues, applying appropriate consequences
and overseeing the program of actions to
address the matters raised by AUSTRAC
in its Statement of Claim including by:
— establishing a Board Financial Crime
Committee1 to oversee the implementation
of Westpac’s enhanced financial crime
program;
— appointing Promontory Australia to
undertake an external assurance review
of Westpac’s management accountability
review and a separate external review of
Westpac’s financial crime program;
— appointing an independent Advisory Panel
to review the Board’s governance relating
to the Group’s AML/CTF obligations; and
— determining accountability and applying
remuneration consequences for the issues
identified in AUSTRAC’s Statement of
Claim.
1
The Board Financial Crime Committee was established and dissolved during the reporting period,
with its remaining responsibilities assumed by the Board Legal, Regulatory & Compliance Committee.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20_34-55_V40.indd 53
3943 Westpac AR20_34-55_V40.indd 53
31/10/20 4:46 pm
31/10/20 4:46 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
54
Board skills, diversity and tenure
Westpac seeks to maintain a Board of Directors with a broad range of financial and other skills, experience and
knowledge necessary to guide the business of the Group. The Board uses a skills matrix to illustrate the key skills and
experience the Westpac Board is seeking to achieve in its membership collectively, and the number of Directors with
each skill and experience.
BOARD SKILLS, EXPERIENCE AND ATTRIBUTES (AS AT 30 SEPTEMBER 2020)
SKILLS AND EXPERIENCE
DESCRIPTION
NUMBER OF DIRECTORS
Strategic
and
commercial
acumen
An ability to define strategic objectives,
constructively question business plans and
implement strategy using commercial judgement
Financial
services
experience
Experience working in, or advising, the banking
and financial services industry (including wealth
management), with strong knowledge of its
economic drivers and global business perspectives
Financial
acumen
Highly proficient in accounting or related financial
management and reporting for businesses of
significant size
Risk
Experience in anticipating, recognising and
managing risks, including regulatory, financial
and non-financial risks, and monitoring risk
management frameworks and controls
Technology
Experience in developing or overseeing the
application of technology in large complex
businesses, with particular reference to innovation
and the Group’s digital transformation strategic
priority
Governance
Commitment to, and knowledge of, governance,
environmental and social issues, with particular
reference to the legal, compliance, regulatory and
voluntary frameworks applicable to listed entities
and highly regulated industries
People,
culture and
conduct
Experience in people matters including workplace
cultures, morale, management development,
succession and remuneration, with particular
reference to the Group’s talent retention and
development initiatives and the ability to consider
and respond to matters relating to inclusion and
diversity
Executive
leadership
Being appointed as CEO or a similar senior
leadership role in a large complex organisation, and
having experience in that position in managing the
business through periods of significant change
Listed
company
experience
Held two or more Non-executive Directorships on
Australian or international listed companies
International
Senior leadership experience involving
responsibility for operations across borders, and
exposure to a range of political, cultural, regulatory
and business environments in that position
Customer
focus
Experience in developing and overseeing the
embedding of a strong customer-focused culture in
large complex organisations, and a demonstrable
commitment to achieving customer outcomes
10/10
7/10
8/10
8/10
8/10
10/10
9/10
9/10
7/10
6/10
8/10
3943 Westpac AR20_34-55_V40.indd 54
3943 Westpac AR20_34-55_V40.indd 54
31/10/20 4:46 pm
31/10/20 4:46 pm
WESTPAC GROUP 2020 ANNUAL REPORT 55
BOARD DIVERSITY
For FY20, the Board had a target of maintaining at least 30% women on the Westpac Board.
The Board gender diversity as at 30 September 2020 is set out below.
Number of female Directors of the Board (3 out of 10).
30%
FEMALE DIRECTORS
In October 2020, the Board Nominations & Governance Committee approved a revised target
of at least 40% women on the Westpac Board.
Westpac’s performance against the revised target will vary at any given time depending on the
timing of Board composition changes.
BOARD TENURE
The Board tenure as at 30 September 2020 is set out below. The length of service of each
Director is set out in Section 1 of the Directors’ Report.
2.8 years
AVERAGE BOARD TENURE
0-3 years 60%
3-6 years 20%
6-9 years 20%
Corporate Governance Statement
Westpac’s 2020 Corporate Governance Statement describes our corporate governance
framework, policies and practices as at 1 November 2020 and is available on our website
at www.westpac.com.au/corpgov. The website contains copies and summaries of charters,
principles and policies referred to in the Corporate Governance Statement.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20_34-55_V40.indd 55
3943 Westpac AR20_34-55_V40.indd 55
31/10/20 4:46 pm
31/10/20 4:46 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
56
WESTPAC GROUP 2020 ANNUAL REPORT
DIRECTORS’ REPORT
Directors’
report
Includes Board and Executive Team
biographies, report on the business,
Directors’ interests, environmental and
human rights supply chain disclosures,
political engagement, Directors’
meetings and Remuneration Report.
Our Directors present their report
together with the financial statements
of the Group for the financial year ended
30 September 2020.
Directors
The names of the persons who have been
Directors, or appointed as Directors, during
the period since 1 October 2019 and up to
the date of this report are: John McFarlane
(Director from 17 February 2020), Peter King
(Director from 2 December 2019), Lindsay
Maxsted (appointed as a Director on 1 March
2008 and retired as a Director on 31 March
2020), Brian Hartzer (appointed as a Director
on 2 February 2015 and retired as a Director on
2 December 2019), Nerida Caesar, Ewen Crouch
AM (appointed as a Director on 1 February 2013
and retired as a Director on 12 December 2019
following the completion of the 2019 Annual
General Meeting), Catriona Alison Deans (Alison
Deans), Craig Dunn, Yuen Mei Anita Fung (Anita
Fung) (appointed as a Director on 1 October
2018 and retired as a Director on 31 March
2020), Steven Harker, Peter Marriott, Peter
Nash, Margaret Seale and Christopher Lynch
(appointed as a Director on 1 September 2020).
Particulars of the skills, experience, expertise
and responsibilities of the Directors at the
date of this report, including all directorships
of other listed companies held by a Director
at any time in the three years immediately
before 30 September 2020, and the period
for which each directorship has been held,
are set out in the following pages.
3943 Westpac AR20_56_onwards V40.indd 56
3943 Westpac AR20_56_onwards V40.indd 56
31/10/20 4:47 pm
31/10/20 4:47 pm
BOARD OF DIRECTORS
57
JOHN MCFARLANE
MA, MBA
Age: 73
PETER KING
BEc, FCA.
Age: 50
NERIDA CAESAR
BCom, MBA, GAICD
Age: 56
CHAIRMAN AND INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: Director since February 2020 and Chairman since April 2020.
Board Committees: Chairman of the Board Nominations & Governance Committee.
Experience: John is a senior figure in global banking and financial services and has 45 years of
experience in the sector. He was formerly Chairman of Barclays plc, Aviva plc and FirstGroup
plc, and Chairman of The City UK. He was also a Non-executive Director of Westfield Group/
Westfield Corporation, The Royal Bank of Scotland Group, Capital Radio plc and was a council
member of The London Stock Exchange.
John served as Chief Executive Officer of Australia and New Zealand Banking Group Limited
from 1997 to 2007, and as Group Executive Director at Standard Chartered. He also held senior
positions at Citicorp including as Managing Director of Citicorp Investment Bank Ltd and Head
of Citicorp and Citibank in the UK and Ireland. He began his career at Ford Motor Co.
Directorships of listed entities over the past three years: Unibail-Rodamco-Westfield SE
(since June 2018), Barclays plc (January 2015 to May 2019) and Westfield Corporation Limited
(July 2014 to June 2018).
Other principal directorships and interests: Director of Old Oak Holdings Ltd.
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER
Appointed: Director since December 2019.
Board Committees: Member of the Board Technology Committee.
Experience: Peter was appointed Westpac Group Chief Executive Officer in April 2020.
Peter previously held this role on an acting basis between December 2019 and March 2020.
Since joining the Westpac Group in 1994, Peter also held senior finance roles including
Chief Financial Officer with responsibility for Westpac’s Finance, Tax, Treasury and Investor
Relations functions. Prior to this, he was Deputy Chief Financial Officer for three years. He has
also held senior positions across the Group including in Group Finance, Business and Consumer
Banking, Business and Technology Services, Treasury and Financial Markets. Peter commenced
his career at Deloitte Touche Tohmatsu. He has a Bachelor of Economics from Sydney
University and completed the Advanced Management Programme at INSEAD. He is a Fellow of
the Institute of Chartered Accountants.
Directorships of listed entities over the past three years: Nil.
Other principal directorships and interests: Director of Australian Banking Association
Incorporated and Institute of International Finance.
INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: Director since September 2017.
Board Committees: Member of the Board Legal, Regulatory and Compliance and Board
Technology Committees.
Experience: Nerida has over 33 years of broad ranging commercial and business management
experience, with particular depth in technology led businesses. Nerida was Group Managing
Director and Chief Executive Officer, Australia and New Zealand, of Equifax (formerly the
ASX-listed Veda Group Limited) and was also a former director of Genome.One Pty Ltd and
Stone and Chalk Limited. Before joining Equifax, Nerida held several senior management roles
at Telstra, including Group Managing Director, Enterprise and Government and Group Managing
Director, Wholesale. Nerida also held several Executive and senior management positions with
IBM within Australia and internationally, including as Vice President of IBM’s Intel Server Division
for the Asia Pacific region.
Directorships of listed entities over the past three years: Nil.
Other principal directorships and interests: Chairman of Workplace Giving Australia Limited
and Director of Spark Investment Holdco Pty Ltd. Member of the Advisory Board of IXUP
Limited. Advisor to Equifax Australia and New Zealand and Carla Zampatti Pty Ltd.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20_56_onwards V40.indd 57
3943 Westpac AR20_56_onwards V40.indd 57
31/10/20 4:47 pm
31/10/20 4:47 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
58
ALISON DEANS
BA, MBA, GAICD
Age: 52
CRAIG DUNN
BCom, FCA
Age: 57
STEVEN HARKER
BEc (Hons.), LLB
Age: 65
PETER MARRIOTT
BEc (Hons.), FCA
Age: 63
INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: Director since April 2014.
Board Committees: Chairman of the Board Technology Committee. Member of the Board
Nominations & Governance, Board Remuneration and Board Risk Committees.
Experience: Alison has more than 20 years’ experience in senior executive roles focused on
building digital businesses and digital transformation across e-commerce, media and financial
services. She has served as the CEO of eCorp Limited, CEO of Hoyts Cinemas and CEO of
eBay, Australia and New Zealand. Most recently, she was CEO of technology-based investment
company netus Pty Ltd, which was acquired by Fairfax Media Limited in 2012.
Directorships of listed entities over the past three years: Cochlear Limited (since January 2015),
Ramsay Health Care Limited (since November 2018), and Insurance Australia Group Limited
(February 2013 to October 2017).
Other principal directorships and interests: Director of SCEGGS Darlinghurst Limited,
The Observership Program Limited and Deputy Group Pty Ltd. Senior Advisor to McKinsey
& Company and Investment Committee member of the CSIRO Innovation Fund (Main
Sequence Ventures).
INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: Director since June 2015.
Board Committees: Chairman of the Board Remuneration Committee. Member of the Board
Nominations & Governance and Board Risk Committees.
Experience: Craig has more than 20 years’ experience in financial services, including as CEO
of AMP Limited. He was formerly a director of Financial Literacy Australia Limited, and a Board
member of the Australian Japanese Business Cooperation Committee, Jobs for New South
Wales, and the New South Wales Government’s Financial Services Knowledge Hub. Craig was
Chairman of Stone and Chalk Limited and of the Investment and Financial Services Association
(now the Financial Services Council). He was also a member of the Financial Services Advisory
Committee, the Australian Financial Centre Forum, the Consumer and Financial Literacy
Taskforce and a Panel member of the Australian Government’s Financial System Inquiry.
Directorships of listed entities over the past three years: Telstra Corporation Limited (since
April 2016).
Other principal directorships and interests: Chairman of The Australian Ballet, Chairman
of the International Standards Technical Committee on Blockchain and Distributed Ledger
Technologies (ISO/TC 307), and consultant to King & Wood Mallesons.
INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: Director since March 2019.
Board Committees: Member of the Board Audit and Board Legal, Regulatory & Compliance
Committees.
Experience: Steve has over 35 years’ experience in investment banking. He was formerly
Managing Director and Chief Executive Officer of Morgan Stanley Australia, and then Vice
Chairman until February 2019. Prior to joining Morgan Stanley, he spent 15 years with Barclays
de Zoete Wedd (BZW, now Barclays Investment Bank). Steve was Chairman and Director of
Australian Financial Markets Association Limited and a Director of Investa Property Group.
He also previously served on the Board of the Centre for International Finance and Regulation
and was a Guardian of the Future Fund of Australia.
Directorships of listed entities over the past three years: Nil.
Other principal directorships and interests: Chairman of the Investment and Executive
Committees at Future Now Ventures. Director of The Banking and Finance Oath Limited, The
Hunger Project Australia, ASX Refinitiv Charity Foundation, and New South Wales Golf Club
Foundation Limited.
INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: Director since June 2013.
Board Committees: Chairman of the Board Risk Committee. Member of the Board Legal,
Regulatory & Compliance, Board Audit, Board Nominations & Governance and Board Technology
Committees.
Experience: Peter has over 30 years’ experience in senior management roles in the finance
industry, encompassing international banking, finance and auditing. He joined Australia and
New Zealand Banking Group Limited (ANZ) in 1993 and was Chief Financial Officer from July 1997
to May 2012. Prior to his career at ANZ, Peter was a banking and finance, audit and consulting
partner at KPMG Peat Marwick. Peter was formerly a Director of ANZ National Bank Limited in
New Zealand and various ANZ subsidiaries.
Directorships of listed entities over the past three years: ASX Limited (since July 2009).
Other principal directorships and interests: Director of ASX Clearing Corporation Limited,
ASX Settlement Corporation Limited and Austraclear Limited. Member of Monash University
Council and Chairman of the Monash University Council’s Resources and Finance Committee.
3943 Westpac AR20_56_onwards V40.indd 58
3943 Westpac AR20_56_onwards V40.indd 58
31/10/20 4:47 pm
31/10/20 4:47 pm
WESTPAC GROUP 2020 ANNUAL REPORT 59
PETER NASH
BCom, FCA, F Fin
Age: 58
MARGARET (MARGIE)
SEALE
BA, FAICD
Age: 60
CHRIS LYNCH
BCom, MBA, FCPA
Age: 67
INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: Director since March 2018.
Board Committees: Chairman of the Board Audit and Board Legal, Regulatory & Compliance
Committees. Member of the Board Risk and Board Nominations & Governance Committees.
Experience: Peter was formerly a Senior Partner with KPMG, having been admitted to the
Australian partnership in 1993. He served as the National Chairman of KPMG Australia and
served on KPMG’s Global and Regional Boards. His previous positions with KPMG included
Regional Head of Audit for Asia Pacific, National Managing Partner for Audit in Australia and
head of KPMG Financial Services. Peter has worked in geographically diverse and complex
operating environments providing advice on a range of topics including business strategy,
risk management, internal controls, business processes and regulatory change. He has also
provided financial and commercial advice to many State and Federal Government businesses.
Peter is a former member of the Business Council of Australia and its Economic and Regulatory
Committee.
Directorships of listed entities over the past three years: Johns Lyng Group Limited (Chairman
since October 2017), Mirvac Group (since November 2018) and ASX Limited (since June 2019).
Other principal directorships and interests: Director of Reconciliation Australia Limited and
Golf Victoria Limited. Board member of the Koorie Heritage Trust.
INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: Director since March 2019.
Board Committees: Member of the Board Remuneration and Board Legal, Regulatory &
Compliance Committees.
Experience: Margie has more than 25 years’ experience in senior executive roles in Australia
and overseas, including in consumer goods, global publishing, sales and marketing, and the
successful transition of traditional business models to digital environments. Prior to her non-
executive career, Margie was the Managing Director of Random House Australia and New
Zealand and President, Asia Development for Random House Inc. Margie was a Director and
then Chair of Penguin Random House Australia Pty Limited, and a Director of Ramsay Health
Care Limited, Bank of Queensland Limited and the Australian Publishers’ Association. She also
served on the Boards of Chief Executive Women (chairing its Scholarship Committee), the
Powerhouse Museum, and the Sydney Writers Festival.
Directorships of listed entities over the past three years: Telstra Corporation Limited
(since May 2012), Scentre Group Limited (since February 2016), Ramsay Health Care Limited
(April 2015 to October 2018) and Bank of Queensland Limited (January 2014 to June 2018).
Other principal directorships and interests: Nil.
INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: Director since September 2020.
Board Committees: Member of the Board Audit and Board Risk Committees.
Experience: Chris has significant experience in mineral resources and infrastructure, having
spent over 30 years working in these fields globally. Chris was formerly the Global Chief
Financial Officer of Rio Tinto Group, based in London, and an Executive Director. Prior to this,
he was a Non-executive Director of Rio Tinto Group. Chris was the Chief Executive Officer of
Transurban Group, an international toll road developer and manager with interests in Australia
and North America from 2008 to 2012. His executive career also included seven years at BHP
Billiton where he was Chief Financial Officer and then Executive Director and Group President
– Carbon Steel Materials. Chris spent 20 years with Alcoa Inc. where he held a number of
executive positions, including Vice-President and Chief Information Officer based in Pittsburgh,
USA and Chief Financial Officer of Alcoa Europe in Switzerland. He was also managing director
of KAAL Australia Limited, a joint venture company formed by Alcoa and Kobe Steel. Chris was
formerly a Commissioner of the Australian Football League from 2008 until 2014.
Directorships of listed entities over the past three years: Rio Tinto Group (September 2011 to
September 2018).
Other principal directorships and interests: Director of Business for Millennium Development
Ltd, Chairman of the National Water Grid Authority Advisory Board.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20_56_onwards V40.indd 59
3943 Westpac AR20_56_onwards V40.indd 59
31/10/20 4:47 pm
31/10/20 4:47 pm
WESTPAC GROUP 2020 ANNUAL REPORT 1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
60
Company Secretary
Our Company Secretary as at 30 September 2020 was Tim Hartin.
TIM HARTIN
LLB (Hons.)
Age: 45
COMPANY SECRETARY
Tim was appointed Company Secretary in November 2011. Before that appointment, Tim was
Head of Legal – Risk Management & Workouts, Counsel & Secretariat and prior to that, he was
Counsel, Corporate Core. Before joining Westpac in 2006, Tim was a Consultant with Gilbert
+ Tobin, where he provided corporate advisory services to ASX-listed companies. Tim was
previously a lawyer at Henderson Boyd Jackson W.S. in Scotland and in London in Herbert
Smith’s corporate and corporate finance division.
Executive Team
As at 30 September 2020 our Executive Team was:
NAME
Peter King
POSITION
Managing Director & Chief Executive Officer
Richard Burton
Acting Chief Executive, Consumer
Rebecca Lim
Group General Counsel & Enterprise Executive
Guilherme (Guil) Lima Chief Executive, Business
Carolyn McCann
Group Executive, Customer & Corporate Relations
David McLean
Chief Executive Officer, Westpac New Zealand
Christine Parker
Group Executive, Human Resources
Michael Rowland
Chief Financial Officer
David Stephen
Chief Risk Officer
Gary Thursby
Chief Information Officer (Acting)
Les Vance
Group Executive, Financial Crime, Compliance & Conduct
Alastair Welsh
Acting Group Executive, Enterprise Services
Jason Yetton
Chief Executive, Specialist Businesses, Strategy & Transformation
Curt Zuber
Acting Chief Executive, Westpac Institutional Bank
There are no family relationships between or among any of our Directors or Executive Team members.
YEAR
JOINED
GROUP
YEAR
APPOINTED
TO POSITION
1994
2010
2002
2019
2013
1999
2007
2020
2018
2008
2008
1992
2020
1995
2020
2020
2020
2019
2018
2015
2011
2020
2018
2020
2020
2019
2020
2020
3943 Westpac AR20_56_onwards V40.indd 60
3943 Westpac AR20_56_onwards V40.indd 60
31/10/20 4:47 pm
31/10/20 4:47 pm
WESTPAC GROUP 2020 ANNUAL REPORT EXECUTIVE TEAM AS AT 30 SEPTEMBER 2020
WESTPAC GROUP 2020 ANNUAL REPORT
61
PETER KING
BEc, FCA
Age: 50
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, WESTPAC GROUP
Peter was appointed Westpac Group Chief Executive Officer in April 2020, after holding the
role on an acting basis between December 2019 and March 2020.
In his 25 years at Westpac, Peter has held senior finance roles including Chief Financial Officer
with responsibility for Westpac’s Finance, Group Audit, Tax, Treasury and Investor Relations
functions. Prior to this he was Deputy Chief Financial Officer for three years and worked in
senior positions across the Group including in Group Finance, Business and Consumer Banking,
Business and Technology Services, Treasury and Financial Markets.
Peter commenced his career at Deloitte Touche Tohmatsu. He has a Bachelor of Economics
from Sydney University and completed the Advanced Management Programme at INSEAD.
He is a Fellow of the Institute of Chartered Accountants.
RICHARD BURTON
BSc Mathematics (Hons)
Age: 48
REBECCA LIM
B Econ, LLB (Hons)
Age: 48
GUILHERME (GUIL)
LIMA
MBA, BBA
Age: 46
ACTING CHIEF EXECUTIVE, CONSUMER DIVISION
Richard was appointed Acting Chief Executive, Consumer Division in June 2020. The division
provides a wide range of retail banking, lending and consumer finance services across the
Westpac, St.George, BankSA, Bank of Melbourne and RAMS brands.
In his 10 years at Westpac, Richard has held senior finance roles spanning consumer, business
and Group functions including Chief Financial Officer of the Consumer Division, Chief Financial
Officer of the Business Division, Acting General Manager, Group Finance and Acting Deputy
Chief Financial Officer. During this time, Richard led large teams of finance professionals while
driving performance, optimising investment to generate positive customer experiences and
managing all aspects of financial reporting.
Prior to joining Westpac, Richard held senior roles in financial services in Australia and the UK
including Head of Business Performance at Challenger Financial Services Group and Head of
Performance Management at National Australia Bank. Richard also led an advisory team for
KPMG in the UK.
Richard holds a Bachelor of Science in Mathematics with Honours, from the University of
Bristol.
GROUP GENERAL COUNSEL & ENTERPRISE EXECUTIVE
Rebecca is responsible for leading Westpac’s legal function globally, as well as leading the
CEO’s office.
Rebecca joined Westpac in 2002 and has held a variety of other senior leadership roles
including General Manager, Human Resources for St.George Bank and General Manager,
St.George Private Clients.
Rebecca began her career at Blake Dawson Waldron (now Ashurst) before joining the US firm
Skadden Arps where she worked in both New York and London. Rebecca then moved into an
in-house role in investment banking at Goldman Sachs in London before returning to Australia
and joining Westpac.
Rebecca is a member of Chief Executive Women.
CHIEF EXECUTIVE, BUSINESS DIVISION
Guilherme (Guil) joined Westpac Group as Chief Executive, Business Division in December
2019. The division supports Australia’s small business, commercial, agribusiness and private
wealth customers providing a wide range of banking services across the Westpac, St.George,
BankSA and Bank of Melbourne brands.
Guil has 22 years’ experience in banking and consulting in Hong Kong, Brazil, UK, US, Spain
and the Netherlands. Prior to his appointment, Guil was Group Head of Wealth Management
at HSBC Hong Kong. He started at HSBC as Group Head of Strategy in London in 2010 after a
career totalling 10 years at McKinsey & Co.
Guil holds a Bachelor of Business Administration in General Management and Finance from
Fundação Getulio Vargas (FGV) in Brazil and a Master of Business Administration in Strategy,
Corporate Finance and Investment Management from Harvard Business School.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20_56_onwards V40.indd 61
3943 Westpac AR20_56_onwards V40.indd 61
31/10/20 4:47 pm
31/10/20 4:47 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
62
WESTPAC GROUP 2020 ANNUAL REPORT
CAROLYN MCCANN
BBus (Com), BA,
GradDipAppFin, GAICD
Age: 48
GROUP EXECUTIVE, CUSTOMER & CORPORATE RELATIONS
Carolyn was appointed as Westpac’s Group Executive responsible for customer and corporate
relations in May 2018. This division originally brought together management of the Group’s
customer resolution of complaints, alongside the functions responsible for reputation, corporate
affairs, communications and sustainability. During the year, Carolyn assumed responsibility for
the Customer Advocate function as well as the Group’s Customer Outcomes and Risk Excellence
Program, a program to improve risk culture, governance and accountability. From 1 November
2020, the division will also include Westpac Group’s customer remediation function. Carolyn joined
Westpac in 2013, as General Manager, Corporate Affairs and Sustainability.
Prior to joining Westpac, Carolyn spent 13 years at Insurance Australia Group in various positions,
including Group General Manager, Corporate Affairs and Investor Relations. She began her career in
consulting and has extensive in-house and consulting experience in financial services.
DAVID MCLEAN
LLB (Hons.)
Age: 62
CHIEF EXECUTIVE OFFICER, WESTPAC NEW ZEALAND LIMITED
David was appointed Chief Executive Officer, Westpac New Zealand Limited in February 2015.
Since joining Westpac in February 1999, he has held a number of senior roles including Head
of Debt Capital Markets New Zealand, General Manager, Private, Wealth and Insurance New
Zealand and Head of Westpac Institutional Bank New Zealand, and most recently, Managing
Director of the Westpac New York branch.
Before joining Westpac, David was Director, Capital Markets at Deutsche Morgan Grenfell from
1994. He also established the New Zealand branch of Deutsche Bank and was New Zealand
Resident Branch Manager. In 1988, David joined Southpac/National Bank as a Capital Markets
Executive. Prior to this, David worked as a lawyer in private practice and served as in-house
counsel for NatWest NZ from 1985.
CHRISTINE PARKER
BGDipBus (HRM)
Age: 60
MICHAEL ROWLAND
B.Comm, FCA
Age: 59
DAVID STEPHEN
BBus
Age: 56
GROUP EXECUTIVE, HUMAN RESOURCES
Christine was appointed to Westpac Group’s Executive Team in October 2011. As Group Executive,
Human Resources, Christine leads the HR function for the Group, responsible for strengthening
our service oriented and inclusive culture, attracting and retaining the best talent, developing
and helping our workforce to grow skills for the future, rewarding and recognising our people
and ensuring their health and wellbeing. Christine has responsibility for the office of the Banking
Executive Accountability Regime (BEAR) and also supports the CEO and Board on culture and
conduct. Since joining Westpac in 2007, Christine has held a variety of senior leadership roles
including Group General Manager, Human Resources and General Manager, Human Resources
for Westpac New Zealand Limited. Before joining Westpac, Christine held senior HR roles in a
number of high-profile organisations and across a range of industries, including Carter Holt Harvey
and Restaurant Brands New Zealand. Christine is currently Chair of the St.George Foundation, a
member of the Chief Executive Women and was previously a Director of Women’s Community
Shelters and member of the Veterans’ Employment Industry Advisory Committee.
CHIEF FINANCIAL OFFICER
Michael joined Westpac Group as Chief Financial Officer in September 2020. He is responsible
for Westpac’s Finance, Group Audit, Investor Relations, Tax and Treasury functions.
Before joining Westpac, Michael was a Partner in Management Consulting at KPMG. Before that
he held a number of senior executive positions at ANZ from 1999 to 2013. This included CFO
Institutional Banking, CFO Wealth, CFO New Zealand, CFO Personal Financial Services, and
business leadership roles as CEO Pacific, Managing Director Mortgages and General Manager,
Transformation. Michael commenced his career at KPMG, where he was promoted to become a
Tax Partner in 1993.
Michael holds a Bachelor of Commerce, University of Melbourne and a Graduate Diploma of
Taxation Law, Monash University. He is a Fellow of the Institute of Chartered Accountants in
Australia and New Zealand.
CHIEF RISK OFFICER
David was appointed Chief Risk Officer in October 2018, with responsibility for risk management
across the Group.
Prior to this, David was the Chief Risk Officer for Royal Bank of Scotland (RBS) from 2013,
having joined in 2010 as the Deputy Chief Risk Officer. David has also previously held other
senior roles at both retail and investment banks in the UK, USA, Hong Kong and Australia,
including serving as Chief Risk Officer at ANZ and Chief Credit Officer at Credit Suisse
Financial Products.
David has a Bachelor of Business in Banking and Finance from Monash University and is a
Board member of the International Financial Risk Institute.
3943 Westpac AR20_56_onwards V40.indd 62
3943 Westpac AR20_56_onwards V40.indd 62
31/10/20 4:47 pm
31/10/20 4:47 pm
WESTPAC GROUP 2020 ANNUAL REPORT
63
GARY THURSBY
BEc, DipAcc, FCA
Age: 58
LES VANCE
BCom, LLB (Hons)
Age: 50
ALASTAIR WELSH
MBA, BCA, CA
Age: 55
CHIEF INFORMATION OFFICER (ACTING)
Gary has held a number of Group Executive roles across the Group. He was appointed Chief
Information Officer (Acting) in 2020. Before this, he was Chief Financial Officer (Acting) from
December 2019 to August 2020. He has also held the roles of Chief Operating Officer and
Group Executive, Strategy & Enterprise Services.
Before joining Westpac in 2008, Gary held several senior finance roles at Commonwealth
Bank of Australia (CBA) including Deputy CFO and CFO Retail Bank. He has over 20 years’
experience in financial services, covering finance, M&A and large-scale program delivery.
He commenced his career at Deloitte Touche Tohmatsu.
Gary has a Bachelor of Economics and a Post Graduate Diploma in Accounting from Flinders
University of South Australia and is a Fellow of the Institute of Chartered Accountants.
GROUP EXECUTIVE, FINANCIAL CRIME, COMPLIANCE AND CONDUCT
Les was appointed Group Executive, Financial Crime, Compliance and Conduct in June 2020.
In this newly created role, Les is responsible for overseeing and strengthening the governance
and management of these risks.
Les has over 25 years’ executive experience across transformation and program delivery, risk
and governance, operations and line management. Joining Westpac in 2008, Les has held a
variety of senior roles including Chief Operating Officer, Consumer Division and Chief Risk
Officer, BT Financial Group. Prior to Westpac, Les was Group Executive for External Funds at
Investa Property Group and Chief Executive for Gaming at TAB Limited. Les commenced his
career as a solicitor at the legal firm Freehills.
Les holds a Bachelor of Commerce and a Bachelor of Laws with Honours, both from
University of Queensland.
ACTING GROUP EXECUTIVE, ENTERPRISE SERVICES
Alastair was appointed Acting Group Executive, Enterprise Services in December 2019. His role
is designed to accelerate the delivery of the Group’s Service Revolution and provides services
to support the Group’s operating businesses. Alastair’s responsibility also includes banking
operations, advice and group remediation, procurement, property and enterprise investments.
Alastair holds more than 30 years’ experience in banking in the UK, New Zealand and Australia.
Since joining Westpac NZ in 1992, he has held a variety of roles from relationship management
through to leadership positions for BT Financial Group, Group Customer Transformation and
Business Banking.
Prior to his current appointment, Alastair was Acting Chief Executive, Business.
JASON YETTON
B.Comm (Finance &
Mktg), GradDipAppFin
Age: 49
CHIEF EXECUTIVE, SPECIALIST BUSINESSES, STRATEGY & TRANSFORMATION
Jason was appointed Chief Executive, Specialist Businesses in May 2020.
He is responsible for Group Strategy, Transformation Office and Corporate & Business
Development. He is also accountable for the Strategic Reviews and potential divestments of the
Group’s Specialist Businesses. Specialist Businesses support customers with wealth needs including
Life and General Insurance, Superannuation and Platforms and Investments as well as Auto Finance
and Pacific banking. Most recently, Jason was Chief Executive Officer NewCo, CBA, where he was
appointed to lead the demerger of its wealth management and mortgage broking businesses. Prior
to that, he was Chief Executive Officer & Managing Director, SocietyOne, an early financial services
disrupter and consumer finance marketplace lender. Jason was previously with the Westpac Group
for more than 20 years, holding a number of senior positions including Group Executive, Westpac
Retail & Business Banking, and a range of senior executive positions in BT Financial Group.
CURT ZUBER
BA, MBA
Age: 55
ACTING CHIEF EXECUTIVE, WESTPAC INSTITUTIONAL BANK
Curt was appointed Acting Chief Executive, Westpac Institutional Bank in July 2020. He is
responsible for Westpac’s global relationships with corporate, institutional and government clients
as well as all products across financial and capital markets, transactional banking, structured
finance and working capital payments. He is also responsible for Westpac’s offices and branches
in Asia, London and New York. Curt joined Westpac in 1995 and was appointed Group Treasurer
in 2004 where he oversaw treasury operations, Group liquidity and Global wholesale funding
across all products, including securitisation, covered bonds and other structured products,
capital securities and unsecured issuance. He was also responsible for all on-balance-sheet risk
management, as well as management of the Group’s balance sheet, including capital planning and
execution and meeting the Group’s liquidity and funding regulatory requirements. Prior to this,
Curt held several roles including Deputy Group Treasurer and Head of Treasury Risk. Before joining
Westpac, Curt spent seven years at Household International in Chicago and Sydney in various
treasury-related roles, including risk management, funding and asset and liability management.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3943 Westpac AR20_56_onwards V40.indd 63
3943 Westpac AR20_56_onwards V40.indd 63
31/10/20 4:47 pm
31/10/20 4:47 pm
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION
Directors’ report
The effective tax rate of 46.3% was higher than 2019’s
effective tax rate of 30.4% predominantly due to both
the provision for the AUSTRAC penalty and goodwill
impairment being non deductible.
A review of the operations of the Group and its
divisions and their results for the financial year
ended 30 September 2020 is set out in Section 2
of the Annual Report under the sections ‘Review of
Group operations’ (see pages 117 to 130), ‘Divisional
performance’ (see pages 131 to 143) and ‘Risk and risk
management’ (see pages 144 to 163), which form part
of this report.
Further information about our financial position and
financial results is included in the financial statements in
Section 3 of this Annual Report (see pages 167 to 320),
which form part of this report.
c) Dividends
Since 30 September 2020, Westpac has announced a
final ordinary dividend of 31 cents per Westpac ordinary
share, totalling approximately $1,120 million for the year
ended 30 September 2020. The dividend will be fully
franked and will be paid on 18 December 2020.
No interim ordinary dividend was paid for the half year
ended 31 March 2020.
Further, in respect of the year ended 30 September
2019, a fully franked final dividend of 80 cents per
ordinary share totalling $2,791 million was paid on
20 December 2019. The payment comprised direct cash
disbursements of $2,518 million with $273 million, being
reinvested by participants through the DRP.
New shares were issued under the DRP for the 2019
final ordinary dividend.
64
Directors’ report
3. Operating and financial review
a) Principal activities
The principal activities of the Group during the
financial year ended 30 September 2020 were the
provision of financial services including lending, deposit
taking, payments services, investment platforms,
superannuation and funds management, insurance
services, leasing finance, general finance, interest rate
risk management and foreign exchange services.
From 30 June 2019 and 30 September 2019 respectively,
Westpac ceased to provide personal financial advice
through its salaried BT Financial Group planners or its
authorised representatives. Other than this change, there
have been no significant changes in the nature of the
principal activities of the Group during 2020.
b) Operations and financial performance
The net profit attributable to owners of Westpac
Banking Corporation for 2020 was $2,290 million, a
decrease of $4,494 million or 66% compared to 2019.
Key features of this result were:
•
Net interest income decreased $211 million or 1%
compared to 2019 predominantly due to a decrease
in net interest margin of 9 basis points to 2.03%.
The movement in net interest income is attributable
to the impact of:
–
lower rates on average interest earning assets
exceeding benefits from the decrease in
the Group’s funding costs, which includes
movements in economic hedges; and
–
lower charges for estimated customer refunds
and payments than in 2019.
•
In aggregate, non-interest income decreased
$255 million compared to 2019 mainly due to:
–
–
–
–
a decrease in net wealth and insurance income
due to lower rates, asset impairment and severe
weather events resulting in higher claims; and
a decrease in net fee income from lower
customer activities and fee waivers; partially
offset by
a lower charge for estimated customer refunds
and payments compared to 2019; and
the realisation of a gain upon the derecognition
of an associate.
•
Operating expenses increased $2,633 million or
26% compared to 2019. The rise was mainly due to:
–
–
–
costs associated with AUSTRAC proceedings
including a provision for penalty;
customer service costs associated with
responding to COVID-19; and
asset impairments, and an increase in
amortisation and impairment of capitalised
software; partially offset by provisions for Wealth
restructuring in 2019.
•
Impairment charges were $2,384 million higher
compared to 2019 reflecting the deterioration in
the economy as a result of the COVID-19 pandemic
which has led to a significant increase in the
expected credit losses. Asset quality deteriorated,
with stressed exposures as a percentage of total
committed exposures at 1.91%, up 71 basis points
compared to 2019.
WESTPAC GROUP 2020 ANNUAL REPORT Directors’ report
d) Significant changes in state of affairs and events
during and since the end of the 2020 financial year
Throughout the financial year ended 30 September
2020, the Group has operated in a challenging
environment, including as a result of the COVID-19
pandemic which has had a significant and adverse
impact on the Australian and global economy and our
business, financial performance, customers and people,
as well as AUSTRAC’s Statement of Claim and matters
relating to those proceedings (refer to ‘AUSTRAC
proceedings overview’ section for more details (see
page 22)).
In this environment, significant changes in the state of
affairs of the Group were:
•
•
•
•
•
•
•
•
•
implementing a range of initiatives to support
certain customers impacted by the COVID-19
pandemic, such as lowering interest rates on
certain products, waiving certain fees, providing
special loans to support customers to manage their
cash flow and granting deferrals of mortgage and
business loan repayments;
modifying our operations in response to the material
restrictions which have been implemented by the
Australian, State and Territory governments as a
result of the COVID-19 pandemic;
the filing of proceedings by AUSTRAC against
Westpac in November 2019 in relation to alleged
contraventions of the Anti-Money Laundering
and Counter-Terrorism Financing Act 2006 (Cth),
reaching an agreement with AUSTRAC to resolve
these proceedings and raising a provision for
a penalty of $1.3 billion. ASIC also continues to
conduct an extensive investigation into matters
related to the AUSTRAC proceedings;
reassessing our Culture, Governance and
Accountability assessment at the request of APRA
and commencing the CORE program;
implementing a number of multi-year programs (in
addition to the CORE program) that seek to address
identified shortcomings and significantly improve
Westpac’s management of risks;
making changes to the Westpac Board and
Executive Team, including the appointment of a new
Chairman and Chief Executive Officer;
establishing the Specialist Businesses division
which has completed a strategic review of certain
businesses to simplify Westpac’s portfolio;
launching our new Lines of Business operating
model to clarify responsibility and accountability for
end-to-end performance; and
ongoing regulatory changes and developments,
which have included changes relating to financial
services, access to data, hardship reporting
requirements and other regulatory requirements.
For a discussion of these matters, please refer to
‘Significant developments’ in Section 1 of the Annual
Report, which forms part of this report (see pages
102 to 108).
Other than set out above, the Directors are not aware
of any other matter or circumstance that has occurred
since 30 September 2020 that has significantly affected
or may significantly affect the operations of the Group,
the results of these operations or the state of affairs of
the Group in subsequent financial years.
65
e) Business strategies, developments and expected
results
Our business strategies, prospects and likely major
developments in the Group’s operations in future
financial years and the expected results of those
operations are discussed in the Strategic report (see
pages 1 to 55 and in ‘Significant developments’ in
Section 1 of the Annual Report (see pages 102 to 108),
which forms part of this report.
Further information on our business strategies and
prospects for the future financial years and likely
developments in our operations and the expected
results of operations have not been included in this
report because the Directors believe it would be likely
to result in unreasonable prejudice to us.
f) Risks to our financial performance, position and
our operations
Our financial position, our future financial results, our
operations and the success of our strategy are subject
to a range of risks. These risks are set out and discussed
in Section 2 of this Annual Report under the section
‘Risk and risk management’, which forms part of this
report (see pages 144 to 163).
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
66
Directors’ report
4. Directors’ interests
a) Directors’ interests in securities
The following particulars for each Director are set out in the Remuneration Report in Section 10 of the Directors’
report for the year ended 30 September 2020 and in the tables below:
•
•
•
their relevant interests in our shares or the shares of any of our related bodies corporate;
their relevant interests in debentures of, or interests in, a registered scheme made available by us or any of our
related bodies corporate;
their rights or options over shares in, debentures of, or interests in, any registered scheme made available by us
or any of our related bodies corporate; and
•
any contracts:
–
–
to which the Director is a party or under which they are entitled to a benefit; and
that confer a right to call for or deliver shares in, debentures of, or interests in, a registered scheme made
available by us or any of our related bodies corporate.
Directors’ interests in Westpac and related bodies corporate as at 1 November 2020
Number of Relevant
Interests in Westpac
Ordinary Shares
Number of Westpac
Share Rights
Westpac Banking Corporation
Current Directors
John McFarlane
Peter King
Nerida Caesar
Alison Deans
Craig Dunn
Steven Harker
Chris Lynch
Peter Marriott
Peter Nash
Margaret Seale
Former Directors
Lindsay Maxsted
Brian Hartzer
Ewen Crouch
Anita Fung
10,000
131,8861
13,583
15,632
15,009
11,605
13,0903
22,110
15,260
22,9604
25,5925
130,5456
79,6907
-8
-
346,7952
-
-
-
-
-
-
-
-
-5
-6
-7
-8
1.
2.
3.
4.
5.
6.
7.
8.
Peter King’s interest in Westpac ordinary shares includes 23,697 restricted shares held under the Restricted Share Plan.
Share rights issued under the Long Term Variable Reward Plan.
Chris Lynch and his related bodies corporate also hold relevant interests in 1,137 Westpac Capital Notes 5.
Margaret Seale and her related bodies corporate also hold relevant interests in 3,220 Westpac Capital Notes 2.
Figure displayed is as at Lindsay Maxsted’s retirement date of 31 March 2020.
Figure displayed is as at Brian Hartzer’s retirement date of 2 December 2019.
Figure displayed is as at Ewen Crouch’s retirement date of 12 December 2019. Ewen Crouch and his related bodies corporate also held
relevant interests in 250 Westpac Capital Notes 2 as at 12 December 2019.
Figure displayed is at Anita Fung’s retirement date of 31 March 2020.
Note: Certain subsidiaries of Westpac offer a range of registered schemes. The Directors from time to time invest in these schemes and are
required to provide a statement to the ASX when any of their interests in these schemes change. ASIC has exempted each Director from
the obligation to notify the ASX of a relevant interest in a security that is an interest in BT Cash Management Trust (ARSN 087 531 539),
BT Premium Cash Fund (ARSN 089 299 730), Westpac Cash Management Trust (ARSN 088 187 928) or Advance Cash Multi-Blend Fund
(ARSN 094 113 050).
WESTPAC GROUP 2020 ANNUAL REPORT Directors’ report
b) Indemnities and insurance
Under the Westpac Constitution, unless it is forbidden
or would be made void by statute, we indemnify any
person who is or has been a Director or Company
Secretary of Westpac and of each of our related bodies
corporate (except related bodies corporate listed on
a recognised stock exchange), any person who is or
has been an employee of Westpac or our subsidiaries
(except subsidiaries listed on a recognised stock
exchange), and any person who is or has been acting as
a responsible manager under the terms of an Australian
Financial Services Licence of any of Westpac’s wholly-
owned subsidiaries against every liability (other than a
liability for legal costs) incurred by each such person
in their capacity as director, company secretary,
employee or responsible manager, as the case may be;
and all legal costs incurred in defending or resisting
(or otherwise in connection with) proceedings, whether
civil or criminal or of an administrative or investigatory
nature, in which the person becomes involved because
of that capacity.
Each of the Directors named in this Directors’ report
and the Company Secretary of Westpac has the benefit
of this indemnity.
Consistent with shareholder approval at the 2000
Annual General Meeting, Westpac has entered into
a Deed of Access and Indemnity with each of the
Directors, which includes indemnification in identical
terms to that provided in the Westpac Constitution.
Westpac also executed a deed poll in September 2009
providing indemnification equivalent to that provided
under the Westpac Constitution to individuals who are
or have been acting as:
•
•
•
statutory officers (other than as a director) of
Westpac;
directors and other statutory officers of wholly-
owned subsidiaries of Westpac; and
directors and statutory officers of other nominated
companies as approved by Westpac in accordance
with the terms of the deed poll and Westpac’s
Contractual Indemnity Policy.
Some employees of Westpac’s related bodies corporate
and responsible managers of Westpac and its related
bodies corporate are also currently covered by a deed
poll that was executed in November 2004, which is on
similar terms to the September 2009 deed poll.
The Westpac Constitution also permits us, to the extent
permitted by law, to pay or agree to pay premiums for
contracts insuring any person who is or has been a
Director or Company Secretary of Westpac or any of
its related bodies corporate against liability incurred by
that person in that capacity, including a liability for legal
costs, unless:
•
•
we are forbidden by statute to pay or agree to pay
the premium; or
the contract would, if we paid the premium, be
made void by statute.
Under the September 2009 deed poll, Westpac also
agrees to provide directors’ and officers’ liability
insurance to Directors of Westpac and Directors of
Westpac’s wholly-owned subsidiaries (except wholly-
owned subsidiaries listed on a recognised stock
exchange).
67
For the year ended 30 September 2020, the Group has
insurance cover which, in certain circumstances, will
provide reimbursement for amounts which we have to
pay under the indemnities set out above. That cover
is subject to the terms and conditions of the relevant
insurance, including but not limited to the limit of
indemnity provided by the insurance. The insurance
policies prohibit disclosure of the premium payable and
the nature of the liabilities covered.
c) Share rights outstanding
As at the date of this report there are 3,154,553 share
rights outstanding in relation to Westpac ordinary
shares. The latest dates for exercise of the share rights
range between 1 October 2021 and 1 July 2035.
Holders of outstanding share rights in relation to
Westpac ordinary shares do not have any rights under
the share rights to participate in any share issue or
interest of Westpac or any other body corporate.
d) Proceedings on behalf of Westpac
No application has been made and no proceedings have
been brought or intervened in, on behalf of Westpac
under section 237 of the Corporations Act.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
68
Directors’ report
5. Environmental disclosure
As part of our 2020 Sustainability Strategy, we have set
targets for our environmental performance to 2020.
The Westpac Group’s environmental framework is made
up of:
•
•
•
•
•
our Westpac Group Environment Policy;
our Sustainability Risk Management Framework;
our Climate Change Position Statement and 2023
Action Plan;
our Responsible Sourcing Code of Conduct; and
public reporting of our environmental performance.
We also participate in a number of voluntary initiatives
including the Dow Jones Sustainability Index, CDP
(formerly known as the Climate Disclosure Project),
the Equator Principles, the Principles for Responsible
Banking, the Principles for Responsible Investment, the
United Nations Global Compact, the RE100 and the
Australian Government Climate Active Carbon Neutral
Standard.
The National Greenhouse and Energy Reporting Act
2007 (NGER) came into effect in September 2007.
TheGroup reports on greenhouse gas emissions, energy
consumption and production under the NGER for the
period 1 July through 30 June each year.
Our operations are not subject to any other significant
environmental regulation under any law of the
Commonwealth of Australia or of any state or territory
of Australia. We may, however, become subject to
environmental regulation as a result of our lending
activities in the ordinary course of business and we
have policies in place to ensure that this potential risk is
addressed as part of our normal processes.
We are not aware of the Group incurring any material
liability (including for rectification costs) under any
environmental legislation.
Westpac has reported its performance against its
2020 Sustainability Strategy and provides an update
in the section titled ‘climate change’ in Section 1 of this
Annual Report. This section also includes disclosures
aligned to the recommendations of the Task Force on
climate-related Financial Disclosures (TCFD) (see pages
34 to 51).
Additional information about our environmental
performance, including information on our climate
change approach, details of our greenhouse gas
emissions profile and environmental footprint, and
progress against our environmental targets and carbon
neutral program are available on our website at https://
www.westpac.com.au/about-westpac/sustainability/.
6. Human rights supply chain disclosure
Westpac’s overall approach to human rights is set out in
our Human Rights Position Statement. Our Responsible
Sourcing Program, including the Responsible Sourcing
Code of Conduct and risk assessment methodology is
the primary framework for managing human rights in
our supply chain.
The Group is subject to the United Kingdom’s
Transparency in Supply Chains provisions under the
Modern Slavery Act 2015, which came into effect in
March 2015. Westpac publishes an annual statement
for the year ended 30 September to disclose the steps
taken during the year to help prevent modern slavery
from occurring within the Group’s operations and
supply chain.
The Group is subject to the Commonwealth of
Australia’s Modern Slavery Act 2018 (Cth), with the first
reporting year being 2020 and the first report being
due six months from the end of 30 September 2020.
Reporting under the Australia’s Modern Slavery Act
2018 (Cth) will satisfy our requirements to report under
the UK’s Modern Slavery Act 2015.
7. Rounding of amounts
Westpac is an entity to which ASIC Corporations
Instrument 2016/191 dated 24 March 2016, relating
to the rounding of amounts in directors’ reports and
financial reports, applies. Pursuant to this Instrument,
amounts in this Directors’ report and the accompanying
financial report have been rounded to the nearest
million dollars, unless indicated to the contrary.
8. Political engagement
In line with Westpac policy, no cash donations were
made to political parties during the financial year ended
30 September 2020.
In Australia, political expenditure for the financial year
ended 30 September 2020 was $141,495. This relates
to payment for participation in legitimate political
activities where they were assessed to be of direct
business relevance to Westpac. Such activities include
business observer programs attached to annual party
conferences, policy dialogue forums and other political
functions, such as speeches and events with industry
participants.
In New Zealand, political expenditure for the financial
year ended 30 September 2020 was NZD$9,175.
WESTPAC GROUP 2020 ANNUAL REPORT 69
Directors’ report
9. Directors’ meetings
Each Director attended the following meetings of the Board and Committees of the Board during the financial
year ended 30 September 2020. This table shows membership of standing Committees of the Board that operated
during the year ended 30 September 2020. From time to time the Board may form other committees or request
Directors to undertake specific extra duties.
Notes
Board
(Scheduled)
Board
(Un-
scheduled)1
Audit
Committee
Risk
Committee2
Legal,
Regulatory
&
Compliance
Committee2
Nominations
&
Governance
Committee3
Remuneration
Committee
Technology
Committee
Financial
Crime
Committee4
Number of meetings
held during the year
Director
John McFarlane
Peter King
Nerida Caesar
Alison Deans
Craig Dunn
Steven Harker
Christopher Lynch
Peter Marriott
Peter Nash
Margaret Seale
Former Director
Lindsay Maxsted
Brian Hartzer
Ewen Crouch
Anita Fung
5
6
7
8
9
10
11
12
13
14
15
16
17
18
A
4
6
7
7
7
7
1
7
7
7
A
4
1
2
4
B
4
6
7
7
7
7
1
7
7
7
B
4
1
2
3
A
10
12
20
20
20
20
3
20
20
20
A
11
8
9
11
B
10
12
19
20
19
20
3
20
20
20
B
11
8
9
A
n/a
n/a
n/a
n/a
n/a
5
B
n/a
n/a
n/a
n/a
n/a
5
A
2
B
2
n/a
n/a
4
5
5
4
4
5
5
4
A
n/a
n/a
3
n/a
n/a
3
B
n/a
n/a
3
n/a
n/a
3
n/a
n/a
n/a
n/a
n/a
n/a
5
5
5
5
n/a
n/a
A
2
B
2
5
5
4
A
3
5
5
4
B
3
n/a
n/a
n/a
n/a
1
1
10
n/a
n/a
1
3
1
2
3
3
3
A
n/a
n/a
n/a
n/a
3
3
3
B
n/a
n/a
n/a
n/a
A
2
n/a
n/a
4
4
B
2
n/a
n/a
4
4
n/a
n/a
n/a
n/a
4
3
4
3
n/a
n/a
A
2
B
2
n/a
n/a
1
1
A
n/a
n/a
n/a
6
6
n/a
n/a
n/a
n/a
6
A
n/a
n/a
1
B
n/a
n/a
n/a
6
6
n/a
n/a
n/a
n/a
6
B
n/a
n/a
1
n/a
n/a
n/a
n/a
A
B
n/a
n/a
3
4
4
n/a
n/a
n/a
4
n/a
n/a
A
3
4
4
n/a
n/a
n/a
4
n/a
n/a
B
n/a
n/a
1
n/a
n/a
1
n/a
n/a
A
n/a
n/a
8
n/a
n/a
8
n/a
n/a
8
8
A
n/a
n/a
n/a
n/a
B
n/a
n/a
8
n/a
n/a
8
n/a
n/a
8
8
B
n/a
n/a
n/a
n/a
A – Meetings eligible to attend as a member
B – Meetings attended as a member
Unless otherwise stated, each Director has been a member, or the Chairman, of the relevant Committee for the
whole of the period from 1 October 2019.
1
2
3
4
5
6
7
8
9
Out of cycle Board meetings typically called for a special purpose that do not form part of the Board’s forward agenda.
Prior to 1 June 2020, the Board Risk Committee was known as the Board Risk & Compliance Committee. On 1 June 2020, the roles and
responsibilities of the Board Risk & Compliance Committee were revised, and the committee was renamed the Board Risk Committee.
At the same time, the Board established the Board Legal, Regulatory and Compliance Committee, which is a sub-committee of the
Board Risk Committee.
On 1 July 2020, the roles and responsibilities of the Board Nominations Committee were revised, and the committee was renamed the
Board Nominations & Governance Committee.
The Board Financial Crime Committee was established on 27 November 2019 and was dissolved on 1 June 2020 with its responsibilities
assumed by the Board Legal, Regulatory & Compliance Committee.
John McFarlane was appointed as a Director and member of the Board Risk Committee on 17 February 2020. He was appointed as
Board Chairman and Chairman of the Board Nominations & Governance Committee on 1 April 2020. He ceased as a member of the
Board Risk Committee on 1 June 2020.
Peter King was appointed as a Director and a member of the Board Technology Committee on 2 December 2019.
Nerida Caesar was appointed a member of the Board Financial Crime Committee on 27 November 2019. Nerida was also appointed
a member of the Board Legal, Regulatory & Compliance Committee on 1 June 2020 and ceased as a member of both the Board Risk
Committee and Board Financial Crime Committee on 1 June 2020. Member of the Board Technology Committee.
Chairman of the Board Technology Committee. Member of the Board Nominations & Governance Committee, Board Remuneration
Committee and the Board Risk Committee.
Chairman of the Board Remuneration Committee. Member of the Board Risk Committee and the Board Nominations &
Governance Committee.
10 Steven Harker was appointed a member of the Board Financial Crime Committee on 27 November 2019. He was also appointed a
11
12
13
member of the Board Legal, Regulatory & Compliance Committee and ceased as a member of both the Board Risk Committee and
Board Financial Crime Committee on 1 June 2020. Member of the Board Audit Committee.
Christopher Lynch was appointed as a Director and member of the Board Risk Committee and Board Audit Committee on
1 September 2020.
Peter Marriott ceased as Chairman of the Board Audit Committee on 12 December 2019. He was appointed as Chairman of the Board
Risk Committee on 12 December 2019. He was also appointed a member of the Board Legal, Regulatory & Compliance Committee on
1 June 2020. Member of Board Technology Committee and Board Nominations & Governance Committee.
Peter Nash was appointed as Chairman of the Board Financial Crime Committee on 27 November 2019. Peter Nash was appointed as
Chairman of the Board Audit Committee and a member of the Board Nominations & Governance Committee on 12 December 2019.
He was also appointed as Chairman of the Board Legal, Regulatory & Compliance Committee and ceased as Chairman of the Board
Financial Crime Committee on 1 June 2020 when that Committee was dissolved.
14 Margaret Seale was appointed a member of the Board Financial Crime Committee on 27 November 2019. She was also appointed a
member of the Board Legal, Regulatory & Compliance Committee and ceased as a member of both the Board Risk Committee and
Board Financial Crime Committee on 1 June 2020. Member of the Remuneration Committee.
15
Lindsay Maxsted retired from the Board and its Committees on 31 March 2020.
16 Brian Hartzer retired from the Board and its Committees on 2 December 2019.
17
18 Anita Fung retired from the Board and its Committees on 31 March 2020.
Ewen Crouch retired from the Board and its Committees on 12 December 2019 at the completion of the 2019 Annual General Meeting.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
Directors’ report
70
Directors’ report
10.
Remuneration Report
Letter from the Chairman of the Board Remuneration Committee
2020 was
a challenging
year and we are
committed to
doing better
Dear shareholders,
On behalf of the Board, I am pleased to present
Westpac’s 2020 Remuneration Report.
Group performance and strategic priorities
2020 was a challenging year for Westpac, our
shareholders, employees, customers and the
communities in which we operate.
In particular, the sharp contraction in economic activity,
low interest rates and higher impairment charges
resulting from COVID-19 have impacted earnings. In
addition, the AUSTRAC matters and other remediation
costs further impacted financial performance.
The Board acknowledges the impact on shareholders
including the reduction in dividends. We recognise that
you felt deeply let down by the AUSTRAC matters. We
have taken action in response and we are committed to
doing better.
While the impacts of COVID-19 continue, the measures
we have put in place have allowed us to help our
customers and to keep credit flowing. Despite the
ongoing uncertainty, our balance sheet remains strong
and we have maintained our capital position and
liquidity ratios above regulatory requirements.
Importantly, the Group’s purpose and strategy have
been reset and clear priorities have been established.
Our transformation plans are underway with refreshed
leadership, changes in strategy and a detailed
program to address the Group’s shortcomings in risk
management.
Remuneration decisions will continue to play a key role
in supporting the changes underway.
Remuneration consequences for the AUSTRAC
matters
In June 2020, Westpac released the results of its
investigation into the Anti-Money Laundering and
Counter-Terrorism Financing (AML/CTF) compliance
issues that related to the AUSTRAC Statement of Claim
in November 2019. The consequences for the issues
included remuneration impacts and disciplinary actions.
While most remuneration consequences were applied
after the review of management accountability, there
were also remuneration adjustments applied in 2019
prior to the receipt of the AUSTRAC Statement of Claim
based on the information known by the Board at the
time.
As communicated to shareholders last year, we
implemented enhanced remuneration adjustment
guidelines as part of our response to the first strike.
These guidelines were used to support the Board’s
decision making during the year.
In summary, remuneration consequences were
applied to 38 individuals reflecting the level of direct
management responsibility or accountability and the
level of culpability for the compliance failures.
In addition, as the issues took place over many years, a
number of relevant individuals had since left Westpac’s
employment. For most of these former employees, a
remuneration adjustment was not possible as they did
not have unvested deferred variable reward on foot.
In aggregate, the amount of remuneration
consequences applied was $20.1 million1. This included
cancelling 2020 short term variable reward (STVR)
for the Group Executive team and, in some instances,
adjusting prior year awards that had yet to vest. Further
detail is set out in Section 3.1 of the Report.
1.
Includes the forfeiture of unvested STVR and LTVR for the former CEO as well as a range of downward remuneration adjustments, in
part or in full, to current and former executives and employees. Equity-based awards were valued using the five day volume weighted
average price (VWAP) of a Westpac share up to and including the date of receipt of the AUSTRAC Statement of Claim on 20 November
2019 ($26.20) and applying a 50% discount for LTVR subject to performance conditions. The cancellation of 2020 STVR for the CEO
and Group Executives was valued at 50% of target opportunity as at 2 April 2020.
WESTPAC GROUP 2020 ANNUAL REPORT Directors’ report
Directors’ report
2020 remuneration outcomes
This year’s remuneration decisions, and the discretion
applied by the Board, reflect performance and risk
outcomes along with the outcomes experienced by
our stakeholders and feedback from the second strike
against the 2019 Remuneration Report.
In summary, key remuneration outcomes for 2020
include:
•
•
•
•
•
•
•
Reductions in the value of 2020 Long Term
Variable Reward (LTVR) opportunity for the CEO
and Group Executives reflecting the change in
allocation methodology from a fair value to a face
value approach when determining the quantum of
performance share rights;
The new CEO’s total target remuneration is 10.7%
lower than that of his predecessor whose total
target remuneration was reduced by 23% in October
2019;
The cancellation of 2020 STVR for the CEO and
Group Executives to demonstrate collective
accountability for the financial crime outcomes in
Westpac’s businesses that led to the AUSTRAC
proceedings;
Additional remuneration consequences were
applied to four Group Executives, including current
and former executives, for the AUSTRAC matters,
in addition to a range of other remuneration
consequences for other current and former
employees;
The 2020 variable reward pool for the Group was
reduced by $139 million year on year, noting the
2019 pool was also significantly reduced;
2020 STVR for General Managers was cancelled in
light of performance and a challenging environment
created by COVID-19; and
The 2017 LTVR lapsed in full for the fifth consecutive
year.
Second strike
At the 2019 Annual General Meeting, 35.9% of
shareholder votes were cast against the 2019
Remuneration Report resulting in a strike for a second
year in a row.
The second strike was a disappointing outcome
for the Board, particularly in light of the changes
made in response to the first strike against the 2018
Remuneration Report.
These included reducing total target remuneration
by 23% for the former CEO and 12.5% for Group
Executives for 2020 to reflect changes in the LTVR
allocation methodology, as well as applying downward
remuneration adjustments in light of material risk and
compliance matters.
In addition, the CEO’s 2019 STVR outcome was zero
as was the case for the former Chief Executive, BT
Financial Group and the former Chief Executive,
Consumer. Non-executive Director base fees for 2019
were also reduced by 20% as a one-off measure.
71
While most shareholders voted in favour of the report,
feedback we received from shareholders in relation to
the 2019 Remuneration Report included:
•
•
discontent with the AUSTRAC Statement of Claim;
negative sentiment following the reduction
in dividends in 2019 and overall poor Group
performance, including significant remediation
provisions for 2019; and
•
a lack of support for 2019 STVR outcomes.
In 2020, the Chairman and I continued our consultation
with shareholders and shareholder advisory groups to
better understand shareholder views and to act on their
feedback.
This feedback has informed the decisions we have
made on remuneration outcomes throughout the year.
Leadership renewal
The leadership of the Group has changed significantly
since 2019.
Board changes
Lindsay Maxsted, Ewen Crouch, and Anita Fung retired
as Directors during the year and Alison Deans will retire
following the 2020 Annual General Meeting.
Chris Lynch and Michael Hawker were appointed to the
Board, in September and November 2020 respectively,
and we expect to appoint two more Board Directors in
the new year. All four appointments will diversify and
add to the Board’s skills.
The Board made changes to the structure of
its Committees. This included establishing a
Board Financial Crime Committee to oversee the
implementation of Westpac’s enhanced financial crime
program. The Board Legal, Regulatory & Compliance
Committee then replaced the Board Financial Crime
Committee.
Executive changes
Following Brian Hartzer stepping down from the role of
CEO, Peter King was appointed as Acting CEO effective
2 December 2019. Peter King was later appointed as
Managing Director & CEO on a permanent basis on 2
April 2020.
There have also been changes to executive Key
Management Personnel (KMP) including:
•
•
•
•
Permanent appointments: Guil Lima (Chief
Executive, Business), Michael Rowland (Chief
Financial Officer), Les Vance (Group Executive,
Financial Crime, Compliance & Conduct) and Jason
Yetton (Chief Executive, Specialist Businesses,
Strategy & Transformation);
Acting appointments and other changes: Richard
Burton (Acting Chief Executive, Consumer); Gary
Thursby (Acting Chief Financial Officer and later
the Acting Chief Information Officer); Alastair Welsh
(Acting Group Executive, Enterprise Services); Curt
Zuber (Acting Chief Executive, Westpac Institutional
Bank) and Rebecca Lim (Group General Counsel &
Enterprise Executive);
Resignations: Craig Bright (Chief Information
Officer) and David Lindberg (Chief Executive,
Consumer); and
Retirement: Lyn Cobley (Chief Executive, Westpac
Institutional Bank).
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
72
Directors’ report
A summary of remuneration decisions and outcomes
for 2020 is set out following this letter, along with
a summary of executive appointment and exit
arrangements.
In addition, we announced executive changes for 2021
including:
•
•
•
•
Anthony Miller was appointed as Chief Executive,
Westpac Institutional Bank and Curt Zuber will retire;
Chris de Bruin was appointed as Chief Executive,
Consumer;
Scott Collary was appointed as Chief Operating
Officer and will bring together the Group Operations
and Group Technology divisions; and
Gary Thursby will act as Chief Information Officer
until Scott Collary commences.
Review of the executive remuneration structure
The Group commenced a review of the executive
remuneration structure and intends to implement
changes in 2022.
In addition to complying with APRA’s proposed
Prudential Standard CPS 511 (Remuneration), the key
objective supporting the review is to place greater
emphasis on rewarding long term, rather than
short term, achievement. The need to focus on the
longer term outcomes was highlighted during the
Royal Commission and aligns with feedback from
shareholders and regulators.
It is also important that the new structure assists in
attracting and retaining executive talent to deliver
on Westpac’s strategy in an intensely competitive
international market. We look forward to engaging with
shareholders in 2021 on the review.
Other changes for 2021
The Board reviewed the LTVR performance hurdle
for 2021 and determined to reduce the number of
companies in the comparator group from 10 to 8
companies to provide a more focused and equally
weighted peer group.
In line with market practice, a percentile ranking vesting
schedule will also replace the composite index. Further
detail is set out in Section 4.2 of the Report.
On behalf of the Board, I invite you to read our
Remuneration Report and welcome your feedback. I
hope you find the summaries on the following pages to
be a useful reference when reading the broader Report.
Craig Dunn, Chairman
Board Remuneration Committee
In this Report
1.
Key Management Personnel
2. Summary of the 2020 executive remuneration framework
3. 2020 remuneration outcomes and alignment to performance
4. Further detail on the executive variable reward structure
5. Remuneration governance
6. Non-executive Director remuneration
7.
Statutory remuneration details
75
76
78
85
88
90
92
WESTPAC GROUP 2020 ANNUAL REPORT Directors’ report
Summary of remuneration decisions and actions
73
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Chief
Executive
Officer
Group
Executives
Non-
executive
Directors
All
employees
As part of his permanent appointment, the CEO’s target remuneration package for 2020 included fixed
remuneration of $2,400,000, target STVR of $2,400,000 (which may be awarded at between 0% and
150% of target depending on performance) and LTVR of $3,200,000. This represents a 10.7% reduction
relative to the former CEO, whose total target remuneration was reduced by 23% in October 2019.
The CEO’s 2020 STVR outcome is zero.
The 2017 LTVR outcome is zero. The LTVR lapsed in full because the relative TSR and cash ROE
performance hurdles were not achieved.
In 2020, the CEO received $2.12 million in fixed remuneration and $0.29 million in deferred STVR
awarded in prior years that vested during the year, equalling $2.41 million in total realised remuneration
(i.e. take home pay). This outcome is 44% of the maximum remuneration he could have received for
the year.
No Group Executive will receive a STVR award for 2020, reflecting collective accountability for the
financial crime outcomes in Westpac’s businesses that led to the AUSTRAC proceedings. This applies
to Group Executives who joined the Group during the year and Acting Group Executives.
The Board’s assessment of accountability and responsibility for the allegations in the AUSTRAC
Statement of Claim also resulted in two current Group Executives having their 2019 STVR outcome
reduced. One former Group Executive had all of their STVR from 2019 and prior years reduced to
zero, while another former Group Executive had all of their unvested STVR and LTVR reduced to zero.
In addition, adjustments were made to a former Group Executive for other material risk and
compliance matters via reductions to unvested LTVR from prior years.
A total target remuneration increase of 19% was approved for Carolyn McCann in line with the
increased scope and accountability associated with her expanded role, including the Customer
Outcomes and Risk Excellence program and remediation. Christine Parker's pay mix was also changed
to align to a control function pay mix.
Temporary increases in total target remuneration were also approved for individuals in Acting Group
Executive roles.
2021 LTVR awards for the CEO and Group Executives will be granted at target levels in line with the
relevant target remuneration mix.
John McFarlane commenced as Chairman during the year and receives an annual fee of $890,000.
The Board approved the fee structure for the Board Financial Crime Committee which was later
replaced by the Board Legal, Regulatory & Compliance Committee. All other Board fees remain
unchanged.
The 2020 variable reward pool was reduced by $139 million from 2019 to align with performance
and having regard to the challenging economic environment created by COVID-19. The 2019 pool
was also significantly reduced.
The Board considered cancelling the variable reward pool altogether, however believed it was
important to respond to key retention concerns and reward the outstanding contribution of our
most critical employees to support the delivery of our strategy.
2020 STVR for General Managers was cancelled in light of performance and the challenging
environment created by COVID-19.
In addition to the remuneration adjustments for Group Executives, downward remuneration
adjustments were approved for a range of current and former employees in response to the
AUSTRAC matters, as well as other material risk and compliance matters impacting the Group,
ranging from 10% to 100% of STVR.
•
The Group managed 1,070 employee conduct matters in Australia in 2020, of which 108 employees
exited the business and 427 employees were subject to formal disciplinary outcomes.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
74
Directors’ report
Summary of appointment and exit arrangements
The tables below summarise the appointment and exit arrangements for executives as approved by the Board
during the year. Further details are provided in the Report.
New Executive
Appointment arrangements
Guil Lima
Chief Executive, Business
Michael Rowland
Chief Financial Officer
Les Vance
Group Executive, Financial
Crime, Compliance &
Conduct
Jason Yetton
Chief Executive, Specialist
Businesses, Strategy &
Transformation
•
•
•
•
•
•
•
•
Total target remuneration of $4,392,500 comprised of 26.5% fixed remuneration,
26.5% STVR and 47% LTVR.
Pro rata 2020 LTVR grant.
Buy out award1 comprising cash and equity components totalling $1,693,151.
Relocation benefits.
Total target remuneration of $3,800,000 comprised of 32% fixed remuneration,
24% STVR and 44% LTVR.
Not eligible for 2020 STVR or 2020 LTVR.
Relocation benefits.
Total target remuneration of $2,800,000 comprised of 32% fixed remuneration,
24% STVR and 44% LTVR.
•
Pro rata 2020 LTVR grant.
•
Total target remuneration of $4,375,000 comprised of 26% fixed remuneration,
26% STVR and 48% LTVR.
•
Pro rata 2020 LTVR grant.
Former Executive
Exit arrangements2
Brian Hartzer
Former Managing
Director & Chief
Executive Officer
Craig Bright
Former Chief Information
Officer
Lyn Cobley
Former Chief Executive,
Westpac Institutional
Bank
David Lindberg
Former Chief Executive,
Consumer
•
•
•
•
•
•
•
•
•
•
•
•
Received contractual requirements after stepping down from the role of
Managing Director & Chief Executive Officer.
Unvested equity lapsed.
Not eligible for 2020 STVR.
Served a mutually agreed reduced notice period.
Unvested equity lapsed.
Not eligible for 2020 STVR.
Received contractual requirements in line with retirement.
Unvested equity remains on foot.
2020 STVR cancelled.
Served a mutually agreed reduced notice period.
Unvested equity lapsed.
2020 STVR cancelled.
1.
2.
Provided in exceptional circumstances to compensate external hires for remuneration foregone from their previous employer on
resignation to join Westpac. Awards reflect the vesting profile at the previous employer and are subject to continued service and
adjustment.
Refer to Section 5.4 for an overview of employment agreements including termination provisions.
WESTPAC GROUP 2020 ANNUAL REPORT 75
Directors’ report
Key Management Personnel
1.
The remuneration of KMP is disclosed in the Report. In 2020, KMP comprised the CEO, Group Executives and
Non-executive Directors as set out in the table below. Disclosures related to former KMP that ceased in 2019 are
included in the 2019 Annual Report.
KMP is defined as those persons having authority and responsibility for planning, directing and controlling the
activities of an entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.
Name
Position
Managing Director & Chief Executive Officer
Term as KMP
Peter King1
Managing Director & Chief Executive Officer
Full Year
Group Executives
Rebecca Lim2
Group General Counsel & Enterprise Executive
Ceased in KMP role on 18 May 2020
Guil Lima
Chief Executive, Business
Commenced in KMP role on 2 December 2019
Carolyn McCann3
Group Executive, Customer & Corporate Relations
David McLean
Chief Executive Officer, Westpac New Zealand
Christine Parker
Group Executive, Human Resources
Full Year
Full Year
Full Year
Michael Rowland
Chief Financial Officer
David Stephen
Chief Risk Officer
Gary Thursby4
Acting Chief Information Officer
Commenced in KMP role on 1 September 2020
Full Year
Full Year
Les Vance
Group Executive, Financial Crime, Compliance & Conduct
Commenced in KMP role on 15 June 2020
Jason Yetton5
Chief Executive, Specialist Businesses, Strategy & Transformation
Commenced in KMP role on 4 May 2020
Acting Group Executives
Richard Burton
Acting Chief Executive, Consumer
Commenced in KMP role on 15 June 2020
Alastair Welsh6
Acting Group Executive, Enterprise Services
Full Year
Curt Zuber7
Acting Chief Executive, Westpac Institutional Bank
Commenced in KMP role on 1 July 2020
Former CEO and Group Executives
Brian Hartzer
Managing Director & Chief Executive Officer
Ceased in KMP role on 2 December 2019
Craig Bright
Lyn Cobley
Chief Information Officer
Ceased in KMP role on 25 September 2020
Chief Executive, Westpac Institutional Bank
Ceased in KMP role on 1 July 2020
David Lindberg
Chief Executive, Consumer
Ceased in KMP role on 15 June 2020
Current Non-executive Directors
John McFarlane8
Chairman
Nerida Caesar
Alison Deans9
Craig Dunn
Steven Harker
Chris Lynch10
Peter Marriott
Peter Nash
Margaret Seale
Director
Director
Director
Director
Director
Director
Director
Director
Former Non-executive Directors
Lindsay Maxsted
Chairman
Ewen Crouch
Director
Anita Fung
Director
Commenced in KMP role on 17 February 2020
Full Year
Full Year
Full Year
Full Year
Commenced in KMP role on 1 September 2020
Full Year
Full Year
Full Year
Retired on 31 March 2020
Retired on 12 December 2019 following the
2019 Annual General Meeting
Retired on 31 March 2020
1.
2.
3.
4.
5.
6.
Peter King was the Chief Financial Officer until 2 December 2019 when he was appointed as the Managing Director & Acting Chief
Executive Officer. Peter King was appointed as the Managing Director & Chief Executive Officer on 2 April 2020.
Rebecca Lim was the Group Executive, Legal & Secretariat until 16 December 2019 when she was appointed Enterprise Legal Counsel
focusing on AUSTRAC matters. Rebecca Lim resumed her Group General Counsel role when she was appointed the Group General
Counsel & Enterprise Executive on 18 May 2020.
Carolyn McCann's role and accountability was expanded during the year. This included accountability for the Customer Outcomes and
Risk Excellence program and remediation.
Gary Thursby was the Chief Operating Officer until 2 December 2019 when he was appointed as the Acting Chief Financial Officer. Gary
Thursby was appointed as the Acting Chief Information Officer on 25 September 2020.
Jason Yetton commenced as a Group Executive on 4 May and was appointed the Chief Executive, Specialist Businesses on 18 May.
Jason Yetton assumed additional responsibility from 1 September 2020 for strategy and transformation across the Group.
Alastair Welsh was the Acting Chief Executive, Business until 2 December 2019 when he was appointed as the Acting Group Executive,
Enterprise Services.
Curt Zuber will retire in 2021.
John McFarlane was appointed as a Non-executive Director on 17 February 2020 and was appointed as Chairman on 1 April 2020.
Alison Deans will retire from the Board following the 2020 Annual General Meeting.
7.
8.
9.
10. Chris Lynch was appointed as a Non-executive Director on 1 September 2020.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
76
Directors’ report
2.
Our purpose and strategy are supported by our remuneration strategy, principles and frameworks.
Summary of the 2020 executive remuneration framework
Westpac’s purpose and strategy
Westpac’s purpose is to help Australians and New Zealanders succeed. Our strategy seeks to deliver on our
purpose by building deep and enduring customer relationships, being a leader in the community, being a place
where the best people want to work and, in so doing, delivering sustainable returns for shareholders.
Remuneration strategy
Westpac’s remuneration strategy is designed to attract and retain talented employees by rewarding them for
achieving high performance and delivering superior long-term results for our customers and shareholders, while
adhering to sound risk management and governance principles.
Remuneration principles
The remuneration strategy is underpinned by the following principles:
•
•
•
•
•
•
•
align remuneration with customer and shareholder interests;
support an appropriate risk culture and employee conduct;
differentiate pay for behaviour and performance in line with our vision and strategy;
provide market competitive and fair remuneration;
enable recruitment and retention of talented employees;
provide the ability to risk-adjust remuneration; and
be simple, flexible and transparent.
Executive remuneration framework
Fixed remuneration
Purpose
Attract and retain high quality
executives through market
competitive and fair remuneration.
Delivery
Comprises cash salary, salary
sacrificed items and superannuation
contributions.
Alignment to performance
Set with reference to market
benchmarks in the financial services
industry in Australia and globally as
well as the size, responsibilities and
complexity of the role, and the skills
and experience of the executive.
Individual performance impacts fixed
remuneration adjustments.
Alignment to shareholders
Minimum shareholding requirements
equivalent to five times annual
fixed remuneration excluding
superannuation for the CEO and $1.2
million for Group Executives. These
requirements must be satisfied within
five years of appointment as the CEO
or as a Group Executive.
STVR
LTVR
Align executive accountability and
remuneration with the long-term
interests of shareholders by rewarding
the delivery of sustained Group
performance over the long term.
Ensure a portion of remuneration
is variable, at-risk and linked to the
delivery of agreed plan targets for
financial and non-financial measures
that support Westpac’s strategic
priorities. The STVR outcome can
range from 0% to 100% of target
depending on performance relative
to targets agreed at the beginning
of the year, or exceed 100% (up to a
maximum of 150% of target) when
exceptional performance is achieved.
Awarded in cash (50%) and restricted
shares1 (50%) based on an assessment
of performance over the preceding
year. Restricted shares vest in equal
portions after one and two years
following grant subject to continued
service and adjustment.
Awarded in performance share rights
which vest after four years subject
to the achievement of a relative
Total Shareholder Return (TSR)
performance hurdle, continued service
and adjustment.
Performance is assessed using a
scorecard comprising:
•
financial and non-financial
measures linked to Westpac’s key
strategic priorities; and
Performance is assessed against
relative TSR which is a comparative
measure of Westpac’s performance
relative to that of peers (measured
over four years).
•
a modifier to support the
adjustment of the outcome,
upwards or downwards (including
to zero), for behaviour, risk
and reputation matters, people
management matters, and any
other matters as determined by
the Board.
Half of the STVR award is deferred
into equity for a period of up to two
years to support alignment with
shareholders over the medium term.
The LTVR is delivered in equity and
the relative TSR performance hurdle
is aligned to long-term shareholder
returns and value creation.
1.
The Group Executive outside of Australia receives deferred STVR as unhurdled share rights.
WESTPAC GROUP 2020 ANNUAL REPORT 77
Directors’ report
Risk
2.1.
Westpac’s remuneration arrangements are designed and managed to support effective risk management, the
generation of appropriate risk-based returns and the risk profile associated with our businesses which incorporate
products with varying complexity and maturity profiles.
•
•
•
•
Remuneration outcomes: The performance of the Group and each division is reviewed and measured with
reference to how risk is managed in line with Westpac’s Risk Appetite Statement and the results influence
remuneration outcomes. The key risks that are considered include capital, credit, market, equity, liquidity,
insurance, risk culture, financial crime, reputation and sustainability, conduct, operational and compliance risk. In
addition, STVR outcomes are influenced by relevant risk-related matters through the Board’s application of the
scorecard modifier, which is informed by risk and compliance input independent of the business or functional
area.
Variable reward pool: The Board determines the size of the variable reward pool each year. This is based on the
Group’s performance for the year and an assessment of how profit should be shared between shareholders and
employees while retaining sufficient capital for growth. The pool reflects financial performance. A broad range
of financial and non-financial risk measures and customer outcomes may also be taken into account when
allocating the pool.
Mandatory risk and compliance requirements: Individuals are only eligible to receive a fixed remuneration
adjustment, STVR and LTVR where an individual has satisfied minimum requirement gates which require that
behaviours are in line with Westpac’s Values and Code of Conduct and that the individual has met the risk and
compliance requirements for their role and business.
Remuneration adjustments for prior period matters: The Board may adjust all forms of unvested deferred
variable reward downward, including to zero, for matters arising from a prior period if circumstances or
information come to light which mean that in the Board’s view all or part of the award was not appropriate.
Having decided that a downward adjustment is appropriate and determined the amount of any adjustment,
typically the Board will first apply that adjustment against the STVR for the current performance period. In
instances where an adjustment to current year STVR is insufficient or unavailable, the Board may apply the
adjustment to unvested deferred variable reward. Clawback provides an additional mechanism to recover
vested deferred variable reward in certain limited circumstances for awards made in respect of performance
periods commencing on or after 1 October 2019. It is the Board’s current intention that clawback will only be
considered for relevant conduct that occurred on or after 1 October 2019.
2.2.
2020 target remuneration mix1
Chief Executive Officer
Group Executives2
40% LTVR
15% STVR
(deferred
component)
30% fixed
remuneration
48% LTVR
15% STVR
(cash component)
13% STVR
(deferred
component)
26% fixed
remuneration
13% STVR
(cash component)
1.
Based on target STVR and LTVR (face value). Variation in the target remuneration mix by individual may apply.
2.
Excludes Control Function Group Executives with a target remuneration mix comprised of 32% fixed remuneration, 24% STVR and
44% LTVR. This applies to the Group Executive, Customer & Corporate Relations, the Group Executive, Financial Crime, Compliance &
Conduct, the Chief Financial Officer, the Group Executive, Human Resources and the Chief Risk Officer.
2.3.
Timeline of potential remuneration
2020
2021
2022
2023
2024
Fixed remuneration
Cash STVR award (50%)
Deferred STVR award (25%)
Deferred STVR award (25%)
LTVR award subject to relative TSR performance (100%) – measured over 4 years
Date paid
Date granted
Date eligible for vesting
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
78
Directors’ report
3.
2020 remuneration outcomes and alignment to performance
3.1.
Snapshot of 2020 remuneration outcomes
Remuneration
consequences
for the
AUSTRAC
matters
Remuneration consequences in response to information known by the Board, in relation to the
AUSTRAC matters at the time, were disclosed in the 2019 Remuneration Report. This included
consequences for the self-reported breaches to AUSTRAC which contributed to the zero 2019 STVR
outcome for the former CEO, the zero score for non-financial risk in 2019 STVR scorecards for Group
Executives, the downward adjustment to a portion of deferred STVR awarded in a prior year for a
former Group Executive and the 20% one off fee cut for Non-executive Directors in 2019.
Following the receipt of further information contained in the AUSTRAC Statement of Claim in
November 2019 (and release of the 2019 Remuneration Report), the Board determined to withhold 2019
STVR for Group Executives (and relevant General Managers and other employees), in part or in full,
while a review of management accountability associated with the allegations was completed.
While the AUSTRAC matters did not arise from any intentional wrong-doing or misconduct,
compliance failures did occur and it was appropriate that consequences be applied under the Westpac
Consequence Management Framework. This included further remuneration impacts and disciplinary
actions.
Remuneration consequences were applied in line with Westpac’s Remuneration Adjustment Guidelines.
The guidelines are designed to support consistency and fairness in determining remuneration
adjustments based on an assessment of the severity of the matter(s) as well as the level of individual
accountability or responsibility. Adjustments are then applied to individual’s at-risk remuneration based
on a pre-determined order of awards to ensure consistency and the ability to make further adjustments
in the future where required.
In summary, remuneration consequences were applied to 38 current and former employees via
reductions, either in part or in full, to:
•
•
•
2019 STVR;
unvested equity awards granted in prior years; and
if neither of the above were available for adjustment then adjustments were made to 2020 STVR.
In total, remuneration consequences amounted to $20.1 million¹. This included consequences applied
to prior year awards, including withheld 2019 STVR, of approximately $13.2 million and consequences
applied to 2020 STVR awards of approximately $6.9 million. Remuneration consequences for some
former employees were not possible given there was no deferred variable remuneration available to
adjust.
2020
STVR
The CEO recommended to the Board that he and the Group Executives receive no STVR for 2020 as a
consequence for the AUSTRAC matters as outlined above. The CEO and Board felt it was fundamental
that collective accountability for the financial crime outcomes in Westpac’s businesses which had led to
the action being taken by AUSTRAC be recognised.
The Board fully supported the CEO’s recommendation and determined that 2020 STVR be cancelled for
the CEO and Group Executives. In addition, 2020 STVR for General Managers was cancelled in light of
performance and the challenging environment created by COVID-19.
There is a zero vesting outcome under Westpac’s LTVR plan for the CEO and Group Executives in 2020.
The performance hurdles, comprising relative TSR and cash ROE2, were not achieved and the 2017 LTVR
award lapsed in full.
The table below shows the vesting outcome for the 2017 LTVR award to the CEO and Group Executives
that reached the end of its performance period in 2020.
2017
LTVR
Performance
hurdle
Performance
start date
Performance range
Test date
Threshold
Maximum
Outcome
% Vested
% Lapsed
TSR
(50% of
award)
ROE
(50% of
award)
1 October
2016
1 October
2020
1 October
2016
1 October
20204
Equal to
composite TSR
index
Exceeds
composite TSR
index by 21.55
(i.e. 5% CAGR3)
Westpac:
(27.35%)
Index:
(9.04%)
0%
100%
13.50%
14.50%
12.47%
0%
100%
1.
2.
3.
4.
Includes the forfeiture of unvested STVR and LTVR for the former CEO as well as a range of downward remuneration adjustments,
in part or in full, to current and former executives and employees. Equity-based awards were valued using the five day VWAP of
a Westpac share up to and including the date of receipt of the AUSTRAC Statement of Claim on 20 November 2019 ($26.20) and
applying a 50% discount for LTVR subject to performance conditions. The cancellation of 2020 STVR for the CEO and Group
Executives was valued at 50% of target opportunity as at 2 April 2020.
Cash ROE is return on equity on a cash earnings basis. Cash earnings is not prepared in accordance with accounting standards and has
not been subject to audit. Refer to Note 2 to the Financial Statements for a description of cash earnings.
Compound annual growth rate.
The cash ROE hurdled performance share rights reached the end of their performance period on 30 September 2019 and were subject
to an additional one year holding lock through to 30 September 2020.
WESTPAC GROUP 2020 ANNUAL REPORT Directors’ report
Group performance
3.2.
The table below summarises the key performance indicators for the Group and variable reward outcomes over the
last five years.
79
CEO STVR award (% of maximum)
Average Group Executive STVR (% of maximum)
LTVR award (% vested)
Cash earnings1 ($m)
Statutory earnings ($m)
Economic profit/(loss)2 ($m)
Cash ROE2
TSR – three years
TSR – five years
Dividends per Westpac share (cents)
Cash earnings per Westpac share1
Share price – high
Share price – low
Share price – close
2020
0%
0%
0%
2,608
2,290
(3,579)
3.83%
(35.43%)
Years ended 30 September
2019
2018
0%
37%
0%
6,849
6,784
1,619
10.75%
15.33%
52%
58%
0%
8,065
8,095
3,444
13.00%
8.27%
2017
74%
73%
0%
8,062
7,990
3,774
13.77%
11.79%
2016
65%
63%
0%
7,822
7,445
3,774
13.99%
15.24%
(27.87%)
14.58%
25.67%
81.32%
100.72%
31
$0.73
$29.81
$13.47
$16.84
174
$1.98
$30.05
$23.30
$29.64
188
188
188
$2.36
$33.68
$27.24
$27.93
$2.40
$35.39
$28.92
$31.92
$2.35
$33.74
$27.57
$29.51
Cash earnings and CEO STVR award (2016 to 2020)
150%
125%
100%
75%
50%
25%
0%
d
r
a
w
a
R
V
T
S
O
E
C
)
m
u
m
x
a
m
i
f
o
%
(
100%
80%
60%
40%
20%
0%
)
d
e
t
s
e
v
%
(
d
r
a
w
a
R
V
T
L
2016
2017
2018
2019
2020
Cash earnings ($m)
CEO STVR award (% of maximum)
Return on equity and LTVR vesting (2016 to 2020)
2016
2017
2018
2019
2020
Return on equity (%)
LTVR award (% vested)
Total shareholder return (from 1 October 2015 to 30 September 2020)
)
m
$
(
i
s
g
n
n
r
a
e
h
s
a
C
8,100
7,800
7,500
7,200
6,900
6,600
6,300
6,000
y
t
i
u
q
e
n
o
n
r
u
t
e
R
16%
14%
12%
10%
8%
6%
4%
2%
0%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
Oct 15
Oct 16
Oct 17
Oct 18
Oct 19
Oct 20
Westpac
Peer 1
Peer 2
Peer 3
1.
2.
Cash earnings is not prepared in accordance with AAS and has not been subject to audit. Refer to Note 2 to the Financial Statements
for a description of cash earnings.
Economic profit and cash ROE is derived from cash earnings.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
80
Directors’ report
Total realised remuneration – Chief Executive Officer and Group Executives (unaudited)
3.3.
The charts below summarise the actual remuneration paid and the equity vested1 to the CEO and Group Executives relative
to the maximum remuneration that could have been received in 2020. This includes:
•
•
•
•
•
fixed remuneration, including cash salary and superannuation contributions and excluding contractual provisions on
termination, paid during the year;
cash STVR awarded in respect of the year;
other cash payments made during the year;
deferred STVR awarded in prior years that vested during the year; and
LTVR awarded in prior years that vested during the year.
The charts also reference the maximum value of total remuneration foregone in 2020, including cash STVR not awarded
in respect of the year (based on the maximum STVR opportunity being 150% of target) and deferred STVR and LTVR
awarded in prior years that was forfeited, adjusted or lapsed during the year. For former executives, this also includes
unvested equity on foot that was forfeited or lapsed on termination that was subject to vesting in future years.
The value of deferred STVR and LTVR is based on the number of restricted shares or share rights multiplied by the five
day VWAP up to and including the date of vesting, forfeiture or lapse (as relevant). The value of equity differs from the
disclosure in Section 7. Buy out awards paid or vested during 2020 are set out in Section 3.4.
Total realised remuneration ($000)
Fixed remuneration
Cash STVR
Other cash payments
Vesting of prior year deferred STVR awards
Vesting of prior year LTVR awards
2020 maximum realisable remuneration
Managing Director and Chief Executive Officer
0
1,000
2,000
3,000
4,000
5,000
6,000
2020 total remuneration
Peter King
Managing Director
&
Chief Executive Officer
0
2
0
2
9
1
0
2
2,121
294
1,288
327
601
0
1,000
2,000
3,000
4,000
Group Executives
Rebecca Lim2,3
Group General Counsel
&
Enterprise Executive
Guil Lima2
Chief Executive,
Business
Carolyn McCann
Group Executive,
Customer &
Corporate Relations
David McLean
Chief Executive Officer,
Westpac New Zealand
Christine Parker
Group Executive,
Human Resources
Michael Rowland2
Chief Financial Officer
0
2
0
2
9
1
0
2
0
2
0
2
0
2
0
2
9
1
0
2
0
2
0
2
9
1
0
2
0
2
0
2
9
1
0
2
0
2
0
2
601
216
950
188
409
969
810
153
740
195
260
1,026
355
1,029
427
538
946
259
884
315
501
101
Realised: 2,415
Foregone (max): 3,039
Realised: 817
Foregone (max): 1,362
Realised: 969
Foregone (max): 726
Realised: 963
Foregone (max): 452
Realised: 1,381
Foregone (max): 1,926
Realised: 1,205
Foregone (max): 1,719
Realised: 101
Foregone (max): n/a
1.
2.
3.
Equity that vested on 1 October 2020 is included in the 2020 figures. Equity that vested on 1 October 2019 is included in the 2019 figures.
The information relates to the period the individual was a KMP. Refer to Section 1 for further details.
2019 cash STVR values have been adjusted to reflect consequences for the AUSTRAC matters. The values differ from Section 7 which
are disclosed in line with accounting standards.
WESTPAC GROUP 2020 ANNUAL REPORT
Directors’ report
0
1,000
2,000
3,000
4,000
2020 total remuneration
81
David Stephen3
Chief Risk Officer
Gary Thursby4
Acting Chief
Information Officer
Les Vance2
Group Executive,
Financial Crime,
Compliance
& Conduct
Jason Yetton2
Chief Executive,
Specialist Businesses,
Strategy &
Transformation
Richard Burton2
Acting
Chief Executive,
Consumer
Alastair Welsh
Acting Group
Executive,
Enterprise Services
0
2
0
2
9
1
0
2
0
2
0
2
9
1
0
2
0
2
0
2
0
2
0
2
0
2
0
2
0
2
0
2
9
1
0
2
Curt Zuber2
Acting Chief Executive,
Westpac Institutional
Bank
0
2
0
2
1,807
164
1,800
331
1,179
248
120
900
315
467
Acting Group Executives
263
463
0
0
467
250
315
467
834
135
76
402
296
Brian Hartzer2,5,6
Managing Director &
Chief Executive Officer
Craig Bright2,6
Chief Information
Officer
Lyn Cobley2,3,5,7
Chief Executive,
Westpac Institutional
Bank
David Lindberg2,5,6
Chief Executive,
Consumer
0
2
0
2
9
1
0
2
0
0
0
2
0
2
9
1
0
2
0
2
0
2
9
1
0
2
0
2
0
2
9
1
0
2
Former Chief Executive Officer and Group Executives
3,000
6,000
9,000
12,000
15,000
18,000
463
2,686
1,329
1,000
2,000
3,000
4,000
5,000
6,000
1,210
1,008
381
847
1,122
582
822
1,124
125
516
Realised: 1,971
Foregone (max): 1,012
Realised: 1,547
Foregone (max): 1,763
Realised: 263
Foregone (max): 147
Realised: 463
Foregone (max): 358
Realised: 250
Foregone (max): 184
Realised: 910
Foregone (max): 625
Realised: 296
Foregone (max): 282
Realised: 463
Foregone (max): 16,063
Realised: 1,210
Foregone (max): 2,952
Realised: 847
Foregone (max): 2,436
Realised: 822
Foregone (max): 6,040
4.
5.
6.
7.
2020 other cash payments include the cash portion of a project bonus approved by the Board on 5 March 2020 and paid to Gary Thursby
following the successful divestment of part of the BT Financial Group and the Wealth Reset. This relates to work mostly completed in 2019 in
Gary Thursby's previous role as Chief Operating Officer.
2020 fixed remuneration excludes contractual provisions on termination to 30 September 2020 paid after the executive ceased to be a KMP.
This includes $2.223 million for Brian Hartzer, $280,500 for Lyn Cobley and $290,000 for David Lindberg.
2020 maximum remuneration foregone includes unvested equity forfeited or lapsed on termination that was subject to vesting in future years.
2020 maximum remuneration foregone excludes adjustments to 2019 deferred STVR before it was granted as a result of the AUSTRAC
matters. 2020 maximum remuneration foregone includes adjustments to unvested STVR from prior years as a result of the AUSTRAC matters
and unvested LTVR adjusted as a result of other material risk and compliance matters. The values differ from Section 7 which are disclosed in
line with accounting standards.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
82
Directors’ report
Buy out awards paid or vested during 2020
3.4.
Buy out awards are provided in exceptional circumstances to compensate external hires for remuneration foregone
from their previous employer on resignation to join Westpac. These awards reflect the vesting profile at the
previous employer and are subject to continued service and adjustment.
In addition to the total remuneration realised in Section 3.3, the following buy out awards were paid or vested during the
year:
•
•
•
Craig Bright had 9,152, 13,090, 8,538 and 9,748 restricted shares granted under the Restricted Share Plan which vested
in December 2019, February 2020, June 2020 and August 2020 respectively;
David Stephen had 67,965 restricted shares granted under the Restricted Share Plan which vested in March 2020; and
Guil Lima received a cash buy out award of $533,180.
2020 short term variable reward and Group scorecard
3.5.
The Group’s priorities are set out in the Group scorecard, which forms part of the CEO’s scorecard and is cascaded
to Group Executive scorecards in combination with other divisional or functional measures.
In April 2020, the CEO recommended to the Board that he and the Group Executives receive no STVR for 2020
to demonstrate collective accountability for the financial crime outcomes in Westpac’s businesses that led to the
AUSTRAC proceedings. The Board supported the CEO’s recommendation and determined that 2020 STVR be
cancelled for the CEO and Group Executives. Subsequently, 2020 STVR was also cancelled for General Managers in
light of performance and the challenging environment created by COVID-19.
Notwithstanding the zero outcomes for 2020 STVR, the Board completed an assessment of performance against
the 2020 Group scorecard. The overall outcome was 35% of target.
Performance measures and targets in the Group scorecard were not adjusted to reflect the impacts of COVID-19.
The Board’s preference is to make discretionary adjustments within each focus area of the scorecard where
the initial score is not considered to appropriately reflect performance. The discretion applied by the Board in
determining these adjustments reflect performance and risk outcomes for the year along with the outcomes
experienced by our stakeholders. A summary of the Group scorecard performance assessment is provided below.
Since the appointment of the new CEO, the Group’s purpose has been reset and clear priorities have been
established. Good progress has been made in relation to transformation plans with refreshed leadership, changes in
strategy and a detailed program to address the Group’s shortcomings in risk management.
Group scorecard - short term variable reward
Target
Maximum Outcome
Group financial performance (40%)
Performance measurement is based on cash earnings growth, core earnings growth
and cash ROE against plan.
•
•
•
Cash ROE was 3.83%, down from 10.75% in 2019 and lower than the 11.11% target.
Group Core Earnings growth was down 25% year on year and below the target
of 12.6%. Group Cash Earnings growth was down 62% year on year and below the
target of 10.4%.
Financial performance was impacted by significant increases in impairment
charges, costs associated with the AUSTRAC matters, intangible write-downs,
lower economic activity and low interest rates.
Balance sheet risk management (10%)
Performance measurement is based on operating performance relative to the Risk
Appetite Statement as measured by capital, funding and liquidity management.
•
•
Our Common Equity Tier 1 (CET1) ratio was 11.13%, the Net Stable Funding Ratio
was 122% and the Liquidity Coverage Ratio was 150%. These outcomes were above
target.
While the CET1 result was above target, it was partly achieved through the raising
of capital and reduction in dividends. Given the impact of these decisions on
shareholders, the CET1 result was assessed as nil.
0%
100%
150%
0% of target
0%
100%
150%
50% of target
WESTPAC GROUP 2020 ANNUAL REPORT 83
0%
100%
150%
35% of target
0%
100%
150%
60% of target
Directors’ report
Risk management (20%)
Performance measurement is based on closing out the recommendations from
the Culture, Governance and Accountability (CGA) review, completing remediation
programs, improving risk management capability and culture, and strengthening
financial crime capability.
Progress was made on some key milestones to improve risk management:
•
•
•
•
•
Implemented 37 of 45 recommendations from the CGA review;
Mobilised the Customer Outcomes and Risk Excellence program following the
reassessment of the CGA review in light of the AUSTRAC Statement of Claim;
Programs to improve the risk management of financial crime with early milestones
delivered;
Improved tools and processes developed to support a stronger and more mature
risk culture; and
Solid progress on remediation with substantial payments to customers,
notwithstanding an increase in provisions.
The overall result was adjusted downwards as the management of non-financial risk
was below expectations. The AUSTRAC matters resulted in the cancellation of 2020
STVR for the CEO and Group Executives.
Customer franchise (10%)
Performance measurement is based on employee engagement, business simplification,
net promoter score (NPS) and progress on addressing the root causes of customer
pain points.
•
•
•
•
•
•
Reduced products with a focus on simplification and automation.
The Business division maintained the Number 1 ranking on NPS.
The Consumer division maintained its Number 3 ranking on NPS with
improvements in mortgage processing required.
Reduced average time to close complaints with 56% solved on the same day.
Reduced the number of long-dated complaints by 93%.
Significant support provided to customers impacted by bushfires, floods and
COVID-19.
Employee engagement reached the target level which was considered a strong
performance having regard to environmental factors.
Digital transformation (10%)
Performance measurement is based on the delivery of digital and data initiatives.
0%
100%
150%
•
•
•
•
Delivered customer benefits and improved strategic capability, including the
Customer Service Hub and the new mobile banking application.
Improved system stability with major outages down more than 50% and a lift in
network speed.
Rapid and effective response to COVID-19 including new working arrangements,
and digitising processes (such as mortgage deferral requests).
Digitally active customers in the Consumer division up by 91,000 and 25% of all
sales in the Business division are through digital channels.
70% of target
Operating model (10%)
Performance measurement is based on the delivery of the new operating model,
culture roadmap and digital partnership initiatives.
0%
100%
150%
•
•
•
•
•
Refreshed the Executive Team structure, roles and accountabilities.
Commenced implementing a Lines of Business operating model.
Developed a Culture Roadmap and refreshed the Group’s Purpose, Values and
Behaviours.
Commenced the pilot of a new culture survey tool (Organisational Health Index).
Digital and fintech investments delivered significant value.
100%
of target
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
84
Directors’ report
Variable reward awarded for 2020 (unaudited)
3.6.
The table below shows the variable reward awarded to the CEO and Group Executives for 2020, including:
•
•
STVR outcomes for 2020 (including the cash and deferred equity components); and
equity granted under the 2020 LTVR plan1.
2020 STVR for the CEO and Group Executives was cancelled to demonstrate collective accountability for the
financial crime outcomes in Westpac’s businesses that led to the AUSTRAC proceedings.
The final value of equity received will depend on the share price at the time of vesting and the number of
restricted shares or share rights that vest subject to performance hurdles (where applicable), continued service
and remuneration adjustments. The value of equity differs from the disclosure in Section 7 which provides the
annualised accounting value for unvested equity awards prepared in accordance with accounting standards.
Name
Managing Director & Chief Executive Officer
Peter King
Group Executives
Rebecca Lim2
Group General Counsel & Enterprise
Executive
Guil Lima2
Chief Executive, Business
Carolyn McCann
Group Executive, Customer & Corporate
Relations
David McLean
Chief Executive Officer, Westpac New
Zealand
Christine Parker
Group Executive, Human Resources
Michael Rowland2
Chief Financial Officer
David Stephen
Chief Risk Officer
Gary Thursby3
Acting Chief Information Officer
Les Vance2
Group Executive, Financial Crime, Compliance
& Conduct
Jason Yetton2
Chief Executive, Specialist Businesses,
Strategy & Transformation
Acting Group Executives
Richard Burton2
Acting Chief Executive, Consumer
Alastair Welsh
Acting Group Executive, Enterprise Services
Curt Zuber2
Acting Chief Executive, Westpac Institutional
Bank
Former CEO and Group Executives
Brian Hartzer2
Managing Director & Chief Executive Officer
Craig Bright2,4
Chief Information Officer
Lyn Cobley2
Chief Executive, Westpac Institutional Bank
David Lindberg2,4
Chief Executive, Consumer
Average STVR award (%)
2020 STVR award
2020 LTVR
award
Target
STVR
opportunity
(pro rata)
Maximum
STVR
opportunity
(pro rata)
STVR
award (as %
of target)
STVR
award
(as % of
maximum)
STVR
outcome
Maximum
STVR
foregone
Face value1
(pro rata)
2,081,333
3,122,000
0%
0%
0
3,122,000
2,657,167
468,750
703,125
966,667
1,450,000
0%
0%
0%
0%
0
703,125
1,318,750
0 1,450,000
1,727,083
602,917
904,375
0%
0%
0
904,375
1,126,276
1,025,736
1,538,604
850,000
1,275,000
-
-
1,350,000
2,025,000
1,004,167
1,506,250
0%
0%
-
0%
0%
0%
0%
-
0%
0%
195,417
293,125
0%
0%
477,083
715,625
0%
0%
0
0
-
1,538,604
1,855,376
1,275,000
1,562,000
-
-
0 2,025,000
2,559,375
0
1,506,250
1,809,896
0
0
293,126
358,750
715,625
879,167
245,000
367,500
833,333
1,250,000
0%
0%
0%
0%
0
367,500
45,208
0 1,250,000
416,667
375,000
562,500
0%
0%
0
562,500
181,000
447,667
671,500
561,000
841,500
841,500
1,262,250
821,667
1,232,500
-
-
0%
0%
0%
-
-
0%
0%
0%
-
-
671,500
-
841,500
2,214,000
0
1,262,250
2,029,500
0
1,232,500
2,072,500
2.
3.
1. Calculated by multiplying the number of rights by the five day VWAP up to and including the grant date. The five day VWAP was $29.87
for awards made in December 2019 and $16.14 for awards made in July 2020. For Peter King, this excludes the additional 2020 LTVR
award of $200,000 following his appointment as CEO which is subject to shareholder approval at the 2020 Annual General Meeting.
The information relates to the period the individual was a KMP. Refer to Section 1 for further details.
Excludes Gary Thursby’s project bonus of $240,000 (50% cash and 50% deferred equity) approved by the Board on 5 March 2020 relating
to the successful divestment of part of the BT Financial Group and the Wealth Reset. This work was mostly completed in 2019 in Gary
Thursby's previous role as Chief Operating Officer.
Excludes adjustments to unvested 2020 LTVR, and other equity based awards, that were forfeited or lapsed on termination.
4.
WESTPAC GROUP 2020 ANNUAL REPORT 85
Directors’ report
4.
Further detail on the executive variable reward structure
This section provides further details of the 2020 STVR and LTVR plans.
4.1.
The table below sets out the key design features of the 2020 STVR plan.
Short term variable reward
Plan structure
50% of STVR is awarded in cash and 50% is deferred into equity in the form of restricted shares
(or unhurdled share rights for the Group Executive based outside Australia).
Short term variable reward plan
One restricted share provides the holder with one ordinary share at no cost subject to trading restrictions
until the time of vesting.
One unhurdled share right entitles the holder to one ordinary share at the time of vesting with no
exercise cost.
Dividends are paid on restricted shares from the grant date.
Target and maximum
opportunity
The target opportunity for the CEO and Group Executives is expressed as a percentage of fixed
remuneration. The target opportunity is set by the Board following recommendation from the Board
Remuneration Committee which considers a range of factors including market competitiveness and the
nature of the role.
Target STVR
(100% of fixed remuneration for the CEO and between
74% and 100% of fixed remuneration for Group Executives)
Maximum STVR
(150% of target STVR)
0%
100%
150%
Remuneration at-risk
Westpac’s STVR is designed to award the target opportunity on
delivery of agreed plan targets for financial and non-financial
measures that support Westpac’s strategic priorities. It is possible
for the outcome to fall below the target amount depending on
performance relative to targets agreed at the beginning of the
year. For 2020, STVR was cancelled for the CEO and Group
Executives.
Reward for exceptional
performance
There is the possibility to award
up to a maximum of 150% of
the STVR target
in circumstances where
exceptional outcomes are
achieved that are also in line
with the Group’s risk appetite
and where an individual
has acted in a manner that
exemplifies the encouraged
behaviours.
Performance measures
STVR awards are determined based on performance against a scorecard which is designed to align
with shareholder interests by setting stretching measures and seeks to ensure that our customers’ and
employees’ needs are met and appropriate risk settings are maintained.
The scorecard is split into two sections:
•
•
Focus areas: Performance is assessed against a balance of financial and non-financial measures that
are imperative to supporting the effective execution of Westpac’s strategy; and
Modifier: The Board and Board Remuneration Committee recognise that performance measures may
not always appropriately reflect overall performance of the Group. The modifier supports adjustment
of the outcome, upwards or downwards (including to zero), for behaviour, risk and reputation matters,
people management matters, and any other matters that the Board feels are not fully reflected in the
focus areas.
Further information on the 2020 Group scorecard is provided in Section 3.5.
Deferred STVR awards recognise past performance and are subject to continued service and adjustment.
50% of STVR is deferred into equity for a period of up to two years, which aligns executive remuneration
with shareholder interests and acts as a retention mechanism. The deferral period also allows the Board
to apply discretion to reduce deferred components where necessary.
Deferred STVR vests in equal portions one and two years after the grant date, subject to continued
service and adjustment.
Deferral period
Delayed vesting
The Board has discretion (subject to law) to delay vesting of equity-based awards if the individual is
under investigation for misconduct, the subject of, or implicated in legal or regulatory proceedings, if the
Board is considering an adjustment or if otherwise required by law.
Remuneration adjustments for
prior period matters
The Board has discretion to adjust current year STVR.
The Board may also adjust unvested deferred STVR downwards, including to zero, if circumstances
or information come to light which mean that in the Board’s view all or part of the award was not
appropriate. The Board will typically apply the adjustment to unvested STVR where an adjustment to
current year STVR is considered insufficient or unavailable.
Clawback applies, to the extent legally permissible and practicable, to deferred STVR awarded in respect
of performance periods commencing on or after 1 October 2019 for up to seven years from the date
of grant. Clawback may occur in circumstances of serious or gross misconduct, fraud, bribery, severe
reputational damage, and any other deliberate, reckless or unlawful conduct that may have a serious
adverse impact on Westpac, its customers or its people which has resulted in dismissal or the Board
considers at its discretion would have justified the dismissal of the relevant executive or where otherwise
required by law. It is the Board’s current intention that clawback will only be considered for relevant
conduct that occurred on or after 1 October 2019.
Changes for 2021
There are no changes to the 2021 STVR plan.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
86
Directors’ report
Long term variable reward
4.2.
The table below sets out the key design features of the 2020 LTVR Plan awarded in December 2019 and changes
for the 2021 LTVR plan.
Plan structure
LTVR is awarded in performance share rights which vest after four years subject to the achievement of
performance hurdles, continued service and adjustment.
Long term variable reward plan
Award opportunity
One performance share right entitles the holder to one ordinary share at the time of vesting with no exercise
cost. Dividends are not accumulated on performance share rights.
The value of LTVR awarded to the CEO and Group Executives is expressed as a percentage of fixed
remuneration. The value of LTVR is set by the Board following recommendation from the Board Remuneration
Committee which considers a range of factors including market competitiveness and the nature of the role.
The face value of the LTVR opportunity for the CEO for 2020 is 133% of fixed remuneration, and the face value
of LTVR opportunities for the Group Executives (excluding Acting Group Executives) range between 137% and
183% of fixed remuneration.
Allocation
methodology
The number of performance share rights each executive receives will be determined by dividing the dollar value
of the LTVR award by the face value of performance share rights. The face value is the five day VWAP up to the
commencement of the performance period (which is 1 October 2020 for the 2020 LTVR grant).
Performance hurdles
LTVR is subject to a relative TSR performance hurdle that aims to achieve long-term growth in shareholders’
value and support alignment between executive reward and shareholder interests.
Performance share rights only vest where Westpac’s TSR exceeds a composite index. Relative TSR is a measure
of the total return delivered to shareholders over the performance period assuming dividends are reinvested,
relative to that of peers.
The performance hurdle measures Westpac’s TSR performance over a four year period against a composite
index. The composite index is comprised of a group of 10 peers with more weight placed on the three other
major Australian banks.
At the end of the performance period, TSR performance of each index company is multiplied by its index
weighting, and the total of the 10 scores determines the composite TSR index. 50% will vest if Westpac’s TSR
performance equals the composite TSR index. For 100% to vest, Westpac’s TSR outcome must exceed the index
by 21.55% (i.e. 5% compound annual growth over the four year performance period) as outlined below. Vesting
occurs on a straight line basis between 50% and 100%.
Westpac’s TSR performance
Indicative vesting percentage
Composite TSR index exceeded by 21.55 or more
(i.e. 5% compound annual growth in TSR over the four year period)
Equal to composite TSR index
Below composite TSR index
100%
50%
0%
Assessment of
performance
outcomes
The comparator group of companies in the 2020 composite TSR index and their relative weightings are:
AMP (7.14%), ANZ Banking Group (16.67%), Bank of Queensland (7.14%), Bendigo and Adelaide Bank (7.14%),
Challenger (7.14%), Commonwealth Bank of Australia (16.67%), National Australia Bank (16.67%), Macquarie
Group (7.14%), Perpetual (7.14%) and Suncorp Group (7.14%).
The relative TSR result is calculated independently to ensure external objectivity before being provided to the
Board to determine the vesting outcome.
The Board may exercise discretion in determining the final vesting outcome, for example where relative TSR
performance hurdles have been met but the absolute TSR outcome is negative.
Performance share rights subject to relative TSR performance will be tested against the performance hurdle on
30 September 2024.
No re-testing
There is no re-testing. Awards that have not vested after the measurement period lapse immediately.
Early vesting
Delayed vesting
Unvested awards may vest before a test date if the executive is no longer employed by the Group due to death
or disability (subject to law). In these cases, vesting is generally not subject to the performance hurdles being
met.
The Board has discretion (subject to law) to delay vesting of equity-based awards if the individual is under
investigation for misconduct, or the subject of or implicated in legal or regulatory proceedings, if the Board is
considering an adjustment or if otherwise required by law.
WESTPAC GROUP 2020 ANNUAL REPORT Directors’ report
87
Treatment of awards
on cessation of
employment
The Board has the discretion to determine the treatment of unvested performance share rights where the CEO
or a Group Executive resigns, retires or otherwise leaves the Group before vesting occurs.
The Board may choose to accelerate the vesting of performance share rights or leave the awards on foot for the
remainder of the performance period.
Long term variable reward plan
Remuneration
adjustments for prior
period matters
In exercising its discretion, the Board will consider relevant circumstances including those relating to the
departure.
The Board also has the ability to adjust the number of performance share rights downwards (including to zero)
in the event of misconduct resulting in significant financial and/or reputational impact to the Group and in other
circumstances considered appropriate.
Where an executive acts fraudulently or dishonestly, or is in material breach of their obligations under the
relevant equity plan, unexercised performance share rights (whether vested or unvested) will be forfeited unless
the Board determines otherwise.
The Board has discretion to adjust LTVR which is awarded on a prospective basis.
The Board may adjust unvested LTVR downwards, including to zero, if circumstances or information come to
light which mean that in the Board’s view all or part of the award was not appropriate. The Board will typically
apply the adjustment to unvested LTVR where an adjustment to current and deferred STVR is considered
insufficient or unavailable.
The Board may also determine to apply clawback to LTVR which has previously vested. Clawback applies, to
the extent legally permissible and practicable, to deferred LTVR awarded in respect of performance periods
commencing on or after 1 October 2019 for up to seven years from the date of grant. Clawback may occur
in circumstances of serious or gross misconduct, fraud, bribery, severe reputational damage, and any other
deliberate, reckless or unlawful conduct that may have a serious adverse impact on Westpac, its customers
or its people which has resulted in dismissal or the Board considers at its discretion would have justified the
dismissal of the relevant executive or where otherwise required by law. It is the Board’s current intention that
clawback will only be considered for relevant conduct that occurred on or after 1 October 2019.
Changes for 2021
In line with market practice, a percentile ranking vesting schedule will replace the composite index to assess
relative TSR performance as follows:
Westpac’s TSR performance
At the 75th percentile or higher
Indicative vesting percentage
100%
Between the median and the 75th percentile
Pro-rata vesting between 50% and 100%
At the median
Below the median
50%
0%
In addition, the number of companies in the comparator group will be reduced from 10 to 8 to provide a more
focused and equally weighted comparator group including AMP, ANZ Banking Group, Bank of Queensland,
Bendigo and Adelaide Bank, Commonwealth Bank of Australia, National Australia Bank, Macquarie Group and
Suncorp Group.
The table below details other LTVR awards currently on foot.
Vesting date
Performance hurdles
Further detail
2018 LTVR award 30 September 2021
2019 LTVR award 30 September 2022
•
•
•
Relative TSR performance against a weighted composite
index of comparator companies (50%)
Refer to the 2018
Annual Report
Average cash ROE performance (50%)
Relative TSR performance against a weighted composite
index of comparator companies (50%)
Refer to the 2019
Annual Report
•
Average cash ROE performance (50%)
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
88
Directors’ report
5.
Remuneration governance
Group Remuneration Policy and governance
5.1.
The Group Remuneration Policy sets out the mandatory requirements to be reflected in the design and management
of remuneration arrangements across Westpac.
The policy supports Westpac’s vision by requiring the design and management of remuneration to align with
stakeholder interests, support long-term financial soundness and encourage prudent risk management. The policy is
supported by an established governance structure, plans and frameworks.
Board
The Board provides strategic guidance for the Group and has oversight of management’s implementation of
Westpac’s strategic initiatives. The Board has accountability for reviewing and approving remuneration for select
groups of employees.
Without limiting its role, the Board approves (following recommendation from the Board Remuneration
Committee where applicable) corporate goals and objectives relevant to the remuneration of the CEO, the size
of the variable reward pool, adjustments to variable reward (including forfeiture and clawback) in accordance
with the Group Remuneration Policy, remuneration (including variable reward targets and performance
outcomes) for the CEO, Group Executives, other executives who report directly to the CEO, any other
accountable persons under the Banking Executive Accountability Regime, other persons whose activities in the
Board’s opinion affect the financial soundness of the Group, any other person specified by APRA and any other
person the Board determines.
The Board has the discretion to defer, adjust or withdraw aggregate and individual variable reward.
Further detail is contained in the Board and Committee Charters which are available on Westpac’s website.
Board Remuneration Committee
The Board Remuneration Committee assists the Board to discharge its responsibility by overseeing
remuneration policies and practices of Westpac and its related bodies corporate in the context that these
policies and practices fairly and responsibly reward individuals having regard to performance, and reflect
Westpac’s risk management framework, the law and the highest standard of governance.
The Board Remuneration Committee reviews and makes recommendations to the Board in relation to the
Group Remuneration Policy, remuneration arrangements for the individuals and groups outlined above, the
remuneration structures for each category of persons covered by the Group Remuneration Policy, STVR and
LTVR plans and outcomes and adjustments (including forfeiture and clawback) for the Group Executives, any
other accountable persons under the Banking Executive Accountability Regime and any other person the Board
determines, as well as corporate goals and objectives relevant to the remuneration of the CEO and approving
any equity-based plans and overseeing general remuneration practices across Westpac.
In carrying out its duties, the Board Remuneration Committee accesses risk and financial control personnel
and engages external advisers who are independent of management. Members of the Board Remuneration
Committee are independent Non-executive Directors.
Further detail is contained in the Board Remuneration Committee Charter which is available on Westpac’s website.
Interaction with other Board Committees
Management remuneration oversight committees
Members of the Board Remuneration Committee are
members of either the Board Risk Committee or the
Board Legal, Regulatory & Compliance Committee.
The cross membership of those Committees supports
alignment between risk and reward.
The Board Remuneration Committee seeks feedback
from and considers matters raised by the Board
Risk Committee, the Board Legal, Regulatory
& Compliance Committee and the Board Audit
Committee with respect to remuneration outcomes,
adjustments to remuneration in light of relevant
matters and alignment of remuneration with the risk
management framework.
Divisional and functional remuneration oversight
committees consider areas of risk and consider
potential implications for remuneration. These
committees report to the Group Remuneration
Oversight Committee which in turn considers
consistency of remuneration across the Group and
provides information to the Board Remuneration
Committee and Board for review and decision making
as appropriate.
During the financial year, remuneration governance
arrangements were reviewed and minor changes
were made to enhance the Terms of Reference for the
Group Remuneration Oversight Committee.
Remuneration consultants
In 2020, the Board retained an independent adviser to provide specialist information on executive remuneration
and other remuneration matters. The services were provided directly to the Board Remuneration Committee
independent of management. The Chairman of the Board Remuneration Committee oversees the engagement
and associated costs. Work undertaken by the independent adviser included the provision of information
relating to the benchmarking of Non-executive Director, CEO and Group Executive remuneration as well as
modelling and analysis of alternative remuneration structures for the CEO and Group Executives.
In 2020, no remuneration recommendations, as prescribed under the Corporations Act 2001 (Cth) (Corporations
Act), were made by Board advisers.
WESTPAC GROUP 2020 ANNUAL REPORT 89
Directors’ report
Executive minimum shareholding requirements and current compliance
5.2.
The CEO and Group Executives are required to build and maintain a significant Westpac shareholding within five
years of their appointment to strengthen alignment with shareholder interests.
At 30 September 2020, the CEO and Group Executives comply with the requirement. The table below sets out the
minimum shareholding requirement for the CEO and Group Executives.
Chief Executive Officer
Five times annual fixed remuneration excluding superannuation, equivalent to $10.96 million
Group Executives
Equivalent to $1.2 million
Minimum shareholding requirement
The multiple for the CEO’s shareholding requirement is higher than that of his peers and reflects Westpac’s
approach to calculating the minimum shareholding requirement. Since 2006, this has included:
•
•
•
shares held outright in the individual’s name either solely or jointly with another person;
shares held in an employee share plan (including deferred STVR); and
50% of any unvested performance share rights (including LTVR).
The assessment approach has included shares held in a family trust or a self-managed superannuation fund since
2012.
Hedging policy
5.3.
Participants in Westpac’s equity plans are prohibited from entering, either directly or indirectly, into hedging
arrangements for unvested awards in the STVR and LTVR plans. No financial products may be used to mitigate
the risk associated with these awards. Any attempt to hedge awards will result in forfeiture and the Board may
consider other disciplinary action. These restrictions satisfy the requirements of the Corporations Act which
prohibits hedging of unvested awards.
Employment agreements
5.4.
The remuneration and other terms of employment for the CEO and Group Executives are formalised in their
employment agreements. Each agreement provides for the payment of fixed and variable reward, employer
superannuation contributions and other benefits such as death and disablement insurance cover.
The table below details the key terms including termination provisions of the employment agreements for the CEO
and Group Executives.
Who
Conditions
Term
Duration of agreement
Notice (by the executive or the Group) to
terminate employment
Termination payments on termination
without cause2
CEO and Group Executives
CEO and Group Executives
CEO and Group Executives
Termination for cause
CEO and Group Executives
•
•
•
•
•
Ongoing until notice given by either party
Twelve months1
Deferred STVR and LTVR awards vest
according to the applicable equity plan
rules
Immediately for misconduct
Three months' notice for poor
performance
Post-employment restraints
CEO and Group Executives
•
Twelve month non-solicitation restraint
1.
2.
Payment in lieu of notice may in certain circumstances be approved by the Board for some or all of the notice period.
The maximum liability for termination benefits for the CEO and Group Executives at 30 September 2020 was $14.9 million (2019:
$16.0 million).
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
90
Directors’ report
6.
Non-executive Director remuneration
Structure and policy
6.1.
Westpac’s Non-executive Director remuneration strategy is designed to attract and retain experienced, qualified
Board members and provide appropriate remuneration for their time and expertise.
Non-executive Director fees are not related to Westpac’s results. Fees are paid in cash and no discretionary
payments are made for performance. Non-executive Directors are required to build and maintain a minimum
shareholding to align their interests with those of shareholders (refer to Section 6.4 for further details).
The table below sets out the components of Non-executive Director remuneration.
Non-executive Director remuneration
Base fees
Committee fees
Relate to service on the Westpac Banking Corporation Board. The base fee for the Chairman covers all
responsibilities, including for Board Committees.
Additional fees are paid to Non-executive Directors (other than the Board Chairman) for chairing or
participating in Board Committees other than the Board Nominations & Governance Committee.
Employer superannuation
contributions
Reflects statutory superannuation contributions which are capped at the superannuation maximum
contributions base as prescribed under the Superannuation Guarantee legislation.
Subsidiary Board and Advisory
Board fees
Relates to service on Subsidiary Boards and Advisory Boards and are paid by the relevant subsidiary.
Non-executive Director remuneration in 2020
6.2.
John McFarlane was appointed as a Non-executive Director on 17 February 2020 and Chairman on 1 April 2020.
The Chairman base fee was increased to $890,000 from $810,000.
The Board established the Board Financial Crime Committee as a special purpose committee to oversee the
implementation of Westpac's enhanced financial crime program. The Chairman of the Board Financial Crime
Committee received a fee of $4,000 and each member received $2,000 on a per diem basis.
The Board Financial Crime Committee later became the Board Legal, Regulatory & Compliance Committee to
enhance oversight of non-financial risk. The Chairman of the Board Legal, Regulatory & Compliance Committee
receives a fee of $67,500 and each member receives $30,000. The table below sets out the annual Board and
standing Committee fees and the changes for 2020.
Non-executive Director base fees have not increased since 1 October 2014 and the Non-executive Director fee
pool of $4.5 million per annum was approved by shareholders at the 2008 Annual General Meeting. Non-executive
Director base fees for 2019 were reduced by 20% as a one-off measure to recognise collective accountability for
customer outcomes highlighted by the Royal Commission, shareholder sentiment leading to the first strike against
the 2018 Remuneration Report and significant non-financial risk matters. For 2020, $3.66 million (81%) of the fee
pool was used. The fee pool includes employer superannuation contributions.
Base and Committee fees
Chairman
Other Non-executive Directors
Committee Chairman fees
Board Audit Committee
Board Risk Committee
Board Remuneration Committee
Board Technology Committee
Board Legal, Regulatory & Compliance Committee
Committee membership fees
Board Audit Committee
Board Risk Committee
Board Remuneration Committee
Board Technology Committee
Board Legal, Regulatory & Compliance Committee
Annual fee $
890,000
225,000
70,400
90,000
63,800
35,200
67,500
32,000
32,000
29,000
20,000
30,000
Changes for 2020
Fee increase to $890,000 (from $810,000)
effective 1 April 2020
No change
No change
No change
No change
No change
New Committee for 2020
No change
No change
No change
No change
New Committee for 2020
Subsidiary Board and Advisory Board fees
During the reporting period, additional fees of $42,610 were paid to Anita Fung (former Non-executive Director) as
a member of the Westpac Asia Advisory Board.
WESTPAC GROUP 2020 ANNUAL REPORT
91
Directors’ report
6.3.
On 27 November 2019, the Board Financial Crime Committee was established.
Changes to Board and Committee composition
On 1 June 2020, the roles and responsibilities of the Board Risk & Compliance Committee were revised and the
Committee was renamed the Board Risk Committee. At the same time, the Board Legal, Regulatory & Compliance
Committee was established as a sub-committee of the Board Risk Committee. The Board Financial Crime
Committee was also dissolved, with its responsibilities assumed by the Board Legal, Regulatory & Compliance
Committee.
On 1 July 2020, the roles and responsibilities of the Board Nominations Committee were revised and the
Committee was renamed the Board Nominations & Governance Committee.
The table below outlines the changes that were made to the Board and Committee composition during the year
ended 30 September 20201.
Name of Non-
executive Director
John McFarlane
Lindsay Maxsted
Nerida Caesar
Ewen Crouch
Anita Fung
Steven Harker
Chris Lynch
Peter Marriott
Peter Nash
Margaret Seale
Change in position
Appointed Non-executive Director
Appointed Member of the Board Risk & Compliance Committee
Appointed Chairman
Appointed Chairman of the Board Nominations Committee (now the Board
Nominations & Governance Committee)
Ceased as Member of the Board Risk Committee (formerly the Board Risk &
Compliance Committee)
Retired from the Board and its Committees
Appointed Member of the Board Financial Crime Committee
Ceased as Member of the Board Financial Crime Committee
Ceased as Member of the Board Risk Committee (formerly the Board Risk &
Compliance Committee)
Effective date
17 February 2020
17 February 2020
1 April 2020
1 April 2020
1 June 2020
31 March 2020
27 November 2019
1 June 2020
1 June 2020
Appointed Member of the Board Legal, Regulatory & Compliance Committee
1 June 2020
Retired from the Board and its Committees
Retired from the Board and its Committees
Appointed Member of the Board Audit Committee
Appointed Member of the Board Financial Crime Committee
Ceased as Member of the Board Financial Crime Committee
Ceased as Member of the Board Risk Committee (formerly the Board Risk &
Compliance Committee)
12 December 20192
31 March 2020
1 October 2019
27 November 2019
1 June 2020
1 June 2020
Appointed Member of the Board Legal, Regulatory & Compliance Committee
1 June 2020
Appointed Non-executive Director
Appointed Member of the Board Audit Committee
Appointed Member of the Board Risk Committee
Ceased as Chairman of the Board Audit Committee
Appointed Chairman of the Board Risk & Compliance Committee (now the Board Risk
Committee)
1 September 2020
1 September 2020
1 September 2020
12 December 20192
12 December 20192
Appointed Member of the Board Legal, Regulatory & Compliance Committee
1 June 2020
Appointed Chairman of the Board Financial Crime Committee
Appointed Chairman of the Board Audit Committee
Appointed Member of the Board Nominations Committee (now the Board
Nominations & Governance Committee)
27 November 2019
12 December 20192
12 December 20192
Ceased as Chairman of the Board Financial Crime Committee
1 June 2020
Appointed Chairman of the Board Legal, Regulatory & Compliance Committee
1 June 2020
Appointed Member of the Board Remuneration Committee
Appointed Member of the Board Financial Crime Committee
Ceased as Member of the Board Financial Crime Committee
Ceased as Member of the Board Risk Committee (formerly the Board Risk &
Compliance Committee)
1 October 2019
27 November 2019
1 June 2020
1 June 2020
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Appointed Member of the Board Legal, Regulatory & Compliance Committee
1 June 2020
Non-executive Director minimum shareholding requirement
6.4.
Non-executive Directors are required to build and maintain a holding in Westpac ordinary shares to align their
interests with those of shareholders. Each Non-executive Director is required to hold an interest in shares in
Westpac with a market value not less than the Board base fee, within five years of appointment to the Board.
At 30 September 2020, all Non-executive Directors comply with the requirement.
1.
2.
In addition, Peter King was appointed to the Board Technology Committee on 2 December 2019.
Following the 2019 Annual General Meeting.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
92
Directors’ report
7.
Statutory remuneration details
7.1.
The table below details Non-executive Director remuneration.
Details of Non-executive Director remuneration
Name
Current Non-executive Directors
John McFarlane, Chairman2
2020
2019
Nerida Caesar
2020
2019
Alison Deans
2020
2019
Craig Dunn
2020
2019
Steven Harker
2020
2019
Chris Lynch2
2020
2019
Peter Marriott
2020
2019
Peter Nash
2020
2019
Margaret Seale
2020
2019
Former Non-executive Directors
Lindsay Maxsted2
2020
2019
Ewen Crouch2
2020
2019
Anita Fung2
2020
2019
Total fees
2020
2019
Short-term benefits
Post-employment
benefits
Westpac Banking
Corporation Board
fees1
$
Subsidiary and
Advisory Board
fees
$
Non-
monetary
benefits3
$
Superannuation
$
Total
$
480,054
-
8,335
14,698
503,087
---------------------------------- Not a KMP in 2019----------------------------------
294,454
232,000
323,671
276,200
323,268
275,800
306,349
123,667
24,454
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,012
20,658
10,578
20,658
21,079
20,658
21,029
11,972
315,466
252,658
334,249
296,858
344,347
296,458
327,378
135,639
2,323
26,777
---------------------------------- Not a KMP in 2019----------------------------------
376,057
302,400
377,085
244,000
303,523
123,667
408,115
648,000
76,646
323,000
129,489
212,000
3,423,165
2,825,109
-
-
-
-
-
-
-
-
-
-
42,610
83,146
42,610
90,387
-
-
-
-
-
-
7,468
-
-
-
-
6,300
15,803
6,300
21,190
20,658
21,187
20,658
21,025
11,972
11,148
20,658
4,564
20,658
10,621
20,658
397,247
323,058
398,272
264,658
324,548
135,639
426,731
668,658
81,210
343,658
182,720
322,104
180,454
193,456
3,662,032
3,115,252
1.
2.
3.
Includes fees paid to the Chairman and members of Board Committees, including the Board Financial Crime Committee which was a
special purpose committee during 2020.
The information relates to the period the individual was a KMP. Refer to Section 1 for further details.
Non-monetary benefits are determined on the basis of the cost to the Group including associated fringe benefits tax (FBT) where
applicable and includes annual health checks.
WESTPAC GROUP 2020 ANNUAL REPORT 93
Directors’ report
Remuneration details – Chief Executive Officer and Group Executives
7.2.
The table below sets out details of remuneration for the CEO and Group Executives calculated in accordance with
the AAS.
Short term benefits
Post-
employment
benefits
Other
long term
benefits
Share based payments
Fixed
remuneration1
$
Cash
STVR
award2
$
Non-
monetary
benefits3
$
Other
short term
benefits4
$
Superannuation
benefits5
$
Long
service
leave
$
Restricted
shares6
$
Share
rights7,8
$
Total9
$
Managing Director & Chief Executive Officer
Peter King, Managing Director & Chief Executive Officer
2020
2019
Group Executives
2,286,027
-
20,822
1,222,006
326,500
4,238
Rebecca Lim, Group General Counsel & Enterprise Executive10,11
2020
2019
575,537
(75,000)
2,207
950,128
262,500
4,981
Guil Lima, Chief Executive, Business
-
-
-
-
41,310
36,803
463,100
19,492
427,604
549,189
323,888
3,562,751
483,692
2,641,920
22,314
31,718
13,628
14,390
207,672
422,793
64,807
811,165
260,108
1,946,618
2020
2019
990,070
-
384,076
533,180
3,748
14,548
575,580
51,884
2,553,086
------------------------------------------------------- Not a KMP in 2019 -------------------------------------------------------
Carolyn McCann, Group Executive, Customer & Corporate Relations
2020
2019
884,663
-
731,367
194,500
3,497
4,828
David McLean, Chief Executive Officer, Westpac New Zealand
2020
2019
989,209
-
3,497
861,551
426,975
1,194
Christine Parker, Group Executive, Human Resources
2020
2019
950,258
-
3,497
875,430
315,000
3,123
Michael Rowland, Chief Financial Officer10
94,695
-
75,325
2020
2019
-
-
-
-
-
-
-
23,424
21,579
94,548
87,710
28,181
27,420
29,421
11,198
369,668
445,723
143,645
1,454,318
186,563
1,595,758
-
-
-
-
712,683
1,799,937
907,580
2,285,010
17,869
394,231
228,766
1,622,802
(33,023)
456,373
384,005
2,028,328
7,019
122
-
-
177,161
------------------------------------------------------- Not a KMP in 2019 -------------------------------------------------------
David Stephen, Chief Risk Officer11
2020
1,828,781
(135,000)
125,922
2019
1,816,090 466,000
263,844
-
-
38,991
25,900
27,273
1,461,973
303,459
3,651,399
27,265
2,023,326
732,611
5,355,036
Gary Thursby, Acting Chief Information Officer13
2020
1,206,783
-
3,497
120,000
2019
881,655
315,000
3,123
-
Les Vance, Group Executive, Financial Crime, Compliance & Conduct10
-
2020
278,702
774
-
29,394
29,605
76,758
23,294
460,647
423,765
254,721
2,151,800
306,672
1,983,114
9,062
38,817
179,551
5,075
511,981
2019
------------------------------------------------------- Not a KMP in 2019 -------------------------------------------------------
Jason Yetton, Chief Executive, Specialist Businesses, Strategy & Transformation10
2020
505,257
717
-
-
12,445
48
-
17,564
536,031
2019
------------------------------------------------------- Not a KMP in 2019 -------------------------------------------------------
Acting Group Executives
Richard Burton, Acting Chief Executive, Consumer10
2020
255,558
-
1,661
-
9,162
21,802
141,680
-
429,863
2019
------------------------------------------------------- Not a KMP in 2019 -------------------------------------------------------
Alastair Welsh, Acting Group Executive, Enterprise Services
2020
2019
832,473
-
369,151
135,000
2,894
438
Curt Zuber, Acting Chief Executive, Westpac Institutional Bank10
299,950
-
440
2020
2019
-
-
-
28,036
11,861
20,756
6,557
703,974
207,066
73
1,588,206
13,321
743,394
68,876
15,170
231,520
-
615,956
------------------------------------------------------- Not a KMP in 2019 -------------------------------------------------------
Former CEO and Group Executives
Brian Hartzer, Managing Director & Chief Executive Officer10,14,16
2020
3,038,627
2,136
-
2019
2,608,424
-
21,966
-
-
241,558
44,320
27,443
40,660
(261,657)
(2,822,754)
225,353
1,169,581
1,168,040
5,052,991
Craig Bright, Chief Information Officer10,16
2020
1,154,119
-
192,350
116,636
2019
1,022,829
381,000
309,495
1,050,000
Lyn Cobley, Chief Executive, Westpac Institutional Bank10,11,12,14,15
2020
1,127,348 (338,500)
3,773
824,437
2019
1,108,830
338,500
4,948
-
David Lindberg, Chief Executive, Consumer10,14,16
2020
1,024,228
-
23,769
235,414
2019
1,129,075
125,000
6,592
-
31,601
23,818
50,206
30,611
47,569
30,434
(15,079)
61,643
(170,797)
1,370,473
15,137
2,075,911
170,797
5,048,987
17,005
16,995
(117,041)
985,685
2,552,913
516,242
508,437
2,524,563
(111,306)
(110,803)
(1,076,835)
32,036
23,822
470,092
475,368
2,260,383
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
94
Directors’ report
1.
2.
3.
4.
5.
6.
7.
8.
9.
Fixed remuneration is the total cost of salary, salary sacrificed benefits (including motor vehicles, parking and associated FBT) and an
accrual for annual leave entitlements.
The cash STVR award is typically paid in December following the end of the financial year. Excludes interest payments made on the
release of withheld 2019 STVR to Peter King ($627), David Stephen ($635), Rebecca Lim ($360) and Gary Thursby ($605).
Non-monetary benefits are determined on the basis of the cost to the Group (including associated FBT, where applicable) and include
annual health checks, provision of taxation advice, bank funded car parking, relocation costs, living away from home expenses and
allowances.
Includes payments on cessation of employment or other contracted amounts.
The CEO and Group Executives are provided with life insurance cover under the Westpac Group Plan at no cost. Superannuation
benefits have been calculated consistent with AASB 119 Employee Benefits.
The value of restricted shares is amortised over the applicable vesting period and the amount shown is the amortisation relating
to 2020 (and 2019 for comparison). The restricted shares held by Guil Lima and a portion of restricted shares held by Craig Bright
and David Stephen represent an allocation made to compensate them for remuneration foregone from their previous employer on
resignation to join Westpac. The restricted shares replicate the vesting periods of the equity foregone. Craig Bright received additional
restricted shares for equity forgone with his previous employer in December 2019.
Equity-settled remuneration is based on the amortisation over the vesting period (normally one, two or four years) of the fair value at
the grant date of hurdled and unhurdled share rights that were granted during the four years ended 30 September 2020. Details of
prior year grants are disclosed in previous Annual Reports. The 2020 value for David McLean includes 63% attributed to deferred STVR
awards.
The expensed value of the 2018 LTVR cash ROE hurdled performance share rights has been reduced to zero. The expensed value of
the 2019 LTVR cash ROE hurdled performance share rights has been reduced by 50%. This reflects the current assessment of the
probability of vesting.
The percentage of total remuneration which is performance-related (i.e. cash STVR award plus share-based payments) was: Peter King
21%, Rebecca Lim 24%, Guil Lima 25%, Carolyn McCann 35%, David McLean 40%, Christine Parker 38%, Michael Rowland n/a, David
Stephen 45%, Gary Thursby 33%, Les Vance 36%, Jason Yetton 3%, Richard Burton 33%, Alastair Welsh 44%, Curt Zuber 38%, Brian
Hartzer n/a, Craig Bright n/a, Lyn Cobley 25% and David Lindberg n/a. The percentage of total remuneration delivered in the form of
options (including share rights) was: Peter King 9%, Rebecca Lim 8%, Guil Lima 2%, Carolyn McCann 10%, David McLean 40%, Christine
Parker 14%, Michael Rowland n/a, David Stephen 8%, Gary Thursby 12%, Les Vance 1%, Jason Yetton 3%, Richard Burton n/a, Alastair
Welsh n/a, Curt Zuber n/a, Brian Hartzer n/a, Craig Bright n/a, Lyn Cobley 42% and David Lindberg n/a.
10. The information relates to the period the individual was a KMP with the exception of footnote 14 below. Refer to Section 1 for further
details.
Adjustments to 2019 cash STVR as a result of the AUSTRAC matters are shown as a reduction in remuneration in the current year.
11.
12. The 2020 share based payment value for restricted shares excludes adjustments to 2019 deferred STVR before it was granted and
includes adjustments to unvested STVR from prior years as a result of the AUSTRAC matters. The 2020 share based payment value for
share rights includes adjustments to unvested LTVR as a result of other material risk and compliance matters.
13. On 5 March 2020, the Board approved a project bonus for Gary Thursby following the successful divestment of part of the BT Financial
Group and the Wealth Reset. This related to work mostly completed in 2019 in his previous role as Chief Operating Officer. The cash
portion of the project bonus is included under other short term benefits.
14. Fixed remuneration for Brian Hartzer, Lyn Cobley and David Lindberg includes payments made or to be made during their notice period
where, in line with contractual requirements, they continue to receive cash salary and superannuation.
15. The share based payment values for Lyn Cobley reflect the accruals for unvested equity up to the end of each performance period.
While the full value is being accrued for all unvested equity, the awards may or may not vest subject to the relevant performance
hurdles.
16. The share based payment values for Brian Hartzer, Craig Bright and David Lindberg include the reversal of the accrued expense of
unvested equity that was forfeited on termination.
WESTPAC GROUP 2020 ANNUAL REPORT Directors’ report
Movement in equity-settled instruments during the year
7.3.
The table shows the movements in the number and value of equity instruments for the CEO and Group Executives
under the relevant plan during 2020.
95
Number
granted1
Number
vested2
Number
exercised3
Value
granted4
$
Value
exercised5
$
Name
Type of equity-based instrument
Managing Director and Chief Executive Officer
Peter King
Performance share rights
Shares under Restricted Share Plan
Group Executives
88,957
13,299
-
20,172
Rebecca Lim6
Performance share rights
44,149
-
Shares under Restricted Share Plan
-
13,725
Guil Lima
Performance share rights
Shares under Restricted Share Plan
Carolyn McCann
Performance share rights
Shares under Restricted Share Plan
David McLean
Performance share rights
Christine Parker
Performance share rights
Unhurdled share rights
Shares under Restricted Share Plan
Michael Rowland6
Performance share rights
Shares under Restricted Share Plan
David Stephen
Performance share rights
Shares under Restricted Share Plan
Gary Thursby
Performance share rights
Shares under Restricted Share Plan
Les Vance6
Performance share rights
Shares under Restricted Share Plan
Jason Yetton6
Performance share rights
Shares under Restricted Share Plan
Acting Group Executives
Richard Burton6
Performance share rights
Shares under Restricted Share Plan
Alastair Welsh
Performance share rights
57,819
46,085
39,815
7,922
62,385
18,838
52,293
12,830
-
-
85,683
18,981
60,592
20,219
22,227
-
54,213
-
-
1,841
-
-
-
-
11,972
-
18,053
-
16,822
-
-
-
67,965
-
15,663
-
-
-
-
-
-
-
Shares under Restricted Share Plan
35,944
8,543
Curt Zuber6
Performance share rights
Shares under Restricted Share Plan
Former CEO and Group Executives
Brian Hartzer6
CEO Performance share rights
Shares under the CEO Restricted
Share Plan
-
7,372
-
-
-
-
-
44,626
Craig Bright6
Performance share rights
74,121
-
Shares under Restricted Share Plan
20,244
40,528
Lyn Cobley6
Performance share rights
67,944
-
Shares under Restricted Share Plan
-
19,533
David Lindberg6
Performance share rights
69,383
-
Shares under Restricted Share Plan
-
17,323
Value
forfeited or
lapsed5
$
2,346,573
-
481,201
-
-
-
458,308
-
1,838,167
-
1,718,655
-
-
-
-
-
687,462
-
-
-
-
-
-
-
423,926
-
-
-
21,518,209
517,201
2,531,169
1,201,087
2,859,503
174,043
1,943,241
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
392,300
238,164
194,697
-
254,982
1,155,010
169,965
141,871
275,118
426,036
230,612
229,765
-
-
377,862
339,920
267,211
350,594
70,811
-
172,712
-
-
32,969
-
847,130
-
128,092
-
-
326,874
394,109
299,633
-
305,979
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1.
2.
3.
4.
5.
6.
No performance options were granted in 2020. Any deferred STVR awards in the form of restricted shares (or unhurdled share rights
for David McLean based in New Zealand) are awarded in December each year. David McLean’s unhurdled share rights were granted
on 27 July 2020 at a fair value of $23.35 (unhurdled share rights which vested on 1 October 2020) and $21.92 (unhurdled share rights
vesting on 1 October 2021).
No hurdled share rights granted in 2015 vested in October 2019 when assessed against the relative TSR and cash EPS performance
hurdles.
Vested share rights granted after July 2015 may be exercised up to a maximum of 15 years from their commencement date. For each
vested share right exercised during the year, the relevant executive received one fully paid Westpac ordinary share. The exercise price
for share rights is zero.
The impact of the cancellation of 2020 STVR for the CEO and Group Executives is not reflected as any awards would have been
granted in December 2020. For performance share rights, the value granted represents the number of securities granted multiplied by
the fair value per instrument as set out in the table in the sub-section titled ‘Fair value of LTVR awards made during the year’ below. For
restricted shares, the value granted represents the number of ordinary shares granted multiplied by the five day VWAP of a Westpac
ordinary share on the date the shares were granted. These values, which represent the full value of the equity-based awards made to
the CEO and Group Executives in 2020, do not reconcile with the amount shown in the table in Section 7.2 which shows the amount
amortised in the current year of equity awards over their vesting period. The minimum total value of the grants for future financial years
is zero and an estimate of the maximum possible total value in future financial years is the fair value, as shown above.
The value of each share right exercised, forfeited or lapsed is calculated based on the five day VWAP of a Westpac ordinary share on
the date of exercise (or forfeiture or lapse), less the relevant exercise price (if any). Where the exercise price is greater than the five day
VWAP of a Westpac ordinary share, the value has been calculated as zero. The overall values reflect forfeitures or lapses as a result of a
failure to meet performance conditions, resignation or adjustments for material risk and compliance matters (such as AUSTRAC).
The information relates to the period the individual was a KMP. Refer to Section 1 for further details.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
96
Directors’ report
Fair value of LTVR awards made during the year
In accordance with AASB 2 Share-based Payment, the table below provides a summary of the fair value of LTVR
awards granted to the CEO and Group Executives in December 20191. LTVR awards will only vest if performance
hurdles are achieved and service conditions are met in future years.
Plan name
Granted to
Performance
hurdle
Grant date
Commencement
date
Test date
Expiry
Fair value
per instrument2
Westpac
LTVR Plan
CEO and
Group
Executives
Relative
TSR
19 December 2019 1 October 2019
1 October 2023
1 October 2034
$4.41
7.4.
Details of Westpac equity holdings of Non-executive Directors
The table below sets out details of relevant interests in Westpac ordinary shares held by Non-executive Directors
(including their related parties) during the year ended 30 September 20203.
Current Non-executive Directors
John McFarlane4
Nerida Caesar
Alison Deans
Craig Dunn
Steven Harker
Chris Lynch4,5
Peter Marriott6
Peter Nash
Margaret Seale7
Former Non-executive Directors
Lindsay Maxsted4
Ewen Crouch4,8
Anita Fung4
Number held at
start of the year
Changes
during the year
Number held at
end of the year
n/a
13,583
14,392
8,869
11,930
n/a
39,071
8,020
37,439
23,680
82,264
-
10,000
-
1,240
6,140
1,240
-
1,240
7,240
1,241
1,990
1,447
-
10,000
13,583
15,632
15,009
13,170
13,090
40,311
15,260
38,680
n/a
n/a
n/a
1.
2.
3.
4.
5.
6.
7.
8.
In addition, LTVR awards were also granted to Carolyn McCann, Jason Yetton and Les Vance on 27 July 2020 with a fair value per
instrument of $3.19. For these awards, the commencement date is 2 April 2020, the test date is 1 April 2024 and the expiry date is 2
April 2035.
The fair values of performance share rights granted during the year have been independently calculated at their respective grant dates
based on the requirements of AASB 2 Share-based Payment. The fair value of performance share rights with hurdles based on TSR
performance relative to a group of comparator companies takes into account the average TSR outcome determined using a Monte
Carlo simulation pricing model.
Other than as disclosed below, no share interests include non-beneficially held shares.
The information relates to the period the individual was a KMP. Refer to Section 1 for further details.
In addition to holding ordinary shares, Chris Lynch and his related parties held interests in 1,137 Westpac Capital Notes 5 at year end.
In addition to holding ordinary shares, Peter Marriott and his related parties held interests in 563 Westpac Capital Notes 2 at year end.
In addition to holding ordinary shares, Margaret Seale and her related parties held interests in 3,220 Westpac Capital Notes 2 at
year end.
Ewen Crouch held 42,000 ordinary shares following the grant of probate in a deceased estate for which he is one of the executors. In
addition, Ewen Crouch and his related parties held interests in 250 Westpac Capital Notes 2.
WESTPAC GROUP 2020 ANNUAL REPORT Directors’ report
Details of Westpac equity holdings of Executive Key Management Personnel
7.5.
The table below details Westpac equity held (and movement in that equity) by the CEO and Group Executives
(including their related parties) for the year ended 30 September 20201.
Name
Type of equity-based
instrument
Number
held at
start of
the year
Number
granted during
the year as
remuneration
Received
on exercise
and/or
exercised
during the
year
Number
forfeited
or lapsed
during the
year2
Other
changes
during the
year
Number held
at end of the
year
Number
vested and
exercisable
at end of the
year
97
Managing Director and Chief Executive Officer
Peter King
Ordinary shares
118,587
Performance share rights
340,558
Group Executives
Rebecca Lim3
Ordinary shares
Performance share rights
Guil Lima3
Ordinary shares
Performance share rights
Carolyn McCann
Ordinary shares
Performance share rights
David McLean
Ordinary shares
45,216
193,217
n/a
n/a
59,253
78,548
9,613
Performance share rights
286,886
Unhurdled share rights
Christine Parker
Ordinary shares
79,277
29,627
Performance share rights
260,523
Michael Rowland3,4 Ordinary shares
Performance share rights
n/a
n/a
David Stephen
Ordinary shares
135,929
Performance share rights
278,698
Gary Thursby
Ordinary shares
Performance share rights
108,354
213,978
Les Vance3
Ordinary shares
Performance share rights
Jason Yetton3
Ordinary shares
Performance share rights
Acting Group Executives
Richard Burton3
Ordinary shares
Performance share rights
Alastair Welsh
Ordinary shares
Performance share rights
Curt Zuber3
Ordinary shares
Performance share rights
Former CEO and Group Executives
Brian Hartzer3
Ordinary shares
CEO Performance share
rights
Craig Bright3
Ordinary shares
Performance share rights
Lyn Cobley3,5
Ordinary shares
n/a
n/a
n/a
n/a
n/a
n/a
37,256
14,944
n/a
n/a
151,478
840,679
132,151
77,696
110,717
13,299
88,957
-
44,149
46,085
57,819
7,922
39,815
-
62,385
18,838
12,830
52,293
-
-
18,981
85,683
20,219
60,592
-
22,227
-
54,213
1,841
-
35,944
-
7,372
-
-
-
20,244
74,121
-
Performance share rights
356,810
67,944
David Lindberg3
Ordinary shares
82,671
-
Performance share rights
319,482
69,383
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(82,720)
-
(16,963)
-
-
-
(16,156)
-
(64,798)
-
-
-
-
-
-
-
-
-
-
-
-
-
(10,000)
(60,585)
-
-
-
-
-
-
(24,234)
-
-
-
-
-
-
-
(14,944)
-
-
(20,933)
(840,679)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(72,040)
(80,355)
(151,817)
(9,362)
(105,123)
-
(68,502)
-
-
-
-
-
131,886
346,795
n/a
n/a
46,085
57,819
67,175
102,207
9,613
284,473
98,115
32,457
252,231
-
-
154,910
364,381
128,573
250,336
78,767
22,227
-
54,213
71,749
-
73,200
-
202,934
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-
-
n/a
n/a
-
-
-
-
-
2,148
67,884
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1.
2.
3.
4.
5.
The highest number of shares held by an individual in the table is 0.0056% of total Westpac ordinary shares outstanding as at
30 September 2020.
Forfeitures or lapses during the year are as a result of a failure to meet performance conditions and resignation, with the exception of a
former Group Executive who also has adjustments for material risk and compliance matters (such as AUSTRAC).
The information relates to the period the individual was a KMP. Refer to Section 1 for further details.
Michael Rowland held interests in 500 Westpac Capital Notes 3 and 500 Westpac Capital Notes 5.
In addition to holding ordinary shares, Lyn Cobley and her related parties held interests in 4,000 Westpac Capital Notes 5 and 3,500
Westpac Capital Notes 6.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REPORT2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
98
Directors’ report
7.6.
Loans to Non-executive Directors and Executive Key Management Personnel disclosures
Financial instrument transactions that occurred during the financial year between Non-executive Directors, the
CEO or Group Executives and the Group are in the ordinary course of business on terms and conditions (including
interest and collateral) as they apply to other employees and certain customers. These transactions are provided
at arms-length and at normal commercial rates and consist principally of normal personal banking and financial
investment services.
The table below details loans to Non-executive Directors, the CEO and Group Executives (including their related
parties) of the Group.
Balance at start of
the year
$
Interest paid and
payable for the year
$
Interest not charged
during the year
$
Balance at end of
the year
$
Number in Group at
end of the year
Non-executive Directors
CEO and Group Executives
Total
19,785,162
11,919,499
31,704,661
165,382
383,875
549,257
-
-
-
1,171,921
14,607,236
15,779,157
1
7
8
The table below details KMP (including their related parties) with loans above $100,000 during 2020.
Balance at start of
the year
$
Interest paid and
payable for the year
$
Interest not charged
during the year
$
Balance at end of
the year
$
Highest indebtedness
during the year
$
Non-executive Directors
Steven Harker1
Peter Nash
Former Non-executive Directors
Lindsay Maxsted2
Ewen Crouch2
CEO and Group Executives
Rebecca Lim2
Carolyn McCann
David McLean
Christine Parker
Gary Thursby
Les Vance2
Alastair Welsh
Curt Zuber2
Former CEO and Group Executives
Brian Hartzer2
Lyn Cobley2
15,000,000
1,189,402
2,666,979
928,781
600,000
307,697
625,816
4,988,520
1,864,791
n/a
726,205
n/a
806,470
2,000,000
67,053
37,596
57,313
3,420
5,495
9,030
25,634
145,275
69,695
21,415
24,104
13,192
5,626
64,409
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,000,000
1,171,921
1,291,099
n/a
n/a
600,000
261,373
681,206
4,981,435
-
2,531,885
651,337
3,103,318
928,781
600,000
347,697
690,169
5,026,841
1,947,763
2,653,970
1,520,788
4,900,000
4,900,000
n/a
n/a
819,538
2,007,287
1
2.
Steven Harker’s loan was in place prior to his commencement as a Non-executive Director at Westpac. Steven disclosed the loan as part
of the onboarding process. The loan was provided at arms-length in the ordinary course of business and at normal commercial rates.
The information relates to the period the individual was a KMP. Refer to Section 1 for further details.
WESTPAC GROUP 2020 ANNUAL REPORT Directors’ report
Directors’ report
11. Auditor
a) Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act is below:
99
Auditor’s Independence Declaration
As lead auditor for the audit of Westpac Banking Corporation for the year ended 30 September
2020, I declare that to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Westpac Banking Corporation and the entities it controlled during
the period.
Lona Mathis
Partner
PricewaterhouseCoopers
Sydney
1 November 2020
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.corn.au
Liability limited by a scheme approved under Professional Standards Legislation.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW
100
Directors’ report
b) Non-audit services
We may decide to engage PwC on assignments additional to their statutory audit duties where their expertise or
experience with Westpac or a controlled entity is important.
Details of the non-audit service amounts paid or payable to PwC for non-audit services provided during the 2019
and 2020 financial years are set out in Note 35 to the respective financial statements.
PwC also provides audit and non-audit services to non-consolidated entities, non-consolidated trusts of which a
Westpac Group entity is trustee, manager or responsible entity and non-consolidated superannuation funds or
pension funds. The fees in respect of these services were approximately $6.1 million in total (2019: $7.5 million).
PwC may also provide audit and non-audit services to other entities in which Westpac holds a minority interest and
which are not consolidated. Westpac is not aware of the amount of any fees paid to PwC by those entities.
Westpac has a policy on engaging PwC, details of which are set out in Westpac’s Corporate Governance Statement
and in the subsection entitled ‘Engagement of the external auditor’, which forms part of this Directors’ report.
The Board has considered the position and, in accordance with the advice received from the Board Audit
Committee, is satisfied that the provision of the non-audit services during 2020 by PwC is compatible with the
general standard of independence for auditors imposed by the Corporations Act. The Directors are satisfied, in
accordance with advice received from the Board Audit Committee, that the provision of non-audit services by
PwC, as set out above, did not compromise the auditor independence requirements of the Corporations Act for the
following reasons:
•
•
all non-audit services provided by PwC for the year have been reviewed by the Board Audit Committee, which
is of the view that they do not impact the impartiality and objectivity of PwC; and
based on Board quarterly independence declarations made by PwC to the Board Audit Committee during
the year, none of the services undermine the general principles relating to auditor independence including
reviewing or auditing PwC’s own work, acting in a management or a decision-making capacity for the company,
acting as advocate for the company or jointly sharing economic risk and rewards.
12. Responsibility statement
The Directors of Westpac Banking Corporation confirm that to the best of their knowledge:
•
•
the consolidated financial statements for the financial year ended 30 September 2020, which have been
prepared in accordance with the accounting policies described in Note 1 to the consolidated financial
statements, being in accordance with Australian Accounting Standards (AAS), give a true and fair view of the
assets, liabilities, financial position and profit of the Group; and
the Annual Report from the section entitled ‘Information on Westpac’ to and including the section entitled
‘Other Westpac business information’ includes a fair review of the information required by the Disclosure
Guidance and Transparency Rules 4.1.8R to 4.1.11R of the United Kingdom Financial Conduct Authority, together
with a description of the principal risks and uncertainties faced by the Group.
Signed in accordance with a resolution of the Board.
John McFarlane
Chairman
1 November 2020
Peter King
Managing Director & Chief Executive Officer
1 November 2020
WESTPAC GROUP 2020 ANNUAL REPORT
Information on Westpac
Information on Westpac
Westpac is one of the four major banking organisations
in Australia and one of the largest banking organisations
in New Zealand. We provide a broad range of banking
and financial services in these markets, including
consumer1, business and institutional banking and
wealth management services.
We have branches, affiliates and controlled entities2
throughout Australia, New Zealand, Asia and in the
Pacific region, and maintain branches and offices in
some of the key financial centres around the world.3
We were founded in 1817 and were the first bank
established in Australia. In 1850, we were incorporated
as the Bank of New South Wales by an Act of the New
South Wales Parliament. In 1982, we changed our name
to Westpac Banking Corporation following our merger
with the Commercial Bank of Australia. On 23 August
2002, we were registered as a public company limited
by shares under the Australian Corporations Act 2001
(Cth) (Corporations Act).
Organisational structure
Our business is focused in Australia and New Zealand,
operating under multiple brands. The Group operates
through an extensive branch and ATM network,
significant online capability, and call centres supported
by specialist relationship and product managers. Our
operations comprise the following key divisions:
Consumer is responsible for sales and service of
banking products, including mortgages, credit cards,
personal loans, and savings and deposit products to
consumer customers in Australia. Banking products
are provided under the Westpac, St.George, BankSA,
Bank of Melbourne, and RAMS brands. Consumer works
with Business, WIB, and Specialist Businesses in the
sales, service, and referral of certain financial services
and products including general and life insurance,
superannuation, platforms, auto lending and foreign
exchange.
Business provides business banking products and
services for Australian SME and Commercial customers
(including Agribusiness) generally up to $200 million in
exposure. The division also serves Private Wealth. SME
includes relationship managed and non-relationship
managed SME customers. The division offers a wide
range of banking products and services to support their
borrowing, payments and transaction needs. In addition,
specialist services are provided for cash flow finance,
trade finance, equipment finance and property finance.
Business operates under the Westpac, St.George,
BankSA, and Bank of Melbourne brands. Business works
with Consumer, WIB, and Specialist Businesses in the
sale, referral and service of select financial services
and risk management products (including corporate
superannuation, foreign exchange and interest rate
hedging).
1.
2.
3.
A consumer is defined as a person who uses our products and
services. It does not include business entities.
Refer to Note 31 to the financial statements for a list of our
material controlled entities as at 30 September 2020.
Contact details for our head office, major businesses and
offshore locations can be found on the inside back cover.
101
Westpac Institutional Bank (WIB) delivers a broad
range of financial products and services to corporate,
institutional and government customers operating in,
or with connections to, Australia and New Zealand.
WIB operates through dedicated industry relationship
and specialist product teams, with expert knowledge in
financing, transactional banking, and financial and debt
capital markets. Customers are supported throughout
Australia and via branches and subsidiaries located in
New Zealand, the US, UK and Asia. WIB works with all
the Group’s divisions in the provision of markets’ related
financial needs including foreign exchange and fixed
interest solutions.
Westpac New Zealand provides banking, wealth
and insurance products and services for consumer,
business and institutional customers in New Zealand.
Westpac conducts its New Zealand banking business
through two banks: Westpac New Zealand Limited,
which is incorporated in New Zealand, and Westpac
Banking Corporation (New Zealand Branch), which
is incorporated in Australia. Westpac New Zealand
operates through a network of branches and ATMs
in both the North and South Islands. Business and
institutional customers are also served through
relationship and specialist product teams. Banking
products and services are provided under the Westpac
brand while insurance and wealth products are provided
under Westpac Life and BT brands, respectively. New
Zealand maintains its own infrastructure, including
technology, operations and treasury in accordance with
regulatory requirements.
Specialist Businesses provides automobile finance,
Australian life, general and lenders mortgage insurance,
investment product and services (including margin
lending and equities broking), superannuation and
retirement products as well as wealth administration
platforms. It also manages Westpac Pacific which
provides a full range of banking services in Fiji and
Papua New Guinea. The division operates under the
Westpac, St.George, BankSA, Bank of Melbourne, and
BT brands. Specialist Businesses works with Consumer,
Business and WIB in the provision of select financial
services and products.
Group Businesses include:
•
Treasury, which is responsible for the management
of the Group’s balance sheet including wholesale
funding, capital and the management of liquidity.
Treasury also manages the interest rate risk and
foreign exchange risks inherent in the balance sheet,
including managing the mismatch between Group
assets and liabilities. Treasury’s earnings are primarily
sourced from managing the Group’s balance sheet
and interest rate risk, (excluding Westpac New
Zealand) within set risk limits;
•
•
Group Technology, which is responsible for
technology strategy and architecture, infrastructure
and operations, applications development and
business integration in Australia; and
Core Support, which comprises Group support
functions, including Australian banking operations,
property services, strategy, finance, risk, compliance,
legal, human resources, and customer and corporate
relations.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW
102
Information on Westpac
Group Businesses also includes earnings on capital not
allocated to divisions, certain intra-group transactions
that facilitate the presentation of the performance of
the Group’s divisions, gains/losses from most asset
sales, earnings and costs associated with the Group’s
Fintech investments, costs associated with customer
remediation for the Advice business3, and certain other
head office items such as centrally raised provisions.
Significant developments
COVID-19 impacts on Westpac
COVID-19 has had, and continues to have, a significant
and adverse impact on the Australian economy, the
banking sector, our customers, counterparties and third
party suppliers, as well as our operations.
In response to the COVID-19 pandemic, the Australian
government has taken a number of actions to help
reduce and mitigate the economic impact of the
pandemic, including in relation to JobKeeper and
JobSeeker payments. The Australian, State and Territory
governments have also implemented a range of material
restrictions on businesses, venues, travel, movement
and gatherings of people. There have also been similar
restrictions put in place in other jurisdictions in which
the Group operates. Many of these new measures have
adversely impacted Westpac.
Westpac’s business activities and operations have
been, and will likely in the future be, disrupted by
the COVID-19 pandemic. For example, the COVID-19
pandemic has resulted in Westpac closing workplaces
and suspending the provision of services through
certain channels. The COVID-19 pandemic has also
disrupted, and will continue to disrupt, numerous
industries and global supply chains.
Banks continue to play an important role in supporting
customers, continuing to lend to keep credit flowing
and supporting the circulation of funds in the economy.
Westpac has provided support to certain customers
impacted by the COVID-19 pandemic by implementing
a range of initiatives, such as lowering interest rates on
certain products, waiving certain fees, providing special
loans to support customers to manage their cash flow
and granting deferrals of mortgage and business loan
repayments. These initiatives, and any support that
governments or regulators may in the future require
banks to provide to customers impacted by the
COVID-19 pandemic, may have a negative impact on the
Group’s financial performance and may see the Group
assume greater risk than it would have under ordinary
circumstances.
Both APRA and ASIC have supported the provision
of credit to customers in these circumstances and
remain closely engaged to understand the impact of
these measures on our customers, capital, credit risk
profile and liquidity. On 1 September 2020, Westpac
submitted a comprehensive plan to APRA and ASIC
detailing the existing and planned processes in place to
ensure appropriate ongoing borrower review, customer
engagement, capabilities, resourcing and oversight
across the borrower assessment process for COVID-19
impacted customers. Westpac is expected to identify,
address and report to ASIC and APRA any material
issues that arise in the implementation of these plans.
The COVID-19 pandemic has also led to increased
regulatory focus in certain areas, including operational
resilience, technology, cyber security, capital
management and stress testing. Westpac continues to
manage these risks.
In March 2020, the RBA established a Term Funding
Facility (TFF) to lower funding costs for the entire
banking system so that the cost of credit to households
and businesses is low, and to provide an incentive
for lenders to support credit to businesses. The TFF
provides Westpac access to at least $29.8 billion of
funds through three year repurchase transactions
at a fixed interest rate of 25 basis points. For further
information on the TFF see Note 21 to the financial
statements.
Further information on the actual and potential impacts
of COVID-19 and the Group’s response are set out in the
‘Strategic Report’ and ‘Risk Factors’ sections.
Westpac significant developments
Leadership changes, reset of strategy and launch of
Lines of Business operating model
Since November 2019, there have been significant
changes to the Westpac Board and Group Executives.
Further information is set out in Section 10 of the
Directors’ Report.
In addition, Westpac has adopted a new purpose,
helping Australians and New Zealanders succeed, and
reset its strategy which is focused on concentrating
on banking in our core markets of Australia and New
Zealand to support consumer, business, commercial and
institutional customers. Further information is set out in
the Strategic Report section.
Westpac has also launched its Lines of Business
operating model to clarify responsibility and
accountability for end-to-end performance. Further
information is set out in the Strategic Report section.
AUSTRAC civil proceedings
On 20 November 2019, AUSTRAC commenced civil
proceedings in the Federal Court of Australia against
Westpac in relation to alleged contraventions of
the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 (Cth) (AML/CTF Act). These
proceedings related to non-reporting of a large number
of International Funds Transfer Instructions (IFTIs)
and a failure to include in a number of IFTIs required
information about the payer, failings in relation to
record keeping and the passing on of certain data
required in IFTIs, failure to comply with correspondent
banking obligations, AML/CTF Program failures and
contraventions of ongoing customer due diligence
obligations. AUSTRAC alleged over 23 million
contraventions of the AML/CTF Act.
On 24 September 2020, Westpac announced that it
had reached an agreement with AUSTRAC to resolve
the proceedings, subject to Court approval. Under the
agreement, the parties agreed to file with the Court a
Statement of Agreed Facts and Admissions (SAFA),
and to recommend to the Court that Westpac pay a
civil penalty of $1.3 billion in relation to in excess of
23 million admitted contraventions of the AML/CTF
Act. Westpac also agreed to pay AUSTRAC’s legal costs
of $3.75 million. In light of the above developments,
Westpac has increased the provision in respect of the
penalty from $900 million to $1.3 billion. The settlement
was approved by the Court on 21 October 2020. Further
information on the provision is set out in Note 27 to the
financial statements.
WESTPAC GROUP 2020 ANNUAL REPORT Information on Westpac
As part of the SAFA, Westpac admitted to additional
contraventions of the AML/CTF Act to those in its
Defence of May 2020, and to the new allegations in
the Amended Statement of Claim that AUSTRAC
filed with the Court on 24 September 2020. Those
additional admitted contraventions relate to the
reporting of 76,144 IFTIs that did not contain the
required information about the payer, two additional
failures to comply with correspondent banking due
diligence obligations, a failure to conduct appropriate
ongoing customer due diligence in relation to a number
of additional customers, and aspects of Part A of
Westpac’s AML/CTF Program not fully complying with
the requirements under the AML/CTF Act and the AML/
CTF Rules.
AUSTRAC response plan and external reviews
Since the commencement of the AUSTRAC
proceedings, Westpac has made significant progress
in its AUSTRAC response plan. Further information on
the AUSTRAC response plan is set out in the Strategic
Report section.
Westpac commissioned a number of external reviews in
order to identify the causes of the compliance failings
related to the AUSTRAC proceedings, determine
appropriate consequences, and to identify key lessons
learned. These reviews include a review by an Advisory
Panel into Westpac’s Board governance of AML/CTF
obligations, an assurance review by Promontory of
Westpac’s management accountability investigation,
and a review, also by Promontory, of Westpac’s financial
crime program.
On 4 June 2020 Westpac released a copy of the
Advisory Panel Report and a summary of the reviews’
findings and recommendations.
Financial Crime
Following the AUSTRAC proceedings, Westpac has
been progressing actions to improve its financial crime
program. This includes a significant multi-year program
of work to improve its management of financial crime
risks (including AML/CTF, sanctions, Anti-Bribery
and Corruption, Foreign Account Tax Compliance Act
(FATCA) and Common Reporting Standards (CRS)).
Through this work, Westpac has identified further
weaknesses and areas for improvement, which it is
addressing. Specific focus areas include uplifting its
AML/CTF policies, reviewing the completeness of data
feeding into its AML/CTF systems and considering
the adequacy and appropriateness of its AML/
CTF processes and controls. The work also involves
addressing matters identified in AUSTRAC’s Statement
of Claim and outlined in the SAFA.
Westpac is also undertaking remediation work
in multiple areas, including applicable customer
identification procedures, ongoing and enhanced
customer due diligence, customer and payment
screening, risk assessments, transaction monitoring
and regulatory reporting including in relation to IFTIs,
Threshold Transaction Reports (TTRs) and Suspicious
Matter Reports (including “tipping off” controls).
With increased focus on financial crime, further issues
requiring attention have been identified and may
continue to be identified. As part of these efforts,
Westpac identified deficiencies in certain systems and
controls relevant to its obligation to file TTRs. This
has resulted in instances where the Group has failed
to report TTRs, as well as instances where the Group
103
filed TTRs with incomplete or inaccurate information.
The Group self-reported these TTR deficiencies to
AUSTRAC, providing a series of updates since 2019,
and is keeping AUSTRAC apprised of the status of its
remediation.
As part of the remediation work the Group is also
working to remediate gaps and enhance controls
to support compliance with its FATCA and CRS
obligations.
Details about the consequences of failing to comply
with financial crime obligations are set out in the Risk
Factors section.
Australian Prudential Regulation Authority (APRA)
and Australian Securities and Investments Commission
(ASIC) investigations
On 17 December 2019, APRA commenced an
investigation examining potential contraventions by
Westpac, its directors and/or senior managers of
the Banking Act 1959 (Cth) (including the Banking
Executive Accountability Regime) (Banking Act) and/
or APRA’s Prudential Standards by engaging in, and the
way it responded to, the conduct which is the subject of
the AUSTRAC proceedings.
On 17 June 2020, APRA delegated certain of its
enforcement powers under the Banking Act to ASIC.
Following that delegation, ASIC will examine potential
contraventions under the Banking Act by Westpac, its
directors and/or senior managers. APRA has retained its
power to administratively disqualify certain individuals
under the Banking Act.
ASIC has commenced an extensive investigation into
matters related to the AUSTRAC allegations in the
AUSTRAC proceedings. Westpac remains committed
to cooperating and working constructively with ASIC
during its investigation which is ongoing. Westpac has
not received an indication from ASIC about the nature
of any enforcement action it may take. Details about the
consequences of failing to comply with legal obligations
are set out in the Risk Factors section.
Australian and US class actions
Westpac is defending a class action proceeding which
was commenced in December 2019 in the Federal
Court of Australia by law firm Phi Finney McDonald,
on behalf of certain investors in Westpac securities
between 16 December 2013 and 19 November 2019.
The proceeding involves allegations relating to market
disclosure issues connected to Westpac’s monitoring
of financial crime over the relevant period and matters
which are the subject of the AUSTRAC proceedings.
The claims do not identify the amount of any damages
sought. However, given the time period in question and
the nature of the claims it is likely that the damages
which will be alleged will be significant. No provision
has been taken in relation to the potential exposure.
A second class action in relation to similar issues was
commenced by law firm Johnson Winter & Slattery
in March 2020. The Phi Finney McDonald claim was
subsequently amended to include the group members
from the Johnson Winter & Slattery proceeding. The
Johnson Winter & Slattery proceeding was discontinued
in May 2020 by agreement between Westpac, the
applicant in that proceeding and the applicant in the Phi
Finney McDonald proceeding.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW
104
Information on Westpac
In January 2020, a US class action was commenced
by the Rosen Law Firm, naming Westpac, our current
CEO and our former CEO as defendants. It was
brought on behalf of certain investors in Westpac
securities between 11 November 2015 and 19 November
2019. That claim related to market disclosure issues
connected to Westpac’s monitoring of financial crime
over the relevant period and matters which are the
subject of the AUSTRAC proceedings. The parties have
agreed to settle this proceeding on a wholly without
admissions basis and on the basis that in return for full
releases from the class members in the proceeding,
Westpac will pay an amount of US$3.1million. The
settlement remains subject to approval by the
District Court of Oregon and a process to give class
members an option to opt out. In light of the above
developments, Westpac has taken a provision in respect
of the settlement.
APRA review into risk governance
On 17 December 2019, following the commencement
of the AUSTRAC proceedings and other significant
prudential reviews, APRA announced that in addition
to investigating possible breaches of the Banking Act
by Westpac, it would conduct an extensive supervision
program focused on Westpac’s risk governance,
accountability and risk culture. This program will assess
Westpac’s remediation actions, the effectiveness of
Westpac’s execution and the steps Westpac has been
taking to strengthen risk governance, including through
its self-assessment, which is referred to below. APRA’s
review will consider several governance focus areas in
non-financial and financial risk management and case
studies. This review is expected to take approximately
18 months and result in a report of APRA’s observations
and findings.
Operational risk capital overlays
The following additional capital overlays are currently
applied by APRA to Westpac’s operational risk capital
requirement:
•
•
$500 million in response to Westpac’s Culture,
Governance and Accountability (CGA)
self-assessment. The overlay applied from
30 September 2019 and will remain in place until
APRA is satisfied that Westpac has completed its
action plan.
$500 million in response to the magnitude and
nature of issues alleged by AUSTRAC in its
Statement of Claim. The additional overlay applied
from 31 December 2019.
Both of the overlays have been applied through an
increase in risk weighted assets (RWA). The impact on
Westpac’s Level 2 common equity tier 1 (CET1) capital
ratio at 30 September 2020 was 31 basis points.
Outcome of Specialist Businesses strategic review
On 4 May 2020, Westpac announced the creation of
a new Specialist Businesses division consisting of the
following businesses:
•
•
•
•
Superannuation, Investments and Platforms;
Insurance;
Auto and vendor finance; and
Westpac Pacific.
These businesses have since undergone a strategic
review process which has now been completed. The
outcome is that Westpac does not view itself as the
long-term owner of these businesses and will seek to
exit them over time as market conditions permit.
On 21 August 2020, Westpac announced that it had
entered into an agreement for the sale of its Vendor
Finance business to Angle Finance, a portfolio company
of Cerberus Capital Management, L.P. Vendor Finance
supports third parties to fund small ticket equipment
finance loans to around 42,000 Australian businesses.
Given the relatively modest size of the portfolio, the sale
is expected to have an immaterial impact on Westpac’s
balance sheet and capital ratios. Completion is expected
to occur at the end of April 2021.
Consolidation of Westpac’s international operations
Following a comprehensive review of its Asia, Europe
and US businesses, Westpac has decided to consolidate
its international operations into three branches;
Singapore, London and New York. This decision means
the Group will exit operations in Beijing, Shanghai,
Hong Kong, Mumbai and Jakarta. The changes are not
expected to have a significant impact on cash earnings
and, over time, are planned to improve the Group’s
capital efficiency, including by reducing RWA.
Sale of shares in Pendal Group Limited
On 17 June 2020, Westpac announced the sale
of approximately 31 million Pendal Group Limited
(ASX:PDL) (Pendal) shares at a price of $5.98 per share,
pursuant to a fully underwritten institutional offer. This
sale completed the divestment of Westpac’s proprietary
shareholding in Pendal, following earlier share sales in
2007, 2015 and 2017.
Sale of shares in Zip Co Limited
On 21 October 2020, Westpac announced the sale of
its 10.7% stake in Zip Co Limited (ASX:Z1P) by way of
a fully underwritten institutional offer. The decision
reflects Westpac’s approach to simplifying its business
and ensuring the efficient use of capital. The sale
added approximately 8 basis points to Westpac’s
common equity tier 1 capital ratio in the first half
of FY21. Settlement of the transaction occurred on
26 October 2020.
Westpac reviews
Culture, Governance and Accountability reassessment
Following a reassessment of its existing CGA
Remediation Plan (as defined below), which was
undertaken in response to a request from APRA,
Westpac has launched a Group-wide program to
strengthen its management of non-financial risks.
Westpac first conducted a self-assessment into culture,
governance and accountability in November 2018
and developed a remediation plan in response (CGA
Remediation Plan). Following AUSTRAC’s Statement
of Claim in November 2019, Westpac reassessed its
remediation plan at the request of APRA. A central
conclusion from the reassessment was that Westpac’s
non-financial risk culture remains immature and
reactive.
WESTPAC GROUP 2020 ANNUAL REPORT Information on Westpac
As a result, Westpac is embarking on a Group-wide
program, CORE – Customer Outcomes and Risk
Excellence – with a focus on Board and Executive
oversight of non-financial risk, and strengthening
risk culture, risk frameworks and risk management
capability. Promontory will provide ongoing assurance
over the CORE program.
Further information about CORE is set out in the
‘Strategic Report’ and ‘Group Performance’ sections.
Risk management
Westpac is upgrading its end to end risk management.
Recent reviews have identified a wide range
of shortcomings and areas for improvement in
Westpac’s policies, systems and data, as well as its
risk capabilities and risk management framework.
The Group has a number of risks which sit outside of
our risk appetite or do not meet the expectations of
regulators. The CORE program is addressing some of
these improvements. Key components of the CORE
program include embedding a more proactive risk
culture, refining a three lines of defence model to
define clearer risk management accountabilities and
improving risk awareness, capability and capacity
through organisational-wide training and additional risk
resources in the business. Other areas of improvement
are being addressed through significant investment in
risk management expertise in areas such as operational
risk, compliance, financial crime, stress testing,
modelling and data management.
Further information about risk management is set out in
the Risk and Risk Management section.
Regulatory and Government focus
Royal Commission into the banking, superannuation
and financial services industry
Implementation of the 76 express recommendations
in the Final Report of the Royal Commission into
Misconduct in the Banking, Superannuation and
Financial Services Industry continues to have a
significant impact on Australia’s banking and financial
services entities and their regulators. Depending on how
and when the government legislates or regulates for the
recommendations there may also be adverse impacts
on our business.
To allow the industry to focus on its response to
COVID-19 and support for customers on 8 May 2020
the government announced a six month deferral in its
Implementation Roadmap. A number of the legislative
drafts are proposed to come into effect in early 2021
but the final form of these drafts have not yet been
released by the government posing a challenge to
implementation.
Presently, 50 recommendations apply to Westpac.
The Group has commenced programs of work in
relation to all of the applicable recommendations that
have been the subject of legislative activity and/or
regulatory activity and, to date, has implemented 14
recommendations.
In anticipation of the removal of grandfathering of
conflicted remuneration payable to financial advisers
effective from 1 January 2021, we are also currently
reviewing third party remuneration arrangements.
Other impacts arising from the Royal Commission
include a number of claims being brought against
financial institutions in relation to certain matters
105
considered during the Royal Commission, and the
referral of several cases of misconduct to the financial
regulators by Commissioner Hayne. The Royal
Commission has also led to increased political and
regulatory scrutiny of the financial industry in New
Zealand and may continue to do so.
Changes to responsible lending laws
On 25 September 2020, the government announced
a proposed simplification of Australia’s consumer
credit regulatory regime. The government’s intended
commencement date (subject to the passage of law)
is 1 March 2021. We are closely monitoring this and will
make any changes to our systems and processes as
appropriate.
In addition to the responsible lending obligations,
consumer credit is subject to regulatory oversight
through a range of mechanisms, including APRA
standards and guidance in relation to credit
assessments by authorised deposit-taking institutions
(ADIs), the ABA’s Banking Code of Practice and the
general conduct obligations under section 47 of the
National Consumer Credit Protection Act 2009 (Cth),
including the obligation to do all things to ensure that
credit activities are engaged in efficiently, honestly
and fairly. Accordingly, without analogous changes
to these regulatory requirements, removal of the
responsible lending obligations may not necessarily
have a significant impact on our overall consumer credit
processes.
Focus on superannuation
On 6 October 2020, the government released a paper
entitled ‘Your Future, Your Super’, setting out ‘reforms
to make your super work harder for you’.
The first key reform involves linking a person to their
superannuation fund throughout their working life
(although a person can choose to change their super
fund at any time). Rather than contributing to the
employer’s default fund for its employees who do not
choose their own superannuation fund, employers will
be required to contribute to their employees’ existing
superannuation funds. This reform is intended to reduce
the number of people with multiple superannuation
accounts. This means employees do not have to select
a superannuation fund each time they change jobs, and
should therefore reduce individuals having unintended
multiple superannuation accounts.
The second key reform relates to annual performance
tests. An online ATO ‘YourSuper’ comparison tool
that compares funds by fees and performance
will be introduced to assist people in selecting a
superannuation fund. The tool will also expressly
list under performing funds, based on the annual
performance tests. These annual performance tests
will apply by July 2021 for MySuper (default) products.
If a MySuper product fails the performance ‘test’, the
trustee will be required to notify members of the under
performance by October 2021 and provide information
about the YourSuper comparison tool. If a fund fails two
consecutive performance ‘tests’, it will not be permitted
to accept new members. Annual performance tests will
also apply to certain types of superannuation choice
options by July 2022.
Westpac is supportive of the changes given they are
expected to drive increased competitiveness across the
industry.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW
106
Information on Westpac
In addition, APRA is increasing its supervisory focus
on superannuation providers, including Westpac, with
an emphasis on member outcomes and governance.
Westpac’s superannuation entities are underway
with an ongoing program of work to strengthen their
management of risk under the risk management
framework and address feedback from APRA.
Regulatory reviews and inquiries
Provision of credit - reviews by APRA
Following APRA reviews assessing the adequacy of
our credit risk management framework including our
controls, end-to-end processes, policies and operating
systems, long-standing weaknesses have been identified
that require significant uplift. The Group is making
changes to systems and controls to improve its end-to-
end approach for mortgage, business and institutional
lending portfolios, as well as other key processes. This
includes enhancing portfolio management practices,
data governance, systems upgrades (including data
collection and rationalisation), strengthening collateral
management processes and improving assurance and
oversight over our credit management frameworks. This
program of work will also address issues identified by
Westpac’s internal assurance and audit teams.
General regulatory changes affecting our business
Open banking regime
The Competition and Consumer Act 2010 (Cth), as
amended by the Treasury Laws Amendment (Consumer
Data Right) Act 2019 (Cth), contains a regime for a
consumer data right that gives customers in Australia
a right to direct that their data (starting with banking
data) be shared with accredited third parties. Data
sharing facilitates competition through easier product
comparison and switching. This is expected to have
significant implications for consumers and banks,
including Westpac.
The Competition and Consumer (Consumer Data
Right) Rules 2020 (the CDR Rules) commenced on
6 February 2020. The CDR Rules set out how the
CDR regime will operate. Open Banking commenced
on 1 July 2020 with the four major banks required to
share consumer data for credit and debit card, deposit
account and transaction account data with accredited
service providers. Future phases will introduce
additional products, joint accounts and business and
corporate consumers. Other brands in the Westpac
Group will be required to commence data sharing on
1 July 2021.
Comprehensive Credit Reporting (CCR)
The National Consumer Credit Protection Amendment
(Mandatory Credit Reporting and Other Measures)
Bill 2019 (Cth) is currently before the Senate. The Bill
requires the four major Australian banks to supply
CCR data to credit reporting bodies and outlines how
financial hardship cases should be reported.
The Bill has not yet passed and there have been
disruptions to the parliamentary schedule as a
result of COVID-19. Nevertheless, Westpac is already
participating in CCR on a voluntary basis.
Other litigation
ASIC’s outbound scaled advice division proceedings
On 22 December 2016, ASIC commenced Federal Court
proceedings against BT Funds Management Limited
(BTFM) and Westpac Securities Administration Limited
(WSAL) in relation to a number of superannuation
account consolidation campaigns conducted between
2013 and 2016. ASIC has alleged that in the course of
some of these campaigns, customers were provided
with personal advice in contravention of a number
of Corporations Act 2001 (Cth) (Corporations Act)
provisions, and selected 15 specific customers as the
focus of their claim. Following an appeal by ASIC in the
proceedings, on 28 October 2019 the Full Federal Court
handed down its decision in ASIC’s favour and made
findings that BTFM and WSAL each provided personal
advice on relevant calls made to 14 of the 15 customers
and made declarations of consequential contraventions
of the Corporations Act (including section 912A(1)
(a)). BTFM and WSAL were granted special leave to
appeal by the High Court of Australia, which heard
the appeal to the Full Federal Court’s decision on
7 and 8 October 2020. The High Court’s judgment in
the matter is reserved. If this appeal is unsuccessful,
the matter will be remitted to the Federal Court for
a hearing on penalties and any other orders sought
by ASIC.
ASIC’s proceedings against BT Funds Management and
Asgard Capital Management
On 20 August 2020, ASIC commenced proceedings
in the Federal Court against BT Funds Management
Limited and Asgard Capital Management Limited, in
relation to an issue that was a case study in the Royal
Commission. The allegations concern the inadvertent
charging of financial adviser fees to 404 customers
totalling $130,006 after a request had been made
to remove the financial adviser from the customers’
accounts. The issue was self-reported to ASIC in 2017
and customers have been contacted and remediated.
BTFM and ACML accept the allegations made by ASIC
and do not intend to defend the proceedings. Westpac
is now working through the relevant Court procedural
steps to try and bring the matter to a resolution.
Class action against Westpac Banking Corporation and
Westpac Life Insurance Services Limited
On 12 October 2017, a class action was filed in the
Federal Court of Australia on behalf of customers
who, since February 2011, obtained insurance issued
by Westpac Life Insurance Services Limited (WLIS) on
the recommendation of financial advisers employed
within the Westpac Group. The plaintiffs have alleged
that aspects of the financial advice provided by those
advisers breached fiduciary and statutory duties owed
to the advisers’ clients, including the duty to act in
the best interests of the client, and that WLIS was
knowingly involved in those alleged breaches. Westpac
and WLIS are defending the proceedings. The matter
has been set down for an initial trial in May 2021.
WESTPAC GROUP 2020 ANNUAL REPORT Information on Westpac
Class action in the US relating to bank bill swap rate
(BBSW)
In August 2016, a class action was filed in the
United States District Court for the Southern District
of New York against Westpac and a number of other
Australian and international banks and brokers alleging
misconduct in relation to the bank bill swap reference
rate. Westpac has reached agreement with the Plaintiffs
to settle this class action. The terms of the settlement
are currently confidential and subject to negotiation
and execution of settlement papers and Court approval.
Westpac holds a provision in relation to this matter.
Class action relating to cash in super
On 5 September 2019, a class action against BTFM and
WLIS was commenced in the Federal Court of Australia
in relation to aspects of BTFM’s BT Super for Life cash
investment option. The claim follows other industry
class actions.
It is alleged that BTFM failed to adhere to a number
of obligations under the general law, the relevant trust
deed and the Superannuation Industry (Supervision) Act
1993 (Cth), and that WLIS was knowingly concerned
with BTFM’s alleged contraventions. The damages
sought by the claim are unspecified. BTFM and WLIS
are defending the proceedings.
Class action relating to consumer credit insurance
On 28 February 2020, a class action was commenced
against Westpac Banking Corporation, Westpac General
Insurance Limited and Westpac Life Insurance Services
Limited in the Federal Court of Australia in relation to
Westpac’s sale of consumer credit insurance (CCI). The
claim follows other industry class actions.
It is alleged that the three entities failed to adhere to
a number of obligations in selling CCI in conjunction
with credit cards, personal loans and flexi loans. The
damages sought by the claim are unspecified. The three
entities are defending the proceedings. Westpac no
longer sells CCI products.
Class action relating to payment of flex commissions to
auto dealers
On 16 July 2020, a class action was commenced against
Westpac Banking Corporation and St George Finance
Limited (SGF) in the Supreme Court of Victoria in
relation to flex commissions paid to auto dealers from
1 March 2013 to 31 October 2018. This proceeding is
one of two class actions brought by Maurice Blackburn
against a number of lenders in the auto finance industry.
It is alleged that Westpac and SGF are liable for
the unfair conduct of dealers acting as credit
representatives and engaged in misleading or deceptive
conduct. The damages sought are unspecified. Westpac
and SGF are defending the proceedings. Another law
firm publicly announced in July 2020 that it is preparing
to commence a class action against Westpac entities
in relation to flex commissions paid to auto dealers.
Westpac has not been served with a claim from that
law firm on flex commissions. Westpac has not paid
flex commissions since 1 November 2018 following an
industry-wide ban issued by ASIC.
107
Potential class actions
Westpac is aware from media reports and other
publicly available material that other class actions
against Westpac entities are being investigated. In
July 2020, one law firm publicly stated that it intends
to commence a class action against BTFM alleging
that since 2014, BTFM did not act in the best interests
of members of certain superannuation funds when
obtaining group insurance policies. In August 2020,
another law firm announced that it is investigating
claims on behalf of persons who in the past 6 years
acquired, renewed or continued to hold a financial
product (including life insurance) on the advice or
recommendation of a financial adviser from Magnitude
Group, Securitor Financial Group or Westpac Banking
Corporation. Westpac has not been served with a
claim in relation to either of these matters and has no
information about the proposed claims beyond the
public statements issued by the law firms involved.
APRA regulatory changes and other changes
affecting capital
APRA announcements on capital
As part of its response to the current economic
environment following the COVID-19 pandemic, APRA
has made the following announcements on capital:
•
•
•
•
•
Updated guidance on capital management and
dividends: For 2020, APRA expects ADIs to retain at
least half of their earnings, actively use the dividend
reinvestment plan (DRP) and/or other capital
management initiatives to at least partially offset the
reduction in capital from distributions. Westpac took
this guidance into consideration when determining
the final dividend, which is discussed further in
Section 3 of the Directors’ Report;
Adjustment to expectations for bank capital: As
announced in March 2020, APRA does not expect
ADIs to meet the ‘unquestionably strong’ capital
benchmarks in the period ahead (so long as they
remain above the current regulatory requirement).
Westpac’s capital management strategy is set out
further in the Review of Group Operations section;
Temporary amendments to the calculation of
RWA for COVID-19 support packages: Where
a support package provides an option to defer
repayments for a period of time, for RWA calculation
purposes, a bank need not treat the period of the
repayment holiday as a period of arrears (provided
the borrower had previously been meeting
their repayment obligations). In addition, the
government’s ‘Coronavirus SME Guarantee Scheme’
is to be regarded as an eligible guarantee by the
government for RWA calculation purposes. The
temporary capital treatment is available until the
earlier of either a maximum period of ten months
from when the initial repayment deferral was
granted, or 31 March 2021;
Deferral of APRA’s implementation of the Basel III
capital reforms by a year to January 2023; and
Deferral of changes to APS 222 Associations
with Related Entities standard by a year to
1 January 2022.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW
108
Information on Westpac
APRA’s proposed revisions to subsidiary capital
investment treatment
APRA has proposed changes to APS 111 Capital
Adequacy Measurement of Capital including changes to
the existing approach for equity exposures in banking
and insurance subsidiaries (Level 1). There is no impact
to Westpac’s reported capital ratios on a Level 2 basis.
APRA has indicated that they intend to recommence
consultation and a revised standard will come into
effect from 1 January 2022 following the COVID-19
pandemic.
Additional loss absorbing capacity
On 9 July 2019, APRA announced a requirement for the
Australian major banks (including Westpac) to increase
their total capital requirements by three percentage
points of RWA as measured under the current capital
adequacy framework. This increase in total capital will
take full effect from 1 January 2024.
The additional capital is expected to be raised through
Tier 2 Capital and is likely to be offset by a decrease in
other forms of long term wholesale funding. Westpac
is continuing to make progress towards the new
requirements. As at 30 September 2020, the Tier 2 ratio
was 3.15%.
APRA is still targeting an additional four to five
percentage points of loss-absorbing capacity. Over the
next four years, APRA has stated that it will consider
feasible alternative methods for raising the remaining
1-2 percentage points.
APRA Prudential Standard CPS 511: Remuneration
On 23 July 2019, APRA released for consultation a new
draft prudential standard and supporting discussion
paper on remuneration. It is aimed at clarifying and
strengthening remuneration arrangements in APRA-
regulated entities. The new standard will replace
existing remuneration requirements under CPS/SPS
510 Governance. In August 2020, APRA released its
2020-2024 Corporate Plan noting the revised APRA
Prudential Standard CPS 511 is expected to be released
from January to July 2021.
New Zealand
COVID-19 impacts
In response to COVID-19, a number of laws have been
enacted by the New Zealand government to help
reduce the economic impact and it has implemented
a range of material restrictions on businesses, venues,
travel and movement. Many of these new measures
have impacted WNZL’s operations.
Also in response to COVID-19, there have been a
number of new guidance updates published and
regulatory delays announced by New Zealand
regulators, including the Reserve Bank of New Zealand
(RBNZ), the Financial Markets Authority and the
Commerce Commission.
On 2 April 2020, a decision was made by the RBNZ
to freeze the distribution of dividends on ordinary
shares by all banks in New Zealand during the period
of economic uncertainty caused by COVID-19. Non-
payment of dividends from WNZL only affects
Westpac’s Level 1 CET1 capital ratio.
Westpac is well capitalised and at 30 September 2020
had a Level 1 CET1 capital ratio of 11.40%.
RBNZ Capital Review
On 5 December 2019, the RBNZ announced changes to
the capital adequacy framework in New Zealand. The
new framework includes the following key components:
•
•
•
•
•
Setting a Tier 1 capital requirement of 16% of RWA
for systemically important banks (including WNZL)
and 14% for all other banks;
Additional Tier 1 capital (‘AT1’) can comprise no more
than 2.5% of the 16% Tier 1 capital requirement;
Eligible Tier 1 capital will comprise common equity
and redeemable perpetual preference shares.
Existing AT1 instruments will be phased out over a
seven year period;
Maintaining the existing Tier 2 capital requirement of
2% of RWA; and
Recalibrating RWA for internal rating based banks,
such as WNZL, such that aggregate RWA will
increase to 90% of standardised RWA.
Westpac believes WNZL is already strongly capitalised
with a Tier 1 capital ratio of 15% at 30 September 2020
based on the current RBNZ rules. On a pro forma basis
(including the new RWA and capital requirements)
at 30 September 2020 and assuming a Tier 1 capital
ratio of 16-17%, WNZL would require a further
NZ$1.6-$2.2 billion of Tier 1 capital to meet the new
requirements that are fully effective in 2028.
In response to the impacts of COVID-19, and to support
credit availability, the RBNZ has delayed the start date
of the new capital regime by 12 months to 1 July 2021
and the RBNZ will consider further delays in 2021 if it
considers that market conditions warrant it. Banks will
be given up to seven years to comply.
RBNZ - Review under section 95 of the Reserve Bank
of New Zealand Act 1989
In June 2019, in response to a review under section
95 of the Reserve Bank of New Zealand Act 1989 of
WNZL’s compliance with advanced internal rating based
aspects of the RBNZ’s ‘Capital Adequacy Framework
(Internal Models Based Approach)’ (BS2B), WNZL
presented the RBNZ with a submission providing an
overview of its credit risk rating system and activities
undertaken to address compliance issues and enhance
risk management practices.
On 30 October 2019, the RBNZ informed WNZL that it
had accepted the submission and measures undertaken
by WNZL to achieve satisfactory compliance with BS2B,
and that WNZL would retain its accreditation to use
internal models for credit risk in the calculation of its
regulatory capital requirements. With effect from 31
December 2019, the RBNZ removed the requirement
imposed on WNZL since 31 December 2017 to maintain
minimum regulatory capital ratios that were two
percentage points higher than the ratios applying to
other locally incorporated banks.
WESTPAC GROUP 2020 ANNUAL REPORT 109
New Zealand
The Reserve Bank of New Zealand (RBNZ) is
responsible for supervising New Zealand registered
banks and protects the financial stability of New
Zealand through the application of minimum prudential
obligations. The New Zealand prudential supervision
regime requires that registered banks publish disclosure
statements, which contain information on financial
performance and risk positions as well as attestations
by the directors about the bank’s compliance with its
conditions of registration and certain other matters.
The Financial Markets Authority (FMA) and the New
Zealand Commerce Commission (NZCC) are the two
primary conduct and enforcement regulators. The FMA
and NZCC are responsible for ensuring that markets are
fair and transparent and are supported by confident
and informed investors and consumers. Regulation of
markets and their participants is undertaken through
a combination of market supervision, corporate
governance and licensing approvals.
In New Zealand, other relevant regulator mandates
include those relating to taxation, privacy and foreign
affairs and trade.
Banks in New Zealand are also subject to a number of
self- regulatory regimes. Examples include Payments
NZ, the New Zealand Bankers’ Association and the
Financial Services Council (FSC). Examples of industry
agreed codes include the New Zealand Bankers’
Association’s Code of Banking Practice and FSC’s Code
of Conduct.
Information on Westpac
Supervision and regulation
Australia
Within Australia, we are subject to supervision and
regulation by seven principal agencies and bodies: the
Australian Prudential Regulation Authority (APRA);
the Reserve Bank of Australia (RBA); the Australian
Securities and Investments Commission (ASIC); the
Australian Securities Exchange (ASX); the Australian
Competition and Consumer Commission (ACCC); the
Australian Transaction Reports and Analysis Centre
(AUSTRAC) and the Office of the Australian Information
Commissioner (OAIC).
APRA is the prudential regulator of the Australian
financial services industry.
As an ADI, we report prudential information to APRA,
including information in relation to capital adequacy,
large exposures, credit quality and liquidity.
The RBA is responsible for monetary policy, maintaining
financial system stability and promoting the safety and
efficiency of the payments system. The RBA is an active
participant in the financial markets, manages Australia’s
foreign reserves, issues Australian currency notes and
serves as banker to the Australian Government.
ASIC is the national regulator of Australian companies
and consumer protection within the financial sector.
The ASX operates Australia’s primary national market
for trading of securities issued by listed companies.
Some of our securities (including our ordinary shares)
are listed on the ASX and we therefore have obligations
to comply with the ASX Listing Rules, which have
statutory backing under the Corporations Act 2001
(Cth).
The ACCC is the regulator responsible for the regulation
and prohibition of anti-competitive and unfair market
practices and mergers and acquisitions in Australia. Its
broad objective is to administer the Competition and
Consumer Act 2010 (Cth) and related legislation to
bring greater competitiveness, fair trading, consumer
protection and product safety to the Australian
economy.
AUSTRAC oversees the compliance of Australian
reporting entities (including Westpac) with the
requirements under the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006 (Cth) and the
Financial Transaction Reports Act 1988 (Cth). These
requirements include:
•
•
implementing programs for identifying and
monitoring customers, and for managing the risks of
money laundering and terrorism financing;
reporting suspicious matters, threshold transactions
and international funds transfer instructions; and
•
submitting an annual compliance report.
The OAIC is responsible for the regulation of privacy
and information rights, including under the Privacy Act
1988 (Cth) (Privacy Act). Its functions include handling
complaints about the handling of personal information
and conducting investigations into potential breaches of
the Privacy Act.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW
110
Information on Westpac
United States
Our New York branch is a US federally licensed branch
and therefore is subject to supervision, examination and
regulation by the US Office of the Comptroller of the
Currency and the Board of Governors of the Federal
Reserve System (the US Federal Reserve) under the
US International Banking Act of 1978 (IBA) and related
regulations.
A US federal branch must maintain, with a US Federal
Reserve member bank, a capital equivalency deposit
as prescribed by the US Comptroller of the Currency,
which is at least equal to 5% of its total liabilities
(including acceptances, but excluding accrued
expenses, and amounts due and other liabilities to
other branches, agencies and subsidiaries of the foreign
bank).
In addition, a US federal branch is subject to periodic
on-site examination by the US Comptroller of
the Currency. Such examination may address risk
management, operations, asset quality, compliance with
the record-keeping and reporting, and any additional
requirements prescribed by the US Comptroller of the
Currency from time to time.
A US federal branch of a foreign bank is, by virtue of the
IBA, subject to the receivership powers exercisable by
the US Comptroller of the Currency.
As of 22 June 2016, we elected to be treated as a
financial holding company in the US pursuant to
the Bank Holding Company Act of 1956 and Federal
Reserve Board Regulation Y. Our election will remain
effective so long as we meet certain capital and
management standards prescribed by the US Federal
Reserve.
Westpac and some of its affiliates are engaged in
various activities that are subject to regulation by
other US federal regulatory agencies, including the US
Securities and Exchange Commission, US Financial
Industry Regulatory Authority, the US Commodity
Futures Trading Commission and the National Futures
Association.
Anti-money laundering regulation and related
requirements
Australia
Westpac has a Group-wide program to manage
its obligations under the Anti-Money Laundering
and Counter- Terrorism Financing Act 2006 (Cth).
We continue to actively engage with the regulator,
AUSTRAC, on our activities.
Our Anti-Money Laundering and Counter-Terrorism
Financing Policy (AML/CTF Policy) sets out how the
Westpac Group complies with its legislative obligations.
The AML/CTF Policy applies to all business divisions
and employees (permanent, temporary and third party
providers) working in Australia, New Zealand and
overseas.
United States
The USA PATRIOT Act of 2001 requires US financial
institutions, including the US branches of foreign banks,
to take certain steps to prevent, detect and report
individuals and entities involved in international money
laundering and the financing of terrorism. The required
actions include verifying the identity of financial
institutions and other customers and counterparties,
terminating correspondent accounts for foreign ‘shell
banks’ and obtaining information about the owners
of foreign bank clients and the identity of the foreign
bank’s agent for service of process in the US. The anti-
money laundering compliance requirements of the
USA PATRIOT Act include requirements to adopt and
implement an effective anti-money laundering program,
report suspicious transactions or activities, and
implement due diligence procedures for correspondent
and other customer accounts. Westpac’s New York
branch and Westpac Capital Markets LLC maintain an
anti-money laundering compliance program designed
to address US legal requirements.
US economic and trade sanctions, as administered by
the Office of Foreign Assets Control (OFAC), prohibit or
significantly restrict US financial institutions, including
the US branches and operations of foreign banks, and
other US persons from doing business with certain
persons, entities and jurisdictions. Westpac’s New York
branch and Westpac Capital Markets LLC maintain
compliance programs designed to comply with OFAC
sanctions programs, and Westpac has a Group-wide
program to ensure adequate compliance.
Legal proceedings
Our entities are defendants from time to time in legal
proceedings arising from the conduct of our business.
Material legal proceedings, if any, are described
in Note 27 to the financial statements and under
‘Significant developments’ above. Where appropriate
as required by the accounting standards, a provision
has been raised in respect of these proceedings and
disclosed in the financial statements.
Principal office
Our principal office is located at 275 Kent Street,
Sydney, New South Wales, 2000, Australia. Our
telephone number for calls within Australia is
(+61) 2 9155 7713 and our international telephone
number is (+61) 2 9155 7700.
Websites
Investor communications and information, including this
2020 Westpac Group Annual Report, the 2020 Westpac
Group Annual Review and Sustainability Report, the
2020 Westpac Group Sustainability Performance Report
and investor discussion packs and presentations can be
accessed at www.westpac.com.au/investorcentre.
WESTPAC GROUP 2020 ANNUAL REPORT Group
performance
SECTION 2
Five year summary
Reading this report
Review of Group operations
Income statement review
Balance sheet review
Capital resources
Divisional performance
Consumer
Business
Westpac Institutional Bank
Westpac New Zealand
Specialist Businesses
Group Businesses
Risk and risk management
Risk management
Risk factors
Other Westpac business information
111
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
112
Five year summary
Five year financial summary1
(in $m unless otherwise indicated)
2020
2019
2018
2017
2016
Income statements for the years ended 30 September2
Net interest income
Net fee income
Net wealth management and insurance income
Trading income
Other income
Net operating income before operating expenses and impairment
charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Profit attributable to non-controlling interests (NCI)
Net profit attributable to owners of Westpac Banking Corporation
(WBC)
Balance sheet as at 30 September2
Loans
Other assets
Total assets
Deposits and other borrowings
Debt issues
Loan capital
Other liabilities
Total liabilities
16,696
16,907
16,505
1,592
751
895
249
1,655
1,029
929
129
2,424
2,061
945
72
15,516
2,603
1,800
1,202
529
15,148
2,611
1,899
1,124
59
20,183
20,649
22,007
21,650
20,841
(12,739)
(10,106)
(9,566)
(9,282)
(9,073)
(3,178)
4,266
(1,974)
(2)
(794)
9,749
(2,959)
(6)
(710)
(853)
(1,124)
11,731
(3,632)
(4)
11,515
10,644
(3,518)
(3,184)
(7)
(15)
2,290
6,784
8,095
7,990
7,445
693,059
714,770
709,690
684,919
661,926
218,887
191,856
169,902
166,956
177,276
911,946
906,626
879,592
851,875
839,202
591,131
563,247
559,285
533,591
513,071
150,325
181,457
172,596
168,356
169,902
23,949
21,826
17,265
17,666
15,805
78,467
74,589
65,873
70,920
82,243
843,872
841,119
815,019
790,533
781,021
Total shareholders’ equity and NCI
68,074
65,507
64,573
61,342
58,181
Key financial ratios
Shareholder value
Dividends per ordinary share (cents)
Dividend payout ratio (%)3
Return on average ordinary equity (%)
Basic earnings per share (cents)
Net tangible assets per ordinary share ($)4
Share price ($):
High
Low
Close
Business performance
Operating expenses to operating income ratio (%)
Net interest margin (%)
Capital adequacy
Total equity to total assets (%)
Total equity to total average assets (%)
APRA Basel III:
Common equity Tier 1 (%)
Tier 1 ratio (%)
Total capital ratio (%)
Credit quality
31
174
188
188
188
48.87
88.83
79.52
13.05
237.5
79.28
13.65
238.0
84.19
13.32
224.6
15.39
14.66
13.90
3.37
63.7
15.67
29.81
13.47
16.84
63.12
2.03
7.5
7.4
11.13
13.23
16.38
10.65
196.5
15.36
30.05
23.30
29.64
33.68
27.24
27.93
48.94
43.47
2.12
2.13
7.2
7.3
10.67
12.84
15.63
7.3
7.4
10.63
12.78
14.74
35.39
28.92
31.92
42.87
2.06
7.2
7.2
10.56
12.66
14.82
33.74
27.57
29.51
43.53
2.10
6.9
7.0
9.48
11.17
13.11
Net impaired assets to equity and collectively assessed provisions (%)
2.21
1.41
1.14
1.29
1.79
Total provisions for expected credit losses/impairment on loans and
credit commitments to total loans (basis points)5
88
54
43
45
54
1.
2.
3.
4.
5.
Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have
been restated and may differ from results previously reported.
The above income statement extracts for 2020, 2019 and 2018 and balance sheet extracts for 2020 and 2019 are derived from the
consolidated financial statements included in this Annual Report. The above income statement extracts for 2017 and 2016 and balance
sheet extracts for 2018, 2017 and 2016 are derived from financial statements previously published.
Adjusted for Treasury shares.
Total equity attributable to owners of Westpac Banking Corporation, after deducting intangible assets divided by the number of
ordinary shares outstanding, less Treasury shares held.
Provisions for expected credit losses (ECL) on loans and credit commitments as at 2020 and 2019 were determined based on AASB 9
Financial Instruments (December 2014) (AASB 9). Provisions for impairment charges on loans and credit commitments as at 2018, 2017
and 2016 were based on AASB 139 Financial Instruments: Recognition and Measurement (AASB 139) and were not restated.
WESTPAC GROUP 2020 ANNUAL REPORT 113
Five year summary
Five year non-financial summary1
Key trends across a range of non-financial areas of performance are provided in the following five year
non-financial summary, with a more detailed account of sustainability performance included in our Sustainability
Performance Report.
(in $m unless otherwise indicated)
Customer
Total customers (millions)2
Digitally active customers (millions)3
Branches4
Branches with 24/7 capability (%)5
ATMs
Smart ATMs (%)6
Change in consumer complaints (%) - Australia7
Change in consumer complaints (%) - NZ
Number of approved applications for financial assistance from
customers experiencing financial hardship8
Employees
2020
2019
2018
2017
2016
14.0
5.9
1,103
36
14.2
5.8
14.2
5.6
1,143
1,204
35
33
13.9
5.3
1,251
29
13.4
4.9
1,310
27
2,036
2,847
3,222
3,665
3,757
69
145
6
54
94
2
47
12
(16)
44
(18)
(21)
37
(31)
(7)
75,367
52,025
37,678
28,322
30,759
Total employees (full-time equivalent)9
36,849
33,288
35,029
35,096
35,580
Employee voluntary attrition (%)10
New starter retention (%)11
Employee Commitment Index (%)12
Lost Time Injury Frequency Rate (LTIFR)13
Whistleblower reporting - number of new concerns14
Women as percentage of the total workforce (%)
Women in leadership (%)15
Environment
Total Scope 1 and 2 emissions - (tonnes CO2 -e)16
Total Scope 3 emissions - (tonnes CO2 -e)17
Paper consumption - Aust and NZ (tonnes)18
Carbon neutrality
Sustainable lending
7.4
85.8
73
0.4
184
57
50
10.3
84.5
72
0.4
278
58
50
10.0
84.1
73
0.4
289
57
50
9.6
84.7
76
0.6
344
58
50
10.6
85.5
-
0.8
209
58
48
107,634
121,168
128,339
134,237
156,701
91,616
87,262
90,454
94,279
80,125
1,539
1,812
2,161
2,706
3,304
Maintained Maintained Maintained Maintained Maintained
Climate change solutions attributable financing - Aust and NZ ($m)
10,059
9,263
9,113
6,979
6,193
Proportion of electricity generation financing in renewables including
hydro - Aust and NZ (%)19
Electricity generation portfolio emissions intensity (tonnes CO2 -e/
MWh)20
Finance assessed under the Equator Principles - Group ($m)21
Social impact
Community investment excluding commercial sponsorships ($m)22
Community investment as a percentage of pre-tax profits - Group (%)22
Community investment as a percentage of pre-tax operating profit
(cash earnings basis)22
75
75
71
65
59
0.25
126
153
3.58
3.21
0.26
454
130
1.33
0.28
773
128
1.09
0.36
891
164
1.42
0.38
617
148
1.39
1.32
1.10
1.41
1.32
Financial education (participants)23
1,009,232
619,995
133,844
112,263
59,596
Supply chain
Top suppliers assessed under the Westpac Responsible Sourcing
Program (%)24
Spend with Indigenous Australian suppliers - Australia ($m)25
100
5.9
98
4.2
100
4.5
21
2.8
-
1.7
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
114
Five year summary
1.
2.
3.
4.
5.
6.
7.
8.
9.
All data represents Group performance as at 30 September unless otherwise stated.
All customers with an active relationship (exclude channel only and potential relationships).
Westpac Group customers who, as at 30 September, have successfully authenticated at least once into the Bank’s digital banking
platforms (including Quick zone) within the last 90 days.
Includes six advisory centres and one community banking centre.
Branches that allow customers to self-serve 24/7 via a range of devices that allow them to withdraw and deposit cash, coin exchange
etc. (not all these services would be available at every 24/7 zone). Access determined by individual location (i.e. shopping centre
opening hours may prevent 24/7 access).
ATMs with deposit taking functionality. Excludes envelope deposit machines.
Total Australia complaints excluding WIB. Full Year 2019 change trend reflects updates to our complaints policy and standard which
now requires people to log all complaints, even if they are resolved within 5 days. Complaints number is inclusive of 12,367 complaints
related to COVID-19.
Number of approved applications for financial assistance from Westpac Group customers experiencing financial hardship. Financial
hardship occurs when a person is unable to meet their repayment obligations for a period of time due to an unexpected event or
unforeseen change in circumstances, such as illness or injury or a change in employment. Each request is assessed on a case-by-case
basis. Some hardship options that may be available to customers include reduced or deferred repayments and reduction in interest
charges.
Full-time equivalent employees include permanent (full-time and pro-rata part-time staff) employees, and temporary (overtime,
temporary and contract staff) employees.
10. Employee voluntary attrition refers to the total voluntary separation of permanent employees over the 12 months average total
11.
permanent headcount for the period (includes full time, part time and maximum term employees).
New starter retention over the 12 months rolling new starter headcount for the period (includes full time and part time permanent
employees).
12. New monthly employee survey conducted from 2017. Six month rolling average results reported and prior data not included due to
change in survey methodology. The 2019 result has been reviewed and updated.
13. Lost Time Injury Frequency Rate (LTIFR) measures the number of Lost Time Injuries, defined as injuries or illnesses (based on workers
compensation claims accepted) resulting in an employee being unable to work for a full scheduled day (or shift) other than the day
(or shift) on which the injury occurred where work was a significant contributing factor, per one million hours worked in the rolling
12 months reported. Westpac Pacific figures included since FY16.
14. Number of disclosures entered into the whistleblower case management database that has come via: a direct entry by the
whistleblower, the whistleblower external hotline, the Group’s Whistleblower Protection Officer, or other Eligible Recipients.
15. Women in Leadership refers to the proportion of women (permanent and maximum term) in leadership roles across the Group. It
includes the CEO, Group Executives, General Managers, senior leaders with significant influence on business outcomes (direct reports to
General Managers and their direct reports) large (3+) team people leaders three levels below General Manager, and Bank and Assistant
Bank Managers.
16. Scope 1 emissions are the release of greenhouse gases (GHG) into the atmosphere as a result of Westpac Group’s direct operations
for the period 1 July to 30 June. Australian data is prepared in accordance with the National Greenhouse and Energy Reporting Act
2007 (NGER Act). New Zealand data is prepared in accordance with the New Zealand Ministry for the Environment guidance for GHG
reporting and Toitū carbonzero programme rules. Scope 2 emissions are indirect greenhouse gas emissions from consumption of
purchased electricity from the Westpac’s operations for the period 1 July to 30 June. Australian data is prepared in accordance with the
NGER Act 2007. New Zealand data is prepared in accordance with the New Zealand Ministry for the Environment guidance for GHG
reporting and Toitū carbonzero programme rules.
17. Scope 3 emissions are indirect greenhouse gases (GHG) emitted as a consequence of Westpac Group operations but occur at sources
owned or controlled by another organisation for the period 1 July to 30 June. Australian data is prepared in accordance with the Climate
Active Carbon Neutral Standard for Organisations. New Zealand data is prepared in accordance with the New Zealand Ministry for the
Environment guidance on GHG reporting and Toitū carbonzero programme rules. 2016 to 2019 figures restated to reflect methodology
update in 2020.
18. Total office paper and paper products purchased (in tonnes) by Westpac Group as reported by key suppliers. Includes office copy
paper, paper products and printed materials, including direct mail and marketing documents (e.g. office stationery, marketing
brochures, customer statements) and are reported for the period 1 July to 30 June.
19. Measured as the percentage of indirect and direct financing (total committed exposure) to electricity generation assets in the Australian
and New Zealand electricity markets.
20. Data is based on the reported exposures to electricity generation (AUD lending only). The average financed emissions intensity is
calculated by weighting each loan (total committed exposures) by the emissions intensity of each company.
21. The Equator Principles is a voluntary set of standards for determining, assessing and managing social and environmental risk in project
financing.
22. Indicator name changed from ‘Community investment ($m)’ to ‘Community investment excluding commercial sponsorships ($m)’ in
2018. 2017 figures were restated to be comparable with 2018. 2018 and 2017 figures include monetary contributions, time contributions,
management costs and in-kind contributions comprising gifts and foregone fee revenue. 2016 and prior periods were not restated, and
also include commercial sponsorships.
23. Total number of interactions by employees, customers and general public with financial education materials offered by the Westpac
Group during the year, delivered through face to face and online platforms. Uplift from 2019 number of participants driven by the
inclusion of our Life Moments and Help for your Business Education pages.
24. Top 100 Westpac Australia and New Zealand suppliers by spend assessed for inherent ESG risk for the 12 months ended 30 September.
25. Annual spend with businesses that are 50% or more owned and operated by an Aboriginal or Torres Strait Islander person and certified
with a relevant member organisation. Include Tiers 1 and 2 spend with Indigenous Australians suppliers. Prior periods restated to reflect
inclusion of Tier 2 spend, first reported in 2018. 2019 and 2018 adjusted to reflect newly identified spend with Indigenous Australian
suppliers.
WESTPAC GROUP 2020 ANNUAL REPORT Reading this report
115
Reading this report
Disclosure regarding forward-looking statements
This Annual Report contains statements that constitute ‘forward-looking statements’ within the meaning of
Section 21E of the US Securities Exchange Act of 1934.
Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements
appear in a number of places in this Annual Report and include statements regarding Westpac’s intent, belief
or current expectations with respect to its business and operations, market conditions, results of operations
and financial condition, including, without limitation, future loan loss provisions and financial support to certain
borrowers. Words such as ‘will’, ‘may’, ‘expect’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘estimate’,
‘anticipate’, ‘believe’, ‘probability’, ‘risk’, ‘aim’, ‘outlook’ or other similar words are used to identify forward-looking
statements. These forward-looking statements reflect Westpac’s current views with respect to future events and
are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond Westpac’s
control, and have been made based upon management’s expectations and beliefs concerning future developments
and their potential effect upon Westpac. There can be no assurance that future developments will be in accordance
with Westpac’s expectations or that the effect of future developments on Westpac will be those anticipated. Actual
results could differ materially from those expected, depending on the outcome of various factors, including, but
not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the effect of the global COVID-19 pandemic, which has had, and is expected to continue to have, a negative
impact on our business and global economic conditions, adversely affected a wide-range of Westpac’s key
suppliers, third-party contractors and customers, created increased volatility in financial markets and may result
in increased impairments, defaults and write-offs;
the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government
policy, particularly changes to liquidity, leverage and capital requirements;
regulatory investigations, reviews and other actions, inquiries, litigation, fines, penalties, restrictions or other
regulator imposed conditions, including as a result of our actual or alleged failure to comply with laws (such as
financial crime laws), regulations or regulatory policy;
the failure to comply with financial crime obligations, which has had, and could further have, adverse effects on
our business and reputation;
internal and external events which may adversely impact Westpac’s reputation;
litigation and other legal proceedings and regulator investigations and enforcement actions;
information security breaches, including cyberattacks;
reliability and security of Westpac’s technology and risks associated with changes to technology systems;
the stability of Australian and international financial systems and disruptions to financial markets and any losses
or business impacts Westpac or its customers or counterparties may experience as a result;
market volatility, including uncertain conditions in funding, equity and asset markets;
an increase in defaults in credit exposures because of a deterioration in economic conditions;
adverse asset, credit or capital market conditions;
the incidence of inadequate capital levels under stressed conditions;
the risk that governments will default on their debt obligations or will be unable to refinance their debts as they
fall due;
changes to Westpac’s credit ratings or the methodology used by credit rating agencies;
levels of inflation, interest rates (including low or negative interest rates), exchange rates and market and
monetary fluctuations and volatility;
an increase in defaults, write-offs and provisions for credit impairments;
changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand
and other countries (including as a result of tariffs and other protectionist trade measures) in which Westpac
or its customers or counterparties conduct their operations and Westpac’s ability to maintain or to increase
market share, margins and fees, and control expenses;
the effects of competition, including from established providers of financial services and from non-financial
services entities, in the geographic and business areas in which Westpac conducts its operations;
poor data quality or poor data retention;
the effectiveness of Westpac’s risk management policies, including internal processes, systems and employees,
and operational risks resulting from ineffective processes and controls, as well as breakdowns in processes and
procedures requiring remediation activity;
the incidence or severity of Westpac-insured events;
the occurrence of environmental change (including as a result of climate change) or external events in countries
in which Westpac or its customers or counterparties conduct their operations;
changes to Westpac’s critical accounting estimates and judgements and changes to the value of Westpac’s
intangible assets;
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
Reading this report
116
Reading this report
•
•
•
changes in political, social or economic conditions in any of the major markets in which Westpac or its
customers or counterparties operate;
the inability to syndicate or sell down underwritten securities, particularly during times of heightened market
volatility;
the success of strategic decisions involving diversification or innovation, in addition to business expansion
activity, business acquisitions and the integration of new businesses; and
•
various other factors beyond Westpac’s control.
The above list is not exhaustive. For certain other factors that may impact on forward-looking statements made
by Westpac, refer to ‘Risk factors’ under the section ‘Risk and risk management’. When relying on forward-looking
statements to make decisions with respect to Westpac, investors and others should carefully consider the
foregoing factors and other uncertainties and events.
Westpac is under no obligation to update any forward-looking statements contained in this Annual Report,
whether as a result of new information, future events or otherwise, after the date of this Annual Report.
Currency of presentation, exchange rates and certain definitions
In this Annual Report, ‘financial statements’ means our audited consolidated balance sheets as at
30 September 2020 and 30 September 2019 and income statements, statements of comprehensive income,
changes in equity and cash flows for each of the years ended 30 September 2020, 2019 and 2018 together with
accompanying notes which are included in this Annual Report.
Our financial year ends on 30 September. As used throughout this Annual Report, the financial year ended
30 September 2020 is referred to as 2020 and other financial years are referred to in a corresponding manner.
We publish our consolidated financial statements in Australian dollars. In this Annual Report, unless otherwise
stated or the context otherwise requires, references to ‘dollars’, ‘dollar amounts’, ‘$’, ‘AUD’ or ‘A$’ are to Australian
dollars, references to ‘US$’, ‘USD’ or ‘US dollars’ are to United States dollars and references to ‘NZ$’, ‘NZD’ or
‘NZ dollars’ are to New Zealand dollars. Solely for the convenience of the reader, certain Australian dollar
amounts have been translated into US dollars at a specified rate. These translations should not be construed as
representations that the Australian dollar amounts actually represent such US dollar amounts or have been or
could be converted into US dollars at the rate indicated. Unless otherwise stated, the translations of Australian
dollars into US dollars have been made at the rate of A$1.00 = US$0.7160, the noon buying rate in New York City
for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve Bank of New York
(the ‘noon buying rate’) as of Wednesday, 30 September 2020. The Australian dollar equivalent of New Zealand
dollars at 30 September 2020 was A$1.00 = NZ$1.0802, being the closing spot exchange rate on that date. Refer to
‘Exchange rates’ in Section 4 for information regarding the rates of exchange between the Australian dollar and the
US dollar for the financial years ended 30 September 2016 to 30 September 2020.
Any discrepancies between totals and sums of components in tables contained in this Annual Report are due to
rounding.
WESTPAC GROUP 2020 ANNUAL REPORT Review of Group
operations
117
Review of Group operations
Selected consolidated financial and operating data
We have derived the following selected financial information as of, and for the financial years ended, 30 September
2020, 2019, 2018, 2017 and 2016 from our consolidated financial statements and related notes.
This information should be read together with our audited consolidated financial statements and the accompanying
notes included elsewhere in this Annual Report.
Accounting standards
The financial statements and other financial information included elsewhere in this Annual Report, unless otherwise
indicated, have been prepared and presented in accordance with Australian Accounting Standards (AAS).
Compliance with AAS ensures that the financial statements also comply with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
The financial statements have been prepared in accordance with the accounting policies described in the Notes to
the financial statements.
Recent accounting developments
For a discussion of recent accounting developments refer to Note 1 to the financial statements.
Critical accounting estimates
Our reported results are sensitive to the accounting policies, assumptions and estimates that underlie the
preparation of the income statement and the balance sheet. Note 1 (b) includes details of the areas of our critical
accounting assumptions and estimates and a reference to the relevant note in the financial statements providing
further information. Each of the assumptions and estimates have been discussed at our Board Audit Committee
(BAC). The following is a summary of the areas involving our most critical accounting estimates.
Provisions (other than Provisions for expected credit losses (ECL) on loans and credit commitments)
Provisions are held in respect of a range of obligations such as employee entitlements, litigation and non-lending
losses, lease restoration obligations, restructuring costs and compliance, regulation and remediation provisions.
Some of the provisions involve significant judgement about the likely outcome of various events and estimated
future cash flows. Refer to Note 27.
Provisions for ECL on loans and credit commitments
Provisions for ECL are a probability-weighted estimate of the cash shortfalls expected to result from defaults over
the relevant time frame. They are determined by evaluating a range of possible outcomes and taking into account
the time value of money, past events, current conditions and forecasts of future economic conditions.
The models use three main components to determine the ECL (as well as the time value of money) including:
•
•
•
Probability of default (PD): the probability that a counterparty will default;
Loss given default (LGD): the loss that is expected to arise in the event of a default; and
Exposure at default (EAD): the estimated outstanding amount of credit exposure at the time of the default.
The provisions for ECL are determined based on three stages as follows:
Stage 1: 12 months ECL - performing
For financial assets where there has been no significant increase in credit risk since origination a provision for
12 months ECL is recognised.
Stage 2: Lifetime ECL - performing
For financial assets where there has been a significant increase in credit risk since origination but where the asset is
still performing a provision for lifetime ECL is recognised.
Stage 3: Lifetime ECL – non-performing
For financial assets that are non-performing a provision for lifetime ECL is recognised. Indicators include a breach
of contract with the Group such as a default on interest or principal payments, a borrower experiencing significant
financial difficulties or observable economic conditions that correlate to defaults on a group of loans.
Determining when a financial asset has experienced a significant increase in credit risk since origination is a critical
accounting judgement which is primarily based on changes in internal customer risk grades since origination of
the facility. The change in the internal customer risk grade that the Group uses to represent a significant increase
in credit risk is based on a sliding scale. This means that a higher credit quality exposure at origination would
require a more significant downgrade compared to a lower credit quality exposure before it is considered to have
experienced a significant increase in credit risk.
Interest income is calculated based on the gross carrying amount of financial assets in stages 1 and 2 of the Group’s
ECL model and on the carrying amount net of the provision for ECL for financial assets in stage 3.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
118
Review of Group operations
The measurement of ECL for each stage and the assessment of significant increase in credit risk consider
information about past events and current conditions as well as reasonable and supportable projections of future
events and economic conditions. The estimation of forward looking information is a critical accounting judgement.
The Group considers three future macroeconomic scenarios including a base case scenario along with upside and
downside scenarios.
The macroeconomic variables used in these scenarios, based on current economic forecasts, include (but are not
limited to) unemployment rates, real gross domestic product growth rates and residential and commercial property
price indices.
The macroeconomic scenarios are weighted based on the Group’s best estimate of the relative likelihood of each
scenario. The weighting applied to each of the three macroeconomic scenarios takes into account historical
frequency, current trends, and forward looking conditions.
Where appropriate, adjustments will be made to modelled outcomes to reflect reasonable and supportable
information not already incorporated in the models. Judgements can change with time as new information
becomes available which could result in changes to the provision for ECL.
As at 30 September 2020, gross loans to customers were $698,661 million (2019: $718,378 million) and the
provision for ECL was $5,602 million (2019: $3,608 million). Refer to Note 13.
Fair value of financial instruments
Financial instruments classified as held-for-trading (including derivatives) are measured at fair value through
income statement. Investment securities measured at fair value through other comprehensive income are also
recognised in the financial statements at fair value. As much as possible, financial instruments are valued with
reference to quoted, observable market prices or by using models which employ observable valuation parameters.
Where valuation models rely on parameters for which inputs are not observable, judgements and estimation may
be required.
As at 30 September 2020, the fair value of trading securities and financial assets measured at fair value
through profit or loss, investment securities measured at fair value through other comprehensive income, loans
designated at fair value and life insurance assets was $135,376 million (2019: $113,989 million). The fair value of
deposits and other borrowings at fair value, other financial liabilities at fair value, debt issues at fair value and
life insurance liabilities was $47,142 million (2019: $56,979 million). The fair value of outstanding derivatives was
a net asset of $313 million (2019: $763 million net asset). The fair value of financial assets and financial liabilities
determined by valuation models that use unobservable market prices was $399 million (2019: $399 million) and
$13 million (2019: $29 million), respectively. The fair value of financial assets and financial liabilities, including
derivatives, is largely determined based on valuation models using observable market prices and rates. Where
observable market inputs are not available, day one profits or losses are not recognised.
We believe that the judgements and estimates used are reasonable in the current market. However, a change in
these judgements and estimates would lead to different results as future market conditions can vary from those
expected. Refer to Note 22.
Goodwill
Goodwill represents the excess of purchase consideration, the amount of any non-controlling interest in the
acquiree and the acquisition date fair value of any previous equity interest in the acquiree, over the fair value of
the identified net assets of acquired businesses. The determination of the fair value of the assets and liabilities of
acquired businesses requires the exercise of management judgement. Different fair values would result in changes
to the goodwill and to the post-acquisition performance of the acquisitions.
Goodwill is tested for impairment annually, or when there is an indication of impairment, by determining if the
carrying value of the cash-generating unit (CGU) that it has been allocated to is recoverable. The recoverable
amount is the higher of the CGU’s fair value less costs to sell and its value-in-use. Determination of appropriate
cash flows and discount rates for the calculation of the value in use is subjective. As at 30 September 2020, the
carrying value of goodwill was $8,397 million (2019: $8,895 million). A $498 million write-down for impairment of
goodwill was recognised in 2020 (2019: nil). Refer to Note 25.
Superannuation obligations
The actuarial valuation of our defined benefit plan obligations are dependent upon a series of assumptions, the
key ones being price inflation, salary growth, mortality, morbidity, discount rate and investment returns. Different
assumptions could significantly alter the amount of the difference between plan assets and defined benefit
obligations and the amount recognised directly in retained profits.
The net superannuation deficit across all our plans as at 30 September 2020 was $530 million (2019: net
superannuation deficit of $335 million). As at 30 September 2020, one superannuation plan was in surplus of
$71 million (2019: one plan in surplus of $73 million) and three superannuation plans were in deficit of $601 million
(2019: three plans in deficit of $408 million). Refer to Note 34.
WESTPAC GROUP 2020 ANNUAL REPORT 119
Review of Group operations
Income taxes
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. All our
businesses predominantly operate in jurisdictions with similar tax rates to the Australian corporate tax rate.
Significant judgement is required in determining the worldwide provision for income taxes. There are many
transactions and calculations undertaken during the ordinary course of business for which the ultimate tax
determination is uncertain. For these circumstances, we hold appropriate provisions. Where the final outcome of
these matters is different from the amounts that were initially recorded, such differences will impact the current
and deferred tax provisions in the period where such determination is made. Refer to Note 7.
Life insurance contract liabilities
The actuarial valuation of life insurance contract liabilities and associated deferred policy acquisition costs are
dependent upon a number of assumptions. The key factors impacting the valuation of these liabilities and related
assets are the cost of providing benefits and administering the contracts, mortality and morbidity experience,
discontinuance experience and the rate at which projected future cash flows are discounted. Refer to Note 15.
Impact of COVID-19
The COVID-19 pandemic and the measures put in place domestically and globally to control the spread of the
virus have had a significant impact on global economies and financial markets. As a result, this has increased the
uncertainty and judgement required in relation to our critical accounting assumptions and estimates, primarily
relating to:
•
•
As there is a higher than usual degree of uncertainty associated with these assumptions and estimates, the actual
economic conditions are likely to be different from those forecast which may significantly impact accounting
estimates included in these financial statements. The impact of COVID-19 is discussed further in each of the related
notes. Refer to Note 13 and Note 25.
expected credit losses; and
recoverable amount assessments of intangible assets.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REVIEW2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT
Review of Group
operations
120
Review of Group operations
Income statement review
Consolidated income statement1
For the years ended 30 September
(in $m unless otherwise indicated)
Interest income
Interest expense
Net interest income
Net fee income
Net wealth management and insurance income
Trading income
Other income
Net operating income before operating expenses and
impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Net profit for the year
Profit attributable to NCI
Net profit attributable to owners of WBC
Weighted average number of ordinary shares (millions)
Basic earnings per ordinary share (cents)
Diluted earnings per share (cents)3
Dividends per ordinary share (cents)
Dividend payout ratio (%)4
2020
US$2
2020
A$
2019
A$
2018
A$
2017
A$
2016
A$
19,366
27,047
33,222
32,571
31,232
31,822
(7,412)
(10,351)
(16,315)
(16,066)
(15,716)
(16,674)
11,954
16,696
16,907
16,505
1,140
1,592
538
641
178
751
895
249
1,655
1,029
929
129
2,424
2,061
945
72
15,516
2,603
1,800
1,202
529
15,148
2,611
1,899
1,124
59
14,451
20,183
20,649
22,007
21,650
20,841
(9,122)
(12,739)
(10,106)
(9,566)
(9,282)
(9,073)
(2,275)
(3,178)
3,054
4,266
(1,974)
(794)
9,749
(2,959)
11,731
(3,632)
(710)
(853)
(1,124)
(1,413)
1,641
(1)
1,640
3,590
45.6
45.6
22
2,292
6,790
8,099
(2)
(6)
(4)
2,290
3,590
63.7
63.7
31
6,784
3,450
196.5
189.5
174
8,095
3,406
237.5
230.1
188
11,515
10,644
(3,518)
7,997
(7)
7,990
3,355
238.0
229.3
188
(3,184)
7,460
(15)
7,445
3,313
224.6
217.8
188
48.87
48.87
88.83
79.52
79.28
84.19
Overview of performance – 2020 v 2019
Net profit attributable to owners of WBC for 2020 was $2,290 million, a decrease of $4,494 million or 66%
compared to 2019. 2020 net profit included a significant increase in impairment charges due to the economic
impact of the COVID-19 pandemic, costs associated with the AUSTRAC proceedings, asset impairments and
revaluations, and estimated customer refunds, payments, associated costs and litigation.
Net interest income decreased $211 million compared to 2019 predominantly due to a decrease in net interest
margin of 9 basis points to 2.03%. The movement in net interest income is attributable to the impact of:
•
lower rates on average interest earning assets exceeding benefits from the decrease in the Group’s funding
costs, which includes movements in economic hedges; and
•
lower charges for estimated customer refunds and payments than in 2019.
In aggregate, non-interest income decreased $255 million compared to 2019 mainly due to:
•
•
•
•
a decrease in net wealth and insurance income due to lower rates, asset impairment, and severe weather events
resulting in higher claims; and
a decrease in net fee income from lower customer activities and fee waivers, partially offset by
a lower charge for estimated customer refunds and payments compared to 2019; and
the realisation of a gain upon the derecognition of an associate.
Operating expenses increased $2,633 million or 26% compared to Full Year 2019. The rise was mainly due to:
•
•
•
costs associated with AUSTRAC proceedings including a provision for penalty;
customer service costs associated with responding to COVID-19; and
asset impairments, and an increase in amortisation and impairment of capitalised software; partially offset by
provisions for Wealth restructuring in 2019.
Impairment charges were $2,384 million higher compared to 2019 mostly reflecting the deterioration in the
economy as a result of the COVID-19 pandemic which has led to a significant increase in the expected credit losses.
Asset quality deteriorated, with stressed exposures5 as a percentage of total committed exposures at 1.91%, up
71 basis points compared to 2019
1.
2.
3.
4.
5.
Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have
been restated and may differ from results previously reported.
Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7160
(refer to ‘Reading this report’ section).
Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of
dilutive potential ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
Adjusted for Treasury shares.
Stressed exposures do not include exposures which are on an active COVID 19 deferral package as of September 2020.
WESTPAC GROUP 2020 ANNUAL REPORT Review of Group operations
The effective tax rate of 46.3% was higher than the 2019 effective tax rate of 30.4% predominantly due to both the
provision for the AUSTRAC penalty and goodwill impairment being non-deductible.
The Board has determined a final dividend of 31 cents per ordinary share. The full year ordinary dividends of
31 cents is lower than the ordinary dividends declared in 2019 and represents a payout ratio of 48.87%. The full year
ordinary dividend is fully franked.
121
Income statement review – 2020 v 2019
Net interest income – 2020 v 2019
$m
Interest Income
Interest expense
Net interest income
Increase/(decrease) in net interest income
Due to change in volume
Due to change in rate
Change in net interest income
2020
2019
2018
27,047
33,222
32,571
(10,351)
(16,315)
(16,066)
16,696
16,907
16,505
496
(707)
(211)
397
5
402
648
341
989
Net interest income decreased $211 million or 1% compared to 2019. Key features include:
•
•
•
3% growth in average interest earning assets from increased holdings of third party liquid assets, from a higher
liquidity position driven by strong deposit inflow partly offset by Australian based lending;
Other interest earning assets increased due the deployment of excess liquidity to assets under reverse
repurchase agreements, and higher collateral balances; and
Group net interest margin decreased 9 basis points to 2.03%. Refer to Interest spread and margin – 2020 v 2019
for primary drivers of margin movement.
Total loans decreased $21.7 billion or 3% compared to 2019. Excluding foreign currency translation impacts, total
loans decreased $20.8 billion or 3%.
Key features of loan movements were:
•
•
•
•
•
•
Australian housing loans declined mostly from accelerated payments. The decline was in investor property
lending down $10.6 billion or 6% with owner occupied lending up $5.3 billion or 2%;
Australian personal lending decreased across credit cards, personal loans and auto lending. This was consistent
with the overall market trends in unsecured lending and auto finance with customers reducing debt and
adopting other forms of finance;
Australian business lending contracted from lower demand for investment and working capital requirements
along with higher institutional repayments;
Most of the increase in New Zealand lending was in housing, with the property market continuing to grow with
business lending also a little higher. This was partly offset by lower personal loans due to customer deleveraging
and increased competition;
Overseas lending decreased due to lower trade finance in Asia; and
Provision balances increased from changes in the economic scenarios and weightings used in AASB 9 provision
models.
Deposits and other borrowings excluding certificates of deposit increased $30.9 billion or 6% compared to 2019.
Excluding foreign currency translation impacts, deposits and other borrowings excluding certificates of deposit
increased $32.0 billion or 6%.
Key features of deposits and other borrowings excluding certificates of deposit growth were:
•
•
•
Australian deposits and other borrowings excluding certificates of deposit grew and the mix shifted from term
deposits to at call products. Non-interest bearing deposits grew mainly due to $4.9 billion of higher mortgage
offset balances;
New Zealand deposits and other borrowings excluding certificates of deposit increased across both households
and businesses. The trends in deposit growth were similar to Australia with term deposits declining and at call
increasing; and
Overseas deposits and other borrowings excluding certificates of deposit decreased with all of the decline in
the second half of the year as we continued to reduce our exposure to international regions.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCEWESTPAC GROUP 2020 ANNUAL REPORT
Review of Group
operations
122
Review of Group operations
Interest spread and margin – 2020 v 2019
$m
Group
Net interest income
Average interest earning assets
Average interest bearing liabilities
Average net non-interest bearing assets liabilities and equity
Interest spread1
Benefit of net non-interest bearing assets, liabilities and equity2
Net interest margin3
2020
2019
2018
16,696
16,907
16,505
821,718
798,924
774,944
745,641
734,282
715,509
76,077
64,642
59,435
1.90%
0.13%
2.03%
1.94%
0.18%
2.12%
1.95%
0.18%
2.13%
Group net interest margin of 2.03% decreased 9 basis points from 2019. Key features include:
•
•
Estimated customer refunds and payments contributed to an increase in margin of 2 basis points; and
Except for these items, net interest margin decreased 11 basis points driven by:
•
•
•
•
•
•
11 basis point decrease from lower deposit spreads and hedges due to the low interest rate environment.
This was partially offset by changes in the mix of the portfolio with customers moving to at call accounts
from term deposits;
7 basis point decrease from higher holdings of third party liquid assets due to our deployment of excess
liquidity generated by strong deposit inflows and lower lending; and
4 basis point decrease from capital and other primarily due to lower income earned on hedged balances,
this was partially offset by:
6 basis point increase from lower short term funding costs;
5 basis point increase from loan spreads with pricing changes to Australian mortgages and business loans
partially offset by increased competition driving lower rates on new lending and retention pricing, and the
impact of customers switching to lower spread fixed rate loans; and
Treasury and Markets contribution was flat on 2019 with interest rate risk management offset by fair value
adjustments.
Non-interest income - 2020 v 2019
$m
Net fee income
Net wealth management and insurance income
Trading income
Other income
Non-interest income
2020
1,592
751
895
249
2019
1,655
1,029
929
129
2018
2,424
2,061
945
72
3,487
3,742
5,502
Non-interest income of $3,487 million decreased $255 million or 7% compared to 2019.
Net fee income decreased $63 million or 4% primarily resulting from:
•
•
The impacts of COVID-19 including fee waivers for customer support packages, lower interchange fees, and a
decline in international card volumes;
A decline in institutional customer activity impacting syndication, arrangement and structured finance fee
income (down $79 million), partially offset by:
•
Estimated customer refunds and payments which were $133 million in 2020 compared to $283 million in 2019.
Net wealth management and insurance income decreased $278 million or 27% primarily due to:
•
•
•
•
Lower life insurance income (down $355 million) due to asset impairment and deferred acquisition cost write-
offs;
Lower general insurance income (down $105 million) due to elevated claims for bushfires and severe weather
events;
Lower platform income (down $93 million) as customers migrated to lower margin products, a decline of
funds under administration in line with lower markets and the impact of lower interest rates on managed cash
balances;
Lower superannuation income (down $78 million) from pricing changes, customer migration to lower margin
products, the impact of Protecting Your Super legislation, and the early release of superannuation.
1.
2.
3.
Interest spread is the difference between the average yield on all interest earning assets and the average yield on all interest bearing
liabilities.
The benefit of net non-interest bearing assets, liabilities and equity is determined by applying the average yield paid on all interest
bearing liabilities to the average level of net non-interest bearing funds as a percentage of average interest earning assets.
Net interest margin is calculated by dividing net interest income by average interest earning assets.
WESTPAC GROUP 2020 ANNUAL REPORT 123
Review of Group operations
Trading income decreased $34 million or 4% primarily due to:
•
•
•
Offshore earnings hedges;
Lower client demand impacting sales performance; partially offset by
Higher non-customer income across fixed income and foreign exchange products benefiting from volatile
markets.
Other income increased $120 million primarily due to a higher gain relating to the revaluation of an investment in
Zip Co Limited ($303 million) partially offset by the realisation of a foreign currency loss related to the closure
of the Mumbai branch in 2020 and the non-repeat of prior year asset sales and revaluations related to Paymark,
Coinbase and 316 George Street.
Operating expenses – 2020 v 2019
$m
Staff expenses
Occupancy expenses
Technology expenses
Other expenses
Total operating expenses
Total operating expenses to net operating income ratio (%)
2020
5,015
1,016
2,643
4,065
2019
2018
5,038
4,887
1,023
2,319
1,726
1,033
2,110
1,536
12,739
10,106
9,566
63.12%
48.94%
43.47%
Operating expenses increased $2,633 million or 26% compared to 2019. Key features include:
•
•
•
•
•
Provisions and costs for the AUSTRAC proceedings ($1,478 million higher);
Write-down of intangible items ($668 million higher);
Asset sales and revaluations ($119 million higher); and
Costs associated with estimated customer refunds, payments, costs and litigation ($54 million higher);
Partly offset by non-repeat of costs associated with the exit of personal advice businesses ($241 million lower).
Except for these items, operating expenses increased $555 million or 6%. The following discussion excludes the
impact of these key items.
Staff expenses increased $119 million or 2% from:
•
•
•
Additional FTE (up 3,561) over the year as we responded to the operational requirements of higher volumes
associated with COVID-19 activities, and additional resources for risk and compliance (including financial crime);
Salary costs were higher as staff took less leave over the year; and
Lower short-term incentives and productivity benefits partly offset these increases.
Occupancy expenses decreased $7 million or 1% from:
Savings from onshore retail branch closures; and
•
Lower depreciation on operating leases;
•
Partly offset by exit costs associated with reducing our branch footprint.
•
Technology expenses increased $190 million or 8% mainly due to:
•
•
Higher amortisation, including the full-year impact of the Customer Service Hub; and
Higher telecommunication and software licensing costs mainly due to increased capacity and capability to
support our staff working from home.
Other expenses increased $253 million or 16% due to:
Increased spending on risk and compliance; and
•
Costs associated with supporting COVID-19 activities, including the onshoring of certain activities.
•
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Review of Group
operations
124
Review of Group operations
Impairment charges – 2020 v 2019
$m
Total impairment charges
Impairment charges to average gross loans (basis points)
2020
3,178
45
2019
794
11
2018
710
10
Impairment charges significantly increased to $3,178 million in 2020 (equivalent to 45 basis points of gross loans),
up $2,384 million compared to 2019.
Total new collectively assessed provisions (CAP) charges were $2,090 million higher due to a $2,167 million
increase in CAPs partially offset by a $77 million decrease in write-offs.
The increase in other changes in CAP was driven by the following:
•
•
Changes in forward-looking economic inputs, increased weighting of a downside economic scenario and
increased overlay provisions from estimated impacts of the COVID-19 pandemic, predominately within the First
Half 2020; and
A rise in 90+ day delinquencies in the mortgage portfolio; and the downgrade of certain customers in the
Business division.
Total new individually assessed provisions (IAPs), write-backs and recoveries were $294 million higher than 2019.
This was predominately due to higher new IAPs for five large exposures (three WIB Asia, one Business and one
New Zealand). The higher IAPs were partially offset by higher recoveries in the unsecured portfolio.
Income tax expense – 2020 v 2019
$m
Income tax expense
2020
1,974
2019
2018
2,959
3,632
Tax as a percentage of profit before income tax expense (effective income tax rate)
46.27%
30.35%
30.96%
The effective tax rate of 46.3% in 2020 was significantly higher than the 2019 effective tax rate of 30.4%. The
effective tax rate is above the Australian corporate tax rate of 30% with the key drivers being the non-deductible
provision and associated costs for the penalty relating to AUSTRAC civil proceedings, and non-deductible goodwill
impairments.
WESTPAC GROUP 2020 ANNUAL REPORT Review of Group
operations
Review of Group operations
Balance sheet review
Selected consolidated balance sheet data1
The detailed components of the balance sheet are set out in the notes to the financial statements.
As at 30 September
2020
US$m2
2020
A$m
2019
A$m
2018
A$m
2017
A$m
Cash and balances with central banks
21,572
30,129
20,059
26,788
18,786
Collateral paid
3,421
4,778
5,930
4,787
5,716
125
2016
A$m
17,397
8,205
Trading securities and financial assets measured at fair
value through income statement and available-for-sale
securities and investment securities
94,659
132,206
105,182
84,251
86,693
82,841
Derivative financial instruments
16,731
23,367
29,859
24,101
24,033
32,227
Loans
Life insurance assets
All other assets
Total assets
Collateral received
496,230
693,059
714,770
709,690
684,919
661,926
2,573
3,593
9,367
9,450
10,643
14,192
17,767
24,814
21,459
20,525
21,085
22,414
652,953
911,946
906,626
879,592
851,875
839,202
1,611
2,250
3,287
2,184
2,477
1,784
Deposits and other borrowings
423,250
591,131
563,247
559,285
533,591
513,071
Other financial liabilities
29,302
40,925
29,215
28,105
30,799
28,704
Derivative financial instruments
16,507
23,054
29,096
24,407
25,375
36,076
Debt issues
Life insurance liabilities
All other liabilities
107,633
150,325
181,457
172,596
168,356
169,902
1,000
1,396
7,762
10,842
7,377
5,614
7,597
3,580
9,019
3,250
12,361
3,318
Total liabilities excluding loan capital
587,065
819,923
819,293
797,754
772,867
765,216
Total loan capital
Total liabilities
Net assets
17,147
23,949
21,826
17,265
17,666
15,805
604,212
843,872
841,119
815,019
790,533
781,021
48,741
68,074
65,507
64,573
61,342
58,181
Total equity attributable to owners of WBC
48,704
68,023
65,454
64,521
61,288
58,120
NCI
37
51
53
52
54
61
Total shareholders’ equity and NCI
48,741
68,074
65,507
64,573
61,342
58,181
Average balances
Total assets
658,777
920,080
894,724
873,310
854,058
831,439
Loans and other receivables3
499,894
698,176
695,240
681,201
657,628
631,266
Total equity attributable to owners of WBC
48,698
68,014
63,714
62,017
58,556
55,896
NCI
37
52
50
31
20
575
1.
2.
3.
Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have
been restated and may differ from results previously reported.
Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of
A$1.00 = US$0.7160 (refer to ‘Reading this report’ section).
Includes interest earning balances. For 2020 and 2019, loans and other receivables are net of Stage 3 provision for ECL on loans to
reflect the Group’s adoption of AASB 9 in 2019. Prior to 2019, loans and other receivables are net of provision for impairment charges
on loans. Other receivables include cash and balances with central banks and other interest earning assets.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
126
Review of Group operations
Summary of consolidated ratios
As at 30 September
(in $m unless otherwise indicated)
Profitability ratios (%)
Net interest margin2
Return on average assets3
Return on average ordinary equity4
Return on average total equity5
Capital ratios (%)
Average total equity to average total assets
Common equity Tier 1
Tier 1 ratio
Total capital ratio
Earnings ratios
Basic earnings per ordinary share (cents)6
Diluted earnings per ordinary share (cents)7
Dividends per ordinary share (cents)
Dividend payout ratio (%)
Credit quality ratios
Loans written off (net of recoveries)
Loans written off (net of recoveries) to average loans (bps)
2019
A$m
2018
A$m
2017
A$m
2016
A$m
2.10
0.90
13.32
13.18
6.79
9.48
11.17
13.11
2.13
0.93
13.05
13.05
7.10
10.63
12.78
14.74
2.06
0.94
13.65
13.64
6.86
10.56
12.66
14.82
2020
US$m1
2.03
0.25
3.37
3.36
7.40
11.13
13.23
16.38
45.6
45.6
22
2020
A$m
2.03
0.25
3.37
3.36
7.40
11.13
13.23
16.38
63.7
63.7
31
2.12
0.76
10.65
10.64
7.13
10.67
12.84
15.63
196.5
189.5
174
48.87
48.87
88.83
237.5
238.0
224.6
230.1
188
79.52
229.3
188
79.28
217.8
188
84.19
700
14
977
14
982
14
948
14
1,488
1,052
22
16
Balance sheet review
During 2020, our balance sheet composition shifted, with higher levels of liquid assets from higher inflows of
deposits and utilisation of the Term Funding Facility (TFF) in place of debt issuance. Our lending portfolio also
experienced net outflows during the period. This shift impacted our margins and profitability.
Assets – 2020 v 2019
Total assets as at 30 September 2020 were $911.9 billion, an increase of $5.3 billion or 1% compared to
30 September 2019. Significant movements during the year included:
•
•
•
•
•
•
cash and balances with central banks increased $10.1. billion or 50% reflecting higher liquid assets held in this form;
trading securities and financial assets measured at fair value through income statement (FVIS) and investment
securities increased $27.0 billion or 26% reflecting higher balances held in this form;
derivative assets decreased $6.5 billion or 22% mainly driven by movements in cross currency swaps and
foreign currency forward contracts;
loans decreased $21.7 billion or 3%. Refer to loan quality – 2020 v 2019 below for further information;
Life insurance assets decreased $5.8 billion or 62% mainly due to transfer of assets to non-consolidated funds,
partly offset by consolidation of new funds; and
Other assets increased $3.3 billion or 16% mainly due to the adoption of AASB 16, higher deferred tax assets
from the impact of provision for ECL, partly offset by impairment of intangible assets.
1.
2.
3.
4.
5.
6.
7.
Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7160
(refer to ‘Reading this report’ section).
Calculated by dividing net interest income by average interest earning assets.
Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average total assets.
Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity.
Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity and
non-controlling interests.
Based on the weighted average number of fully paid ordinary shares.
Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the
conversion of dilutive potential ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive
potential ordinary shares.
WESTPAC GROUP 2020 ANNUAL REPORT 127
Review of Group operations
Liabilities and equity – 2020 v 2019
Total liabilities as at 30 September 2020 were $843.9 billion, an increase of $2.8 billion, flat, compared to
30 September 2019. Significant movements during the year included:
•
•
•
•
•
•
deposits and other borrowings increased $27.9 billion or 5%;
other financial liabilities increased $11.7 billion or 40% mainly driven by higher securities sold under agreements to
repurchase as the Group accessed the TFF and securities purchased not delivered, partly offset by lower accrued
interest payable and interbank deposits;
derivative liabilities decreased $6.0 billion or 21% driven by movements in cross currency swaps and foreign
currency forward contracts;
debt issues decreased $31.1 billion or 17% ($29.2 billion or 16% decrease excluding foreign currency impacts);
life insurance liabilities decreased $6.0 billion or 81% mainly due to transfer of liabilities to non-consolidated
funds, partly offset by consolidation of new funds
loan capital increased $2.1 billion or 10% mainly due to the issuance of US$1.5 billion Tier 2 capital instruments;
and
•
Other liabilities increased $5.2 billion or 93% mainly due to the adoption of AASB 16 and higher provisions.
Equity attributable to owners of Westpac Banking Corporation increased $2.6 billion or 4% reflecting $2.8 billion
of new shares issuances, 2019 final dividend reinvestment plan and retained profits, partly offset by 2019 final
dividends paid in First Half 2020.
Loan quality – 2020 v 20191
$m
Total gross loans1
Average gross loans
Australia
New Zealand
Other overseas
Total average gross loans
2020
2019
2018
698,661
718,378
712,504
615,541
622,241
611,398
82,170
78,065
73,000
15,089
16,615
16,228
712,800
716,921
700,626
Total gross loans represented 77% of the total assets of the Group as at 30 September 2020, 2% lower compared
with 30 September 2019. The decrease was mainly due to greater holdings of liquid assets and lower mortgages.
Australian average gross loans were $615.5 billion in 2020, a decrease of $6.7 billion or 1% from $622.2 billion in
2019. This decrease was due to lower lending across mortgages, business lending and personal lending.
New Zealand average gross loans were $82.2 billion in 2020, an increase of $4.1 billion or 5% from $78.1 billion in
2019. Excluding foreign currency translation impacts, New Zealand average gross loans grew $4.3 billion or 6%. The
growth was mostly from housing loans and business lending, partially offset by lower personal lending.
Other overseas average loans were $15.1 billion in 2020, a decrease of $1.5 billion or 9% from $16.6 billion in
2019. This was due to lower trade finance in the Asia region. The reduction was partly offset by foreign currency
translation impacts as the AUD depreciated against the USD.
Approximately 12% of the loans at 30 September 2020 mature within one year and 17% mature between one year
and five years. Retail lending comprises the majority of the loan portfolio maturing after five years.
Housing and personal loans that were past due, can be disaggregated based on days overdue as follows:
Consolidated
$m
Loans
Loans - housing
Loans - personal
Total
30-89 days
2020
90+ days
Total
30-89 days
2019
90+ days
Total
2,682
7,399
10,081
3,574
4,063
7,637
260
347
607
395
356
751
2,942
7,746
10,688
3,969
4,419
8,388
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1.
Gross loans are stated before related provision for ECL/impairment charges on loans and credit commitments.
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Review of Group
operations
128
Review of Group operations
Impaired exposures1,2
$m
Impaired Loans
Housing and business loans:
Gross
Provisions
Net
Personal loans greater than 90 days past due:
Gross
Provisions
Net
Restructured:
Gross
Provisions
Net
2020
2019
2018
2017
2016
2,357
(916)
1,441
406
(232)
174
16
(4)
12
1,327
(534)
793
405
(248)
157
31
(10)
21
1,019
(458)
561
371
(189)
182
26
(6)
20
1,142
(507)
635
373
(195)
178
27
(12)
15
1,851
(885)
966
277
(166)
111
31
(16)
15
Net impaired exposures
1,627
971
763
828
1,092
Provisions for ECL/impairment on loans and credit commitments
Individually assessed provisions
Collectively assessed provisions
Total provisions for ECL/impairment on loans and credit
commitments
Loan quality
611
5,521
412
3,501
422
2,631
480
2,639
869
2,733
6,132
3,913
3,053
3,119
3,602
Total provisions for ECL/impaired charges on impaired exposures to
total impaired exposures
41.45%
44.92%
46.12%
46.30%
49.42%
Gross impaired exposures to total gross loans
0.40%
0.25%
0.20%
0.22%
0.32%
Total provisions for ECL/impairment on loans and credit commitments
to gross loans
Total provisions for ECL/impairment on loans and credit commitments
to gross impaired exposures
0.88%
0.54%
0.43%
0.45%
0.54%
220.7%
222.0%
215.6%
202.3%
166.8%
Credit quality deteriorated over 2020, with total stressed exposures to TCE increasing by 71 basis points to 1.91%
driven mainly by the impacts of the COVID-19 pandemic. Total impaired exposures as a percentage of total gross
loans were 0.40% at 30 September 2020, an increase of 0.15% from 0.25% at 30 September 2019.
At 30 September 2020, we had four impaired counterparties with exposure greater than $50 million, accounting
for 15% of total impaired loans. This compares to one impaired counterparty with exposure greater than $50 million
in 2019 accounting for 4% of total impaired loans. There were five impaired counterparties at 30 September 2020
that were less than $50 million and greater than $20 million (2019: one impaired counterparty).
At 30 September 2020, 80% of our exposure was to either investment grade or secured consumer mortgage
segment (2019: 79%, 2018: 79%) and 96% of our exposure as at 30 September 2020 was in Australia, New Zealand
and the Pacific region (2019: 96%, 2018: 95%).
We believe that Westpac remains appropriately provisioned. Total impairment provisions for impaired exposure
to total impaired exposure coverage at 41.5% at 30 September 2020 compared to 44.9% at 30 September
2019. Total provisions for ECL on loans and credit commitments to total impaired exposures represented 221%
of total impaired loans as at 30 September 2020, down from 222.0% at 30 September 2019. Total provisions
for ECL on loans and credit commitments to total loans were 0.88% at 30 September 2020, up from 0.54% at
30 September 2019 (2018: 0.43%).
Group mortgage loans 90 days past due at 30 September 2020 were 1.50% of outstandings, up from 0.82% of
outstandings at 30 September 2019 (2018: 0.67%).
Group other consumer loan delinquencies (including credit card and personal loan products) were 2.09% of
outstandings as at 30 September 2020, up from 1.69% of outstandings as at 30 September 2019 (2018: 1.64%).
Potential problem loans as at 30 September 2020 amounted to $1,455 million, an increase of 12.2% from
$1,297 million at 30 September 2019.
Potential problem loans are facilities that are performing and no loss is expected, but the customer demonstrates
significant weakness in debt servicing or security cover that could jeopardise repayment of debt on current terms if
not rectified. Potential problem loans are identified using established credit frameworks and policies, which include
the ongoing monitoring of facilities through the use of watchlists.
1.
2.
2020 and 2019 provisions were determined under AASB 9. 2018, 2017 and 2016 provisions were determined under AASB 139.
Impaired provisions relating to impaired loans include IAP plus the proportion of the CAP that relates to impaired loans. The
proportion of the CAP that relates to impaired loans was $541 million as at 30 September 2020 (2019: $380 million, 2018: $231 million,
2017: $234 million, 2016: $198 million). This sum is compared to the total gross impaired loans to determine this ratio.
WESTPAC GROUP 2020 ANNUAL REPORT Review of Group
operations
129
Review of Group operations
Capital resources
APRA measures an ADI’s regulatory capital using three measures:
•
•
•
Common Equity Tier 1 Capital (CET1) comprises the highest quality components of capital that consists of
paid-up share capital, retained profits and certain reserves, less certain intangible assets, capitalised expenses
and software, and investments and retained profits in insurance and funds management subsidiaries that are
not consolidated for capital adequacy purposes;
Tier 1 Capital being the sum of CET1 and Additional Tier 1 Capital. Additional Tier 1 Capital comprises high
quality components of capital that consist of certain securities not included in CET1, but which include loss
absorbing characteristics; and
Total Regulatory Capital being the sum of Tier 1 Capital and Tier 2 Capital. Tier 2 Capital includes subordinated
instruments and other components of capital that, to varying degrees, do not meet the criteria for Tier 1 Capital,
but nonetheless contribute to the overall strength of an ADI and its capacity to absorb losses.
Under APRA’s Prudential Standards, Australian ADIs, including Westpac, are required to maintain a minimum
CET1 ratio of at least 4.5%, Tier 1 Capital ratio of at least 6.0% and Total Regulatory Capital ratio of at least 8.0%.
APRA may also require ADIs, including Westpac, to meet Prudential Capital Requirements (PCRs) above the
minimum capital ratios. APRA does not allow the PCRs for individual ADIs to be disclosed.
APRA also requires ADIs to hold additional CET1 buffers comprising of:
•
•
a capital conservation buffer (CCB) of 3.5% for ADIs designated by APRA as domestic systemically important
banks (D-SIBs) unless otherwise determined by APRA, which includes a 1.0% surcharge for D-SIBs. APRA has
determined that Westpac is a D-SIB; and
a countercyclical capital buffer. The countercyclical buffer is set on a jurisdictional basis and APRA is
responsible for setting the requirement in Australia. The countercyclical buffer requirement is currently set to
zero for Australia and New Zealand.
Collectively, the above buffers are referred to as the “Capital Buffer” (CB). Should the CET1 capital ratio fall
within the capital buffer range restrictions on the distributions of earnings will apply. This includes restrictions
on the amount of earnings that can be distributed through dividends, Additional Tier 1 Capital distributions and
discretionary staff bonuses.
APRA announcements on capital
On 29 July 2020, APRA released further capital management guidance for ADIs1. This guidance included APRA’s
expectation that for 2020, ADIs will retain at least half of their earnings, actively use dividend reinvestment plans
(DRPs) and/or other capital management initiatives to at least partially offset the diminution in capital from
distributions and conduct regular stress testing to inform decision-making and demonstrate ongoing lending
capacity. APRA also committed to ensuring that any rebuild of capital buffers, if required, will be conducted in
a gradual manner. APRA noted that the implementation of the Basel III capital reforms, which will embed the
‘unquestionably strong’ level of capital in the framework, has been postponed to 1 January 2023.
Further details of APRA’s regulatory changes are set out in the Significant Developments section of the
2020 Annual Report.
Capital management strategy
Westpac’s approach to capital management seeks to ensure that it is adequately capitalised as an ADI. Westpac
evaluates its approach to capital management through the Internal Capital Adequacy Assessment Process
(ICAAP), the key features of which include:
•
the development of a capital management strategy, including consideration of regulatory minimums, capital
buffers and contingency plans;
consideration of both regulatory and economic capital requirements;
a stress testing framework that challenges the capital measures, coverage and requirements including the
impact of adverse economic scenarios; and
consideration of the perspective of external stakeholders including rating agencies as well as equity and debt
investors.
•
•
•
During the period of disruption caused by COVID-19, Westpac is operating with the following principles in relation
to capital:
•
•
prioritise maintaining capital strength;
retain capital to absorb further downside on credit quality and acknowledge a high degree of uncertainty
regarding the length and depth of this stress;
allow for capital flexibility to support lending to customers; and
in line with APRA guidance, Westpac will seek to maintain a buffer above the regulatory minimum (currently
at least 8% for D-SIBs including Westpac) and may utilise some of the “unquestionably strong” buffer2.
At 30 September 2020, the CET1 buffer above the regulatory minimum of 8% is $13.7 billion.
•
•
1.
2.
Letter to Authorised Deposit Taking Institutions – Capital Management, 29 July 2020
APRA has set an “unquestionably strong” benchmark of a CET1 capital ratio of 10.5%.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
130
Review of Group operations
These principles take into consideration:
•
current regulatory capital minimums and the capital conservation buffer (CCB), which together are the Total
CET1 Requirement. In line with the above, the Total CET1 requirement for Westpac is at least 8.0%, based upon
an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to D-SIBs1,2;
stress testing to calibrate an appropriate buffer against a downturn; and
quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
•
•
Westpac will revise its target capital levels once the medium to longer term impacts of COVID-19 are clearer and
APRA’s review of the capital adequacy framework is finalised.
APRA have proposed a number of changes to the regulatory capital framework, which are set out in the Significant
Developments section of the 2020 Annual Report.
Basel Capital Accord
APRA’s Prudential Standards are generally consistent with the International Regulatory Framework for Banks,
also known as Basel III, issued by the Basel Committee on Banking Supervision (BCBS), except where APRA has
exercised certain discretions. On balance, the application of these discretions acts to reduce capital ratios reported
under APRA’s Prudential Standards relative to the BCBS approach and to those reported in some other jurisdictions.
Westpac is accredited by APRA to apply advanced models permitted by the Basel III global capital adequacy
regime to the measurement of its regulatory capital requirements. Westpac uses the Advanced Internal Ratings
Based approach for credit risk, the Advanced Measurement Approach (AMA) for operational risk and the internal
model approach for Interest Rate Risk in the Banking Book (IRRBB).
Westpac’s Level 2 regulatory capital ratios as at 30 September are summarised in the table below. As the table
summarises Westpac’s Level 2 regulatory capital structure, the capital amounts shown are not the same as the
Westpac Group’s consolidated financial statements. Westpac’s Pillar 3 Report provides further details regarding
Westpac’s capital structure.
$m
Common equity
Deductions from common equity
Total common equity after deductions
Additional Tier 1 capital
Net Tier 1 regulatory capital
Tier 2 capital
Deductions from Tier 2 capital
Total Tier 2 capital after deductions
Total regulatory capital
Credit risk
Market risk
Operational risk
Interest rate risk in the banking book
Other assets
Total risk weighted assets
Common Equity Tier 1 capital ratio
Additional Tier 1 capital ratio
Tier 1 capital ratio
Tier 2 capital ratio
Total regulatory capital ratio
2020
2019
67,039
64,320
(18,306)
(18,568)
48,733
45,752
9,206
9,299
57,939
55,051
14,052
12,226
(261)
(255)
13,791
11,971
71,730
67,022
359,389
367,864
8,761
9,350
54,090
47,680
9,124
6,541
530
3,370
437,905
428,794
11.13%
2.10%
10.67%
2.17%
13.23%
12.84%
3.15%
2.79%
16.38%
15.63%
1.
2.
Noting that APRA may apply higher CET1 requirements for an individual ADI.
If an ADI’s CET1 ratio falls below the Total CET1 Requirement (at least 8%), they face restrictions on the distribution of earnings, such as
dividends, distribution payments on AT1 capital instruments and discretionary staff bonuses.
WESTPAC GROUP 2020 ANNUAL REPORT Divisional performance
131
Divisional performance
Divisional performance – 2020 v 2019
The accounting standard AASB 8 Operating Segments requires segment results to be presented on a basis
that is consistent with information provided internally to Westpac’s key decision makers. In assessing financial
performance, including divisional results, Westpac Group uses a measure of performance referred to as ‘cash
earnings’. Cash earnings is viewed as a measure of the level of profit that is generated by ongoing operations and is
therefore typically considered in assessing distributions, including dividends. Cash earnings is neither a measure of
cash flow nor net profit determined on a cash accounting basis, as it includes both cash and non-cash adjustments
to net profit attributable to owners of Westpac Banking Corporation. Management believes this allows the Group
to more effectively assess performance for the current period against prior periods and to compare performance
across business divisions and across peer companies.
In 2020, Westpac implemented a change to the presentation of its divisional financial information. The change
related to:
•
•
the creation of the Specialist Businesses division, which includes the following businesses: Auto and Vendor
Finance, Australian insurance businesses, Superannuation, Platforms and Investments, and Westpac Pacific; and
the movement of certain small to medium size enterprise customers, and products between the Consumer and
Business division to better reflect our new line of business operating structure.
This change has no impact on the Group’s overall results or balance sheet but impacts divisional results and
balance sheets. Comparative divisional financial information has been restated for this change.
A reconciliation of cash earnings to net profit attributable to owners of Westpac Banking Corporation for each
business division is set out in Note 2 of the Financial Statements.
To determine cash earnings, three categories of adjustments are made to statutory results:
•
•
material items that key decision makers at the Westpac Group believe do not reflect operating performance;
some items that are not typically considered when dividends are recommended, such as the amortisation of
intangibles, impact of Treasury shares and economic hedging; and
•
accounting reclassifications between individual line items that do not impact statutory results.
The discussion of our divisional performance in this section is presented on a cash earnings basis unless otherwise
stated. Cash earnings is not directly comparable to statutory results presented in other parts of this Annual Report.
Outlined below are the cash earnings adjustments to the reported result:
•
amortisation of intangible assets: Identifiable intangible assets arising from business acquisitions are
amortised over their useful lives, ranging between four and twenty years. This amortisation (excluding
capitalised software) is a cash earnings adjustment because it is a non-cash flow item and does not affect
cash distributions available to shareholders. The last of these intangible assets were fully amortised in
December 2017;
•
fair value (gain)/loss on economic hedges (which do not qualify for hedge accounting under AAS) comprise:
–
–
the unrealised fair value (gain)/loss on hedges of accrual accounted term funding transactions are reversed
in deriving cash earnings as they may create a material timing difference on reported results but do not
affect the Group’s cash earnings over the life of the hedge; and
the unrealised fair value (gain)/loss on foreign exchange hedges of future New Zealand earnings impacting
non-interest income is reversed in deriving cash earnings as they may create a material timing difference on
reported results but do not affect the Group’s cash earnings over the life of the hedge. Westpac has ceased
this activity, and as a result, at this stage, no further adjustments will be recognised in future periods;
ineffective hedges: The unrealised (gain)/loss on ineffective hedges is reversed in deriving cash earnings
because the gain or loss arising from the fair value movement in these hedges reverses over time and does not
affect the Group’s profits over time;
adjustment related to Pendal: Consistent with prior years’ treatment, this item has been treated as a cash
earnings adjustment given its size and that it does not reflect ongoing operations. The adjustment relates to
the mark to market of the shares and separation costs related to the original sell down. Westpac disposed of its
holdings in 2020. As a result, no further adjustments will be recognised in future years.
Treasury shares: Under AAS, Westpac shares held by the Group in the managed funds and life businesses are
deemed to be Treasury shares and the results of holding these shares cannot be recognised in the reported
results. In deriving cash earnings, these results are included to ensure there is no asymmetrical impact on the
Group’s profits because the Treasury shares support policyholder liabilities and equity derivative transactions
which are re-valued in determining income. As at 30 September 2020 there are no Treasury shares; and
•
•
•
•
accounting reclassifications between individual line items that do not impact reported results comprise:
–
–
operating leases: Under AAS rental income on operating leases is presented gross of the depreciation of
the assets subject to the lease. These amounts are offset in deriving non-interest income and operating
expenses on a cash earnings basis; and
policyholder tax recoveries: Income and tax amounts that are grossed up to comply with the AAS covering
Life Insurance Business (policyholder tax recoveries) are reversed in deriving income and taxation expense
on a cash earnings basis;
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
132
Divisional performance
•
for Westpac, AASB 9 and AASB 15 were adopted on 1 October 2018 and as comparatives were not restated,
line item movements in our reported results are not directly comparable across periods. In order to provide the
operational trends in business, we have revised the 2018 cash earnings comparatives as if the standards applied
on 1 October 2017, except for expected credit loss provisioning which is not feasible. These adjustments do not
impact 2018 cash earnings but do affect individual line items. These adjustments are comprised of:
–
–
–
–
–
line fees: The Group has reclassified line fees (mostly Business) from non-interest income to net interest
income to more appropriately reflect the relationship with drawn lines of credit;
card scheme: Support payments received from Mastercard and Visa have been reclassified to non-interest
income and related expenses have been reclassified to operating expenses;
interest carrying adjustment: Interest on performing loans (stage 1 and stage 2 loans) is now measured on
the gross loan value. Previously, interest on performing loans was recognised on the loan balance net of
provisions. This adjustment increases interest income and impairment charges;
other fees and expenses: The Group has restated the classification of a number of fees and expenses.
This has resulted in the grossing up of net interest income, non-interest income, impairment charges and
operating expenses; and
merchant terminal costs: Some variable costs related to Westpac’s merchant terminal business have been
reclassified between non-interest income and operating expenses.
The guidance provided in Australian Securities and Investments Commission (ASIC) Regulatory Guide 230 has
been followed when presenting this information.
Cash earnings by division
The following tables present, for each of the key divisions of our business, the cash earnings and total assets at the
end of the financial years ended 30 September 2020, 2019 and 2018. Refer to Note 2 to the financial statements for
the disclosure of our geographic and business segments and the reconciliation to net profit attributable to owners
of Westpac Banking Corporation.
$m
Consumer
Business
Westpac Institutional Bank
Westpac New Zealand
Specialist Businesses
Group Businesses
Total cash earnings
2020
2,746
734
332
612
(506)
(1,310)
2019
3,116
1,946
925
985
712
(835)
2018
3,192
2,104
985
934
974
(124)
2,608
6,849
8,065
In presenting divisional results on a management reporting basis, internal charges and transfer pricing adjustments
are included in the performance of each division reflecting the management structure rather than the legal entity
(these results cannot be compared to results for individual legal entities). Where management reporting structures
or accounting classifications have changed, financial results for comparative periods have been revised and may
differ from results previously reported.
Our internal transfer pricing frameworks facilitate risk transfer, profitability measurement, capital allocation and
business unit alignment, tailored to the jurisdictions in which we operate. Transfer pricing allows us to measure
the relative contribution of our products and divisions to the Group’s interest margin and other dimensions of
performance. Key components of our transfer pricing frameworks are funds transfer pricing for interest rate and
liquidity risk and allocation of basis and contingent liquidity costs, including capital allocation.
WESTPAC GROUP 2020 ANNUAL REPORT Divisional performance
In 2020 a number of large items have impacted results that do not reflect underlying performance. These can be
divided into four categories:
Category
Cash earnings
impact FY20
$m
Detail
133
1. AUSTRAC proceedings
$1,442
2. Refunds, payments, costs and litigation
$440
3. Write-down of intangibles
$614
4. Asset sales and revaluations
$123
2020
$m
Net interest income
Non-interest income
Operating expenses
Profit before impairment charges and income tax expense
Tax and NCI
Cash earnings
2019
$m
Net interest income
Non-interest income
Operating expenses
Profit before impairment charges and income tax
expense
Tax and NCI
Cash earnings
•
•
•
•
•
•
•
•
•
•
•
•
Provision for $1.3 billion penalty.
Legal costs, including AUSTRAC’s costs.
Costs linked to Westpac’s response plan.
Additional provisions for estimated refunds in FY20 including for :
–
–
–
business customers provided with a business loan instead of a
consumer loan regulated by the National Consumer Credit Protection
Act and the National Credit Code;
refunds to superannuation and investment customers not advised of
certain corporate actions;
refunds to some BT customers where certain wealth fees were
inadequately disclosed; and
–
net increase in provisions for the refund of Advice fees.
Costs associated with implementing the remediation programs.
Cost of settling legal actions, including settlement of two US class actions.
Following a review, the valuation of our Life insurance business did not
support its goodwill so it has been written down.
Lower returns in the Auto business has resulted in a write-down in its
goodwill.
Write-down and impairment of capitalised software.
Gain on revaluation of shareholding in Zip Co Limited.
Write-down of Life insurance deferred acquisition costs, along with a loss
on the liabilities associated with our disability insurance.
Accounting loss on the sale of our Vendor Finance business, sold at a
discount to book value (recorded loss), with potential earn-out payments
on performance over next 3 years (to be recognised in future years).
AUSTRAC
proceedings
Refunds,
payments,
costs, and
litigation
Write-downs
of intangibles
Asset
sales and
revaluations
-
-
(1,478)
(1,478)
36
(1,442)
(143)
(209)
(274)
(626)
186
(440)
-
-
(668)
(668)
54
(614)
AUSTRAC
proceedings
-
-
-
-
-
-
Refunds,
payments,
costs, and
litigation
(344)
(820)
(220)
(1,384)
426
(958)
Write-
downs of
intangibles
Asset
sales and
revaluations
-
-
-
-
-
-
-
83
-
83
-
83
-
(54)
(119)
(173)
50
(123)
Wealth
Reset
-
-
(241)
(241)
69
(172)
Total
(143)
(263)
(2,539)
(2,945)
326
(2,619)
Total
(344)
(737)
(461)
(1,542)
495
(1,047)
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
134
Divisional performance
2018
$m
Net interest income
Non-interest income
Operating expenses
Profit before impairment charges and income tax expense
Total
(105)
(163)
(112)
(380)
99
(281)
Group
(143)
(263)
AUSTRAC
proceedings
Refunds,
payments,
costs, and
litigation
Write-downs
of intangibles
Asset
sales and
revaluations
-
-
-
-
-
-
(105)
(163)
(112)
(380)
99
(281)
-
-
-
-
-
-
-
-
-
-
-
-
Consumer
Business
Westpac
Institutional
Bank
Westpac
New Zealand
($A)
Specialist
Businesses
Group
Businesses
5
4
(64)
(55)
16
(39)
(141)
2
(130)
(269)
81
(188)
-
-
-
-
-
-
(7)
(7)
1
(13)
4
(9)
-
(409)
(694)
-
147
(1,652)
(2,539)
(1,103)
(1,505)
(2,945)
181
(922)
44
326
(1,461)
(2,619)
Consumer
Business
Westpac
Institutional
Bank
Westpac
New Zealand
($A)
Specialist
Businesses
Group
Businesses
(85)
(2)
25
(62)
29
(33)
(246)
(12)
(57)
(315)
95
(220)
-
-
-
-
-
-
(13)
34
(15)
6
9
15
-
(40)
(30)
(70)
23
(47)
-
(717)
(384)
Group
(344)
(737)
(461)
(1,101)
(1,542)
339
(762)
495
(1,047)
Consumer
Business
Westpac
Institutional
Bank
Westpac
New Zealand
($A)
Specialist
Businesses
Group
Businesses
(99)
(6)
(39)
(144)
34
(110)
-
-
(5)
(5)
-
(5)
-
-
-
-
-
-
(2)
(11)
(3)
(16)
4
(12)
-
(6)
-
(6)
2
(4)
(4)
(140)
(65)
(209)
59
(150)
Group
(105)
(163)
(112)
(380)
99
(281)
Tax and NCI
Cash earnings
2020
$m
Net interest income
Non-interest income
Operating expenses
Profit before impairment changes and
income tax expense
Tax and NCI
Cash earnings
2019
$m
Net interest income
Non-interest income
Operating expenses
Profit before impairment changes and
income tax expense
Tax and NCI
Cash earnings
2018
$m
Net interest income
Non-interest income
Operating expenses
Profit before impairment changes and
income tax expense
Tax and NCI
Cash earnings
WESTPAC GROUP 2020 ANNUAL REPORT Divisional performance
Consumer
Consumer is responsible for sales and service of banking products, including mortgages, credit cards, personal
loans, and savings and deposit products to consumer customers in Australia. Banking products are provided under
the Westpac, St.George, BankSA, Bank of Melbourne, and RAMS brands. Consumer works with Business, WIB, and
Specialist Businesses in the sales, service, and referral of certain financial services and products including general
and life insurance, superannuation, platforms, auto lending and foreign exchange.
135
Financial performance
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of WBC
Deposits and other borrowings
Net loans
Total assets
Total operating expenses to net operating income ratio
2020 v 2019
2020
8,547
573
9,120
(4,176)
(1,015)
2019
8,130
695
8,825
(3,794)
(582)
2018
8,092
766
8,858
(3,779)
(490)
3,929
4,449
4,589
(1,183)
2,746
-
(1,333)
3,116
-
(1,397)
3,192
(15)
2,746
3,116
3,177
$bn
219.3
389.8
398.3
$bn
$bn
207.6
399.3
407.0
203.9
396.3
403.4
45.79%
42.99%
42.66%
Cash earnings of $2,746 million were $370 million or 12% lower than 2019 from higher impairment charges, higher
expenses and lower non-interest income. This was partly offset by a 15 basis point increase in net interest margin.
Net interest income
up $417 million,
5%
Non-interest
income down $122
million, 18%
Operating
expenses up $382
million, 10%
Impairment
charges up $433
million, 74%
•
•
•
•
•
•
•
•
Net loans were 2% lower (or $9.5 billion) over the year. Mortgages decreased $6.2 billion
(or 2%) with the decline mostly from accelerated pay down. Other personal lending was
$2.8 billion (or 23%) lower as customers paid down debt and reduced spending;
Deposits increased 6% (or $11.7 billion), with most of the growth in the second half of
the year from higher mortgage offset balances and increased at call deposits partly
offset by a reduction in term deposits; and
Net interest margin was 15 basis points higher from mortgage repricing and lower
funding costs (this benefit was partly offset by elevated retention pricing and lower
spreads on new mortgages). Deposit spreads declined due to low interest rates.
Non-interest income was lower mostly from COVID-19 restrictions leading to reduced
activity, lower credit and debit card revenue, while lower international travel contributed
to reduced foreign currency conversion and foreign ATM fees.
Costs associated with the write-down of certain intangibles, and the benefit from
a write-back of a provision for litigation expenses in 2019, increased expenses by
$89 million. Excluding the impact of these items, expenses were $293 million higher, up
8% from:
–
–
–
–
Costs associated with our COVID-19 and bushfire response;
Increased restructuring costs;
Higher spend on risk and compliance programs; and
Increased costs associated with mortgage processing and bringing jobs onshore;
Increases from annual salary reviews, inflation, and the roll-out of the customer service
hub, were offset by productivity benefits from organisational redesign, rationalisation of
a further 24 branches in 2020 (on top of 57 branches closed in 2019), and further use of
digital channels.
Mortgage 90+ day delinquencies of 1.60% were up 70 basis points since September
2019 (0.90%) predominately due to an increase in hardship, particularly for those
customers who were not eligible for the COVID-19 deferral package. Other consumer
90+ day delinquencies of 1.69% were down 6 bps over the year; and
Impairment charges were higher, with collectively assessed provisions increasing
significantly reflecting the rise in delinquencies and changes to the economic forecasts.
Increased overlay provisions also contributed to the rise.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
136
Divisional performance
Business
Business provides business banking products and services for Australian SME and Commercial customers
(including Agribusiness) generally up to $200 million in exposure. The division also serves Private Wealth.
SME includes relationship managed and non-relationship managed SME customers. The division offers a wide
range of banking products and services to support their borrowing, payments and transaction needs. In addition,
specialist services are provided for cash flow finance, trade finance, equipment finance and property finance.
Business operates under the Westpac, St.George, BankSA, and Bank of Melbourne brands. Business works with
Consumer, WIB, and Specialist Businesses in the sale, referral and service of select financial services and risk
management products (including corporate superannuation, foreign exchange and interest rate hedging).
Financial performance
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of WBC
Deposits and other borrowings
Net loans
Total assets
Total operating expenses to net operating income ratio
2019
2018
4,456
4,619
2020
4,163
560
4,723
(2,298)
(1,371)
594
5,050
(2,094)
(172)
1,054
2,784
(320)
734
-
(838)
1,946
-
612
5,231
(1,983)
(236)
3,012
(908)
2,104
-
734
1,946
2,104
$bn
151.9
140.7
145.8
$bn
142.6
146.9
151.6
$bn
141.0
146.1
150.5
48.66%
41.47%
37.91%
WESTPAC GROUP 2020 ANNUAL REPORT 137
Divisional performance
2020 v 2019
Cash earnings of $734 million were $1,212 million (or 62%) lower than 2019. Excluding estimated customer refunds,
payments, costs and litigation, cash earnings were $1,244 million (or 57%) lower mostly from an increase in
impairment charges and a decline in net interest margin.
Net interest income
down $293
million, 7%
Non-interest
income down $34
million, 6%
Operating
expenses up $204
million, 10%
Impairment
charges up $1,199
million, large
•
•
•
•
•
•
•
Net loans were 4% (or $6.2 billion) lower over the year, driven by a 4% (or $2.3 billion)
reduction in mortgages and a 3% (or $2.7 billion) reduction in business lending, with
growth in agriculture more than offset by declines across other industries;
Deposits were 7% (or $9.3 billion) higher over the year with a 33% rise in transaction
balances and 20% increase in savings and online balances supported by government
stimulus packages. This was partially offset by an 18% decline in term deposits given a
customer preference to retain funds in at call accounts; and
Net interest margin was 17 basis points lower than 2019 (down 25 basis points excluding
estimated customer refunds and payments). The lower margin was mostly from reduced
deposit spreads from low interest rates and interest rate reductions on business lending
products as part of COVID-19 support measures. These reductions were partly offset by
repricing and changes in deposit mix.
Estimated customer refunds and payments in 2020 were $14 million lower than 2019.
Excluding this, non-interest income was down $48 million (or 8%) mostly due to lower
markets income, lower business lending fees, and the impact of COVID-19 fee waivers.
These impacts were partly offset by higher merchant fee income.
Costs associated with customer refunds, payments and litigation and write-down of
intangible assets were $73 million higher than 2019. Excluding these items, expenses
were up $131 million (or 6%), due to higher spend relating to COVID-19 activities,
increased spending on risk and compliance programs, and investment in bankers.
The level of stressed exposures increased 182 basis points to 4.70% mostly from an
increase in watchlist and substandard within the Commercial portfolio;
Impairment charges were higher mostly from an increase in collectively assessed
provisions due to COVID-19 impacts reflecting:
–
–
–
Changes to the base case economics forecasts and increasing the weight applied to
the downside economic scenario;
an increased overlay provision; and
an increase in stressed exposures;
•
Individually assessed provisions also increased $58 million, from a small number of large
exposures.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
138
Divisional performance
Westpac Institutional Bank
Westpac Institutional Bank (WIB) delivers a broad range of financial products and services to corporate,
institutional and government customers operating in, or with connections to, Australia and New Zealand.
WIB operates through dedicated industry relationship and specialist product teams, with expert knowledge in
financing, transactional banking, and financial and debt capital markets. Customers are supported throughout
Australia and via branches and subsidiaries located in New Zealand, the US, UK and Asia. WIB works with all
the Group’s divisions in the provision of markets’ related financial needs including foreign exchange and fixed
interest solutions.
Financial performance
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of WBC
Deposits and other borrowings
Net loans
Total assets
2020
1,111
1,182
2,293
(1,316)
(404)
573
(241)
332
-
332
$bn
102.9
66.2
75.5
2019
1,337
1,195
2,532
(1,220)
(31)
1,281
(356)
925
-
925
$bn
99.0
73.6
95.0
2018
1,320
1,473
2,793
(1,399)
20
1,414
(429)
985
-
985
$bn
102.7
75.6
99.6
Total operating expenses to net operating income ratio
57.39%
48.18%
50.09%
2020 v 2019
Cash earnings of $332 million were $593 million or 64% lower than 2019, primarily driven by higher impairment
charges (up $373 million) and a 26% decline in net operating income before impairment charges. Income was
9% lower mostly from the 24 basis points decrease in net interest margin. Expenses were higher from a rise in risk
and compliance costs.
Net interest income
down $226
million, 17%
Non-interest
income down $13
million, 1%
Operating
expenses
up $96 million, 8%
Impairment
charges up $373
million, large
•
•
•
•
•
•
•
•
•
•
•
•
Net loans decreased 10% (or $7.4 billion) primarily from a reduction in offshore lending,
including lower trade finance in Asia;
Deposits increased 4% (or $3.9 billion) reflecting higher at call balances as customers
increased liquidity in response to COVID-19 and from higher government balances. This
was partly offset by lower term deposits and offshore deposits; and
Net interest margin was down 24 basis points, with lower interest rates reducing deposit
spreads and earnings on capital. This was partly offset by more disciplined loan pricing
and benefits from the change in deposit mix.
Higher charge on derivative valuation adjustments ($77 million charge in 2020
compared to $64 million charge in 2019);
Reduced syndication fees with 2019 including several large transactions;
A reduction in customer Markets income from lower fixed income and FX sales; partly offset
by
Higher non-customer Markets income across fixed income and FX.
Higher risk and compliance related costs, including financial crime;
Increase in restructuring costs; and
Productivity savings of $36 million and lower variable remuneration more than offset
increases from annual salary reviews and higher technology costs.
Stressed exposures to TCE of 1.03%, up 44 basis points compared to 30 September
2019 due to the downgrade of a number of facilities to stressed or impaired; and
Impairment charges were higher, reflecting COVID-19 impacts. These resulted from
changes to the base case economics forecasts and increasing the weight applied to the
downside economic scenario. Individually assessed provisions were also higher following
the downgrade of a small number of facilities to impaired.
WESTPAC GROUP 2020 ANNUAL REPORT 139
Divisional performance
Westpac New Zealand
Westpac New Zealand provides banking, wealth and insurance products and services for consumer, business
and institutional customers in New Zealand. Westpac conducts its New Zealand banking business through two
banks: Westpac New Zealand Limited, which is incorporated in New Zealand, and Westpac Banking Corporation
(New Zealand Branch), which is incorporated in Australia. Westpac New Zealand operates through a network of
branches and ATMs in both the North and South Islands. Business and institutional customers are also served
through relationship and specialist product teams. Banking products and services are provided under the
Westpac brand while insurance and wealth products are provided under Westpac Life and BT brands, respectively.
New Zealand maintains its own infrastructure, including technology, operations and treasury in accordance with
regulatory requirements.
All figures are in NZ$ unless noted otherwise.
Financial performance
NZ$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of WBC
Deposits and other borrowings1
Net loans
Total assets
Total funds
2020
1,943
339
2,282
(1,059)
(320)
903
(254)
649
7
656
$bn
71.0
88.0
104.2
12.2
2019
1,967
448
2,415
(993)
10
1,432
(390)
1,042
(1)
2018
1,958
406
2,364
(930)
(25)
1,409
(393)
1,016
14
1,041
1,030
$bn
64.5
84.2
97.1
11.5
$bn
61.9
80.4
90.0
10.7
Total operating expenses to net operating income ratio
46.41%
41.12%
39.34%
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1.
Refers to total customer deposits in this table.
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
140
Divisional performance
2020 v 2019
Cash earnings of NZ$649 million were NZ$393 million or 38% lower than 2019, primarily driven by higher
impairment charges (up NZ$330 million). Net operating income before impairment charges were 14% lower from a
24% decline in non-interest income and a 7% increase in expenses.
Net interest income
up down NZ$24
million, 1%
Non-interest
income down
NZ$109 million,
24%
Operating
expenses up
NZ$66 million, 7%
Impairment charge
of NZ$320 million
compared to an
impairment benefit
of NZ$10 million
•
•
•
Net loans increased 5%, or NZ$3.8 billion, primarily from mortgages which increased
NZ$3.7 billion, mostly in fixed rate loans. Business lending increased NZ$0.8 billion
(up 3%). These gains were partly offset by a NZ$0.4 billion decline in other personal
lending, and higher impairment provision balance (up NZ$0.3 billion);
Deposits were up NZ$6.5 billion with growth across both consumer and business
deposits. Term deposits were lower from customer preference to retain funds in at call
accounts; and
Net interest margin was down 19 basis points, with the low interest rate environment
reducing deposit spreads. This was partly offset by improved lending spreads from
repricing and some mix impacts.
•
Non-interest income declined from:
–
–
–
Gain on sale of PayMark in 2019:
Full period impact of fee simplification initiatives implemented in 2019, and lower
income from card products;
COVID-19 restrictions which contributed to lower activity based fees, and fee waivers
from customer support measures; and
–
Lower insurance income also contributed to the decline.
•
Excluding costs associated with customer refunds, payments and litigation
(NZ$17 million lower in 2020), expenses increased NZ$83 million (or 8%) mostly from:
–
–
increased spending on risk and compliance programs (including BS11 outsourcing)
and increased restructuring expenses; and
Costs to support COVID-19 activities, salary increases and other inflationary rises
were offset by productivity benefits.
•
•
•
Stressed exposures to TCE decreased 7 basis points to 1.59% compared to September
2019;
During 2019, the methodology for reporting hardship was aligned to APRA’s definition
which has impacted delinquencies. These changes increased other consumer 90+ day
delinquencies by 127 basis points and mortgage 90+ day delinquencies by 39 basis
points. Excluding the impact of these changes, other consumer 90+ day delinquencies
increased 42 basis points and mortgage 90+ day delinquencies increased 2 basis points;
and
Impairment charges were higher, reflecting expected COVID-19 impacts. These included
changes to the base case economics forecasts and increasing the weight applied to
the downside economic scenario used in provision models. New individually assessed
provisions for two large exposures also contributed to the increase.
AUD$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of WBC
Deposits and other borrowings
Net loans
Total assets
Total funds
2020
1,832
319
2,151
(998)
(302)
851
(239)
612
7
619
$bn
65.7
81.4
96.4
11.3
2019
1,860
423
2,283
(939)
10
2018
1,799
373
2,172
(855)
(22)
1,354
1,295
(369)
985
(1)
984
$bn
59.7
78.0
90.0
10.7
(361)
934
13
947
$bn
56.7
73.6
82.4
9.8
Total operating expenses to net operating income ratio1
46.40%
41.13%
39.36%
1.
Ratios calculated using NZ$.
WESTPAC GROUP 2020 ANNUAL REPORT Divisional performance
Specialist Businesses
Specialist Businesses provides automobile finance, Australian life, general and lenders mortgage insurance,
investment products and services (including margin lending and equities broking), superannuation and retirement
products as well as wealth administration platforms. It also manages Westpac Pacific which provides a full range
of banking services in Fiji and Papua New Guinea. The division operates under the Westpac, St.George, BankSA,
Bank of Melbourne, and BT brands. Specialist Businesses works with Consumer, Business and WIB in the provision
of select financial services and products.
141
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax expense
Profit attributable to NCI
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of WBC
Deposits and other borrowings
Net loans
Total assets
Total funds
Total operating expenses to net operating income ratio
2020
534
762
2019
555
2018
565
1,412
1,664
1,296
1,967
2,229
(1,548)
(847)
(746)
(255)
(111)
(84)
(507)
1,009
1,399
3
(2)
(506)
(31)
(292)
(420)
(5)
712
(45)
(5)
974
(76)
(537)
667
898
$bn
9.3
14.9
22.8
$bn
9.3
17.2
31.1
$bn
7.2
18.3
32.8
193.0
207.2
198.9
119.44% 43.06% 33.47%
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
142
Divisional performance
2020 vs 2019
Cash earnings were a loss of $506 million compared to a profit of $712 million in 2019. During 2020 the business
incurred $922 million (after tax) of costs associated with write-down of intangible assets, revaluation of assets, and
provisions for estimated customer refunds, payments and associated costs, compared to $47 million (after tax)
in 2019. Excluding these items, cash earnings for 2020 was $416 million, $343 million lower than 2019.
Net interest income down
$21 million, 4%
Non-interest income
down $650 million, 46%
Operating expenses up
$701 million, 83%
Impairment charges up
$144 million, 130%
•
•
•
•
•
Net loans decreased 13% (or $2.3 billion) over the year, mostly in Auto Loans,
reflecting subdued activity and lower new car sales;
Deposits were unchanged with the decline in term deposits offset by an increase in
at call accounts; and
Net interest margin was up 11 basis points with the benefit of lower funding costs
partly offset by reduced deposit spreads and lower earnings on capital from low
interest rates, and interest rate reductions from customer support measures.
Increase in estimated customer refunds and payments and a write-down of
intangible assets reduced non-interest income $369 million during the year.
Excluding these, non-interest income decreased $281 million (or 19%);
Superannuation, Platforms and Investments (SPI) contribution was down
$143 million from:
–
–
Margin compression from platform and superannuation pricing changes, product
migrations to lower margin super products and impacts of regulation (including
Protecting Your Super); and
Lower platform revenue from lower interest rates on cash duration managed
balances.
•
Insurance contribution was down $140 million mostly from:
–
–
General insurance claims increased $108 million primarily due to bushfires and
major weather events (including NSW/QLD storms and floods), partly offset by
an increase in premiums;
Life insurance income was $10 million lower mostly from COVID-19 customer
policy support measures. Lower premiums were largely offset by lower claims;
and
–
LMI income was also lower, mostly from higher claims.
•
•
•
Write-down of intangible assets, asset revaluations, and costs associated with
customer refunds, payments and litigation in 2020 were $664 million higher than
2019. Excluding these items, expenses were $37 million higher. Most of the increase
related to supporting COVID-19 activities, continued spend on risk and compliance,
and CPI increases.
The level of stressed exposures to TCE increased 508 bps to 8.56%, mostly from an
increase in watchlist exposures in Westpac Pacific;
Impairment charges were higher, mostly reflecting COVID-19 impacts. These were
from changes to the base case economics forecasts and increasing the weight
applied to the downside economic scenario. Higher stress and delinquencies
also led to increased overlay provisions. Lower recoveries in Full Year 2020 also
contributed to the increase.
WESTPAC GROUP 2020 ANNUAL REPORT 143
Divisional performance
Group Businesses
Group Businesses include:
•
•
•
Treasury, which is responsible for the management of the Group’s balance sheet including wholesale funding,
capital and the management of liquidity. Treasury also manages the interest rate risk and foreign exchange
risks inherent in the balance sheet, including managing the mismatch between Group assets and liabilities.
Treasury’s earnings are primarily sourced from managing the Group’s balance sheet and interest rate risk,
(excluding Westpac New Zealand) within set risk limits;
Group Technology1, which is responsible for technology strategy and architecture, infrastructure and operations,
applications development and business integration in Australia; and
Core Support2, which comprises Group support functions, including Australian banking operations, property
services, strategy, finance, risk, financial crime, compliance and conduct, compliance, legal, human resources,
and customer and corporate relations.
Group Businesses also includes earnings on capital not allocated to divisions, certain intra-group transactions that
facilitate the presentation of the performance of the Group’s divisions, gains/losses from most asset sales, earnings
and costs associated with the Group’s fintech investments, costs associated with customer remediation for the
Advice business3, and certain other head office items such as centrally raised provisions.
Financial performance
$m
Net interest income
Non-interest income
Net operating income before operating expenses and impairment charges
Operating expenses
Impairment (charges)/benefits
Profit before income tax
Income tax (expense)/benefit
Profit attributable to NCI
Cash earnings for the year
Net cash earnings adjustments
Net profit attributable to owners of WBC
2020
899
144
1,043
(2,364)
169
2019
615
(617)
(2)
(1,137)
92
(1,152)
(1,047)
(158)
-
(1,310)
(294)
(1,604)
213
(1)
(835)
(19)
(854)
2018
792
90
882
(936)
-
(54)
(71)
1
(124)
108
(16)
2020 v 2019
Group Businesses 2020 cash earnings loss of $1,310 million was $475 million worse than 2019.
Net operating
income up $1,045
million, large
•
•
•
Provisions for estimated customer refunds and payments which were $156 million in 2020,
compared to $759 million in 2019;
Revaluation gains from our investment in Zip Co Limited ($303 million); and
Higher Treasury revenue due to management of interest rate risk ($384 million).
Operating
Expenses up $1,227
million, 108%
Impairments
charges down $77
million, 84%
•
Higher costs due to a provision for a penalty from AUSTRAC and the associated costs
($1,478 million), partly offset by;
•
Lower costs from the exit of the Advice business ($241 million).
•
The movement of $77 million was mainly due to centrally held overlays relating to drought
and bushfires no longer required.
1.
2.
3.
Group Technology costs are fully allocated to other divisions in the Group.
Core Support costs are partially allocated to other divisions, while Group Head Office costs are retained in Group Businesses.
In March 2019, Westpac announced that it was exiting the provision of personal financial advice.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Risk and risk management
144
Risk and risk management
Risk management
As a bank, the management of risk is an inherent part of our business. We manage a number of risks across
Westpac, these are detailed below. An example is credit risk, when we offer a loan, we accept credit risk through
our assessment of the capacity of the customer to meet their repayment obligation. A customer’s circumstances
may change impacting their ability to meet repayments and creating a potential loss for Westpac. We strive to
manage our business in a manner that will achieve our desire of Helping Australians and New Zealanders Succeed,
while protecting the safety and soundness of Westpac.
The issues raised through the Royal Commission, the AUSTRAC Statement of Claim and our own analysis of
Culture, Governance and Accountability have highlighted that we must significantly improve the management
of our risk, particularly non-financial risk. As a result, we have commenced a significant program to address
shortcomings in the management of risk, increase the resources devoted to risk and mature our risk culture. For a
more detailed discussion of these issues, please refer to the Strategic Review in Section 1 and also the Risk Factors
later in this section.
The program has included changes to our risk governance structure, the introduction of a new risk management
framework and clearer risk definitions. We are working to mature our risk culture and improve the clarity for our
people of their risk responsibilities. A key principle at Westpac is that risk is everyone’s business and we all have a
role to play.
How we manage risk
Central to the management of risk is our Risk Management Framework which outlines the steps to manage our
risks, as set out in the diagram below. This Framework provides structure and discipline for our risk management
activities. Effective risk management requires all the elements of the framework to operate both independently
and as part of a holistic approach. At the centre of the framework is the need for a strong risk culture, that binds
the elements, and for all parts of the Group to be clear on their responsibilities for identifying and managing risks
through the three lines of defence model. We are working on further embedding the Risk Management Framework
to improve the overall management of risk and the maturity of our risk culture.
RISK MANAGEMENT FRAMEWORK
Ensuring
appropriate data,
analysis and
recommendations
flow to the right people
and forums on a timely
basis to support
decision making
Westpac’s business
plans are shaped
considering the risks
associated with its
strategic objectives
Appropriate action
plans are
implemented
to improve our
risk profile
Board
governance
& control
Business
strategy
Identifying new
and emerging risks
in our business from
internal and external
environments
Risks are assessed
through ongoing
monitoring,
management,
reporting
and assurance
Action
& response
Monitoring
&
reporting
r ee li n e s of d
e
f
h
T
Risk
Culture
Risk
identification
e
n
c
e
Risk
appetite
Control
definition &
effectiveness
People
&
infrastructure
Stress and
scenarios
analysis
Embedding
appropriate
Frameworks, policies,
standards and
controls to manage
the risks we take
Having the right
capability, people,
data and systems
to support effective
risk management
and decision making
Performing stress
tests to assess the
potential impact of
changes that existing
and new risks may have
on the Group,
including on capital
Setting risk
appetite to provide
clarity on the level
of risk we are
prepared to take
The Risk Management Framework has nine components starting with our ‘Business Strategy’, which defines the
markets and businesses the Group is operating in. We are an Australian and New Zealand bank, with a predominant
focus on retail, business and targeted institutional segments. We also operate wealth, insurance and ancillary
banking operations; these are managed in our Specialist Businesses division.
WESTPAC GROUP 2020 ANNUAL REPORT
145
Risk and risk management
Risk management is a daily discipline in our business. Throughout the year, we execute the elements of the
Risk Management Framework to identify, analyse, oversee and manage our risks. Some components are executed
more regularly. For example, monitoring and stress testing of risks are performed throughout the year, and the
reporting of risks to the Board committees is performed at least quarterly.
Some of our risks are stress tested and subject to scenario analysis to assess how major events and changing
operating conditions could impact on our operations, financial performance, balance sheet or reputation. Stress
tests are particularly relevant in the loan portfolios where we assess the impact of changing economic scenarios on
customers and our financial position.
The current environment demonstrates the importance of stress testing given the potential impacts from COVID-19
pandemic.
We need to have the right people and systems to manage risk, and underpin this with our frameworks, policies,
procedures and standards used to define the appropriate controls. For example, our Risk Culture Framework sets
out how we define, measure, monitor and manage risk culture.
Risk frameworks, policies, procedures and standards exist at various levels across Westpac. These may be at the
Group level, across major risk categories as well as for individual regulated entities or divisions.
We also have processes in place to monitor and report risks, incidents, issues and actions. These include specific
reporting of any breaches of limits. The Group has also increased its focus on resolving long-standing issues, taking
action to bring risks back within appetite, and assessing the effectiveness of controls to manage risks.
We have a formal risk governance structure to support our risk management framework by providing appropriate
data, analysis and recommendations to the right people and forums on a timely basis to support decision making.
Risk activities are overseen by established committees (including at Board level, Executive Management, major
risk type Committees, Divisional and Specialist Committees). A fuller explanation of our corporate governance is
included in section one.
In response to developments over the last year, changes have been made to the committee structure with a focus
on lifting our management and oversight of non-financial risk. This has included establishing a new Board Legal,
Regulatory & Compliance Committee to enhance oversight of non-financial risk.
Risk Culture
A strong risk culture is essential for the Group’s Risk Management Framework to operate effectively. Following
the release of AUSTRAC’s Statement of Claim, APRA required Westpac to reassess whether our CGA Program
remained fit for purpose. One of the main conclusions from the CGA reassessment (completed during 2020) was
that aspects of our risk culture were ‘immature and reactive’.
Westpac aspires to a mature risk culture that pro-actively identifies, manages and mitigates risks, learns from risk
events and continuously anticipates new risks and opportunities. To track progress towards our aspiration, we
have developed and implemented several risk culture tools and processes designed to assist management better
measure, monitor and manage our risk culture:
•
•
•
•
Risk Culture Framework – establishing a new framework, clearly articulating the roles and responsibilities for
moving our risk culture maturity towards Westpac’s aspiration, through the use of the tools and processes;
Risk Culture Maturity Self-Assessment – deploying an online tool allowing Divisions to annually assess their
current risk culture maturity relative to Westpac’s aspiration, helping to identify and prioritise areas for
improvement;
Risk Culture Insights Program – undertaking an independent second line deep-dive program of each Division’s
risk culture, identifying the factors that positively and negatively influence the Division’s approach to risk
management; and
Risk Culture Dashboard – launching a comprehensive database of risk culture and conduct risk metrics,
to support an online automated Risk Culture Dashboard rolled out to Divisions, enabling risk culture to be
measured, monitored and reported in a consistent way across the Group.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW2 GROUP PERFORMANCE
146
Risk and risk management
Three Lines of Defence
The three lines of defence model outlines the active roles that all employees must play in the end-to-end
management of risk. The first line is responsible for identifying and owning the risks arising from all aspects of their
activity. The second line provides expertise, advice and oversight in how risks are managed. The third line is Internal
Audit who provide independent testing and assurance.
FIRST LINE
RISK OWNER
Identify, control and manage risk
•
•
•
•
•
•
Own the current and emerging risks of the business/division
by identifying, managing, and monitoring
Ensure that business activities are within approved risk
appetite and policies
Design, implement and maintain controls
Comply with laws and regulation
Identify and escalate risk issues
Responsible for promoting a strong risk culture
SECOND LINE
RISK OVERSIGHT
Set the risk standards, provide challenge and
advise the first line
THIRD LINE
Independent audit
•
•
•
•
•
Establish and communicate risk frameworks, appetite, and
strategies
Provide oversight and independent challenge to first line
Identify, assess, and communicate regulatory change
Measure, monitor and report risks against appetite
Includes roles in Risk and Financial Crime, Compliance &
Conduct divisions,
INTERNAL AUDIT
•
•
Verify that Risk Management Framework is designed and
operating effectively
Validate the adequacy and effectiveness of first and second
line functions
Risk Identification: Major Risk Categories
The Group has identified a number of risk types and classified these under 11 major risk categories. It is important
to note that the major risk categories do not represent every risk the Group may face but rather the most material
risks to the Group.
MAJOR RISK CATEGORIES
1
2
3
4
5
6
7
Strategic
Risk
Risk
Culture
Operational
Risk
Conduct &
Compliance
Financial
Crime
Cyber
Risk
Reputational
&
Sustainability
Risk
8
Capital
Adequacy
9
Funding
& Liquidity
Risk
10
Credit
Risk
11
Market
Risk
Non-financial risks
Financial risks
We place boundaries or limits on these risks by establishing a risk appetite. Risk appetite is articulated in the
Group’s Risk Appetite Statement which lists the Group’s major risks and the measures used to monitor these risks.
Most of these measures are monitored by “amber” and “red” limits which indicate when risks are close to or over
our risk appetite.
The Group has a number of risks which sit outside of our risk appetite or do not meet the expectations of
regulators. Westpac is underway with a comprehensive action plan to address risk management and other culture,
governance and accountability issues including through its CORE program and other activities, as outlined in
‘Significant Developments’ in Section 1.
WESTPAC GROUP 2020 ANNUAL REPORT 147
Risk and risk management
Here is an explanation of each of our major risk categories, how we consider risk appetite and some examples of
areas of focus in 2020 to illustrate how our Risk Management Framework operates.
1. STRATEGIC RISK
2. RISK CULTURE
The risk that the Group makes incomplete
strategic choices, does not implement its
strategies successfully, or does not respond
effectively to changes in the operating
environment.
Risk Appetite and Mitigation
We grow our business through well-considered
strategic initiatives that are aligned with the
Group’s overall strategic priorities.
We manage strategic risk through:
•
•
•
Annual Board Strategy Review and
Financial Target setting
Scenario analysis for major strategic events
Project investment approval processes
The risk that our culture does not promote and reinforce
behavioural expectations and structures to identify, understand,
discuss and act on risks.
Risk Appetite and Mitigation
We promote a risk culture which supports our purpose, vision
and values and our ability to manage risk effectively.
We assess our risk culture and our risk management outcomes
regularly, and this is supported by risk culture metrics that
reinforce strong risk management behaviour.
Some areas of focus include:
•
the impact of COVID-19
Some areas of focus include:
•
the new Board approved Risk Culture Framework
•
creation of the Specialist Businesses
division.
•
•
launched Risk Fundamentals training
completed Risk Culture Maturity self-assessments across
the Group
Example of a Risk Appetite measure
•
Return on Equity versus target ROE
Example of a Risk Appetite measure
•
Internal survey results - % of respondents who feel safe
calling out issues, risks and/ or concerns
3. OPERATIONAL RISK
4. CONDUCT AND COMPLIANCE
The risk of loss from inadequate or failed
internal processes, people and systems or from
external events.
Risk Appetite and Mitigation
We seek to be resilient to operational risk
through robust processes and controls.
Material issues and incidents from breakdowns
in processes and controls must be quickly and
effectively remediated.
The risk of failing to abide by compliance obligations required
of us or otherwise failing to have behaviours and practices that
deliver suitable, fair and clear outcomes for our customers and
that support market integrity.
Risk Appetite and Mitigation
We must comply with relevant laws and regulations, and we
seek to conduct our business in a way that delivers suitable,
fair and clear outcomes for our customers and supports the
integrity of the markets in which we operate. In seeking to
achieve this we aim to establish robust controls and systems to
manage conduct and compliance risk, and in doing so have no
appetite for:
•
•
Deliberate or reckless breaches of regulatory requirements
Systems or processes that lead to systemic or material
breaches of regulatory requirements
Recognising that non-compliance will occur from time to time,
we have no appetite for the failure to promptly own, investigate
and remediate incidents of non-compliance.
Some areas of focus include:
•
managing the disruption in some suppliers
and contractors due to COVID-19
Some areas of focus include:
•
many of our employees and staff of third-party contractors
working remotely due to COVID-19
•
•
working to bring back 1,000 jobs to
Australia in our operations team
implemented new control self-assessment
standard and strengthening controls
•
mid-way through a significant multi-year program designed
to uplift the Group’s compliance management system and
professional capability of the Compliance function
Example of a Risk Appetite measure
•
Timely recording and ownership of
incidents identified
Example of a Risk Appetite measure
•
Number of Compliance and Conduct matters reported
to regulators
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW2 GROUP PERFORMANCE
148
Risk and risk management
5. FINANCIAL CRIME
6. CYBER RISK
The risk that the Group fails to prevent financial
crime and comply with applicable financial
crime obligations.
The risk that the Group’s or its third parties’ data or technology
are inappropriately accessed, manipulated or damaged from
cybersecurity threats or vulnerabilities.
Risk Appetite and Mitigation
We seek to help prevent financial crime by pro-
actively identifying, assessing, mitigating and
reporting financial crime risks. We also seek
to comply with all applicable financial crime
obligations.
Risk Appetite and Mitigation
We manage our cyber risks within the appropriate regulatory
frameworks, we have an end-to-end view of the Westpac Group
Cyber ecosystem to ensure these risks do not undermine our
strategic, financial, reputational or regulatory standing, and we
remain resilient to cybersecurity threats and vulnerabilities.
This means managing our financial crime
risks through robust controls and systems,
and promptly owning, investigating and
remediating financial crime incidents where
they occur.
Some areas of focus include:
•
continuing a significant multi-year program
to strengthen areas of control weaknesses
in financial crime
•
•
establishing a Board Legal, Regulatory &
Compliance Committee
increasing resources and training for our
financial crime team
Example of a Risk Appetite measure
•
Number of high rated issues not remediated
within agreed timeframes.
We implement cyber controls commensurate to the cyber
threats we respond to.
Some areas of focus include:
•
continued delivery of a program to lift cybersecurity
capability including new data protection controls
Example of a Risk Appetite measure
•
Number of material security incidents
7. REPUTATIONAL AND SUSTAINABILITY RISK
Reputational risk is defined as an action, inaction, transaction, investment or event that will reduce trust in the
Group’s integrity and competence by clients, counterparties, investors, regulators, employees or the public.
Sustainability risk is the risk of loss or negative impact from the failure to recognise or address environmental,
social or governance (ESG) issues.
Risk Appetite and Mitigation
We seek to maintain the confidence of all stakeholders, to cultivate trust in our integrity and competence. We
have little appetite for actions, inactions, transactions, investments and events which may affect the Group’s
integrity or competence. We only have appetite for this risk where it is outweighed by another equally or more
important Group interest which is aligned with our purpose and core values and there is no way to circumvent
the risk.
The principles that govern our approach include
•
•
•
•
Acting with integrity
Doing the right thing by our customers
Balancing commerciality of decisions with stakeholder expectations
Balancing commerciality of decisions with potential impact on people or the environment
Some areas of focus include:
•
the causes and impact of AUSTRAC civil penalty proceedings against Westpac
•
released updates to our Climate Change and Human Rights Position Statements and 2023 Action Plans,
including commitments to improve risk identification, management, oversight and reporting
Example of a Risk Appetite measure
•
Dow Jones Sustainability Index (DJSI) ranking
WESTPAC GROUP 2020 ANNUAL REPORT 149
Risk and risk management
8. CAPITAL ADEQUACY
9. FUNDING AND LIQUIDITY
The risk of an inadequate level or composition
of capital to support our business and meet
regulatory requirements under both normal or
stressed conditions.
Risk Appetite and Mitigation
We seek to maintain a strong balance sheet,
including in stress scenarios.
We evaluate our approach to Capital
management through an Internal Capital
Adequacy Assessment Process, the key
features of which include:
•
•
•
•
A capital management strategy
Considering economic and regulatory
requirements
Stress testing considerations
Considering the perspective of external
stakeholders
The risk we cannot meet our payment obligations or have an
appropriate amount, tenor and composition of funding and
liquidity to support our assets.
Risk Appetite and Mitigation
We ensure that we hold sufficient cash and other liquid
resources to meet financial obligations as and when they fall
due, and that we comply with all relevant internal policies and
regulatory obligations.
We manage our balance sheet such that we have:
•
•
•
A diversified, stable and cost-effective funding base
Enough funding as and when needed
sufficient securable assets to meet our funding and repo
requirements
•
Sufficient stable funding sources to fund new loan growth
Some areas of focus include:
•
$2.5 billion capital raising in November 2019
•
•
APRA imposed a $500 million capital
overlay following AUSTRAC’s statement of
claim
use of RWA overlays to account for
higher probability of default for corporate,
business lending and specialised lending
Some areas of focus include:
•
the RBA announced the establishment of the TFF on
19 March 2020. As at 30 September 2020, Westpac’s
total TFF allowance was $19.7 billion. A supplementary
allowance of $11.9 billion will be available to Westpac from
1 October 2020
•
further information on liquidity risk management is
contained in Note 21 to the financial statements
Example of a Risk Appetite measure
•
Common equity tier 1 (CET1) ratio – a
measure which shows a bank’s capacity to
absorb losses on a going concern basis.
Example of a Risk Appetite measure
Net Stable Funding Ratio (NSFR)
•
•
Liquidity coverage ratio (LCR)
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATIONWESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW2 GROUP PERFORMANCE
150
Risk and risk management
10. CREDIT RISK
11. MARKET RISK
The risk of financial loss where a customer
or counterparty fails to meet their financial
obligations to Westpac.
The risk of an adverse impact on earnings from changes in
various market prices such as exchange rates, interest rates and
credit spreads.
Risk Appetite and Mitigation
We have appetite for credit risk where:
•
•
We have sufficient expertise to make
appropriate credit decisions
We understand and are comfortable with
possible downsides
•
No excessive exposure concentrations
We manage credit risk using Program-
managed (high-volume homogeneous credit
risk) and Transaction-managed (individual
customer and transactions) approaches.
Management of credit risk is also supported
by a range of policies, processes, systems, risk
delegated authorities and Board-approved
credit risk limits.
Risk Appetite and Mitigation
We have appetite for market risk in approved products within
our limit framework. We seek to protect our positions from
changes in financial market factors which may affect our
activities.
We manage market risk using the Traded market risk (risk
arising from dealings in a variety of approved financial markets
products) and Non-traded market risk (risk arising from
lending, deposit-taking, balance sheet funding, liquidity and
capital management activities) approaches.
Some areas of focus include:
•
heightened credit risk from COVID-19 and
reduced economic activity
Some areas of focus include:
•
exited Energy Trading in the final quarter of the financial
year
•
•
higher provisions for expected credit losses
•
further information on credit risk
management and provisioning is contained
in Notes 13 and 21 to the financial
statements, and in Westpac’s Pillar 3 reports
further information on market risk management is contained
in Note 21 to the financial statements
Example of a Risk Appetite measure
•
Impairment charge as percentage of core
earnings
Example of a Risk Appetite measure
•
Value at Risk (VaR, $m) measures across products and
portfolios
•
Net interest income at risk
For further information regarding the role and responsibilities of the BRiskC and other Board committees in managing
risk, refer to Westpac’s 2020 Corporate Governance Statement available at www.westpac.com.au/corpgov.
WESTPAC GROUP 2020 ANNUAL REPORT Risk and risk management
151
Risk and risk management
Risk factors
Our business is subject to risks that can adversely impact our financial performance, financial condition and future
performance. If any of the following risks occur, our business, prospects, reputation, financial performance or
financial condition could be materially adversely affected, with the result that the trading price of our securities
could decline and as a security holder you could lose all, or part, of your investment. You should carefully consider
the risks described and the other information in this Annual Report before investing in our securities. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware
of, or that we currently deem to be immaterial, may also become important factors that affect us.
Risks relating to our business
COVID-19 has had, and COVID-19 and a pandemic like COVID-19 could in the future have, an adverse
effect on the Group
The Group is vulnerable to the impacts of a communicable disease outbreak or a pandemic. The COVID-19
pandemic has had, and we expect will continue to have, a negative impact on our customers, shareholders,
employees and financial performance, among other adverse effects.
The pandemic has disrupted, and will continue to disrupt, numerous industries and global supply chains, while
important measures to mitigate its impact (such as restrictions on businesses, movement and public gatherings)
have had, and we expect will continue to have, a negative effect on economic activity.
This decrease in economic activity has affected, and will continue to affect, demand for Westpac’s products and
services for an unknown time and by an unknown amount. The associated financial stress on Westpac’s customers
has increased impairments, defaults and write-offs. Westpac has increased its provisions for expected credit losses,
however, further increases may be required. For more information refer to Note 13 and Note 21 to the financial
statements.
Westpac has supported customers impacted by the pandemic by lowering interest rates on certain products,
waiving certain fees and granting deferrals of certain loan repayments. These initiatives have had and may continue
to have a negative impact on the Group’s financial performance and may see the Group assume greater risk than
it would have under ordinary circumstances. There is also a possibility that governments or regulators will require
banks (including Westpac) to provide further support to customers impacted by the COVID-19 pandemic.
Actions taken by regulators in response to the COVID-19 pandemic have impacted and could in the future impact
the Group. As an example, regulators in some overseas jurisdictions have exercised their powers to prevent banks
from declaring dividends or undertaking share buybacks. In New Zealand, the RBNZ made the decision to freeze
the distribution of dividends on ordinary shares by all banks in New Zealand during the period of economic
uncertainty caused by COVID-19. This prevents Westpac’s subsidiary Westpac New Zealand Limited from paying
dividends and has a negative impact on Westpac’s Level 1 CET1 capital ratio.
It is possible that APRA will take a similar approach in the future and prevent Westpac from declaring dividends to
its investors. While APRA has not yet taken such action, it has written to Australian banks (including Westpac) and
outlined its expectation that they limit any dividends and discretionary capital distributions in the coming months.
Further information about impacts on the Group as a result of actions taken by regulators in response to the
COVID-19 pandemic is outlined in ‘Significant Developments’.
Westpac’s business activities and operations have been, and will likely in the future be, disrupted by disease
outbreaks or pandemics. For example, the COVID-19 pandemic has resulted in Westpac closing workplaces and
suspending the provision of services through certain channels.
When such outbreaks or pandemics occur, Westpac may need to adjust its risk appetite, policies or controls
so it can respond to the outbreak or pandemic and protect the well-being of staff and customers who visit our
premises. These changes could have unforeseen consequences and expose the Group to increased regulatory
oversight and/or regulatory action.
Further, to respond to the COVID-19 pandemic, Westpac has implemented (and may implement in the future)
new measures in very short periods of time. Taking this type of action may increase the risk that an operational or
compliance breakdown occurs, potentially leading to financial losses, impacts on customer service or regulatory
and/or legal action.
The COVID-19 pandemic has also impacted the Group’s ability to pay dividends, with the Group electing not to pay
an interim dividend this financial year given the desire to retain a strong balance sheet and the ongoing uncertainty
in the operating environment. It is possible that the pandemic will negatively impact the Group’s ability to pay
future dividends or make capital distributions.
There continues to be significant uncertainty associated with the COVID-19 pandemic, including the severity of the
disease, its duration and actions that may be taken by governments and businesses to attempt to contain the virus
or mitigate its impact. In turn, this has the potential for longer term impacts on Westpac’s customers, business and
operations. The COVID-19 pandemic may also heighten other risks described below.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
152
Risk and risk management
We could be adversely affected by legal or regulatory change
The Group’s business, prospects, reputation, financial performance and financial condition have been, and could in
the future be, adversely affected by changes to law, regulation, policies, supervisory activities and the expectations
of our regulators. The Group operates in an environment where there is increased regulation on and scrutiny of
financial services providers.
Regulatory change has directly and adversely affected the Group’s financial condition and financial position, and
could do so in the future. In recent years, laws and regulations have been introduced requiring Westpac to hold
more liquidity and higher capital, and a Bank Levy (based on liabilities) has been imposed on Australia’s largest
banks. Laws and regulations that have a similar effect could be passed in the future, including as a result of APRA’s
proposed capital policy reforms.
Regulatory changes may also affect how we operate. For example, recent regulation has altered the way we
provide our products and services, in some cases requiring us to change or discontinue our offerings. Regulation
could also limit our flexibility, require us to incur substantial costs, impact the profitability of our businesses, result
in the Group being unable to increase or maintain market share and/or create pressure on margins and fees.
There are many sources of regulatory change that could affect our business. Such change could stem from
international bodies, such as the Basel Committee on Banking Supervision (BCBS) or from reviews and inquiries
commissioned by governments (including the Royal Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry) or regulators. Reviews and commissions of inquiry may lead to, and in some cases
already have led to, substantial regulatory change, which could have a material impact on the Group.
Regulation impacting our business may not always be released in a timely manner before its date of
implementation. Similarly, early announcements of regulatory change may not be specific and significantly differ
from the final regulation. In those cases, the Group may not be able to effectively manage its compliance design in
the timeframes available.
Relevant governments or regulators could also revise their application of regulatory policies, thereby impacting our
business (such as macro-prudential limits on lending).
It is critical the Group manages regulatory change effectively. The failure to do so has, and could in the future,
result in the Group not meeting its compliance obligations, the potential consequences of which are set out below
in ‘We have been or could be adversely affected by failing to comply with laws, regulations or regulatory policy’.
We expect that we will continue to invest significantly in compliance and the management and implementation
of regulatory change, and significant management attention and resources may be required to update existing, or
implement new, processes to comply with such new regulations.
The Group’s ability to manage regulatory change has been, and will in the future be, impacted by the COVID-19
pandemic or similar pandemics. The COVID-19 pandemic has caused significant disruptions and delays to
regulatory change projects, increasing the risk that the Group may not comply with new regulations when they
come into effect. The governmental response to COVID-19 has also seen new legislation and regulation, which
may increase compliance risks. The Group may also incur significant costs responding to this new legislation and
regulation.
For further information about regulatory changes affecting the Group, refer to ‘Significant Developments’ and
the sections ‘Critical accounting assumptions and estimates’ and ‘Future developments’ in Note 1 to the financial
statements.
We have been and could be adversely affected by failing to comply with laws, regulations or regulatory
policy
We are responsible for ensuring that we comply with all applicable legal and regulatory requirements and industry
codes of practice in the jurisdictions in which we operate or obtain funding, as well as meeting our ethical
standards.
The Group is subject to conduct and compliance risk. These risks are exacerbated by the increasing complexity and
volume of regulation, including where we interpret our obligations and rights differently to regulators or a Court,
tribunal or other body. The potential for this is heightened when regulation is new, untested or is not accompanied
by extensive regulatory guidance.
The Group’s compliance management system is designed to identify, assess and manage compliance risk. However,
this system has not always been, and may not always be, effective. Breakdowns have, and may in the future, occur
due to flaws in the design of controls or processes. This has resulted in, and may in the future result in, potential
breaches of compliance obligations as well as poor customer outcomes.
Conduct risk could occur through the provision of products and services to customers that do not meet their
needs or do not meet the expectations of the market, as well as the poor conduct of our employees, contractors,
agents, authorised representatives and external services providers. This could occur through a failure to meet
professional obligations to specific clients (including fiduciary and suitability requirements), weakness in risk
culture, poor product design and implementation, failure to adequately consider customer needs or selling
products and services outside of customer target markets. This could include deliberate attempts by such
individuals to circumvent Westpac’s controls, processes and procedures or negligent actions that could result in the
circumvention of Westpac’s controls, processes and procedures. The Group depends on its people to ‘do the right
thing’ to meet its compliance obligations. Inappropriate or poor conduct by these individuals such as not following
a policy or engaging in misconduct has and could result in poor customer outcomes and a failure by the Group
to meet its compliance obligations. The large number of employees and the staff of our third-party contractors
WESTPAC GROUP 2020 ANNUAL REPORT 153
Risk and risk management
working remotely due to the COVID-19 pandemic may negatively affect the Group’s compliance controls and
monitoring processes and there may be an increased risk that staff fail to follow internal policies or that customers
may be adversely affected through privacy breaches.
While we have frameworks, policies, processes and controls that are designed to manage poor conduct outcomes,
these policies and processes have been, and may be, ineffective. The failure of these policies and processes
could result in financial losses (including incurring substantial remediation costs and as a result of litigation by
regulators and customers) and reputational damage, which could adversely affect our business, prospects, financial
performance or financial condition.
The Group’s failure, or suspected failure, to comply with a compliance obligation could lead to a regulator
commencing surveillance or an investigation. The Group is currently subject to investigations and reviews by
regulators (refer to ‘Significant Developments’ and Note 27 to the financial statements for more detail), with the
intensity of these increasing. The Group has devoted (and will need to continue to devote) significant resources
and has incurred (and will continue to incur) costs for these reviews and investigations, which may adversely affect
Westpac’s business, operations, reputation, financial performance and ability to pay dividends.
Depending on the circumstances, regulatory reviews and investigations have in the past and may in the future
result in a regulator taking administrative or enforcement action against the Group and/or its representatives.
Regulators could pursue civil or criminal proceedings, seeking substantial fines, civil penalties or other enforcement
outcomes. In addition, regulatory investigations may lead to adverse findings against directors and management,
including potential disqualification.
In many cases, our regulators have broad powers. For example, APRA can, in certain circumstances, issue
directions to us (such as a direction to comply with a prudential requirement, conduct an audit or take remedial
action) or disqualify an ‘Accountable Person’ under the Banking and Executive Accountability Regime.
APRA can also require the Group to hold additional capital either through a capital overlay or higher risk weighted
assets. APRA imposed a $500 million overlay to our operational risk capital requirement following the completion
of our self-assessment into our frameworks and practices in relation to governance, culture and accountability
and a further $500 million overlay following the commencement of civil penalty proceedings by AUSTRAC (both
overlays were applied through an increase in risk weighted assets). If the Group incurs additional capital overlays it
may need to raise additional capital which could have an adverse impact on our financial performance and financial
condition.
The political and regulatory environment that the Group operates in has seen (and may in the future see) our
regulators (including any new regulator) receive new powers along with materially increased penalties for
corporate and financial sector misconduct. In particular, ASIC can commence civil penalty proceedings and seek
civil penalties (currently up to $525 million per offence) against an Australian Financial Services licensee (such
as Westpac) for failing to do all things necessary to ensure that financial services provided under the licence are
provided efficiently, honestly and fairly. The Group may also face significant penalties for failing to comply with
other obligations, and a failure by the Group may result in multiple contraventions leading to large penalties.
Our regulators have adjusted and may in the future continue to adjust the way they approach oversight, potentially
preferring their enforcement powers over a more consultative approach. For example ASIC has committed to
continue to use a ‘Why not litigate?’ approach and indicated that it will (among other things) prioritise case studies
and referrals arising from the Royal Commission and significant market misconduct. APRA has also committed
to a revised enforcement approach (including a new Supervision Risk and Intensity Model), indicating it will use
enforcement where appropriate to prevent and address serious prudential risks and hold entities and individuals to
account.
There may also be a shift in the type and focus of enforcement proceedings commenced by regulators in the
future. Regulators may increasingly seek to bring criminal proceedings against institutions and/or their employees
or representatives by referring potential criminal matters to the Commonwealth Department of Public Prosecutions
or other prosecutorial bodies.
The way regulators supervise and monitor institutions has also changed and may continue to change in the future.
An example is ASIC’s ‘Close and Continuous Monitoring’ (CCM) program involving onsite reviews of financial
services entities, including Westpac.
While ASIC, APRA and other regulators have indicated their immediate focus is on responding to the COVID-19
pandemic and they may delay certain enforcement, supervisory activities or monitoring activities, the long term
trend to enhanced supervision and monitoring and greater enforcement activity remains.
Disruptions to Westpac’s business, operations, third party contractors and suppliers resulting from the COVID-19
pandemic have also increased and may continue to increase the risk that Westpac will not be able to satisfy
commitments made to regulators about improving processes and/or resolving outstanding issues, potentially
increasing the prospect of a regulator taking action against the Group.
Regulatory action commenced against the Group has exposed and may in the future expose the Group to an
increased risk of litigation brought by third parties (including through class action proceedings), which may require
the Group to pay compensation to third parties and/or undertake further remediation activities.
Regulatory investigations, inquiries, litigation, fines, penalties, infringement notices, revocation, suspension or
variation of conditions of regulatory licences or other enforcement or administrative action or agreements (such
as enforceable undertakings) could, either individually or in aggregate with other regulatory action, adversely
affect our business, prospects, reputation, financial performance or financial condition. For further details about
regulatory matters that may affect the Group, refer to ‘Significant Developments’.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
154
Risk and risk management
The failure to comply with financial crime obligations has had and could have further adverse effects on
our business and reputation
The Group is subject to anti-money laundering and counter-terrorism financing (AML/CTF) laws, anti-bribery
and corruption laws, economic and trade sanctions laws and tax transparency laws in the jurisdictions in which
it operates. These laws can be complex and, in some circumstances, impose a diverse range of obligations. As a
result, regulatory, operational and compliance risks are heightened. For example, AML/CTF laws require Westpac
and other regulated institutions to (amongst other things) undertake the applicable customer identification
procedures, conduct ongoing and enhanced due diligence on customers, maintain and comply with an AML/CTF
program and undertake ongoing risk assessments.
AML/CTF laws also require Westpac to report certain matters and transactions to regulators (including
international funds transfer instructions, threshold transaction reports and suspicious matter reports) and ensure
that certain information is not disclosed to third parties in a way that would contravene the ‘tipping off’ provisions
in AML/CTF legislation. The failure to comply with these laws has had, and in the future may have, adverse impacts
for the Group.
In recent years there has been, and there continues to be, increased focus on compliance with financial crime
obligations, with regulators globally commencing large-scale investigations and taking enforcement action for
identified non-compliance (often seeking significant penalties). Further, due to the Group’s large number of
customers and transaction volumes, the undetected failure or the ineffective implementation, monitoring or
remediation of a system, policy, process or control (including a regulatory reporting obligation) has, and could in
the future result in, a significant number of breaches of AML/CTF obligations. This in turn could lead to significant
penalties and other adverse impacts for the Group, such as reputational damage.
While the Group has systems, policies, processes and controls in place designed to manage its financial crime
obligations (including reporting obligations), these have not always been, and may not in the future always be
effective. This could be for a range of reasons, including, for example, a deficiency in the design of a control or a
technology failure. Our analysis and reviews, in addition to regulator feedback, have highlighted that our systems,
policies, processes and controls are not operating satisfactorily in a number of respects and require improvement.
The Group is currently undertaking a significant multi-year program of work to strengthen areas of control
weakness in its financial crime risk management framework (including important aspects of its money laundering
and terrorism financing risk assessments and governance) and rectify the management of this risk. The Group has
increased dedicated financial crime risk expertise and resources to deliver the financial crime program of work.
With increased focus on financial crime, further issues requiring attention have been identified and may continue to
be identified. For further information, refer to ‘Significant Developments’.
Although the Group provides updates to AUSTRAC and other regulators on its remediation and other program
activities, there is no assurance that AUSTRAC or other regulators will agree that its remediation and program
update activities will be adequate or effectively enhance the Group’s compliance programs.
If we fail, or where we have failed, to comply with these financial crime obligations, we have and could face
regulatory enforcement action such as litigation, significant fines, penalties and the revocation, suspension or
variation of licence conditions, such as the civil penalty proceedings brought by AUSTRAC against Westpac on
20 November 2019 for alleged contraventions of the Anti-Money Laundering and Counter-Terrorism Financing Act
2006 (Cth). Further information on the AUSTRAC proceedings and other financial crime matters is in ‘Significant
Developments’. For information on the provision made for a penalty for these proceedings, refer to Note 27 to the
financial statements.
Non-compliance or alleged non-compliance with our financial crime related obligations and public disclosure
have also resulted in, and could lead to regulatory investigations, reviews, inquiries, proceedings or other litigation
commenced by third parties (including Australian, US or other class actions), and regulatory action in non-
Australian jurisdictions where we operate. Any such litigation or proceeding could cause significant financial and
reputational damage to us. Reputational damage could result in the loss of customers or restrict the Group’s
ability to efficiently access capital markets, which could have a material adverse effect on the Group’s business,
reputation, prospects, financial performance and financial condition. Furthermore, any such effect could harm the
Group’s credit ratings. Previous enforcement action by AUSTRAC has resulted in a range of outcomes, depending
on the nature and severity of the relevant conduct and its consequences, including substantial financial penalties,
restrictions and other regulator imposed conditions.
Reputational damage has harmed and could in the future harm our business and prospects
Reputational risk arises where there are differences between stakeholders’ current and emerging perceptions,
beliefs and expectations and our past, current and planned activities, processes, performance and behaviours.
There are various potential sources of reputational damage. For example, where our actions cause, or are
perceived to cause, a negative outcome for customers, shareholders, stakeholders or the community. Reputational
damage could also arise from the failure to effectively manage risks, failure to comply with legal and regulatory
requirements, enforcement or supervisory action by regulators (such as the civil penalty proceedings brought
by AUSTRAC), adverse findings from regulatory reviews, failure or perceived failure to adequately respond to
community, environmental, social and ethical issues, failure of information security systems, technology failures
and security breaches and inadequate record keeping which may prevent Westpac from demonstrating that or
determining if a past decision was appropriate at the time it was made.
WESTPAC GROUP 2020 ANNUAL REPORT 155
Risk and risk management
Our reputation could also be adversely affected by the actions of customers, suppliers, joint-venture partners,
strategic partners, other counterparties and accredited data recipients that the Group provides customer data to
under Australia’s ‘Open Banking’ regime.
Failure, or perceived failure, to address issues that could or do give rise to reputational risk has created, and could
in the future create, additional legal risk, subject us to regulatory investigations, regulatory enforcement actions,
fines and penalties or litigation brought by third parties (including class actions), require us to remediate and
compensate customers and incur remediation costs or harm our reputation among customers, investors and the
market. This could adversely affect our business, prospects, financial performance or financial condition.
We have and could suffer losses due to litigation
Westpac and its subsidiaries may, from time to time, be involved in legal proceedings (including class actions),
regulatory actions or arbitration. Such litigation could be commenced by a range of plaintiffs, such as customers,
shareholders, suppliers, counterparties and regulators.
In recent years there has been an increase in class action proceedings, many of which have resulted in significant
monetary settlements. The risk of class actions has been heightened by a number of factors, including regulatory
enforcement actions (such as the civil penalty proceedings brought by AUSTRAC), an increase in the number
of regulatory investigations and inquiries (such as the Royal Commission), a greater willingness on the part of
regulators to commence court proceedings, more intense media scrutiny and the growth of third party litigation
funding. Class actions commenced against a competitor could also lead to similar proceedings against Westpac.
Litigation (including class actions) may, either individually or in aggregate, adversely affect the Group’s business,
operations, prospects, reputation or financial condition. This risk is heightened by increases in the severity of
penalties for certain breaches of the law. Such matters are subject to many uncertainties and the outcome may
not be predicted accurately. Furthermore, the Group’s ability to respond to and defend litigation may be adversely
affected by inadequate record keeping.
Depending on the outcome of any litigation, the Group may be required to comply with broad court orders,
including compliance orders, enforcement orders or otherwise pay significant damages, fines, penalties or legal
costs.
In addition, the case studies considered by the Royal Commission, and the Royal Commission’s findings, have led,
and may in the future lead to, regulators commencing investigations and/or enforcement action against the Group.
The Group’s material provisions and contingent liabilities are described in Note 27 to the financial statements. There
is a risk that the actual penalty paid following a settlement or determination by a Court for any legal proceedings
may be materially higher or lower than the provision or that any contingent liability may be larger than anticipated.
This may occur in a range of situations, for example where the scope of litigation against the Group is expanded
by further claims or causes of action. There is also a risk that additional litigation or contingent liabilities arise, all of
which could adversely affect our business, prospects, reputation, financial performance or financial condition.
We have suffered, and could in the future suffer, information security risks, including cyberattacks
The Group (and its external service providers) is subject to information security risks. These risks are heightened
by:
•
•
•
•
•
new technologies;
increased use of the internet and telecommunications to conduct financial transactions;
the growing sophistication of attackers;
increased regulatory focus on cyber security and oversight of cyber activities; and
the COVID-19 pandemic, which has resulted in many Westpac employees (and staff of service providers)
working remotely or from other sites, potentially providing increased opportunities for cyber threat actors to
exploit.
While Westpac has systems in place to protect against, detect and respond to cyberattacks, these systems have
not always been, and may not always be, effective. There is no assurance that we will not suffer losses from
cyberattacks or information security breaches. The Group may not be able to anticipate and prevent a cyberattack,
effectively respond to a cyberattack and/or rectify or minimise damage resulting from a cyberattack. Our external
service providers, and other parties that facilitate our activities and financial platforms and infrastructure (such as
payment systems and exchanges) are also subject to the risk of cyberattacks.
Our operations rely on the secure processing, storage and transmission of information on our computer systems
and networks, and the systems and networks of external suppliers. Although we implement measures to protect
the confidentiality and integrity of our information, there is a risk that the computer systems, software and
networks on which we rely may be subject to security breaches, unauthorised access, malicious software, external
attacks or internal breaches that could have an adverse impact on our confidential information or that of our
customers and counterparties.
A range of potential consequences could arise from a successful cyberattack, such as:
•
•
•
•
•
systems not operating properly disrupting operations;
damage to technology infrastructure;
adverse impacts to network access, operations or availability of services;
loss of customers;
loss of data/information;
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
156
Risk and risk management
•
•
•
•
reputational damage;
claims for compensation;
adverse regulatory action including fines or penalties; and
significant additional resources required to modify our systems or to investigate and remediate any
vulnerabilities or incidents.
All these potential consequences could negatively affect our business, prospects, financial performance or financial
condition.
As cyber threats evolve, we may need to spend significant resources to modify or enhance our systems or
investigate and remediate any vulnerabilities or incidents.
We could suffer losses due to technology failures
Maintaining the reliability, integrity and security of our information and technology is crucial to our business.
While the Group has a number of processes in place to preserve and monitor the availability and recovery of our
systems, there is a risk that our information and technology systems might fail to operate properly or become
disabled, including from events wholly or partially beyond our control. For example, the COVID-19 pandemic has
seen more employees and staff of our third-party contractors work remotely or from alternative sites, which may
put additional stress on Westpac’s technology infrastructure and systems. Similarly, the COVID-19 pandemic and
the measures implemented by governments to mitigate its spread are likely to result in increased demand being
placed on critical national technology and communications infrastructure which the Group relies on. This could
adversely impact the reliability of such infrastructure and increase the risk that our technology systems will not be
able to operate properly or will become disabled for a period of time.
If we incur a technology failure we may fail to meet a compliance obligation (such as retaining records and data
for a certain period of time), or our customers may be adversely affected, including through privacy breaches or
loss of personal data. This could result in reputational damage, remediation costs and a regulator commencing
an investigation and/or taking action against us. The over reliance on legacy systems may heighten the risk of a
technology failure.
We need to regularly renew and enhance our technology to deliver new products and services, comply with
regulatory obligations and meet our customers’ and regulators’ obligations. Consequently, we are constantly
managing new technology projects. Failure to effectively implement these projects could result in cost overruns,
reduced productivity, operational instability, compliance failures, reputational damage and/or the loss of market
share. This could place us at a competitive disadvantage and adversely affect our business, prospects, financial
performance or financial condition.
We are exposed to adverse credit and capital market conditions
We rely on deposits, and credit and capital markets to fund our business and source liquidity. Our liquidity and
costs of obtaining funding are related to credit and capital market conditions.
Global credit and capital markets can experience periods of extreme volatility, disruption and decreased liquidity.
Such disruption can be for extended periods and be unpredictable as experienced during the Global Financial
Crisis. The main risks we face are damage to market confidence, changes to the access and cost of funding, a
slowing in global economic activity or other impacts on customers or counterparties.
As of 30 September 2020, approximately 27% of our total funding originated from domestic and international
wholesale markets. Of this, around 58% was sourced outside Australia and New Zealand. Customer deposits
provide around 65% of total funding. Customer deposits held by Westpac comprise both term deposits, which can
be withdrawn after a certain period of time and at call deposits, which can be withdrawn at any time.
A shift in investment preferences could result in deposit withdrawals which could increase our need for funding
from other, potentially less stable, or more expensive sources.
If market conditions deteriorate due to economic, financial, political or other reasons (including the COVID-19
pandemic), there may also be a loss of confidence in bank deposits leading to unexpected withdrawals. This
could increase funding costs and our liquidity, funding and lending activities may be constrained and our financial
solvency threatened.
If our current sources of funding prove to be insufficient, we may need to seek alternatives which will depend on
factors such as market conditions, our credit ratings and market capacity. Even if available, these alternatives may
be more expensive or on unfavourable terms, which could adversely affect our financial performance, liquidity,
capital resources or financial condition.
If Westpac is unable to source appropriate funding, we may be forced to reduce lending or liquidity. This may
adversely impact our business, prospects, liquidity, capital resources, financial performance or financial condition.
If Westpac is unable to source appropriate funding for an extended period, or if it can no longer realise liquidity,
Westpac may not be able to pay its debts as and when they fall due.
Westpac enters into collateralised derivative obligations, which may require Westpac to post additional collateral
based on market movements, which has the potential to adversely affect Westpac’s liquidity or ability to use
derivative obligations to hedge its interest rate, currency and other financial instrument risks.
For a more detailed description of liquidity risk, refer to ‘Funding and liquidity risk’ in Note 21 to the financial
statements.
WESTPAC GROUP 2020 ANNUAL REPORT 157
Risk and risk management
We could be adversely affected by the risk of inadequate capital levels under stressed conditions
The economic impact of the COVID-19 pandemic has brought to the fore the risk of an inadequate level or
composition of capital to support normal business activities and to meet regulatory capital requirements under
normal operating environments or stressed conditions. Regulatory change will require banks to hold higher capital,
specifically for the implementation of future capital and risk-weighted assets regulations coming into effect from
2023. APRA requires banks to operate above the 10.5% unquestionably strong benchmark to prepare for this
change although the impact on each bank will be different due to different balance sheet and portfolio mix. Capital
distribution constraints apply when an ADI’s Common Equity Tier 1 Capital ratio is within the capital buffer (CB)
range (consisting of the capital conservation buffer plus any countercyclical capital buffer). Capital constraints
could have an impact on Westpac’s ability to pay future dividends or make capital distributions. Adverse conditions
and/or adverse regulatory change could impact Westpac’s capital adequacy and/or trigger capital distribution
constraints.
Sovereign risk may destabilise financial markets adversely
Sovereign risk is the risk that governments will default on their debt obligations or will be unable to refinance their
debts as they fall due. Potential sovereign debt defaults and the risk that governments will nationalise parts of
their economy including assets of financial institutions such as Westpac could negatively impact the value of our
holdings of liquid assets. There may also be a cascading effect to other markets and countries, the consequences
of which, while difficult to predict, may be similar to or worse than those experienced during the Global Financial
Crisis. Such an event could destabilise global financial markets, adversely affecting our liquidity, financial
performance or financial condition.
We could be adversely affected by the failure to maintain our credit ratings
Credit ratings are independent opinions on our creditworthiness. Our credit ratings can affect the cost and
availability of our funding and may be important to certain customers or counterparties when evaluating our
products and services.
Credit ratings assigned to us by rating agencies are based on an evaluation of a number of factors, including our
financial strength, the quality of our governance, structural considerations regarding the Australian financial system
and economy and Australia’s Sovereign credit rating. A rating downgrade could be driven by a downgrade of
Australia’s Sovereign credit rating, or one or more of the risks identified in this section or by other events including
changes to the methodologies rating agencies use to determine ratings.
The economic impacts of the COVID-19 pandemic have affected Westpac’s credit ratings and may do so in the
future. In April 2020, Fitch Ratings downgraded its short-term and long-term ratings for the major Australian
banks (including Westpac) by one notch, to A+ (from AA-) and F1 (from F1+) respectively, citing the significant
economic consequences for Westpac’s core markets of Australia and New Zealand caused by the actions taken
by governments to slow the spread of COVID-19. Fitch Ratings has maintained the rating outlook for the major
Australian banks as “negative”, reflecting the major downside risk to Fitch’s economic outlook in light of the
evolving global situation. In April 2020, S&P Global Ratings revised its outlook for Westpac’s long-term issuer credit
rating to ‘negative’, mirroring a similar change to its outlook for the Australian Sovereign. As the economic impacts
from the COVID-19 pandemic continue, there is a risk that there will be further negative movement in our credit
ratings.
A downgrade to our credit ratings could have an adverse effect on our cost of funds, collateral requirements,
liquidity, competitive position and our access to capital markets. The extent and nature of these impacts would
depend on various factors, including the extent of any rating change, differences across agencies (split ratings) and
whether competitors or the sector are also impacted.
We could be adversely affected by a shock to the Australian, New Zealand or other financial systems
There is a risk that a major systemic shock could occur that adversely impacts the Australian, New Zealand or other
financial systems.
In the past decade the financial services industry and capital markets have been, and may continue to be, adversely
affected by volatility, global economic conditions, external events, geopolitical instability (such as global conflicts),
and political developments. For example, the impacts from the COVID-19 pandemic have been, and could continue
to be, significant for the global economy including Australia and New Zealand.
Market and economic disruptions could adversely affect financial institutions such as Westpac because consumer
and business spending may decrease, unemployment may rise and demand for our products and services
could decline, thereby reducing our earnings. These conditions may also affect the ability of our borrowers or
counterparties to repay their loans or meet their obligations, causing us higher credit losses and affecting investors’
willingness to invest in the Group. These events could also undermine confidence in the financial system, reduce
liquidity, impair access to funding and affect our customers and counterparties. If this occurred, our business,
prospects, financial performance or financial condition could be adversely affected.
The nature and consequences of any such event are difficult to predict and there is a risk that our response may be
ineffective.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
158
Risk and risk management
Declines in asset markets could adversely affect our operations or profitability
Recent and future declines in Australian, New Zealand or other asset markets, including equity, residential and
commercial property markets have adversely affected, and could in the future adversely affect, our operations and
profitability.
Declining asset prices could also impact customers and counterparties and the value of security (including
residential and commercial property) we hold. This may impact our ability to recover amounts owing to us if
customers or counterparties default. It may also affect our impairment charges and provisions, in turn impacting
our financial performance and financial condition.
Declining asset prices also impact our wealth management business as its earnings partly depend on fees based on
the value of securities and/or assets held or managed.
Our business is substantially dependent on the Australian and New Zealand economies
Our revenues and earnings are dependent on economic activity and the level of financial services our customers
require.
The majority of our business is conducted in Australia and New Zealand so our performance is influenced by
the level and cyclical nature of activity in these countries. These factors are in turn impacted by domestic and
international economic conditions (including, at present, the COVID-19 pandemic).
A significant decrease in Australian and New Zealand housing valuations and commercial property valuations
could adversely impact our lending activities because borrowers with loans in excess of their property value show
a higher propensity to default. If defaults occur, our security may be eroded, causing higher credit losses. The
demand for our home lending products may also decline due to changes in tax legislation (such as changes to tax
rates, concessions or deductions), regulatory requirements or buyer concerns about decreases in values.
Adverse changes to economic and business conditions in Australia, New Zealand and other countries could also
adversely affect our customers. In particular, due to the economic relationship between Australia and China,
particularly in the mining, resources and agricultural sectors, a slowdown in China’s economic growth (or the
adoption of protectionist trade measures) could negatively impact the Australian economy. Changes in commodity
prices, Chinese Government policies and economic conditions could reduce demand for our products and services
and affect the ability of our borrowers to repay their loans. If this occurred, it could negatively impact our business,
prospects, financial performance or financial condition.
Monetary policy can also significantly affect the Group. Interest rate settings (including low or negative rates)
and other actions taken by central banks (such as quantitative easing) may adversely affect our cost of funds, the
value of our lending and investments and our margins. Monetary policies also impact economic conditions of the
jurisdictions we operate or obtain funding in. These policies could affect demand for our products and services
and/or have a negative impact on the Group’s customers and counterparties, potentially increasing the risk that
they will default. All these factors could adversely affect our business, prospects, financial performance or financial
condition.
An increase in defaults has adversely affected and could further adversely affect our financial performance
or financial condition
We establish provisions for credit impairment based on current information and our expectations. If economic
conditions deteriorate beyond our expectations, some customers and/or counterparties could experience higher
financial stress leading to an increase in defaults and write-offs, and higher provisioning. Such events could
adversely affect our liquidity, capital resources, financial performance or financial condition.
These risks are heightened by the COVID-19 pandemic which has negatively impacted economic activity and
caused a range of customers to experience financial stress. The pandemic has seen many customers cease or
substantially reduce their operations for an unknown period. In addition, individuals may have been laid off, been
unable to work, or have fewer work hours. Westpac has received requests for assistance from affected businesses
and consumers and has implemented, and will continue to implement, various initiatives to support them, including
repayment deferrals and interest capitalisation. These initiatives, and any support that governments or regulators
may in the future require banks to provide to customers impacted by the COVID-19 pandemic, may have a negative
impact on the Group’s financial performance and may see the Group assume greater risk than it would have under
ordinary circumstances.
The long-term impact of the COVID-19 pandemic on customers and the magnitude of defaults or impairments is
uncertain. For example, consumers may permanently decrease discretionary spending, which may increase the
time it takes certain industries to recover.
Credit risk also arises from certain derivative, clearing and settlement contracts we enter into, and from our
dealings in, and holdings of, debt securities issued by other institutions, the financial conditions of which may be
affected to varying degrees by economic conditions in global financial markets.
For a discussion of our risk management, including the management of credit risk, refer to the ‘Risk management’
section and Note 21 to the financial statements.
WESTPAC GROUP 2020 ANNUAL REPORT 159
Risk and risk management
We face intense competition in all aspects of our business
The financial services industry is highly competitive. We compete with a range of firms, including retail and
commercial banks, investment banks, other financial service companies, fintech companies and businesses in other
industries with financial services aspirations. This includes those not subject to the same capital and regulatory
requirements which may allow those competitors to operate more flexibly.
Emerging competitors are increasingly altering the competitive environment by adopting new business models or
seeking to use new technologies to disrupt existing business models.
The competitive environment may also change as a result of increased scrutiny by regulators in the sector, and
legislative reforms such as ‘Open Banking’, which will stimulate competition, improve customer choice and likely
give rise to increased competition from new and existing firms.
A failure to compete effectively in the various markets in which we operate has and may continue to lead to a
decline in our margins or market share.
Deposits fund a significant portion of our balance sheet and have been a relatively stable source of funding. If we
are not able to successfully compete for deposits this could increase our cost of funding, lead us to seek access to
other types of funding or result in us reducing our lending.
Our ability to compete depends on our ability to offer products and services that meet evolving customer
preferences. A failure to effectively respond to changes in customer preferences could see us lose customers. This
could adversely affect our business, prospects, financial performance or financial condition.
For more detail on how we address competitive pressures refer to ‘Competition’ in Section 1.
We could suffer losses due to market volatility
We are exposed to market risk due to our financial markets businesses, our defined benefit plan and through
asset and liability management. Market risk is the risk of an adverse impact on earnings resulting from changes in
market factors, such as foreign exchange rates, commodity prices, equity prices, and interest rates (including low
or negative interest rates and any resulting pressure placed on the Group’s interest margins). This includes interest
rate risk in the banking book due to a mismatch between the duration of assets and liabilities arising from the
normal course of business activities.
Changes in markets could be driven by numerous developments. For example, the COVID-19 pandemic has resulted
in significant market disruption and price volatility.
The July 2017 announcement by the FCA (which regulates the London Interbank Offered Rate (“LIBOR”)) that it
would not require panel banks to continue to submit rates for the calculation of the LIBOR benchmark after 2021
may also impact market volatility. Accordingly, the continuation of LIBOR in its current form will not be guaranteed
after 2021, and it appears that LIBOR will be discontinued or modified by 2021. Any such developments or future
changes in the administration of LIBOR or other market benchmarks could have adverse consequences to the
return on, value of and market for securities and other instruments linked to any such benchmark, including
securities or other instruments issued by the Group.
If we were to suffer substantial losses due to market volatility (including changes in the return on, value of or
market for, securities or other instruments) it may adversely affect our business, prospects, liquidity, capital
resources, financial performance or financial condition. For a discussion of our risk management procedures,
including the management of market risk, refer to the ‘Risk management’ section.
We have and could suffer losses due to operational risks
Operational risk includes, among other things, reputational risk, technology risk, model risk and outsourcing
risk, as well as the risk of business disruption due to external events such as natural disasters, or outbreaks of
communicable diseases (such as the COVID-19 pandemic), environmental hazard, damage to critical utilities, and
targeted activism and protest activity. While we have policies, processes and controls in place to manage these
risks, these have not always been, or may not now be, effective.
Ineffective processes and controls have resulted in, and could result in, an adverse outcome for Westpac’s
customers. For example, a process breakdown could result in a customer not receiving a product on the terms,
conditions, or pricing they agreed to, potentially leading to greater amounts of financial stress. Failed processes
could also result in Westpac incurring losses because we cannot enforce our contractual rights. This could occur
because Westpac did not correctly document its rights or failed to perfect a security interest. These types of
operational failures may also result in customer remediation and/or increased regulatory scrutiny and, depending
on the nature of the failure, result in class action proceedings or a regulator commencing an investigation and/or
taking other action.
We could incur losses from fraudulent applications for loans or from incorrect or fraudulent payments and
settlements. Fraudulent conduct can also arise from external parties seeking to access the bank’s systems or
customer accounts. If systems, procedures and protocols for managing fraud fail, or are ineffective, they could lead
to losses which could adversely affect our customers, business, prospects, reputation, financial performance or
financial condition.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
160
Risk and risk management
Westpac is also exposed to model risk, being the risk of loss arising from errors or inadequacies in data or a model,
or in the control and use of a model.
Financial services entities have been increasingly sharing data with third parties, such as suppliers and regulators,
to conduct their business and meet regulatory obligations. A breakdown in a process or control related to the
transfer, storage or protection of data sent to a third party, or the failure of a third party to use and handle this data
correctly, could result in the Group failing to meet a compliance obligation (including relevant privacy obligations)
and/or have an adverse impact on our customers and the Group.
Westpac also relies on a number of suppliers, both in Australia and overseas, to provide services to it and its
customers. The COVID-19 pandemic is disrupting some suppliers and third party contractors, and these disruptions
are likely to continue. Failures by these third-party contractors and suppliers to deliver services as required could
disrupt Westpac’s ability to provide its products and services and adversely impact our operations, financial
performance or reputation.
Another possible source of disruption to the Group is central banks adopting negative interest rates. If this
occurred, the technology systems used by the Group, its counterparties and/or financial infrastructure providers
may not operate correctly and this may cause loss or damage to the Group and/or its counterparties.
For a discussion of our risk management procedures, including the management of operational risk, refer to the
‘Risk management’ section.
Poor data quality could adversely affect our business and operations
Accurate, complete and reliable data, along with appropriate data control, retention and access frameworks and
processes, is critical to Westpac’s business. Data plays a key role in how we provide products and services to
customers, our systems, our risk management framework and our decision-making and strategic planning.
In some areas of our business, we are affected by poor data quality. This has occurred and could arise in the
future in a number of ways, including through inadequacies in systems, processes and policies, or the ineffective
implementation of data management frameworks.
Poor data quality could lead to poor customer service, negative risk management outcomes, and deficiencies
in credit systems and processes. Any deficiency in credit systems and processes could, in turn, have a negative
impact on Westpac’s decision making in the provision of credit and the terms on which it is provided.
Poor data or poor data retention can also affect Westpac’s ability to meet its compliance obligations which could
lead to a regulator taking action against us. Westpac also needs accurate data for financial and other reporting.
Due to the importance of data, the Group has and will likely continue to incur substantial costs and devote
significant effort to improving the quality of data and data frameworks and processes and remediating deficiencies
where necessary. Some of our efforts to remediate data issues have been disrupted by the COVID-19 pandemic and
if these are not fixed in a timely way could result in increased regulatory scrutiny, and lead regulators to require the
Group to remediate these issues within specific timeframes.
The consequences and effects arising from poor data quality or poor data retention could have an adverse impact
on the Group’s business, operations, prospects, financial performance and/or financial condition.
Breakdowns in processes and procedures have required, and could in the future require, us to undertake
remediation activity
Breakdowns in Westpac’s processes and procedures (such as those identified in the civil penalty proceedings
brought by AUSTRAC) have led to, and could in the future lead to, adverse outcomes for customers, employees or
other third parties which Westpac is required to remediate.
The Group has, on a number of occasions, incurred significant remediation costs (including compensation
payments and costs of correcting the issue) and there is a risk that similar issues will arise in the future that will
require remediation.
There are significant challenges and risks involved in customer remediation activities. Westpac’s ability to
investigate the underlying issue could be impeded if the issue is old and occurred beyond our record retention
period, or our records are inadequate. It may also be difficult and take significant time to properly quantify and
scope a remediation activity.
Determining how to compensate customers properly and fairly can also be complicated, involving numerous
stakeholders. The Group’s proposed approach to a remediation may be affected by a number of events, such as
affected customers commencing a class action, or a regulator requiring a remediation to be done in a specific
way. These factors could delay Westpac in completing the remediation and may lead to a regulator commencing
enforcement action against the Group. It could result in increased reputational risk, and we could be challenged by
regulators, affected customers, the media and other stakeholders.
The significant challenges involved in scoping and executing remediations also create a risk that the remediation
costs incurred will be higher than initially estimated. Further, delays in completing a remediation could result in
Westpac incurring additional administration costs and making higher remediation payments to customers to reflect
the time value of money.
If the Group cannot effectively scope, quantify or implement a remediation activity in a timely way, there could be
an adverse impact on our business, prospects, reputation, financial performance or financial condition.
WESTPAC GROUP 2020 ANNUAL REPORT 161
Risk and risk management
We have suffered, and in the future could suffer, losses and be adversely affected by the failure to
implement effective risk management
Our risk management framework has not always been, or may not in the future prove to be, effective.
This could be because the design of the framework is inadequate or that key risk management policies, controls
and processes may be ineffective, due to inadequacies in their design, technology failures or because of poor
implementation. The potential for these types of failings is heightened if the Group does not have enough
appropriately skilled, trained and qualified employees in key positions.
There are also inherent limitations with any risk management framework as risks may exist, or emerge in the future,
that we have not anticipated or identified and our controls may not be effective.
The risk management framework may also prove ineffective because of weaknesses in risk culture, which may
result in risks and control weaknesses not being identified, escalated and acted upon. Recent analysis and reviews,
in addition to regulatory feedback, have highlighted that the framework is not operating satisfactorily in a number
of respects and needs to be improved. The Group has a number of risks which sit outside our risk appetite or
do not meet the expectations of regulators. Further, a deficiency in the design or operation of our remuneration
structures could have a negative effect, potentially resulting in staff engaging in excessive risk taking behaviours.
As part of the Group’s risk management framework, the Group measures and monitors risks against its risk
appetite. If a risk is out-of-appetite, the Group needs to take steps to bring this risk back into appetite in a
timely way. However, the Group may not always be able to achieve this within proposed timeframes. This may
occur because, for example, the Group experiences delays in enhancing its information technology systems or
in recruiting sufficient numbers of appropriately trained staff for required activities. It is also possible that due to
external factors beyond our control, certain risks may be inherently outside of appetite for periods of time. The
Group is required to periodically review its risk management framework to determine if it remains appropriate.
If the Group is unable to bring risks back into appetite, or if it is determined that the Group’s risk management
framework is no longer appropriate, the Group may incur unexpected losses and be required to undertake
considerable remedial work, including incurring substantial costs. The failure to remedy this situation could result
in increased scrutiny from regulators, who could require (amongst other things) that the Group hold additional
capital or direct the Group to spend money to enhance its risk management systems and controls. Weaknesses in
risk management systems and controls have recently led to adverse outcomes for the Group, with APRA requiring
Westpac to hold additional capital following the completion of its Culture, Governance and Accountability self-
assessment, as well as following the commencement of civil penalty proceedings by AUSTRAC. Inadequacies in
addressing risks or in the Group’s risk management framework could also result in the Group failing to meet a
compliance obligation and/or financial losses.
If, as has occurred, any of our governance or risk management processes and procedures prove ineffective or
inadequate or are otherwise not appropriately implemented, we could be exposed to higher levels of risk than
expected which may result in unexpected losses, breaches of compliance obligations and reputational damage
which could adversely affect our business, prospects, financial performance or financial condition.
For a discussion of our risk management procedures, refer to the ‘Risk management’ section.
Our failure to recruit and retain key executives, employees and Directors may have adverse effects on our
business
Key executives, employees and Directors play an integral role in the operation of Westpac’s business and its pursuit
of its strategic objectives. The unexpected departure of an individual in a key role, or the Group’s failure to recruit
and retain appropriately skilled and qualified persons into these roles, could each have an adverse effect on our
business, prospects, reputation, financial performance or financial condition.
Climate change may have adverse effects on our business
We, our customers, external suppliers and communities in which we operate, may be adversely affected by the
physical risks of climate change, including increases in temperatures, sea levels, and the frequency and severity
of adverse climatic events including fires, storms, floods and droughts. These effects, whether acute or chronic
in nature, may directly impact us and our customers through disruptions to business and economic activity or
impacts on income and asset values.
Initiatives to mitigate or respond to climate change (transition risks) may impact market and asset prices, economic
activity, and customer behaviour, particularly in emissions intensive industry sectors and geographies affected by
these changes. Further, the failure or perceived failure to manage climate change appropriately may increase the
risk that third parties commence litigation against the Group, with this type of climate-related litigation becoming
more common.
Failure to effectively manage and disclose these risks could adversely affect our business, prospects, reputation,
financial performance or financial condition.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
162
Risk and risk management
We could suffer losses due to environmental factors or external events
We and our customers operate businesses and hold assets in a diverse range of geographic locations. Any
significant environmental change or external event (including fire, storm, flood, earthquake, outbreaks or
pandemics of communicable diseases such as the COVID-19 pandemic, civil unrest or terrorism) in any of these
locations has the potential to disrupt business activities, damage property and affect asset values and our ability
to recover amounts owing to us. In addition, such an event could have an adverse impact on economic activity,
consumer and investor confidence, or the levels of volatility in financial markets, all of which could adversely affect
our business, prospects, financial performance or financial condition.
We could suffer losses due to insurance risk
Insurance risk is the risk in our licensed regulated insurance entities of lapses being greater than expected, or
the costs of claims being greater than expected due to a failure in product design, underwriting, reinsurance
arrangements or an increase in the severity and/or frequency of insured events. The COVID-19 pandemic and its
economic impacts may lead to increased insurance claims, as well as potentially impact new business, lapses, and
capital coverage for the Group’s insurance entities.
In life insurance, risk arises primarily through mortality and morbidity (illness and injury) risks, the costs of claims
relating to those risks being greater than was anticipated and policy lapses.
In general insurance, insurance risk arises mainly through environmental events (including storms, floods and
bushfires) and other calamities, such as earthquakes and tsunamis. The frequency and severity of these external
events is difficult to predict and it is possible that pricing and reserving may not be adequate to cover the cost of
claims that may arise.
In lenders mortgage insurance, insurance risk arises primarily from higher levels of mortgage defaults than
expected, mostly from unemployment or other economic factors.
If our reinsurance arrangements are ineffective, this could lead to more retained losses than anticipated. The Group
has been unable to, and may in the future be unable to, renew reinsurance arrangements on similar terms, including
in relation to the cost, duration and amount of reinsurance cover provided. There is also a risk that we will not be
able to obtain and have not obtained appropriate reinsurance or insurance coverage for the risks that the Group
may be exposed to.
Changes in critical accounting estimates and judgements could expose the Group to losses
The Group is required to make estimates, assumptions and judgements when applying accounting policies
and preparing its financial statements, particularly in connection with the calculation of provisions (including
remediation and expected credit losses) and the determination of the fair value of financial instruments. A change
in a critical accounting estimate, assumption and/or judgement resulting from new information or from changes in
circumstances or experience could result in the Group incurring losses greater than those anticipated or provided
for.
If the Group’s actual and expected credit losses exceed those currently provided for, or if any of its other
accounting judgements change in the future, there could be an adverse effect on the Group’s financial
performance, financial condition and reputation. The Group’s financial performance and financial condition may
also be impacted by changes to accounting standards or to generally accepted accounting principles.
We could suffer losses due to impairment of capitalised software, goodwill and other intangible assets
that may adversely affect our business, operations or financial condition
In certain circumstances Westpac may incur a reduction in the value of intangible assets. At our balance date
Westpac’s intangible assets principally relate to goodwill recognised on acquisition, capitalised software and other
capitalised expenses.
Westpac is required to assess the recoverability of goodwill and other intangible asset balances at least annually
or wherever an indicator of impairment exists. For this purpose, Westpac uses a discounted cash flow calculation.
Changes in the methodology or assumptions in calculations together with changes in expected cash flows,
could materially impact this assessment. Estimates and assumptions used in assessing the useful life of an asset
can also be affected by a range of factors including changes in strategy, changes in technology and regulatory
requirements.
In the event that an asset is no longer in use, or its value has been reduced or that its estimated useful life has
declined, an impairment will be recorded, adversely impacting the Group’s financial performance.
We could suffer losses if we fail to syndicate or sell down underwritten securities
As a financial intermediary, we underwrite listed and unlisted debt and equity securities. We could suffer losses
if we fail to syndicate or sell down this risk to others. This risk is more pronounced in times of heightened market
volatility, such as during the COVID-19 pandemic.
WESTPAC GROUP 2020 ANNUAL REPORT 163
Risk and risk management
Certain strategic decisions may have adverse effects on our business
The Group routinely evaluates and implements strategic decisions and objectives including diversification,
innovation, divestment or business expansion initiatives.
The expansion or integration of a new business, or entry into a new business, can be complex and costly.
Westpac also acquires and invests in businesses. These transactions involve a number of risks. For example,
a business Westpac invests in may not perform as anticipated or ultimately prove to be overvalued when the
transaction was entered into.
In addition, we may be unable to successfully divest businesses or assets, or to do so in a timely manner. As a result
we may not receive the anticipated positive business results, and the Group could otherwise be adversely affected.
There are also risks involved in failing to appropriately respond to changes in the business environment (including
changes related to economic, geopolitical, regulatory, technological, environmental, social and competitive factors).
This could have a range of adverse effects on us, such as being unable to increase or maintain market share and
placing pressure on margins and fees.
Any of these risks could have a negative impact on the Group’s business, prospects, reputation, engagement with
regulators, financial performance or financial condition.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Other Westpac business
information
164
Other Westpac business information
Employees
The number of employees in each area of business as at 30 September:
Consumer
Business
Westpac Institutional Bank
Westpac New Zealand
Specialist Businesses
Group Businesses
Total Group2
2020
9,925
3,827
1,629
4,354
4,037
13,077
20191
9,447
3,537
1,481
4,140
3,576
11,107
20181
9,938
3,692
1,610
4,182
3,550
12,057
36,849
33,288
35,029
2020 v 2019
FTE increased 3,561 or 11% compared to 2019. FTE increased as we responded to the operational requirements of
higher volumes due to COVID-19. We further increased resourcing to address risk and financial crime matters. This
was partly offset by productivity gains.
Property
We occupy premises primarily in Australia and New Zealand including 1,072 branches (2019: 1,143) as at
30 September 2020. As at 30 September 2020, we owned approximately 1% (2019: 1%) of the retail premises we
occupied in Australia and none (2019: none) in New Zealand. The remainder of premises are held under commercial
lease with terms generally averaging three to five years. As at 30 September 2020, the carrying value of our
directly owned Corporate and Retail premises and sites was $72 million (2019: $78 million).
Westpac Place in the Sydney CBD is the Group’s head office. In December 2015, an Agreement for Lease was
executed for 275 Kent Street, allowing for Westpac’s continued occupation of levels 1-23 until 2030 . Subsequently
Westpac also leased levels 24-32 until 2024. This site has capacity for over 6,000 staff in an agile environment.
Westpac has a lease for levels 1-28 of T2 in International Towers Sydney until 2030. This site has a capacity for over
6,000 personnel in an agile environment.
We continue a corporate presence in Kogarah, in the Sydney metro area, which is a key corporate office of
St.George, with a 2,400 seat capacity. A lease commitment at this site extends to 2034 with options to extend.
In Melbourne, Westpac has leased the majority of 150 Collins Street since October 2015 with a lease term that
extends to 2026. This was Westpac’s first fully agile workspace environment with capacity for 1,000 staff.
Westpac on Takutai Square is Westpac New Zealand’s head office, located at the eastern end of Britomart Precinct
near Customs Street in Auckland, contains 21,903 square metres of office space across two buildings. Lease
commitment at this site extends to 2031, with two six-year options to extend on each lease.
Significant long term agreements
Westpac has no individual contracts, other than contracts entered into in the ordinary course of business, that
would constitute a material contract.
Related party disclosures
Details of our related party disclosures are set out in Note 36 to the financial statements and details of Directors’
interests in securities are set out in the Remuneration Report included in the Directors’ Report.
Other than as disclosed in Note 36 to the financial statements and the Remuneration Report, if applicable, loans
made to parties related to Directors and other key management personnel of Westpac are made in the ordinary
course of business on normal terms and conditions (including interest rates and collateral). Loans are made on
the same terms and conditions (including interest rates and collateral) as they apply to other employees and
certain customers in accordance with established policy. These loans do not involve more than the normal risk of
collectability or present any other unfavourable features.
1.
2.
2019 and 2018 comparatives have been restated as a result of the creation of Specialist Businesses. There is no impact on the total
number of employees.
Total employees include full-time, pro-rata part time, overtime, temporary and contract staff.
WESTPAC GROUP 2020 ANNUAL REPORT 165
Other Westpac business information
Auditor’s remuneration
Auditor’s remuneration, including goods and services tax, to the external auditor for the years ended
30 September 2020 and 2019 is provided in Note 35 to the financial statements.
Audit related services
Westpac Group Secretariat monitors the application of the pre-approval process in respect of audit, audit-related
and non-audit services provided by PricewaterhouseCoopers (PwC) under Westpac’s Pre-Approval of Engagement
of PricewaterhouseCoopers for Audit or Non-Audit Services Policy (‘Pre-Approval Policy’).
Westpac Group Secretariat promptly brings to the attention of the Board Audit Committee any exceptions that
need to be approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
The Pre-Approval Policy is communicated to Westpac’s divisions through publication on the Westpac intranet.
During the year ended 30 September 2020, there were no fees paid by Westpac to PwC that required approval by
the Board Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Westpac debt programs and issuing shelves
Access in a timely and flexible manner to a diverse range of debt markets and investors is provided by the
following programs and issuing shelves as at 30 September 2020:
Program Limit
Issuer(s)
Program/Issuing Shelf Type
Australia
No limit
Euro Market
WBC
Debt Issuance Program
USD 2.5 billion
WBC
Euro Transferable Certificate of Deposit Program
USD 20 billion
WBC/WSNZL¹
Euro Commercial Paper and Certificate of Deposit Program
USD 70 billion
WBC
Euro Medium Term Note Program
USD 10 billion
WSNZL¹
Euro Medium Term Note Program
USD 40 billion
WBC²
Global Covered Bond Program
EUR 5 billion
WSNZL³
Global Covered Bond Program
Japan
JPY 750 billion
JPY 750 billion
United States
WBC
WBC
Samurai shelf
Uridashi shelf
USD 45 billion
WBC
US Commercial Paper Program
USD 10 billion
WSNZL¹
US Commercial Paper Program
USD 35 billion
WBC
US Medium Term Note Program
USD 15 billion
WBC (NY Branch)
US Medium Term Deposit Note Program
No limit
No limit
New Zealand
WBC (NY Branch)
Certificate of Deposit Program
WBC
US Securities and Exchange Commission registered shelves
No limit
WNZL
Medium Term Note and Registered Certificate of Deposit Program
1.
2.
3.
Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited,
its parent company.
Notes issued under this program are guaranteed by BNY Trust Company of Australia Limited as trustee of the Westpac Covered Bond
Trust.
Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited,
its parent company, and Westpac NZ Covered Bond Limited.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
166
This page has been intentionally left blank.
WESTPAC GROUP 2020 ANNUAL REPORT Financial
statements
SECTION 3
Income statements
Statements of comprehensive income
Balance sheets
Statements of changes in equity
Cash flow statements
Note 1
Financial statements preparation
Financial performance
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Segment reporting
Net interest income
Non-interest income
Operating expenses
Impairment charges
Income tax
Earnings per share
Average balance sheet and interest rates
Financial assets and financial liabilities
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
Note 21
Note 22
Note 23
Note 24
Trading securities and financial assets measured
at fair value through income statement
Available-for-sale securities / Investment
securities
Loans
Provisions for expected credit losses /
impairment charges
Other financial assets
Life insurance assets and life insurance liabilities
Deposits and other borrowings
Other financial liabilities
Debt issues
Loan capital
Derivative financial instruments
Financial risk
Fair values of financial assets and financial
liabilities
Offsetting financial assets and financial liabilities
Securitisation, covered bonds and other
transferred assets
Intangible assets, provisions, commitments and
contingencies
Note 25
Note 26
Note 27
Intangible assets
Lessee disclosures
Provisions, contingent liabilities, contingent
assets
and credit commitments
Capital and dividends
Note 28
Note 29
Note 30
Shareholders’ equity
Capital adequacy
Dividends
Group structure
Note 31
Note 32
Investments in subsidiaries and associates
Structured entities
Other
Note 33
Note 34
Note 35
Note 36
Note 37
Note 38
Note 39
Share-based payments
Superannuation commitments
Auditor’s remuneration
Related party disclosures
Notes to the cash flow statements
Subsequent events
Accounting policies relating to years prior
to 2019
Statutory statements
Directors’ declaration
Independent auditor’s report to the members of Westpac
Banking Corporation
Limitation on Independent Registered Public Accounting Firm’s
Liability
167
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
2 GROUP PERFORMANCE3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION1 STRATEGIC REVIEWWESTPAC GROUP 2020 ANNUAL REPORT
168
Financial statements
Income statements for the years ended 30 September
Westpac Banking Corporation
$m
Interest income:
Calculated using the effective interest rate method
Other
Total interest income
Interest expense
Net interest income
Net fee income
Net wealth management and insurance income
Trading income
Other income
Net operating income before operating expenses and
impairment charges
Operating expenses
Impairment charges
Profit before income tax
Income tax expense
Net profit for the year
Net profit attributable to non-controlling interests (NCI)
Net profit attributable to owners of Westpac Banking
Corporation (WBC)
Earnings per share (cents)
Basic
Diluted
Note
2020
Consolidated
2019
2018
Parent Entity
2020
2019
3
3
3
4
4
4
4
5
6
7
8
8
26,596
32,518
31,987
26,025
32,736
451
704
584
598
776
27,047
33,222
32,571
26,623
33,512
(10,351)
(16,315)
(16,066)
(12,539)
(19,295)
16,696
16,907
16,505
14,084
14,217
1,592
751
895
249
1,655
1,029
929
129
2,424
2,061
945
72
1,359
-
876
1,597
922
-
956
2,684
20,183
20,649
22,007
17,916
18,779
(12,739)
(10,106)
(9,566)
(10,772)
(8,631)
(710)
(2,691)
(3,178)
4,266
(1,974)
(794)
9,749
(2,959)
11,731
(3,632)
2,292
6,790
8,099
(2)
(6)
(4)
4,453
(1,795)
2,658
-
(750)
9,398
(2,277)
7,121
-
2,290
6,784
8,095
2,658
7,121
63.7
63.7
196.5
189.5
237.5
230.1
The above income statements should be read in conjunction with the accompanying notes.
WESTPAC GROUP 2020 ANNUAL REPORT Financial statements
Statements of comprehensive income for the years ended 30 September
Westpac Banking Corporation
169
$m
Net profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Gains/(losses) recognised in equity on:
Available-for-sale securities
Debt securities measured at fair value through other
comprehensive income (FVOCI)
Cash flow hedging instruments
Transferred to income statements:
Available-for-sale securities
Debt securities measured at FVOCI
Cash flow hedging instruments
Foreign currency translation reserve
Loss allowance on debt instruments measured at
FVOCI
Exchange differences on translation of foreign operations
(net of associated hedges)
Income tax on items taken to or transferred from equity:
Available-for-sale securities reserve
Debt instruments measured at FVOCI
Cash flow hedging instruments
Items that will not be reclassified subsequently to profit or
loss
Gains/(losses) on equity instruments measured at FVOCI
(net of tax)
Own credit adjustment on financial liabilities measured at
fair value (net of tax)
Remeasurement of defined benefit obligation recognised in
equity (net of tax)
Other comprehensive income for the year (net of tax)
Consolidated
2019
2020
2018
Parent Entity
2020
2,292
6,790
8,099
2,658
2019
7,121
-
-
(102)
-
357
(95)
-
(79)
218
55
2
(46)
(203)
-
(29)
197
(10)
-
(161)
66
-
203
(3)
289
(28)
-
(79)
150
55
-
-
2
-
(39)
(121)
-
(29)
128
-
-
(168)
182
181
(131)
162
-
(81)
(36)
(21)
(39)
(115)
(2)
-
20
2
11
(10)
(276)
(162)
9
-
(13)
-
43
45
268
-
(62)
(37)
1
(39)
(110)
11
-
18
(3)
(2)
(10)
(268)
(164)
Total comprehensive income for the year
2,290
6,628
8,367
2,669
6,957
Attributable to:
Owners of WBC
NCI
2,291
6,620
8,363
2,669
6,957
(1)
8
4
-
-
Total comprehensive income for the year
2,290
6,628
8,367
2,669
6,957
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
170
Financial statements
Balance sheets as at 30 September
Westpac Banking Corporation
$m
Assets
Cash and balances with central banks
Collateral paid
Trading securities and financial assets measured at fair value through
income statement (FVIS)
Derivative financial instruments
Investment securities
Loans
Other financial assets
Life insurance assets
Due from subsidiaries
Investment in subsidiaries
Investment in associates
Property and equipment
Deferred tax assets
Intangible assets
Other assets
Total assets
Liabilities
Collateral received
Deposits and other borrowings
Other financial liabilities
Derivative financial instruments
Debt issues
Current tax liabilities
Life insurance liabilities
Due to subsidiaries
Provisions
Deferred tax liabilities
Other liabilities
Total liabilities excluding loan capital
Loan capital
Total liabilities
Net assets
Shareholders’ equity
Share capital:
Ordinary share capital
Treasury shares and Restricted Share Plan (RSP) treasury shares
Reserves
Retained profits
Total equity attributable to owners of WBC
NCI
Total shareholders’ equity and NCI
Note
Consolidated
2020
2019
Parent Entity
2020
2019
30,129
20,059
25,436
17,692
4,778
5,930
4,641
5,773
40,667
31,781
38,030
29,565
23,367
29,859
22,794
29,283
91,539
73,401
85,826
68,398
693,059
714,770
607,824
631,936
5,474
3,593
5,367
9,367
4,745
4,615
-
-
-
-
61
3,910
3,064
11,497
808
-
-
180,979
142,961
6,475
6,436
129
1,155
2,048
11,953
807
57
3,447
2,497
9,630
421
100
948
1,925
9,687
420
911,946
906,626
992,802
949,739
2,250
3,287
1,862
2,849
591,131
563,247
521,613
501,430
40,925
29,215
40,156
28,516
23,054
29,096
22,779
28,867
150,325
181,457
127,666
156,674
70
1,396
-
163
7,377
13
-
88
-
-
186,263
148,607
5,287
3,169
4,983
2,980
126
44
-
-
5,359
2,238
3,770
1,064
10
20
11
12
14
15
7
25
16
17
20
18
15
27
7
819,923
819,293
909,105
871,075
19
23,949
21,826
23,949
21,826
843,872
841,119
933,054
892,901
68,074
65,507
59,748
56,838
28
28
28
28
40,509
37,508
40,509
37,508
(563)
1,544
(553)
1,311
(621)
1,576
(575)
1,338
26,533
27,188
18,284
18,567
68,023
65,454
59,748
56,838
51
53
-
-
68,074
65,507
59,748
56,838
The above balance sheets should be read in conjunction with the accompanying notes.
WESTPAC GROUP 2020 ANNUAL REPORT Financial statements
Statements of changes in equity for the years ended 30 September
Westpac Banking Corporation
171
Share capital
(Note 28)
Reserves
(Note 28)
Retained
profits
Total equity
attributable
to owners
of WBC
Total
shareholders’
equity
and NCI
NCI
(Note 28)
26,100
61,288
54
61,342
Consolidated
$m
Balance at 1 October 2017
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Dividend reinvestment plan
Conversion of Convertible Preferences Shares
Other equity movements
Share-based payment arrangements
Exercise of employee share options and
rights
Purchase of shares (net of issue costs)
Net (acquisition)/disposal of treasury shares
Other
Total contributions and distributions
Balance at 30 September 2018
Impact on adoption of new accounting standards
Restated opening balance
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Dividend reinvestment plan
Other equity movements
Share-based payment arrangements
Purchase of shares (net of issue costs)
Net (acquisition)/disposal of treasury shares
Other
Total contributions and distributions
Balance at 30 September 2019
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Share issuances
Dividends on ordinary shares1
Dividend reinvestment plan
Other equity movements
Share-based payment arrangements
Purchase of shares (net of issue costs)
Net (acquisition)/disposal of treasury shares
Other
34,394
-
-
-
-
631
566
-
3
(35)
2
-
1,167
35,561
-
35,561
-
-
-
-
1,489
-
(33)
(62)
-
1,394
36,955
-
-
-
2,751
-
273
-
(29)
(10)
6
794
-
180
180
-
-
-
103
-
-
-
-
103
1,077
2
1,079
-
122
122
-
-
108
-
-
2
110
1,311
-
155
155
-
-
-
78
-
-
-
8,095
88
8,183
8,095
268
8,363
(6,400)
(6,400)
-
-
-
-
-
-
-
(6,400)
27,883
(727)
27,156
6,784
(286)
6,498
(6,466)
-
-
-
-
-
(6,466)
27,188
2,290
(154)
2,136
-
(2,791)
-
-
-
-
-
631
566
103
3
(35)
2
-
(5,130)
64,521
(725)
63,796
6,784
(164)
6,620
(6,466)
1,489
108
(33)
(62)
2
(4,962)
65,454
2,290
1
2,291
2,751
(2,791)
273
78
(29)
(10)
6
4
-
4
-
-
-
-
-
-
-
(6)
(6)
52
-
52
6
2
8
-
-
-
-
-
(7)
(7)
53
2
(3)
(1)
-
-
-
-
-
-
(1)
(1)
51
8,099
268
8,367
(6,400)
631
566
103
3
(35)
2
(6)
(5,136)
64,573
(725)
63,848
6,790
(162)
6,628
(6,466)
1,489
108
(33)
(62)
(5)
(4,969)
65,507
2,292
(2)
2,290
2,751
(2,791)
273
78
(29)
(10)
5
277
68,074
Total contributions and distributions
Balance at 30 September 2020
2,991
39,946
78
1,544
(2,791)
26,533
278
68,023
The above statements of changes in equity should be read in conjunction with the accompanying notes.
1.
2020 relates to 2019 final dividend of 80 cents per share ($2,791 million) (2019: 2019 interim dividend of 94 cents per share ($3,239
million) and 2018 final dividend of 94 cents per share ($3,227 million), 2018: 2018 interim dividend of 94 cents per share ($3,213 million)
and 2017 final dividend of 94 cents per share ($3,187 million)), all fully franked at 30%.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
172
Financial statements
Statements of changes in equity for the years ended 30 September (continued)
Westpac Banking Corporation
Parent Entity
$m
Balance at 30 September 2018
Impact on adoption of new accounting standards
Restated opening balance
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Dividends on ordinary shares1
Dividend reinvestment plan
Other equity movements
Share-based payment arrangements
Purchase of shares (net of issue costs)
Net (acquisition)/disposal of treasury shares
Total contributions and distributions
Balance at 30 September 2019
Net profit for the year
Net other comprehensive income for the year
Total comprehensive income for the year
Transactions in capacity as equity holders
Share issuances
Dividends on ordinary shares1
Dividend reinvestment plan
Other equity movements
Share-based payment arrangements
Purchase of shares (net of issue costs)
Net (acquisition)/disposal of treasury shares
Other
Total contributions and distributions
Balance at 30 September 2020
Share capital
(Note 28)
Reserves
(Note 28)
Retained
profits
Total equity
attributable
to owners
of WBC
35,546
1,114
18,696
55,356
-
35,546
-
-
-
-
1,489
-
(33)
(69)
1,387
36,933
-
-
-
2,751
-
273
-
(29)
(46)
6
2
1,116
-
114
114
-
-
108
-
-
108
1,338
-
160
160
-
-
-
78
-
-
-
(502)
(500)
18,194
54,856
7,121
(278)
7,121
(164)
6,843
6,957
(6,470)
-
-
-
-
(6,470)
18,567
2,658
(149)
(6,470)
1,489
108
(33)
(69)
(4,975)
56,838
2,658
11
2,509
2,669
-
2,751
(2,792)
(2,792)
-
-
-
-
-
273
78
(29)
(46)
6
241
59,748
2,955
39,888
78
1,576
(2,792)
18,284
The above statements of changes in equity should be read in conjunction with the accompanying notes.
1.
2020 relates to 2019 final dividend of 80 cents per share ($2,792 million) (2019: 2019 interim dividend of 94 cents per share ($3,241
million) and 2018 final dividend of 94 cents per share ($3,229 million)), all fully franked at 30%.
WESTPAC GROUP 2020 ANNUAL REPORT Financial statements
Cash flow statements for the years ended 30 September
Westpac Banking Corporation
173
$m
Cash flows from operating activities
Interest received
Interest paid
Dividends received excluding life business
Other non-interest income received
Operating expenses paid
Income tax paid excluding life business
Life business:
Receipts from policyholders and customers
Interest and other items of similar nature
Dividends received
Payments to policyholders and suppliers
Income tax paid
Cash flows from operating activities before changes in
operating assets and liabilities
Net (increase)/decrease in:
Collateral paid
Trading securities and financial assets measured at
FVIS
Derivative financial instruments
Loans
Other financial assets
Life insurance assets and liabilities
Other assets
Net increase/(decrease) in:
Collateral received
Deposits and other borrowings
Other financial liabilities
Other liabilities
Net cash provided by/(used in) operating activities
Cash flows from investing activities
Proceeds from available-for-sale securities
Purchase of available-for-sale securities
Proceeds from investment securities
Purchase of investment securities
Net movement in amounts due to/from controlled entities
Proceeds/(payments) from disposal of controlled entities,
net of cash disposed
Net (increase)/decrease in investments in controlled entities
Proceeds from disposal of associates
Purchase of associates
Proceeds from disposal of property and equipment
Purchase of property and equipment
Purchase of intangible assets
37
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Proceeds from debt issues (net of issue costs)
Redemption of debt issues
Payments for the principal portion of lease liabilities
Issue of loan capital (net of issue costs)
Redemption of loan capital
Proceeds from share issuances
Proceeds from exercise of employee options
Purchase of shares on exercise of employee options and
rights
Shares purchased for delivery of employee share plan
Purchase of RSP treasury shares
Net sale/(purchase) of other treasury shares
Payment of dividends
Dividends paid to NCI
Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and balances with central banks
Effect of exchange rate changes on cash and balances with
central banks
Cash and balances with central banks as at beginning of year
Cash and balances with central banks as at end of year
Note
2020
Consolidated
2019
27,215
(11,466)
16
2,894
(8,598)
(3,080)
2,235
21
306
(2,302)
(6)
33,093
(16,486)
6
3,865
(9,080)
(3,406)
2,189
6
553
(2,250)
(94)
2018
32,639
(15,789)
9
4,995
(7,889)
(3,585)
2,008
17
642
(2,089)
(143)
Parent Entity
2020
2019
26,830
(13,543)
763
2,330
(6,967)
(2,732)
33,770
(19,444)
2,218
2,982
(7,491)
(3,081)
-
-
-
-
-
-
-
-
-
-
37
7,235
8,396
10,815
6,681
8,954
348
(847)
969
329
(755)
(8,756)
1,851
18,272
273
(277)
70
(1,096)
28,910
11,817
4
58,651
-
-
33,080
(51,332)
-
-
-
-
(8)
58
(240)
(1,035)
(19,477)
34,766
(65,160)
(543)
2,225
(262)
2,751
-
(4)
(25)
(46)
14
(2,518)
(1)
(28,803)
10,371
(301)
20,059
30,129
(7,629)
7,605
(4,188)
336
(134)
(13)
1,007
1,113
1,463
(5)
7,104
-
-
19,768
(29,527)
-
(1)
-
45
(25)
157
(280)
(906)
(10,769)
61,484
(63,313)
-
4,935
(1,662)
-
-
(6)
(27)
(69)
7
(4,977)
(5)
(3,633)
(7,298)
569
26,788
20,059
3,492
8,584
(24,740)
859
(230)
10
(295)
23,928
(3,632)
10
19,770
23,878
(24,376)
-
-
-
9
-
-
(30)
91
(310)
(882)
(1,620)
59,456
(64,698)
-
2,342
(2,387)
-
3
(8)
(27)
(71)
73
(5,769)
(6)
(11,092)
7,058
944
18,786
26,788
(8,266)
2,103
21,273
283
-
50
(1,072)
20,859
11,866
(7)
54,099
-
-
29,807
(47,311)
(665)
-
(315)
-
(6)
32
(165)
(955)
(19,578)
27,487
(55,761)
(499)
2,225
(262)
2,751
-
(4)
(25)
(46)
-
(2,519)
-
(26,653)
7,868
(124)
17,692
25,436
(7,358)
6,581
(3,312)
324
-
(41)
1,004
963
1,555
(24)
7,891
-
-
16,483
(25,719)
2,110
-
94
-
(24)
143
(209)
(846)
(7,968)
50,375
(56,347)
-
4,935
(1,662)
-
-
(6)
(27)
(69)
-
(4,981)
-
(7,782)
(7,859)
575
24,976
17,692
The above cash flow statements should be read in conjunction with the accompanying notes.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Notes to the financial statements
174
Notes to the financial statements
Note 1. Financial statements preparation
This financial report of Westpac Banking Corporation (the Parent Entity), together with its controlled entities (the
Group or Westpac), for the year ended 30 September 2020, was authorised for issue by the Board of Directors on
1 November 2020. The Directors have the power to amend and reissue the financial report.
The principal accounting policies are set out below and in the relevant notes to the financial statements. The
accounting policy for the recognition and derecognition of financial assets and financial liabilities precedes Note 10.
These accounting policies provide details of the accounting treatments adopted for complex balances and where
accounting standards provide policy choices. These policies have been consistently applied to all the years
presented, unless otherwise stated.
a. Basis of preparation
(i) Basis of accounting
This financial report is a general purpose financial report prepared in accordance with:
•
•
the requirements for an Authorised Deposit-taking Institution (ADI) under the Banking Act 1959 (as amended);
Australian Accounting Standards (AAS) and Interpretations as issued by the Australian Accounting Standards
Board (AASB); and
•
the Corporations Act 2001.
Westpac Banking Corporation is a for-profit entity for the purposes of preparing this financial report.
The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB) and Interpretations as issued by the IFRS Interpretations
Committee (IFRIC). It also includes additional disclosures required for foreign registrants by the United States
Securities and Exchange Commission (US SEC).
All amounts have been rounded in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191, to the nearest million dollars, unless otherwise stated.
(ii) Historical cost convention
The financial report has been prepared under the historical cost convention, as modified by applying fair value
accounting to financial assets and financial liabilities (including derivative instruments) measured at fair value
through income statement (FVIS) or in other comprehensive income (OCI).
(iii) Standards adopted during the year ended 30 September 2020
AASB 16 Leases (AASB 16)
AASB 16 was adopted by the Group on 1 October 2019. AASB 16 requires all operating leases of greater than
12 months duration be presented on balance sheet by the lessee as a right-of-use (ROU) asset and lease liability.
There are no significant changes to lessor accounting.
The Group adopted the standard using the simplified approach of transition with no restatement of comparative
information and no effect on retained earnings.
The lease liabilities are measured at the present value of the remaining lease payments, discounted at the lessee’s
incremental borrowing rate at 1 October 2019. On transition to the new standard, the lease liability recognised in
other liabilities was $3.3 billion for the Group and $3.0 billion for the Parent Entity. The associated ROU assets of
$3.2 billion for the Group and $2.9 billion for the Parent Entity were measured at an amount equal to the lease
liability, less previously recognised accrued lease payments of $0.1 billion for the Group and the Parent Entity. The
ROU assets are recognised in property and equipment.
All leases on balance sheet give rise to a combination of interest expense on the lease liability and depreciation
of the ROU asset. Interest expense is recognised in net interest income on an effective yield basis. Depreciation
expense is recognised in operating expenses on a straight-line basis over the lease term.
Extension options are included in a number of lease contracts. The extension options are only included in the lease
term if the lease is reasonably certain to be extended, which is assessed by the Group at the lease commencement
date. The assessment is reviewed if a significant event or significant change in circumstances occurs which affects
this assessment and is within the control of the Group. The Group considered the impact of COVID-19 on our
assessment of extension options and concluded that they were unchanged. The Group also considered the impact
of COVID-19 on the carrying value of the ROU asset and determined there was no impairment.
The Group used the incremental borrowing rate based on the remaining maturity of leases at the date of transition
as the discount rate when determining present value. The weighted average incremental borrowing rate applied
was 2.1%.
Operating lease commitments disclosed under AASB 117 Leases (AASB 117) as at 30 September 2019 were
$3.7 billion for the Group and $3.4 billion for the Parent Entity compared to the lease liabilities of $3.3 billion for
the Group and $3.0 billion for the Parent Entity recognised under AASB 16 as at 1 October 2019. The difference is
principally due to the discounting of the contractual lease payments under AASB 16.
WESTPAC GROUP 2020 ANNUAL REPORT 175
Notes to the financial statements
Note 1. Financial statements preparation (continued)
AASB Interpretation 23 Uncertainty over Income Tax Treatments (Interpretation 23)
Interpretation 23 was adopted by the Group on 1 October 2019 and clarifies the recognition and measurement
criteria in AASB 112 Income Taxes (AASB 112) where there is uncertainty over income tax treatments, and requires
an assessment of each uncertain tax position as to whether it is probable that a taxation authority will accept the
position.
Where it is not considered probable, the effect of the uncertainty will be reflected in determining the relevant
taxable profit or loss, tax bases, unused tax losses and unused tax credits or tax rates. The amount will be
determined as either the single most likely amount or the sum of the probability weighted amounts in a range of
possible outcomes, whichever better predicts the resolution of the uncertainty. Judgements will be reassessed as
and when new facts and circumstances are presented.
Interpretation 23 did not have a material impact on the Group.
AASB 2019-3 Amendments to Australian Accounting Standards – Interest rate benchmark reform (AASB
2019-3)
AASB 2019-3 was early adopted, as permitted by the standard, by the Group on 1 October 2019. AASB 2019-3
makes amendments to AASB 9 Financial Instruments (December 2014) (AASB 9), AASB 139 Financial Instruments:
Recognition and Measurement (AASB 139), and AASB 7 Financial Instruments: Disclosures (AASB 7) which allows
the Group to apply certain exceptions to the standard hedging requirements in respect of hedge relationships that
are impacted by a market-wide interest rate benchmark reform. Specifically the exceptions allow the Group to:
•
•
•
•
Assume that the interest rate benchmark on which the hedged cash flows are based is not altered as a result of
the reform when determining whether a forecast transaction is highly probable;
Assume that interest rate benchmark of the hedged item / instrument is not altered for the life of the hedge
when assessing whether a hedge is expected to continue to be highly effective;
A hedge relationship impacted by uncertainty arising from benchmark interest rate reform is not required to
pass the 80%-125% effectiveness test, however any actual ineffectiveness must be recorded in the income
statement; and
The determination of a designated component of an exposure in portfolio hedges is only required to be made
the first time that component is designated, and not when the portfolio is de-designated and re-designated.
The exceptions allowed by the amendments are being applied to the Group’s LIBOR linked hedge relationships
that mature after the LIBOR discontinuance date of 31 December 2021. Last year the Group established an
enterprise-wide Interbank Offered Rates (IBORs) Transition Program to manage the impacts of Interest Rate
Benchmark Reform (IBOR reform). The scope of the program is to address the impact of transition from IBORs
to alternative reference rates (ARRs) including business, compliance, customer and technology impacts. The
Governance structure of the program is well established to include a Steering Committee with its key responsibility
being the governance of the program. The Committee includes senior executives from Finance, Legal, Technology,
Compliance, Risk and all impacted business units. The program is executing against transition timelines with
regulatory guidance in relation to COVID-19 indicating LIBOR is still expected to cease by end of December 2021.
Significant activities underway include development of ARR product variations, changes required for adopting the
International Swaps and Derivatives Association (ISDA) Protocol, customer outreach including management of
conduct risk in customer transition and technology. Changes required for both euro short-term rate (ESTR) and
secured overnight funding rate (SOFR) LCH discounting have been implemented.
A key assumption made when performing hedge accounting at the reporting date is that both the hedged item
and instrument will be amended from existing LIBOR linked floating rates to new ARRs on the same date. Where
actual differences between those dates arise hedge ineffectiveness will be recorded in the income statement.
Note 20 provides further information regarding the hedging relationships affected by the IBOR reform.
Refer to Note 1 (c) – Future developments in accounting standards for details of the accounting standard issues but
not yet effective dealing with phase two of the IBOR reform.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
176
Notes to the financial statements
Note 1. Financial statements preparation (continued)
(iv) Business combinations
Business combinations are accounted for using the acquisition method of accounting. Acquisition cost is measured
as the aggregate of the fair value at the date of acquisition of the assets given, equity instruments issued or
liabilities incurred or assumed. Acquisition-related costs are expensed as incurred (except for those costs arising on
the issue of equity instruments which are recognised directly in equity).
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured at fair value on the acquisition date. Goodwill is measured as the excess of the acquisition cost, the
amount of any non-controlling interest and the fair value of any previous Westpac equity interest in the acquiree,
over the fair value of the identifiable net assets acquired.
(v) Foreign currency translation
Functional and presentational currency
The consolidated financial statements are presented in Australian dollars which is the Parent Entity’s functional and
presentation currency. The functional currency of offshore entities is usually the main currency of the economy it
operates in.
Transactions and balances
Foreign currency transactions are translated into the functional currency of the relevant branch or subsidiary using
the exchange rates prevailing at the dates of the transactions. Foreign exchange (FX) gains and losses resulting
from the settlement of such transactions and from the translation at year end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in
OCI for qualifying cash flow hedges and qualifying net investment hedges.
Foreign operations
Assets and liabilities of foreign branches and subsidiaries that have a functional currency other than the Australian
dollar are translated at exchange rates prevailing on the balance date. Income and expenses are translated at
average exchange rates prevailing during the year. Equity balances are translated at historical exchange rates.
The resulting exchange differences are recognised in the foreign currency translation reserve and in OCI.
On consolidation, exchange differences arising from the translation of borrowings and other foreign currency
instruments designated as hedges of the net investment in foreign operations are reflected in the foreign currency
translation reserve and in OCI. When all or part of a foreign operation is disposed or borrowings that are part of
the net investments are repaid, a proportionate share of such exchange differences is recognised in the income
statement as part of the gain or loss on disposal or repayment of borrowing.
(vi) Comparative revisions
Comparative information has been revised where appropriate to conform to changes in presentation in the current
year and to enhance comparability.
b. Critical accounting assumptions and estimates
Applying the Group’s accounting policies requires the use of judgement, assumptions and estimates which impact
the financial information. The significant assumptions and estimates used are discussed in the relevant notes below:
•
•
•
•
•
•
•
Note 7
Note 13
Note 15
Note 22
Note 25
Note 27
Income tax
Provisions for expected credit losses/impairment charges
Life insurance assets and life insurance liabilities
Fair values of financial assets and financial liabilities
Intangible assets
Provisions, contingent liabilities, contingent assets and credit commitments
Note 34
Superannuation commitments
Impact of COVID-19
The COVID-19 pandemic and the measures put in place domestically and globally to control the spread of the
virus have had a significant impact on global economies and financial markets. As a result, this has increased the
uncertainty and judgement required in relation to our critical accounting assumptions and estimates, primarily
relating to:
•
•
expected credit losses; and
recoverable amount assessments of intangible assets.
As there is a higher than usual degree of uncertainty associated with these assumptions and estimates, the actual
economic conditions are likely to be different from those forecast which may significantly impact accounting
estimates included in these financial statements. The impact of COVID-19 is discussed further in each of the related
notes.
WESTPAC GROUP 2020 ANNUAL REPORT 177
Notes to the financial statements
Note 1. Financial statements preparation (continued)
c. Future developments in accounting standards
The following new standards and interpretations which may have a material impact on the Group have been issued
but are not yet effective, and unless otherwise stated, have not been early adopted by the Group:
AASB 17 Insurance Contracts (AASB 17) was issued on 19 July 2017 and will be effective for the 30 September 2022
year end unless early adopted. This will replace AASB 4 Insurance Contracts (AASB 4), AASB 1023 General
Insurance Contracts and AASB 1038 Life Insurance Contracts. The main changes under the standard are:
•
•
•
•
•
•
•
•
the scope of the standard may result in some contracts that are currently “unbundled”, i.e. accounted for
separately as insurance and investment contracts being required to be “bundled” and accounted for as an
insurance contract;
portfolios of contracts (with similar risks which are managed together) will be required to be disaggregated
to a more granular level by both the age of a contract and the likelihood of the contract being onerous in
order to determine the recognition of profit over the contract period (i.e. the contractual service margin). The
contractual service margin uses a different basis to recognise profit to the current Margin on Services approach
for life insurance and therefore the pattern of profit recognition is likely to differ;
risk adjustments, which reflect uncertainties in the amount and timing of future cash flows, are required for both
general and life insurance contracts rather than just general insurance contracts under the current accounting
standards;
the contract boundary, which is the period over which profit is recognised, differs and is determined based
on the ability to compel the policyholder to pay premiums or the substantive obligation to provide coverage/
services. For some general insurance contracts (e.g. some lender mortgage insurance and reinsurance
contracts) this may result in the contract boundary being longer. For life insurance, in particular term renewable
contracts, the contract boundary is expected to be shorter. Both will be impacted by different patterns of profit
recognition compared to the current standards;
a narrower definition of what acquisition costs may be deferred;
an election to recognise changes in assumptions regarding discount rate in OCI rather than in income
statement;
an election to recognise changes in the fair value of assets supporting policy liabilities in OCI rather than
through the income statement;
reinsurance contracts and the associated liability are to be determined separately to the gross contract liability
and may have different contract boundaries; and
•
additional disclosure requirements.
The standard is expected to result in a reduction in the level of deferred acquisition costs, however the quantum of
this and the income statement impacts to the Group are not yet practicable to determine.
AASB 2020-5 Amendments to Australian Accounting Standards – Insurance Contracts was issued on 30 July 2020.
This standard includes a number of amendments to AASB 17. These amendments include:
•
•
•
•
•
•
deferral of acquisition costs for anticipated renewals outside of the initial contract boundary;
further clarity on the contractual service margin;
additional scope exclusion for credit card contracts and similar contracts that provide insurance coverage as
well as optional scope exclusion for loan contracts that transfer significant insurance risk;
ability to recognise a gain in the income statement for reinsurance contracts, to offset losses from onerous
contracts on initial recognition;
simplified presentation requirements; and
additional transitional relief.
In addition, the effective date of AASB 17 will be deferred by two years to be applicable to the Group for the
30 September 2024 financial year.
On 22 September 2020, the AASB issued AASB 2020-8 Amendments to Australian Accounting Standards –
Interest Rate Benchmark Reform – Phase 2 which makes further amendments to AASB 9, AASB 139, and AASB 7
resulting from IBOR reform. Amendments are also made to AASB 4 and AASB 16. The standard is effective for the
30 September 2022 year end unless early adopted. The amendments:
•
•
allow the Group to account for a change in contractual cash flows of a financial instrument or lease liability
that result specifically from IBOR reform by updating the effective interest rate rather than recognising a
modification gain or loss;
allow the Group to continue hedge accounting and not trigger a de-designation when the following occurs
specific to IBOR reform:
–
–
–
changes to hedge documentation to update the hedged risk, item and instrument;
changes to the method of assessing hedge ineffectiveness;
once the hedge relationship has been converted from LIBOR to ARR the cumulative change in fair value for
ineffectiveness testing could be reset to zero if this would improve the retrospective effectiveness test;
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
178
Notes to the financial statements
Note 1. Financial statements preparation (continued)
–
this amendment can apply to macro cash flow and fair value hedges where subgroups can be formed within
the portfolio of hedges where some are under the existing LIBOR rate and others have already changed to
the ARR;
•
require additional disclosures including:
–
–
–
quantitative information regarding all financial instruments linked to LIBOR which have not been yet
converted to ARR;
changes to the entity’s risk management strategy arising from IBOR reform; and
the management of the Group’s transition to ARR.
These amendments will impact the Group’s financial instruments and lease liabilities that reference a LIBOR rate as
they transition to an ARR. The Group is currently assessing the impact of the standard and considering whether to
early adopt the amendments as permitted by the standard.
A revised Conceptual Framework (Framework) was issued in May 2019. This will be effective for the Group for
the 30 September 2021 financial year. The revised Framework includes new definitions and recognition criteria
for assets, liabilities, income and expenses and other relevant financial reporting concepts. The changes are not
expected to have a material impact to the Group.
Other amendments to existing standards that are not yet effective are not expected to have a material impact to
the Group.
WESTPAC GROUP 2020 ANNUAL REPORT 179
Notes to the financial statements
FINANCIAL PERFORMANCE
Note 2. Segment reporting
Accounting policy
Operating segments are presented on a basis consistent with information provided internally to Westpac’s key
decision makers and reflect the management of the business, rather than the legal structure of the Group.
Internally, Westpac uses ‘cash earnings’ in assessing the financial performance of its divisions. Management
believes this allows the Group to:
•
•
•
more effectively assess current year performance against prior years;
compare performance across business divisions; and
compare performance across peer companies.
Cash earnings is viewed as a measure of the level of profit that is generated by ongoing operations and is
therefore typically considered in assessing distributions, including dividends. Cash earnings is neither a measure
of cash flow nor net profit determined on a cash accounting basis, as it includes both cash and non-cash
adjustments to statutory net profit.
To determine cash earnings, three categories of adjustments are made to statutory results:
•
•
material items that key decision makers at the Westpac Group believe do not reflect ongoing operations;
items that are not typically considered when dividends are recommended, such as the amortisation of
intangibles, impact of Treasury shares and economic hedging impacts; and
•
accounting reclassifications between individual line items that do not impact statutory results.
Internal charges and transfer pricing adjustments have been reflected in the performance of each operating
segment. Inter-segment pricing is determined on an arm’s length basis.
Reportable operating segments
The operating segments are defined by the customers they serve and the services they provide:
•
Consumer:
–
is responsible for sales and service of banking and financial products and services to consumer customers in
Australia; and
–
operates under the Westpac, St.George, BankSA, Bank of Melbourne, and RAMS brands.
•
Business:
–
–
is responsible for sales and service of banking products and services for SME and commercial customers in
Australia. SME and Commercial customers typically have facilities up to approximately $200 million;
is responsible for Private Wealth, serving the banking needs of high net worth customers across the banking
brands; and
–
operates under the Westpac, St.George, BankSA, and Bank of Melbourne brands.
•
Westpac Institutional Bank (WIB):
–
–
–
is responsible for delivering a broad range of financial products and services to commercial, corporate,
institutional and government customers with connections to Australia and New Zealand;
services include financing, transactional banking, financial and debt capital markets; and
customers are supported throughout Australia, as well as via branches and subsidiaries located in New
Zealand, US, UK and Asia.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
180
Notes to the financial statements
Note 2. Segment reporting (continued)
•
Westpac New Zealand:
–
–
–
is responsible for banking, wealth and insurance products and services to customers in New Zealand;
customer base includes consumers, business and institutional customers; and
operates under the Westpac brand for banking products, the Westpac Life brand for life insurance products
and the BT brand for wealth products.
•
Specialist Businesses:
–
–
is responsible for sales and service of Auto and Vendor Finance, Australian insurance products,
Superannuation, Platforms and Investments;
it is also responsible for Westpac Pacific which provides a full range of banking services in Fiji and Papua
New Guinea; and
–
operates under the Westpac, St.George, BankSA, Bank of Melbourne and BT brands.
•
Group Businesses include:
–
–
–
–
Treasury, which is responsible for the management of the Group’s balance sheet including wholesale
funding, capital and management of liquidity. Treasury also manages the interest rate risk and foreign
exchange risks inherent in the balance sheet, including managing the mismatch between Group assets and
liabilities. Treasury’s earnings are primarily sourced from managing the Group’s balance sheet and interest
rate risk, (excluding Westpac New Zealand) within set risk limits;
Group Technology1, which comprises functions for the Australian businesses, is responsible for technology
strategy and architecture, infrastructure and operations, applications development and business integration;
Core Support2, which comprises Group support functions, including Australian banking operations, property
services, strategy, finance, risk, financial crime, compliance and conduct, compliance, legal, human resources,
and customer and corporate relations; and
Group Businesses also includes earnings on capital not allocated to divisions, certain intra-group
transactions that facilitate presentation of performance of the Group’s operating segments, earnings from
non-core asset sales, earnings and costs associated with the Group’s Fintech investments, costs associated
with customer remediation for the Advice business3, and certain other head office items such as centrally
held provisions.
Revisions to segment results
In 2020, Westpac implemented a change to the presentation of its divisional financial information. The change
related to:
•
•
the creation of the Specialist Businesses division, which includes the following businesses: Auto and Vendor
Finance, Australian insurance businesses, Superannuation, Platforms and Investments, and Westpac Pacific; and
the movement of certain small to medium size enterprise customers, and products between the Consumer and
Business division to better reflect our new line of Business operating structure.
This change has no impact on the Group’s overall results or balance sheet but impacts divisional results and
balance sheets. Comparative divisional financial information has been restated for this change.
1.
2.
3.
Costs are fully allocated to other divisions in the Group.
Costs are partially allocated to other divisions in the Group, with costs attributed to enterprise activity retained in Group Businesses.
In March 2019, Westpac announced that it was exiting the provision of personal financial advice.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 2. Segment reporting (continued)
The following tables present the segment results on a cash earnings basis for the Group:
2020
$m
Consumer
Business
Westpac
Institutional
Bank
Westpac
New
Zealand
Specialist
Businesses
Group
Businesses
Total
Net cash
earnings
adjustment
Income
statement
181
Net interest income
8,547
4,163
Net fee income
471
438
1,111
544
-
637
1
1,832
123
158
27
11
534
89
624
57
(8)
899
17,086
(390)
16,696
(73)
1,592
-
1,592
(45)
20
242
759
928
261
(8)
(33)
(12)
751
895
249
-
90
12
22
97
3
Net wealth management
and insurance income
Trading income
Other income
Net operating income
before operating
expenses and
impairment charges
9,120
4,723
2,293
2,151
1,296
1,043
20,626
(443)
20,183
Operating expenses1
(4,176)
(2,298)
Impairment charges
(1,015)
(1,371)
Profit before income tax
3,929
1,054
Income tax expense
(1,183)
(320)
Profit attributable to NCI
-
-
(1,316)
(404)
573
(241)
-
(998)
(302)
851
(239)
-
(1,548)
(2,364)
(12,700)
(39)
(12,739)
(255)
(507)
3
(2)
169
(3,178)
-
(3,178)
(1,152)
4,748
(482)
4,266
(158)
(2,138)
164
(1,974)
-
(2)
-
(2)
Cash earnings for the
year
Net cash earnings
adjustments
Net profit attributable to
equity holders of WBC
Balance sheet
Loans
Deposits and other
borrowings
2,746
734
332
612
(506)
(1,310)
2,608
(318)
2,290
-
-
-
7
(31)
(294)
(318)
2,746
734
332
619
(537)
(1,604)
2,290
389,793
140,698
66,192
81,434
14,942
-
693,059
219,259
151,939
102,851
68,473
9,260
39,349
591,131
1.
Included in the Specialist Businesses division in operating expenses is $571 million relating to impairment of goodwill and other
intangible assets for 2020. For other divisions, there was no impairment of goodwill and impairment of other intangibles assets was not
material.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
182
Notes to the financial statements
Note 2. Segment reporting (continued)
2019
$m
Consumer
Business
Westpac
Institutional
Bank
Westpac
New
Zealand
Specialist
Businesses
Group
Businesses
Total
Net cash
earnings
adjustment
Income
statement
Net interest income
8,130
4,456
1,337
1,860
Net fee income
594
463
570
163
555
44
615
16,953
(46)
16,907
(179)
1,655
-
1,655
Net wealth management
and insurance income
Trading income
Other income
Net operating income
before operating
expenses and
impairment charges
-
94
7
16
109
6
-
636
(11)
177
37
46
1,319
(489)
1,023
54
(5)
(23)
74
907
117
6
22
12
1,029
929
129
8,825
5,050
2,532
2,283
1,967
(2)
20,655
(6)
20,649
Operating expenses
(3,794)
(2,094)
(1,220)
(939)
Impairment charges
(582)
(172)
(31)
10
(847)
(111)
92
(794)
(1,137)
(10,031)
(75)
(10,106)
-
(81)
16
-
(794)
9,749
(2,959)
(6)
Profit before income tax
4,449
2,784
1,281
1,354
1,009
(1,047)
9,830
Income tax expense
(1,333)
(838)
(356)
(369)
Profit attributable to NCI
-
-
-
-
(292)
(5)
213
(2,975)
(1)
(6)
Cash earnings for the
year
Net cash earnings
adjustments
Net profit attributable to
equity holders of WBC
Balance sheet
Loans
Deposits and other
borrowings
3,116
1,946
925
985
712
(835)
6,849
(65)
6,784
-
-
-
(1)
(45)
(19)
(65)
3,116
1,946
925
984
667
(854)
6,784
399,279
146,867
73,572
78,005
17,216
(169)
714,770
207,578
142,558
99,005
60,801
9,277
44,028
563,247
2018
$m
Consumer
Business
Westpac
Institutional
Bank
Westpac
New
Zealand
Net interest income
8,092
4,619
1,320
1,799
Net fee income
645
469
572
164
Specialist
Businesses
Group
Businesses
565
80
792
(20)
Net cash
earnings
adjustment
Income
statement
(682)
16,505
514
2,424
Total
17,187
1,910
Net wealth management
and insurance income
Trading income
Other income
Net operating income
before operating
expenses and
impairment charges
-
100
21
14
114
15
212
641
48
149
1,533
109
2,017
51
9
42
9
(22)
23
926
125
44
19
(53)
2,061
945
72
8,858
5,231
2,793
2,172
2,229
882
22,165
(158)
22,007
Operating expenses
(3,779)
(1,983)
(1,399)
Impairment charges
(490)
(236)
20
(855)
(22)
Profit before income tax
4,589
3,012
1,414
1,295
Income tax expense
(1,397)
(908)
(429)
(361)
Profit attributable to NCI
-
-
-
-
(746)
(84)
1,399
(420)
(5)
(936)
(9,698)
-
(812)
(54)
11,655
(71)
(3,586)
1
(4)
132
102
76
(46)
-
(9,566)
(710)
11,731
(3,632)
(4)
Cash earnings for the
year
Net cash earnings
adjustments
Net profit attributable to
equity holders of WBC
Balance sheet
Loans
Deposits and other
borrowings
3,192
2,104
985
934
974
(124)
8,065
30
8,095
(15)
-
-
13
(76)
108
30
3,177
2,104
985
947
898
(16)
8,095
396,265
146,099
75,627
73,604
18,329
(234) 709,690
203,872
141,031
102,703
57,784
7,180
46,715
559,285
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 2. Segment reporting (continued)
Reconciliation of cash earnings to net profit attributable to owners of WBC
$m
Cash earnings for the year
Cash earnings adjustments
Amortisation of intangible assets
Fair value gain/(loss) on economic hedges
Ineffective hedges
Adjustments related to Pendal
Treasury shares
Total cash earnings adjustments
Net profit attributable to owners of WBC
183
2020
2019
2018
2,608
6,849
8,065
-
(362)
61
(31)
14
(318)
-
(35)
20
(45)
(5)
(65)
(17)
126
(13)
(73)
7
30
2,290
6,784
8,095
Revenue from products and services
Details of revenue from external customers by product or service are disclosed in Notes 3 and 4. No single customer
amounted to greater than 10% of the Group’s revenue.
Geographic segments
Geographic segments are based on the location of the office where the following items were recognised:
Revenue
Australia
New Zealand
Other overseas1
Total
Non-current assets2
Australia
New Zealand
Other overseas1
Total
2020
2019
2018
$m
%
$m
%
$m
%
26,135
85.6
31,113
84.2
32,595
85.6
3,439
11.3
4,520
12.2
4,381
960
3.1
1,331
3.6
1,097
11.5
2.9
30,534
100.0
36,964
100.0
38,073
100.0
14,270
92.6
12,280
93.7
12,271
93.7
1,015
122
6.6
0.8
761
67
5.8
0.5
756
65
5.8
0.5
15,407
100.0
13,108
100.0
13,092
100.0
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1.
2.
Other overseas included Pacific Islands, Asia, the Americas and Europe.
Non-current assets represent property and equipment and intangible assets.
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
184
Notes to the financial statements
Note 3. Net interest income
Accounting policy
Interest income and interest expense for all interest earning financial assets and interest bearing financial
liabilities at amortised cost or FVOCI, detailed within the table below, are recognised using the effective interest
rate method. Net income from treasury’s interest rate and liquidity management activities and the cost of the
Bank levy are included in net interest income.
The effective interest rate method calculates the amortised cost of a financial instrument by discounting the
financial instrument’s estimated future cash receipts or payments to their present value and allocates the
interest income or interest expense, including any fees, costs, premiums or discounts integral to the instrument,
over its expected life.
Interest income is calculated based on the gross carrying amount of financial assets in stages 1 and 2 of the
Group’s expected credit losses (ECL) model and on the carrying amount net of the provision for ECL for
financial assets in stage 3. For 2018 comparative year, interest income under AASB 139 is recognised net of
provision for impairment on loans. Refer to Note 13 for further details of the Group’s ECL model.
$m
Interest income1
Calculated using the effective interest rate method
Cash and balances with central banks
Collateral paid
Available-for-sale securities
Investment securities
Loans
Other financial assets
Due from subsidiaries
Consolidated
2020
2019
2018
Parent Entity
2020
2019
135
75
-
334
201
326
129
-
1,914
122
74
-
311
197
-
1,521
1,919
-
1,385
1,750
24,848
30,029
29,583
21,488
26,171
17
-
35
-
35
16
33
-
2,940
4,274
Total interest income calculated using the effective interest rate method
26,596
32,518
31,987
26,025
32,736
Other
Net ineffectiveness on qualifying hedges
87
28
(18)
77
26
Trading securities and financial assets measured at FVIS
359
662
564
338
633
Loans
Due from subsidiaries
Total other
Total interest income
Interest expense
Calculated using the effective interest rate method
Collateral received
Deposits and other borrowings
Debt Issues
Due to subsidiaries
Loan capital
Other financial liabilities
5
-
14
-
38
-
451
704
584
5
178
598
14
103
776
27,047
33,222
32,571
26,623
33,512
(26)
(57)
(45)
(23)
(51)
(4,652)
(7,967)
(8,141)
(3,782)
(6,745)
(2,907)
(4,706)
(4,325)
(2,549)
(4,218)
-
(800)
(98)
-
(776)
(274)
-
(3,601)
(4,905)
(774)
(800)
(318)
(98)
(776)
(273)
Total interest expense calculated using the effective interest rate method
(8,483) (13,780) (13,603) (10,853) (16,968)
Other
Deposits and other borrowings
(402)
(978)
(880)
(385)
(961)
Trading liabilities2
Debt issues
Bank levy
Due to subsidiaries
Other interest expense3
Total other
Total interest expense
Total net interest income
(959)
(640)
(828)
(787)
(107)
(408)
-
(915)
(163)
(391)
-
(155)
(74)
(378)
(408)
-
(29)
(140)
(391)
78
(85)
(164)
(88)
(91)
(150)
(1,868)
(2,535)
(2,463)
(1,686)
(2,327)
(10,351)
(16,315) (16,066) (12,539) (19,295)
16,696
16,907
16,505
14,084
14,217
1.
2.
3.
Interest income includes items relating to estimated customer refunds, payments, associated costs and litigation recognised as a
reduction in interest income of $170 million (2019: $372 million, 2018: $127 million) for the Group, and $164 million (2019: $353 million)
for the Parent Entity. Refer to Note 27 for further details.
Includes net impact of Treasury balance sheet management activities.
Included in other interest expense for 2020 is $64 million for the Group and $56 million for the Parent Entity relating to interest expense
on lease liabilities due to the adoption of AASB 16 from 1 October 2019. Comparatives have not been restated. Refer to Notes 1 and 26
for further details.
WESTPAC GROUP 2020 ANNUAL REPORT 185
Notes to the financial statements
Note 4. Non-interest income
Accounting policy
Non-interest income includes net fee income, net wealth management and insurance income, trading income and
other income.
Net fee income
When another party is involved in providing goods or services to a Group customer, the Group assesses whether
the nature of the arrangement with its customer is as a principal provider or an agent of another party. Where
the Group is acting as an agent for another party, the income earned by the Group is the net consideration
received (i.e. the gross amount received from the customer less amounts paid to a third party provider). As an
agent, the net consideration represents fee income for facilitating the transaction between the customer and the
third party provider with primary responsibility for fulfilling the contract.
Fee income
Fee income is recognised when the performance obligation is satisfied by transferring the promised good or
service to the customer. Fee income includes facility fees, transaction fees and other non-risk fee income.
Facility fees include certain line fees, annual credit card fees and fees for providing customer bank accounts. They
are recognised over the term of the facility/period of service on a straight line basis.
Transaction fees are earned for facilitating banking transactions such as FX fees, telegraphic transfers and issuing
bank cheques. Fees for these one-off transactions are recognised once the transaction has been completed.
Transaction fees are also recognised for credit card transactions including interchange fees net of scheme
charges. These are recognised once the transaction has been completed, however, a component of interchange
fees received is deferred as unearned income as the Group has a future service obligation to customers under the
Group’s credit card reward programs.
Other non-risk fee income includes advisory and underwriting fees which are recognised when the related
service is completed.
Income which forms an integral part of the effective interest rate of a financial instrument is recognised using the
effective interest method and recorded in interest income (for example, loan origination fees).
Fee expenses
Fee expenses include incremental external costs that vary directly with the provision of goods or services to
customers. An incremental cost is one that would not have been incurred if a specific good or service had not
been provided to a specific customer. Fee expenses which form an integral part of the effective interest rate of
a financial instrument are recognised using the effective interest method and recorded in net interest income.
Fee expenses include the costs associated with credit card loyalty programs which are recognised as an expense
when the services are provided on the redemption of points as well as merchant transaction costs.
Net wealth management and insurance income
Wealth management income
Wealth management fees earned for the ongoing management of customer funds and investments are
recognised when the performance obligation is satisfied which is over the period of management.
Insurance premium income
Insurance premium income includes premiums earned for life insurance, life investment, loan mortgage insurance
and general insurance products:
•
life insurance premiums with a regular due date are recognised as revenue on an accrual basis;
•
•
life investment premiums include a management fee component which is recognised as income over the
period the service is provided. The deposit components of life insurance and investment contracts are not
revenue and are treated as movements in life insurance liabilities;
general insurance premium comprises amounts charged to policyholders, excluding taxes, and is recognised
based on the likely pattern in which the insured risk is likely to emerge. The portion not yet earned based on
the pattern assessment is recognised as unearned premium liability.
Insurance claims expense
•
•
life and general insurance contract claims are recognised as an expense when the liability is established;
claims incurred in respect of life investment contracts represent withdrawals and are recognised as a
reduction in life insurance liabilities.
Trading income
•
realised and unrealised gains or losses from changes in the fair value of trading assets, liabilities and
derivatives are recognised in the period in which they arise (except day one profits or losses which are
deferred, refer to Note 22);
•
net income related to Treasury’s interest rate and liquidity management activities is included in net interest income.
Other income - dividend income
•
•
dividends on quoted shares are recognised on the ex-dividend date;
dividends on unquoted shares are recognised when the company’s right to receive payment is established.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
186
Notes to the financial statements
Note 4. Non-interest income1 (continued)
$m
Net fee income
Facility fees
Transaction fees
Other non-risk fee income
Fee income
Credit card loyalty programs
Transaction fee related expenses
Fee expenses
Net fee income
Net wealth management and insurance income
Wealth management income
Life insurance premium income
Consolidated
2020
2019
2018
Parent Entity
2020
2019
731
730
1,365
672
680
1,021
1,225
1,182
891
1,046
48
(76)
98
(52)
(638)
1,800
1,879
2,645
1,511
1,088
(102)
(106)
(121)
(103)
(208)
(224)
(126)
(95)
(221)
(71)
(81)
(152)
1,592
1,655
2,424
1,359
(90)
(76)
(166)
922
631
276
1,145
1,297
1,443
1,410
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
General insurance and lenders mortgage insurance (LMI) net premium earned
499
482
472
Life insurance investment and other income2
General insurance and LMI investment and other income
Total insurance premium, investment and other income
Life insurance claims and changes in life insurance liabilities3
General insurance and LMI claims and other expenses
64
42
409
666
52
50
1,902
2,386
2,598
(1,284)
(1,266)
(1,396)
(498)
(367)
(286)
Total insurance claims, changes in life insurance liabilities and other expenses
(1,782)
(1,633)
(1,682)
Net wealth management and insurance income
751
1,029
2,061
Trading income
Other income
Dividends received from subsidiaries
Transactions with subsidiaries
Dividends received from other entities
Net gain/(loss) on derecognition/sale of associates
Net gain/(loss) on disposal of assets
Net gain/(loss) on hedging of overseas operations
Net gain/(loss) on derivatives held for risk management purposes4
Net gain/(loss) on financial assets measured at fair value
Net gain/(loss) on disposal of controlled entities
Rental income on operating leases
Share of associates’ net profit/(loss)
Other
Total other income
Total non-interest income
895
929
945
876
956
-
-
1
316
11
-
4
(78)
-
54
(23)
(36)
-
-
6
38
61
-
(11)
(39)
3
72
(23)
22
-
-
3
-
24
-
8
38
(9)
107
(10)
(89)
762
2,215
579
457
1
305
9
(8)
4
(35)
-
33
-
(53)
3
-
60
(71)
(11)
(25)
-
50
-
6
249
129
72
1,597
2,684
3,487
3,742
5,502
3,832
4,562
Deferred income in relation to the credit card loyalty programs for the Group was $361 million as at 30 September
2020 (2019: $322 million; 2018: $318 million) and $30 million for the Parent Entity (2019: $47 million). This will be
recognised as fee income as the credit card reward points are redeemed.
There were no other material contract assets or contract liabilities for the Group or the Parent Entity.
1.
2.
3.
4.
Non-interest income includes items relating to estimated customer refunds, payments, associated costs and litigation recognised as a
reduction in non-risk fee income, wealth management income and other income of $225 million (2019: $860 million, 2018: $171 million)
for the Group, and $190 million (2019: $842 million) for the Parent Entity. Refer to Note 27 for further details.
Includes policyholder tax recoveries.
Life insurance claims and changes in life insurance liabilities include a $260 million loss for the Group (2019: nil, 2018: nil) recognised
as a result of the liability adequacy test on life insurance contracts (refer to Note 15). It also includes a $97 million write-off of deferred
acquisition costs for the Group (2019: nil, 2018: nil) as a result of Westpac Life Insurance Limited (WLIS) ceasing to provide group life
insurance products to BT Super.
Income from derivatives held for risk management purposes reflects the impact of economic hedges of earnings.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 5. Operating expenses1
$m
Staff expenses
187
Consolidated
2020
2019
2018
Parent Entity
2020
2019
Employee remuneration, entitlements and on-costs
4,428
4,320
4,292
3,744
3,611
Superannuation expense2
Share-based payments
Restructuring costs
Total staff expenses
Occupancy expenses
Operating lease rentals
Depreciation and impairment of property and equipment3,4
Other
Total occupancy expenses
Technology expenses
Amortisation and impairment of software assets4
Depreciation and impairment of IT equipment3,4
Technology services
Software maintenance and licences
Telecommunications
Data processing
Total technology expenses
Other expenses
413
80
94
378
108
232
386
95
114
351
76
76
313
101
202
5,015
5,038
4,887
4,247
4,227
148
658
632
708
160
222
143
245
156
123
614
145
597
176
122
1,016
1,023
1,033
882
895
970
272
698
398
216
89
719
620
896
653
129
810
371
207
83
141
721
342
209
77
244
569
343
190
88
117
670
321
182
81
2,643
2,319
2,110
2,330
2,024
Professional and processing services
1,374
1,060
824
1,184
860
Amortisation and impairment of intangible assets and deferred expenditure4
Postage and stationery
Advertising
Non-lending losses
Impairment on investments in subsidiaries
Other
Total other expenses
Total operating expenses
523
164
217
1,443
-
9
179
245
58
-
138
182
173
133
116
130
172
1,428
-
272
344
175
86
11
-
143
196
43
136
107
4,065
1,726
1,536
3,313
1,485
12,739
10,106
9,566
10,772
8,631
1.
2.
3.
4.
Operating expenses include estimated costs associated with AUSTRAC proceedings of $1,478 million which includes a provision
for penalty of $1,300 million (2019: nil, 2018: nil) for the Group and the Parent Entity. They also include estimated customer refunds,
payments, associated costs and litigation of $317 million (2019: $196 million, 2018: $111 million) for the Group and $488 million (2019:
$180 million) for the Parent Entity. Refer to Note 27 for further details.
Superannuation expense includes both defined contribution and defined benefit expense. Further details of the Group’s defined benefit
plans are in Note 34.
These balances include depreciation of ROU assets of $630 million for the Group and $567 million for the Parent Entity due to the
adoption of AASB 16 from 1 October 2019. Comparatives have not been restated. Refer to Notes 1 and 26 for further details.
Impairment expenses include:
• $5 million (2019: nil, 2018: nil) for property and equipment for the Group, and $4 million (2019: nil) for the Parent Entity;
• $171 million (2019: $25 million, 2018: $2 million) for computer software for the Group, and $165 million (2019: $25 million) for the
Parent Entity;
• $23 million (2019: nil, 2018: $1 million) for IT equipment for the Group, and $23 million (2019: nil) for the Parent Entity; and
• $518 million (2019: nil, 2018: $105 million) for goodwill and other intangible assets for the Group, and $116 million (2019: nil) for the
Parent Entity.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
188
Notes to the financial statements
Note 6. Impairment charges
Accounting policy
As 2018 comparatives were not restated for the Group’s adoption of AASB 9 in 2019, the accounting policy
applied in 2020 and 2019 differs to that applied prior to 2019. The accounting policy applied prior to 2019 is
discussed in Note 39. The accounting policy applied in 2020 and 2019 is as follows.
Impairment charges are based on an expected loss model which measures the difference between the current
carrying amount and the present value of expected future cash flows taking into account past experience,
current conditions and multiple probability-weighted macroeconomic scenarios for reasonably supportable
future economic conditions. Further details of the calculation of ECL and the critical accounting assumptions
and estimates relating to impairment charges are included in Note 13.
Impairment charges are recognised in the income statement, with a corresponding amount recognised as
follows:
•
•
Loans, debt securities at amortised cost and due from subsidiaries balances: as a reduction of the carrying
value of the financial asset through an offsetting provision account (refer to Note 13);
Debt securities at FVOCI: in reserves in OCI with no reduction of the carrying value of the debt security (refer
to Note 28); and
•
Credit commitments: as a provision (refer to Note 27).
Uncollectable loans
A loan may become uncollectable in full or part if, after following the Group’s loan recovery procedures, the
Group remains unable to collect that loan’s contractual repayments. Uncollectable amounts are written off
against their related provision for ECL, after all possible repayments have been received.
Where loans are secured, amounts are generally written off after receiving the proceeds from the security, or
in certain circumstances, where the net realisable value of the security has been determined and this indicates
that there is no reasonable expectation of full recovery, write-off may be earlier. Unsecured consumer loans are
generally written off after 180 days past due.
The Group may subsequently be able to recover cash flows from loans written off. In the period which these
recoveries are made, they are recognised in the income statement.
The following table details impairment charges based on the requirements of AASB 9.
$m
Provisions raised/(released)
Performing
Non-performing
Recoveries
Impairment charges
of which relates to:
Loans and credit commitments
Debt securities at amortised cost
Debt securities at FVOCI
Impairment charges
Consolidated
2020
2019
Parent Entity
2020
2019
1,437
1,934
(193)
3,178
(209)
1,175
(172)
794
1,147
1,717
(173)
2,691
(180)
1,073
(143)
750
3,158
794
2,689
750
18
2
-
-
-
2
-
-
3,178
794
2,691
750
As 2018 comparatives were not restated for the Group’s adoption of AASB 9 in 2019, the following table details
impairment charges based on the requirements of AASB 139. Once AASB 9 has been effective for all comparative
year ends, this table will no longer be presented.
$m
Individually assessed provisions raised
Write-backs
Recoveries
Collectively assessed provisions raised
Impairment charges
Consolidated
2018
371
(150)
(179)
668
710
WESTPAC GROUP 2020 ANNUAL REPORT 189
Notes to the financial statements
Note 7. Income tax
Accounting policy
The tax expense for the year comprises current and deferred tax. Tax is recognised in the income statement,
except to the extent that it relates to items recognised directly in OCI, in which case it is recognised in the
statement of comprehensive income.
Current tax is the tax payable for the year using enacted or substantively enacted tax rates and laws for each
jurisdiction. Current tax also includes adjustments to tax payable for previous years.
Deferred tax accounts for temporary differences between the carrying amounts of assets and liabilities in the
financial statements and their values for taxation purposes.
Deferred tax is determined using the enacted or substantively enacted tax rates and laws for each jurisdiction
which are expected to apply when the assets will be realised or the liabilities settled.
Deferred tax assets and liabilities have been offset where they relate to the same taxation authority, the same
taxable entity or group, and where there is a legal right and intention to settle on a net basis.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available to
utilise the assets.
Deferred tax is not recognised for the following temporary differences:
•
•
•
the initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither the accounting nor taxable profit or loss;
the initial recognition of goodwill in a business combination; and
retained earnings in subsidiaries which the Parent Entity does not intend to distribute for the foreseeable
future.
The Parent Entity is the head entity of a tax consolidated group with its wholly owned, Australian subsidiaries.
All entities in the tax consolidated group have entered into a tax sharing agreement which, in the opinion of the
Directors, limits the joint and several liabilities in the case of a default by the Parent Entity.
Current and deferred tax are recognised using a ‘group allocation basis’. As head entity, the Parent Entity
recognises all current tax balances and deferred tax assets arising from unused tax losses and relevant tax
credits for the tax-consolidated group. The Parent Entity fully compensates/is compensated by the other
members for these balances.
Critical accounting assumptions and estimates
The Group operates in multiple tax jurisdictions and significant judgement is required in determining the
worldwide current tax liability. There are many transactions with uncertain tax outcomes and provisions are
determined based on the expected outcomes.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
190
Notes to the financial statements
Note 7. Income tax (continued)
Income tax expense
The income tax expense for the year reconciles to the profit before income tax as follows:
$m
Profit before income tax
Tax at the Australian company tax rate of 30%
The effect of amounts which are not deductible/(assessable) in
calculating taxable income
Hybrid capital distributions
Life insurance:
Tax adjustment on policyholder earnings
Adjustment for life business tax rates
Dividend adjustments
Other non-assessable items
Other non-deductible items
Adjustment for overseas tax rates
Income tax (over)/under provided in prior years
Other items
Total income tax expense
Income tax analysis
Income tax expense comprises:
Current income tax
Movement in deferred tax
Income tax (over)/under provision in prior years
Total income tax expense
Total Australia
Total Overseas
Total income tax expense1
2020
4,266
1,280
Consolidated
2019
9,749
2,925
2018
11,731
3,519
Parent Entity
2020
2019
4,453
1,336
9,398
2,819
56
72
69
56
72
(17)
1
-
(3)
585
16
1
55
8
(1)
(1)
(14)
12
(32)
(10)
-
24
(1)
(1)
(5)
64
(28)
9
(18)
-
-
(228)
(3)
468
32
1
133
-
-
(664)
(2)
9
(5)
3
45
1,974
2,959
3,632
1,795
2,277
2,954
3,370
3,704
(981)
1
1,974
1,697
277
(401)
(10)
2,959
2,526
433
(81)
9
3,632
3,178
454
2,417
(623)
1
1,795
1,753
42
2,711
(437)
3
2,277
2,215
62
1,974
2,959
3,632
1,795
2,277
The effective tax rate was 46.27% in 2020 (2019: 30.35%, 2018: 30.96%).
1.
As the Bank Levy is not a levy on income, it is not included in income tax. It is included in Note 3.
WESTPAC GROUP 2020 ANNUAL REPORT 191
Notes to the financial statements
Note 7. Income tax (continued)
Deferred tax assets
The balance comprises temporary differences attributable to:
$m
Amounts recognised in the income statements and opening retained profits due to
adoption of new accounting standards
Provisions for ECL on loans and credit commitments1,2
Provision for long service leave, annual leave and other employee benefits
Financial instruments1
Property and equipment
Other provisions2
Lease liabilities3
All other liabilities3
Consolidated
2020
2019
Parent Entity
2020
2019
1,788
335
-
223
606
899
419
1,158
309
5
195
531
-
366
1,507
308
-
198
570
825
304
1,003
286
2
173
511
-
358
Total amounts recognised in the income statements and opening retained profits
due to adoption of new accounting standards
4,270
2,564
3,712
2,333
Amounts recognised directly in OCI
Investment securities
Cash flow hedges
Defined benefit
Total amounts recognised directly in OCI
Gross deferred tax assets
Set-off of deferred tax assets and deferred tax liabilities
Net deferred tax assets
Movements
Balance as at beginning of year
Impact on adoption of new accounting standards1,3
Restated opening balance
Recognised in the income statements
Recognised in OCI
Set-off of deferred tax assets and deferred tax liabilities
Balance as at end of year
-
25
155
180
4,450
(1,386)
10
52
105
167
2,731
(683)
-
-
149
149
3,861
(1,364)
3,064
2,048
2,497
2,048
948
1,180
300
1,925
872
11
28
101
140
2,473
(548)
1,925
1,102
258
2,996
1,480
2,797
1,360
758
13
(703)
472
117
(21)
507
9
(816)
476
109
(20)
3,064
2,048
2,497
1,925
1.
2.
3.
Included in 2019, is the impact on adoption of AASB 9, which increased deferred tax assets by $300 million for the Group and
$258 million for the Parent Entity, recognised as an opening adjustment in retained profits. The details are as follows:
• Provision for ECL - $297 million for the Group and $258 million for the Parent Entity; and
• Financial instruments - $3 million for the Group and nil for the Parent Entity.
2019 Other provisions were restated from $590 million to $531 million for the Group, and from $561 million to $511 million for the Parent
Entity, to reclassify provision for ECL on credit commitments to provisions for ECL on loans and credit commitments.
The adoption of AASB 16 on 1 October 2019 resulted in an increase in deferred tax assets of $948 million for the Group and $872
million for the Parent Entity. A corresponding increase was also recognised in deferred tax liabilities (refer to the following table), which
resulted in a net nil impact on retained profits.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
192
Notes to the financial statements
Note 7. Income tax (continued)
Deferred tax liabilities
The balance comprises temporary differences attributable to:
$m
Amounts recognised in the income statements and opening retained profits due to
adoption of new accounting standards
Finance lease transactions
Property and equipment1
Life insurance assets
All other assets
Consolidated
2020
2019
Parent Entity
2020
2019
253
933
43
223
230
128
57
312
232
864
-
208
206
129
-
213
Total amounts recognised in the income statements and opening retained profits
due to adoption of new accounting standards
1,452
727
1,304
548
Amounts recognised directly in OCI
Investment securities
Cash flow hedges
Total amounts recognised directly in OCI
Gross deferred tax liabilities
Set-off of deferred tax assets and deferred tax liabilities
Net deferred tax liabilities
Movements
Balance as at beginning of year
Impact on adoption of new accounting standards1
Restated opening balance
Recognised in the income statements
Recognised in OCI
Set-off of deferred tax assets and deferred tax liabilities
Balance as at end of year
51
9
60
1,512
(1,386)
126
44
948
992
(223)
60
(703)
126
-
-
-
727
(683)
44
18
-
18
71
(24)
(21)
44
51
9
60
1,364
(1,364)
-
-
872
872
(116)
60
(816)
-
-
-
-
548
(548)
-
3
-
3
39
(22)
(20)
-
Unrecognised deferred tax balances
The following potential deferred tax balances have not been recognised. The values shown are the gross balances
and not tax effected. The tax effected balances would be approximately 30% of the values shown.
$m
Unrecognised deferred tax asset
Tax losses on revenue account
Unrecognised deferred tax liability
Consolidated
2020
2019
Parent Entity
2020
2019
335
291
264
237
Gross retained earnings of subsidiaries which the Parent Entity does not intend to
distribute in the foreseeable future
55
51
-
-
1.
The adoption of AASB 16 on 1 October 2019 resulted in an increase in deferred tax liabilities of $948 million for the Group and
$872 million for the Parent Entity, which was recognised as an opening adjustment in retained profits. A corresponding increase was
also recognised in deferred tax assets (refer to the previous table), which resulted in a net nil impact on retained profits.
WESTPAC GROUP 2020 ANNUAL REPORT 193
Notes to the financial statements
Note 8. Earnings per share
Accounting policy
Basic earnings per share (EPS) is calculated by dividing the net profit attributable to shareholders by the
weighted average number of ordinary shares on issue during the year, adjusted for treasury shares. Diluted EPS
is calculated by adjusting the basic EPS by assuming all dilutive potential ordinary shares are converted. Refer to
Notes 19 and 33 for further information on the potential dilutive instruments.
$m
2020
2019
2018
Basic
Diluted
Basic
Diluted
Basic
Diluted
Net profit attributable to shareholders
2,290
2,290
6,784
6,784
8,095
8,095
Adjustment for RSP dividends1
Adjustment for potential dilution:
Distributions to convertible loan capital holders2
(2)
-
(2)
-
(6)
(6)
(5)
-
-
290
-
283
Adjusted net profit attributable to shareholders
2,288
2,288
6,778
7,068
8,090
8,378
Weighted average number of ordinary shares (millions)
Weighted average number of ordinary shares on issue
3,595
3,595
3,456
3,456
3,414
3,414
Treasury shares (including RSP share rights)1
(5)
(5)
(6)
Adjustment for potential dilution:
Share-based payments
Convertible loan capital2
Adjusted weighted average number of ordinary shares
Earnings per ordinary share (cents)
-
-
1
-
-
-
3,590
63.7
3,591
63.7
3,450
196.5
(6)
1
278
3,729
189.5
(8)
-
-
3,406
237.5
(8)
3
232
3,641
230.1
1.
2.
RSP is explained in Note 33. Some shares under the RSP have not vested and are not outstanding ordinary shares but do receive
dividends. These RSP dividends are deducted to show the profit attributable to ordinary shareholders. Shares under the RSP were
antidilutive in 2020 and 2019, but were dilutive in 2018.
The Group has issued convertible loan capital which may convert into ordinary shares in the future (refer to Note 19 for further
details). These convertible loan capital instruments are potentially dilutive instruments, and diluted EPS is therefore calculated as if the
instruments had been converted at the beginning of the year or, if later, the instruments’ issue date. In 2020, all convertible loan capital
instruments were antidilutive, but were dilutive in 2019 and 2018.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
194
Notes to the financial statements
Note 9. Average balance sheet and interest rates
The daily average balances of the Group’s interest earning assets and interest bearing liabilities are shown below
along with their interest income or expense.
Consolidated
Assets
Interest earning assets
Collateral paid:
Australia
New Zealand
Other overseas
Trading securities and financial
assets measured at FVIS:
Australia
New Zealand
Other overseas
Available-for-sale securities:
Australia
New Zealand
Other overseas
Investment securities:
Australia
New Zealand
Other overseas
Loans and other receivables1:
Australia
New Zealand
Other overseas
Total interest earning assets and
interest income
Non-Interest earning assets
Derivative financial instruments
Life insurance assets
All other assets2
Total non-interest earning assets
Total assets
Average
balance
$m
2020
Interest
income
$m
Average
rate
%
Average
balance
$m
2019
Interest
income
$m
Average
rate
%
Average
balance
$m
2018
Interest
income
$m
Average
rate
%
13,555
373
1,804
20,300
4,728
4,601
-
-
-
56
3
16
217
47
95
-
-
-
71,402
1,347
3,921
2,858
96
78
585,643
21,315
85,184
3,237
27,349
540
0.4
0.8
0.9
1.1
1.0
2.1
-
-
-
1.9
2.4
2.7
3.6
3.8
2.0
8,428
364
2,031
152
7
42
20,691
468
3,862
4,521
85
109
1.8
1.9
2.1
2.3
2.2
2.4
5,239
252
2,594
86
4
39
17,420
423
3,538
3,160
80
61
-
-
-
-
-
-
-
-
-
55,458
1,692
3,304
2,778
136
86
56,875
1,691
3,850
3,062
130
98
589,427
25,931
79,255
3,650
26,558
859
3.0
3.4
3.2
4.4
4.6
3.2
-
-
-
-
-
-
578,679
25,700
73,902
3,516
28,620
748
1.6
1.6
1.5
2.4
2.3
1.9
3.1
4.1
3.1
-
-
-
4.4
4.8
2.6
821,718
27,047
3.3
798,924
33,222
4.2
774,944
32,571
4.2
31,334
4,614
62,414
98,362
920,080
25,959
9,610
60,231
95,800
894,724
26,443
10,664
61,259
98,366
873,310
1.
2.
For 2020 and 2019, loans and other receivables are net of Stage 3 provision for ECL, where interest income is determined based on
their carrying value. Stages 1 and 2 provisions for ECL are not included in the average interest earning assets balance, as interest income
is determined based on the gross value of loans and other receivables. For 2018, loans and other receivables are net of provision for
impairment charges on loans, as under AASB 139 interest income is determined based on their carrying value, net of provision for
impairment charges on loans.
Includes property and equipment, intangible assets, deferred tax assets, non-interest earning loans relating to mortgage offset accounts
and all other non-interest earning assets.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 9. Average balance sheet and interest rates (continued)
195
2020
2019
2018
Average
balance
$m
Interest
expense
$m
Average
rate
%
Average
balance
$m
Interest
expense
$m
Average
rate
%
Average
balance
$m
Interest
expense
$m
Average
rate
%
Consolidated
Liabilities
Interest bearing liabilities
Collateral received:
Australia
New Zealand
Other overseas
Deposits and other
borrowings:
2,586
596
4,399
11
3
12
0.4
0.5
0.3
2,039
390
1,188
41
8
8
2.0
2.1
0.7
2,383
342
184
37
6
2
Australia
435,877
3,745
0.9
425,799
New Zealand
Other overseas
Loan capital:
Australia
New Zealand
Other overseas
Other interest bearing
liabilities1:
57,096
25,660
19,554
1,833
1,324
882
427
663
94
43
Australia
New Zealand
Other overseas
176,950
3,849
18,510
1,256
558
64
1.5
1.7
3.4
5.1
3.2
2.2
3.0
5.1
54,720
26,270
15,080
1,777
1,324
7,023
1,235
687
632
91
53
188,736
5,937
15,665
1,294
575
25
1.6
422,006
7,308
2.3
2.6
4.2
5.1
4.0
3.1
3.7
1.9
51,368
26,599
15,028
1,645
1,324
1,196
517
635
84
55
177,746
5,594
15,011
1,873
591
41
1.6
1.8
1.1
1.7
2.3
1.9
4.2
5.1
4.2
3.1
3.9
2.2
745,641
10,351
1.4
734,282
16,315
2.2
715,509
16,066
2.2
Total interest bearing
liabilities and interest
expense
Non-interest bearing
liabilities
Deposits and other
borrowings:
Australia
New Zealand
Other overseas
Derivative financial
instruments
Life insurance liabilities
All other liabilities2
Total non-interest bearing
liabilities
Total liabilities
Shareholders’ equity
NCI
Total equity
45,231
8,760
901
33,249
2,999
15,233
106,373
852,014
68,014
52
68,066
Total liabilities and equity
920,080
42,455
5,996
819
26,568
7,653
13,187
96,678
830,960
63,714
50
63,764
894,724
41,156
5,204
817
26,218
8,874
13,484
95,753
811,262
62,017
31
62,048
873,310
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1.
2.
Includes net impact of Treasury balance sheet management activities and the Bank Levy.
Includes other financial liabilities, provisions, current and deferred tax liabilities and all other non-interest bearing liabilities.
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
196
Notes to the financial statements
Note 9. Average balance sheet and interest rates (continued)
Net interest income may vary from year to year due to changes in the volume of, and interest rates associated with,
interest earning assets and interest bearing liabilities. The table below allocates the change in net interest income
between changes in volume and interest rate for those assets and liabilities.
Calculation of variances
•
volume changes are determined based on the movements in average asset and liability balances; and
•
interest rate changes are determined based on the change in interest rate associated with those assets and
liabilities.
Variances that arise due to a combination of volume and interest rate changes are allocated to interest rate
changes.
2020
Change due to
Rate
Volume
2019
Change due to
Total
Volume
Rate
Total
Consolidated
$m
Interest earning assets
Collateral paid:
Australia
New Zealand
Other overseas
Trading securities and financial assets measured at FVIS:
Australia
New Zealand
Other overseas
Investment securities:
Australia
New Zealand
Other overseas
Loans and other receivables:
Australia
New Zealand
Other overseas
Total change in interest income
Interest bearing liabilities
Collateral received:
Australia
New Zealand
Other overseas
Deposits and other borrowings:
Australia
New Zealand
Other overseas
Loan capital:
Australia
New Zealand
Other overseas
Other interest bearing liabilities:
Australia
New Zealand
Other overseas
Total change in interest expense
Change in net interest income:
Australia
New Zealand
Other overseas
Total change in net interest income
66
3
3
45
5
48
(1)
(6)
12
231
134
111
651
4
2
6
93
(189)
(96)
(4)
(26)
(4)
(21)
(242)
(251)
(57)
(16)
(38)
(14)
-
(5)
(9)
19
2
433
(777)
(344)
2
(7)
(36)
(13)
(34)
(20)
52
2
(8)
79
7
26
43
22
9
14
1
11
(34)
(2)
22
(44)
(28)
3
(167)
(4,449)
(4,616)
274
26
(687)
(345)
(413)
(319)
477
255
(54)
(246)
(121)
165
661
(6,836)
(6,175)
910
(259)
11
4
22
(41)
(9)
(18)
(30)
(5)
4
167
(3,445)
(3,278)
54
(16)
(407)
(353)
(244)
(260)
188
(157)
3
-
-
(10)
31
3
(10)
(5)
1
11
66
78
(6)
2
7
-
9
1
(5)
(351)
(285)
(39)
176
39
170
(5)
-
(2)
(3)
7
(2)
(372)
(1,716)
(2,088)
346
(3)
343
105
(1)
(122)
40
(17)
39
26
(13)
(42)
(3)
(16)
(16)
165
(6,129)
(5,964)
513
(264)
249
356
129
11
(298)
(246)
(163)
496
(707)
58
(117)
(152)
(211)
242
174
(19)
397
40
(70)
35
282
104
16
5
402
WESTPAC GROUP 2020 ANNUAL REPORT 197
Notes to the financial statements
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Accounting policy
Recognition
Purchases and sales by regular way of financial assets, except for loans and receivables, are recognised on trade-
date, the date on which the Group commits to purchase or sell the asset. Loans and receivables are recognised
on settlement date, when cash is advanced to the borrowers.
Financial liabilities are recognised when an obligation arises.
Derecognition
Financial assets are derecognised when the rights to receive cash flows from the asset have expired, or when the
Group has either transferred its rights to receive cash flows from the asset or has assumed an obligation to pay
the received cash flows in full under a ‘pass through’ arrangement and transferred substantially all the risks and
rewards of ownership.
There may be situations where the Group has partially transferred the risks and rewards of ownership but has
neither transferred nor retained substantially all the risks and rewards of ownership. In such situations, where the
Group retains control of the transferred asset, it will continue to be recognised in the balance sheet to the extent
of the Group’s continuing involvement in the asset.
Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. Where an existing
financial liability is replaced by another from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, the exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, with the difference in the respective carrying amounts
recognised in the income statement.
The terms are deemed to be substantially different if the discounted present value of the cash flows under the
new terms (discounted using the original effective interest rate) is at least 10% different from the discounted
present value of the remaining cash flows of the original financial liability. Qualitative factors such as a change
in the currency the instrument is denominated in, a change in the interest rate from fixed to floating and
conversion features are also considered.
Classification and measurement
As comparatives prior to 2019 were not restated for the Group’s adoption of AASB 9 in 2019, the accounting
policy applied in 2020 and 2019 differs to that applied prior to 2019. The accounting policy applied prior to 2019
is discussed in Note 39. The accounting policy applied in 2020 and 2019 is as follows.
Financial assets are grouped into the following classes: cash and balances with central banks; collateral paid,
trading securities and financial assets measured at FVIS, derivative financial instruments, investment securities,
loans, other financial assets and life insurance assets.
Financial assets
Financial assets are classified based on a) the business model within which the assets are managed, and b)
whether the contractual cash flows of the instrument represent solely payment of principal and interest (SPPI).
The Group determines the business model at the level that reflects how groups of financial assets are managed.
When assessing the business model the Group considers factors including how performance and risks are
managed, evaluated and reported and the frequency and volume of, and reason for, sales in previous periods
and expectations of sales in future periods.
When assessing whether contractual cash flows are SPPI, interest is defined as consideration primarily for the
time value of money and the credit risk of the principal outstanding. The time value of money is defined as the
element of interest that provides consideration only for the passage of time and not consideration for other risks
or costs associated with holding the financial asset. Terms that could change the contractual cash flows so that
they may not meet the SPPI criteria include contingent and leverage features, non-recourse arrangements, and
features that could modify the time value of money.
Debt instruments
If the debt instruments have contractual cash flows which represent SPPI on the principal balance outstanding
they are classified at:
•
•
amortised cost if they are held within a business model whose objective is achieved through holding the
financial asset to collect these cash flows; or
FVOCI if they are held within a business model whose objective is achieved both through collecting these
cash flows or selling the financial asset; or
•
FVIS if they are held within a business model whose objective is achieved through selling the financial asset.
Debt instruments are measured at FVIS where the contractual cash flows do not represent SPPI on the principal
balance outstanding or where it is designated at FVIS to eliminate or reduce an accounting mismatch.
Debt instruments at amortised cost are initially recognised at fair value and subsequently measured at amortised
cost using the effective interest rate method. They are presented net of provision for ECL determined using the
ECL model. Refer to Notes 6 and 13 for further details.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
198
Notes to the financial statements
FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
Accounting policy (continued)
Debt instruments at FVOCI are measured at fair value with unrealised gains and losses recognised in OCI except
for interest income, impairment charges and FX gains and losses, which are recognised in the income statement.
Impairment on debt instruments at FVOCI is determined using the ECL model and is recognised in the income
statement with a corresponding amount in OCI. There is no reduction of the carrying value of the debt security
which remains at fair value.
The cumulative gain or loss recognised in OCI is subsequently recognised in the income statement when the
instrument is derecognised.
Debt instruments at FVIS are measured at fair value with subsequent changes in fair value recognised in the
income statement.
Equity securities
Equity securities are measured at FVOCI where they:
•
•
are not held for trading; and
an irrevocable election is made by the Group.
Otherwise, they are measured at FVIS.
Equity securities at FVOCI are measured at fair value with unrealised gains and losses recognised in OCI, except
for dividend income which is recognised in the income statement. The cumulative gain or loss recognised in OCI
is not subsequently recognised in the income statement when the instrument is disposed.
Equity securities at FVIS are measured at fair value with subsequent changes in fair value recognised in the
income statement.
Financial liabilities
Financial liabilities are grouped into the following classes: collateral received, deposits and other borrowings,
other financial liabilities, derivative financial instruments, debt issues and loan capital.
Financial liabilities are measured at amortised cost if they are not held for trading or designated at FVIS,
otherwise they are measured at FVIS.
Financial assets and financial liabilities measured at FVIS are recognised initially at fair value. All other financial
assets and financial liabilities are recognised initially at fair value plus or minus directly attributable transaction
costs respectively.
Further details of the accounting policy for each category of financial asset or financial liability mentioned above
is set out in the note for the relevant item.
The Group’s policies for determining the fair value of financial assets and financial liabilities are set out in
Note 22.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial
statements
199
Notes to the financial statements
Note 10. Trading securities and financial assets measured at FVIS
Accounting policy
Trading securities
Trading securities include actively traded debt (government and other) and equity instruments and those
acquired for sale in the near term.
As part of its trading activities, the Group also lends and borrows securities on a collateralised basis. Securities
lent remain on the Group’s balance sheet and securities borrowed are not reflected on the Group’s balance
sheet, as the risks and rewards of ownership remain with the initial holder. Where cash is provided as collateral,
the amount advanced to or received from third parties is recognised as a receivable in collateral paid or as a
borrowing in collateral received respectively.
Reverse repurchase agreements
Securities purchased under these agreements are not recognised in the balance sheet, as Westpac has not
obtained the risks and rewards of ownership. The cash consideration paid is recognised as a reverse repurchase
agreement, which forms part of a trading portfolio that is measured at fair value.
Other financial assets measured at FVIS
Other financial assets measured at FVIS include:
•
•
non-trading securities managed on a fair value basis;
non-trading debt securities that do not have contractual cash flows that represent SPPI on the principal
balance outstanding; or
•
non-trading equity securities for which we have not made irrevocable designation to be measured at FVOCI.
Gains and losses on these financial assets are recognised in the income statement. Interest earned from debt
securities is recognised in interest income (Note 3) while dividends on equity securities are recognised in non-
interest income (Note 4).
$m
Trading securities
Reverse repurchase agreements
Other financial assets measured at FVIS
Consolidated
2019
2020
2018
Parent Entity
2020
2019
17,776
22,210
18,777
15,519
20,719
20,401
2,490
6,833
2,738
1,379
20,401
2,976
2,110
6,731
2,115
Total trading securities and financial assets measured at FVIS
40,667
31,781
23,132
38,030
29,565
Trading securities include the following:
$m
Consolidated
2019
2020
2018
Parent Entity
2020
2019
Government and semi-government securities
14,667
16,625
13,328
12,542
15,585
Other debt securities
Equity securities
Other
Total trading securities
Other financial assets measured at FVIS include:
$m
Other debt securities
Equity securities
3,044
5,497
5,354
2,913
5,046
4
61
6
82
8
87
3
61
6
82
17,776
22,210
18,777
15,519
20,719
Consolidated
2019
2020
2,045
2,394
445
344
2018
2,715
261
Parent Entity
2020
2019
1,703
407
2,110
2,057
58
2,115
Total other financial assets measured at FVIS
2,490
2,738
2,976
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
200
Notes to the financial statements
Note 11. Available-for-sale securities/Investment securities
Accounting policy
As 2018 comparatives were not restated for the Group’s adoption of AASB 9 in 2019, the accounting policy
applied in 2020 and 2019 differs to that applied prior to 2019. The accounting policy applied prior to 2019 is
discussed in Note 39. The accounting policy applied in 2020 and 2019 is as follows.
Investment securities include debt securities (government and other) and equity securities. It includes debt and
equity securities that are measured at FVOCI and debt securities measured at amortised cost. These instruments
are classified based on the criteria disclosed under the heading “Financial assets and financial liabilities” prior to
Note 10.
Debt securities measured at FVOCI
Include debt instruments that have contractual cash flows which represent SPPI on the principal balance
outstanding and they are held within a business model whose objective is achieved both through collecting
these cash flows or selling the financial asset.
These securities are measured at fair value with gains and losses recognised in OCI except for interest income,
impairment charges and FX gains and losses which are recognised in the income statement.
Impairment is measured using the same ECL model applied to financial assets measured at amortised cost.
Impairment is recognised in the income statement with a corresponding amount in OCI with no reduction of the
carrying value of the debt security which remains at fair value. Refer to Note 13 for further details.
The cumulative gain or loss recognised in OCI is subsequently recognised in the income statement when the
instrument is disposed.
Debt securities measured at amortised cost
Include debt instruments that have contractual cash flows which represent SPPI on the principal balance
outstanding and are held within a business model whose objective is achieved through holding the financial
asset to collect these cash flows.
These securities are initially recognised at fair value plus directly attributable transaction costs. They are
subsequently measured at amortised cost using the effective interest rate method and are presented net of any
provision for ECL.
Equity securities
Equity securities are measured at FVOCI where they are not held for trading, the Group does not have control or
significant influence over the investee and where an irrevocable election is made to measure them at FVOCI.
These securities are measured at fair value with unrealised gains and losses recognised in OCI except for
dividend income which is recognised in the income statement. The cumulative gain or loss recognised in OCI is
not subsequently recognised in the income statement when the instrument is disposed.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 11. Available-for-sale securities/Investment securities (continued)
Balances recognised under AASB 9
$m
Investment securities
Investments securities measured at FVOCI
201
Consolidated
2020
2019
Parent Entity
2020
2019
Government and semi-government debt securities
73,486
53,389
69,929
50,980
Other debt securities
Equity securities
Total investment securities measured at FVOCI
Investment securities measured at amortised cost
Government and semi-government debt securities
Other debt securities
Total investment securities measured at amortised cost
Provision for ECL on debt securities at amortised cost
Total net investment securities measured at amortised cost
16,916
19,058
15,826
17,325
153
134
68
66
90,555
72,581
85,823
68,371
881
130
1,011
(27)
984
736
93
829
(9)
820
-
3
3
-
3
23
4
27
-
27
Total investment securities
91,539
73,401
85,826
68,398
The ECL recognised in relation to investment securities – debt securities are detailed in Note 13.
The following table shows the maturities of the Group’s investment securities as at 30 September 2020. It also
shows the weighted average yield of the Group’s investment securities. There are no tax-exempt securities.
Up to
1 year
$m
Over 1
year to 5
years
$m
%
Over 5
years to
10 years
$m
%
Over
10 years
$m
%
No specific
maturity
$m
%
Total
$m
%
Weighted
average
%
2,670
2.7
32,848
2.1
38,565
1.8
257
1.4
4,057
1.7
12,989
1.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,046
153
-
153
1.6
-
-
74,340
2.0
6,727
45,837
38,565
257
153
91,539
2020
Carrying
Amount
Government
and semi-
government
securities
Other debt
securities
Equity
securities
Total by
maturity
The maturity profile is determined based upon contractual terms for investment securities.
Investment securities include:
•
•
US Government treasury notes of $7,271 million (2019: $10,398 million, 2018: $5,229 million); and
total holdings of debt securities, where the aggregate book value exceeds 10% of equity attributable to
Westpac’s owners:
–
–
–
–
Australian Commonwealth Government totalling $15,714 million;
Queensland Treasury Corporation totalling $14,033 million;
New South Wales Treasury Corporation totalling $13,385 million; and
Treasury Corporation of Victoria totalling $10,593.
Balances recognised under AASB 139
$m
Available-for-sale securities
Government and semi-government securities
Other debt securities
Equity securities
Total available-for-sale securities
Consolidated
2018
42,979
17,756
384
61,119
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
202
Notes to the financial statements
Note 12. Loans
Accounting policy
As 2018, 2017 and 2016 comparatives were not restated for the Group’s adoption of AASB 9 in 2019, the
accounting policy applied in 2020 and 2019 differs to that applied prior to 2019. The accounting policy applied
prior to 2019 is discussed in Note 39. The accounting policy applied in 2020 and 2019 is as follows.
Loans are financial assets initially recognised at fair value plus directly attributable transaction costs and fees.
Loans are subsequently measured at amortised cost using the effective interest rate method where they have
contractual cash flows which represent SPPI on the principal balance outstanding and they are held within a
business model whose objective is achieved through holding the loans to collect these cash flows. They are
presented net of any provision for ECL.
Loans are subsequently measured at FVIS where they do not have cash flows which represent SPPI, are held
within a business model whose objective is achieved by selling the financial asset, or are designated at FVIS to
eliminate or reduce an accounting mismatch.
Refer to Note 22 for balances which are measured at fair value and amortised cost.
Loan products that have both mortgage and deposit facilities are presented gross in the balance sheet,
segregating the asset and liability component, because they do not meet the criteria to be offset. Interest
earned on these products is presented on a net basis in the income statement as this reflects how the customer
is charged.
The loan portfolio is disaggregated by location of booking office and product type, as follows:
$m
Australia
Housing
Personal
Business
Total Australia
New Zealand
Housing
Personal
Business
Total New Zealand
Total other overseas
Total loans
Provision for ECL on loans (refer to Note 13)
Total net loans1
Consolidated
2020
2019
Parent Entity
2020
2019
440,933
449,201
440,926
449,192
17,081
21,247
16,938
20,848
147,584
152,360
144,354
148,850
605,598
622,808
602,218
618,890
51,126
1,360
47,731
1,709
29,864
29,285
82,350
78,725
-
-
354
354
-
-
411
411
10,713
16,845
9,945
15,738
698,661
718,378
612,517
635,039
(5,602)
(3,608)
(4,693)
(3,103)
693,059
714,770
607,824
631,936
1.
Total net loans include securitised loans of $7,367 million (2019: $7,737 million) for the Group and $132,506 million (2019: $91,061 million)
for the Parent Entity.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 12. Loans (continued)
The following tables show loans presented based on their industry classification:
Consolidated
$m
2020
2019
203
2018
2017
2016
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
7,933
10,116
6,711
8,039
9,210
7,186
8,297
8,642
6,751
8,177
8,182
6,043
7,536
7,953
5,797
13,348
14,069
14,059
12,923
14,298
730
8,493
2,975
753
9,337
2,869
628
9,298
3,311
554
9,054
3,025
675
9,140
3,641
44,468
44,769
45,471
43,220
44,785
Property services and business services
12,562
14,035
13,477
12,050
11,674
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
11,675
12,099
12,158
12,950
12,362
13,268
8,218
4,962
16,144
8,268
4,077
16,501
8,853
4,350
16,063
16,044
8,624
5,237
9,015
4,025
454,433
466,550
463,609
451,315
429,522
5,706
5,403
6,680
4,229
2,777
605,598
622,808
622,085
601,646
579,244
388
9,101
509
355
8,553
493
323
8,138
502
290
7,772
447
3,427
3,009
2,903
2,478
94
1,689
203
6,667
951
2,119
1,949
1,176
1,303
85
1,913
278
6,412
1,182
1,973
114
2,199
206
137
2,090
141
5,997
5,858
1,073
1,733
1,113
1,810
2,163
1,080
1,237
2,344
2,509
1,131
1,429
1,029
1,003
256
7,788
396
2,682
163
2,324
280
5,925
1,084
1,396
2,333
1,257
1,600
52,584
49,473
46,613
45,190
45,011
190
95
-
-
-
82,350
78,725
74,342
71,806
72,495
118
124
51
109
150
55
112
19
71
97
5
55
118
12
147
2,298
4,628
4,774
4,289
2,767
Government, administration and defence
20
2
25
4
4
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total loans
Provision for ECL on loans (refer Note 13)
Provision for impairment charges on loans
Total net loans
1,877
3,784
3,257
2,982
2,619
336
416
1,545
218
1,553
732
950
457
18
468
492
1,610
243
2,293
997
1,086
863
65
322
467
1,684
205
2,312
1,232
736
683
178
349
491
540
205
2,680
1,389
514
657
76
535
479
526
99
3,463
1,186
442
1,120
-
10,713
16,845
16,077
14,333
13,517
698,661
718,378
712,504
687,785
665,256
(5,602)
(3,608)
-
-
-
-
-
(2,814)
(2,866)
(3,330)
693,059
714,770
709,690
684,919
661,926
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
204
Notes to the financial statements
Note 12. Loans (continued)
Parent Entity
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total loans
Provision for ECL on loans
Total net loans
2020
2019
7,857
10,058
6,199
7,967
9,151
6,810
13,290
14,005
709
8,282
2,955
746
9,155
2,849
44,468
44,707
11,843
11,334
13,058
7,870
4,938
13,192
11,853
15,961
7,961
4,053
454,259
465,535
5,098
4,945
602,218
618,890
-
4
4
-
-
-
5
8
-
-
70
94
-
1
7
-
263
5
-
-
-
-
-
7
-
297
-
-
-
-
354
411
81
114
46
67
130
47
2,295
4,624
20
2
1,875
3,780
314
209
1,478
196
1,415
642
894
359
7
465
226
1,528
216
2,115
886
1,036
587
29
9,945
15,738
612,517
635,039
(4,693)
(3,103)
607,824
631,936
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 12. Loans (continued)
The following table shows the Group’s contractual maturity distribution of all loans by industry as at
30 September 2020:
205
Consolidated 2020
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
Total New Zealand
Total other overseas
Total loans
Consolidated
$m
Interest rate segmentation of Group
loans maturing after one year
By offices in Australia
By offices in New Zealand
By offices in other overseas
Up to 1 year
Over 1 year
to 5 years
Over 5 years
Total
3,253
3,115
1,604
6,066
300
3,465
458
4,303
6,417
4,241
4,761
154
4,589
1,903
18,027
25,088
2,991
3,793
5,892
1,593
860
16,491
748
68,656
20,555
3,151
92,362
8,055
6,252
6,236
5,977
3,847
10,468
3,886
96,177
11,481
6,900
114,558
377
584
866
2,521
276
439
614
1,353
1,516
1,630
1,140
648
255
7,933
10,116
6,711
13,348
730
8,493
2,975
44,468
12,562
11,675
13,268
8,218
4,962
427,474
454,433
1,072
5,706
440,765
605,598
50,314
662
491,741
82,350
10,713
698,661
Loans at
variable
interest
rates
2020
Loans at
fixed
interest
rates
Loans at
variable
interest
rates
2019
Loans at
fixed
interest
rates
Total
Total
396,055
140,887
536,942
418,494
129,035
547,529
8,771
7,216
53,024
346
61,795
7,562
9,102
9,881
50,499
943
59,601
10,824
Total loans maturing after one year
412,042
194,257
606,299
437,477
180,477
617,954
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Notes to the financial
statements
206
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges
Accounting policy
As 2018, 2017 and 2016 comparatives were not restated upon the Group’s adoption of AASB 9 in 2019, the
accounting policy applied in 2020 and 2019 differs to that applied prior to 2019. The accounting policy applied
prior to 2019 is discussed in Note 39. The accounting policy applied in 2020 and 2019 is as follows.
Note 6 provides details of impairment charges.
Impairment under AASB 9 applies to all financial assets at amortised cost, lease receivables, debt securities
measured at FVOCI, due from subsidiaries and credit commitments.
The Expected Credit Loss (ECL) determined under AASB 9 is recognised as follows:
•
•
Loans (including lease receivables), debt securities at amortised cost and due from subsidiaries: as a
reduction of the carrying value of the financial asset through an offsetting provision account (refer to Notes
11 and 12);
Debt securities at FVOCI: in reserves in OCI with no reduction of the carrying value of the debt security itself
(refer to Notes 11 and 28); and
•
Credit commitments: as a provision (refer to Note 27).
Measurement
The Group calculates the provision for ECL based on a three stage approach. ECL are a probability-weighted
estimate of the cash shortfalls expected to result from defaults over the relevant timeframe. They are determined
by evaluating a range of possible outcomes and taking into account the time value of money, past events,
current conditions and forecasts of future economic conditions.
The models use three main components to determine the ECL (as well as the time value of money) including:
•
•
•
Probability of default (PD): the probability that a counterparty will default;
Loss given default (LGD): the loss that is expected to arise in the event of a default; and
Exposure at default (EAD): the estimated outstanding amount of credit exposure at the time of the default.
Model stages
The three stages are as follows:
Stage 1: 12 months ECL - performing
For financial assets where there has been no significant increase in credit risk since origination a provision for
12 months ECL is recognised.
Stage 2: Lifetime ECL – performing
For financial assets where there has been a significant increase in credit risk since origination but where the
asset is still performing a provision for lifetime ECL is recognised. The indicators of a significant increase in credit
risk are described on the following page.
Stage 3: Lifetime ECL – non-performing
For financial assets that are non-performing a provision for lifetime ECL is recognised. Indicators include a
breach of contract with the Group such as a default on interest or principal payments, a borrower experiencing
significant financial difficulties or observable economic conditions that correlate to defaults on an individual
basis.
Financial assets in Stage 3 are those that are in default. A default occurs when Westpac considers that the
customer is unable to repay its credit obligations in full, irrespective of recourse by the Group to actions such
as realising security, or the customer is more than 90 days past due on any material credit obligation. This
definition is aligned to the Australian Prudential Regulation Authority (APRA) regulatory definition of default.
Collective and individual assessment
Financial assets that are in Stages 1 and 2 are assessed on a collective basis. This means that they are grouped in
pools of similar assets with similar credit risk characteristics including the type of product and the customer risk
grade. Financial assets in Stage 3 are assessed on an individual basis and calculated collectively for those below
a specified threshold.
Expected life
In considering the lifetime timeframe for ECL in Stages 2 and 3, the standard generally requires use of the
remaining contractual life adjusted, where appropriate, for prepayments, extension and other options. For
certain revolving credit facilities which include both a drawn and undrawn component (e.g. credit cards
and revolving lines of credit), the Group’s contractual ability to demand repayment and cancel the undrawn
commitment does not limit the exposure to credit losses to the contractual notice period. For these facilities,
lifetime is based on historical behaviour.
WESTPAC GROUP 2020 ANNUAL REPORT 207
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
Accounting policy (continued)
Movement between stages
Assets may move in both directions through the stages of the impairment model. Assets previously in Stage 2
may move back to Stage 1 if it is no longer considered that there has been a significant increase in credit risk.
Similarly, assets in Stage 3 may move back to Stage 1 or Stage 2 if they are no longer assessed to be non-
performing.
Critical accounting assumptions and estimates
Key judgements include when a significant increase in credit risk has occurred and estimation of forward-looking
macroeconomic information. Other factors which can impact the provision include the borrower’s financial
situation, the realisable value of collateral, the Group’s position relative to other claimants, the reliability of
customer information and the likely cost and duration of recovering the loan.
Significant increase in credit risk
Determining when a financial asset has experienced a significant increase in credit risk since origination is
a critical accounting judgement which is primarily based on changes in internal customer risk grades since
origination of the facility. A change in an internal customer risk grade is based on both quantitative and
qualitative factors. The change in the internal customer risk grade that the Group uses to represent a significant
increase in credit risk is based on a sliding scale. This means that a higher credit quality exposure at origination
would require a more significant downgrade compared to a lower credit quality exposure before it is considered
to have experienced a significant increase in credit risk.
The Group does not rebut the presumption that instruments that are 30 days past due have experienced a
significant increase in risk but this is used as a backstop rather than the primary indicator.
The deferral of payments by customers in hardship arrangements is generally treated as an indication of a
significant increase in credit risk (SICR) but the deferral of payments under the current COVID-19 support
packages for mortgages and business loans has not, in isolation, been treated as an indication of SICR. The
Group has classified these deferral packages into different categories of risk which have been assessed for an
increased likelihood of a risk of default to determine whether a SICR has occurred.
The Group does not apply the low credit risk exemption which assumes investment grade facilities do not have
a significant increase in credit risk.
Forward-looking macroeconomic information
The measurement of ECL for each stage and the assessment of significant increase in credit risk consider
information about past events and current conditions as well as reasonable and supportable projections of
future events and economic conditions. The estimation of forward-looking information is a critical accounting
judgement. The Group considers three future macroeconomic scenarios including a base case scenario along
with upside and downside scenarios.
The macroeconomic variables used in these scenarios, based on current economic forecasts, include (but are
not limited to) employment to population rates, real gross domestic product growth rates and residential and
commercial property price indices.
•
•
•
Base case scenario
This scenario utilises the internal Westpac economics forecast used for strategic decision making and
forecasting.
Upside scenario
This scenario represents a modest improvement on the base case scenario.
Downside scenario
The downside scenario is a more severe scenario with ECL higher than those under the current base case
scenario. The more severe loss outcome for the downside is generated under a recession scenario in which
the combination of negative GDP growth, declines in commercial and residential property prices and an
increase in the unemployment rate simultaneously impact ECL across all portfolios from the reporting date.
The macroeconomic scenarios are weighted based on the Group’s best estimate of the relative likelihood of each
scenario. The weighting applied to each of the three macroeconomic scenarios takes into account historical
frequency, current trends, and forward-looking conditions.
The macroeconomic variables and probability weightings of the three macroeconomic scenarios are subject
to the approval of the Group Chief Financial Officer and Chief Risk Officer with oversight from the Board of
Directors (and its Committees).
Where appropriate, adjustments will be made to modelled outcomes to reflect reasonable and supportable
information not already incorporated in the models.
Judgements can change with time as new information becomes available which could result in changes to the
provision for ECL.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
208
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
Loans and credit commitments
The reconciliation of the provision for ECL tables for loans and credit commitments has been determined by an
aggregation of monthly movements over the year. The key line items in the reconciliation represent the following:
•
•
•
•
The “transfers between stages” lines represent transfers between Stage 1, Stage 2 and Stage 3 prior to
remeasurement of the provision for ECL.
The “business activity during the year” line represents new accounts originated during the year net of those
that were derecognised due to final repayments during the year.
The “net remeasurement of provision for ECL” line represents the impact on the provision for ECL due to
changes in credit quality during the year (including transfers between stages), changes due to forward-looking
economic scenarios and partial repayments and additional drawdowns on existing facilities over the year.
“Write-offs” represent a reduction in the provision for ECL as a result of derecognition of exposures where there
is no reasonable expectation of full recovery.
Total provision for ECL on loans (Note 12)
902
2,537
2,163
5,602
1,496
1,349
3,608
Consolidated
$m
Provision for ECL on loans
Housing
Personal
Business
Provisions for ECL on credit
commitments
Housing
Personal
Business
Total provision for ECL on credit
commitments (Note 27)
Total provisions for ECL on loans and
credit commitments
Of which:
Performing
Stage 1
Stage 2
2020
Non-
performing
Stage 3
Performing
Total
Stage 1
Stage 2
2019
Non-
performing
Stage 3
185
180
537
742
362
1,433
977
232
954
1,904
774
2,924
352
424
720
591
248
510
Total
1,101
904
1,603
7
36
139
5
46
287
-
-
12
82
10
436
2
35
141
182
338
10
530
121
178
-
-
6
6
7
71
227
305
1,084
2,875
2,173
6,132
884
1,674
1,355
3,913
158
232
373
763
5
36
80
Individually assessed provisions
-
-
611
611
-
-
Collectively assessed provisions
1,084
2,875
1,562
5,521
884
1,674
412
943
412
3,501
Total provisions for ECL on loans and
credit commitments
Gross loans and credit commitments
1,084
812,450
2,875
71,841
2,173
6,132
884
1,674
1,355
3,913
11,311
895,602
865,383
37,484
6,851
909,718
Coverage ratio (%)
0.13
4.00
19.21
0.68
0.10
4.47
19.78
0.43
Parent Entity
$m
Provision for ECL on loans
Housing
Personal
Business
Total provision for ECL on loans (Note 12)
Provision for ECL on credit commitments
Housing
Personal
Business
Total provision for ECL on credit
commitments (Note 27)
Total provisions for ECL on loans and
credit commitments
Of which:
Performing
Stage 1
Stage 2
2020
Non-
performing
Stage 3
Performing
Total
Stage 1
Stage 2
2019
Non-
performing
Stage 3
145
162
445
752
4
28
129
630
297
1,154
904
193
763
1,679
652
2,362
2,081
1,860
4,693
5
35
269
9
63
407
-
-
9
9
137
200
303
640
4
29
74
334
369
554
557
213
436
1,257
1,206
1
32
130
-
-
5
5
161
309
479
107
163
Total
1,028
782
1,293
3,103
5
61
209
275
913
2,390
1,869
5,172
747
1,420
1,211
3,378
Individually assessed provisions
-
-
520
520
-
-
Collectively assessed provisions
913
2,390
1,349
4,652
747
1,420
364
847
364
3,014
Total provisions for ECL on loans and
credit commitments
913
2,390
1,869
5,172
747
1,420
1,211
3,378
Gross loans and credit commitments
712,381
61,822
10,293
784,496
764,311
32,966
6,249
803,526
Coverage ratio (%)
0.13
3.87
18.16
0.66
0.10
4.31
19.38
0.42
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
The following table reconciles the provisions for ECL on loans and credit commitments for the Group.
Consolidated
$m
Performing
Stage 1
Stage 2
Non-performing
Stage 3
Provision for impairment charges as at 30 September 2018
-
-
Restatement for adoption of AASB 9
877
1,884
Restated provisions for ECL on loans and credit
commitments as at 1 October 2018
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
877
1,884
1,458
(1,404)
(242)
956
(5)
(621)
179
(19)
(1,385)
874
-
2
-
4
-
1,272
1,272
(54)
(714)
626
(330)
1,647
(1,154)
62
Total provisions for ECL on loans and credit commitments
as at 30 September 2019
884
1,674
1,355
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
1,578
(1,528)
(345)
1,161
(7)
(955)
212
60
(1,233)
2,474
-
(5)
-
(11)
(50)
(816)
962
(77)
1,915
(1,170)
54
Total provisions for ECL on loans and credit commitments
as at 30 September 2020
1,084
2,875
2,173
Collectively
assessed
provisions
Individually
assessed
provisions
2,631
(2,631)
422
(422)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
209
Total
3,053
980
4,033
-
-
-
(170)
1,136
(1,154)
68
3,913
-
-
-
195
3,156
(1,170)
38
6,132
The provisions for ECL on loans and credit commitments can be further disaggregated into the following classes:
Consolidated
Housing
$m
Performing
Stage 1
Stage 2
Non-performing
Stage 3
Provision for impairment charges as at 30 September 2018
-
-
Restatement for adoption of AASB 9
Restated provisions for ECL on loans and credit
commitments as at 1 October 2018
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
Total provisions for ECL on loans and credit commitments
as at 30 September 2019
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
130
351
130
343
351
(317)
(38)
396
-
17
(289)
-
-
(145)
(35)
104
-
-
163
566
354
(542)
(68)
472
-
(276)
25
(53)
(492)
798
-
(2)
-
(6)
-
501
501
(26)
(358)
145
(141)
567
(119)
22
591
(24)
(404)
276
(142)
772
(120)
28
Total provisions for ECL on loans and credit commitments
as at 30 September 2020
192
747
977
Collectively
assessed
provisions
Individually
assessed
provisions
385
(385)
97
(97)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
482
500
982
-
-
-
(159)
382
(119)
22
1,108
-
-
-
(170)
1,078
(120)
20
1,916
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
210
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
Consolidated
Personal
$m
Performing
Stage 1
Stage 2
Non-performing
Stage 3
Provision for impairment charges as at 30 September 2018
-
-
Restatement for adoption of AASB 9
263
589
Restated provisions for ECL on loans and credit
commitments as at 1 October 2018
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
Total provisions for ECL on loans and credit commitments
as at 30 September 2019
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
Total provisions for ECL on loans and credit commitments
as at 30 September 2020
263
849
589
(839)
(148)
368
(2)
(350)
62
(18)
(757)
708
-
1
-
1
268
744
459
(732)
(154)
368
(1)
(342)
35
(37)
(676)
694
-
-
-
(2)
216
408
-
240
240
(10)
(220)
352
(160)
838
(822)
30
248
(12)
(214)
343
(50)
617
(728)
28
232
Collectively
assessed
provisions
Individually
assessed
provisions
761
(761)
3
(3)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Consolidated
Business
$m
Performing
Stage 1
Stage 2
Non-performing
Stage 3
Provision for impairment charges as at 30 September 2018
-
-
Restatement for adoption of AASB 9
484
944
Restated provisions for ECL on loans and credit
commitments as at 1 October 2018
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
Total provisions for ECL on loans and credit commitments
as at 30 September 2019
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
484
266
(56)
(3)
100
(339)
-
1
944
(248)
192
(126)
34
62
-
3
453
268
861
(254)
(123)
321
(6)
(337)
152
(65)
-
(3)
150
982
-
(3)
-
531
531
(18)
(136)
129
(29)
242
(213)
10
516
(14)
(198)
343
115
526
(322)
(2)
Total provisions for ECL on loans and credit commitments
as at 30 September 2020
676
1,720
964
Collectively
assessed
provisions
Individually
assessed
provisions
1,485
(1,485)
322
(322)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
764
328
1,092
-
-
-
(116)
789
(822)
32
975
-
-
-
(52)
635
(728)
26
856
Total
1,807
152
1,959
-
-
-
105
(35)
(213)
14
1,830
-
-
-
417
1,443
(322)
(8)
3,360
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
The following table reconciles the provision for ECL on loans and credit commitments for the Parent Entity.
Parent Entity
$m
Performing
Stage 1
Stage 2
Non-performing
Stage 3
Provision for impairment charges as at 30 September 2018
-
-
Restatement for adoption of AASB 9
741
1,605
Restated provisions for ECL on loans and credit
commitments as at 1 October 2018
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
Total provisions for ECL on loans and credit commitments
as at 30 September 2019
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
741
1,605
1,191
(1,153)
(220)
860
(3)
(554)
168
7
(1,130)
654
-
-
-
1
747
1,420
1,150
(1,125)
(266)
930
(6)
(773)
188
64
(897)
1,880
-
(3)
-
(6)
-
1,113
1,113
(38)
(640)
557
(358)
1,552
(1,023)
48
1,211
(25)
(664)
779
(45)
1,672
(1,105)
46
Total provisions for ECL on loans and credit commitments
as at 30 September 2020
913
2,390
1,869
Collectively
assessed
provisions
Individually
assessed
provisions
2,238
(2,238)
375
(375)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
211
Total
2,613
846
3,459
-
-
-
(183)
1,076
(1,023)
49
3,378
-
-
-
207
2,655
(1,105)
37
5,172
The provisions for ECL on loans and credit commitments can be further disaggregated into the following classes:
Parent Entity
Housing
$m
Performing
Stage 1
Stage 2
Non-performing
Stage 3
Provision for impairment charges as at 30 September 2018
-
-
Restatement for adoption of AASB 9
Restated provisions for ECL on loans and credit
commitments as at 1 October 2018
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
Total provisions for ECL on loans and credit commitments
as at 30 September 2019
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
105
334
105
322
334
(302)
(36)
386
-
15
(265)
-
-
(141)
(33)
91
-
-
141
376
335
(365)
(44)
391
-
19
(233)
(45)
(343)
552
-
-
-
-
-
402
402
(20)
(350)
141
(127)
606
(115)
20
557
(11)
(347)
233
(128)
686
(111)
25
Total provisions for ECL on loans and credit commitments
as at 30 September 2020
149
635
904
Collectively
assessed
provisions
Individually
assessed
provisions
516
(516)
82
(82)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
598
243
841
-
-
-
(145)
432
(115)
20
1,033
-
-
-
(154)
895
(111)
25
1,688
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
212
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
Parent Entity
Personal
$m
Performing
Stage 1
Stage 2
Non-performing
Stage 3
Provision for impairment charges as at 30 September 2018
-
-
Restatement for adoption of AASB 9
215
540
Restated provisions for ECL on loans and credit
commitments as at 1 October 2018
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
215
635
(138)
(1)
62
540
(633)
319
(311)
(11)
Net remeasurement of provision for ECL
(544)
497
Write-offs
Exchange rate and other adjustments
Total provisions for ECL on loans and credit commitments
as at 30 September 2019
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
Total provisions for ECL on loans and credit commitments
as at 30 September 2020
-
-
-
-
229
549
(131)
401
(547)
313
(1)
(307)
36
(31)
(492)
503
-
-
-
-
190
332
-
200
200
(2)
(181)
312
(158)
753
(733)
22
213
(2)
(182)
308
(43)
573
(699)
25
193
Parent Entity
Business
$m
Performing
Stage 1
Stage 2
Non-performing
Stage 3
Provision for impairment charges as at 30 September 2018
-
-
Restatement for adoption of AASB 9
421
731
Restated provisions for ECL on loans and credit
commitments as at 1 October 2018
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
Total provisions for ECL on loans and credit commitments
as at 30 September 2019
Transfers to Stage 1
Transfers to Stage 2
Transfers to Stage 3
Business activity during the year
Net remeasurement of provision for ECL
Write-offs
Exchange rate and other adjustments
421
234
(46)
(2)
91
(321)
-
-
377
225
(91)
(5)
133
(62)
-
(3)
731
(218)
155
(102)
51
66
-
1
684
(213)
226
(233)
140
825
-
(6)
Total provisions for ECL on loans and credit commitments
as at 30 September 2020
574
1,423
-
511
511
(16)
(109)
104
(73)
193
(175)
6
441
(12)
(135)
238
126
413
(295)
(4)
772
Collectively
assessed
provisions
Individually
assessed
provisions
524
(524)
3
(3)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Collectively
assessed
provisions
Individually
assessed
provisions
1,198
(1,198)
290
(290)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
527
428
955
-
-
-
(107)
706
(733)
22
843
-
-
-
(38)
584
(699)
25
715
Total
1,488
175
1,663
-
-
-
69
(62)
(175)
7
1,502
-
-
-
399
1,176
(295)
(13)
2,769
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
213
Reconciliation of impairment charges
$m
Loans and credit commitments:
Business activity during the year
Net remeasurement of provision for ECL
Impairment charges for debt securities at amortised cost
Impairment charges for debt securities at FVOCI
Recoveries
Impairment charges (Note 6)
Impact of Overlays on the provision for ECL
Consolidated
2020
2019
Parent Entity
2020
2019
195
3,156
18
2
(193)
3,178
(170)
1,136
-
-
(172)
794
207
2,655
-
2
(173)
2,691
(183)
1,076
-
-
(143)
750
The following table attributes the breakup between modelled ECL and other economic overlays.
Where there is increased uncertainty regarding the required forward-looking economic conditions under
AASB 9, or limitations of the historical data used to calibrate the models to current stressed environments,
overlays are typically used to address areas of potential risk not captured in the underlying modelled ECL.
$m
Modelled provision for ECL
Overlays1
Total provision for ECL
Consolidated
2020
Parent Entity
2019
2020
2019
5,480
3,801
4,659
3,266
652
6,132
112
513
112
3,913
5,172
3,378
Details of these changes, which are based on reasonable and supportable information up to the date of this report
are provided below.
Modelled provision for ECL
The modelled provision for ECL is a probability weighted estimate based on three scenarios which together are
representative of the Group’s view of the forward-looking distribution of potential loss outcomes. The increase in
provisions as a result of changes in modelled ECL are reflected through the “net remeasurement of provision for
ECL” line in the “movement in provision for ECL on loans and credit commitments” table.
The base case scenario uses current Westpac Economics forecasts and reflects the latest available macroeconomic
view which shows a deterioration in the short term, with a subsequent recovery. The latest view considers both
the economic and societal impacts of COVID-19, the Australian Government stimulus measures implemented to
cushion the impacts, including the JobKeeper package and the New Zealand Government stimulus package. The
Westpac Australian economics forecast assumes the following:
Key macroeconomic assumptions for base case scenario
30 September 2020
30 September 2019
Annual GDP
Commercial property index
Residential property prices
Cash rate
Unemployment rate:
Australia
New Zealand
Forecast growth of 2.5% for calendar
year 2021
Growth of 2.5% over the next 12 months
Forecast price contraction of 19.3% for
calendar year 2021
Reduction in the rate of growth of 1.1%
over the next 12 months
Forecast price contraction of 0.4% for
calendar year 2021
Return to positive growth of 1% over the
next 12 months
Forecast to remain at 10bps over
calendar year 2021
Reduction of 50 bps in the next
12 months
Forecast to peak at 7.9% (February
2021) and fall to 7.5% at December 2021
Increase to 5.6% over the next
12 months
Forecast to peak at 7% (December
2020) and then fall to 6.4% at
December 2021
Reduction of 50 bps in the next
12 months
The downside scenario is a more severe scenario with ECL higher than the base case scenario. The more severe
loss outcome for the downside is generated under a recession scenario in which the combination of negative
GDP growth, declines in commercial and residential property prices and an increase in the unemployment rate
simultaneously impact ECL across all portfolios from the reporting date. The assumptions in this scenario and
relativities to the base case scenario will be monitored having regard to the emerging economic conditions and
updated where necessary. The upside scenario represents a modest improvement to the base case.
The following sensitivity table shows the reported provision for ECL based on the probability weighted scenarios
and what the provision for ECL would be assuming a 100% weighting is applied to the base case scenario and to
the downside scenario (with all other assumptions, including customer risk grades, held constant).
1.
Included in 2020 is $577 million related to COVID-19.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
214
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
$m
Reported probability-weighted ECL
100% base case ECL
100% downside ECL
Consolidated
2020
2019
Parent Entity
2020
2019
6,132
4,750
8,315
3,913
2,748
7,065
5,172
4,051
6,956
3,378
2,387
6,067
If 1% of the stage 1 gross exposure from loans and credit commitments (calculated on a 12 month ECL) was
reflected in stage 2 (calculated on a lifetime ECL) the provision for ECL would increase by $296 million
(2019: $236 million) for the Group and $266 million (2019: $209 million) for the Parent Entity based on applying the
average provision coverage ratios by stage to the movement in the gross exposure by stage.
The following table indicates the weightings applied by the Group and Parent Entity:
Macroeconomic scenario weightings (%)
Upside
Base
Downside
2020
5.0
55.0
40.0
2019
10.0
62.5
27.5
The increase in weighting to the downside scenario since 30 September 2019 reflects the continuing uncertainty
around the economic assumptions used in the base case and the asymmetric impact of downside tail risk on ECL.
In particular, the current base case economic forecast indicates a relatively short and sharp economic impact
followed by a subsequent recovery. There is a risk that the economic impacts of COVID-19 could be deeper or more
prolonged which would result in higher credit losses than those modelled under the base case.
The COVID-19 pandemic is leading to material structural shifts in the behaviour of the economy and customers, and
unprecedented actions by banks, governments and regulators in response. ECL models are expected to be subject
to a higher than usual level of uncertainty during this period. In this environment there is a heightened need for the
application of judgement in order to reflect these evolving relationships and risks.
This judgement has been applied in the form of the revision to scenario weightings and a COVID-19 overlay.
COVID-19 overlay
Where there is increased uncertainty regarding the required forward-looking economic conditions under AASB
9, or limitations of the historical data used to calibrate the models to current stressed environments, overlays are
typically used to address areas of potential risk not captured in the underlying modelled ECL.
The COVID-19 pandemic has had, and continues to have, an impact on businesses around the world and the
economic environments in which they operate. There also exists significant uncertainty regarding the duration and
severity of COVID-19 impacts and the associated disruption to the economy and our customers. While the impacts
on the broader economy are included in the assumptions used in the economic scenarios and the weightings
applied to these scenarios, these general economy wide impacts may not fully reflect the specific impact on
individual customers, and therefore the potential risk is not captured in the underlying modelled ECL. As overlays
require the application of expert judgment, they are documented and subject to comprehensive internal
governance and oversight.
The Group’s COVID-19 overlay as of September 2020 is $577 million, of which, $404 million relates to COVID-19
deferral packages.
The deferral of payments by customers in hardship arrangements is generally treated as an indication of a
significant increase in credit risk (SICR) but the deferral of payments under the current COVID-19 support
packages for mortgages, personal and business loans has not, in isolation, been treated as an indication of SICR.
As highlighted by the IASB in its guidance document ‘IFRS 9 and COVID-19’ issued on 27 March 2020, in these
changed circumstances it is not appropriate to apply previously established approaches to assessing significant
increase in credit risk (‘SICR’) for payment holidays in a mechanistic manner.
These relief packages are available to customers who require assistance because of COVID-19 and who otherwise
had up to date payment status prior to the onset of COVID-19. The relief packages allow for a deferral of payments
for up to 6 months. During this period, the deferred interest will be capitalised and the deferred principal along
with the capitalised interest, will be repaid over the remaining term of the loan. These packages have been
designed to provide short-term cash flow support while the most significant COVID-19 restrictions are in place. A
further extension allowing for up to an additional 4 month deferral up to 31 March 2021 has been announced. The
extension will not be automatic and will require up-to-date financial information on each borrower to confirm that
there is a reasonable prospect to repay the loan.
As the situation has evolved since March 2020, the Group has classified the deferral packages into different
categories of risk. Each of these categories are assigned a corresponding AASB 9 staging level based on whether
SICR is deemed to have occurred because of the increased likelihood of a risk of default. The group has identified
a proportion of deferral packages as higher credit risk and has identified a SICR event to have occurred on these
customers. An overlay estimation has been done on this base of customers.
We continue to monitor our lending portfolios closely and reassess our provisioning levels as the situation around
COVID-19 evolves. At the cessation of the COVID-19 support packages, it is likely that some customers will move
into general hardship arrangements (Stage 2). Exposures allocated to Stage 3 relies only on observable evidence of
default.
WESTPAC GROUP 2020 ANNUAL REPORT 215
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
Business lending (including institutional)
The business lending overlay relates to the increased credit risk relating to a portion of small business and
transaction managed (<$10 million TCE) customers currently on COVID-19 relief packages or still to be reviewed.
Based on this judgement we have identified $2.4 billion for the Group and $1.3 billion for the Parent Entity
of business portfolio exposures on which a lifetime ECL overlay has been determined. This has resulted in a
$223 million overlay for the Group and $140 million overlay for the Parent Entity for business lending exposures
which is included in Stage 2 provision.
Retail lending
The retail lending overlay relates to the increased credit risk relating to a portion of housing and personal
customers currently on COVID-19 relief packages. Customers with packages have been segmented into different
categories of risk based on how these customers are expected to perform following the expiry of the package.
Customers assessed to be high risk have been considered for an overlay estimation and a lifetime ECL overlay has
been determined for these customers.
We have identified $7.5 billion for the Group and $5.7 billion for the Parent Entity of retail exposures on which
a lifetime ECL overlay has been determined. This has resulted in a $354 million overlay for the Group and
$298 million for the Parent entity which is included in Stage 2 provision.
The judgements and assumptions used in estimating the above overlays will be reviewed and refined as both the
COVID-19 pandemic and portfolio evolves.
Impact of changes in credit exposures on the provision for ECL
•
Stage 1 exposures had a net decrease of $52.9 billion (2019: net increase of $7.6 billion) for the Group and
$51.9 billion (2019: net increase of $4.1 billion) for the Parent Entity primarily driven by decreases in housing
and business segments. The decrease is impacted by underlying balance reduction as well as an additional
$31.3 billion transferred to Stage 2 to account for staging methodology changes and TCE associated with
overlays. Stage 1 ECL has increased mainly from impacts from revised macro-economic forecasts and
weightings.
•
•
Stage 2 credit exposures increased by $34.3 billion (2019: decreased by $2.1 billion) for both the Group and
the Parent Entity mainly driven by increases from the business segment and the impact of the additional
$31.3 billion transferred to Stage 2 to account for staging methodology changes and TCE associated with
overlays. The Stage 2 underlying exposure increase has been driven by the business segment resulting from
credit reviews in the portfolio. Stage 2 ECL has increased driven by the COVID-19 overlay, impacts from revised
macro-economic forecasts/weightings and underlying increase in Stage 2 exposures.
Stage 3 credit exposures had a net increase of $4.5 billion (2019: $0.9 billion) for both the Group and the Parent
Entity driven by net transfers to Stage 3 from Stage 1 and Stage 2 with the increase driven by the housing
portfolio. The increase in Stage 3 exposures is in line with increase in 90 days past due for the home loan
portfolio. Stage 3 ECL has increased in line with the increase in Stage 3 exposures.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
216
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
COVID-19 deferral packages
The customers with deferral of payments under COVID-19 support packages for mortgages and business loans at
30 September 2020 is $35.6 billion. These loans and the related provision for ECL can be disaggregated as follows:
$m
Housing loans
Stage 1
Stage 2
Stage 3
Total housing loans
Personal loans
Stage 1
Stage 2
Stage 3
Total personal loans
Business loans
Stage 1
Stage 2
Stage 3
Total business loans
Total loans
Stage 1
Stage 2
Stage 3
Total loans
Consolidated
TCE
Provision for ECL
Parent Entity
TCE
Provision for ECL
18,053
11,811
93
29,957
275
145
6
426
3,147
1,993
101
5,241
21,475
13,949
200
35,624
(17)
(371)
(12)
14,970
10,779
46
(400)
25,795
(8)
(60)
(5)
(73)
(17)
(181)
(19)
(217)
(42)
(612)
(36)
243
120
3
366
2,846
1,839
78
4,763
18,059
12,738
127
(690)
30,924
(11)
(339)
(4)
(354)
(7)
(51)
(2)
(60)
(17)
(179)
(12)
(208)
(35)
(569)
(18)
(622)
If the balance of COVID support packages in Stage 1 moved to Stage 2 the Group estimates that the provision for
ECL would increase by $0.9 billion for the Group and $0.8 billion for the parent entity.
The COVID-19 support packages provided to customers who were in Stage 2/3 at the time of the modification was
$4 billion, of which $0.7 billion have moved to Stage 1.
WESTPAC GROUP 2020 ANNUAL REPORT 217
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
Investment Securities – debt securities
The following table reconciles the provision for ECL on debt securities.
$m
Consolidated
Provision for impairment charges as at 30 September 2018
Restatement for adoption of AASB 9
Restated provision for ECL on investment securities - debt securities as at 1 October 2018
Stage 1 - change in the provision during the year
Total provision for ECL on investment securities - debt securities as at 30 September 2019
Stage 1 - change in the provision during the year
Stage 2 - change in the provision during the year
Total provision for ECL on investment securities - debt securities as at 30 September 2020
Parent Entity
Provision for impairment charges as at 30 September 2018
Restatement for adoption of AASB 9
Restated provision for ECL on investment securities - debt securities as at 1 October 2018
Stage 1 - change in the provision during the year
Total provision for ECL on investment securities - debt securities as at 30 September 2019
Stage 1 - change in the provision during the year
Stage 2 - change in the provision during the year
Total provision for ECL on investment securities - debt securities as at 30 September 2020
Debt
securities at
amortised
Total
investment
securities -
debt
cost
securities
Debt
securities at
FVOCI1
-
2
2
-
2
2
-
4
-
2
2
-
2
2
-
4
-
9
9
-
9
(9)
27
27
-
-
-
-
-
-
-
-
-
11
11
-
11
(7)
27
31
-
2
2
-
2
2
-
4
As 2018 comparatives were not restated for the Group’s adoption of AASB 9 in 2019, the following table reconciles
the provisions for impairment charges on loans and credit commitments based on the requirements of AASB 139.
$m
Individually assessed provisions
Balance as at beginning of year
Provisions raised
Write-backs
Write-offs
Interest adjustment
Other adjustments
Balance as at end of year
Collectively assessed provisions
Balance as at beginning of year
Provisions raised
Write-offs
Interest adjustment
Other adjustments
Balance as at end of year
Total provisions for impairment charges on loans and credit commitments
Less provision for credit commitments (refer to Note 27)
Total provision for impairment charges on loans
Consolidated
2018
480
371
(150)
(269)
(11)
1
422
2,639
668
(858)
179
3
2,631
3,053
(239)
2,814
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1.
Impairment on debt securities at FVOCI is recognised in the income statement with a corresponding amount in OCI (refer to Note 28).
There is no reduction of the carrying value of the debt securities which remain at fair value (refer to Note 11).
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
218
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
The following table presents provisions for ECL (as at 30 September 2020 and 2019) and provision for impairment
charges (as at 30 September 2018, 2017 and 2016) on loans and credit commitments by industry classification:
Consolidated
Australia
Accommodation, cafes and
restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property
Property services and business
services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
New Zealand
Accommodation, cafes and
restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property
Property services and business
services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
Total other overseas
Total provisions for ECL/ Impairment
charges on loans and credit
commitments
2020
2019
2018
2017
2016
$m
%
$m
%
$m
%
$m
%
$m
%
222
153
268
104
193
67
378
394
289
394
188
34
3.6
2.5
4.4
1.7
3.1
1.1
75
93
148
55
111
36
6.2
216
6.4
4.7
6.4
3.1
0.6
230
175
242
109
17
1.9
2.4
3.8
1.4
2.8
0.9
5.5
5.9
4.5
6.2
2.8
0.4
62
69
93
67
196
91
204
128
137
199
79
13
2.0
2.3
3.0
2.2
6.4
3.0
6.7
4.2
4.5
6.5
2.6
0.4
67
59
86
53
164
131
240
155
126
183
92
15
2.1
1.9
2.8
1.7
5.3
4.2
7.7
5.0
4.0
5.9
2.9
0.5
95
74
86
131
278
246
287
216
116
213
73
9
2.7
2.1
2.4
3.7
7.7
6.8
8.0
6.0
3.2
5.9
2.0
0.2
2,396
39.1
1,890
48.3
1,200
39.3
1,229
39.4
1,102
30.6
191
3.1
109
2.8
106
3.5
92
2.9
138
5,271
86.0
3,506
89.6
2,644
86.6
2,692
86.3
3,064
4
110
12
2
45
-
34
7
13
16
4
2
352
8
609
252
0.1
1.8
0.2
-
0.7
-
0.6
0.1
0.2
0.3
0.1
-
5.7
0.1
9.9
4.1
2
67
9
2
14
-
20
5
9
15
3
1
173
7
327
80
0.1
1.7
0.2
0.1
0.4
-
0.5
0.1
0.2
0.4
0.1
-
4.4
0.2
8.4
2.0
3
77
16
3
26
1
27
8
9
21
5
2
130
1
0.1
2.5
0.5
0.1
0.9
-
0.9
0.2
0.3
0.7
0.2
0.1
4.3
-
2
93
9
3
24
1
38
11
14
17
5
3
130
-
329
10.8
350
80
2.6
77
0.1
3.0
0.3
0.1
0.8
-
1.2
0.3
0.4
0.5
0.2
0.1
4.2
-
11.2
2.5
2
120
9
4
53
15
52
21
13
18
7
4
125
2
445
12.4
93
2.5
6,132
100.0
3,913
100.0
3,053
100.0
3,119
100.0
3,602
100.0
3.8
85.1
0.1
3.3
0.2
0.1
1.5
0.4
1.4
0.6
0.4
0.5
0.2
0.1
3.5
0.1
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
The following table shows details of loan write-offs by industry classifications for the past five years:
219
Consolidated
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
Total other overseas
Total write-offs
2020
2019
2018
2017
2016
(6)
(13)
(16)
(2)
(14)
(4)
(49)
(16)
(6)
(11)
(18)
(4)
(12)
(4)
(13)
(4)
(12)
(1)
(31)
(24)
(7)
(62)
(14)
(1)
(14)
(12)
(23)
(4)
(12)
(14)
(39)
(44)
(24)
(56)
(17)
(1)
(873)
(4)
(903)
(10)
(793)
(5)
(38)
(10)
(30)
(6)
(105)
(46)
(76)
(203)
(97)
(59)
(17)
-
(898)
(17)
(1,036)
(1,098)
(1,058)
(1,602)
-
-
-
-
-
-
(4)
-
-
(1)
-
-
(31)
-
(36)
(98)
-
(2)
-
-
-
-
-
-
-
(2)
-
-
(50)
-
(54)
(2)
-
-
(1)
-
-
-
(13)
-
(1)
(1)
-
-
(53)
-
(69)
-
-
-
(1)
-
-
-
(2)
-
-
(1)
-
-
(49)
-
(53)
(1)
(17)
(12)
(20)
(13)
(21)
(18)
(44)
(43)
(36)
(30)
(48)
(1)
(803)
(13)
(1,119)
-
(1)
(1)
-
-
-
(10)
(2)
-
(1)
-
-
(51)
(1)
(67)
(3)
(1,170)
(1,154)
(1,127)
(1,656)
(1,189)
Write-offs still under enforcement activity
The amount of current year write-offs which remain subject to enforcement activity was $1,127 million
(2019: $1,093 million) for the Group and $1,062 million (2019: $962 million) for the Parent Entity.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
220
Notes to the financial statements
Note 13. Provisions for expected credit losses/impairment charges (continued)
The following table shows details of recoveries of loans by industry classifications for the past five years:
Consolidated
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
Total New Zealand
Total other overseas
Total recoveries
Total write-offs
Net write-offs and recoveries
Note 14. Other financial assets
$m
Accrued interest receivable
Securities sold not delivered
Trade debtors
Interbank lending
Clearing and settlement balances
Accrued fees and commissions
Other
Total other financial assets
2020
2019
2018
2017
2016
1
1
4
2
1
-
3
2
1
5
1
-
157
-
178
15
-
193
-
-
1
-
1
-
8
1
-
2
1
-
135
5
154
18
-
172
(1,170)
(977)
(1,154)
(982)
Consolidated
2020
905
2,358
992
299
630
170
120
1
-
1
1
-
1
7
1
1
2
1
-
139
-
155
24
-
179
(1,127)
(948)
2019
1,144
1,687
998
514
750
159
115
3
-
2
1
2
1
10
3
-
3
1
-
118
5
149
19
-
168
-
-
1
34
1
-
3
2
2
1
1
-
84
2
131
6
-
137
(1,656)
(1,488)
(1,189)
(1,052)
Parent Entity
2020
2019
797
2,352
502
295
558
117
124
1,005
1,668
517
510
706
95
114
5,474
5,367
4,745
4,615
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial
statements
221
Notes to the financial statements
Note 15. Life insurance assets and life insurance liabilities
Accounting policy
The Group conducts its life insurance business in Australia primarily through Westpac Life Insurance
Services Limited and separate statutory funds registered under the Life Insurance Act 1995 (Life Act) and in
New Zealand through Westpac Life-NZ-Limited which are separate statutory funds licensed under the Insurance
(Prudential Supervision) Act 2010.
Life insurance assets
Life insurance assets, including investments in funds managed by the Group, are designated at FVIS. Changes in
fair value are recognised in non-interest income. The determination of fair value of life insurance assets involves
the same judgements as other financial assets, which are described in the critical accounting assumptions and
estimates in Note 22.
The Life Act places restrictions on life insurance assets, including that they can only be used:
•
•
•
to meet the liabilities and expenses of that statutory fund;
to acquire investments to further the business of the statutory fund; or
as a distribution, when the statutory fund has met its solvency and capital adequacy requirements.
Life insurance liabilities
Life insurance liabilities primarily consist of life investment contract liabilities and life insurance contract liabilities.
Claims incurred in respect of life investment contracts are withdrawals of customer deposits, and are recognised
as a reduction in life insurance liabilities.
Life investment contract liabilities
Life investment contract liabilities are designated at FVIS. Fair value is the higher of the valuation of life
insurance assets linked to the life investment contract, or the minimum current surrender value (the minimum
amount the Group would pay to a policyholder if their policy is voluntarily terminated before it matures or the
insured event occurs). Changes in fair value are recognised in non-interest income.
Life insurance contract liabilities
The value of life insurance contract liabilities is calculated using the margin on services methodology (MoS),
specified in the Prudential Standard LPS 340 Valuation of Policy Liabilities.
MoS accounts for the associated risks and uncertainties of each type of life insurance contract written. At each
reporting date, planned profit margins and an estimate of future liabilities are calculated. Profit margins are
released to non-interest income over the period that life insurance is provided to policyholders (Note 4). The
cost incurred of acquiring specific insurance contracts is deferred provided that these amounts are recoverable
out of planned profit margins. The deferred amounts are recognised as a reduction in life insurance policy
liabilities and are amortised to non-interest income over the same period as the planned profit margins.
Life insurance contract liability adequacy test
Life insurance contract policy liabilities are tested for liability adequacy by comparing them to the best estimate
of future cash flows. Liabilities are grouped into related product groups and each group is tested against the
best estimate of future cash flows. If the liability of a related product group is less than best estimate the liability
is increased with the expense being recognised in non-interest income.
External unit holder liabilities of managed investment schemes
The life insurance statutory funds include controlling interests in managed investment schemes which are
consolidated. When the managed investment scheme is consolidated, the external unit holder liabilities are
recognised as a liability and included in life insurance liabilities. They are designated at FVIS.
Critical accounting assumptions and estimates
The key factors that affect the estimation of life insurance liabilities and related assets are:
•
•
•
the cost of providing benefits and administering contracts;
mortality and morbidity experience, which includes policyholder benefits enhancements;
discontinuance rates, which affects the Group’s ability to recover the cost of acquiring new business over the
life of the contracts; and
•
the discount rate of projected future cash flows.
Regulation, competition, interest rates, taxes, securities market conditions and general economic conditions also
affect the estimation of life insurance liabilities.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
222
Notes to the financial statements
Note 15. Life insurance assets and life insurance liabilities (continued)
Life insurance assets
Consolidated
$m
Investments held directly and in unit trusts
Unit Trusts
Equities
Debt Securities
Loans and other assets
Total life Insurance assets
2020
2019
333
6,764
-
2,818
442
989
1,589
25
3,593
9,367
There were no life insurance assets in the Parent Entity as at 30 September 2020 (2019: nil).
Life insurance liabilities
Consolidated
Reconciliation of movements in policy liabilities
$m
Balance as at beginning of year
Movements in policy liabilities reflected in the income
statement
Contract contributions recognised in policy liabilities
Contract withdrawals recognised in policy liabilities
Contract fees, expenses and tax recoveries
Change in external unit holders of managed investment
schemes
Balance as at end of year
Life investment
contracts
2020
2019
8,206
8,438
221
368
(8,322)
(44)
1,458
1,887
504
898
(1,218)
(73)
(343)
8,206
Life insurance
contracts
2020
(829)
2019
(841)
338
12
-
-
-
-
-
-
-
-
(491)
(829)
Total
2020
2019
7,377
7,597
559
368
(8,322)
(44)
1,458
1,396
516
898
(1,218)
(73)
(343)
7,377
There were no life insurance liabilities in the Parent Entity as at 30 September 2020 (2019: nil).
WESTPAC GROUP 2020 ANNUAL REPORT 223
Notes to the financial statements
Note 16. Deposits and other borrowings
Accounting policy
Deposits and other borrowings are initially recognised at fair value and subsequently either measured at
amortised cost using the effective interest rate method or at fair value.
Deposits and other borrowings are designated at fair value if they are managed on a fair value basis, reduce or
eliminate an accounting mismatch or contain an embedded derivative.
Where they are measured at fair value, any changes in fair value (except those due to changes in credit risk) are
recognised as non-interest income. The change in the fair value that is due to changes in credit risk is recognised
in OCI except where it would create an accounting mismatch, in which case it is also recognised in the income
statement.
Refer to Note 22 for balances measured at fair value and amortised cost.
Interest expense incurred is recognised in net interest income using the effective interest rate method.
$m
Australia
Certificates of deposit
Non-interest bearing, repayable at call
Other interest bearing at call
Other interest bearing term
Total Australia
New Zealand
Certificates of deposit
Non-interest bearing, repayable at call
Other interest bearing at call
Other interest bearing term
Total New Zealand
Other overseas
Certificates of deposit
Non-interest bearing, repayable at call
Other interest bearing at call
Other interest bearing term
Total other overseas
Total deposits and other borrowings
Consolidated
2020
2019
Parent Entity
2020
2019
25,647
26,259
25,647
26,259
48,303
43,341
48,303
43,341
304,761
247,161
304,761
247,161
125,820
158,564
125,820
158,564
504,531
475,325
504,531
475,325
2,773
10,711
1,058
6,368
26,300
22,291
28,689
31,084
68,473
60,801
-
-
-
1
1
-
-
-
-
-
7,258
868
1,864
8,137
18,127
11,414
824
1,610
13,273
27,121
7,258
333
1,559
7,931
11,414
385
1,233
13,073
17,081
26,105
591,131
563,247
521,613
501,430
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
224
Notes to the financial statements
Note 16. Deposits and other borrowings (continued)
The following table shows average balances and average rates in each of the past three years for major categories
of deposits:
Consolidated
Australia
Non-interest bearing, repayable at call
Certificates of deposit
Other interest bearing at call
Other interest bearing term
Total Australia
Overseas
Non-interest bearing, repayable at call
Certificates of deposit
Other interest bearing at call
Other interest bearing term
Total overseas
2020
2019
2018
Average
balance
$m
Average
rate
%
Average
balance
$m
Average
rate
%
Average
balance
$m
Average
rate
%
45,231
25,041
275,475
135,361
481,108
9,661
14,376
25,999
42,381
92,417
0.8
0.5
1.5
1.4
0.5
2.3
42,455
30,367
237,420
158,012
468,254
6,815
11,854
23,616
45,520
87,805
41,156
2.0
31,424
1.1
228,328
2.4
162,254
463,162
2.6
1.1
3.0
6,021
13,008
23,017
41,942
83,988
2.0
1.2
2.5
1.9
1.2
2.8
Certificates of deposit and term deposits
All certificates of deposit and majority of term deposits issued by foreign offices were greater than US$100,000.
The maturity profile of certificates of deposit and term deposits greater than US$100,000 issued by Australian
operations is set out below:
Consolidated 2020
$m
Certificates of deposit greater than US$100,000
Term deposits greater than US$100,000
Up to
3 months
13,363
61,663
Over
3 months
to
6 months
11,440
18,001
Over
6 months
to
1 year
817
24,315
Over 1 year
27
4,540
Total
25,647
108,519
WESTPAC GROUP 2020 ANNUAL REPORT 225
Notes to the financial statements
Note 17. Other financial liabilities
Accounting policy
Other financial liabilities include liabilities measured at amortised cost as well as liabilities which are measured at
FVIS. Financial liabilities measured at FVIS include:
•
•
trading liabilities (i.e. securities sold short); and
liabilities designated at FVIS (i.e. certain repurchase agreements).
Refer to Note 22 for balances measured at fair value and amortised cost.
Repurchase agreements
Where securities are sold subject to an agreement to repurchase at a predetermined price, they remain
recognised in the balance sheet in their original category (i.e. ‘Trading securities’ or ‘Investment securities’).
The cash consideration received is recognised as a liability (‘Repurchase agreements’). Repurchase agreements
are designated at fair value where they are managed as part of a trading portfolio, otherwise they are measured
on an amortised cost basis.
Where a repurchase agreement is designated at fair value, subsequent to initial recognition, these liabilities are
measured at fair value with changes in fair value (except credit risk) recognised through the income statement
as they arise. The change in fair value that is attributable to credit risk is recognised in OCI except where it
would create an accounting mismatch, in which case it is also recognised through the income statement.
$m
Repurchase agreements
Interbank placements
Accrued interest payable
Securities purchased not delivered
Trade creditors and other accrued expenses
Settlement and clearing balances
Securities sold short
Other
Total other financial liabilities
Consolidated
2020
2019
Parent Entity
2020
2019
27,763
10,604
27,763
10,604
4,981
1,367
2,291
1,250
1,005
846
1,422
9,884
2,627
1,398
1,154
1,222
766
1,560
4,710
1,169
2,291
1,045
989
846
1,343
9,834
2,312
1,395
927
1,197
766
1,481
40,925
29,215
40,156
28,516
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
226
Notes to the financial statements
Note 18. Debt issues
Accounting policy
Debt issues are bonds, notes, commercial paper and debentures that have been issued by entities in the Group.
Debt issues are initially measured at fair value and subsequently either measured at amortised cost using the
effective interest rate method or at fair value.
Debt issues are designated at fair value if they reduce or eliminate an accounting mismatch or contain an
embedded derivative.
The change in the fair value that is due to credit risk is recognised in OCI except where it would create an
accounting mismatch, in which case it is also recognised in non-interest income.
Refer to Note 22 for balances measured at fair value and amortised cost.
Interest expense incurred is recognised within net interest income using the effective interest rate method.
In the table below, the distinction between short-term (12 months or less) and long-term (greater than 12 months)
debt is based on the original maturity of the underlying security.
$m
Short-term debt
Own issuances
Total short-term debt
Long-term debt
Covered bonds
Senior
Securitisation
Structured notes
Total long-term debt
Total debt issues
Movement reconciliation ($m)
Balance at beginning of year
Issuances
Maturities, repayments, buy backs and reductions
Total cash movements
FX translation impact
Fair value adjustments
Fair value hedge accounting adjustments
Other (amortisation of bond issue costs, etc)
Total non-cash movements
Balance as at end of year
Consolidated
2020
2019
Parent Entity
2020
2019
16,477
25,838
14,160
23,695
16,477
25,838
14,160
23,695
36,051
38,037
31,926
33,160
89,766
109,340
81,580
99,819
8,000
8,190
31
52
-
-
-
-
133,848
155,619
113,506
132,979
150,325
181,457
127,666
156,674
181,457
172,596
156,674
152,288
34,766
61,484
27,487
50,375
(65,160)
(63,313)
(55,761)
(56,347)
(30,394)
(1,829)
(28,274)
(5,972)
(1,977)
6,713
(2,005)
6,514
81
1,038
120
317
3,512
148
81
318
1,076
3,376
114
150
(738)
10,690
(734)
10,358
150,325
181,457
127,666
156,674
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 18. Debt issues (continued)
Consolidated
$m
Short-term debt
Own issuances:
US commercial paper
Senior debt:
AUD
GBP
Other
Total own issuances
Total short-term debt
Long-term debt (by currency):
AUD
CHF
EUR
GBP
JPY
NZD
USD
Other
Total long-term debt
Consolidated
$m
Short-term borrowings
US commercial paper
Maximum amount outstanding at any month end
Approximate average amount outstanding
Approximate weighted average interest rate on:
Average amount outstanding
Outstanding as at year end
227
2020
2019
13,864
19,950
-
100
2,437
5,366
176
422
16,477
25,838
16,477
25,838
36,062
43,532
3,177
3,480
34,498
37,464
3,440
2,439
3,519
5,545
2,538
3,197
45,917
54,490
4,796
5,373
133,848
155,619
2020
2019
2018
21,639
26,879
28,331
18,462
22,502
23,315
1.4
0.4
2.8
3.2
2.0
2.5
The Group manages FX exposure from debt issuances as part of its hedging activities. Further details of the
Group’s hedge accounting are in Note 20.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
228
Notes to the financial statements
Note 19. Loan capital
Accounting policy
Loan capital are instruments issued by the Group which qualify for inclusion as regulatory capital under APRA
Prudential Standards. Loan capital is initially measured at fair value and subsequently measured at amortised
cost using the effective interest rate method. Interest expense incurred is recognised in net interest income.
$m
Additional Tier 1 (AT1) loan capital
Westpac capital notes
USD AT1 securities
Total AT1 loan capital
Tier 2 loan capital
Subordinated notes
Subordinated perpetual notes
Total Tier 2 loan capital
Total loan capital
Movement reconciliation ($m)
Balance as at beginning of year
Issuances
Maturities, repayments, buy backs and reductions
Total cash movements
FX translation impact
Fair value hedge accounting adjustments
Other (amortisation of bond issue costs, etc)
Total non-cash movements
Balance as at end of year
Consolidated and
Parent Entity
2020
2019
7,423
1,941
7,411
1,913
9,364
9,324
14,090
11,981
495
521
14,585
12,502
23,949
21,826
21,826
17,265
2,225
(262)
1,963
(564)
703
21
160
4,935
(1,662)
3,273
521
748
19
1,288
23,949
21,826
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 19. Loan capital (continued)
Additional Tier 1 loan capital
A summary of the key terms and common features of AT1 instruments are provided below1.
Consolidated and Parent Entity
Potential scheduled
Optional
$m
Distribution Interest rate
conversion date2
redemption date3
2020
2019
229
Westpac capital notes (WCN)
$1,311 million WCN2
$1,324 million WCN3
$1,702 million WCN4
$1,690 million WCN5
$1,423 million WCN6
Total Westpac capital notes
USD AT1 securities
US$1,250 million securities
(90 day bank bill rate + 3.05% p.a.)
x (1 - Australian corporate tax rate)
(90 day bank bill rate + 4.00% p.a.)
x (1 - Australian corporate tax rate)
(90 day bank bill rate + 4.90% p.a.)
x (1 - Australian corporate tax rate)
(90 day bank bill rate + 3.20% p.a.)
x (1 - Australian corporate tax rate)
(90 day bank bill rate + 3.70% p.a.) x
(1 - Australian corporate tax rate)
23 September 2024 23 September 2022
1,307
1,308
22 March 2023
22 March 2021
1,323
1,319
20 December 2023
20 December 2021
1,698
1,694
22 September 2027
22 September 2025
1,680
1,677
31 July 2026
31 July 2024
1,415
1,413
7,423
7,411
n/a
21 September 20275
1,941
1,913
5.00% p.a. until but excluding 21
September 2027 (first reset date). If
not redeemed, converted or written-
off earlier, from, and including, each
reset date4 to, but excluding, the
next succeeding reset date at a
fixed rate p.a. equal to the prevailing
5-year USD midmarket swap rate
plus 2.89% p.a.
Total USD AT1 securities
1,941
1,913
Common features of AT1 instruments
Payment conditions
Quarterly distributions on the Westpac capital notes and semi-annual interest payments on the USD AT1 securities
are discretionary and will only be paid if the payment conditions are satisfied, including that the payment will not
result in a breach of Westpac’s capital requirements under APRA’s prudential standards; not result in Westpac
becoming, or being likely to become, insolvent; or if APRA does not object to the payment.
Broadly, if for any reason a distribution or interest payment has not been paid in full on the relevant payment date,
Westpac must not determine or pay any dividends on Westpac ordinary shares or undertake a discretionary buy
back or capital reduction of Westpac ordinary shares, unless the unpaid amount is paid in full within 20 business
days of the relevant payment date or in certain other circumstances.
1.
2.
3.
4.
5.
A$ unless otherwise noted.
Conversion is subject to the satisfaction of the scheduled conversion conditions. If the conversion conditions are not satisfied on
the relevant scheduled conversion date, conversion will not occur until the next distribution payment date on which the scheduled
conversion conditions are satisfied.
Westpac may elect to redeem the relevant AT1 instrument, subject to APRA’s prior written approval.
Every fifth anniversary thereafter is a reset date.
Westpac may elect to redeem on 21 September 2027 and every fifth anniversary after the first reset date is a reset date..
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
230
Notes to the financial statements
Note 19. Loan capital (continued)
The AT1 instruments convert into Westpac ordinary shares in the following circumstances:
•
Scheduled Conversion
On the scheduled conversion date, provided certain conversion conditions are satisfied, it is expected that
the relevant AT1 instrument1 will be converted and holders will receive a variable number of Westpac ordinary
shares calculated using the formula described in the terms of the relevant AT1 instrument, subject to a
maximum conversion number. The conversion number of Westpac ordinary shares will be calculated using
the face value of the relevant AT1 instrument and the Westpac ordinary share price determined over the
20 business day period prior to the scheduled conversion date, including a 1% discount.
Capital Trigger Event or Non-Viability Trigger Event
•
Westpac will be required to convert some or all AT1 instruments into a variable number of Westpac ordinary
shares upon the occurrence of a capital trigger event or non-viability trigger event. No conversion conditions
apply in these circumstances.
A capital trigger event occurs when Westpac determines, or APRA notifies Westpac in writing that it believes,
Westpac’s Common Equity Tier 1 Capital ratio is equal to or less than 5.125% (on a level 1 or level 2 basis2).
A non-viability trigger event will occur when APRA notifies Westpac in writing that it believes conversion of all
or some AT1 instruments (or conversion, write-off or write-down of relevant capital instruments of the Westpac
Group), or public sector injection of capital (or equivalent support), in each case is necessary because without
it, Westpac would become non-viable.
For each AT1 instrument converted, holders will receive a variable number of Westpac ordinary shares
calculated using the formula described in the terms of the relevant AT1 instrument, subject to a maximum
conversion number. The conversion number of Westpac ordinary shares is calculated using the face value or
outstanding principal amount of the relevant AT1 instrument and the Westpac ordinary share price determined
over the 5 business day period prior to the capital trigger event date or non-viability trigger event date and
includes a 1% discount. For each AT1 instrument, the maximum conversion number is set using a Westpac
ordinary share price which is broadly equivalent to 20% of the Westpac ordinary share price at the time of issue.
Following the occurrence of a capital trigger event or non-viability trigger event, if conversion of an AT1
instrument does not occur within five business days, holders’ rights in relation to the relevant AT1 instrument will
be immediately and irrevocably terminated.
Early conversion
•
Westpac is able to elect to convert3, or may be required to convert3, AT1 instruments early in certain
circumstances. The terms of conversion and the conversion conditions are broadly similar to scheduled
conversion, however the share price floor in the maximum conversion number will depend on the conversion
event.
Early redemption
Westpac is able to elect to redeem the relevant AT1 instrument on the optional redemption date or for certain
taxation or regulatory reasons, subject to APRA’s prior written approval.
1.
2.
3.
Scheduled conversion does not apply to USD AT1 securities.
Level 1 comprises Westpac Banking Corporation and its subsidiary entities that have been approved by APRA as being part of a single
‘Extended Licenced Entity’ for the purpose of measuring capital adequacy. Level 2 is the consolidation of Westpac Banking Corporation
and all its subsidiary entities except those entities specifically excluded by APRA regulations. The head of the Level 2 group is Westpac
Banking Corporation.
Excludes USD AT1 securities.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 19. Loan capital (continued)
Tier 2 loan capital
A summary of the key terms and common features of Westpac’s Tier 2 instruments are provided below1:
231
Consolidated and
Parent Entity
$m
Interest rate2
Subordinated
notes
CNY1,250 million
subordinated notes
A$350 million
subordinated notes
S$325 million
subordinated notes
A$175 million
subordinated notes
US$100 million
subordinated notes
A$700 million
subordinated notes
JPY20,000 million
subordinated notes
JPY10,200 million
subordinated notes
JPY10,000 million
subordinated notes
NZ$400 million
subordinated notes
JPY8,000 million
subordinated notes
US$1,500 million
subordinated notes
JPY12,000 million
subordinated notes
JPY13,500 million
subordinated notes
HKD600 million
subordinated notes
A$350 million
subordinated notes
A$185 million
subordinated notes
A$250 million
subordinated notes
A$130 million
subordinated notes
A$725 million
subordinated notes
US$1,000 million
subordinated notes
US$1,250 million
subordinated notes
A$1,000 million
subordinated notes
US$1,500 million
subordinated notes
4.85% p.a. until but excluding 9 February 2020.
Thereafter, if not redeemed, a fixed rate per annum
equal to the one-year CNH HIBOR reference rate plus
0.8345% p.a.
4.50% p.a. until but excluding 11 March 2022. Thereafter,
if not redeemed, a fixed rate per annum equal to the
five-year AUD semi-quarterly mid-swap reference rate
plus 1.95% p.a., the sum of which will be annualised.
4.00% p.a. until but excluding 12 August 2022.
Thereafter, if not redeemed, a fixed rate per annum equal
to the five-year SGD swap offer rate plus 1.54% p.a.
4.80% p.a. until but excluding 14 June 2023. Thereafter, if
not redeemed, a fixed rate per annum equal to the five-
year AUD semi-quarterly mid-swap reference rate plus
2.65% p.a., each of which will be annualised.
Fixed 5.00% p.a.
Maturity date
redemption date3
2020
2019
Optional
9 February 2025
9 February 20204
-
260
11 March 2027
11 March 2022
361
362
12 August 2027
12 August 2022
347
356
14 June 2028
14 June 2023
185
182
23 February 2046
n/a
175
161
Floating 90 day bank bill rate + 3.10% p.a.
10 March 2026
10 March 2021
700
697
Fixed 1.16% p.a.
Fixed 1.16% p.a.
Fixed 0.76% p.a.
4.6950% p.a. until but excluding 1 September 2021.
Thereafter, if not redeemed, a fixed rate per annum equal
to the New Zealand 5-year swap rate on 1 September
2021 plus 2.60% p.a.
0.9225% p.a. until but excluding 7 October 2021.
Thereafter, if not redeemed, a fixed rate per annum equal
to the five-year JPY mid-swap rate plus 1.0005% p.a.
4.322% p.a. until but excluding 23 November 2026.
Thereafter, if not redeemed, a fixed rate per annum equal
to the five-year USD mid-swap rate plus 2.236% p.a.
0.87% p.a. until but excluding 6 July 2022. Thereafter, if
not redeemed, a fixed rate per annum equal to the five-
year JPY mid-swap rate plus 0.78% p.a.
0.868% p.a. until but excluding 6 July 2022. Thereafter, if
not redeemed, a fixed rate per annum equal to the five-
year JPY mid-swap rate plus 0.778% p.a.
3.15% p.a. until but excluding 14 July 2022. Thereafter, if
not redeemed, a fixed rate per annum equal to the five-
year HKD mid-swap rate plus 1.34% p.a.
4.334% p.a. until but excluding 16 August 2024.
Thereafter, if not redeemed, a fixed rate per annum equal
to the five-year AUD semi-quarterly mid-swap reference
rate plus 1.83% p.a., each of which will be annualised.
Fixed 5.00% p.a.
19 May 2026
2 June 2026
9 June 2026
n/a
n/a
n/a
270
279
137
142
134
139
1 September 2026
1 September 2021
376
373
7 October 2026
7 October 2021
107
110
23 November 2031 23 November 2026
2,320
2,297
6 July 2027
6 July 2022
161
166
6 July 2027
6 July 2022
181
187
14 July 2027
14 July 2022
111
114
16 August 2029
16 August 2024
349
349
24 January 2048
n/a
185
185
90 day bank bill rate + 1.40% p.a.
16 February 2028
16 February 2023
250
250
Fixed 5.00% p.a.
2 March 2048
n/a
130
130
90 day bank bill rate + 1.80% p.a.
22 June 2028
22 June 2023
714
724
Fixed 4.421% p.a.
24 July 2039
n/a
1,707
1,606
4.110% p.a. until but excluding 24 July 2029. Thereafter, if
not redeemed a fixed rate per annum equal to the five-
year USD treasury rate plus 2% p.a.
Floating 90 day bank bill rate + 1.98% p.a.
2.894% p.a. until but excluding 4 February
2025. Thereafter, if not redeemed, a fixed rate per
annum equal to the five-year USD treasury
rate plus 1.35% p.a.
24 July 2034
24 July 2029
1,970
1,921
27 August 2029
27 August 2024
1,000
991
4 February 2030
4 February 2025
2,220
-
Total subordinated notes
14,090
11,981
1.
2.
3.
4.
Excludes subordinated perpetual notes.
Interest payments are made periodically as set out in the terms of the subordinated notes.
Westpac may elect to redeem the relevant Tier 2 instrument on the optional redemption date or dates, subject to APRA’s prior written
approval. If not redeemed on the first optional redemption date, Westpac may elect to redeem the relevant Tier 2 instrument on
any interest payment date after the first optional redemption date (except for US$1,500 million subordinated notes with an optional
redemption date in November 2026, US$1,250 million subordinated notes with an optional redemption date in July 2029 and US$1,500
million subordinated notes with an optional redemption date in February 2025), subject to APRA’s prior written approval.
The subordinated notes were redeemed in full on the optional redemption date.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
232
Notes to the financial statements
Note 19. Loan capital (continued)
Common features of subordinated notes
Interest payments are subject to Westpac being solvent at the time of, and immediately following, the interest
payment. These subordinated notes contain non-viability loss absorption requirements.
Non-viability trigger event
Westpac will be required to convert some or all subordinated notes into a variable number of Westpac ordinary
shares upon the occurrence of a non-viability trigger event. A non-viability trigger event will occur on similar terms
as described under AT1 loan capital.
For each subordinated note converted, holders will receive a variable number of Westpac ordinary shares
calculated using the formula described in the terms of the relevant Tier 2 instrument, subject to a maximum
conversion number. The conversion number of Westpac ordinary shares will be calculated in a manner similar to
that described under AT1 loan capital for a non-viability trigger event. For each Tier 2 instrument, the maximum
conversion number is set using a Westpac ordinary share price which is broadly equivalent to 20% of the Westpac
ordinary share price at the time of issue.
Following the occurrence of a non-viability trigger event, if conversion of a Tier 2 instrument does not occur within
five business days, holders’ rights in relation to the relevant Tier 2 instrument will be immediately and irrevocably
terminated.
Subordinated perpetual notes
These notes have no final maturity but Westpac can choose to redeem them at par on any interest payment date
falling on or after September 1991, subject to APRA approval and certain other conditions. Interest is cumulative
and payable on the notes semi-annually at a rate of 6 month US$ LIBOR plus 0.15% p.a., subject to Westpac being
solvent immediately after making the payment and having paid any dividend on any class of share capital of
Westpac within the prior 12 month period.
These notes qualify for transitional treatment as Tier 2 capital of Westpac under APRA’s Basel III capital adequacy
framework.
The rights of the noteholders and coupon holders are subordinated to the claims of all creditors (including depositors)
of Westpac other than creditors whose claims against Westpac rank equally with, or junior to, these notes.
WESTPAC GROUP 2020 ANNUAL REPORT 233
Notes to the financial statements
Note 20. Derivative financial instruments
Accounting policy
Derivative financial instruments are instruments whose values are derived from the value of an underlying asset,
reference rate or index and include forwards, futures, swaps and options.
The Group uses derivative financial instruments for meeting customers’ needs, our asset and liability risk
management (ALM) activities, and undertaking market making and positioning activities.
Trading derivatives
Derivatives which are used in our ALM activities but are not designated into a hedge accounting relationship
are considered economic hedges, and are adjusted for cash earnings purposes due to the accounting mismatch
between the fair value of the derivatives and the accounting treatment of the underlying exposure (refer to
Note 2 for further details). These derivatives, along with derivatives used for meeting customers’ needs and
undertaking market making and positioning activities, are measured at FVIS and are disclosed as trading
derivatives.
Hedging derivatives
Hedging derivatives are those which are used in our ALM activities and have also been designated into one
of three hedge accounting relationships: fair value hedge; cash flow hedge; or hedge of a net investment in a
foreign operation. These derivatives are measured at fair value. These hedge designations and the associated
accounting treatment are detailed below.
For more details regarding the Group’s ALM activities, refer to Note 21.
Fair value hedges
Fair value hedges are used to hedge the exposure to changes in the fair value of an asset or liability.
Changes in the fair value of derivatives and the hedged asset or liability in fair value hedges are recognised
in interest income. The carrying value of the hedged asset or liability is adjusted for the changes in fair value
related to the hedged risk.
If a hedge is discontinued, any fair value adjustments to the carrying value of the asset or liability are amortised
to net interest income over the period to maturity. If the asset or liability is sold, any unamortised adjustment is
immediately recognised in net interest income.
Cash flow hedges
Cash flow hedges are used to hedge the exposure to variability of cash flows attributable to an asset, liability or
future forecast transaction.
For effective hedges, changes in the fair value of derivatives are recognised in the cash flow hedge reserve
through OCI and subsequently recognised in interest income when the cash flows attributable to the asset or
liability that was hedged impact the income statement.
For hedges with some ineffectiveness, the changes in the fair value of the derivatives relating to the ineffective
portion are immediately recognised in interest income.
If a hedge is discontinued, any cumulative gain or loss remains in OCI. It is amortised to net interest income over
the period which the asset or liability that was hedged also impacts the income statement.
If a hedge of a forecast transaction is no longer expected to occur, any cumulative gain or loss in OCI is
immediately recognised in net interest income.
Net investment hedges
Net investment hedges are used to hedge FX risks arising from a net investment of a foreign operation.
For effective hedges, changes in the fair value of derivatives are recognised in the foreign currency translation
reserve through OCI.
For hedges with some ineffectiveness, the changes in the fair value of the derivatives relating to the ineffective
portion are immediately recognised in non-interest income.
If a foreign operation is disposed of, any cumulative gain or loss in OCI is immediately recognised in non-interest
income.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
234
Notes to the financial statements
Note 20. Derivative financial instruments (continued)
Total derivatives
The carrying values of derivative instruments are set out in the tables below:
Consolidated 2020
$m
Interest rate contracts1
Forward rate agreements
Swap agreements
Options
Total interest rate contracts
FX contracts
Trading
Hedging
Total derivatives
carrying value
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
14
(14)
-
-
14
(14)
44,366
(42,724)
5,916
(10,331)
50,282
(53,055)
161
(165)
-
-
161
(165)
44,541
(42,903)
5,916
(10,331)
50,457
(53,234)
Spot and forward contracts
5,595
(4,797)
61
(46)
5,656
(4,843)
Cross currency swap agreements (principal and
interest)
Options
Total FX contracts
Credit default swaps
Credit protection bought
Credit protection sold
Total credit default swaps
Commodity contracts
Equities
Total of gross derivatives
Impact of netting arrangements
Total of net derivatives
Consolidated 2019
$m
Interest rate contracts1
Forward rate agreements
Swap agreements
Options
Total interest rate contracts
FX contracts
4,977
(8,872)
1,450
(141)
6,427
383
(200)
-
-
383
(9,013)
(200)
10,955
(13,869)
1,511
(187)
12,466
(14,056)
-
57
57
352
3
(59)
-
(59)
(204)
-
-
-
-
-
-
-
-
-
-
-
-
57
57
352
3
(59)
-
(59)
(204)
-
55,908
(57,035)
7,427
(10,518)
63,335
(67,553)
(34,402)
34,819
(5,566)
9,680
(39,968)
44,499
21,506
(22,216)
1,861
(838)
23,367
(23,054)
Trading
Hedging
Total derivatives
carrying value
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
35
(36)
-
-
35
(36)
38,383
(37,051)
4,073
(7,568)
42,456
(44,619)
294
(303)
-
-
294
(303)
38,712
(37,390)
4,073
(7,568)
42,785
(44,958)
Spot and forward contracts
6,857
(6,393)
181
(3)
7,038
(6,396)
Cross currency swap agreements (principal and
interest)
Options
Total FX contracts
Credit default swaps
Credit protection bought
Credit protection sold
Total credit default swaps
Commodity contracts
Equities
Total of gross derivatives
Impact of netting arrangements
Total of net derivatives
8,934
(12,478)
2,172
200
(111)
-
(69)
-
11,106
(12,547)
200
(111)
15,991
(18,982)
2,353
(72)
18,344
(19,054)
-
83
83
251
1
(88)
-
(88)
(187)
(1)
-
-
-
-
-
-
-
-
-
-
-
83
83
251
1
(88)
-
(88)
(187)
(1)
55,038
(56,648)
(27,968)
28,703
6,426
(3,637)
(7,640)
61,464
(64,288)
6,489
(31,605)
35,192
27,070
(27,945)
2,789
(1,151)
29,859
(29,096)
1.
The fair value of futures contracts is settled daily with the exchange, and therefore have been excluded from this table.
WESTPAC GROUP 2020 ANNUAL REPORT 235
Notes to the financial statements
Note 20. Derivative financial instruments (continued)
Parent Entity 2020
$m
Interest rate contracts1
Forward rate agreements
Swap agreements
Options
Total interest rate contracts
FX contracts
Trading
Hedging
Total derivatives
carrying value
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
14
(14)
-
-
14
(14)
44,511
(43,108)
5,749
(9,807)
50,260
(52,915)
161
(165)
-
-
161
(165)
44,686
(43,287)
5,749
(9,807)
50,435
(53,094)
Spot and forward contracts
5,641
(4,821)
14
(19)
5,655
(4,840)
Cross currency swap agreements (principal and
interest)
Options
Total FX contracts
Credit default swaps
Credit protection bought
Credit protection sold
Total credit default swaps
Commodity contracts
Equities
Total of gross derivatives
Impact of netting arrangements
Total of net derivatives
Parent Entity 2019
$m
Interest rate contracts1
Forward rate agreements
Swap agreements
Options
Total interest rate contracts
FX contracts
4,977
(8,872)
383
(200)
11,001
(13,893)
900
-
914
(9)
-
5,877
383
(8,881)
(200)
(28)
11,915
(13,921)
-
57
57
352
3
(59)
-
(59)
(204)
-
-
-
-
-
-
-
-
-
-
-
-
57
57
352
3
(59)
-
(59)
(204)
-
56,099
(57,443)
(34,521)
35,175
21,578
(22,268)
6,663
(5,447)
1,216
(9,835)
62,762
(67,278)
9,324
(39,968)
44,499
(511)
22,794
(22,779)
Trading
Hedging
Total derivatives
carrying value
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
35
(36)
-
-
35
(36)
38,489
(37,438)
3,955
(7,018)
42,444
(44,456)
294
(303)
-
-
294
(303)
38,818
(37,777)
3,955
(7,018)
42,773
(44,795)
Spot and forward contracts
6,987
(6,389)
46
Cross currency swap agreements (principal and
interest)
Options
Total FX contracts
Credit default swaps
Credit protection bought
Credit protection sold
Total credit default swaps
Commodity contracts
Equities
Total of gross derivatives
Impact of netting arrangements
Total of net derivatives
8,934
(12,479)
1,613
200
(111)
-
16,121
(18,979)
1,659
-
83
83
251
1
(88)
-
(88)
(187)
(1)
-
-
-
-
-
(3)
(6)
-
(9)
-
-
-
-
-
7,033
(6,392)
10,547
(12,485)
200
(111)
17,780
(18,988)
-
83
83
251
1
(88)
-
(88)
(187)
(1)
55,274
(57,032)
(27,968)
28,703
27,306
(28,329)
5,614
(3,637)
1,977
(7,027)
60,888
(64,059)
6,489
(31,605)
35,192
(538)
29,283
(28,867)
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1.
The fair value of futures contracts is settled daily with the exchange, and therefore have been excluded from this table.
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
236
Notes to the financial statements
Note 20. Derivative financial instruments (continued)
Hedge accounting
The Group designates derivatives into hedge accounting relationships in order to manage the volatility in earnings
and capital that would otherwise arise from interest rate and FX risks that may result from differences in the
accounting treatment of derivatives and underlying exposures. These hedge accounting relationships and the risks
they are used to hedge are described below.
The Group enters into one-to-one hedge relationships to manage specific exposures where the terms of the
hedged item significantly match the terms of the hedging instrument. The Group also uses dynamic hedge
accounting where the hedged items are part of a portfolio of assets and/or liabilities that frequently change. In
this hedging strategy, the exposure being hedged and the hedging instruments may change frequently rather than
there being a one-to-one hedge accounting relationship for a specific exposure.
Fair value hedges
Interest rate risk
The Group hedges its interest rate risk to reduce exposure to changes in fair value due to interest rate fluctuations
over the hedging period. Interest rate risk arising from fixed rate debt issuances and fixed rate bonds classified
as investment securities at FVOCI is hedged with single currency fixed to floating interest rate derivatives. The
Group also hedges its benchmark interest rate risk from fixed rate foreign currency denominated debt issuances
using cross currency swaps. In applying fair value hedge accounting the Group primarily uses one-to-one hedge
accounting to manage specific exposures.
The Group also uses a dynamic hedge accounting strategy for fair value portfolio hedge accounting of some
fixed rate mortgages, primarily in New Zealand, to reduce exposure to changes in fair value due to interest rate
fluctuations over the hedging period. These fixed rate mortgages are allocated to time buckets based on their
expected repricing dates and the fixed-to-floating interest rate derivatives are designated accordingly to the
capacity in the relevant time buckets.
The Group hedges the benchmark interest rate which generally represents the most significant component of
the changes in fair value. The benchmark interest rate is a component of interest rate risk that is observable in
the relevant financial markets, for example, BBSW for AUD interest rates, LIBOR for USD interest rates and BKBM
for NZD interest rates. Ineffectiveness may arise from timing or discounting differences on repricing between the
hedged item and the derivative. For the portfolio hedge accounting ineffectiveness also arises from prepayment
risk (i.e. the difference between actual and expected prepayment of loans). In order to manage the ineffectiveness
from early repayments and accommodate new originations the portfolio hedges are de-designated and
redesignated periodically.
Cash flow hedges
Interest rate risk
The Group’s exposure to the volatility of interest cash flows from customer deposits and loans is hedged with
interest rate derivatives using a dynamic hedge accounting strategy called macro cash flow hedges. Customer
deposits and loans are allocated to time buckets based on their expected repricing dates. The interest rate
derivatives are designated accordingly to the gross asset or gross liability positions for the relevant time buckets.
The Group hedges the benchmark interest rate which generally represents the most significant component of
the changes in fair value. The benchmark interest rate is a component of interest rate risk that is observable in
the relevant financial markets, for example, BBSW for AUD interest rates, LIBOR for USD interest rates and BKBM
for NZD interest rates. Ineffectiveness may arise from timing or discounting differences on repricing between the
hedged item and the interest rate derivative. Ineffectiveness also arises if the notional values of the interest rate
derivatives exceed the capacity for the relevant time buckets. The hedge accounting relationship is reviewed on a
monthly basis and the hedging relationships are de-designated and redesignated if necessary.
FX risk
The Group’s exposure to foreign currency principal and credit margin cash flows from fixed rate foreign currency
debt issuances is hedged through the use of cross currency derivatives in a one-to-one hedging relationship to
manage the changes between the foreign currency and AUD. In addition, for floating rate foreign currency debt
issuances, the Group hedges from foreign floating to primarily AUD or NZD floating interest rates. These exposures
represent the most significant components of fair value. Ineffectiveness may arise from timing or discounting
differences on repricing between the hedged item and the cross currency derivative.
WESTPAC GROUP 2020 ANNUAL REPORT 237
Notes to the financial statements
Note 20. Derivative financial instruments (continued)
Net investment hedges
FX risk
Structural FX risk results from Westpac’s capital deployed in offshore branches and subsidiaries, where it is
denominated in currencies other than Australian dollars. As exchange rates move, the Australian dollar equivalent
of offshore capital is subject to change that could introduce significant variability to the Bank’s reported financial
results and capital ratios.
The Group uses FX forward contracts when hedging the currency translation risk arising from net investments in
foreign operations. The Group currently applies hedge accounting to its net investment in New Zealand operations
which is the most material offshore operation and therefore the hedged risk is the movement of the NZD against
the AUD. Ineffectiveness only arises if the notional values of the FX forward contracts exceed the net investment in
New Zealand operations.
Economic hedges
As part of the Group’s ALM activities, economic hedges may be entered into to hedge New Zealand future
earnings and long term funding transactions. These hedges do not qualify for hedge accounting and the impact
on the income statement of these hedges is treated as a cash earnings adjustment. This is due to the accounting
mismatch between the fair value accounting of the derivatives used in the economic hedges when compared to
the recognition of the New Zealand future earnings as they are earned and the amortised cost accounting of the
borrowing respectively. Refer to Note 2 for further details.
Interest Rate Benchmark Reform
The Group’s hedging relationships include hedged items and hedging instruments that are impacted by IBOR
reform. As described in Note 1, the Group has early adopted AASB 2019-3 which allows certain exceptions to the
standard hedging requirements in respect of hedge relationships that are impacted by this benchmark reform.
The table below summarises the exposures Westpac currently has in hedging relationships maturing after
31 December 2021 which will be impacted by the IBOR reform and the quantum of those risks expressed in
AUD equivalent values. The extent of the risk exposure also reflects the notional amounts of related hedging
instruments.
Benchmark
A$bn
US LIBOR
GBP LIBOR
CHF LIBOR
JPY LIBOR
Notional hedged exposure
Consolidated
Parent Entity
40
2
2
1
40
2
2
1
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
238
Notes to the financial statements
Note 20. Derivative financial instruments (continued)
Hedging instruments
The following tables show the carrying value of hedging instruments and a maturity analysis of the notional
amounts of the hedging instruments in one-to-one hedge relationships categorised by the types of hedge
relationships and the hedged risk.
Consolidated 2020
$m
One-to-one hedge relationships
Hedging instrument
Hedged risk
Notional amounts
Over
1 year
to
5 years
Within
1 year
Over
5 years
Carrying value
Total
Assets
Liabilities
Fair value hedges
Interest rate swap
Interest rate risk
16,748
60,258
56,979
133,985
4,395
(8,810)
Cash flow hedges
Cross currency swap FX risk
5,877
9,590
Cross currency swap Interest rate risk
4,668
8,381
1,615
1,615
14,664
355
17,082
1,095
Net investment hedges
Forward contracts
FX risk
6,320
-
-
6,320
61
-
(141)
(46)
Total one-to-one hedge relationships
Macro hedge relationships
Portfolio fair value hedges
Interest rate swap
Interest rate risk
Macro cash flow hedges
Interest rate swap
Interest rate risk
Total macro hedge relationships
Total of gross hedging derivatives
Impact of netting arrangements
Total of net hedging derivatives
Consolidated 2019
$m
One-to-one hedge relationships
Hedging instrument
Hedged risk
33,613
78,229
60,209
172,051
5,906
(8,997)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
19,907
-
(187)
174,611
1,521
(1,334)
194,518
366,569
1,521
7,427
(1,521)
(10,518)
n/a
n/a
(5,566)
9,680
1,861
(838)
Notional amounts
Over
1 year
to
5 years
Within
1 year
Over
5 years
Carrying value
Total
Assets
Liabilities
Fair value hedges
Interest rate swap
Interest rate risk
16,322
61,707
48,271
126,300
2,548
(5,672)
Cash flow hedges
Cross currency swap FX risk
5,632
15,386
1,708
22,726
1,588
Net investment hedges
Forward contracts
FX risk
8,152
-
-
8,152
181
Cross currency swap Interest rate risk
5,632
12,870
1,708
20,210
584
(69)
-
(3)
Total one-to-one hedge relationships
Macro hedge relationships
Portfolio fair value hedges
Interest rate swap
Interest rate risk
Macro cash flow hedges
Interest rate swap
Interest rate risk
Total macro hedge relationships
Total of gross hedging derivatives
Impact of netting arrangements
Total of net hedging derivatives
Parent Entity 2020
$m
One-to-one hedge relationships
Hedging instrument
Hedged risk
35,738
89,963
51,687
177,388
4,901
(5,744)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
18,813
-
(194)
176,828
1,525
(1,702)
195,641
1,525
373,029 6,426
(3,637)
n/a
(1,896)
(7,640)
6,489
n/a
2,789
(1,151)
Notional amounts
Over
1 year
to
5 years
Within
1 year
Over
5 years
Carrying value
Total
Assets
Liabilities
Fair value hedges
Interest rate swap
Interest rate risk
16,125
58,628
56,979
131,732
4,390
(8,644)
Cross currency swap Interest rate risk
2,981
4,284
1,286
8,551
Cash flow hedges
Cross currency swap FX risk
2,981
4,284
1,286
8,551
Net investment hedges
Forward contracts
FX risk
1,240
-
-
1,240
252
648
14
-
(9)
(19)
Total one-to-one hedge relationships
Macro hedge relationships
Portfolio fair value hedges
Interest rate swap
Interest rate risk
Macro cash flow hedges
Interest rate swap
Interest rate risk
Total macro hedge relationships
Total of gross hedging derivatives
Impact of netting arrangements
Total of net hedging derivatives
23,327
67,196
59,551
150,074
5,304
(8,672)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-
-
-
n/a
162,033
1,359
(1,163)
n/a
162,033
1,359
(1,163)
n/a
312,107
6,663
(9,835)
n/a
n/a
n/a
n/a
(5,447)
9,324
1,216
(511)
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 20. Derivative financial instruments (continued)
Parent Entity 2019
$m
One-to-one hedge relationships
Hedging instrument
Hedged risk
239
Notional amounts
Over
1 year
to
5 years
Within
1 year
Over
5 years
Carrying value
Total
Assets
Liabilities
Fair value hedges
Interest rate swap
Interest rate risk
14,323
59,842
47,881
122,046
2,535
(5,475)
Cross currency swap Interest rate risk
4,473
7,185
1,384
13,042
441
Cash flow hedges
Cross currency swap FX risk
4,473
7,185
1,384
13,042
1,172
Net investment hedges
Forward contracts
FX risk
2,315
-
-
2,315
46
-
(6)
(3)
Total one-to-one hedge relationships
Macro hedge relationships
Portfolio fair value hedges
Interest rate swap
Interest rate risk
Macro cash flow hedges
Interest rate swap
Interest rate risk
Total macro hedge relationships
Total of gross hedging derivatives
Impact of netting arrangements
Total of net hedging derivatives
25,584
74,212
50,649
150,445
4,194
(5,484)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-
-
-
n/a
166,978
1,420
(1,543)
n/a
166,978
1,420
(1,543)
n/a
317,423
5,614
(7,027)
n/a
n/a
n/a
n/a
(3,637)
6,489
1,977
(538)
The following tables show the weighted average FX rate related to significant hedging instruments in one-to-one
hedge relationships.
Consolidated
Weighted average rate
Hedging instrument
Hedged risk
Currency pair
Cash flow hedges
Cross currency swap
FX risk
Net investment hedges
Forward contracts
FX risk
EUR:AUD
JPY:AUD
EUR:NZD
HKD:NZD
NZD:AUD
2020
0.6687
81.4507
0.6160
4.9670
1.0838
Parent Entity
Weighted average rate
Hedging instrument
Hedged risk
Currency pair
Cash flow hedges
Cross currency swap
FX risk
Net investment hedges
Forward contracts
FX risk
EUR:AUD
JPY:AUD
CNH:AUD
NZD:AUD
2020
0.6687
81.4507
4.9492
1.0904
2019
0.6929
81.4507
0.6079
4.9670
1.0545
2019
0.6929
81.4507
4.9328
1.0546
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
240
Notes to the financial statements
Note 20. Derivative financial instruments (continued)
Impact of hedge accounting in the balance sheets and reserves
The following tables show the carrying amount of hedged items in a fair value hedge relationship and the
component of the carrying amount related to accumulated fair value hedge accounting adjustments (FVHA).
Consolidated
$m
Interest rate risk
Investment securities
Loans
Debt issues and loan capital
Parent Entity
$m
Interest rate risk
Investment securities
Loans
Debt issues and loan capital
2020
2019
Carrying amount of
hedged item
FVHA
included in carrying
amount
Carrying amount of
hedged item
FVHA
included in carrying
amount
68,862
20,290
(96,605)
3,285
140
(4,559)
53,273
19,235
(100,909)
2,815
133
(2,818)
2020
2019
Carrying amount of
hedged item
FVHA
included in carrying
amount
Carrying amount of
hedged item
FVHA
included in carrying
amount
66,529
251
(90,287)
3,175
8
49,132
421
(4,440)
(93,296)
2,704
5
(2,661)
There were no (2019: nil) FVHA included in the above carrying amounts relating to hedged items that have ceased
to be adjusted for hedging gains and losses.
The pre-tax impact of cash flow and net investment hedges on reserves is detailed below:
Consolidated
$m
Cash flow hedge reserve
Balance as at beginning of year
Net gains/(losses) from changes in fair value
Transferred to interest income
Balance as at end of year
Parent Entity
$m
Cash flow hedge reserve
Balance as at beginning of year
Net gains/(losses) from changes in fair value
Transferred to interest income
Balance as at end of year
Interest
rate risk
2020
FX
risk
(99)
(1)
173
73
(83)
(94)
45
(132)
2020
Interest
rate risk
Foreign
exchange risk
(70)
16
137
83
(22)
(44)
13
(53)
Interest
rate risk
(87)
(158)
146
(99)
2019
FX
risk
(89)
(45)
51
(83)
Interest
rate risk
2019
FX
risk
(42)
(130)
102
(70)
(57)
9
26
(22)
Total
(182)
(95)
218
(59)
Total
(92)
(28)
150
30
Total
(176)
(203)
197
(182)
Total
(99)
(121)
128
(92)
There were $43 million (2019: nil) balances remaining in the cash flow hedge reserve relating to hedge relationships
for which hedge accounting is no longer applied.
As disclosed in Note 28, the net gains from changes in the fair value of net investment hedges were $9 million
(2019: net losses $129 million) for the Group and $17 million (2019: net losses $52 million) for the Parent Entity.
Included in the foreign currency translation reserve is a loss of $210 million (2019: $210 million) for the Group and
$214 million (2019: $214 million) for the Parent Entity relating to discontinued hedges of our net investment in USD
operations. This would only be transferred to the income statement on disposal of the related USD operations.
WESTPAC GROUP 2020 ANNUAL REPORT 241
Notes to the financial statements
Note 20. Derivative financial instruments (continued)
Hedge effectiveness
Hedge effectiveness is tested prospectively at inception and during the lifetime of hedge relationships. For one-to-
one hedge relationships this testing uses a qualitative assessment of matched terms where the critical terms of the
derivatives used as the hedging instrument match the terms of the hedged item. In addition, a quantitative effectiveness
test is performed for all hedges which could include regression analysis, dollar offset and/or sensitivity analysis.
Retrospective testing is also performed to determine whether the hedge relationship remains highly effective
so that hedge accounting can continue to be applied and also to determine any ineffectiveness. These tests are
performed using regression analysis and the dollar offset method.
The following tables provide information regarding the determination of hedge effectiveness:
Consolidated 2020
$m
Hedging instrument
Hedged risk
Change in
fair value
of hedging
instrument
used for
calculating
ineffectiveness
Change in
value of the
hedged item
used for
calculating
ineffectiveness
Hedge
ineffectiveness
recognised in
interest income
Hedge
ineffectiveness
recognised in
non-interest
income
Fair value hedges
Interest rate swap
Interest rate risk
1,403
(1,372)
Cross currency swap
Interest rate risk
Cash flow hedges
Interest rate swap
Interest rate risk
Net investment hedges
Forward contracts
FX risk
Cross currency swap
FX risk
Total
Consolidated 2019
$m
Hedging instrument
Hedged risk
Fair value hedges
Interest rate swap
Interest rate risk
Cross currency swap
Interest rate risk
Cash flow hedges
Interest rate swap
Interest rate risk
Net investment hedges
Forward contracts
FX risk
Cross currency swap
FX risk
Total
Parent Entity 2020
$m
Hedging instrument
Hedged risk
Fair value hedges
Interest rate swap
Interest rate risk
Cross currency swap
Interest rate risk
Cash flow hedges
Interest rate swap
Interest rate risk
Net investment hedges
Forward contracts
FX risk
Cross currency swap
FX risk
Total
Parent Entity 2019
$m
Hedging instrument
Hedged risk
(110)
230
(49)
9
108
(172)
49
(9)
1,483
(1,396)
Change in
fair value
of hedging
instrument
used for
calculating
ineffectiveness
Change in
value of the
hedged item
used for
calculating
ineffectiveness
1,532
192
(6)
6
(129)
1,595
(1,512)
(190)
12
(6)
129
(1,567)
Change in
fair value
of hedging
instrument
used for
calculating
ineffectiveness
Change in
value of the
hedged item
used for
calculating
ineffectiveness
1,408
(73)
200
(31)
17
(1,377)
72
(153)
31
(17)
1,521
(1,444)
Change in
fair value
of hedging
instrument
used for
calculating
ineffectiveness
Change in
value of the
hedged item
used for
calculating
ineffectiveness
Fair value hedges
Interest rate swap
Interest rate risk
1,684
(1,664)
Cross currency swap
Interest rate risk
Cash flow hedges
Interest rate swap
Interest rate risk
Net investment hedges
Forward contracts
FX risk
Cross currency swap
FX risk
Total
56
(21)
35
(52)
(57)
28
(35)
52
1,702
(1,676)
31
(2)
58
-
n/a
87
n/a
n/a
n/a
n/a
-
-
Hedge
ineffectiveness
recognised in
interest income
Hedge
ineffectiveness
recognised in
non-interest
income
20
2
6
-
n/a
28
n/a
n/a
n/a
n/a
-
-
Hedge
ineffectiveness
recognised in
interest income
Hedge
ineffectiveness
recognised in
non-interest
income
31
(1)
47
-
n/a
77
n/a
n/a
n/a
n/a
-
-
Hedge
ineffectiveness
recognised in
interest income
Hedge
ineffectiveness
recognised in
non-interest
income
20
(1)
7
-
n/a
26
n/a
n/a
n/a
n/a
-
-
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Notes to the financial
statements
242
Notes to the financial statements
Note 21. Financial risk
Financial instruments are fundamental to the Group’s business of providing banking and financial services.
The associated financial risks (including credit risk, funding and liquidity risk and market risk) are a significant
proportion of the total risks faced by the Group.
This note details the financial risk management policies, practices and quantitative information of the Group’s
principal financial risk exposures.
Principal financial risks
Overview
Credit risk
The risk of financial loss where a customer or
counterparty fails to meet their financial obligations.
Funding and liquidity risk
The risk that Westpac cannot meet its payment
obligations or that it does not have the appropriate
amount, tenor and composition of funding and
liquidity to support its assets.
Market risk
The risk of an adverse impact on earnings resulting
from changes in market factors, such as foreign
exchange rates, interest rates, commodity prices or
equity price.
Note name
Risk management frameworks
Credit risk ratings system
Credit risk mitigation, collateral and other credit
enhancements
Credit risk concentrations
Credit quality of financial assets
Non-performing loans and credit commitments
Collateral held
Liquidity modelling
Sources of funding
Assets pledged as collateral
Contractual maturity of financial liabilities
Expected maturity
Value-at-Risk (VaR)
Traded market risk
Non-traded market risk
Note
number
21.1
21.2.1
21.2.2
21.2.3
21.2.4
21.2.5
21.2.6
21.3.1
21.3.2
21.3.3
21.3.4
21.3.5
21.4.1
21.4.2
21.4.3
Risk management frameworks
21.1
The Board is responsible for approving the Westpac Group Risk Management Framework, Westpac Group
Risk Management Strategy and Westpac Group Risk Appetite Statement and for monitoring the effectiveness
of risk management by the Westpac Group. The Board has delegated to the Board Risk Committee (BRiskC)
responsibility to:
•
•
•
review and recommend the Westpac Group Risk Management Framework, Westpac Group Risk Management
Strategy and Westpac Group Risk Appetite Statement to the Board for approval;
review and monitor the risk profile and controls of the Group consistent with Westpac Group’s Risk Appetite
Statement;
approve frameworks, policies and processes for managing risk (consistent with the Westpac Group Risk
Management Strategy and Westpac Group Risk Appetite Statement); and
•
review and, where appropriate, approve risks beyond the approval discretion provided to management.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 21. Financial risk (continued)
For each of its primary financial risks, the Group maintains risk management frameworks and a number of
supporting policies that define roles and responsibilities, acceptable practices, limits and key controls:
Risk
Risk management framework and controls
243
Credit risk
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The Credit Risk Management Framework describes the principles, methodologies, systems, roles
and responsibilities, reports and key controls for managing credit risk.
The BRiskC, Westpac Group Executive Risk Committee (RISKCO) and Westpac Group Credit
Risk Committee (CREDCO) monitor the risk profile, performance and management of the
Group’s credit portfolio and the development and review of key credit risk policies.
The Credit Risk Rating System Policy describes the credit risk rating system philosophy, design,
key features and uses of rating outcomes.
All models materially impacting the risk rating process are periodically reviewed in accordance
with Westpac’s model risk policies.
An annual review is performed of the Credit Risk Rating System by the BRiskC and CREDCO.
Specific credit risk estimates (including PD, LGD and EAD levels) are overseen, reviewed
annually and supported by the Credit Risk Estimates Committee (a subcommittee of CREDCO)
prior to approval under delegated authority from the Chief Risk Officer.
In determining the provision for ECL, the macroeconomic variables and the probability
weightings of the forward-looking scenarios as well as any adjustments made to the modelled
outcomes are subject to the approval of the Group Chief Financial Officer and the Chief Risk
Officer with oversight from the Board of Directors (and its Committees).
Policies for the delegation of credit approval authorities and formal limits for the extension of
credit are established throughout the Group.
Credit manuals are established throughout the Group including policies governing the
origination, evaluation, approval, documentation, settlement and ongoing management of credit
risks.
Climate change related credit risks are considered in line with our Climate Change Position
Statement (CCPS). The CCPS outlines enhanced lending standards for the thermal coal, mining
and energy sectors. These lending parameters have been included in the Group’s risk framework
and, where appropriate, are applied at the portfolio, customer and transaction level.
The Climate Change Risk Committee oversees work to identify and manage the potential impact
on credit exposures from climate change-related transition and physical risks across the Group
and reports to CREDCO.
The Group’s Environmental, Social and Governance (ESG) Credit Risk Policy details the Group’s
overall approach to managing ESG risks in the credit risk process for applicable transactions
Sector policies guide credit extension where industry-specific guidelines are considered
necessary (e.g. acceptable financial ratios or permitted collateral).
The Related Entity Risk Management Framework and supporting policies govern credit
exposures to related entities, to minimise the spread of credit risk between Group entities and to
comply with prudential requirements prescribed by APRA.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
244
Notes to the financial statements
Note 21. Financial risk (continued)
Risk
Risk management framework and controls
Funding and
liquidity risk
•
•
•
•
•
•
•
•
Funding and liquidity risk is measured and managed in accordance with the policies and
processes defined in the Board-approved Liquidity Risk Management Framework which is part
of the Westpac Board-approved Risk Management Strategy.
Responsibility for managing Westpac’s liquidity and funding positions in accordance with the
Liquidity Risk Management Framework is delegated to Treasury, under the oversight of Group
ALCO and Treasury Risk.
Westpac’s Liquidity Risk Management Framework sets out Westpac’s funding and liquidity risk
appetite, roles and responsibilities of key people managing funding and liquidity risk within
Westpac, risk reporting and control processes and limits and targets used to manage Westpac’s
balance sheet.
Treasury undertakes an annual funding review that outlines Westpac’s balance sheet funding
strategy over a three year period. This review encompasses trends in global markets, peer
analysis, wholesale funding capacity, expected funding requirements and a funding risk analysis.
This strategy is continuously reviewed to take account of changing market conditions, investor
sentiment and estimations of asset and liability growth rates.
Westpac monitors the composition and stability of its funding so that it remains within
Westpac’s funding risk appetite. This includes compliance with both the Liquidity Coverage
Ratio (LCR) and Net Stable Funding Ratio (NSFR).
Westpac holds a portfolio of liquid assets for several purposes, including as a buffer against
unforeseen funding requirements. The level of liquid assets held takes into account the liquidity
requirements of Westpac’s balance sheet under normal and stress conditions.
Treasury maintains a contingent funding plan that outlines the steps that should be taken by
Westpac in the event of an emerging ‘funding crisis’. The plan is aligned with Westpac’s broader
Liquidity Crisis Management Policy which is approved annually by the Board.
Daily liquidity risk reports are reviewed by the Group’s Treasury and Treasury Risk teams.
Liquidity reports are presented to Group ALCO monthly and to the Board quarterly.
WESTPAC GROUP 2020 ANNUAL REPORT 245
Notes to the financial statements
Note 21. Financial risk (continued)
Risk
Risk management framework and controls
Market risk
•
•
•
•
•
•
•
•
•
•
The Market Risk Framework describes the Group’s approach to managing traded and non-
traded market risk.
Traded market risk includes interest rate, FX, commodity, equity price, credit spread and
volatility risks. Non-traded market risk includes interest rate and credit spread risks.
Market risk is managed using VaR limits, Net interest income at risk (NaR) and structural risk
limits (including credit spread and interest rate basis point value limits) as well as scenario
analysis and stress testing.
The BRiskC approves the risk appetite for traded and non-traded risks through the use of VaR,
NaR and specific structural risk limits. This includes separate VaR sub-limits for the trading
activities of Financial Markets and Treasury and for non-traded ALM activities.
Market risk limits are assigned to business management based upon the Bank’s risk appetite and
business strategies in addition to the consideration of market liquidity and concentration.
Market risk positions are managed by the trading desks and ALM unit consistent with their
delegated authorities and the nature and scale of the market risks involved.
Daily monitoring of current exposure and limit utilisation is conducted independently by the
Market Risk and Treasury Risk units, which monitor market risk exposures against VaR and
structural risk limits. Daily VaR position reports are produced by risk type, by product lines
and by geographic region. Quarterly reports are produced for the Westpac Group Market Risk
Committee (MARCO), RISKCO and the BRiskC.
Daily stress testing and backtesting of VaR results are performed to support model integrity
and to analyse extreme or unexpected movements. A review of the potential profit and loss
outcomes is also undertaken to monitor any skew created by the historical data. MARCO has
ratified an approved escalation framework.
The BRiskC has approved a framework for profit or loss escalation which considers both single
day and 20 day cumulative results.
Treasury’s ALM unit is responsible for managing the non-traded interest rate risk including risk
mitigation through hedging using derivatives. This is overseen by the Treasury Risk unit and
reviewed by Banking Book Risk Committee (BBRC), MARCO, RISKCO and BRiskC.
21.2
Credit Risk
Credit risk ratings system
21.2.1
The principal objective of the credit risk rating system is to reliably assess the credit risk to which the Group is
exposed. The Group has two main approaches to this assessment.
Transaction-managed customers
Transaction managed customers are generally customers with business lending exposures. They are individually
assigned a Customer Risk Grade (CRG), corresponding to their expected PD. Each facility is assigned an LGD.
The Group’s risk rating system has a tiered scale of risk grades for both non-defaulted customers and defaulted
customers. Non-defaulted CRGs are mapped to Moody’s and S&P Global Ratings (S&P) external senior ranking
unsecured ratings.
The table below shows Westpac’s high level CRGs for transaction-managed portfolios mapped to the Group’s
credit quality disclosure categories and to their corresponding external rating.
Financial statement disclosure
Westpac CRG
Moody’s Rating
Transaction-managed
Strong
Good/satisfactory
Weak
Weak/default/non-performing
A
B
C
D
E
F
G
H
Aaa – Aa3
A1 – A3
S&P Rating
AAA – AA–
A+ – A–
Baa1 – Baa3
BBB+ – BBB–
Ba1 – B1
BB+ – B+
Westpac Rating
Watchlist
Special Mention
Substandard/Default
Default
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
246
Notes to the financial statements
Note 21. Financial risk (continued)
Program-managed portfolio
The program-managed portfolio generally includes retail products including mortgages, personal lending
(including credit cards) as well as SME lending. These customers are grouped into pools of similar risk. Pools are
created by analysing similar risk characteristics that have historically predicted that an account is likely to go into
default. Customers grouped according to these predictive characteristics are assigned a PD and LGD relative to
their pool. The credit quality of these pools is based on a combination of behavioural factors, delinquency trends,
PD estimates and loan to valuation ratio (housing loans only).
21.2.2 Credit risk mitigation, collateral and other credit enhancements
Westpac uses a variety of techniques to reduce the credit risk arising from its lending activities. This includes
the Group establishing that it has direct, irrevocable and unconditional recourse to collateral and other credit
enhancements through obtaining legally enforceable documentation.
Collateral
The table below describes the nature of collateral or security held for each relevant class of financial asset:
Loans – housing and
personal1
Loans – business1
Trading securities,
financial assets
measured at FVIS
and derivatives
Housing loans are secured by a mortgage over property and additional security may take
the form of guarantees and deposits.
Personal lending (including credit cards and overdrafts) is predominantly unsecured. Where
security is taken, it is restricted to eligible motor vehicles, caravans, campers, motor homes
and boats. Personal lending also includes margin lending which is secured primarily by
shares or managed funds.
Business loans may be secured, partially secured or unsecured. Security is typically taken
by way of a mortgage over property and/or a general security agreement over business
assets or other assets.
Other security such as guarantees, standby letters of credit or derivative protection may
also be taken as collateral, if appropriate.
These exposures are carried at fair value which reflects the credit risk.
For trading securities, no collateral is sought directly from the issuer or counterparty;
however this may be implicit in the terms of the instrument (such as an asset-backed
security). The terms of debt securities may include collateralisation.
For derivatives, master netting agreements are typically used to enable the effects of
derivative assets and liabilities with the same counterparty to be offset when measuring
these exposures. Additionally, collateralisation agreements are also typically entered into
with major institutional counterparties to avoid the potential build-up of excessive mark-
to-market positions. Derivative transactions are increasingly being cleared through central
clearers.
1.
This includes collateral held in relation to associated credit commitments.
WESTPAC GROUP 2020 ANNUAL REPORT 247
Notes to the financial statements
Note 21. Financial risk (continued)
Management of risk mitigation
The Group mitigates credit risk through controls covering:
Collateral
and valuation
management
Other credit
enhancements
Offsetting
Central clearing
The estimated realisable value of collateral held in support of loans is based on a
combination of:
formal valuations currently held for such collateral; and
•
•
management’s assessment of the estimated realisable value of all collateral held.
This analysis also takes into consideration any other relevant knowledge available to
management at the time. Updated valuations are obtained when appropriate.
The Group revalues collateral related to financial markets positions on a daily basis and has
formal processes in place to promptly call for collateral top-ups, if required. These processes
include margining for non-centrally cleared customer derivatives as regulated by Australian
Prudential Standard CPS226. The collateralisation arrangements are documented via the
Credit Support Annex of the ISDA dealing agreements and Global Master Repurchase
Agreements (GMRA) for repurchase transactions.
In relation to financial markets positions, Westpac only recognises collateral which is:
•
•
•
•
cash, primarily in Australian dollars (AUD), New Zealand dollars (NZD), US dollars (USD),
Canadian dollars (CAD), British pounds (GBP) or European Union euro (EUR);
bonds issued by Australian Commonwealth, State and Territory governments or their
Public Sector Enterprises, provided these attract a zero risk-weighting under Australian
Prudential Standard (APS) 112;
securities issued by other sovereign governments and supranationals as approved by an
authorised credit officer; or
protection bought via credit-linked notes (provided the proceeds are invested in cash or
other eligible collateral).
Sovereign;
Australia and New Zealand public sector;
ADIs and overseas banks with a minimum risk grade equivalent of A3 / A–; and
Others with a minimum risk grade equivalent of A3 / A–.
The Group only recognises guarantees, standby letters of credit, or credit derivative
protection from the following entities (provided they are not related to the entity with
which Westpac has a credit exposure):
•
•
•
•
Credit Portfolio Management (CPM) manages the Group’s corporate, sovereign and bank
credit portfolios through monitoring the exposure and any offsetting hedge positions.
CPM purchases credit protection from entities meeting the criteria above and sells credit
protection to diversify the Group’s credit risk.
Creditworthy customers domiciled in Australia and New Zealand may enter into formal
agreements with the Group, permitting the Group to set-off gross credit and debit balances
in their nominated accounts. Cross-border set-offs are not permitted.
Close-out netting is undertaken with counterparties with whom the Group has entered into
a legally enforceable master netting agreement for their off-balance sheet financial market
transactions in the event of default.
Further details of offsetting are provided in Note 23.
The Group executes derivative transactions through central clearing counterparties. Central
clearing counterparties mitigate risk through stringent membership requirements, the
collection of margin against all trades placed, the default fund, and an explicitly defined
order of priority of payments in the event of default.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
248
Notes to the financial statements
Note 21. Financial risk (continued)
Credit risk concentrations
21.2.3
Credit risk is concentrated when a number of counterparties are engaged in similar activities, have similar
economic characteristics and thus may be similarly affected by changes in economic or other conditions.
The Group monitors its credit portfolio to manage risk concentrations and rebalance the portfolio.
Individual customers or groups of related customers
The Group has large exposure limits governing the aggregate size of credit exposure normally acceptable to
individual customers and groups of related customers. These limits are tiered by customer risk grade.
Specific industries
Exposures to businesses, governments and other financial institutions are classified into a number of industry
clusters based on related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are
monitored against the Group’s industry risk appetite limits.
Individual countries
The Group has limits governing risks related to individual countries, such as political situations, government policies
and economic conditions that may adversely affect either a customer’s ability to meet its obligations to the Group,
or the Group’s ability to realise its assets in a particular country.
Maximum exposure to credit risk
The maximum exposure to credit risk (excluding collateral received) is represented by the carrying amount of
on-balance sheet financial assets (which comprise cash and balances with central banks, collateral paid, trading
securities and financial assets measured at FVIS, derivative financial instruments, investment securities, loans, and
other financial assets) and undrawn credit commitments.
The following tables set out the credit risk concentrations to which the Group and the Parent Entity are exposed
for on-balance sheet financial assets and for undrawn credit commitments.
Life insurance assets are excluded as primarily the credit risk is passed on to the policyholder and backed by the
policyholder liabilities.
The balances for trading securities and financial assets measured at FVIS and investment securities exclude equity
securities as the primary financial risk is not credit risk.
The credit concentrations for each significant class of financial asset are:
Trading securities
and financial
assets measured
at FVIS (Note 10)
Investment
securities (Note
11)
Loans (Note 12)
Derivative
financial
instruments (Note
20)
•
•
•
•
•
•
•
•
•
64% (2019: 45%) were issued by financial institutions for the Group; 67% (2019: 44%) for
the Parent Entity.
33% (2019: 51%) were issued by government or semi-government authorities for the
Group; 31% (2019: 52%) for the Parent Entity.
79% (2019: 71%) were held in Australia by the Group; 84% (2019: 75%) by the Parent Entity.
18% (2019: 24%) were issued by financial institutions for the Group; 18% (2019: 25%) for the
Parent Entity.
82% (2019: 75%) were issued by government or semi-government authorities for the
Group; 82% (2019: 75%) for the Parent Entity.
92% (2019: 90%) were held in Australia by the Group; 98% (2019: 97%) by the Parent
Entity.
Note 12 provides a detailed breakdown of loans by industry and geographic classification.
68% (2019: 72%) were issued by financial institutions for both the Group and Parent Entity.
76% (2019: 78%) were held in Australia by the Group; 78% (2019: 80%) by the Parent
Entity.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 21. Financial risk (continued)
249
Consolidated
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas
Total gross credit risk
2020
Undrawn
credit
commit-
ments
Total
1,225
2,219
9,181
12,378
3,643
10,369
2019
Undrawn
credit
commit-
ments
Total
1,070
2,014
9,131
11,264
3,340
10,569
Total on
balance
sheet
8,061
9,250
7,229
8,954
90,456
73,052
7,316
80,368
1,588
81,770
63,582
1,766
65,348
6,477
3,735
15,725
10,504
7,137
3,325
5,850
3,802
16,354
7,127
Total on
balance
sheet
7,956
10,159
6,726
81,502
80,182
9,248
3,402
45,139
10,869
56,008
45,467
10,119
55,586
12,712
11,922
7,019
7,595
19,731
19,517
14,191
5,898
20,089
12,340
6,523
18,863
13,633
10,171
23,804
16,593
7,677
24,270
9,392
6,368
5,136
4,918
14,528
11,286
9,529
5,567
5,114
14,643
4,487
10,054
454,986
84,454
539,440
467,206
84,057
551,263
6,867
2,491
9,358
6,668
2,740
9,408
760,194
160,494
920,688
752,564
151,773
904,337
389
9,158
517
12,701
7,833
1,804
208
7,433
1,033
2,168
2,025
1,249
1,809
51
632
429
440
9,790
946
1,782
14,483
865
1,782
97
977
712
853
1,510
871
1,681
8,698
3,586
305
8,410
1,745
3,021
3,535
2,120
3,490
356
8,631
503
11,685
6,667
2,079
289
6,977
1,300
2,023
2,441
1,209
1,938
36
607
350
1,507
856
1,758
29
1,120
557
577
1,259
755
1,447
392
9,238
853
13,192
7,523
3,837
318
8,097
1,857
2,600
3,700
1,964
3,385
52,645
12,596
65,241
49,542
12,056
61,598
204
182
386
151
161
312
101,176
25,020
126,196
95,791
23,075
118,866
118
124
51
19,194
4,787
1,908
352
416
1,652
218
1,555
755
952
459
129
10
5
118
128
129
169
2,243
21,437
18
4,805
3,443
1,194
27
790
698
5,351
1,546
443
2,442
916
1,931
3,486
276
615
32
27
1,031
1,567
491
156
109
150
55
17,712
5,646
3,830
500
493
1,766
244
2,318
999
1,088
864
171
11
3
127
120
153
182
3,093
20,805
23
5,669
5,329
1,872
29
863
637
2,859
652
931
37
26
9,159
2,372
522
2,629
881
5,177
1,651
2,019
901
197
32,670
11,427
44,097
35,945
16,492
52,437
894,040
196,941
1,090,981
884,300
191,340
1,075,640
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
250
Notes to the financial statements
Note 21. Financial risk (continued)
Parent Entity
$m
Australia
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance1
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total Australia1
New Zealand
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance1
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total New Zealand1
Other overseas
Accommodation, cafes and restaurants
Agriculture, forestry and fishing
Construction
Finance and insurance1
Government, administration and defence
Manufacturing
Mining
Property
Property services and business services
Services
Trade
Transport and storage
Utilities
Retail lending
Other
Total other overseas1
Total gross credit risk
2020
Undrawn
credit
commit-
ments
1,225
2,219
3,643
Total on
balance
sheet
7,880
10,101
6,213
Total on
balance
sheet
7,989
9,191
6,853
Total
9,105
12,320
9,856
2019
Undrawn
credit
commit-
ments
1,070
2,014
3,340
Total
9,059
11,205
10,193
244,758
8,954
253,712
200,863
7,316
208,179
80,166
9,037
3,381
1,588
6,477
3,735
81,754
63,599
1,766
65,365
15,514
10,322
7,116
3,304
5,850
3,802
16,172
7,106
45,139
10,868
56,007
45,405
10,119
55,524
11,992
11,581
13,425
9,044
6,342
7,019
7,595
10,171
5,136
4,918
19,011
19,176
13,348
12,094
5,898
6,523
19,246
18,617
23,596
16,408
7,677
24,085
14,180
11,260
9,221
5,542
5,114
14,335
4,487
10,029
454,808
84,437
539,245
466,188
84,057
550,245
5,731
2,489
8,220
5,684
2,740
8,424
919,598
160,474
1,080,072
876,011
151,773
1,027,784
-
48
11
8,173
1,743
184
5
102
88
46
337
76
492
-
2
1
4
35
135
8
51
-
-
16
-
157
67
83
1
-
1
52
46
8,308
1,751
235
5
102
104
46
494
143
575
1
2
-
67
17
9,501
2,196
259
11
117
123
46
392
76
507
-
37
-
7
16
116
8
69
-
3
18
1
170
64
73
13
1
-
74
33
9,617
2,204
328
11
120
141
47
562
140
580
13
38
11,307
558
11,865
13,349
559
13,908
81
114
46
10
1
114
91
115
160
67
130
47
10
1
125
77
131
172
20,585
2,217
22,802
19,380
3,067
22,447
3,902
1,905
330
209
1,585
196
1,417
665
896
359
118
18
3,384
1,134
10
786
695
1,754
268
511
31
14
3,920
5,289
1,464
219
2,371
891
3,171
933
1,407
390
132
4,815
3,822
497
227
1,683
216
2,140
888
1,038
588
133
23
5,269
1,869
13
862
634
4,838
9,091
2,366
240
2,545
850
2,688
4,828
643
905
32
14
1,531
1,943
620
147
32,408
10,947
43,355
35,671
16,155
51,826
963,313
171,979
1,135,292
925,031
168,487
1,093,518
1.
The Parent Entity’s 2019 ‘Total on balance sheet’ and ‘Total’ amounts for Finance and Insurance have been restated for Australia, New
Zealand and Other overseas locations to appropriately reflect intracompany eliminations. These restatements did not have any impact
on total gross credit risk exposures.
WESTPAC GROUP 2020 ANNUAL REPORT 251
Notes to the financial statements
Note 21. Financial risk (continued)
21.2.4 Credit quality of financial assets
Credit quality disclosures
The following tables show the credit quality of gross credit risk exposures measured at amortised cost or at FVOCI
to which the impairment requirements of AASB 9 apply. The credit quality is determined by reference to the credit
risk ratings system (refer Note 21.2.1) and expectations of future economic conditions under multiple scenarios:
Consolidated
$m
Loans - housing
Strong
Good/satisfactory
Weak
Total loans - housing
Loans - personal
Strong
Good/satisfactory
Weak
Total loans - personal
Loans - business2
Strong
Good/satisfactory
Weak
2020
2019
Stage 1
Stage 2
Stage 3
Total1
Stage 1
Stage 2
Stage 3
Total1
382,892
6,629
62,324
20,603
-
-
389,521
382,119
743
82,927
84,071
11,326
-
-
382,862
95,397
4,122
8,258
7,643
20,023
4,201
10,715
4,367
19,283
449,338
35,490
7,643
492,471
470,391
22,784
4,367
497,542
4,768
10,607
404
146
1,515
631
15,779
2,292
65,091
2,063
94,046
16,091
-
-
381
381
-
-
4,914
5,694
12,122
14,538
1,416
573
2
955
831
-
-
5,696
15,493
380
1,784
18,452
20,805
1,788
380
22,973
67,154
75,758
232
110,137
109,541
4,581
-
-
75,990
114,122
180
7,200
3,067
10,447
439
5,342
1,970
7,751
Total loans - business
159,317
25,354
3,067
187,738
185,738
10,155
1,970
197,863
Debt securities
Strong
Good/satisfactory
Weak
Total debt securities3
All other financial assets
Strong
Good/satisfactory
Weak
Total all other financial assets
Undrawn credit commitments
Strong
Good/satisfactory
Weak
90,461
365
-
-
90,461
39,871
470
40
40,381
-
587
952
-
-
-
-
149,778
2,384
38,121
4,713
-
-
-
-
-
-
-
-
-
-
90,826
72,813
-
463
587
-
91,413
73,276
39,871
30,623
470
40
685
48
40,381
31,356
-
-
-
-
-
-
-
-
152,162
148,525
328
42,834
39,782
1,294
-
-
-
-
-
-
-
-
-
-
72,813
463
-
73,276
30,623
685
48
31,356
148,853
41,076
117
1,608
220
1,945
142
1,135
134
1,411
Total undrawn credit commitments
188,016
8,705
220
196,941
188,449
2,757
134
191,340
Total strong
Total good/satisfactory
Total weak
732,861
11,587
205,568
42,922
-
-
744,448
715,532
1,305
248,490
249,080
18,156
-
-
716,837
267,236
4,863
18,284
11,311
34,458
5,403
18,023
6,851
30,277
Total on and off-balance sheet
943,292
72,793
11,311
1,027,396 970,015
37,484
6,851
1,014,350
Details of collateral held in support of these balances are provided in Note 21.2.6.
1.
2.
This credit quality disclosure differs to that of credit risk concentration as it relates only to financial assets measured at amortised cost
or at FVOCI and therefore excludes trading securities and financial assets measured at FVIS, and derivative financial instruments.
Included in strong in 2019 was a $131 million exposure that is covered by a highly rated guarantee, which if it were not considered, the
exposure would be classified as weak.
3. Debt securities include $1,011 million (2019: $829 million) at amortised cost. $424 million (2019: $366 million) of these are classified as
strong, and the rest are classified as weak.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
252
Notes to the financial statements
Note 21. Financial risk (continued)
Parent Entity
$m
Loans - housing
Strong
Good/satisfactory
Weak
Total loans - housing
Loans - personal
Strong
Good/satisfactory
Weak
2020
2019
Stage 1
Stage 2
Stage 3
Total1
Stage 1
Stage 2
Stage 3
Total1
345,662
5,805
54,065
19,001
-
-
351,467
361,727
536
73,066
58,599
10,623
-
-
362,263
69,222
3,066
6,467
7,195
16,728
3,735
10,244
4,076
18,055
402,793
31,273
7,195
441,261
424,061
21,403
4,076
449,540
4,292
135
10,071
1,376
-
-
4,427
5,106
11,447
13,381
294
449
329
1,072
427
1
931
680
-
-
5,107
14,312
334
1,441
Total loans - personal
14,657
1,960
329
16,946
18,914
1,612
334
20,860
Loans - business2
Strong
Good/satisfactory
Weak
53,321
1,761
77,330
13,275
-
-
55,082
64,041
123
90,605
90,937
3,455
-
-
64,164
94,392
135
5,899
2,589
8,623
362
3,997
1,724
6,083
Total loans - business
130,786
20,935
2,589
154,310
155,340
7,575
1,724
164,639
Debt securities
Strong
Good/satisfactory
Weak
Total debt securities3
All other financial assets
Strong
Good/satisfactory
Weak
Strong
Good/satisfactory
Weak
Total all other financial assets
204,624
Undrawn credit commitments
85,434
324
-
-
-
-
85,434
324
204,239
354
31
-
-
-
-
130,494
33,552
2,111
4,117
-
-
-
-
-
-
-
-
-
-
85,758
68,309
-
-
23
-
85,758
68,332
204,239
162,339
354
31
496
41
204,624
162,876
132,605
132,776
37,669
33,097
-
-
-
-
-
-
-
-
317
1,122
937
-
-
-
-
-
-
-
-
-
-
68,309
23
-
68,332
162,339
496
41
162,876
133,093
34,219
115
1,175
99
1,426
180
1,705
123
Total undrawn credit commitments
164,145
7,654
180
171,979
165,996
2,376
115
168,487
Total strong
Total good/satisfactory
Total weak
823,442
10,136
175,372
37,769
-
-
833,578
794,298
977
213,141
196,533
16,131
-
-
795,275
212,664
3,625
14,241
10,293
28,159
4,688
15,858
6,249
26,795
Total on and off-balance sheet
1,002,439
62,146
10,293
1,074,878 995,519
32,966
6,249
1,034,734
Details of collateral held in support of these balances are provided in Note 21.2.6.
1.
2.
This credit quality disclosure differs to that of credit risk concentration as it relates only to financial assets measured at amortised cost
or at FVOCI and therefore excludes trading securities and financial assets measured at FVIS, and derivative financial instruments.
Included in strong in 2019 was a $131 million that is covered by a highly rated guarantee, which if it were not considered, the exposure
would be classified as weak.
3. Debt securities include $3 million (2019: $27 million) at amortised cost. In 2020, all of these are classified as strong (2019: $4 million),
and the remainder of the 2019 balances are classified as good/satisfactory.
WESTPAC GROUP 2020 ANNUAL REPORT 253
Notes to the financial statements
Note 21. Financial risk (continued)
21.2.5 Non-performing loans and credit commitments
The loans and credit commitments balance in stage 3 (non-performing) is represented by those loans and credit
commitments which are in default. A default occurs when Westpac considered that the customer is unlikely to
repay its credit obligations in full, irrespective of recourse by the Group to actions such as realising security, or the
customer is more than 90 days past due on any material credit obligation. This definition of default is aligned to
the APRA regulatory definition of default. These can be disaggregated into impaired loans and credit commitments
(which is where the customer is unlikely to pay its credit obligations in full including restructured loans) and items
90 days past due, or otherwise in default but not impaired.
Impaired loans and credit commitments include:
•
•
•
housing and business loans with insufficient security to cover the principal and interest payments owing
(aligned to an impaired internal credit risk grade);
personal loans which are greater than 90 days past due; and
restructured loans (the original contractual terms have been modified to provide for concessions for a customer
facing financial difficulties).
Items 90 days past due, or otherwise in default but not impaired include:
•
•
•
currently 90 days or more past due but well secured1;
assets that were, but are no longer 90 days past due but are yet to satisfactorily demonstrate sustained
improvement to allow reclassification; and
other assets in default and not impaired, including those where an order for bankruptcy or similar legal action
has been taken (e.g. appointment of an Administrator or Receiver).
The determination of the provisions for ECL is one of the Group’s critical accounting assumptions and estimates.
Details of this and the Group’s accounting policy for the provision for ECL are discussed in Notes 6 and 13, along
with the total provisions for ECL on loans and credit commitments and the total for those loans that are considered
non-performing (i.e. stage 3).
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1.
The estimated net realisable value of security to which the Group has recourse is sufficient to cover all principal and interest.
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
254
Notes to the financial statements
Note 21. Financial risk (continued)
The gross amount of non-performing loans and credit commitments, along with the provision for ECL/provision for
impairment charges1, by type and geography of impaired loans, is summarised in the following table:
Consolidated
$m
Impaired exposures
Australia
Housing and business loans
Gross amount
Provision
Net
Personal loans greater than 90 days past due
Gross amount
Provision
Net
Restructured loans
Gross amount
Provision
Net
New Zealand
Housing and business loans
Gross amount
Provision
Net
Personal loans greater than 90 days past due
Gross amount
Provision
Net
Restructured loans
Gross amount
Provision
Net
Other overseas
Housing and business loans
Gross amount
Provision
Net
Personal loans greater than 90 days past due
Gross amount
Provision
Net
Restructured loans
Gross amount
Provision
Net
Total impaired exposures
Gross amount
Provision
Total net impaired exposures
Items 90 days past due, or otherwise in default but not impaired
Australia
Gross amount
Provision
Net
New Zealand
Gross amount
Provision
Net
Overseas
Gross amount
Provision
Net
Total items 90 days past due, or otherwise in default but not impaired
Gross amount
Provision
Total net items 90 days past due, or otherwise in default but not
impaired
Total non-performing loans and credit commitments
Gross amount
Provision
Total net non-performing loans and credit commitments
2020
2019
2018
2017
2016
1,845
(690)
1,155
370
(206)
164
16
(4)
12
157
(70)
87
36
(26)
10
-
-
-
355
(156)
199
-
-
-
-
-
-
1,215
(491)
724
384
(233)
151
16
(6)
10
62
(26)
36
20
(15)
5
12
(3)
9
50
(17)
33
1
-
1
3
(1)
2
882
(422)
460
358
(179)
179
9
(1)
8
124
(30)
94
12
(9)
3
14
(4)
10
13
(6)
7
1
(1)
-
3
(1)
2
975
(460)
515
362
(187)
175
12
(7)
5
152
(41)
111
11
(8)
3
15
(5)
10
15
(6)
9
-
-
-
-
-
-
1,589
(769)
820
267
(159)
108
13
(11)
2
218
(95)
123
10
(7)
3
16
(4)
12
44
(21)
23
-
-
-
2
(1)
1
2,779
(1,152)
1,627
1,763
(792)
971
1,416
(653)
763
1,542
(714)
828
2,159
(1,067)
1,092
7,976
(941)
7,035
4,684
(521)
4,163
3,861
(193)
3,668
3,322
(165)
3,157
3,075
(137)
2,938
503
(72)
431
53
(8)
45
340
(33)
307
64
(9)
55
127
(10)
117
29
(2)
27
117
(9)
108
19
(2)
17
89
(7)
82
17
(1)
16
8,532
(1,021)
5,088
(563)
4,017
(205)
3,458
(176)
3,181
(145)
7,511
4,525
3,812
3,282
3,036
11,311
(2,173)
9,138
6,851
(1,355)
5,496
5,433
(858)
4,575
5,000
(890)
4,110
5,340
(1,212)
4,128
1.
2020 and 2019 provisions for ECL were determined under AASB 9. 2018, 2017 and 2016 provisions for impairment charges were
determined under AASB 139.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 21. Financial risk (continued)
The following table summarises the interest received and forgone on impaired loans:
Consolidated 2020
$m
Interest received
Interest foregone
21.2.6
Collateral held
255
Australia
Overseas
3
30
8
-
Total
11
30
Loans
The Group analyses the coverage of the loan portfolio which is secured by the collateral that it holds. Coverage is
measured as follows:
Coverage
Fully secured
Partially secured
Unsecured
Secured loan to collateral value ratio
Less than or equal to 100%
Greater than 100% but not more than 150%
Greater than 150%, or no security held (e.g. can include credit cards, personal
loans, and exposure to highly rated corporate entities)
The Group and the Parent Entity’s loan portfolio have the following coverage from collateral held:
Performing loans
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Non-performing loans
Consolidated
%
Fully secured
Partially secured
Unsecured
Total
Parent Entity
%
Fully secured
Partially secured
Unsecured
Total
Housing
Personal
Business
Housing
Personal
Business
2020
2019
loans1
100.0
-
-
loans
8.0
32.5
59.5
loans
62.8
18.9
18.3
Total
87.6
5.9
6.5
loans1
100.0
-
-
loans
7.9
29.9
62.2
loans
59.6
19.3
21.1
Total
85.9
6.3
7.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Housing
Personal
Business
Housing
Personal
Business
2020
2019
loans1
100.0
-
-
loans
8.7
34.6
56.7
loans
63.7
17.7
18.6
Total
88.3
5.4
6.3
loans1
100.0
-
-
loans
8.6
31.1
60.3
loans
60.1
18.2
21.7
Total
86.7
5.7
7.6
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Housing
Personal
Business
Housing
Personal
Business
2020
2019
loans1
95.2
4.8
-
loans
-
49.4
50.6
loans
39.2
30.7
30.1
Total
76.4
13.5
10.1
loans1
90.3
9.7
-
loans
-
38.2
61.8
loans
49.5
29.2
21.3
Total
73.3
17.0
9.7
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Housing
Personal
Business
Housing
Personal
Business
2020
2019
loans1
95.2
4.8
-
loans
-
50.7
49.3
loans
44.1
26.4
29.5
Total
79.0
11.8
9.2
loans1
90.1
9.9
-
loans
-
34.1
65.9
loans
54.0
27.4
18.6
Total
75.1
16.1
8.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Details of the carrying value and associated provision for ECL are disclosed in Notes 12 and 13 respectively. The
credit quality of loans is disclosed in Note 21.2.4.
1.
For the purposes of collateral classification, housing loans are classified as fully secured, unless they are non-performing in which case
may be classified as partially secured.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
256
Notes to the financial statements
Note 21. Financial risk (continued)
Collateral held against financial assets other than loans
$m
Cash, primarily for derivatives
Securities under reverse repurchase agreements1
Securities under derivatives and stock borrowing1
Total other collateral held
21.3
Funding and liquidity risk
Consolidated
2020
2019
Parent Entity
2020
2,252
3,289
1,864
2019
2,851
20,501
6,836
20,501
6,733
32
119
32
119
22,785
10,244
22,397
9,703
Liquidity modelling
21.3.1
In managing liquidity for Westpac, Treasury utilises balance sheet forecasts and the maturity profile of Westpac’s
wholesale funding portfolio to project liquidity outcomes. Local liquidity limits are also used by Westpac in
applicable jurisdictions to ensure liquidity is managed efficiently and prudently.
In addition, Westpac conducts regular stress testing to assess its ability to meet cash flow obligations under a
range of market conditions and scenarios. These scenarios inform liquidity limits and strategic planning.
Sources of funding
21.3.2
Sources of funding are regularly reviewed to maintain a wide diversification by currency, geography, product and
term. Sources include, but are not limited to:
•
•
•
•
•
•
•
deposits;
debt issues;
proceeds from sale of marketable securities;
repurchase agreements with central banks;
principal repayments on loans;
interest income; and
fee income.
Liquid assets
Treasury holds a portfolio of high-quality liquid assets as a buffer against unforeseen funding requirements. These
assets are held in cash, or are otherwise eligible for repurchase agreements with the Reserve Bank of Australia or
another central bank and include Government, State Government and highly rated investment grade securities. The
level of liquid asset holdings is reviewed frequently and is consistent with both the requirements of the balance
sheet and market conditions.
A summary of the Group’s liquid asset holdings is as follows:
$m
Cash
Trading securities and financial assets measured at FVIS
Investment securities
Loans2
Other financial assets
Total liquid assets
Consolidated
2020
2019
Actual
Average
Actual
Average
29,099
28,157
18,398
29,364
14,789
18,867
19,189
17,184
91,097
82,678
73,328
66,701
71,616
66,512
58,933
52,498
-
468
345
723
221,176
192,604
169,871
156,295
1.
2.
Securities received as collateral are not recognised in the Group and Parent Entity’s balance sheet.
Loans are self-originated AAA rated mortgage backed securities which are eligible for repurchase with the RBA and Reserve Bank of
New Zealand.
WESTPAC GROUP 2020 ANNUAL REPORT 257
Notes to the financial statements
Note 21. Financial risk (continued)
Group’s funding composition
The Group monitors the composition and stability of its funding so that it remains within the Group’s funding risk
appetite. This includes compliance with both the LCR and NSFR.
%
Customer deposits
Wholesale term funding with residual maturity greater than 12 months
Wholesale funding with a residual maturity less than 12 months
Securitisation
Equity
Group’s total funding
2020
65.0
15.7
10.4
0.9
8.0
2019
62.5
16.6
12.1
1.0
7.8
100.0
100.0
Movements in the Group’s funding composition in 2020 included:
•
•
•
Customer deposits increased by 254 basis points to 65.0% of the Group’s total funding at 30 September 2020.
Customer deposits increased by $30.9 billion over the year, reflecting Government stimulus payments, a
reduction in consumer spending and a higher household savings ratio, the early release of superannuation and
an increase in Government and corporate cash balances;
Long term funding with a residual maturity greater than 12 months decreased 94 basis points or $5.6 billion
to 15.7%. The reduction in long term funding reflects strong growth in customers deposits and a contraction
in lending which have reduced the bank’s wholesale funding needs. Funding from securitisation was largely
unchanged at 0.9% of total funding, reflecting the issuance of a $2.5 billion RMBS transaction in February 2020
which offset amortisation of existing RMBS transactions;
Wholesale funding with a residual maturity less than 12 months decreased by 169 basis points to 10.4%. High
levels of liquidity from customer deposits and access to the TFF enabled the bank to reduce its outstanding
short term funding. The Group’s short term funding portfolio (including long term to short term scroll) of
$88.5 billion had a weighted average maturity of 127 days and is more than covered by the $221.2 billion of
unencumbered repo-eligible liquid assets and cash held by the Group; and
•
Funding from equity increased by 14 basis points to 8.0% of total funding.
Maintaining a diverse funding base with the capacity and flexibility to access a wide range of funding markets,
investors, currencies, maturities and products is an important part of managing liquidity risk. Westpac’s funding
infrastructure supports its ability to meet changing and diverse investor demands. In the first half of 2020, the
Group raised $12.9 billion of long term wholesale funding, including $2.2 billion of Tier 2 capital securities, as the
Group continued to make progress towards the Total Loss Absorbing Capital (TLAC) requirements. The Group did
not access term wholesale funding markets in the Second Half following the introduction of the TFF.
Borrowings and outstanding issuances from existing debt programs at 30 September 2020 can be found in
Notes 16 to 19.
Term Funding Facility (TFF)
On 19 March 2020, the Reserve Bank announced extensive measures aimed at providing liquidity to financial
markets and to support the banks in providing credit to businesses. As well as lowering the cash rate, these
measures included injecting extra liquidity into the financial system through daily market operations, the
purchasing of Australian Government bonds in the secondary market, increasing the interest rate on Exchange
Settlement Account Balances, and the introduction of the TFF. The RBA extended the TFF on 1 September 2020.
The TFF makes funding available to ADIs at a fixed interest rate of 25 basis points, for a maximum of three years.
To access the TFF, ADIs must pledge eligible collateral, which includes self-securitised residential mortgage-backed
securities. In aggregate, ADIs have access to at least $200 billion under the TFF, comprised of an Initial Allowance
for each ADI, an Additional Allowance and a Supplementary Allowance.
Westpac’s total TFF allowance as at 30 September 2020 was $19.7 billion and Westpac had drawn down
$17.9 billion from its total TFF allowance. Westpac’s Supplementary Allowance of $11.9 billion will be available to
from 1 October 2020.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
258
Notes to the financial statements
Note 21. Financial risk (continued)
Credit ratings
As at 30 September 2020 the Parent Entity’s credit ratings were:
2020
S&P Global Ratings
Moody’s Investors Service
Fitch Ratings
Short-term
Long-term
Outlook
A-1+
P-1
F1
AA-
Aa3
Negative
Stable
A+
Negative
On 7 April 2020, following an assessment of the economic impact of the COVID-19 pandemic on the Australian and
New Zealand economies, Fitch Ratings (Fitch) downgraded their long-term ratings for the major Australian banks
(including Westpac Banking Corporation) by one notch, to A+ (from AA-). Fitch has maintained the rating outlook
for the major Australian banks as “negative”, reflecting the major downside risk to Fitch’s economic outlook in light
of the evolving global situation.
On 8 April 2020, S&P Global Ratings affirmed Australia’s AAA/A-1+ ratings but revised the outlook on these
ratings to “negative”. As a result of the change in Australia’s sovereign rating outlook, S&P Global Ratings affirmed
Westpac Banking Corporation’s current issuer credit rating of AA- long term and A-1+ short term but the outlook
was revised to “negative”.
21.3.3 Assets pledged as collateral
The Group and Parent Entity are required to provide collateral (predominantly to other financial institutions),
as part of standard terms, to secure liabilities. In addition to assets supporting securitisation and covered bond
programs disclosed in Note 24, the carrying value of these financial assets pledged as collateral is:
$m
Cash
Cash deposit on stock borrowed
Securities (including certificates of deposit)
Securities pledged under repurchase agreements
Total amount pledged to secure liabilities
Consolidated
2020
2019
Parent Entity
2020
2019
4,762
5,912
4,625
5,755
16
18
16
18
1,693
1,932
1,693
1,932
36,727
13,754
36,727
13,754
43,198
21,616
43,061
21,459
21.3.4 Contractual maturity of financial liabilities
The following tables present cash flows associated with financial liabilities, payable at the balance sheet date, by
remaining contractual maturity. The amounts disclosed in the table are the future contractual undiscounted cash
flows, whereas the Group manages inherent liquidity risk based on expected cash flows.
Cash flows associated with financial liabilities include both principal payments as well as fixed or variable interest
payments incorporated into the relevant coupon period. Principal payments reflect the earliest contractual maturity
date. Derivative liabilities designated for hedging purposes are expected to be held for their remaining contractual
lives, and reflect gross cash flows over the remaining contractual term.
Derivatives held for trading and certain liabilities classified in “Other financial liabilities” which are measured at FVIS
are not managed for liquidity purposes on the basis of their contractual maturity, and accordingly these liabilities
are presented in the up to 1 month column. Only the liabilities that the Group manages based on their contractual
maturity are presented on a contractual undiscounted basis in the following tables.
WESTPAC GROUP 2020 ANNUAL REPORT 259
Total
2,251
596,841
39,563
22,216
652
9,338
(9,155)
-
63
-
-
22
-
-
Notes to the financial statements
Note 21. Financial risk (continued)
Consolidated 2020
$m
Financial liabilities
Collateral received
Up to
1 month
Over 1 month
to 3 months
Over 3
months
to 1 year
Over 1 year to
5 years
Over
5 years
Deposits and other borrowings
432,005
67,944
86,421
Other financial liabilities
20,275
1,129
94
2,251
-
-
-
10,408
18,065
Derivative financial instruments:
Held for trading
Held for hedging purposes (net settled)
Held for hedging purposes (gross
settled):
Cash outflow
Cash inflow
Debt issues
22,216
29
204
(200)
6,920
-
43
-
179
-
379
5,645
(5,595)
11,264
1,785
(1,709)
1,704
(1,651)
32,715
79,797
25,623
156,319
Total financial liabilities excluding loan capital
483,700
80,430
119,485
108,702
25,708
818,025
Loan capital
1
68
387
6,665
21,410
28,531
Total undiscounted financial liabilities
483,701
80,498
119,872
115,367
47,118
846,556
Total contingent liabilities and commitments
Letters of credit and guarantees
Commitments to extend credit
Other commitments
Total undiscounted contingent liabilities and
commitments
12,610
184,064
267
196,941
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,610
184,064
267
196,941
Consolidated 2019
$m
Financial liabilities
Collateral received
Deposits and other borrowings
Other financial liabilities
Derivative financial instruments:
Held for trading
Held for hedging purposes (net settled)
Held for hedging purposes (gross
settled):
Cash outflow
Cash inflow
Debt issues
Up to
1 month
Over 1 month
to 3 months
Over 3
months
to 1 year
Over 1 year to
5 years
Over
5 years
3,291
-
374,126
83,365
19,425
3,176
-
97,081
3,874
27,945
57
4
-
-
85
287
(276)
-
280
902
(875)
-
11,968
157
-
631
517
(466)
-
73
-
-
40
-
-
Total
3,291
566,613
26,632
27,945
1,093
1,710
(1,617)
5,071
12,158
42,917
102,296
30,417
192,859
Total financial liabilities excluding loan capital
429,919
98,795
144,179
115,103
30,530
818,526
Loan capital
1
76
371
6,293
20,557
27,298
Total undiscounted financial liabilities
429,920
98,871
144,550
121,396
51,087
845,824
Total contingent liabilities and commitments
Letters of credit and guarantees
Commitments to extend credit
Other commitments
Total undiscounted contingent liabilities and
commitments
15,150
176,002
188
191,340
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,150
176,002
188
191,340
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
260
Notes to the financial statements
Note 21. Financial risk (continued)
Parent Entity 2020
$m
Financial liabilities
Collateral received
Up to
1 month
Over 1 month
to 3 months
Over 3
months
to 1 year
Over 1 year to
5 years
Over
5 years
Total
Deposits and other borrowings
389,498
57,543
71,368
Other financial liabilities
19,704
1,129
94
1,863
-
-
Derivative financial instruments:
Held for trading
Held for hedging purposes (net settled)
Held for hedging purposes (gross
settled):
22,268
21
-
28
Cash outflow
Cash inflow
Debt issues
Due to subsidiaries
7
(7)
6,596
18,610
2,110
(2,088)
10,915
-
8,466
18,065
-
277
455
(437)
-
63
-
-
22
-
-
1,863
526,938
38,992
22,268
485
2,581
(2,553)
-
137
9
(21)
24,980
66,305
24,370
133,166
934
4,390
18,529
171,240
213,703
Total financial liabilities excluding loan capital
458,560
70,571
100,957
111,660
195,695
937,443
Loan capital
1
68
387
6,665
21,410
28,531
Total undiscounted financial liabilities
458,561
70,639
101,344
118,325
217,105
965,974
Total contingent liabilities and commitments
Letters of credit and guarantees
Commitments to extend credit
Other commitments
Total undiscounted contingent liabilities and
commitments
12,069
159,644
266
171,979
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Parent Entity 2019
$m
Financial liabilities
Collateral received
Up to
1 month
Over 1 month
to 3 months
Over 3
months
to 1 year
Over 1 year to
5 years
Over
5 years
Deposits and other borrowings
339,448
70,761
83,602
Other financial liabilities
19,340
3,121
3,625
2,853
-
-
Derivative financial instruments:
Held for trading
Held for hedging purposes (net settled)
Held for hedging purposes (gross
settled):
Cash outflow
Cash inflow
Debt issues
Due to subsidiaries
28,329
21
-
-
4,790
15,538
-
9
221
(215)
10,959
1,020
-
10,311
157
-
378
-
-
-
73
-
-
33
-
-
-
97
57
(51)
37,104
4,989
86,064
28,063
166,980
20,117
142,620
184,284
Total financial liabilities excluding loan capital
410,319
85,876
129,423
117,027
170,789
913,434
Loan capital
1
76
371
6,293
20,557
27,298
Total undiscounted financial liabilities
410,320
85,952
129,794
123,320
191,346
940,732
Total contingent liabilities and commitments
Letters of credit and guarantees
Commitments to extend credit
Other commitments
Total undiscounted contingent liabilities and
commitments
14,583
153,716
188
168,487
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,583
153,716
188
168,487
12,069
159,644
266
171,979
Total
2,853
504,195
26,243
28,329
538
278
(266)
WESTPAC GROUP 2020 ANNUAL REPORT 261
Notes to the financial statements
Note 21. Financial risk (continued)
21.3.5 Expected maturity
The following tables present the balance sheet based on expected maturity dates, except for deposits, based on
historical behaviours. The liability balances in the following tables will not agree to the contractual maturity tables
(Note 21.3.4) due to the analysis below being based on expected rather than contractual maturities, the impact of
discounting and the exclusion of interest accruals beyond the reporting period. Included in the following tables are
equity securities classified as trading securities, investment securities and life insurance assets that have no specific
maturity. These assets have been classified based on the expected period of disposal. Deposits are presented in the
following table on a contractual basis, however as part of our normal banking operations, the Group would expect
a large proportion of these balances to be retained.
Consolidated
$m
Assets
Cash and balances with central banks
Collateral paid
Trading securities and financial assets
measured at FVIS
Derivative financial instruments
Investment securities
Loans (net of provisions)
Other financial assets
Life insurance assets
Investment in associates
All other assets
Total assets
Liabilities
Collateral received
Deposits and other borrowings
Other financial liabilities
Derivative financial instruments
Debt issues
Life insurance liabilities
All other liabilities
Due within
12 months
2020
Greater than
12 months
Total
Due within
12 months
2019
Greater than
12 months
30,129
4,778
32,591
13,583
6,824
-
-
30,129
20,059
4,778
5,930
8,076
9,784
84,715
40,667
23,367
91,539
18,544
20,695
9,810
-
-
13,237
9,164
63,591
Total
20,059
5,930
31,781
29,859
73,401
90,856
602,203
693,059
99,197
615,573
714,770
5,474
3,450
-
-
143
61
5,474
3,593
61
5,367
1,541
-
1,400
17,879
19,279
1,222
-
7,826
129
14,741
5,367
9,367
129
15,963
189,085
722,861
911,946
182,365
724,261
906,626
2,250
584,037
22,861
13,157
-
7,094
18,064
9,897
2,250
591,131
40,925
23,054
3,287
551,817
29,059
19,203
-
3,287
11,430
563,247
156
29,215
9,893
29,096
49,070
101,255
150,325
56,933
124,524
181,457
1,809
5,395
(413)
1,396
5,447
10,842
1,703
3,907
5,674
1,707
7,377
5,614
Total liabilities excluding loan capital
678,579
141,344
819,923
665,909
153,384
819,293
Loan capital
Total liabilities
1,323
22,626
23,949
-
21,826
21,826
679,902
163,970
843,872
665,909
175,210
Net assets/(net liabilities)
(490,817)
558,891
68,074
(483,544)
549,051
841,119
65,507
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
262
Notes to the financial statements
Note 21. Financial risk (continued)
Parent Entity
$m
Assets
Cash and balances with central banks
Collateral paid
Trading securities and financial assets
measured at FVIS
Derivative financial instruments
Investment securities
Loans (net of provisions)
Other financial assets
Due from subsidiaries
Investment in subsidiaries
Investment in associates
All other assets
Total assets
Liabilities
Collateral received
Deposits and other borrowings
Other financial liabilities
Derivative financial instruments
Debt issues
Due to subsidiaries
All other liabilities
Due within
12 months
2020
Greater than
12 months
Total
Due within
12 months
2019
Greater than
12 months
25,436
4,641
30,550
13,349
-
-
7,480
9,445
5,120
80,706
25,436
4,641
38,030
22,794
85,826
17,692
5,773
16,736
20,613
7,200
-
-
12,829
8,670
61,198
Total
17,692
5,773
29,565
29,283
68,398
70,453
537,371
607,824
79,956
551,980
631,936
4,745
-
4,745
4,615
-
4,615
10,420
170,559
180,979
10,291
132,670
142,961
-
-
6,475
6,475
57
57
-
-
6,436
100
6,436
100
796
15,199
15,995
756
12,224
12,980
165,510
827,292
992,802
163,632
786,107
949,739
1,862
516,391
22,092
12,805
-
1,862
2,849
-
2,849
5,222
521,613
491,562
9,868
501,430
18,064
9,974
40,156
22,779
28,360
156
19,167
9,700
28,516
28,867
40,886
86,780
127,666
50,028
106,646
156,674
20,551
3,770
165,712
186,263
4,996
8,766
17,563
2,545
131,044
148,607
1,587
4,132
Total liabilities excluding loan capital
618,357
290,748
909,105
612,074
259,001
871,075
Loan capital
Total liabilities
1,323
22,626
23,949
-
21,826
21,826
619,680
313,374
933,054
612,074
280,827
892,901
Net assets/(net liabilities)
(454,170)
513,918
59,748
(448,442)
505,280
56,838
21.4
Market risk
21.4.1 Value-at-Risk
The Group uses VaR as one of the mechanisms for controlling both traded and non-traded market risk.
VaR is a statistical estimate of the potential loss in earnings over a specified period of time and to a given level of
confidence based on historical market movements. The confidence level indicates the probability that the loss will
not exceed the VaR estimate on any given day.
VaR seeks to take account of all material market variables that may cause a change in the value of the portfolio,
including interest rates, FX rates, price changes, volatility and the correlations between these variables. Daily
monitoring of current exposure and limit utilisation is conducted independently by the Market Risk and Treasury
Risk units which monitor market risk exposures against VaR and structural concentration limits. These are
supplemented by escalation triggers for material profits or losses and stress testing of risks beyond the 99%
confidence interval.
The key parameters of VaR are:
Holding period
Confidence level
Period of historical data used
1 day
99%
1 year
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 21. Financial risk (continued)
21.4.2 Traded market risk
The following table depicts the aggregate VaR, by risk type:
Consolidated and Parent Entity
$m
Interest rate risk
FX risk
Equity risk
Commodity risk1
Other market risks2
Diversification effect
Net market risk
High
25.5
11.7
0.7
3.4
32.9
n/a
42.0
2020
Low
Average
14.6
4.0
0.2
1.9
14.6
(14.9)
High
14.9
8.6
0.2
42.0
5.5
n/a
20.4
45.3
7.0
0.5
0.0
0.6
2.4
n/a
7.1
263
2019
Low
Average
6.6
0.8
0.0
1.7
2.0
n/a
7.9
10.9
4.1
0.0
8.2
3.5
(12.3)
14.4
High
15.6
6.9
1.0
24.3
5.8
n/a
28.1
2018
Low
Average
5.1
0.7
0.0
1.7
1.4
n/a
6.7
8.6
3.0
0.1
6.5
3.8
(8.6)
13.4
21.4.3 Non-traded market risk
Non-traded market risk includes Interest Rate Risk in the Banking Book (IRRBB) – the risk to net interest income or
the economic value on banking book items as interest rates change.
Net interest income (NII) sensitivity is managed in terms of the NaR. A simulation model is used to calculate
Westpac’s potential NaR. This combines the underlying balance sheet data with assumptions about run off and
new business, expected repricing behaviour and changes in wholesale market interest rates. Simulations using
a range of interest rate scenarios are used to provide a series of potential future NII outcomes. The interest rate
scenarios modelled, over a three year time horizon using a 99% confidence interval, include those projected using
historical market interest rate volatility as well as 100 and 200 basis point shifts up and down from the current
market yield curves in Australia and New Zealand. Additional stressed interest rate scenarios are also considered
and modelled.
A comparison between the NII outcomes from these modelled scenarios indicates the sensitivity to interest rate
changes.
Net interest income-at-Risk (NaR)
The following table depicts NaR assuming a 100 basis point shock (with a floor of zero for falling interest rates)
over the next 12 months as a percentage of reported NII:
% (increase)/decrease in NII
Consolidated
Parent Entity
2020
Maximum
exposure
Minimum
exposure
Average
exposure
3.09
2.35
(1.22)
(0.89)
(0.25)
(0.10)
As at
(0.27)
(0.38)
2019
Maximum
exposure
Minimum
exposure
Average
exposure
2.88
2.14
(0.46)
(0.42)
0.81
0.43
As at
2.88
2.14
Value at Risk - IRRBB
The table below depicts VaR for IRRBB:
$m
Consolidated
As at
202.4
2020
High
219.7
Low
Average
31.0
126.7
As at
34.1
2019
High
37.3
Low
Average
19.4
27.8
As at 30 September 2020 the Value at Risk – IRRBB for the Parent Entity was $208.2 million (2019: $38.3 million).
Risk mitigation
IRRBB stems from the ordinary course of banking activities, including structural interest rate risk (the mismatch
between the duration of assets and liabilities) and capital management.
The Group hedges its exposure to such interest rate risk using derivatives. Further details on the Group’s hedge
accounting are discussed in Note 20.
The same controls used to monitor traded market risk allow management to continuously monitor and manage
IRRBB.
Structural FX risk
Structural FX risk results from the generation of foreign currency denominated earnings and from Westpac’s
capital deployed in offshore branches and subsidiaries, where it is denominated in currencies other than Australian
dollars. As exchange rates move, the Australian dollar equivalent of offshore earnings and capital is subject to
change that could introduce significant variability to the Bank’s reported financial results and capital ratios. Note
20 includes details of the Group’s ALM activities including details of the hedge accounting and economic hedges
used to manage this risk.
1.
Includes electricity risk. The lower VaR measures in 2020 were due to reduced risk, revised modelling and closure of electricity trading
commenced in June 2020.
Includes prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
2.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Notes to the financial statements
264
Notes to the financial statements
Note 22. Fair values of financial assets and financial liabilities
Accounting policy
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
On initial recognition, the transaction price generally represents the fair value of the financial instrument unless
there is observable information from an active market to the contrary. Where unobservable information is used,
the difference between the transaction price and the fair value (day one profit or loss) is recognised in the income
statement over the life of the instrument when the inputs become observable.
Critical accounting assumptions and estimates
The majority of valuation models used by the Group employ only observable market data as inputs. However, for
certain financial instruments data may be employed which is not readily observable in current markets.
The availability of observable inputs is influenced by factors such as:
•
•
•
•
product type;
depth of market activity;
maturity of market models; and
complexity of the transaction.
Where unobservable market data is used, more judgement is required to determine fair value. The significance of
these judgements depends on the significance of the unobservable input to the overall valuation. Unobservable
inputs are generally derived from other relevant market data and adjusted against:
•
•
•
standard industry practice;
economic models; and
observed transaction prices.
In order to determine a reliable fair value for a financial instrument, management may apply adjustments to
the techniques previously described. These adjustments reflect the Group’s assessment of factors that market
participants would consider in setting the fair value.
These adjustments incorporate bid/offer spreads, credit valuation adjustments (CVA) and funding valuation
adjustments (FVA).
Fair Valuation Control Framework
The Group uses a Fair Valuation Control Framework where the fair value is either determined or validated by a
function independent of the transaction. This framework formalises the policies and procedures used to achieve
compliance with relevant accounting, industry and regulatory standards. The framework includes specific controls
relating to:
•
•
•
•
the revaluation of financial instruments;
independent price verification;
fair value adjustments; and
financial reporting.
A key element of the framework is the Revaluation Committee, comprising senior valuation specialists from within
the Group. The Revaluation Committee reviews the application of the agreed policies and procedures to assess that
a fair value measurement basis has been applied.
The method of determining fair value differs depending on the information available.
Fair value hierarchy
A financial instrument’s categorisation within the valuation hierarchy is based on the lowest level input that is
significant to the fair value measurement.
The Group categorises all fair value instruments according to the hierarchy described below.
Valuation techniques
The Group applies market accepted valuation techniques in determining the fair valuation of over the counter
(OTC) derivatives. This includes CVA and FVA, which incorporate credit risk and funding costs and benefits that
arise in relation to uncollateralised derivative positions, respectively.
The specific valuation techniques, the observability of the inputs used in valuation models and the subsequent
classification for each significant product category are outlined as follows:
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 22. Fair values of financial assets and financial liabilities (continued)
Level 1 instruments
The fair value of financial instruments traded in active markets is based on recent unadjusted quoted prices. These
prices are based on actual arm’s length basis transactions.
The valuations of Level 1 instruments require little or no management judgement.
265
Instrument
Balance sheet category
Includes
Valuation
Exchange traded
products
Derivatives
Exchange traded interest
rate futures and options and
commodity, energy and carbon
futures
FX products
Derivatives
FX spot and futures contracts
Equity products
Derivatives
Listed equities and equity indices
Non-asset backed
debt instruments
Trading securities and
financial assets measured
at FVIS
Other financial liabilities
Trading securities and
financial assets measured
at FVIS
Investment securities
Other financial liabilities
Australian Commonwealth and
New Zealand government bonds
All these instruments are
traded in liquid, active
markets where prices are
readily observable. No
modelling or assumptions
are used in the valuation.
Life insurance assets
and liabilities
Life insurance assets
Life insurance liabilities
Listed equities, exchange traded
derivatives and short sale of
listed equities within controlled
managed investment schemes
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
266
Notes to the financial statements
Note 22. Fair values of financial assets and financial liabilities (continued)
Level 2 instruments
The fair value for financial instruments that are not actively traded is determined using valuation techniques which
maximise the use of observable market prices. Valuation techniques include:
•
•
•
the use of market standard discounting methodologies;
option pricing models; and
other valuation techniques widely used and accepted by market participants.
Instrument
Balance sheet category Includes
Valuation
Interest rate
products
Derivatives
Interest rate and inflation
swaps, swaptions, caps,
floors, collars and other
non-vanilla interest rate
derivatives
FX products
Derivatives
Other credit
products
Derivatives
FX swap, FX forward
contracts, FX options
and other non-vanilla FX
derivatives
Single name and index
credit default swaps (CDS)
Commodity
products
Derivatives
Commodity, energy and
carbon derivatives
Industry standard valuation models are used
to calculate the expected future value of
payments by product, which is discounted back
to a present value. The model’s interest rate
inputs are benchmark interest rates and active
broker quoted interest rates in the swap, bond
and future markets. Interest rate volatilities
are sourced from brokers and consensus data
providers. If consensus prices are not available,
these are classified as Level 3 instruments.
Derived from market observable inputs or
consensus pricing providers using industry
standard models.
Valued using an industry standard model that
incorporates the credit spread as its principal
input. Credit spreads are obtained from
consensus data providers. If consensus prices
are not available, these are classified as Level 3
instruments.
Valued using industry standard models.
The models calculate the expected future value
of deliveries and payments and discount them
back to a present value. The model inputs
include forward curves, volatilities implied from
market observable inputs, discount curves
and underlying spot and futures prices. The
significant inputs are market observable or
available through a consensus data provider.
If consensus prices are not available, these are
classified as Level 3 instruments.
Equity
products
Derivatives
Asset
backed debt
instruments
Trading securities
and financial assets
measured at FVIS
Investment securities
Non-asset
backed debt
instruments
Trading securities
and financial assets
measured at FVIS
Investment securities
Other financial liabilities
Exchange traded equity
options, OTC equity
options and equity
warrants
Due to low liquidity, exchange traded options are
Level 2.
Valued using industry standard models based
on observable parameters such as stock prices,
dividends, volatilities and interest rates.
Australian residential
mortgage backed
securities (RMBS)
denominated in Australian
dollar and other asset
backed securities (ABS)
Valued using an industry approach to value
floating rate debt with prepayment features.
Australian RMBS are valued using prices sourced
from a consensus data provider. If consensus
prices are not available these are classified as
Level 3 instruments.
Valued using observable market prices which
are sourced from independent pricing services,
broker quotes or inter-dealer prices.
State and other
government bonds,
corporate bonds and
commercial paper
Repurchase agreements
and reverse repurchase
agreements over non-asset
backed debt securities
WESTPAC GROUP 2020 ANNUAL REPORT 267
Notes to the financial statements
Note 22. Fair values of financial assets and financial liabilities (continued)
Level 2 instruments (continued)
Instrument
Balance sheet category Includes
Valuation
Loans at fair
value
Loans
Fixed rate bills and
syndicated loans
Certificates of
deposit
Deposits and other
borrowings
Certificates of deposit
Debt issues at
fair value
Debt issues
Debt issues
Life insurance
assets and
liabilities
Life insurance assets
Life insurance liabilities
Corporate bonds, OTC
derivatives, units in unlisted
unit trusts, life insurance
contract liabilities, life
investment contract
liabilities and external
liabilities of managed
investment schemes
controlled by statutory life
funds
Discounted cash flow approach, using a discount
rate which reflects the terms of the instrument
and the timing of cash flows, adjusted for
creditworthiness, or expected sale amount.
Discounted cash flow using market rates offered
for deposits of similar remaining maturities.
Discounted cash flows, using a discount rate
which reflects the terms of the instrument and
the timing of cash flows adjusted for market
observable changes in Westpac’s implied credit
worthiness.
Valued using observable market prices or other
widely used and accepted valuation techniques
utilising observable market input.
Level 3 instruments
Financial instruments valued where at least one input that could have a significant effect on the instrument’s
valuation is not based on observable market data due to illiquidity or complexity of the product. These inputs are
generally derived and extrapolated from other relevant market data and calibrated against current market trends
and historical transactions.
These valuations are calculated using a high degree of management judgement.
Instrument
Balance sheet category Includes
Valuation
Debt
instruments
Equity
instruments
Trading securities
and financial assets
measured at FVIS
Investment securities
Trading securities
and financial assets
measured at FVIS
Investment securities
Certain ABS, offshore
non-ABS and debt
securities issued via private
placement
These securities are evaluated by an
independent pricing service or based on third
party revaluations. Due to their illiquidity and/or
complexity these are classified as Level 3 assets.
Strategic equity
investments
Valued using valuation techniques appropriate to
the instrument, including the use of recent arm’s
length transactions where available, discounted
cash flow approach or reference to the net
assets of the entity.
Due to their illiquidity, complexity and/or use of
unobservable inputs into valuation models, they
are classified as Level 3 assets.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
268
Notes to the financial statements
Note 22. Fair values of financial assets and financial liabilities (continued)
The following tables summarise the attribution of financial instruments measured at fair value to the fair value
hierarchy:
2020
Quoted
market
prices
(Level 1)
Valuation
techniques
(Market
observable)
(Level 2)
Valuation
techniques
(Non-market
observable)
(Level 3)
Quoted
market
prices
(Level 1)
Total
2019
Valuation
techniques
(Market
observable)
(Level 2)
Valuation
techniques
(Non-market
observable)
(Level 3)
Total
Consolidated
$m
Financial assets measured at fair
value on a recurring basis
Trading securities and financial
assets measured at FVIS
8,059
32,387
221
40,667
10,440
Derivative financial instruments
10
23,353
4
23,367
7
Investment securities
18,032
72,370
153
90,555
11,163
Loans
Life insurance assets
-
617
540
2,976
21
-
561
-
3,593
1,097
21,121
29,828
61,284
239
8,270
220
31,781
24
29,859
134
72,581
21
260
-
9,367
Total financial assets measured at
fair value on a recurring basis
Financial liabilities measured at fair
value on a recurring basis
26,718
131,626
399
158,743
22,707
120,742
399
143,848
Deposits and other borrowings1
-
35,764
Other financial liabilities2
420
4,229
-
-
35,764
-
38,413
4,649
262
Derivative financial instruments
10
23,031
13
23,054
Debt issues3
Life insurance liabilities
-
-
5,333
1,396
-
-
5,333
1,396
8
-
-
5,108
29,059
5,819
7,377
-
-
38,413
5,370
29
29,096
-
-
5,819
7,377
Total financial liabilities measured at
fair value on a recurring basis
430
69,753
13
70,196
270
85,776
29
86,075
Parent Entity
$m
Financial assets measured at fair
value on a recurring basis
Trading securities and financial
assets measured at FVIS
2020
Quoted
market
prices
(Level 1)
Valuation
techniques
(Market
observable)
(Level 2)
Valuation
techniques
(Non-market
observable)
(Level 3)
Quoted
market
prices
(Level 1)
Total
2019
Valuation
techniques
(Market
observable)
(Level 2)
Valuation
techniques
(Non-market
observable)
(Level 3)
Total
7,074
30,763
193
38,030
10,213
19,159
193
29,565
Derivative financial instruments
10
22,781
Investment securities
15,714
70,040
Loans
Due from subsidiaries
-
-
540
663
3
69
21
-
22,794
7
29,253
23
29,283
85,823
10,191
58,114
66
68,371
561
663
-
-
239
897
21
-
260
897
Total financial assets measured at
fair value on a recurring basis
Financial liabilities measured at fair
value on a recurring basis
22,798
124,787
286
147,871
20,411
107,662
303
128,376
Deposits and other borrowings1
-
32,991
Other financial liabilities2
420
4,229
-
-
32,991
-
37,355
4,649
262
Derivative financial instruments
10
22,756
13
22,779
Debt issues3
Due to subsidiaries
-
-
2,986
239
-
-
2,986
239
8
-
-
5,108
28,831
3,624
1,591
-
-
37,355
5,370
28
28,867
-
-
3,624
1,591
Total financial liabilities measured at
fair value on a recurring basis
430
63,201
13
63,644
270
76,509
28
76,807
1.
2.
3.
The contractual outstanding amount payable at maturity for the Group is $35,764 million (2019: $38,468 million) and $32,990 million for
the Parent Entity (2019: $37,410 million).
The contractual outstanding amount payable at maturity for the Group and the Parent Entity is $4,649 million (2019: $5,369 million).
The contractual outstanding amount payable at maturity for the Group is $5,062 million (2019: $5,632 million) and $2,714 million for the
Parent Entity (2019: $3,436 million). The cumulative change in the fair value of debt issues attributable to changes in Westpac’s own
credit risk is $5 million decrease (2019: $34 million decrease) for the Group and Parent Entity.
WESTPAC GROUP 2020 ANNUAL REPORT 269
Notes to the financial statements
Note 22. Fair values of financial assets and financial liabilities (continued)
Reconciliation of non-market observables
The following tables summarise the changes in financial instruments measured at fair value derived from
non-market observable valuation techniques (Level 3):
Consolidated 2020
$m
Trading
securities and
financial assets
measured
Investment
Total
Level 3
Total
Level 3
as FVIS
securities
Other1
assets
Derivatives
liabilities
Balance as at beginning of year
220
134
45
399
29
29
Gains/(losses) on assets/(gains)/losses on liabilities
recognised in:
Income statements
OCI
Acquisitions and issues
Disposals and settlements
Transfer into or out of non-market observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised in the income
statements for financial instruments held as at end of
year
(2)
-
26
(23)
-
-
-
(15)
40
(6)
-
-
(2)
-
12
(30)
-
-
(4)
(15)
78
(59)
-
-
221
153
25
399
(4)
-
7
(19)
-
-
13
(4)
-
7
(19)
-
-
13
(4)
-
3
(1)
(3)
(3)
Consolidated 2019
$m
Balance as at beginning of year
Impact on adoption of AASB 9
Restated opening balance
Gains/(losses) on assets/(gains)/losses on
liabilities recognised in:
Income statements
OCI
Acquisitions and issues
Disposals and settlements
Transfer into or out of non-market
observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised
in the income statements for financial
instruments held as at end of year
Trading
securities and
financial assets
measured
Available-
for-sale
Investment
Total
Level 3
Total
Level 3
as FVIS
securities
securities
Other1
assets
Derivatives
liabilities
330
4
334
36
-
63
(216)
-
3
220
26
619
(619)
-
-
-
-
-
-
-
-
-
-
109
109
-
11
36
(22)
-
-
15
14
29
12
-
16
(12)
-
-
964
(492)
472
48
11
115
(250)
-
3
134
45
399
6
-
6
7
-
4
(6)
18
-
29
6
-
6
7
-
4
(6)
18
-
29
-
16
42
(11)
(11)
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1. Other is comprised of derivative financial assets and certain loans.
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
270
Notes to the financial statements
Note 22. Fair values of financial assets and financial liabilities (continued)
Parent Entity 2020
$m
Trading
securities and
financial assets
measured
Investment
Total
Level 3
Total
Level 3
as FVIS
securities
Other1
assets
Derivatives
liabilities
Balance as at beginning of year
193
66
44
303
28
28
Gains/(losses) on assets/(gains)/losses on liabilities
recognised in:
Income statements
OCI
Acquisitions and issues
Disposals and settlements
Transfer into or out of non-market observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised in the income
statements for financial instruments held as at end of
year
(2)
-
26
(24)
-
-
-
-
3
-
-
-
(2)
-
12
(30)
-
-
(4)
-
41
(54)
-
-
193
69
24
286
(4)
-
7
(18)
-
-
13
(4)
-
7
(18)
-
-
13
(4)
-
3
(1)
(3)
(3)
Parent Entity 2019
$m
Balance as at beginning of year
Impact on adoption of AASB 9
Restated opening balance
Gains/(losses) on assets/(gains)/losses on
liabilities recognised in:
Income statements
OCI
Acquisitions and issues
Disposals and settlements
Transfer into or out of non-market
observables
Foreign currency translation impacts
Balance as at end of year
Unrealised gains/(losses) recognised
in the income statements for financial
instruments held as at end of year
Trading
securities and
financial assets
measured
Available-
for-sale
Investment
Total
Level 3
Total
Level 3
as FVIS
securities
securities
Other1
assets
Derivatives
liabilities
206
-
206
6
-
17
(39)
-
3
193
3
70
(70)
-
-
-
-
-
-
-
-
-
-
67
67
-
-
2
(3)
-
-
13
14
27
13
-
16
(12)
-
-
289
11
300
19
-
35
(54)
-
3
66
44
303
6
-
6
6
-
4
(6)
18
-
28
6
-
6
6
-
4
(6)
18
-
28
-
16
19
(10)
(10)
Transfers into and out of Level 3 have occurred due to changes in observability in the significant inputs into the
valuation models used to determine the fair value of the related financial instruments. Transfers in and transfers out
are reported using the end of year fair values.
1. Other is comprised of derivative financial assets and certain loans.
WESTPAC GROUP 2020 ANNUAL REPORT 271
Notes to the financial statements
Note 22. Fair values of financial assets and financial liabilities (continued)
Significant unobservable inputs
Sensitivities to reasonably possible changes in non-market observable valuation assumptions would not have a
material impact on the Group’s reported results.
Day one profit or loss
The closing balance of unrecognised day one profit for both the Group and the Parent Entity for the year was
$4 million (2019: $3 million profit).
Financial instruments not measured at fair value
For financial instruments not measured at fair value on a recurring basis, fair value has been derived as follows:
Instrument
Valuation
Loans
Investment
securities
Deposits
and other
borrowings
Where available, the fair value of loans is based on observable market transactions, otherwise fair
value is estimated using discounted cash flow models. For variable rate loans, the discount rate used is
the current effective interest rate. The discount rate applied for fixed rate loans reflects the market rate
for the maturity of the loan and the credit worthiness of the borrower.
The carrying value approximates the fair value. The balance principally relates to government
securities from illiquid markets. Fair value is monitored by reference to recent issuances.
Fair values of deposit liabilities payable on demand (interest free, interest bearing and savings
deposits) approximate their carrying value. Fair values for term deposits are estimated using
discounted cash flows, applying market rates offered for deposits of similar remaining maturities.
Debt issues and
loan capital
Fair values are calculated using a discounted cash flow model. The discount rates applied reflect the
terms of the instruments, the timing of the estimated cash flows and are adjusted for any changes in
Westpac’s credit spreads.
All other
financial assets
and liabilities
For all other financial assets and liabilities, the carrying value approximates the fair value. These items
are either short-term in nature, re-price frequently or are of a high credit rating.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
272
Notes to the financial statements
Note 22. Fair values of financial assets and financial liabilities (continued)
The following tables summarise the estimated fair value and fair value hierarchy of financial instruments not
measured at fair value:
Consolidated
$m
Financial assets not measured at fair value
Cash and balances with central banks
Collateral paid
Investment securities
Loans
Other financial assets
Quoted
market
prices
(Level 1)
Carrying
amount
2020 Estimated fair value
Valuation
techniques
(Market
observable)
(Level 2)
Valuation
techniques
(Non-market
observable)
(Level 3)
Total
30,129
30,129
4,778
4,778
-
-
-
-
30,129
4,778
984
692,498
5,474
-
-
-
424
560
984
-
694,264
694,264
5,474
-
5,474
Total financial assets not measured at fair value
733,863
34,907
5,898
694,824
735,629
Financial liabilities not measured at fair value
Collateral received
Deposits and other borrowings
Other financial liabilities
Debt issues1
Loan capital
2,250
2,250
-
-
2,250
555,367
36,276
144,992
23,949
-
-
-
-
552,192
36,276
144,660
23,934
3,429
555,621
-
36,276
1,742
146,402
-
23,934
Total financial liabilities not measured at fair value
762,834
2,250
757,062
5,171
764,483
Consolidated
$m
Financial assets not measured at fair value
Cash and balances with central banks
Collateral paid
Investment securities
Loans
Other financial assets
Quoted
market
prices
(Level 1)
Carrying
amount
2019 Estimated fair value
Valuation
techniques
(Market
observable)
(Level 2)
Valuation
techniques
(Non-market
observable)
(Level 3)
20,059
20,059
5,930
5,930
-
-
-
-
Total
20,059
5,930
820
820
714,510
5,367
-
-
-
366
454
-
716,130
716,130
5,367
5,733
-
5,367
716,584
748,306
Total financial assets not measured at fair value
746,686
25,989
Financial liabilities not measured at fair value
Collateral received
Deposits and other borrowings
Other financial liabilities
Debt issues1
Loan capital
3,287
3,287
-
-
3,287
524,834
23,845
175,638
21,826
-
-
-
-
522,726
23,845
176,838
22,076
2,790
525,516
-
-
-
23,845
176,838
22,076
Total financial liabilities not measured at fair value
749,430
3,287
745,485
2,790
751,562
1.
The estimated fair value of debt issues includes the impact of changes in Westpac’s credit spreads since origination.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 22. Fair values of financial assets and financial liabilities (continued)
273
Parent Entity
$m
Financial assets not measured at fair value
Cash and balances with central banks
Collateral paid
Investment securities
Loans
Due from subsidiaries1
Other financial assets
Quoted
market
prices
(Level 1)
Carrying
amount
25,436
25,436
4,641
4,641
3
607,263
169,139
4,745
-
-
-
-
2020 Estimated fair value
Valuation
techniques
(Market
observable)
(Level 2)
Valuation
techniques
(Non-market
observable)
(Level 3)
Total
-
-
3
-
-
-
-
25,436
4,641
3
608,602
608,602
126,623
43,669
170,292
4,745
-
4,745
Total financial assets not measured at fair value
811,227
30,077
131,371
652,271
813,719
Financial liabilities not measured at fair value
Collateral received
Deposits and other borrowings
Other financial liabilities
Debt issues2
Due to subsidiaries
Loan capital
1,862
1,862
-
-
1,862
488,622
35,507
124,680
186,024
23,949
-
-
-
-
-
487,452
35,507
125,896
1,292
488,744
-
-
35,507
125,896
6,805
179,219
186,024
23,934
-
23,934
Total financial liabilities not measured at fair value
860,644
1,862
679,594
180,511
861,967
Parent Entity
$m
Financial assets not measured at fair value
Cash and balances with central banks
Collateral paid
Investment securities
Loans
Due from subsidiaries1
Other financial assets
Quoted
market
prices
(Level 1)
Carrying
amount
17,692
17,692
5,773
5,773
27
631,676
133,899
4,615
-
-
-
-
2019 Estimated fair value
Valuation
techniques
(Market
observable)
(Level 2)
Valuation
techniques
(Non-market
observable)
(Level 3)
Total
17,692
5,773
27
-
-
23
-
-
4
-
633,003
633,003
89,680
45,175
134,855
4,615
-
4,615
Total financial assets not measured at fair value
793,682
23,465
94,299
678,201
795,965
Financial liabilities not measured at fair value
Collateral received
Deposits and other borrowings
Other financial liabilities
Debt issues2
Due to subsidiaries
Loan capital
2,849
2,849
-
-
2,849
464,075
23,146
153,050
147,016
21,826
-
-
-
-
-
463,440
1,251
464,691
23,146
154,111
6,553
22,076
-
-
23,146
154,111
140,463
147,016
-
22,076
Total financial liabilities not measured at fair value
811,962
2,849
669,326
141,714
813,889
1.
2.
Due from subsidiaries excludes $11,177 million (2019: $8,165 million) of long-term debt instruments with equity-like characteristics which
are part of the total investment in subsidiaries.
The estimated fair value of debt issues includes the impact of changes in Westpac’s credit spreads since origination.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
274
Notes to the financial statements
Note 23. Offsetting financial assets and financial liabilities
Accounting policy
Financial assets and liabilities are presented net in the balance sheet when the Group has a legally enforceable
right to offset them in all circumstances and there is an intention to settle the asset and liability on a net basis, or
to realise the asset and settle the liability simultaneously. The gross assets and liabilities behind the net amounts
reported in the balance sheet are disclosed in the following tables.
Some of the Group’s offsetting arrangements are not enforceable in all circumstances. The amounts in the
tables below may not tie back to the balance sheet if there are balances which are not subject to offsetting or
enforceable netting arrangements. The amounts presented in this note do not represent the credit risk exposure
of the Group or Parent Entity. Refer to Note 21.2 for information on credit risk management. The offsetting and
collateral arrangements and other credit risk mitigation strategies used by the Group are further explained in the
‘Management of risk mitigation’ section of Note 21.2.2.
Amounts subject to enforceable netting arrangements
Effects of offsetting
Amounts subject to enforceable
on balance sheet
netting arrangements but not offset
Gross
Amounts
Net amounts
reported on
the balance
Other
recognised
financial
Cash
Financial
instrument
Net
amounts
offset
sheet
instruments
collateral1,2
collateral
amount
Consolidated
$m
2020
Assets
Collateral paid3
10,068
(10,032)
36
-
-
Derivative financial instruments4
61,171
(39,968)
21,203
(14,719)
(2,247)
(16)
(16)
Reverse repurchase agreements5
20,401
-
20,401
23,301
(23,266)
35
-
-
(5)
(20,396)
-
-
114,941
(73,266)
41,675
(14,719)
(2,252)
(20,428)
4,276
Loans6
Total assets
Liabilities
Collateral received
5,516
(5,501)
15
-
-
-
Derivative financial instruments4
66,144
(44,499)
21,645
(14,719)
(4,426)
(1,693)
Repurchase agreements7
27,763
-
27,763
Deposits and other borrowings6
43,999
(23,266)
Total liabilities
143,422
(73,266)
20,733
70,156
2019
Assets
-
-
(98)
(27,665)
-
-
20,733
(14,719)
(4,524)
(29,358)
21,555
Collateral paid3
6,643
(6,559)
84
-
-
(17)
67
Derivative financial instruments4
58,125
(31,605)
26,520
(18,609)
(3,280)
(102)
4,529
Reverse repurchase agreements5
6,833
-
6,833
18,202
(18,130)
72
-
-
(9)
-
(6,824)
-
-
72
89,803
(56,294)
33,509
(18,609)
(3,289)
(6,943)
4,668
Loans6
Total assets
Liabilities
Collateral received
3,024
(2,972)
52
-
-
-
Derivative financial instruments4
62,046
(35,192)
26,854
(18,609)
(5,622)
(1,932)
Repurchase agreements7
10,604
-
10,604
Deposits and other borrowings6
28,880
(18,130)
10,750
-
-
(3)
-
(10,601)
-
10,750
Total liabilities
104,554
(56,294)
48,260
(18,609)
(5,625)
(12,533)
11,493
1.
2.
3.
4.
5.
6.
7.
$2,250 million (2019: $3,287 million) of cash collateral on derivative financial assets and reverse repurchase agreements forms part
of collateral received as disclosed in the balance sheet. The remainder is included in term deposits recognised in deposits and other
borrowings within Note 16.
$4,524 million (2019: $5,625 million) of cash collateral, subject to enforceable netting arrangements with derivative financial
liabilities and repurchase agreements, forms part of collateral paid as disclosed in the balance sheet. The remainder of collateral
paid, as disclosed in the balance sheet, consists of $16 million (2019: $18 million) in stock borrowing arrangements and $238 million
(2019: $287 million) in futures margin that does not form part of this column.
Gross amounts consist of variation margin held directly with central clearing counterparties and stock borrowing arrangements. Where
variation margin is receivable it is reported as part of collateral paid. Where variation margin is payable it is reported as part of collateral
received. Amounts offset relate to variation margin.
$2,164 million (2019: $3,339 million) of derivative financial assets and $1,409 million (2019: $2,242 million) of derivative financial liabilities
are not subject to enforceable netting arrangements. 2019 gross amounts, net amounts reported on the balance sheet and net amount
were restated to exclude amounts not subject to enforceable netting arrangements.
Reverse repurchase agreements form part of trading securities and financial assets measured at FVIS in Note 10.
Gross amounts consist of debt and interest set-off accounts which meet the requirements for offsetting as described above. These
accounts form part of business loans in Note 12 and part of deposits and other borrowings at amortised cost in Note 16.
Repurchase agreements form part of other financial liabilities in Note 17.
20
4,221
-
35
15
807
-
52
691
-
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 23. Offsetting financial assets and financial liabilities (continued)
275
Amounts subject to enforceable netting arrangements
Effects of offsetting
Amounts subject to enforceable
on balance sheet
netting arrangements but not offset
Gross
Amounts
Net amounts
reported on
the balance
Other
recognised
financial
Cash
Financial
instrument
Net
amounts
offset
sheet
instruments
collateral1,2
collateral
amount
Parent Entity
$m
2020
Assets
Collateral paid3
10,068
(10,032)
36
-
-
Derivative financial instruments4
60,616
(39,968)
20,648
(14,586)
(1,859)
(16)
(16)
Reverse repurchase agreements5
20,401
-
20,401
23,301
(23,266)
35
-
-
(5)
(20,396)
-
-
114,386
(73,266)
41,120
(14,586)
(1,864)
(20,428)
4,242
Loans6
Total assets
Liabilities
Collateral received
5,516
(5,501)
15
-
-
-
Derivative financial instruments4
65,874
(44,499)
21,375
(14,586)
(4,289)
(1,693)
Repurchase agreements7
27,763
-
27,763
Deposits and other borrowings6
43,999
(23,266)
20,733
-
-
(98)
(27,665)
-
-
20,733
Total liabilities
143,152
(73,266)
69,886
(14,586)
(4,387)
(29,358)
21,555
2019
Assets
Collateral paid3
6,643
(6,559)
84
-
-
(17)
67
Derivative financial instruments4
57,550
(31,605)
25,945
(18,526)
(2,842)
(102)
4,475
Reverse repurchase agreements5
6,731
-
18,202
(18,130)
6,731
72
-
-
(9)
-
(6,722)
-
-
72
89,126
(56,294)
32,832
(18,526)
(2,851)
(6,841)
4,614
Loans6
Total assets
Liabilities
Collateral received
3,024
(2,972)
52
-
-
-
Derivative financial instruments4
61,807
(35,192)
26,615
(18,526)
(5,466)
(1,932)
Repurchase agreements7
10,604
-
10,604
Deposits and other borrowings6
28,880
(18,130)
Total liabilities
104,315
(56,294)
10,750
48,021
-
-
(3)
-
(10,601)
-
10,750
(18,526)
(5,469)
(12,533)
11,493
20
4,187
-
35
15
807
-
52
691
-
Other recognised financial instruments
These financial assets and liabilities are subject to master netting agreements which are not enforceable in all
circumstances, so they are recognised gross in the balance sheet. The offsetting rights of the master netting
arrangements can only be enforced if a predetermined event occurs in the future, such as a counterparty defaulting.
Cash collateral and financial instrument collateral
These amounts are received or pledged under master netting arrangements against the gross amounts of assets
and liabilities. Financial instrument collateral typically comprises securities which can be readily liquidated in the
event of counterparty default. The offsetting rights of the master netting arrangement can only be enforced if a
predetermined event occurs in the future, such as a counterparty defaulting.
1.
2.
3.
4.
5.
6.
7.
$1,862 million (2019: $2,849 million) of cash collateral on derivative financial assets and reverse repurchase agreements forms part
of collateral received as disclosed in the balance sheet. The remainder is included in term deposits recognised in deposits and other
borrowings within Note 16.
$4,387 million (2019: $5,469 million) of cash collateral, subject to enforceable netting arrangements with derivative financial
liabilities and repurchase agreements, forms part of collateral paid as disclosed in the balance sheet. The remainder of collateral
paid, as disclosed in the balance sheet, consists of $16 million (2019: $18 million) in stock borrowing arrangements and $238 million
(2019: $286 million) on futures margin that does not form part of this column.
Gross amounts consist of variation margin held directly with central clearing counterparties and stock borrowing arrangements. Where
variation margin is receivable it is reported as part of collateral paid. Where variation margin is payable it is reported as part of collateral
received. Amounts offset relate to variation margin.
$2,146 million (2019: $3,338 million) of derivative financial assets and $1,404 million (2019: $2,252 million) of derivative financial liabilities
are not subject to enforceable netting arrangements. 2019 gross amounts, net amounts reported on the balance sheet and net amount
were restated to exclude amounts not subject to enforceable netting arrangements.
Reverse repurchase agreements form part of trading securities and financial assets measured at FVIS in Note 10.
Gross amounts consist of debt and interest set-off accounts which meet the requirements for offsetting as described above. These
accounts form part of business loans in Note 12 and part of deposits and other borrowings at amortised cost in Note 16.
Repurchase agreements form part of other financial liabilities in Note 17.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
276
Notes to the financial statements
Note 24. Securitisation, covered bonds and other transferred assets
The Group enters into transactions in the normal course of business by which financial assets are transferred to
counterparties or structured entities. Depending on the circumstances, these transfers may result in derecognition
of the assets in their entirety, partial derecognition or no derecognition of the assets subject to the transfer. For the
Group’s accounting policy on derecognition of financial assets refer to the notes to the financial statements section
before Note 10 titled ‘Financial assets and financial liabilities’.
Securitisation
Securitisation is the transferring of assets (or an interest in either the assets or the cash flows arising from the
assets) to a structured entity which then issues the majority of interest bearing debt securities to third party
investors for funding deals and to Westpac for liquidity deals.
Securitisation of its own assets is used by Westpac as a funding and liquidity tool.
For securitisation structured entities which Westpac controls, as defined in Note 31, the structured entities are
classified as subsidiaries and consolidated. When assessing whether Westpac controls a structured entity, it
considers its exposure to and ability to affect variable returns. Westpac may have variable returns from a structured
entity through ongoing exposures to the risks and rewards associated with the assets, the provision of derivatives,
liquidity facilities, trust management and operational services.
Undrawn funding and liquidity facilities of $492 million (2019: $537 million) were provided by Westpac for the
securitisation of its own assets.
Covered bonds
The Group has two covered bond programs relating to Australian residential mortgages (Australian Program) and
New Zealand residential mortgages (New Zealand Program). Under these programs, selected pools of residential
mortgages are assigned to bankruptcy remote structured entities which provide guarantees on the payments to
bondholders. Through the guarantees and derivatives with the structured entities, Westpac has variable returns
from these structured entities and consolidates them.
Repurchase agreements
Where securities are sold subject to an agreement to repurchase at a predetermined price, they remain recognised
in the balance sheet in their original category (i.e. Trading securities or Investment securities).
The cash consideration received is recognised as a liability (Repurchase agreements). Refer to Note 17 for further
details.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 24. Securitisation, covered bonds and other transferred assets (continued)
The following tables present Westpac’s assets transferred and their associated liabilities:
277
Consolidated
$m
2020
Securitisation1
Covered bonds2
Repurchase agreements
Total
2019
Securitisation1
Covered bonds2
Repurchase agreements
Total
Parent Entity
$m
2020
Securitisation1
Covered bonds2
Repurchase agreements
Total
2019
Securitisation1
Covered bonds2
Repurchase agreements
Total
For those liabilities that only have
recourse to the transferred assets:
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
Fair
value of
transferred
assets
Fair
value of
associated
liabilities
Net fair
value
position
8,029
8,000
8,072
7,994
43,654
36,051
36,727
27,763
n/a
n/a
n/a
n/a
88,410
71,814
8,072
7,994
8,221
8,190
8,268
8,177
44,676
38,037
13,754
10,604
n/a
n/a
n/a
n/a
66,651
56,831
8,268
8,177
78
n/a
n/a
78
91
n/a
n/a
91
For those liabilities that only have
recourse to the transferred assets:
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
Fair
value of
transferred
assets
Fair
value of
associated
liabilities
Net fair
value
position
141,660
141,000
141,991
138,870
3,121
36,689
31,926
36,727
27,763
n/a
n/a
n/a
n/a
n/a
n/a
215,076
200,689
141,991
138,870
3,121
101,689
101,146
101,871
100,268
1,603
37,697
33,160
13,754
10,604
n/a
n/a
n/a
n/a
n/a
n/a
153,140
144,910
101,871
100,268
1,603
1.
2.
The carrying amount of assets securitised exceeds the amount of notes issued primarily because the carrying amount includes both
principal and income received from the transferred assets.
The difference between the carrying values of covered bonds and the assets pledged reflects the over-collateralisation required to
maintain the ratings of the covered bonds and also additional assets to allow immediate issuance of additional covered bonds if
required. These additional assets can be repurchased by Westpac at its discretion, subject to the conditions set out in the transaction
documents.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
278
Notes to the financial statements
INTANGIBLE ASSETS, PROVISIONS, COMMITMENTS AND CONTINGENCIES
Note 25. Intangible assets
Accounting policy
Indefinite life intangible assets
Goodwill
Goodwill acquired in a business combination is initially measured at cost, generally being the excess of:
(i) the consideration paid; over
(ii) the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.
Subsequently, goodwill is not amortised but rather tested for impairment. Impairment is tested at least annually or
whenever there is an indication of impairment. An impairment charge is recognised when a cash generating unit’s
(CGU) carrying value exceeds its recoverable amount. Recoverable amount means the higher of the CGU’s fair value
less costs to sell and its value-in-use.
The Group’s CGUs represent the smallest identifiable group of assets that generate cash inflows that are largely
independent of the cash inflows from other assets or group of assets. They reflect the level at which the Group
monitors and manages its operations.
Brand names
Brand names acquired in a business combination including St.George, BT, BankSA and RAMS, are recognised at cost.
Subsequently brand names are not amortised but tested for impairment at least annually or whenever there is an
indication of impairment.
Finite life intangible assets
Finite life intangibles, including computer software and core deposits, are recognised initially at cost and subsequently
at amortised cost less any impairment.
Intangible
Goodwill
Brand names
Useful life
Indefinite
Indefinite
Computer software
3 to 10 years
Depreciation method
Not applicable
Not applicable
Straight-line or the diminishing
balance method (using the Sum of
the Years Digits)
Critical accounting assumptions and estimates
Judgement is required in determining the fair value of assets and liabilities acquired in a business combination. A
different assessment of fair values would have resulted in a different goodwill balance and different post-acquisition
performance of the acquired entity.
When assessing impairment of intangible assets, significant judgement is needed to determine the appropriate cash
flows and discount rates to be applied to the calculations. The significant assumptions applied to the value-in-use
calculations are outlined below.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 25. Intangible assets (continued)
$m
Goodwill
Balance as at beginning of year
Disposals
Impairment
Other adjustments
Balance as at end of year
Computer software
Balance as at beginning of year
Additions
Impairment
Amortisation
Other adjustments
Balance as at end of year
Cost
Accumulated amortisation and impairment
Carrying amount
Brand names
Balance as at beginning of year
Balance as at end of year
Carrying amount
Other intangible assets
Balance as at beginning of year
Impairment
Amortisation
Balance as at end of year
Cost
Accumulated amortisation and impairment
Carrying amount
Total intangible assets
Goodwill has been allocated to the following CGUs1:
$m
Consumer
Business
Westpac Institutional Bank
New Zealand
Specialist Businesses
Total goodwill
279
Consolidated
2020
2019
Parent Entity
2020
2019
8,895
8,890
6,844
6,844
-
(498)
-
-
-
5
-
(116)
-
-
-
-
8,397
8,895
6,728
6,844
2,365
2,177
2,207
2,014
1,035
906
955
846
(171)
(25)
(799)
(694)
-
1
(165)
(731)
-
(25)
(628)
-
2,430
2,365
2,266
2,207
7,370
6,395
6,372
5,464
(4,940)
(4,030)
(4,106)
(3,257)
2,430
2,365
2,266
2,207
670
670
670
670
670
670
636
636
636
636
636
636
23
(20)
(3)
-
141
(141)
-
26
-
(3)
23
144
(121)
23
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,497
11,953
9,630
9,687
Consolidated
2020
2019
Parent Entity
2020
2019
3,359
4,060
3,144
3,144
3,205
3,860
3,022
3,213
487
488
858
487
488
-
487
487
-
75
-
-
8,397
8,895
6,728
6,844
In addition, brand names of $670 million for the Group have been allocated as $382 million to Consumer,
$286 million to Business and $2 million to Specialist Businesses as at 30 September 2020 (2019: $382 million to
Consumer and $288 million to Business). Brand names of $636 million for the Parent Entity have been allocated as
$350 million to Consumer and $286 million to Business as at 30 September 2020 and 30 September 2019.
1.
On 4 May 2020, the Group announced the creation of a new operating segment, Specialist Businesses, which includes businesses
that were previously part of Consumer and Business operating segments (refer to Note 2). As a result, the Group’s CGUs have
been reassessed and goodwill reallocated accordingly. This Specialist Businesses segment includes a number of individual CGUs
(Superannuation, Platforms, Investments, General Insurance, Life Insurance, Lenders Mortgage Insurance, and Auto and Vendor Finance)
to which goodwill has been allocated. The carrying amount of goodwill allocated to these individual CGUs is not significant compared
to total goodwill.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
280
Notes to the financial statements
Note 25. Intangible assets (continued)
Impairment testing and results
Impairment testing is performed at least once a year, or whenever there is an indication of impairment, by
comparing the recoverable amount of each CGU with the carrying amount. The primary test for the recoverable
amount is determined based on value-in-use which refers to the present value of expected cash flows under its
current use. Fair value less costs to sell was also considered for those CGUs where value-in-use was lower than
carrying value. In these cases, there was no change to the result of the impairment test.
In the current year the Group recognised goodwill impairment of $498 million for the Group and $116 million for the
Parent Entity from Specialist Businesses CGUs. The goodwill impairment recognised for the Life Insurance CGU was
$374 million for the Group (Parent Entity: nil) and for the Auto and Vendor Finance CGU was $124 million for the
Group (Parent Entity: $116 million). No goodwill remains for these CGUs.
The impairment of goodwill resulted from our macroeconomic outlook and lower forecast profitability as well as
goodwill being allocated at a lower level to individual business levels within the specialised business division. This
allocation reflects the discrete nature of these businesses and the level at which goodwill has been monitored by
management.
Significant assumptions used in recoverable amount calculations
The assumptions made for goodwill impairment testing for each relevant significant CGU are provided in the
following table and are based on past experience and management’s expectations for the future. In the current
year and given the present economic environment, the Group has reassessed these assumptions and revised them
where necessary in order to provide a reasonable estimate of the value-in-use of the CGUs and Group.
Discount rate
Group’s equity rate/ Group’s adjusted pre-tax equity rate
Westpac Institutional Bank
New Zealand
2020
11.0% / 14.4%
11.0% / 14.5%
All other significant CGUs
11.0% / 15-15.2%
2019
11.0% / 15.7%
11.0% / 15.3%
11.0% / 15.7%
Cash flows
Forecast period/ terminal growth rate
2020
2019
5 years / 2%
3 years / 2%
3 years / 2%
2 years / 0%
2 years / 0%
2 years / 0%
The Group discounts the projected cash flows by its adjusted pre-tax equity rate.
The cash flows used are based on management approved forecasts. These forecasts utilise information about
current and future economic conditions, observable historical information and management expectations of future
business performance. The terminal value growth rate represents the growth rate applied to extrapolate cash flows
beyond the forecast period and reflects the lower end of the RBA’s target long-term inflation rate band.
For all CGUs other than Westpac Institutional Bank, the recoverability of goodwill is not reliant on any one
particular assumption. Refer to the sensitivity analysis below for details regarding Westpac Institutional Bank.
Sensitivity analysis
The table below shows a sensitivity analysis for Westpac Institutional Bank which has no impairment of goodwill
but for which a reasonable possible change in assumptions would result in impairment. This sensitivity analysis
assumes the specific assumption moves in isolation while all other assumptions are held constant and presents the
change in key assumptions required to reduce any headroom to nil. Whilst remaining a good business with a strong
franchise, Westpac Institutional Bank’s forecasts are responsive to a decrease in cash flows resulting from increased
impairment from credit losses, higher than forecast expenses, higher capital retention requirements, or from lower
than assumed interest margins. To address the uncertainty resulting from these assumptions, a range of probability
weighted scenarios were used to calculate the recoverable amount.
Consolidated and Parent Entity
Headroom
Westpac Institutional Bank
$m
578
Change required to assumption to reduce headroom to nil
Increase in discount rate
(bps)
Decrease in cash flows
(%)
Decrease in terminal
growth rate (bps)
56
6.2
76
WESTPAC GROUP 2020 ANNUAL REPORT 281
Notes to the financial statements
Note 26. Lessee disclosures
Accounting policy
Accounting policy for 30 September 2020 under AASB 16
At the lease commencement date (or the inception date for certain leases), a right-of-use (ROU) asset and
a lease liability are recognised in the balance sheet for all leases with the exception of short term leases (12
months or less) and low value leases (underlying asset is less than A$10,000).
ROU asset
The ROU asset is initially measured at cost being the amount of the initial measurement of the lease liability,
plus any payments made at or before the commencement date, initial direct costs and estimated make-good
costs, less any lease incentives received. It is subsequently measured at cost less accumulated depreciation and
impairment losses. The asset is also adjusted for any subsequent remeasurement of the lease liability (refer
below).
Depreciation expense is recognised in operating expenses on a straight-line basis over the lease term.
Lease liability
The lease liability is initially measured at the present value of the future lease payments using a discount rate
based on Westpac’s incremental borrowing rate. It is subsequently increased by interest, reduced by principal
payments and remeasured for any reassessment or lease modification.
The lease liability may be remeasured in certain circumstances. For Westpac’s leases, it is expected that the
lease liability will only be required to be remeasured to reflect a change in the Group’s assessment of the
exercise of an extension option (refer below) or for a change in future lease payments for a change in rate or
index.
Interest expense is recognised in net interest income on an effective yield basis.
Lease term
Extension options are included in a number of lease contracts. The extension options are only included in
the lease term if the lease is reasonably certain to be extended, which is assessed by the Group at the lease
commencement date. The assessment is reviewed if a significant event or significant change in circumstances
occurs which affects this assessment and is within the control of the Group.
A reassessment of the lease term (to determine whether it has become ‘reasonably certain’ that an extension
option will be exercised) must be undertaken for each of the Group’s property and technology leases at a
specific point prior to the lease expiry date. The reassessment point, which is generally based on the option
exercise window, will vary in each jurisdiction.
Scope exemptions
For certain short-term and low value leases, lease payments are recognised in operating expenses on a straight-
line basis over the lease term.
Accounting policy for 30 September 2019 under AASB 117
An operating lease under AASB 117 is a lease where substantially all of the risks and rewards of the leased assets
remain with the lessor.
Where the Group is the lessee, lease rentals payable are recognised as an expense in the income statement on a
straight-line basis over the lease term unless another systematic basis is more appropriate.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
282
Notes to the financial statements
Note 26. Lessee disclosures (continued)
Westpac leases various commercial and retail premises and related property and equipment. The ROU asset
recognised as a result of these lease arrangements is included in property and equipment in the balance sheet and
detailed in the following table:
ROU assets
$m
Consolidated
Balance at 30 September 2019
Impact on adoption of AASB 16
Restated opening balance
Additions
Depreciation
Other
Balance at 30 September 2020
Parent Entity
Balance at 30 September 2019
Impact on adoption of AASB 16
Restated opening balance
Additions
Depreciation
Other
Balance at 30 September 2020
Lease liabilities
Lease liabilities included in other liabilities in the balance sheet were:
$m
Lease liabilities - property
Lease liabilities - other
Total lease liabilities as at 30 September 2020
Property
Other
Total
-
2,686
2,686
354
(506)
-
2,534
-
2,432
2,432
319
(455)
(5)
2,291
-
492
492
16
(124)
-
384
-
456
456
16
(112)
1
361
-
3,178
3,178
370
(630)
-
2,918
-
2,888
2,888
335
(567)
(4)
2,652
Consolidated
Parent Entity
2,538
387
2,925
2,309
363
2,672
The following table presents the future contractual undiscounted cash flows relating to lease liabilities by remaining
contractual maturity based on the requirements AASB 16 applicable for the current period:
$m
Up to one year
Over 1 year to 5 years
Over 5 years
Total undiscounted lease liabilities as at 30 September 2020
Consolidated
Parent Entity
568
1,537
1,101
515
1,415
997
3,206
2,927
As comparatives have not been restated on the adoption of AASB 16, the table below presents the operating lease
commitments by remaining contractual maturity based on the requirements of AASB 117 applicable for the prior
year:
$m
Up to one year
Over 1 year to 5 years
Over 5 years
Total undiscounted lease liabilities as at 30 September 2019
Consolidated
Parent Entity
608
1,716
1,421
3,745
555
1,583
1,305
3,443
The total cash outflow for the year ended 30 September 2020 for leases was $607 million for Group and
$555 million for Parent Entity.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
283
Notes to the financial statements
Note 27. Provisions, contingent liabilities, contingent assets and credit commitments
Accounting policy
Provisions
Provisions are recognised for present obligations arising from past events where a payment (or other economic
transfer) is likely to be necessary to settle the obligation and can be reliably estimated.
Employee benefits – long service leave provision
Long service leave is granted to certain employees in Australia and New Zealand. The provision is calculated
based on the expected payments. When payments are expected to be more than one year in the future, the
payments factor in expected employee service periods and average salary increases which are then discounted.
Employee benefits – annual leave and other employee benefits provision
The provision for annual leave and other employee benefits (including wages and salaries, inclusive of non-
monetary benefits, and any associated on-costs (e.g. payroll tax)) is calculated based on expected payments.
Provision for impairment on credit commitments
The Group is committed to provide facilities and guarantees as explained below. If it is probable that a facility
will be drawn and the resulting asset will be less than the drawn amount then a provision for impairment is
recognised. The provision for impairment is calculated using the same methodology as the provision for ECL
(refer to Note 13).
Compliance, Regulation and Remediation provisions
The compliance, regulation and remediation provisions relate to matters of potential misconduct in providing
services to our customers identified both as a result of regulatory action and internal reviews. An assessment of
the likely cost to the Group of these matters (including applicable customer refunds) is made on a case-by-case
basis and specific provisions are made where appropriate.
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future
events, and present obligations where the transfer of economic resources is not probable or cannot be reliably
measured. Contingent liabilities are not recognised in the balance sheet but are disclosed unless the outflow of
economic resources is remote.
Undrawn credit commitments
The Group enters into various arrangements with customers which are only recognised in the balance sheet
when called upon. These arrangements include commitments to extend credit, bill endorsements, financial
guarantees, standby letters of credit and underwriting facilities.
Contingent assets
Contingent assets are possible assets whose existence will be confirmed only by uncertain future events.
Contingent assets are not recognised in the balance sheet but are disclosed if an inflow of economic benefits is
probable.
Critical accounting assumptions and estimates
The financial reporting of provisions for litigation and non-lending losses and for compliance, regulation and
remediation matters involves a significant degree of judgement in relation to identifying whether a present
obligation exists and also in estimating the probability, timing, nature and quantum of the outflows that may
arise from past events. These judgements are made based on the specific facts and circumstances relating to
individual events. Specific judgements in respect of material items are included in the discussion below.
Provisions carried for long service leave are supported by an independent actuarial report.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
284
Notes to the financial statements
Note 27. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
Provisions
$m
Consolidated
Annual
leave
and other
employee
benefits
Long
service
leave
Litigation
and non-
lending
losses
Provision for
impairment
on credit
commitments
Lease
restoration
obligations
Restructuring
provisions
Compliance,
regulation and
remediation
provisions
Total
Balance at 30 September 2019
456
Additions
Utilisation
Reversal of unutilised
provisions
Other
95
(40)
-
-
614
795
(794)
(19)
-
38
1,391
(46)
(9)
(3)
305
225
-
-
-
24
197
(12)
(1)
-
160
126
(110)
-
-
1,572
3,169
1,107
3,936
(567)
(1,569)
(217)
(246)
-
(3)
Balance at 30 September 2020
511
596
1,371
530
208
176
1,895
5,287
Parent Entity
Balance at 30 September 2019
428
Additions
Utilisation
Reversal of unutilised
provisions
Other
92
(38)
-
-
557
749
(747)
(19)
-
23
1,358
(34)
(3)
(1)
275
204
-
-
-
24
166
(10)
(1)
-
160
92
(110)
-
-
1,513
2,980
1,052
3,713
(537)
(1,476)
(210)
(233)
-
(1)
Balance at 30 September 2020
482
540
1,343
479
179
142
1,818
4,983
Legislative liabilities
The Group had the following assessed liabilities as at 30 September 2020:
•
•
•
•
•
•
•
$22 million (2019: $22 million) based on an actuarial assessment as a self-insurer under the Workers’
Compensation Act 1987 and the Workplace Injury Management and Workers’ Compensation Act 1998 (New
South Wales);
$7 million (2019: $7 million) based on actuarial assessment as a self-insurer under the Accident Compensation
Act 1985 (Victoria);
$6 million (2019: $6 million) based on actuarial assessment as a self-insurer under the Workers’ Rehabilitation
and Compensation Act 1986 (South Australia);
$1 million (2019: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation
and Rehabilitation Act 2003 (Queensland);
$Nil (2019: $nil) based on an actuarial assessment as a self-insurer under the Workers’ Compensation Act 1951
(Australian Capital Territory);
$1 million (2019: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Compensation
and Injury Management Act 1981 (Western Australia); and
$1 million (2019: $1 million) based on an actuarial assessment as a self-insurer under the Workers’ Rehabilitation
and Compensation Act 1988 (Tasmania).
Adequate provision has been made for these liabilities in the provision for annual leave and other employee
benefits above.
Provisions
Litigation and non-lending loss provisions
A provision for a penalty in relation to the AUSTRAC civil proceedings.
On 24 September 2020, Westpac announced that it had reached an agreement with AUSTRAC to resolve the
civil penalty proceedings commenced by AUSTRAC on 20 November 2019, subject to Court approval. Under
the agreement, the parties agreed to file with the Court a Statement of Agreed Facts and Admissions, and to
recommend to the Court that Westpac pay a civil penalty of $1.3 billion in relation to the admitted contraventions
of the AML/CTF Act. Westpac also agreed to pay AUSTRAC’s legal costs of $3.75 million. The settlement was
approved by the Court on 21 October 2020 and the penalty and AUSTRAC’s legal costs are to be paid within 28
calendar days of this date.
In light of the above developments, Westpac has increased the provision in respect of the penalty from $900
million provided for in the First Half 2020 results to $1.3 billion and has also provided for AUSTRAC’s legal costs.
WESTPAC GROUP 2020 ANNUAL REPORT 285
Notes to the financial statements
Note 27. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
Westpac is defending a class action proceedings filed by Phi Finney McDonald in Australia relating to market
disclosure issues connected to Westpac’s monitoring of financial crime over the relevant period and matters which
are the subject of the recent AUSTRAC proceedings. The claims are brought on behalf of certain shareholders who
acquired an interest in Westpac securities between 16 December 2013 and 19 November 2019. It does not identify
the amount of any damages sought, however given the time period in question and the nature of the claims it is
likely that the damages which will be alleged will be significant. No provision has been recognised in relation to this
potential exposure.
Compliance, regulation and remediation provisions
Provisions for the Full Year 2020 in respect of compliance, regulation and remediation include:
•
•
•
•
estimated customer refunds associated with certain ongoing advice service fees charged by the Group’s
salaried financial planners;
estimated customer refunds associated with certain ongoing advice service fees charged by authorised
representatives of the Group’s wholly owned subsidiaries Securitor Financial Group Limited (Securitor) and
Magnitude Group Pty Ltd (Magnitude);
refunds for certain Consumer and Business customers that had interest only loans that did not automatically
switch, when required, to principal and interest loans; and
refunds to certain customers who were provided with business loans where they should have been provided
with loans covered by the National Consumer Credit Protection Act 2009 (Cth).
Certain compliance, regulation and remediation provisions are described further as follows:
Estimated customer refunds associated with certain ongoing advice service fees charged by the Group’s salaried
financial planners
At balance date, Westpac has a provision of $112 million for customer refunds associated with certain ongoing
advice service fees charged by the Group’s salaried financial planners during the period 2008 to 2018. A number
of estimates and judgements continue to be applied in measuring the provision at FY20. The provision includes
estimated interest and estimated program costs.
Ongoing advice service fees charged by authorised representatives of Securitor and Magnitude.
At balance date, Westpac has a provision of $646 million relating to estimated customer remediation costs
(including interest on refunded fees and additional costs to run the remediation program) where customers of
authorised representatives of the Group’s wholly owned subsidiaries Securitor and Magnitude paid ongoing advice
service fees to those representatives and where it is not clear that the services were provided. The ongoing advice
service fees were charged during the period from 2008 to 2018. At balance date, A number of estimates and
judgements continue to be applied in measuring the provision at 30 September 2020.
It is possible that the final outcome could be below or above the provision, if the actual outcome differs from
the assumptions used in estimating the provision. Remediation processes may change over time as further facts
emerge and such changes could result in a change to the final exposure.
Restructuring provisions
The Group carries restructuring provisions in relation to changes in business restructures primarily for separation
and redundancy costs.
Lease restoration obligations
The addition to the lease restoration provision reflects a reassessment of the cost of making good leasehold
premises at the end of the Group’s property leases. The increase in the expected make-good cost has been treated
as an addition to the right-of-use asset and is being depreciated over the remaining life of those assets.
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events
and present obligations where the transfer of economic resources is not probable or cannot be reliably measured.
Contingent liabilities are not recognised on the balance sheet but are disclosed unless the outflow of economic
resource is remote.
Regulatory investigations, reviews and inquiries
Regulators, statutory authorities and other bodies routinely conduct investigations, reviews and inquiries involving
the financial services sector, both in Australia and overseas. These regulatory actions may consider a range of
subject matter, and in Australia, a number of regulatory investigations and reviews are currently considering
potential misconduct in credit and financial services.
Domestic regulators such as ASIC, APRA, ACCC, AUSTRAC, the OAIC, the ATO and the Fair Work Ombudsman,
as well as certain international regulators such as the Reserve Bank of New Zealand, Financial Markets Authority in
New Zealand, Hong Kong Monetary Authority, Monetary Authority of Singapore and National Futures Association
are also currently conducting investigations (some of which are industry-wide) involving the Group.
Two specific areas of investigation undertaken by ASIC are:
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
286
Notes to the financial statements
Note 27. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
•
Ongoing advice services – A current set of regulatory actions involve investigations by ASIC into alleged ‘fee for
no service’ activity. The first relates to ongoing advice services provided by the Group’s former salaried financial
planners and by authorised representatives of the Group’s wholly owned subsidiaries Securitor and Magnitude
and whether the corresponding ongoing advice was provided in all circumstances. The second relates to advice
service fees charged or deducted from some customer accounts (including platform and superannuation
accounts) following the death of the relevant account holder. ASIC’s investigations relate to the periods
between 2010 and 2019.
ASIC commenced both of these investigations in 2019 and is examining a range of matters, including whether
Westpac had appropriate systems and processes in place to ensure that customers received the advice
services that they had paid for, and the processes for ensuring ongoing fees were terminated quickly enough
following the death of some members. The Group is continuing to cooperate fully with ASIC’s investigations
and remediate affected accounts where appropriate. To date, ASIC has commenced a number of civil penalty
proceedings against other financial entities in relation to fee for no service activity.
•
Consumer credit insurance - ASIC is also investigating Westpac’s past sales practices in relation to Consumer
Credit Insurance (CCI). This investigation follows ASIC’s industry-wide review of CCI sales practices between the
period 2011 and 2018.
Westpac ceased selling CCI products in branch and contact centre channels in November 2018, and ceased
online sales in June 2019. ASIC’s investigation is a separate matter to the Federal Court class action proceedings
commenced against Westpac, Westpac General Insurance Limited and Westpac Life Insurance Services Limited.
Further information about this class action is set out in the ‘Litigation’ section below.
In addition, there are investigations covering a range of other matters (some of which are industry-wide) that
involve or may involve the Group in the future, including:
•
•
•
the provision of financial advice, including whether personal advice obligations have been complied with and
the conduct of financial planners;
financial markets conduct, including market activity prior to entering into interest rate swaps with certain
customers; Westpac’s practices relating to selling unsecured debt; and the adequacy of fee disclosure charged
for our products and services; and
other areas such as responsible lending, residential mortgages, credit portfolio management, general insurance,
the provision of superannuation (including insurance in superannuation), privacy and information governance,
competition law conduct and anti-money laundering and counter-terrorism financing processes and
procedures.
The Group has not received any indication of what (if any) action regulators will take following the conclusion of
the investigations set out above. No provisions have yet been made in relation to any financial penalty that might
arise in the event that regulators were to pursue enforcement proceedings, as any potential future liability of that
kind cannot be reliably estimated at this time.
These investigations may result in litigation (including class action proceedings), fines and penalties, infringement
notices, enforceable undertakings, imposition of capital requirements, licence revocation or variation, or other
action being taken by regulators or other parties. Given the size of Westpac, these investigations have in some
instances resulted, and could in the future result, in findings of a significant number of breaches of obligations. This
in turn could lead to significant financial and other penalties.
Litigation
There are ongoing Court proceedings, claims and possible claims for and against the Group. Contingent liabilities
exist in respect of actual and potential claims and proceedings, including those listed below. An assessment of
the Group’s likely loss has been made on a case-by-case basis for the purpose of the financial statements but
cannot always be reliably estimated, including in relation to those listed below. Except as otherwise stated, no
provision has been recognised in relation to the matters below because liability is not certain and cannot be reliably
estimated.
Regulatory litigation
•
•
On 22 December 2016, ASIC commenced Federal Court proceedings against BT Funds Management Limited
(BTFM) and Westpac Securities Administration Limited (WSAL) in relation to a number of superannuation
account consolidation campaigns conducted between 2013 and 2016. The litigation has recently gone through
an appeal process, with the most recent appeal being brought by Westpac in the High Court of Australia. The
judgment will relate to whether BTFM and WSAL each provided personal advice on relevant telephone calls
made to 14 of the 15 specific customers (who were the focus of the claim) and consequentially contravened the
Corporations Act 2001 (Cth) (including section 912A(1)(a)).
On 20 August 2020, ASIC commenced proceedings in the Federal Court against BTFM and Asgard Capital
Management Limited (ACML), in relation to an issue that was a case study in the Financial Services Royal
Commission. The allegations concern the inadvertent charging of financial adviser fees to 404 customers
totalling $130,006 after a request had been made to remove the financial adviser from the customers’ accounts.
The issue was self-reported to ASIC in 2017 and customers have been remediated. BTFM and ACML accept the
allegations made by ASIC and do not intend to defend the proceedings. Westpac is now working through the
relevant Court procedural steps to try to bring the matter to a resolution.
WESTPAC GROUP 2020 ANNUAL REPORT 287
Notes to the financial statements
Note 27. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
Class actions
The Group is currently defending the following five class actions:
•
•
•
•
•
On 12 October 2017, a class action against Westpac and Westpac Life Insurance Services Limited (WLIS) was
filed in the Federal Court of Australia. The class action was filed on behalf of customers who, since February
2011, obtained insurance issued by WLIS on the recommendation of financial advisers employed within the
Westpac Group. The plaintiffs have alleged that aspects of the financial advice provided by those advisers
breached fiduciary and statutory duties owed to the advisers’ clients, including the duty to act in the best
interests of the client, and that WLIS was knowingly involved in those alleged breaches. The matter has been
set down for an initial trial in May 2021. The damages sought are unspecified.
On 5 September 2019, a class action against BTFM and WLIS was commenced in the Federal Court of Australia
in relation to aspects of BTFM’s BT Super for Life cash investment option. The claim follows other industry
class actions. It is alleged that BTFM failed to adhere to a number of obligations under the general law, the
relevant trust deed and the Superannuation Industry (Supervision) Act 1993 (Cth), and that WLIS was knowingly
concerned with BTFM’s alleged contraventions. The damages sought are unspecified.
A class action proceeding was commenced in December 2019 in the Federal Court of Australia, on behalf of
certain investors who acquired an interest in Westpac securities between 16 December 2013 and 19 November
2019. The proceeding involves allegations relating to market disclosure issues connected to Westpac’s
monitoring of financial crime over the relevant period and matters which are the subject of the recent
AUSTRAC proceedings. The damages sought are unspecified. However, given the time period in question and
the nature of the claims it is likely that the damages which will be alleged will be significant.
On 28 February 2020, a class action was commenced against Westpac, Westpac General Insurance Limited
and WLIS in the Federal Court of Australia in relation to Westpac’s sale of CCI. The claim follows other industry
class actions. It is alleged that the three entities failed to adhere to a number of obligations in selling CCI in
conjunction with credit cards, personal loans and flexi loans. The damages sought are unspecified. Westpac no
longer sells CCI products.
On 16 July 2020, a class action was commenced against Westpac and St George Finance Limited (SGF) in
the Supreme Court of Victoria in relation to flex commissions paid to auto dealers from 1 March 2013 to 31
October 2018. This proceeding is one of two class actions commenced against a number of lenders in the
auto finance industry. It is alleged that Westpac and SGF are liable for the unfair conduct of dealers acting as
credit representatives and engaged in misleading or deceptive conduct. The damages sought are unspecified.
Another law firm publicly announced in July 2020 that it is preparing to commence a class action against
Westpac entities for similar conduct. Westpac has not paid flex commissions since 1 November 2018 following
an industry-wide ban issued by ASIC.
Westpac is aware from media reports and other publicly available material that other class actions against Westpac
entities are being investigated. In July 2020, one law firm publicly stated that it intends to commence a class action
against BTFM alleging that since 2014, BTFM did not act in the best interests of members of certain superannuation
funds when obtaining group insurance policies. In August 2020, another law firm announced that it is investigating
claims on behalf of persons who in the past 6 years acquired, renewed or continued to hold a financial product
(including life insurance) on the advice or recommendation of a financial adviser from Magnitude, Securitor or
Westpac. Westpac does not have any further information about the proposed claims beyond the public statements
issued by the law firms involved.
Internal reviews and remediation
As in prior periods, Westpac is continuing to undertake a number of reviews to identify and resolve prior issues that
have the potential to impact our customers and reputation. These internal reviews continue to identify a number of
issues in respect of which we are taking steps or will take steps to put things right so that our customers are not at
a disadvantage from certain past practices, including making compensation/remediation payments to customers
and providing refunds where identified. These issues include compliance with lending obligations (including
responsible lending) which is an area of industry focus, the provision of credit in accordance with the National
Consumer Credit Protection Act 2009 (Cth), the charging of certain Wealth fees, the processing of corporate
actions, reviewing third party remuneration arrangements and the way some product terms and conditions are
operationalised. By undertaking these reviews we can also improve our processes and controls.
An assessment of the Group’s likely loss has been made on a case-by-case basis for the purpose of the financial
statements but cannot always be reliably estimated. Contingent liabilities may exist in respect of actual or potential
claims (which could be brought by customers or regulators), compensation/remediation payments and/or refunds
identified as part of these reviews.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
288
Notes to the financial statements
Note 27. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
Australian Financial Complaints Authority
Contingent liabilities may also exist in relation to customer complaints brought before the Australian Financial
Complaints Authority (AFCA). AFCA has the power to make determinations about complaints and can award
compensation up to certain thresholds. AFCA has a broader jurisdiction than previous dispute resolution bodies
which it has replaced and, up until 30 June 2020, could also consider customer complaints dating back to
1 January 2008.
Financial Claims Scheme
Under the Financial Claims Scheme (FCS), the Australian Government provides depositors a free guarantee of
deposits in eligible ADIs up to and including $250,000. The FCS applies to an eligible ADI if APRA has applied for
the winding up of the ADI and the responsible Australian Government minister has declared that the FCS applies to
the ADI.
The Financial Claims Scheme (ADIs) Levy Act 2008 provides for the imposition of a levy to fund the excess of
certain APRA FCS costs connected to an ADI, including payments by APRA to deposit holders in a failed ADI.
The levy would be imposed on liabilities of eligible ADIs to their depositors and cannot be more than 0.5% of the
amount of those liabilities. A contingent liability may exist in respect of any levy imposed under the FCS.
Contingent tax risk
Tax and regulatory authorities in Australia and in other jurisdictions are reviewing the taxation treatment of certain
transactions (both historical and present-day transactions) undertaken by the Group in the course of normal
business activities and the claiming of tax incentives and indirect taxes such as GST. The Group also responds to
various notices and requests for information it receives from tax and regulatory authorities.
These reviews, notices and requests may result in additional tax liabilities (including interest and penalties).
The Group has assessed these and other taxation claims arising in Australia and elsewhere, including seeking
independent advice.
Settlement risk
The Group is subject to a credit risk exposure in the event that another counterparty fails to settle for its payments
clearing activities (including FX). The Group seeks to minimise credit risk arising from settlement risk in the
payments system by aligning our processing method with the legal certainty of settlement in the relevant clearing
mechanism.
Parent Entity guarantees and undertakings
The Parent Entity makes the following guarantees and undertakings to subsidiaries:
•
•
letters of comfort for certain subsidiaries which recognise that Westpac has a responsibility that those
subsidiaries continue to meet their obligations; and
guarantees to certain wholly owned subsidiaries which are Australian financial services or credit licensees to
comply with legislative requirements. Each guarantee is capped at $40 million per year and can only be utilised
if the entity concerned becomes legally obliged to pay for a claim under the relevant licence. The Parent Entity
has a right to recover any funds payable under the guarantees from the relevant subsidiary.
WESTPAC GROUP 2020 ANNUAL REPORT 289
Notes to the financial statements
Note 27. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
Undrawn credit commitments
The Group enters into various arrangements with customers which are only recognised in the balance sheet when
called upon. These arrangements include commitments to extend credit, bill endorsements, financial guarantees,
standby letters of credit and underwriting facilities.
They expose the Group to liquidity risk when called upon and also to credit risk if the customer fails to repay the
amounts owed at the due date. The maximum exposure to credit loss is the contractual or notional amount of the
instruments. Some of the arrangements can be cancelled by the Group at any time and a significant portion is
expected to expire without being drawn. The actual liquidity and credit risk exposure varies in line with amounts
drawn and may be less than the amounts disclosed.
The Group uses the same credit policies when entering into these arrangements as it does for on-balance sheet
instruments. Refer to Note 21 for further details of liquidity risk and credit risk management.
Undrawn credit commitments excluding derivatives are as follows:
$m
Undrawn credit commitments
Letters of credit and guarantees1
Commitments to extend credit2
Other
Total undrawn credit commitments
Consolidated 2020
$m
Letters of credit and guarantees
Commitments to extend credit
Other
Consolidated
2020
2019
Parent Entity
2020
2019
12,610
15,150
12,069
14,583
184,064
176,002
159,644
153,716
267
188
266
188
196,941
191,340
171,979
168,487
Up to
1 year
Over 1 year
to 3 years
Over 3 years
to 5 years
Over
5 years
Total
5,909
3,709
492
2,500
12,610
71,350
33,832
13,428
65,454
184,064
-
-
67
200
267
Total undrawn credit commitments
77,259
37,541
13,987
68,154
196,941
Contingent assets
The credit commitments shown in the table above also constitute contingent assets. These commitments would be
classified as loans in the balance sheet on the contingent event occurring.
1.
2.
Standby letters of credit are undertakings to pay, against presentation documents, an obligation in the event of a default by a customer.
Guarantees are unconditional undertakings given to support the obligations of a customer to third parties. The Group may hold cash as
collateral for certain guarantees issued.
Commitments to extend credit include all obligations on the part of the Group to provide credit facilities. As facilities may expire
without being drawn upon, the notional amounts do not necessarily reflect future cash requirements. In addition to the commitments
disclosed above, at 30 September 2020, the Group had offered $4.9 billion (2019: $5.0 billion) of facilities to customers, which had not
yet been accepted.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Notes to the financial
statements
290
Notes to the financial statements
CAPITAL AND DIVIDENDS
Note 28. Shareholders’ equity
Accounting policy
Share capital
Ordinary shares are recognised at the amount paid up per ordinary share, net of directly attributable issue costs.
Treasury shares are shares in the Parent Entity, purchased by the Parent Entity or other entities within the Group.
These shares are adjusted against share capital as the net of the consideration paid to purchase the shares and,
where applicable, any consideration received from the subsequent sale or reissue of these shares.
Non-controlling interests
Non-controlling interests represent the share in the net assets of subsidiaries attributable to equity interests that
are not owned directly or indirectly by the Parent Entity.
Reserves
Foreign currency translation reserve
Exchange differences arising on translation of the Group’s foreign operations, and any offsetting gains or losses
on hedging the net investment are reflected in the foreign currency translation reserve. A cumulative credit
balance in this reserve would not normally be regarded as being available for payment of dividends until such
gains are realised and recognised in the income statement on sale or disposal of the foreign operation.
Debt securities at FVOCI reserve (30 September 2019 onwards – AASB 9)
This reserve was established on adoption of AASB 9 and comprises the changes in fair value of debt securities
measured at FVOCI (except for interest income, impairment charges and FX gains and losses which are
recognised in the income statement), net of any related hedge accounting adjustments and tax. These changes
are transferred to non-interest income in the income statement when the asset is disposed.
Equity securities at FVOCI reserve (30 September 2019 onwards – AASB 9)
This reserve was established on adoption of AASB 9 and comprises the changes in fair value of equity securities
measured at FVOCI, net of tax. These changes are not transferred to the income statement when the asset is
disposed.
Available-for-sale securities reserve (30 September 2018 – AASB 139)
This comprises the changes in the fair value of available-for-sale financial securities (including both debt and
equity securities), net of any related hedge accounting adjustments and tax. These changes were transferred to
non-interest income in the income statement when the asset is either disposed of or impaired. This reserve was
closed on the adoption of AASB 9 and the closing balance was allocated to the debt securities at FVOCI reserve
and equity securities at FVOCI reserve noted above for the relevant securities.
Cash flow hedge reserve
This comprises the fair value gains and losses associated with the effective portion of designated cash flow
hedging instruments, net of tax.
Share-based payment reserve
This comprises the fair value of equity-settled share-based payments recognised as an expense.
Other reserves
Other reserves for the Parent Entity relates to certain historic internal group restructurings performed at fair
value. The reserve is eliminated on consolidation.
Other reserves for the Group consist of transactions relating to changes in the Parent Entity’s ownership of a
subsidiary that do not result in a loss of control.
The amount recorded in other reserves reflects the difference between the amount by which NCI are adjusted
and the fair value of any consideration paid or received.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 28. Shareholders’ equity (continued)
$m
Share capital
Ordinary share capital, fully paid
Treasury shares held for RSP1
Other treasury shares held2
Total treasury shares held
Total share capital
NCI
291
Consolidated
2020
2019
Parent Entity
2020
2019
40,509
37,508
40,509
37,508
(618)
55
(563)
(572)
19
(553)
(618)
(3)
(621)
(572)
(3)
(575)
39,946
36,955
39,888
36,933
51
53
-
-
Ordinary shares
Westpac does not have authorised capital and the ordinary shares have no par value. Ordinary shares entitle the
holder to participate in dividends and, in the event of Westpac winding up, to a share of the proceeds in proportion
to the number of and amounts paid on the shares held.
Each ordinary share entitles the holder to one vote, either in person or by proxy, at a shareholder meeting.
Reconciliation of movement in number of ordinary shares
Consolidated and Parent Entity
(number)
Opening balance
Share issuances3
Dividend reinvestment plan4
Closing balance
Ordinary shares purchased and sold on market
Consolidated and Parent Entity
For share-based payment arrangements:
Employee share plan (ESP)
RSP5
Westpac Performance Plan (WPP) - share rights exercised
As treasury shares:
Treasury shares purchased
Treasury shares sold
Net number of ordinary shares purchased/(sold) on market
For details of the share-based payment arrangements refer to Note 33.
2020
2019
3,489,928,773
3,434,796,711
110,919,861
-
10,836,236
55,132,062
3,611,684,870
3,489,928,773
2020
Number
Average Price ($)
931,524
1,931,521
175,957
114,376
(1,835,908)
1,317,470
26.46
24.06
26.00
24.52
20.23
1.
2.
3.
4.
5.
2020: 4,588,277 unvested shares held (2019: 4,784,213).
2020: Nil shares held (2019: 1,721,532).
The average price per share for the share issuance was $24.81.
The price per share for the issuance of shares in relation to the dividend reinvestment plan for the 2019 final dividend was $25.17
(2019: 2019 interim dividend was $27.36 and 2018 final dividend was $25.82).
Ordinary shares allocated to employees under the RSP are classified as treasury shares until the shares vest.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
292
Notes to the financial statements
Note 28. Shareholders’ equity (continued)
Reconciliation of movement in reserves
$m
Available-for-sale securities reserve
Balance as at beginning of year
Impact on adoption of AASB 9
Balance as at end of year
Debt securities at FVOCI reserve
Balance as at beginning of year
Impact on adoption of AASB 9
Net gains/(losses) from changes in fair value
Income tax effect
Transferred to income statements
Income tax effect
Loss allowance on debt securities measured at FVOCI
Exchange differences
Balance as at end of year
Equity securities at FVOCI reserve
Balance as at beginning of year
Impact on adoption of AASB 9
Net gains/(losses) from changes in fair value
Balance as at end of year
Share-based payment reserve
Balance as at beginning of year
Share-based payment expense
Balance as at end of year
Cash flow hedge reserve
Balance as at beginning of year
Net gains/(losses) from changes in fair value
Income tax effect
Transferred to income statements
Income tax effect
Balance as at end of year
Foreign currency translation reserve
Balance as at beginning of year
Exchange differences on translation of foreign operations
Gains/(losses) on net investment hedges
Transferred to income statements
Balance as at end of year
Other reserves
Balance as at beginning of year
Transactions with owners
Balance as at end of year
Total reserves
Consolidated
2020
2019
Parent Entity
2020
2019
-
-
-
(22)
-
360
(96)
(79)
15
2
(3)
37
(37)
-
-
33
(47)
12
(29)
8
-
1
-
-
-
(25)
-
292
(77)
(79)
15
2
(3)
24
(24)
-
-
25
(40)
10
(29)
8
-
1
177
(22)
125
(25)
17
-
(21)
(4)
-
6
11
17
(1)
-
1
-
-
1
(2)
(1)
1,642
1,534
1,533
1,425
78
108
78
108
1,720
1,642
1,611
1,533
(129)
(95)
28
218
(64)
(42)
(125)
(203)
60
197
(58)
(129)
(65)
(28)
9
150
(46)
20
(69)
(121)
36
128
(39)
(65)
(179)
(351)
(145)
(307)
(177)
9
55
311
(129)
(10)
(148)
17
55
214
(52)
-
(292)
(179)
(221)
(145)
(18)
3
(15)
(18)
-
(18)
41
-
41
41
-
41
1,544
1,311
1,576
1,338
WESTPAC GROUP 2020 ANNUAL REPORT 293
Notes to the financial statements
Note 29. Capital adequacy
APRA measures an ADI’s regulatory capital using three measures:
Level of capital
Definition
Common Equity Tier 1 Capital (CET1)
Tier 1 Capital
Total Regulatory Capital
Comprises the highest quality components of capital that consists of
paid-up share capital, retained profits and certain reserves, less certain
intangible assets, capitalised expenses and software, and investments and
retained profits in insurance and funds management subsidiaries that are
not consolidated for capital adequacy purposes.
The sum of CET1 and AT1 Capital. AT1 Capital comprises high quality
components of capital that consist of certain securities not included in
CET1, but which include loss absorbing characteristics.
The sum of Tier 1 Capital and Tier 2 Capital. Tier 2 Capital includes
subordinated instruments and other components of capital that, to
varying degrees, do not meet the criteria for Tier 1 Capital, but nonetheless
contribute to the overall strength of an ADI and its capacity to absorb
losses.
Under APRA’s Prudential Standards, Australian ADIs, including Westpac, are required to maintain a minimum CET1
ratio of at least 4.5%, Tier 1 Capital ratio of at least 6.0% and Total Regulatory Capital ratio of at least 8.0%. APRA
may also require ADIs, including Westpac, to meet Prudential Capital Requirements (PCRs) above the minimum
capital ratios. APRA does not allow the PCRs for individual ADIs to be disclosed.
APRA also requires ADIs to hold additional CET1 buffers comprising of:
•
•
a capital conservation buffer (CCB) of 3.5% for ADIs designated by APRA as domestic systemically important
banks (D-SIBs) unless otherwise determined by APRA, which includes a 1.0% surcharge for D-SIBs. APRA has
determined that Westpac is a D-SIB; and
a countercyclical capital buffer. The countercyclical buffer is set on a jurisdictional basis and APRA is
responsible for setting the requirement in Australia. The countercyclical buffer requirement is currently set to
zero for Australia and New Zealand.
Collectively, the above buffers are referred to as the “Capital Buffer” (CB). Should the CET1 capital ratio fall within
the capital buffer range restrictions on the distributions of earnings will apply. This includes restrictions on the
amount of earnings that can be distributed through dividends, AT1 Capital distributions and discretionary staff
bonuses.
APRA announcements on capital
On 29 July 2020, APRA released further capital management guidance for ADIs1. This guidance included APRA’s
expectation that for 2020, ADIs will retain at least half of their earnings, actively use dividend reinvestment plans
(DRPs) and/or other capital management initiatives to at least partially offset the diminution in capital from
distributions and conduct regular stress testing to inform decision-making and demonstrate ongoing lending
capacity. APRA also committed to ensuring that any rebuild of capital buffers, if required, will be conducted in
a gradual manner. APRA noted that the implementation of the Basel III capital reforms, which will embed the
‘unquestionably strong’ level of capital in the framework, has been postponed to 1 January 2023.
Further details of APRA’s regulatory changes are set out in the Significant Developments section of the
2020 Annual Report.
Capital management strategy
Westpac’s approach to capital management seeks to ensure that it is adequately capitalised as an ADI. Westpac
evaluates its approach to capital management through the Internal Capital Adequacy Assessment Process
(ICAAP), the key features of which include:
•
•
•
•
the development of a capital management strategy, including consideration of regulatory minimums, capital
buffers and contingency plans;
consideration of both regulatory and economic capital requirements;
a stress testing framework that challenges the capital measures, coverage and requirements including the
impact of adverse economic scenarios; and
consideration of the perspective of external stakeholders including rating agencies as well as equity and debt
investors.
During the period of disruption caused by COVID-19, Westpac is operating with the following principles in relation
to capital:
•
•
•
•
prioritise maintaining capital strength;
retain capital to absorb further downside on credit quality and acknowledge a high degree of uncertainty
regarding the length and depth of this stress;
allow for capital flexibility to support lending to customers; and
in line with APRA guidance, Westpac will seek to maintain a buffer above the regulatory minimum (currently
at least 8% for D-SIBs including Westpac) and may utilise some of the “unquestionably strong” buffer. At
30 September 2020, the CET1 buffer above the regulatory minimum of 8% is $13.7 billion.
1.
Letter to Authorised Deposit Taking Institutions – Capital Management, 29 July 2020.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
294
Notes to the financial statements
Note 29. Capital adequacy (continued)
These principles take into consideration:
•
current regulatory capital minimums and the capital conservation buffer (CCB), which together are the Total
CET1 Requirement. In line with the above, the Total CET1 Requirement for Westpac is at least 8.0%, based upon
an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to D-SIBs1,2;
•
stress testing to calibrate an appropriate buffer against a downturn; and
quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
•
Westpac will revise its target capital levels once the medium to longer term impacts of COVID-19 are clearer and
APRA’s review of the capital adequacy framework is finalised.
Note 30. Dividends
$m
Dividends not recognised at year end
Consolidated
2020
2019
2018
Parent Entity
2020
2019
Since year end the Directors have proposed the following dividends:
Final dividend 31 cents per share (2019: 80 cents, 2018: 94 cents) all fully franked at 30%
1,120
2,791
3,227
1,120
2,792
Total dividends not recognised at year end
1,120
2,791
3,227
1,120
2,792
Shareholders can choose to receive their dividends as cash or reinvest for an equivalent number of shares under
the Dividend Reinvestment Plan (DRP).
The Board has decided to issue new shares to satisfy the DRP for the 2020 final dividend and to apply a 1.5%
discount to the market price used to determine the number of shares issued under the DRP. The market price
used to determine the number of shares issued under the DRP will be set over the 15 trading days commencing 17
November 2020.
Westpac has also entered into an agreement to underwrite the DRP to the full amount of the 2020 final dividend.
Details of dividends recognised during the year are provided in the statement of changes in equity.
Australian franking credits
Australian franking credits available to the Parent Entity for subsequent years are $3,448 million (2019: $1,558 million,
2018: $1,357 million). This is calculated as the year end franking credit balance, adjusted for the Australian current tax
liability and the proposed 2020 final dividend.
New Zealand imputation credits
New Zealand imputation credits of NZ$0.07 (2019: NZ$0.07, 2018: NZ$0.07) per share will be attached to the
proposed 2020 final dividend. New Zealand imputation credits available to the Parent Entity for subsequent years
are NZ$980 million (2019: NZ$860 million, 2018: NZ$530 million). This is calculated on the same basis as the
Australian franking credits but using the New Zealand current tax liability.
1.
2.
Noting that APRA may apply higher CET1 requirements for an individual ADI.
If an ADI’s CET1 ratio falls below the Total CET1 Requirement (at least 8%), they faces restrictions on the distribution of earnings, such as
dividends, distribution payments on AT1 capital instruments and discretionary staff bonuses.
WESTPAC GROUP 2020 ANNUAL REPORT 295
Notes to the financial statements
GROUP STRUCTURE
Note 31. Investments in subsidiaries and associates
Accounting policy
Subsidiaries
Westpac’s subsidiaries are entities which it controls and consolidates as it is exposed to, or has rights to, variable
returns from the entity, and can affect those returns through its power over the entity.
When the Group ceases to control a subsidiary, any retained interest in the entity is remeasured to fair value, with
any resulting gain or loss recognised in the income statement.
Changes in the Group’s ownership interest in a subsidiary which do not result in a loss of control are accounted
for as transactions with equity holders in their capacity as equity holders.
In the Parent Entity’s financial statements, investments in subsidiaries are initially recorded at cost and are
subsequently held at the lower of cost and recoverable amount.
All transactions between Group entities are eliminated on consolidation.
Associates
Associates are entities in which the Group has significant influence, but not control, over the operating and
financial policies. The Group accounts for associates using the equity method. The investments are initially
recognised at cost (except where recognised at fair value due to a loss of control of a subsidiary), and increased
(or decreased) each year by the Group’s share of the associate’s profit (or loss). Dividends received from the
associate reduce the investment in associate.
Overseas companies predominantly carry on business in the country of incorporation. For unincorporated entities,
‘Country of incorporation’ refers to the country where business is carried on. The financial years of all controlled
entities are the same as that of Westpac unless otherwise stated. From time to time, the Group consolidates a
number of unit trusts where the Group has variable returns from its involvement with the trusts, and has the ability
to affect those returns through its power over the trusts. These unit trusts are excluded from the table.
The following table includes the principal controlled entities of the Group as at 30 September 2020.
Name
Country of
incorporation
Name
Advance Asset Management Limited
Australia Westpac Financial Services Group Limited
Asgard Capital Management Limited
Australia Westpac General Insurance Services Limited
Asgard Wealth Solutions Limited
Australia Westpac Securitisation Holdings Pty Limited
BT Financial Group Pty Limited
Australia Westpac Life-NZ-Limited
BT Funds Management Limited
Australia Westpac New Zealand Group Limited
BT Portfolio Services Limited
Australia Westpac New Zealand Limited
Capital Finance Australia Limited
Australia Westpac NZ Covered Bond Limited1
Crusade Trust No.2P of 2008
Series 2008-IM WST Trust
Westpac Covered Bond Trust
Australia Westpac NZ Securitisation Limited1
Australia Westpac Securities NZ Limited
Australia Westpac Term Pie Fund2
Country of
incorporation
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Westpac Equity Holdings Pty Limited
Australia Westpac Bank-PNG-Limited
Papua New Guinea
1.
2.
The Group indirectly owns 19% of Westpac NZ Covered Bond Limited (WNZCBL) and Westpac NZ Securitisation Limited (WNZSL),
however, due to contractual and structural arrangements both WNZCBL and WNZSL are considered to be controlled entities within the
Group.
The Group has funding agreements in place with this entity and is deemed to have exposure to the associated risks and rewards. The
entity is consolidated as the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
296
Notes to the financial statements
Note 31. Investments in subsidiaries and associates (continued)
The following controlled entities have been granted relief from compliance with the balance date synchronisation
provisions in the Corporations Act 2001:
•
•
•
Westpac Cash PIE Fund;
Westpac Notice Saver PIE Fund; and
Westpac Term PIE Fund.
The following material controlled entities are not wholly owned:
Percentage Owned
Westpac Bank-PNG-Limited
Westpac NZ Covered Bond Limited
Westpac NZ Securitisation Limited
2020
89.9%
19.0%
19.0%
2019
89.9%
19.0%
19.0%
Non-controlling interests
Details of the balance of NCIs are set out in Note 28. There are no NCIs that are material to the Group.
Significant restrictions
There were no significant restrictions on the ability to transfer cash or other assets, pay dividends or other capital
distributions, provide or repay loans and advances between the entities within the Group subject to local regulatory
requirements. There were also no significant restrictions on Westpac’s ability to access or use the assets and settle
the liabilities of the Group resulting from protective rights of NCIs.
Associates
There are no associates that are material to the Group. During the year ended 30 September 2020, Westpac
ceased to exert significant influence over Zip Co Limited and this investment is now recognised at FVIS. As a result
the Group recognised a gain on derecognition of associate in non-interest income of $316 million (Refer to Note 4).
Changes in ownership of subsidiaries
Businesses disposed during the year ending 30 September 2020
No businesses were sold in the year ended 30 September 2020
Businesses disposed during the year ending 30 September 2019
Westpac sold its interest in Ascalon Capital Managers (Asia) Limited and Ascalon Capital Managers Limited on
8 February 2019 for a combined profit of $3 million recognised in non-interest income.
Businesses disposed during the year ending 30 September 2018
Westpac sold its interest in a number of Hastings offshore subsidiaries to Northill Capital. Completion of the sale
of the US and UK entities occurred on 28 February 2018 and completion of the Singapore entity occurred on
23 March 2018, with a total loss of $9 million recognised in non-interest income.
Details of the assets and liabilities which the Group ceased to control are provided in Note 37.
WESTPAC GROUP 2020 ANNUAL REPORT 297
Notes to the financial statements
Note 32. Structured entities
Accounting policy
Structured entities are generally created to achieve a specific, defined objective and their operations are
restricted such as only purchasing specific assets. Structured entities are commonly financed by debt or equity
securities that are collateralised by and/or indexed to their underlying assets. The debt and equity securities
issued by structured entities may include tranches with varying levels of subordination.
Structured entities are classified as subsidiaries and consolidated if they meet the definition in Note 31. If the
Group does not control a structured entity then it will not be consolidated.
The Group engages in various transactions with both consolidated and unconsolidated structured entities that are
mainly involved in securitisations, asset backed and other financing structures and managed funds.
Consolidated structured entities
Securitisation and covered bonds
The Group uses structured entities to securitise its financial assets, including two covered bond programs, to assign
pools of residential mortgages to bankruptcy remote structured entities.
Refer to Note 24 for further details.
Group managed funds
The Group acts as the responsible entity and/or fund manager for various investment management funds. As fund
manager, if the Group is deemed to be acting as a principal rather than an agent then it consolidates the fund.
The principal versus agent decision requires judgement of whether the Group has sufficient exposure to variable
returns.
Non-contractual financial support
The Group does not provide non-contractual financial support to these consolidated structured entities.
Unconsolidated structured entities
The Group has interests in various unconsolidated structured entities including debt or equity instruments,
guarantees, liquidity and other credit support arrangements, lending, loan commitments, certain derivatives and
investment management agreements.
Interests exclude non-complex derivatives (e.g. interest rate or currency swaps), instruments that create, rather
than absorb, variability in the entity (e.g. credit protection under a credit default swap), and lending to a structured
entity with recourse to a wider operating entity, not just the structured entity.
The Group’s main interests in unconsolidated structured entities, which arise in the normal course of business, are:
Trading securities
Investment securities
Loans and other credit
commitments
The Group actively trades interests in structured entities and normally has no other
involvement with the structured entity. The Group earns interest income on these securities
and also recognises fair value changes through trading income in non-interest income.
The Group holds mortgage-backed securities for liquidity purposes and the Group
normally has no other involvement with the structured entity. These assets are highly-rated,
investment grade and eligible for repurchase agreements with the RBA or another central
bank. The Group earns interest income and net gains or losses on selling these assets are
recognised in the income statements.
The Group lends to unconsolidated structured entities, subject to the Group’s collateral and
credit approval processes, in order to earn interest and fee income. The structured entities
are mainly property trusts, securitisation entities and those associated with project and
property financing transactions.
Investment management
agreements
The Group manages funds that provide customers with investment opportunities. The Group
also manages superannuation funds for its employees. The Group earns management and
performance fee income which is recognised in non-interest income.
The Group may also retain units in these investment management funds, primarily through
life insurance subsidiaries. The Group earns fund distribution income and recognises fair
value movements through non-interest income.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
298
Notes to the financial statements
Note 32. Structured entities (continued)
The following tables show the Group’s interests in unconsolidated structured entities and its maximum exposure to
loss in relation to those interests. The maximum exposure does not take into account any collateral or hedges that
will reduce the risk of loss.
•
•
For on-balance sheet instruments, including debt and equity instruments in and loans to unconsolidated
structured entities, the maximum exposure to loss is the carrying value; and
For off-balance sheet instruments, including liquidity facilities, loan and other credit commitments and
guarantees, the maximum exposure to loss is the notional amounts.
Consolidated 2020
$m
Assets
Trading securities and financial assets measured at FVIS
Investment securities
Loans
Life insurance assets
Other assets
Total on-balance sheet exposures
Total notional amounts of off-balance sheet exposures
Maximum exposure to loss
Size of structured entities2
Consolidated 2019
$m
Assets
Trading securities and financial assets measured at FVIS
Investment securities
Loans
Life insurance assets
Other assets
Investment in
third party
mortgage and
other
asset-backed
securities1
Financing to
securitisation
Group
managed
Interest
in other
structured
vehicles
funds
entities
Total
1,526
6,105
-
-
-
-
-
20,094
-
-
7,631
20,094
-
6,122
-
-
-
204
52
256
44
34
-
1,560
6,105
16,955
37,049
129
-
333
52
17,118
45,099
7,768
13,934
7,631
26,216
300
24,886
59,033
59,324
26,216
67,423
40,209
193,172
Investment in
third party
mortgage and
other
asset-backed
securities1
Financing to
securitisation
Group
managed
Interest
in other
structured
vehicles
funds
entities
Total
1,827
6,940
-
-
-
-
-
20,979
-
-
-
-
9
282
2,109
-
6,940
22,817
43,805
4,885
1,879
6,764
54
-
54
Total on-balance sheet exposures
8,767
20,979
4,948
24,978
59,672
Total notional amounts of off-balance sheet exposures
-
5,157
102
10,086
15,345
Maximum exposure to loss
Size of structured entities2
8,767
26,136
5,050
35,064
75,017
66,015
26,136
71,538
98,983
262,672
Non-contractual financial support
The Group does not provide non-contractual financial support to these unconsolidated structured entities.
1.
2.
The Group’s interests in third party mortgage and other asset-backed securities are senior tranches of notes and are investment grade
rated.
Represented either by the total assets or market capitalisation of the entity, or if not available, the Group’s total committed exposure
(for lending arrangements and external debt and equity holdings), funds under management (for Group managed funds) or the total
value of notes on issue (for investments in third-party asset-backed securities).
WESTPAC GROUP 2020 ANNUAL REPORT 299
Notes to the financial statements
OTHER
Note 33. Share-based payments
Accounting policy
The Group enters into various share-based payment arrangements with its employees as a component of overall
compensation for services provided. Share-based payment arrangements comprise rights to receive shares for
free (share rights) and restricted shares (issued at no cost). Share-based payment arrangements typically require
a specified period of continuing employment (the service period or vesting period) and may include performance
targets (vesting conditions). Specific details of each arrangement are provided below.
Share-based payments must be classified as either cash-settled or equity-settled arrangements. The Group’s
significant arrangements are equity-settled, as the Group is not obliged to settle in cash.
Share rights
Share rights are equity-settled arrangements. The fair value is measured at grant date and is recognised as an
expense over the service period, with a corresponding increase in the share-based payment reserve in equity.
The fair value of share rights are estimated at grant date using a binomial/Monte Carlo simulation pricing
model which incorporates the vesting and market-related performance targets of the grants. The fair value of
share rights excludes non-market vesting conditions such as employees’ continuing employment by the Group.
The non-market vesting conditions are instead incorporated in estimating the number of share rights that are
expected to vest and are therefore recognised as an expense. At each reporting date the non-market vesting
assumptions are revised and the expense recognised each year takes into account the most recent estimates.
The market-related assumptions are not revised each year as the fair value is not re-estimated after the grant
date.
Restricted share plan (RSP)
The RSP is accounted for as an equity-settled arrangement. The fair value of shares allocated to employees for nil
consideration is recognised as an expense over the vesting period with a corresponding increase in the share-
based payments reserve in equity. The fair value of ordinary shares issued to satisfy the obligation to employees
is measured at grant date and is recognised as a separate component of equity.
Employee share plan (ESP)
The value of shares expected to be allocated to employees for nil consideration is recognised as an expense over
the financial year and provided for as other employee benefits. The fair value of any ordinary shares issued to
satisfy the obligation to employees is recognised in equity. Alternatively, shares may be purchased on market to
satisfy the obligation to employees.
Scheme name
Westpac Long Term Variable
Reward Plan (LTVR)
Type of share-
based payment
Share rights (allocated at no
cost).
Westpac Performance Plan (WPP)
Share rights (allocated at no cost).
How it is used
Aligns executive remuneration
and accountability with
shareholder interests over the
long term.
Primarily used for mandatory
deferral of a portion of
short-term incentives for New
Zealand employees and key
employees based outside Australia.
Restricted Share Plan
(RSP)
Employee Share Plan
(ESP)
Westpac ordinary
shares (allocated at no
cost).
Primarily used to
reward key employees.
Westpac ordinary
shares (allocated
at no cost) of
up to $1,000 per
employee per year.
To reward eligible
Australian
employees (unless
they have already
been provided
instruments under
another scheme for
the previous year).
Shares rights
Nil
Nil
n/a
n/a
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
300
Notes to the financial statements
Note 33. Share-based payments (continued)
Westpac Performance Plan (WPP)
Restricted Share Plan
(RSP)
Employee Share Plan
(ESP)
None
None
None
Scheme name
Performance
hurdles
Westpac Long Term Variable
Reward Plan (LTVR)
Relative Total Shareholder
return (TSR) over a four year
performance period and
average cash Return on Equity
(cash ROE) over a three year
performance period plus
one year holding lock, each
applying to half of the award
(commencing with the 2016
LTVR award)1.
Service conditions Continued employment
throughout the vesting period
or as determined by the Board.
Continued employment throughout
the vesting period or as determined
by the Board.
Continued employment
throughout the
restriction period or
as determined by the
Board.
Shares must
normally remain
within the ESP for
three years from
granting unless the
employee leaves
Westpac.
Vesting period
(period over
which expenses
are recognised)
4 years1
Defined period set out at time of
grant.
Defined period set out
at time of grant.
1 year
Treatment at end
of term
Automatically exercised at the
end of the term.
Automatically exercised at the end
of the term.
Vested shares are
released from the
RSP at the end of the
vesting period.
Shares are released
at the end of the
restriction period or
when the employee
leaves Westpac.
No
Does the
employee receive
dividends and
voting rights
during the vesting
period?
No
Yes
Yes
Each share-based payment scheme is quantified below:
(i) Westpac Long Term Variable Reward Plan (LTVR)
2020
Share rights
Outstanding at
1 October 2019
Granted during
the year
Exercised
during the year
Lapsed during
the year
Outstanding at
30 September 2020
Outstanding
and exercisable at
30 September 2020
4,554,589
779,581
-
2,267,844
3,066,326
3,719
Weighted average remaining
contractual life
2019
Share options
Weighted average exercise
price
12.3 years
1 October 2018
52,350
$23.40
12.4 years
30 September 2019
-
-
37,831
14,519
$23.40
-
-
-
-
-
Share rights
4,712,843
1,169,704
-
1,327,958
4,554,589
3,719
The weighted average fair value at grant date of LTVR share rights issued during the year was $28.44
(2019: $15.62).
1.
1.
For the 2015 LTVR awards, the relative TSR is subject to a four year performance period and cash EPS compound annual growth rate
For the 2015 LTVR awards, the relative TSR is subject to a four year performance period and cash EPS compound annual growth rate
(CAGR) over a three year performance period plus one year holding lock. For awards granted for the periods 2011 to 2014 both the
(CAGR) over a three year performance period plus one year holding lock. For awards granted for the periods 2011 to 2014 both the
relative TSR and cash EPS CAGR hurdles are subject to a three year performance and vesting period.
relative TSR and cash EPS CAGR hurdles are subject to a three year performance and vesting period.
WESTPAC GROUP 2020 ANNUAL REPORT 301
Notes to the financial statements
Note 33. Share-based payments (continued)
(ii) Westpac Performance Plan (WPP)
2020
Share rights
Outstanding at
1 October 2019
Granted during
the year
Exercised
during the year
Lapsed during
the year
Outstanding at
30 September 2020
Outstanding
and exercisable at
30 September 2020
One-year vesting period
Two-year vesting period
Three-year vesting period
197,888
289,909
95,249
120,562
113,649
18,357
Four-year vesting period
203,420
186,290
75,417
79,568
20,972
-
Total share rights
786,466
438,858
175,957
36,792
31,049
15,786
8,605
92,232
206,241
292,941
76,848
381,105
957,135
90,451
55,846
17,922
-
164,219
Weighted average
remaining contractual life
2019
Share rights
12.8 years
1 October 2018
12.8 years
30 September 2019
673,889
385,646
184,043
89,026
786,466
130,946
The weighted average fair value at grant date of WPP share rights issued during the year was $24.68
(2019: $23.08).
(iii) Restricted Share Plan (RSP)
Allocation date
Total 2020
Total 2019
Outstanding at
1 October 2019
Granted during
the year
Released
Forfeited
during the year
Outstanding at
30 September 2020
4,773,171
2,100,030
2,081,545
402,495
4,189,644
2,861,262
2,214,509
63,226
4,389,161
4,773,171
The weighted average fair value at grant date of RSP shares issued during the year was $23.88 (2019: $25.20).
(iv) Employee Share Plan (ESP)
Allocation
Number of
Average
number
of shares
allocated per
Total number
of shares
Market
date
participants
participant
allocated
price per share1
Total
fair value
2020
2019
21 November 2019
23 November 2018
25,725
27,245
38
39
977,550
1,062,555
$26.20
$25,611,810
$25.35
$26,935,769
The 2019 ESP award was satisfied through the purchase of shares on market.
The liability accrued for the ESP at 30 September 2020 is $28 million (2019: $26 million) and is provided for as
other employee benefits.
(v) Other plans
Westpac also provides plans for small, specialised parts of the Group. The benefits under these plans are directly
linked to growth and performance of the relevant part of the business. The plans, individually and in aggregate, are
not material to the Group in terms of expenses and dilution of earnings.
The names of all persons who hold share options and/or rights currently on issue are entered in Westpac’s register
of option holders which may be inspected at Link Market Services, Level 12, 680 George Street, Sydney, New South
Wales.
(vi) Fair value assumptions
The fair values of share rights have been independently calculated at their respective grant dates.
The fair value of share rights with performance targets based on relative TSR takes into account the average TSR
outcome determined using a Monte Carlo simulation pricing model.
The fair values of share rights without TSR based performance targets (i.e. share rights with cash EPS CAGR,
economic profit and cash ROE performance targets) have been determined with reference to the share price at
grant date and a discount rate reflecting the expected dividend yield over their vesting periods.
Other significant assumptions include:
•
•
•
•
a risk free rate of return of 0.8%, applied to TSR-hurdled grants;
a dividend yield on Westpac shares of 6.5%, applied to TSR and ROE-hurdled grants;
volatility in Westpac’s TSR of 21%, applied to TSR-hurdled grants; and
volatilities of, and correlation factors between, TSR of the comparator group and Westpac for TSR-hurdled grants.
1.
The market price per share for the allocation is based on the five day volume-weighted average price up to the grant date.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
302
Notes to the financial statements
Note 34. Superannuation commitments
Accounting policy
The Group recognises an asset or a liability for its defined benefit schemes, being the net of the defined benefit
obligations and the fair value of the schemes’ assets. The defined benefit obligation is calculated as the present
value of the estimated future cash flows, discounted using high-quality long dated corporate bond rates.
The superannuation expense is recognised in operating expenses and remeasurements are recognised through
OCI.
Critical accounting assumptions and estimates
The actuarial valuation of plan obligations is dependent upon a series of assumptions, principally price
inflation, salary growth, mortality, morbidity, discount rate and investment returns. Different assumptions could
significantly alter the valuation of the plan assets and obligations and the resulting remeasurement recognised in
OCI and the superannuation cost recognised in the income statement.
Westpac had the following defined benefit plans at 30 September 2020:
Name of plan
Type
Form of benefit
Date of last actuarial assessment of
the funding status
Westpac Group Plan (WGP)
Defined benefit and
accumulation
Westpac New Zealand Superannuation
Scheme (WNZS)1
Defined benefit and
accumulation
Indexed pension and lump sum
30 June 2018
Indexed pension and lump sum
30 June 2017
Westpac Banking Corporation UK
Defined benefit
Indexed pension and lump sum
5 April 2018
Staff Superannuation Scheme (UKSS)
Westpac UK Medical Benefits Scheme
Defined benefit
Medical benefits
n/a
The defined benefit sections of the schemes are closed to new members. The Group has no obligation beyond the
annual contributions for the accumulation or defined contribution sections of the schemes.
The WGP is the Group’s principal defined benefit plan and is managed and administered in accordance with the
terms of its trust deed and relevant legislation in Australia. Its defined benefit liabilities are based on salary and
length of membership for active members and inflation in the case of pensioners.
The defined benefit schemes expose the Group to the following risks:
•
•
•
•
•
discount rate – reductions in the discount rate would increase the present value of the future payments;
inflation rate – increases in the inflation rate would increase the payments to pensioners;
investment risk – lower investment returns would increase the contributions needed to offset the shortfall;
mortality risk – members may live longer than expected extending the cash flows payable by the Group;
behavioural risk – higher proportion of members taking some of their benefits as a pension rather than a lump
sum would increase the cash flows payable by the Group; and
•
legislative risk – legislative changes could be made which increase the cost of providing defined benefits.
Investment risk is managed by setting benchmarks for the allocation of plan assets between asset classes. The
long-term investment strategy will often adopt relatively high levels of equity investment in order to:
•
•
secure attractive long term investment returns; and
provide an opportunity for capital appreciation and dividend growth, which gives some protection against inflation.
Funding recommendations for the WGP, WNZS and the UKSS are made based on triennial actuarial valuations. The
funding valuation of the defined benefit plans are based on different assumptions to the calculation of the defined
benefit surplus/deficit for accounting purposes. Based on the most recent valuations, the defined benefit plan
assets are adequate to cover the present value of the accrued benefits of all members with a combined surplus of
$154 million (2019: $158 million). Current contribution rates are as follows:
•
•
•
WGP – contributions are made to the WGP at the rate of 12.1% of members’ salaries;
WNZS – contributions are made to the WNZS at the rate of 17% of members’ salaries; and
UKSS – not required to make contributions under the 2018 actuarial assessment.
Contributions
$m
Employer contributions
Member contributions
Consolidated
2020
26
10
2019
28
11
Parent Entity
2020
26
10
2019
27
11
Expected employer contributions for the year ended 30 September 2021 are $25 million.
1.
The 30 June 2020 actuarial assessment of the funding status of the WNZS will be available by January 2021. Where applicable, the
30 June 2020 interim valuation data has been used.
WESTPAC GROUP 2020 ANNUAL REPORT Notes to the financial statements
Note 34. Superannuation commitments (continued)
Expense recognised
$m
Current service cost
Net interest cost on net benefit liability
Total defined benefit expense
Defined benefit balances recognised
$m
Benefit obligation at end of the year
Fair value of plan assets at end of the year
Net surplus/(deficit)
Defined benefit surplus1
Defined benefit deficit2
Net surplus/(deficit)
303
Consolidated
2019
2020
44
8
52
33
(2)
31
2018
37
1
38
Parent Entity
2020
2019
43
8
51
32
(2)
30
Consolidated
2020
2019
Parent Entity
2020
2019
2,880
2,350
(530)
71
(601)
(530)
2,799
2,464
(335)
73
(408)
(335)
2,790
2,295
(495)
71
(566)
(495)
2,710
2,405
(305)
73
(378)
(305)
The average duration of the defined benefit obligation is 14 years (2019: 14 years).
Significant assumptions
Consolidated and Parent Entity
Discount rate
Salary increases
Inflation rate (pensioners received inflationary increase)
Life expectancy of a 60-year-old male
Life expectancy of a 60-year-old female
2020
2019
Australian
funds
Overseas
funds
Australian
funds
Overseas
funds
2.6%
0.7%-1.5%
2.6%
1.1%-1.8%
2.7% 3.0%-4.6%
2.4% 3.0%-4.9%
1.7% 2.0% - 3.1%
1.4% 2.0%-3.4%
31.3
28.1-28.2
31.1
27.9-28.1
34.2
29.5-29.6
34.0
29.3-29.5
Sensitivity to changes in significant assumptions
The following table shows the impact of changes in assumptions on the defined benefit obligation for the WGP. No
reasonably possible changes in the assumptions of the Group’s other defined benefit plans would have a material
impact on the defined benefit obligation.
$m
0.5% decrease in discount rate
0.5% increase in annual salary increases
0.5% increase in inflation rate (pensioners receive inflationary increases)
1 year increase in life expectancy
Asset allocation
$m
Cash
Equity instruments
Debt instruments
Property
Other assets
Total
Increase in obligation
2020
230
19
201
68
2019
205
14
188
45
2020
2019
Australian
funds
Overseas
funds
Australian
funds
Overseas
funds
6%
45%
25%
8%
16%
100%
1%
9%
4%
1%
85%
100%
3%
45%
28%
10%
14%
100%
3%
7%
5%
1%
84%
100%
Equity and debt instruments are mainly quoted assets while property and other assets are mainly unquoted. Other
assets include infrastructure funds and private equity funds.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1.
2.
The defined benefit surplus is recognised in other assets.
The defined benefit deficit is recognised in other liabilities.
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
304
Notes to the financial statements
OTHER
Note 35. Auditor’s remuneration
The fees payable to the auditor, PricewaterhouseCoopers (PwC), and overseas firms belonging to the PwC network
of firms were:
$’000
Audit and audit-related fees
Audit fees
PwC Australia
Overseas PwC network firms
Total audit fees
Audit-related fees
PwC Australia
Overseas PwC network firms
Total audit-related fees
Total audit and audit-related fees
Tax fees
PwC Australia
Total tax fees
Other fees
PwC Australia
Overseas PwC network firms
Total other fees
Total audit and non-audit fees
Consolidated
2020
2019
Parent Entity
2020
2019
27,667
28,153
27,667
28,025
5,295
3,216
705
321
32,962
31,369
28,372
28,346
4,404
3,569
4,404
3,418
107
128
-
2
4,511
3,697
4,404
3,420
37,473
35,066
32,776
31,766
57
57
-
-
-
53
53
70
502
572
57
57
-
-
-
53
53
70
502
572
37,530
35,691
32,833
32,391
Fees payable to the auditor have been categorised as follows:
Audit
The year end audit, half-year review and comfort letters associated with debt issues and
capital raisings.
Audit-related
Consultations regarding accounting standards and reporting requirements, regulatory
compliance reviews and assurance related to debt and capital offerings.
Tax
Other
Tax compliance and tax advisory services.
Various services including systems assurance, compliance advice and controls reviews.
It is Westpac’s policy to engage PwC on assignments additional to their statutory audit duties only if their
independence is not impaired or seen to be impaired and where their expertise and experience with Westpac is
important. All services were approved by the Board Audit Committee in accordance with Westpac’s Pre-Approval
of Engagement of PricewaterhouseCoopers for Audit or Non-Audit Services Policy.
PwC also received fees of $6.1 million (2019: $7.5 million) for various entities which are related to Westpac but not
consolidated. These non-consolidated entities include entities sponsored by the Group, trusts of which a Westpac
Group entity is trustee, manager or responsible entity, superannuation funds and pension funds.
WESTPAC GROUP 2020 ANNUAL REPORT 305
Notes to the financial statements
Note 36. Related party disclosures
Related parties
Westpac’s related parties are those it controls or can exert significant influence over. Examples include subsidiaries,
associates, joint ventures and superannuation plans as well as key management personnel and their related parties.
Key management personnel (KMP)
Key management personnel are those who, directly or indirectly, have authority and responsibility for planning,
directing and controlling the activities of Westpac. This includes all Executives and Non-Executive Directors.
Parent Entity
Westpac Banking Corporation is the ultimate parent company of the Group.
Subsidiaries - Note 31
The Parent Entity has the following related party transactions and balances with subsidiaries:
Type of transaction/balance
Balances due to/from subsidiaries
Details disclosed in
Balance Sheet
Dividend income/Transactions with subsidiaries
Interest income and Interest expense
Tax consolidated group transactions and undertakings
Guarantees and undertakings
Note 4
Note 3
Note 7
Note 27
The balances due to/from subsidiaries include a wide range of banking and other financial facilities.
The terms and conditions of related party transactions between the Parent Entity and subsidiaries are sometimes
different to commercial terms and conditions. Related party transactions between the Parent Entity and
subsidiaries eliminate on consolidation.
Associates - Note 31
The Group provides a wide range of banking and other financial facilities and funds management activities to its
associates on commercial terms and conditions.
Superannuation plans
The Group contributed $361 million (2019: $347 million) to defined contribution plans and $26 million
(2019: $28 million) to defined benefit plans. Refer to Note 34.
Remuneration of KMP
Total remuneration of the KMP was:
$
Consolidated
2020
2019
Parent Entity
2020
2019
Short-term
benefits
Post
employment
benefits
Other long-
term
benefits
Termination
benefits
Share-based
payments
Total
22,759,397
967,898
657,375
1,176,487
3,748,106
29,309,263
23,805,197
712,883
36,572
558,984
20,691,480
45,805,116
21,766,691
873,350
657,375
1,176,487
3,035,423
27,509,326
22,515,477
625,173
36,572
558,984
19,783,900
43,520,106
Other transactions with KMP
KMP receive personal banking and financial investment services from the Group in the ordinary course of business.
The terms and conditions, for example interest rates and collateral, and the risks to Westpac are comparable to
transactions with other employees and did not involve more than the normal risk of repayment or present other
unfavourable features.
Details of loans provided and the related interest charged to KMP and their related parties are as follows:
$
2020
2019
Interest
payable for
the year
Closing loan
balance
Number of
KMP with
loans
549,257
15,779,157
672,167
31,718,007
8
14
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
306
Notes to the financial statements
Note 36. Related party disclosures (continued)
Options and share rights holdings
For compliance with SEC disclosure requirements, the following table sets out certain details of the performance
options, performance share rights and unhurdled share rights held at 30 September 2020 by the CEO and other
key management personnel (including their related parties):
Managing Director & Chief Executive Officer
Peter King
Group Executives
Rebecca Lim1
Guilherme Lima
Carolyn McCann
David McLean
Christine Parker
Michael Rowland
David Stephen
Gary Thursby
Les Vance
Jason Yetton
Acting Group Executives
Richard Burton
Alastair Welsh
Curt Zuber
Former Group Executive
Brian Hartzer
Craig Bright
Lyn Cobley
David Lindberg
Latest Date of Exercise
Number of
Share Rights
Ranges from 1 October 2031 to 1 October 2034
346,795
Ranges from 1 October 2031 to 1 October 2034
1 October 2034
Ranges from 1 October 2032 to 2 April 2035
Ranges from 1 October 2022 to 1 October 2034
Ranges from 1 October 2031 to 1 October 2034
n/a
Ranges from 1 October 2032 to 1 October 2034
Ranges from 1 October 2031 to 1 October 2034
2 April 2035
2 April 2035
n/a
n/a
n/a
n/a
n/a
Ranges from 1 October 2031 to 1 October 2034
n/a
220,403
57,819
102,207
382,588
252,231
-
364,381
250,336
22,227
54,213
-
-
-
-
-
319,631
-
The Group has not issued any options during the year and there are no outstanding options as at 30 September 2020.
1.
Rebecca Lim was the Group Executive, Legal & Secretariat until 16 December 2019 when she was appointed Enterprise Legal Counsel
focusing on AUSTRAC matters. Rebecca Lim resumed her Group General Counsel role when she was appointed the Group General
Counsel & Enterprise Executive on 18 May 2020.
WESTPAC GROUP 2020 ANNUAL REPORT 307
Notes to the financial statements
Note 37. Notes to the cash flow statements
Accounting policy
Cash and balances with central banks include cash held at branches and in ATMs, balances with overseas banks
in their local currency and balances with central banks including accounts with the RBA and accounts with
overseas central banks.
Reconciliation of net cash provided by/(used in) operating activities to net profit for the year is set out below:
$m
Net profit for the year
Adjustments:
Depreciation, amortisation and impairment
Impairment charges
Net decrease/(increase) in current and deferred tax
(Increase)/decrease in accrued interest receivable
(Decrease)/increase in accrued interest payable
(Decrease)/increase in provisions
Other non-cash items
Cash flows from operating activities before changes in operating
assets and liabilities
Net (increase)/decrease in derivative financial instruments
Net (increase)/decrease in life insurance assets and liabilities
(Increase)/decrease in other operating assets:
Consolidated
2019
2020
2018
Parent Entity
2020
2,292
6,790
8,099
2,658
2,473
3,371
(1,112)
239
(1,260)
1,925
(693)
7,235
1,851
(277)
1,079
966
(541)
132
(341)
1,143
(832)
1,144
889
(96)
(83)
241
289
332
8,396
7,605
10,815
8,584
(134)
(230)
2,142
2,864
(937)
208
(1,143)
2,003
(1,114)
6,681
2,103
-
Collateral paid
348
(847)
969
329
Trading securities and other financial assets measured at FVIS
(8,756)
(7,629)
3,492
(8,266)
Loans
Other financial assets
Other assets
(Decrease)/increase in other operating liabilities:
Collateral received
Deposits and other borrowings
Other financial liabilities
Other liabilities
18,272
(4,188)
(24,740)
21,273
273
70
336
(13)
859
10
283
50
(1,096)
1,007
(295)
(1,072)
1,004
28,910
1,113
23,928
20,859
11,817
1,463
(3,632)
11,866
4
(5)
10
(7)
963
1,555
(24)
Net cash provided by/(used in) operating activities
58,651
7,104
19,770
54,099
7,891
2019
7,121
1,082
893
(804)
98
(321)
1,214
(329)
8,954
6,581
-
(755)
(7,358)
(3,312)
324
(41)
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
308
Notes to the financial statements
Note 37. Notes to the cash flow statements (continued)
Details of the assets and liabilities over which control ceased
Details of the entities over which control ceased are provided in Note 31.
$m
Assets:
Cash and balances with central banks
Trading securities and other financial assets measured at FVIS
Property and equipment
Deferred tax assets
Intangible assets
Other financial assets
Total assets
Liabilities:
Provisions
Other liabilities
Total liabilities
Total equity attributable to owners of WBC
Cash proceeds received (net of transaction costs)
Total consideration
Reserves recycled to income statement
Gain/(loss) on disposal
Reconciliation of cash proceeds from disposal:
Cash proceeds received (net of transaction costs)
Less: Cash deconsolidated
Cash consideration (paid)/received (net of transaction costs and cash
held)
Non-cash financing activities
$m
Shares issued under the dividend reinvestment plan
Shares issued from the conversation of Westpac CPS
Increase in lease liabilities
Consolidated
2019
2020
2018
Parent Entity
2020
2019
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
3
-
-
-
3
9
-
-
-
9
2
2
10
3
2
(3)
(1)
10
-
2
4
15
5
36
2
3
5
31
19
19
3
(9)
19
(10)
9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Consolidated
2019
1,489
-
-
2020
273
-
177
2018
631
566
-
Parent Entity
2020
273
-
173
2019
1,489
-
-
On 13 March 2018, $623 million of CPS were transferred to the Westpac CPS nominated party for $100 each
pursuant to the Westpac Capital Notes 5 reinvestment offer. Those CPS were subsequently bought back and
cancelled by Westpac. On 3 April 2018, the remaining $566 million of CPS were transferred to the Westpac
CPS nominated party for $100 each. Following the transfer, those remaining CPS were converted into 19,189,765
ordinary shares.
Restricted cash
Certain of our foreign operations are required to maintain reserves or minimum balances with central banks in
their respective countries of operation, totalling $457 million (2019: $330 million) for the Group and $380 million
(2019: $224 million) for the Parent Entity which are included in cash and balances with central banks.
WESTPAC GROUP 2020 ANNUAL REPORT 309
Notes to the financial statements
Note 38. Subsequent events
Since 30 September 2020, the Board has determined to pay a fully franked final dividend of 31 cents per fully
paid ordinary share. The dividend is expected to be $1,120 million. The dividend is not recognised as a liability at
30 September 2020. The proposed payment date of the dividend is 18 December 2020.
The Board has determined to issue shares to satisfy the Dividend Reinvestment Plan (DRP) for the 2020 final
ordinary dividend. The DRP will include a 1.5% discount to the market price used to determine the number of shares
issued under the DRP. The market price used to determine the number of shares issued under the DRP will be set
over the 15 trading days commencing 17 November 2020.
Subsequent to the end of the financial year the Group’s General Insurance business met the criteria to be classified
as held for sale. The General Insurance business currently forms part of the Specialist Businesses segment.
Completion of the expected sale would have no material impact on the Group.
No other matters have arisen since the year ended 30 September 2020 which are not otherwise dealt with in this
report, that have significantly affected or may significantly affect the operations of the Group, the results of its
operations or the state of affairs of the Group in subsequent periods.
Note 39. Accounting polices relating to years prior to 2019
Due to the Group’s adoption of AASB 9 in 2019, the accounting policies relating to some financial instruments and
related balances have changed. The policies applicable to 2020 and 2019 are provided in the relevant note to the
financial statements above. As comparative years prior to 2019 were not restated, the accounting policies detailed
below reflect the policies applicable to financial years prior to 2019 based on AASB 139.
Accounting policy relating to impairment (Note 6 and Note 13)
Impairment charges (Note 6)
At each balance sheet date, the Group assesses whether there is any objective evidence of impairment of its
loan portfolio. An impairment charge is recognised if there is objective evidence that the principal or interest
repayments may not be recoverable and when the financial impact of the non-recoverable loan can be reliably
measured.
Objective evidence of impairment could include a breach of contract with the Group such as a default on
interest or principal payments, a borrower experiencing significant financial difficulties or observable economic
conditions that correlate to defaults on a group of loans.
The impairment charge is measured as the difference between the loan’s current carrying amount and the
present value of its estimated future cash flows. The estimated future cash flows exclude any expected future
credit losses which have not yet occurred and are discounted to their present value using the loan’s original
effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment is the
current effective interest rate.
The impairment charge is recognised in the income statement with a corresponding reduction of the carrying
value of the loan through an offsetting provision account (refer to Note 13).
In subsequent periods, objective evidence may indicate that an impairment charge should be reversed. Objective
evidence could include a borrower’s credit rating or financial circumstances improving. The impairment charge is
reversed in the income statement of that future period and the related provision for impairment is reduced.
Uncollectable loans
The policy for uncollectable loans is consistent with that applicable to 2020 and 2019 based on AASB 9.
Provision for impairment charges (Note 13)
The Group recognises two types of impairment provisions for its loans, being provisions for loans which are:
•
•
individually assessed for impairment; and
collectively assessed for impairment.
The Group assesses impairment as follows:
•
•
individually for loans that exceed specified thresholds. Where there is objective evidence of impairment,
individually assessed provisions will be recognised; and
collectively for loans below the specified thresholds noted above or if there is no objective evidence of
impairment. These loans are included in a group of loans with similar risk characteristics and collectively
assessed for impairment. If there is objective evidence that the group of loans is collectively impaired,
collectively assessed provisions will be recognised.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
310
Notes to the financial statements
Note 39. Accounting polices relating to prior years (continued)
Critical accounting assumptions and estimates
The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to
reduce differences between impairment provisions and actual loss experience.
Individual component
Key judgements include the business prospects for the customer, the realisable value of collateral, the Group’s
position relative to other claimants, the reliability of customer information and the likely cost and duration of
recovering the loan.
Judgements can change with time as new information becomes available or as loan recovery strategies evolve,
which may result in revisions to the impairment provision.
Collective component
Collective provisions are established on a portfolio basis taking into account the level of arrears, collateral and
security, past loss experience, current economic conditions, expected default and timing of recovery based on
portfolio trends.
Key judgements include estimated loss rates and their related emergence periods. The emergence period for
each loan type is determined through studies of loss emergence patterns. Loan files are reviewed to identify the
average time period between observable loss indicator events and the loss becoming identifiable.
Actual credit losses may differ materially from reported loan impairment provisions due to uncertainties including
interest rates and their effect on consumer spending, unemployment levels, payment behaviour and bankruptcy
rates.
Accounting policy relating to classification and measurement of financial instruments (Policy prior to
Note 10, Note 11 and Note 12)
Classification and measurement of financial assets and financial liabilities (Policy prior to Note 10)
The Group classifies its financial assets in the following categories: cash and balances with central banks,
receivables due from financial institutions, trading securities and financial assets designated at fair value,
derivative financial instruments, available-for-sale securities, loans, life insurance assets and regulatory deposits
with central banks overseas. The Group has not classified any of its financial assets as held-to-maturity
investments.
The Group classifies significant financial liabilities in the following categories: payables due to other financial
institutions, deposits and other borrowings, other financial liabilities at fair value through income statement,
derivative financial instruments, debt issues and loan capital.
Financial assets and financial liabilities measured at fair value through income statement are recognised initially
at fair value. All other financial assets and financial liabilities are recognised initially at fair value plus directly
attributable transaction costs.
Available-for-sale securities (Note 11)
Available-for-sale debt securities (government and other) and equity securities are held at fair value with
gains and losses recognised in OCI except for interest on debt securities, dividends on equity securities, and
impairment charges which are recognised in the income statement.
The cumulative gain or loss recognised in OCI is subsequently recognised in the income statement when the
instrument is disposed.
At each reporting date, the Group assesses whether any available-for-sale securities are impaired. Impairment
exists if one or more events have occurred which have a negative impact on the security’s estimated cash flows.
For debt instruments, evidence of impairment includes significant financial difficulties or adverse changes in
the payment status of an issuer. For equity securities, a significant or prolonged decline in the fair value of the
security below its cost is considered evidence of impairment.
If impairment exists, the cumulative loss is removed from OCI and recognised in the income statement. Any
subsequent reversals of impairment on debt securities are also recognised in the income statement. Subsequent
reversal of impairment charges on equity instruments is not recognised in the income statement until the
instrument is disposed.
Loans (Note 12)
Loans are financial assets initially recognised at fair value plus directly attributable transaction costs and fees.
Loans are subsequently measured at amortised cost using the effective interest rate method and are presented
net of any provision for impairment charges except for a portfolio of loans which are subsequently measured at
fair value to reduce an accounting mismatch.
WESTPAC GROUP 2020 ANNUAL REPORT Statutory statements
311
Statutory statements
Directors’ declaration
In the Directors’ opinion:
(a) the financial statements and notes set out in ‘Section 3 – Financial report for the year ended
30 September 2020 are in accordance with the Corporations Act 2001, including:
(i) complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements; and
(ii) giving a true and fair view of Westpac Banking Corporation and the Group’s financial position as at
30 September 2020 and of their performance for the financial year ended on that date; and
(b) there are reasonable grounds to believe that Westpac will be able to pay its debts as and when they become
due and payable.
Note 1 (a) includes a statement that the financial report also complies with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
The Directors have been given the declaration by the Chief Executive Officer and the Chief Financial Officer
required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
For and on behalf of the Board.
John McFarlane
Chairman
Sydney
1 November 2020
Peter King
Managing Director & Chief Executive
Officer
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
312
Statutory statements
Independent auditor’s report
To the members of Westpac Banking Corporation
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Westpac Banking Corporation (the Parent Entity) and its controlled
entities (together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Parent Entity’s and the Group's financial positions as at 30 September
2020 and of their financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Parent Entity and Group financial report comprises:
•
•
•
•
•
•
•
the Consolidated and Parent Entity balance sheets as at 30 September 2020
the Consolidated and Parent Entity income statements for the year then ended
the Consolidated and Parent Entity statements of comprehensive income for the year then ended
the Consolidated and Parent Entity statements of changes in equity for the year thenended
the Consolidated and Parent Entity cash flow statements for the year then ended
the notes to the financial statements, which include a summary of critical accounting policies
the directors' declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the audit of the financial report section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the Parent Entity and the Group in accordance with the auditor independence
requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (including Independence
Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled
our other ethical responsibilities in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
WESTPAC GROUP 2020 ANNUAL REPORT PricewaterhouseCoopers, ABN 52 780 433 757 One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. ● ● ● ● ● ● ● Statutory statements
313
Our audit approach for the Group
An audit is designed to provide reasonable assurance about whether the financial report is free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis
of the financial report.
Materiality for the Group audit
•
•
•
•
For the purpose of our audit we used overall materiality of $350 million, which represents
approximately 5% of the Parent Entity's weighted average profit before tax.
We applied this threshold, together with qualitative considerations, to determine the scope of our
audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements on the financial report as a whole.
We chose profit before tax because, in our view, it is the benchmark against which performance is
most commonly measured. Due to fluctuations in profit and loss from year to year, we chose a
weighted three year average.
We utilised approximately a 5% threshold based on our professional judgement, noting it is within
the range of commonly acceptable thresholds.
Audit Scope for the Group audit
•
•
•
•
Our audit focused on where the Group made subjective judgements; for example, critical
accounting estimates involving assumptions and inherently uncertain future events.
We tailored the scope of our audit to determine that we performed enough work to be able to
give an opinion on the financial report as a whole, taking into account the following factors: the
geographic and management structure of the Group; the significance and risk profile of each
division within the Group; the Group's accounting processes and controls; and the financial
services industry and broader economies in which the Group operates. We also determined that
the audit team included the appropriate skills and competencies which are needed for the audit of
a complex banking group. This included industry expertise in consumer, business and institutional
banking and wealth management services, as well as specialists and experts in IT, actuarial, tax and
valuation.
We conducted an audit of the most financially significant components, being the Consumer,
Business and Westpac Institutional Bank divisions. For the purpose of our audit, the Group's
treasury operations are included in the Westpac Institutional Bank division, given the commonality
in systems and controls. In addition, we performed audit procedures over specified financial
statement line items in relation to the Westpac New Zealand division, the Specialist Businesses
Division, and the Group Businesses.
Further audit procedures were performed over the remaining balances and the consolidation
process, including substantive and analytical procedures. The work carried out in these divisions,
together with those additional procedures performed at the Group level, gave us sufficient
coverage to express an opinion on the financial report as a whole.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE 2 ● ● ● ● ● ● ● ●
314
Statutory statements
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the financial report for the current period. The key audit matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in
that context. We communicated the key audit matters to the Board Audit Committee. The key audit matters
identified below relate to both the Parent Entity and the Group audit.
Key audit matter
How our audit addressed the key audit matter
Our audit procedures included testing the
effectiveness of controls relating to the Group's
ECL estimation process, which included controls
over the data, model and assumptions used in
determining the provision for ECL as well as IT
general controls related to user access for the
relevant IT systems.
These procedures also included, among others:
(i) the involvement of professionals with specialised
skill and knowledge to assist in testing the Group's
process for determining the provision for ECL by
evaluating the appropriateness of the models and
the reasonableness of the assumptions,
(ii) testing the accuracy and completeness of
selected critical data elements that are inputs used
in the ECL model,
(iii) testing the reasonableness of overlay
adjustments to the ECL. and
(iv) testing of the user access to relevant IT
systems used in determining the provision for ECL.
Provision for expected credit losses on loans and
credit commitments
As described in Note 13 to the financial statements, the
provision for expected credit losses on loans and credit
commitments (ECL) was $6,132 million for the Group
and $5,172 million for the Parent Entity at 30
September 2020.
ECL are a probability-weighted estimate of the cash
shortfalls expected to result from defaults over the
relevant timeframe determined by evaluating a range
of possible outcomes and taking into account the time
value of money, past events, current conditions and
forecasts of future economic conditions. The Group's
model to determine the ECL includes significant
judgement in assumptions used to determine when a
significant increase in credit risk (SICR) has occurred,
estimating forward looking macroeconomic scenarios
(MES), applying a probability weighting to different
scenarios and identifying and calculating adjustments
to model output (overlays). The economic uncertainty
has increased the impact of certain judgements made
by the Group, specifically relating to forward-looking
assumptions applied to the probability of default of
individual customers and the associated
macroeconomic scenarios that are applied across the
Group's portfolio. Where customers have been granted
payment deferrals, their loans have not been deemed
to be delinquent, and as a result, the Group have
applied additional judgements related to the likelihood
borrowers with certain characteristics have resulted in
SICR. There is also a significant volume of data used in
the ECL model, which is sourced from relevant IT
systems.
The principal considerations for our determination that
performing procedures relating to the provision for
ECL is a key audit matter are:
(i)
there was significant judgement and effort
in evaluating audit evidence related to the
model and
WESTPAC GROUP 2020 ANNUAL REPORT 3 Statutory statements
315
Key audit matter
How our audit addressed the key audit matter
assumptions used to determine the provision for ECL
on loans,
(ii) there was significant judgement and effort in
evaluating audit evidence related to the identification
and calculation of overlay adjustments to the ECL due
to the impacts of current conditions and forecasts of
future economic conditions,
(iii) the nature and extent of audit testing related to
critical data elements used in the model,
(iv) the audit effort involved the use of professionals
with specialised skill and knowledge, and
(v) the nature and extent of audit testing related to
user access for the relevant IT systems used in
determining the provision for ECL.
Provisions and contingent liabilities
As described in Note 27 to the financial statements, the
compliance, regulation and remediation provisions
were $1,895 million for the Group and $1,818 million for
the Parent Entity at 30 September 2020. Litigation and
non-lending loss provisions were $1,371 million for the
Group and $1,343 million for the Parent Entity at 30
September 2020. We collectively referred to these as
the "provisions".
The compliance, regulation and remediation provisions
relate to matters of potential misconduct in providing
services to customers identified as a result of
regulatory action and internal reviews. An assessment
of the likely cost to the Group of these matters
(including applicable customer refunds) is made on a
case-by-case basis and specific provisions or
disclosures are made where the Group considers
appropriate. Litigation and non-lending loss provisions
primarily relate to a civil penalty of $1.3 billion in
relation to the admitted contraventions of the
AML/CTF Act from the AUSTRAC proceeding which
was agreed by the Federal Court of Australia.
Disclosures are also made in Note 27 for contingent
(abilities for possible obligations whose existence will
be confirmed only by uncertain future events, and
present obligations where the transfer of economic
resources is not probable or cannot be reliably
estimated.
Our procedures included testing the effectiveness
of controls relating to the Group's evaluation of
provisions to determine whether a present
obligation with a probable outflow exists and can
be reliably estimated. For contingent liabilities,
these procedures also included testing the
effectiveness of controls relating to the Group's
evaluation, including controls over determining
whether or not it is possible that a loss has
occurred or whether there is a probable outflow
from a present obligation.
These procedures also included, among others
evaluating the evidence of the quantification of
provisions and the assumptions applied and
assessing the appropriateness of disclosures.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE 4
316
Statutory statements
Key audit matter
How our audit addressed the key audit matter
The principal considerations for our determination that
performing procedures relating to the provisions and
contingent liabilities is a key audit matter were that
there was significant judgement by the Group to
quantify the provisions which included assumptions
related to the probability of loss and the timing, nature
and quantum of related cash outflows. This in turn led
to a high degree of auditor subjectivity and effort in
performing procedures and evaluating audit evidence
related to the provisions and key assumptions and in
evaluating the appropriateness of the related
disclosure.
Impairment of goodwill
As described in Note 25 to the financial statements,
the goodwill balance was $8,397 million for the Group
and $6,728 million for the Parent Entity at 30
September 2020.
The Group conducts an annual impairment
assessment, or more frequently if events or
circumstances indicate that the carrying value of
goodwill may be impaired. Potential impairment is
identified by comparing the value-in-use of a cash
generating unit C'CGU”) to its carrying value, including
goodwill. The value-in-use for each of the CGUs is
estimated by the Group using a discounted cash flow
model. The Group's value-in-use models for the CGUs
include significant judgements and assumptions
relating to cash flow projections, terminal growth
rates, and the discount rate. This impairment test
resulted in impairment charges of $498 million for the
Group and $116 million for the Parent Entity.
The principal considerations for our determination that
performing procedures relating to the impairment of
goodwill is a key audit matter are:
(i) there was significant judgement by the Group when
developing key assumptions used in the determination
of the value-in-use, which in turn led to a high degree
of auditor subjectivity and effort in performing
procedures and evaluating audit evidence related to
Group's cash flow projections, terminal growth rate
and discount rate assumptions, and
(ii) the audit effort involved the use of professionals
with specialised skill and knowledge.
Our procedures included testing of the
effectiveness of the controls related to the Group's
goodwill impairment assessment which includes
the review over the reasonableness of the Group's
key assumptions.
These procedures also included, among others:
(I) testing the Group's process for developing the
value-in-use estimate of the CGUs including
evaluating the appropriateness of the value-in-use
methodology,
(ii) evaluating the significant assumptions used by
the Group related to cash flow projections, terminal
growth rate and the discount rate, and
(iii) developing an independent estimate for a CGU
Evaluating the Group’s assumptions related to the
terminal growth rates of the CGUs involved
evaluating whether the assumptions used by the
Group were reasonable considering:
(i) the current and past performance of the CGUs
(ii) the consistency with external market and
industry data, and
(iii) whether these assumptions were consistent
with evidence obtained in other areas of the audit.
Professionals with specialised skill and knowledge
were used to assist in the evaluation of the
reasonableness of the discount rate and terminal
rate assumptions in relation to the value-in-use
estimates and develop an independent estimate to
compare to the Group's value-in-use estimate for a
CGU.
WESTPAC GROUP 2020 ANNUAL REPORT 5 Statutory statements
317
Other information
The directors are responsible for the other information. The other information comprises the information
included in the Group's annual report for the year ended 30 September 2020, but does not include the
financial report and our auditor's report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Parent Entity are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Parent Entity and
the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend to liquidate the Parent Entity or
the Group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with the Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and
Assurance Standards Board website at: http://www.auasb.gov.au/admin/file/contentl02/c3/arl_2020.pdf.
This description forms part of our auditor's report.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE 6
318
Statutory statements
Report on the Remuneration Report
Our opinion on the Remuneration Report
We have audited the Remuneration Report included in Section 1 of the Annual Report for the year ended 30
September 2020.
In our opinion, the Remuneration Report of Westpac Banking Corporation for the year ended 30 September
2020 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Parent Entity are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing
Standards.
PricewaterhouseCoopers
Lona Mathis
Partner
Sydney
1 November 2020
WESTPAC GROUP 2020 ANNUAL REPORT 7 319
Statutory statements
Limitation on Independent Registered Public Accounting Firm’s Liability
The liability of PricewaterhouseCoopers (an Australian partnership which we refer to as PwC Australia), with
respect to claims arising out of its audit report included in this Annual Report, is subject to the limitations set forth
in the Professional Standards Act 1994 of New South Wales, Australia, as amended (the Professional Standards
Act) and Chartered Accountants Australia and New Zealand (NSW) scheme adopted by Chartered Accountants
Australia and New Zealand and approved by the New South Wales Professional Standards Council pursuant to the
Professional Standards Act (the NSW Accountants Scheme). For matters occurring on or prior to 8 October 2019,
the liability of PwC Australia may be subject to the limitations set forth in predecessor schemes. The current NSW
Accountants Scheme expires on 7 October 2024 unless further extended or replaced.
The Professional Standards Act and the NSW Accountants Scheme may limit the liability of PwC Australia for
damages with respect to certain civil claims arising in, or governed by the laws of, New South Wales directly
or vicariously from anything done or omitted to be done in the performance of its professional services for us,
including, without limitation, its audits of our financial statements.
The extent of the limitation depends on the timing of the relevant matter and is:
•
•
in relation to matters occurring on or after 8 October 2013, a maximum liability for audit work of A$75 million;
or
in relation to matters occurring on or prior to 7 October 2013, the lesser of (in the case of audit services) ten
times the reasonable charge for the service provided and a maximum liability for audit work of A$75 million.
The limitations do not apply to claims for breach of trust, fraud or dishonesty.
In addition, there is equivalent professional standards legislation in place in other states and territories in
Australia and amendments have been made to a number of Australian federal statutes to limit liability under
those statutes to the same extent as liability is limited under state and territory laws by professional standards
legislation. Accordingly, liability for acts or omissions by PwC Australia in Australian states or territories other than
New South Wales may be limited in a manner similar to that in New South Wales.
These limitations of liability may limit recovery upon the enforcement in Australian courts of any judgment under
US or other foreign laws rendered against PwC Australia based on or related to its audit report on our financial
statements. Substantially all of PwC Australia’s assets are located in Australia. However, the Professional Standards
Act and the NSW Accountants Scheme have not been subject to extensive judicial consideration and therefore
how the limitation might be applied by the courts and the effect of the limitation remain untested in a number of
respects, including its effect in respect of the enforcement of foreign judgments.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
320
Statutory statements
This page has been intentionally left blank.
WESTPAC GROUP 2020 ANNUAL REPORT Shareholder
information
SECTION 4
Shareholding information
Additional information
Information for shareholders
Glossary of abbreviations and defined terms
Contact us
321
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Shareholding information
322
Shareholding information
Westpac ordinary shares
Top 20 ordinary shareholders as at 2 October 2020
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Limited
BNP Paribas NOMS Pty Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Australian Foundation Investment Company Limited
Pacific Custodians Pty Limited
Argo Investments Limited
Milton Corporation Limited
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd
AMP Life Limited
Navigator Australia Ltd
Australian Executor Trustees Limited
Nulis Nominees (Australia) Limited
Floralcrest Proprietary Limited
HSBC Custody Nominees (Australia) Limited - A/C 2
Total of Top 20 registered shareholders1
Number of
Fully Paid Ordinary
Shares
804,970,476
528,649,872
226,608,549
120,260,184
61,608,360
37,299,817
28,734,255
24,073,078
15,545,000
13,576,005
11,908,448
9,985,458
8,490,625
6,096,187
5,699,451
4,586,686
4,322,683
4,273,616
3,600,000
3,048,930
1,923,337,680
% Held
22.29
14.64
6.27
3.33
1.71
1.03
0.80
0.67
0.43
0.38
0.33
0.28
0.24
0.17
0.16
0.13
0.12
0.12
0.10
0.08
53.28
As at 2 October 2020 there were 671,057 holders of our ordinary shares compared to 610,334 in 2019 and to
619,578 in 2018. Ordinary shareholders with a registered address in Australia held approximately 98% of our fully
paid share capital at 2 October 2020 (approximately 96% in 2019 and 98% in 2018).
Substantial shareholders as at 2 October 2020
As at 2 October 2020 BlackRock Group (comprised of BlackRock Inc. and its subsidiaries) and The Vanguard
Group, Inc. (including its subsidiary Vanguard Investments Australia Ltd.) had a ‘substantial holding’ of our shares
within the meaning of the Corporations Act. A person has a substantial holding of our shares if the total votes
attached to our voting shares in which they or their associates have relevant interests is 5% or more of the total
number of votes attached to all our voting shares. The above table of the Top 20 ordinary shareholders includes
shareholders that may hold shares for the benefit of third parties.
BlackRock Group has been a substantial shareholder since 4 April 2017 (221,964,794 equity securities as
at 24 March 2020) and The Vanguard Group, Inc. has been a substantial shareholder since 17 July 2018
(171,757,716 equity securities as at 17 July 2018).
Control of registrant
We are not directly or indirectly owned or controlled by any other corporation(s) or by any foreign government.
Refer to the section ‘Exchange controls and other limitations affecting security holders’, which provides information
on the Foreign Acquisitions and Takeovers Act 1975, Corporations Act 2001 and Financial Sector (Shareholdings)
Act 1998, which impose limits on equity holdings.
At 30 September 2020, our Directors and Executive Officers owned beneficially, directly or indirectly, an aggregate
of 1,172,084 (0.032%) of the fully paid ordinary shares outstanding.
1.
As recorded on the share register by holder reference number.
WESTPAC GROUP 2020 ANNUAL REPORT
323
Shareholding information
Analysis by range of holdings of ordinary shares as at 2 October 2020
Number of Shares
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Totals
Number of Holders
of Fully Paid
Ordinary Shares
377,760
223,409
41,777
27,438
673
671,057
Number of Fully Paid
Ordinary Shares
%
56.29
33.29
6.23
4.09
0.10
139,067,463
521,149,341
291,863,461
575,236,702
2,084,367,903
Number of Holders
of Share Options
and Rights
23,977
275
37
85
13
%
3.85
14.43
8.08
15.93
57.71
100.00
3,611,684,870
100.00
24,387
There were 24,593 shareholders holding less than a marketable parcel ($500) based on a market price of $16.57 at
the close of trading on 2 October 2020.
Voting rights of ordinary shares
Holders of our fully paid ordinary shares have, at general meetings (including special general meetings), one vote
on a show of hands and, upon a poll, one vote for each fully paid ordinary share held by them.
Westpac Capital Notes 2
Top 20 holders of Westpac Capital Notes 2 as at 2 October 2020
HSBC Custody Nominees (Australia) Limited
BT Portfolio Services Limited
Netwealth Investments Limited
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd
J P Morgan Nominees Australia Pty Limited
BNP Paribas NOMS Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
Navigator Australia Ltd
Nulis Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Australian Executor Trustees Limited
Rakio Pty Ltd
National Nominees Limited
Mutual Trust Pty Ltd
BNP Paribas Nominees Pty Ltd
Dimbulu Pty Ltd
Domer Mining Co P/L
Royal Freemasons Benevolent Institution
Marrosan Investments Pty Ltd
Total of Top 20 registered holders1
Number of Westpac
Capital Notes 2
1,160,501
250,000
224,205
208,270
180,529
143,045
139,837
137,857
132,318
122,018
81,590
73,880
63,000
53,875
52,483
51,913
51,000
50,000
50,000
50,000
% Held
8.85
1.91
1.71
1.59
1.38
1.09
1.07
1.05
1.01
0.93
0.62
0.56
0.48
0.41
0.40
0.40
0.39
0.38
0.38
0.38
3,276,321
24.99
Analysis by range of holdings of Westpac Capital Notes 2 as at 2 October 2020
Number of Securities
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Totals
Number of Holders of
Westpac Capital
Notes 2
13,639
1,494
136
72
10
%
88.85
9.73
0.89
0.47
0.06
15,351
100.00
Number of Westpac
Capital Notes 2
4,651,865
3,061,160
966,929
1,727,171
2,698,580
13,105,705
%
35.49
23.36
7.38
13.18
20.59
100.00
There were 6 security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 2 based on a
market price of $100.40 at the close of trading on 2 October 2020.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
1.
As recorded on the holder register by holder reference number.
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
324
Shareholding information
Westpac Capital Notes 3
Top 20 holders of Westpac Capital Notes 3 as at 2 October 2020
Number of Westpac
Capital Notes 3
% Held
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
Berne No 132 Nominees Pty Ltd
Navigator Australia Ltd
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd
Nulis Nominees (Australia) Limited
Netwealth Investments Limited
Balanced Property Pty Ltd
BNP Paribas NOMS Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
Mutual Trust Pty Ltd
BNP Paribas Nominees Pty Ltd
V S Access Pty Ltd
Invia Custodian Pty Limited
Dimbulu Pty Ltd
Marrosan Investments Pty Ltd
Wayrich Pty Ltd
Citicorp Nominees Pty Limited
Marshstoke Pty Ltd
1,457,585
409,077
197,721
179,188
160,253
135,782
131,015
113,091
100,000
78,292
68,590
67,194
61,374
60,000
52,245
50,000
50,000
50,000
48,865
47,000
11.01
3.09
1.49
1.35
1.21
1.03
0.99
0.85
0.76
0.59
0.52
0.51
0.46
0.45
0.39
0.38
0.38
0.38
0.37
0.35
Total of Top 20 registered holders1
3,517,272
26.56
1.
As recorded on the holder register by holder reference number.
Analysis by range of holdings of Westpac Capital Notes 3 as at 2 October 2020
Number of Securities
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Totals
Number of Holders of
Westpac Capital
Notes 3
12,914
1,412
114
77
8
%
88.91
9.72
0.78
0.53
0.06
Number of Westpac
Capital Notes 3
4,441,503
3,044,695
916,953
2,057,417
2,783,712
%
33.54
22.99
6.92
15.53
21.02
14,525
100.00
13,244,280
100.00
There were 5 security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 3 based on a
market price of $100.61 at the close of trading on 2 October 2020.
WESTPAC GROUP 2020 ANNUAL REPORT
Shareholding information
Westpac Capital Notes 4
Top 20 holders of Westpac Capital Notes 4 as at 2 October 2020
Number of Westpac
Capital Notes 4
% Held
325
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Mutual Trust Pty Ltd
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd DRP
BNP Paribas NOMS Pty Ltd
Zashvin Pty Ltd
Dimbulu Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
Australian Executor Trustees Limited
Nulis Nominees (Australia) Limited
Navigator Australia Ltd
Willimbury Pty Ltd
V S Access Pty Ltd
New Regency Pty Ltd
Navigator Australia Ltd
Fulton Holdings Pty Ltd
Total of Top 20 registered holders1
1.
As recorded on the holder register by holder reference number.
3,041,748
1,614,890
450,622
264,789
238,791
180,885
125,459
106,322
104,432
104,000
100,000
97,967
80,552
77,366
67,220
60,000
51,570
50,000
41,132
40,000
17.87
9.49
2.65
1.56
1.40
1.06
0.74
0.62
0.61
0.61
0.59
0.58
0.47
0.45
0.39
0.35
0.30
0.29
0.24
0.24
6,897,745
40.51
Analysis by range of holdings of Westpac Capital Notes 4 as at 2 October 2020
Number of Securities
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Totals
Number of Holders of
Westpac Capital
Notes 4
15,092
1,601
125
64
10
%
89.34
9.48
0.74
0.38
0.06
Number of Westpac
Capital Notes 4
4,921,058
3,312,570
934,423
1,620,545
6,231,938
%
28.91
19.46
5.49
9.52
36.62
16,892
100.00
17,020,534
100.00
There were 4 security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 4 based on a
market price of $102.50 at the close of trading on 2 October 2020.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
326
Shareholding information
Westpac Capital Notes 5
Top 20 holders of Westpac Capital Notes 5 as at 2 October 2020
Number of Westpac
Capital Notes 5
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Diocese Development Fund - Catholic Diocese Of Paramatta
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd
Australian Executor Trustees Limited
HSBC Custody Nominees (Australia) Limited - A/C 2
Netwealth Investments Limited
Citicorp Nominees Pty Limited
Navigator Australia Ltd
National Nominees Limited
Nulis Nominees (Australia) Limited
Dimbulu Pty Ltd
Zashvin Pty Ltd
Marrosan Investments Pty Ltd
BNP Paribas Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
Mutual Trust Pty Ltd
Netwealth Investments Limited
BNP Paribas NOMS Pty Ltd
Royal Freemasons’ Benevolent Institution
Total of Top 20 registered holders1
1.
As recorded on the holder register by holder reference number.
1,637,969
367,535
280,112
227,185
220,994
218,377
214,292
181,307
166,588
112,844
110,617
100,000
92,220
92,000
90,630
83,762
70,470
63,855
62,996
60,000
% Held
9.69
2.17
1.66
1.34
1.31
1.29
1.27
1.07
0.99
0.67
0.65
0.59
0.55
0.54
0.54
0.50
0.42
0.38
0.37
0.35
4,453,753
26.35
Analysis by range of holdings of Westpac Capital Notes 5 as at 2 October 2020
Number of Securities
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Totals
Number of Holders of
Westpac Capital
Notes 5
15,216
1,924
160
99
11
17,410
%
87.40
11.05
0.92
0.57
0.06
Number of Westpac
Capital Notes 5
5,420,678
4,008,359
1,153,127
2,583,399
3,737,820
%
32.07
23.72
6.82
15.28
22.11
100.00
16,903,383
100.00
There was 1 security holder holding less than a marketable parcel ($500) of Westpac Capital Notes 5 based on a
market price of $100.21 at the close of trading on 2 October 2020.
WESTPAC GROUP 2020 ANNUAL REPORT
Shareholding information
Westpac Capital Notes 6
Top 20 holders of Westpac Capital Notes 6 as at 2 October 2020
Number of Westpac
Capital Notes 6
% Held
327
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
BNP Paribas NOMS Pty Ltd
BT Portfolio Services Limited
Citicorp Nominees Pty Limited
Netwealth Investments Limited
HSBC Custody Nominees (Australia) Limited - A/C 2
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd
National Nominees Limited
Australian Executor Trustees Limited
Dimbulu Pty Ltd
G Harvey Investments Pty Limited
Navigator Australia Ltd
Mutual Trust Pty Ltd
V S Access Pty Ltd
BNP Paribas Nominees Pty Ltd
Nulis Nominees (Australia) Limited
179 Hyde Investment Pty Ltd
Eastcote Pty Ltd
Willimbury Pty Ltd
Total of Top 20 registered holders1
1,604,140
460,215
315,300
200,000
185,050
161,135
145,727
125,980
120,808
103,226
100,000
100,000
91,013
90,883
90,000
71,621
61,600
60,000
50,000
50,000
11.27
3.23
2.22
1.41
1.30
1.13
1.02
0.89
0.85
0.73
0.70
0.70
0.64
0.64
0.63
0.50
0.43
0.42
0.35
0.35
4,186,698
29.41
1.
As recorded on the holder register by holder reference number.
Analysis by range of holdings of Westpac Capital Notes 6 as at 2 October 2020
Number of Securities
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Totals
Number of Holders of
Westpac Capital
Notes 6
12,116
1,529
148
71
10
%
87.33
11.02
1.07
0.51
0.07
Number of Westpac
Capital Notes 6
4,349,432
3,265,424
1,148,371
2,045,772
3,421,581
%
30.56
22.95
8.07
14.38
24.04
13,874
100.00
14,230,580
100.00
There were 2 security holders holding less than a marketable parcel ($500) of Westpac Capital Notes 6 based on a
market price of $102.10 at the close of trading on 2 October 2020.
Voting rights of Westpac Capital Notes 2, Westpac Capital Notes 3, Westpac Capital Notes 4, Westpac
Capital Notes 5 and Westpac Capital Notes 6
In accordance with the terms of issue, holders of Westpac Capital Notes 2, Westpac Capital Notes 3, Westpac
Capital Notes 4, Westpac Capital Notes 5 and Westpac Capital Notes 6 have no right to vote at any general
meeting of Westpac before conversion into Westpac ordinary shares.
If conversion occurs (in accordance with the applicable terms of issue), holders of Westpac Capital Notes
2, Westpac Capital Notes 3, Westpac Capital Notes 4, Westpac Capital Notes 5 or Westpac Capital Notes 6
(as applicable) will become holders of Westpac ordinary shares and have the voting rights that attach to Westpac
ordinary shares.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Shareholding information
328
Shareholding information
Exchange controls and other limitations affecting
security holders
–
Australian exchange controls
Australian laws control and regulate or permit the
control and regulation of a broad range of payments
and transactions involving non-residents of Australia.
Pursuant to a number of exemptions, authorities
and approvals, there are no general restrictions from
transferring funds from Australia or placing funds to the
credit of non-residents of Australia. However, Australian
foreign exchange controls are implemented from time
to time against prescribed countries, entities and
persons. At the present time, these include:
(a) withholding taxes in relation to remittances or
dividends (to the extent they are unfranked) and
interest payments;
(b) the financial sanctions administered by the
Department of Foreign Affairs and Trade (DFAT) in
accordance with the Autonomous Sanctions Act 2011
and the Autonomous Sanctions Regulations 2011,
specifically, in relation to transactions involving the
transfer of funds or payments to, by the order of, or
on behalf of individuals or entities including:
–
–
–
–
–
–
–
persons associated with the former Milosevic
regime, and persons indicted or suspected of
committing war crimes during the Balkan wars in
the early 1990s;
persons or entities engaged in activities that
seriously undermine democracy, respect for
human rights and the rule of law in Zimbabwe;
certain persons or entities associated with
the Democratic People’s Republic of Korea’s
weapons of mass destruction program or
missiles program;
certain persons or entities that have contributed
to or are contributing to Iran’s nuclear or missile
program;
certain individuals and entities associated with
the former Qadhafi regime in Libya;
certain individuals and entities supporting the
Syrian regime or that are responsible for human
rights abuses in Syria; and
persons who have been instrumental or complicit
in the threat to the sovereignty and territorial
integrity of Ukraine,
without the prior approval of the Minister for Foreign
Affairs;
(c) the United Nations Security Council (UNSC) financial
sanctions administered by DFAT, including:
–
Terrorist Asset Freezing Regime
In accordance with the Charter of the United
Nations Act 1945 and the Charter of the United
Nations (Dealings with Assets) Regulations 2008,
a person is prohibited from using or dealing with
funds, financial assets or economic resources
of persons or entities listed as terrorists by the
Minister for Foreign Affairs in the Commonwealth
of Australia Gazette. It is also a criminal offence
to make assets available to such persons or
entities; and
Country-based sanctions
Under the Charter of the United Nations Act
1945 and associated regulations, UNSC financial
sanctions have been implemented. It is an
offence to use or deal with funds, financial assets
or economic resources of certain persons or
entities associated with countries designated by
the UNSC. It is also a criminal offence to make
assets available to such persons or entities.
Limitations affecting security holders
The following Australian laws impose limitations on the
right of non-residents or non-citizens of Australia to
hold, own or vote Westpac shares. All these limitations
apply to the holders of the American Depositary
Receipts (ADRs) evidencing ADS, issued by our
Depositary in the United States.
Foreign Acquisitions and Takeovers Act 1975
Acquisitions of interests in shares in Australian
companies by foreign persons that meet certain
thresholds are required to be notified to the Treasurer
of Australia (through the Foreign Investment Review
Board) and to obtain a no objections notification
under the Foreign Acquisitions and Takeovers Act 1975
(Cth). That legislation applies to any acquisition by a
foreign person, including a corporation or group of
associated foreign persons, which results in ownership
of 20% or more of the issued shares of an Australian
company or the ability to control 20% or more of the
total voting power. In addition, the legislation applies
to any acquisition by a foreign government investor of
10% or more of the total voting power or ownership of
an Australian company (or any interest if the foreign
government investor acquires a control element – for
example the right to appoint a director). The legislation
requires any persons proposing to make any such
acquisition to first notify the Treasurer of their intention
to do so. Where such an acquisition has already
occurred in the absence of a no objections notification,
the Treasurer has the power to order divestment if he
considers the acquisition to be contrary to Australia’s
national interest.
Financial Sector (Shareholdings) Act 1998
The Financial Sector (Shareholdings) Act 1998 (Cth)
imposes restrictions on shareholdings in Australian
financial sector companies (which includes Westpac).
Under that legislation a person (including a corporation)
may not hold more than a 20% ‘stake’ in a financial
sector company without prior approval from the
Treasurer of Australia. A person’s stake in a financial
sector company is equal to the aggregate of the
person’s voting power in the company and the voting
power of the person’s associates. The concept of voting
power is broadly defined. The Treasurer may approve a
higher percentage stake if the Treasurer is satisfied that
it is in the national interest to do so.
In addition, even if a person’s stake in a financial sector
company does not exceed the 20% limit, the Treasurer
has the power to declare that a person has ‘practical
control’ of a financial sector company and require the
person to relinquish that control or reduce their stake in
that company.
WESTPAC GROUP 2020 ANNUAL REPORT Shareholding information
Corporations Act 2001
The Corporations Act 2001 (Cth) prohibits any person
(including a corporation) from acquiring a relevant
interest in our voting shares if, after the acquisition,
that person or any other person would be entitled to
exercise more than 20% of the voting power in our
shares. The prohibition is subject to certain limited
exceptions. In addition, under the Corporations Act, a
person is required to give a notice to us and to the ASX
providing certain prescribed information, including their
name, address and details of their relevant interests
in our voting shares if they begin to have, or cease to
have, a substantial holding in us, or if they already have
a substantial holding and there is a movement of at
least 1% in their holding. Such notice must, generally,
be provided within two business days after the person
becomes aware of that information.
A person will have a substantial holding if the total
votes attached to our voting shares in which they
or their associates have relevant interests is 5% or
more of the total number of votes attached to all our
voting shares. The concepts of ‘associate’ and ‘relevant
interest’ are broadly defined in the Corporations Act
and investors are advised to seek their own advice
on their scope. In general terms, a person will have a
relevant interest in a share if they:
(a) are the holder of that share;
(b) have power to exercise, or control the exercise of, a
right to vote attached to that share; or
(c) have power to dispose of, or control the exercise of
a power to dispose of, that share.
It does not matter how remote the relevant interest is or
how it arises. If two or more persons can jointly exercise
any one of these powers, each of them is taken to have
that power. Nor does it matter that the power or control
is express or implied, formal or informal, exercisable
either alone or jointly with someone else.
The American Depositary Shares (ADS) agreement
There is a Deposit Agreement between The Bank of
New York Mellon as Depositary, and Westpac, and the
record holders from time to time of all ADS. Holders of
our ADS are subject to the foregoing limitations on the
rights of non-residents or non-citizens of Australia to
own or vote Westpac shares. Record holders of ADS
are required by the Deposit Agreement to comply with
our requests for information as to the capacity in which
such holders own ADS and related ordinary shares as
well as to the identity of any other person interested in
such ADS and related ordinary shares and the nature of
such interest.
Enforceability of foreign judgments in Australia
We are an Australian public corporation with limited
liability. All of our Directors and Executive Officers
reside outside the US. Substantially all or a substantial
portion of the assets of all or many of such persons
are located outside the US. As a result, it may not be
possible for investors to effect service of process within
the US upon such persons or to enforce against them
judgments obtained in US courts predicated upon the
civil liability provisions of the federal securities laws of
the US. There may be doubt as to the enforceability
in Australia, in original actions or in actions for
enforcement of judgments of US courts, of civil
liabilities predicated upon the federal securities laws of
the US.
329
Taxation
Australian taxation
The following discussion is a summary of certain
Australian taxation implications of the ownership and
disposition of ordinary shares (including ADS) for
shareholders holding their shares on capital account.
This discussion is based on the laws in force at the date
of the Annual Report and the Convention between
the Government of Australia and the Government of
the United States of America for the Avoidance of
Double Taxation and The Prevention of Fiscal Evasion
with Respect to Taxes on Income (the Tax Treaty), and
is subject to any changes in Australian law and any
change in the Tax Treaty occurring after that date.
This discussion is intended only as a descriptive
summary and does not purport to be a complete
analysis of all the potential Australian tax implications
of owning and disposing of ordinary shares. The
specific tax position of each investor will determine the
applicable Australian income tax implications for that
investor and we recommend that investors consult their
own tax advisers concerning the implications of owning
and disposing of ordinary shares.
Taxation of dividends
Under the Australian dividend imputation system,
Australian tax paid at the company level is imputed
(or allocated) to shareholders by means of imputation
credits (also called franking credits) which attach to
dividends paid by the company to the shareholder.
Such dividends are termed ‘franked dividends’.
When an Australian resident individual shareholder
receives a franked dividend, the shareholder receives
a tax offset to the extent of the franking credits, which
can be offset against the Australian income tax payable
by the shareholder. An Australian resident shareholder
may, in certain circumstances, be entitled to a refund of
excess franking.
The extent to which a dividend is franked typically
depends upon a company’s available franking credits
at the time of payment of the dividend. Accordingly, a
dividend paid to a shareholder may be wholly or partly
franked or wholly unfranked.
Fully franked dividends paid to non-resident
shareholders are exempt from Australian dividend
withholding tax.
Dividends paid to a non-resident shareholder which are
not fully franked are subject to dividend withholding
tax at the rate of 30% (unless reduced by a double
tax treaty) to the extent they are unfranked. In the
case of residents of the US who are entitled to the
benefits of the Tax Treaty and are beneficially entitled
to the dividends, the rate is reduced to 15% under the
Tax Treaty, provided the shares are not effectively
connected with a permanent establishment or a fixed
base of the non-resident in Australia through which the
non-resident carries on business in Australia or provides
independent personal services. In the case of residents
of the US that have a permanent establishment or
fixed base in Australia where the shares in respect of
which the dividends are paid are attributable to that
permanent establishment or fixed base, there is no
dividend withholding tax. Rather, such dividends will
be taxed on a net assessment basis and, where the
dividends are franked, entitlement to a tax offset may
arise.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
330
Shareholding information
Fully franked dividends paid to non-resident
shareholders and dividends that have been subject to
dividend withholding tax should not be subject to any
further Australian income tax.
There are circumstances where a shareholder may
not be entitled to the benefit of franking credits.
The application of these rules depends upon the
shareholder’s own circumstances, including the period
during which the shares are held and the extent to
which the shareholder is ‘at risk’ in relation to their
shareholding.
Gain or loss on disposition of shares
Generally, any profit made by a resident shareholder
on disposal of shares will be subject to capital gains
tax. However, if the shareholder is regarded as a trader
or speculator, or carries on a business of investing for
profit, any profits may be taxed as ordinary income.
A discount may be available on capital gains on shares
held for 12 months or more by Australian resident
individuals, trusts or complying superannuation entities.
The discount is one half for individuals and trusts,
and one third for complying superannuation entities.
Companies are not eligible for the capital gains tax
discount. For shares acquired prior to 21 September
1999, an alternative basis of calculation of the capital
gain may be available which allows the use of an
indexation formula.
Normal rates of income tax would apply to capital
gains so calculated. Any capital loss can only be offset
against capital gains. Excess capital losses may be able
to be carried forward for offset against future capital
gains.
Generally, subject to two exceptions, a non-resident
disposing of shares in an Australian public company
who holds those shares on capital account will be free
from income tax in Australia. The main exceptions are:
•
•
shares held as part of a trade or business conducted
through a permanent establishment in Australia.
In such a case, any profit on disposal would be
assessable to tax. Losses may give rise to capital
losses or be otherwise deductible; and
shares held in companies where the shareholder and
its associates have held at the time of disposal (or at
least 12 months in the 24 months prior to disposal)
a holding of 10% or more in the company and more
than 50% of the company’s assets are represented
by interests in Australian real property (which is
unlikely to be the case for Westpac). In such a case,
capital gains tax would apply.
United States taxation
The following discussion is a summary of certain US
federal income tax implications of the ownership and
disposition of ordinary shares (including ADS) by US
holders (as defined below) that hold the ordinary
shares as capital assets. This discussion is based on
the US Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations,
published rulings and court decisions, and the Tax
Treaty, all as currently in effect and all of which are
subject to change, possibly on a retroactive basis.
This discussion is intended only as a descriptive
summary. It does not purport to be a complete analysis
of all the potential US federal income tax consequences
of owning and disposing of ordinary shares and does
not address US federal income tax considerations
that may be relevant to US holders subject to special
treatment under US federal income tax law (such as
banks, insurance companies, real estate investment
trusts, regulated investment companies, dealers in
securities, brokers, tax-exempt entities, retirement plans,
certain former citizens or residents of the US, persons
holding ordinary shares as part of a straddle, hedge,
conversion or other integrated transaction, persons that
have a ‘functional currency’ other than the US dollar,
persons that own 10% or more (by vote or value) of our
stock, persons that generally mark their securities to
market for US federal income tax purposes or persons
that receive ordinary shares as compensation). As this
is a complex area, we recommend investors consult
their own tax advisers concerning the US federal, state
and/or local implications of owning and disposing of
ordinary shares.
For the purposes of this discussion you are a US holder
if you are a beneficial owner of ordinary shares and you
are for US federal income tax purposes:
•
•
•
•
an individual who is a citizen or resident of the US;
a corporation created or organised in or under the
laws of the US or any state thereof or the District of
Columbia;
an estate, the income of which is subject to US
federal income taxation regardless of its source; or
a trust, if a US court can exercise primary
supervision over the trust’s administration and one
or more US persons are authorised to control all
substantial decisions of the trust, or certain electing
trusts that were in existence on 19 August 1996 and
were treated as domestic trusts on that date.
If an entity treated as a partnership for US federal
income tax purposes owns the ordinary shares, the US
federal income tax implications of the ownership and
disposition of ordinary shares will generally depend
upon the status and activities of such partnership
and its partners. Such an entity should consult its
own tax adviser concerning the US federal income
tax implications to it and its partners of owning and
disposing of ordinary shares.
Taxation of dividends
If you are a US holder, you must include in your income
as a dividend, the gross amount of any distributions
paid by us out of our current or accumulated earnings
and profits (as determined for US federal income
tax purposes) without reduction for any Australian
tax withheld from such distribution. We have not
maintained and do not plan to maintain calculations of
earnings and profits for US federal income tax purposes,
and as a result, you may need to include the entire
amount of any distribution in income as a dividend.
If you are a non-corporate US holder, dividends paid
to you that constitute qualified dividend income may
be taxable to you at a preferential tax rate so long as
certain holding period and other requirements are met.
Dividends we pay with respect to the ordinary shares
generally will be qualified dividend income so long as
we are not a PFIC during the taxable year in which the
dividend is paid or the preceding taxable year. Each
non-corporate US holder should consult their own
tax advisor regarding the possible applicability of the
reduced tax rate and the related restrictions and special
rules.
WESTPAC GROUP 2020 ANNUAL REPORT 331
Medicare tax
In addition to regular US federal income tax, certain US
holders that are individuals, estates or trusts are subject
to a 3.8% tax on all or a portion of their ‘net investment
income’, which may include all or a portion of their
dividend income and net gain from the sale, exchange
or other disposition of their ordinary shares.
Passive foreign investment company considerations
We believe that we will not be treated as a passive
foreign investment company (PFIC) for US federal
income tax purposes, and this discussion assumes
we are not a PFIC. However, the determination as to
whether we are a PFIC is made annually at the end
of each taxable year and therefore could change.
If we were to be treated as a PFIC, a US holder of
ordinary shares could be subject to certain adverse tax
consequences.
Disclosure requirements for specified foreign financial
assets
Individual US holders (and certain US entities specified
in US Internal Revenue Service (IRS) guidance)
who, during any taxable year, hold any interest in
any specified foreign financial asset, generally will
be required to file with their US federal income tax
returns certain information on IRS Form 8938 if the
aggregate value of all such assets exceeds certain
specified amounts. ‘Specified foreign financial asset’
generally includes any financial account maintained
with a non-US financial institution and may also include
the ordinary shares if they are not held in an account
maintained with a financial institution. Substantial
penalties may be imposed, and the period of limitations
on assessment and collection of US federal income
taxes may be extended, in the event of a failure to
comply. US holders should consult their own tax
advisers as to the possible application to them of this
filing requirement.
Information reporting and backup withholding
Under certain circumstances, information reporting
and/or backup withholding may apply to US holders
with respect to payments on or the proceeds from
the sale, exchange or other disposition of the ordinary
shares, unless an applicable exemption is satisfied.
Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules
generally will be allowed as a refund or credit against a
US holder’s US federal income tax liability if the required
information is furnished by the US holder on a timely
basis to the IRS.
Shareholding information
Dividends paid by us constitute ordinary income that
must generally be included in income when actually
or constructively received. Such dividends will not
be eligible for the dividends-received deduction
generally allowed to corporate shareholders with
respect to dividends received from US corporations.
The amount of the dividend that you must include in
your income as a US holder will be the US dollar value
of the Australian dollar payments made, determined
at the spot Australian dollar/US dollar rate on the date
the dividend distribution is included in your income,
regardless of whether the payment is in fact converted
into US dollars. Generally, any gain or loss resulting from
currency exchange fluctuations during the period from
the date you include the dividend payment in income
to the date you convert the payment into US dollars will
be treated as ordinary income or loss and will not be
eligible for the special tax rate applicable to qualified
dividend income. This gain or loss generally will be
income from sources within the US for foreign tax
credit limitation purposes. Distributions on an ordinary
share in excess of current and accumulated earnings
and profits, as determined for US federal income tax
purposes, will be treated as a non-taxable return of
capital to the extent of your basis in such ordinary share
and thereafter as capital gain.
Subject to certain limitations, Australian tax withheld
in accordance with the Tax Treaty and paid over to
Australia may be claimed as a foreign tax credit against
your US federal income tax liability. Special rules apply
in determining the foreign tax credit limitation with
respect to dividends that are subject to a preferential
tax rate. A US holder that does not elect to claim a US
foreign tax credit for Australian income tax withheld
may instead claim a deduction for such withheld tax,
but only for a taxable year in which the US holder elects
to do so with respect to all non-US income taxes paid
or accrued in such taxable year.
Dividends paid by us generally will be income from
sources outside the US for foreign tax credit limitation
purposes. Under the foreign tax credit rules, dividends
will, depending on your circumstances, be ‘passive
category’ or ‘general category’ income for purposes of
computing the foreign tax credit.
The rules relating to US foreign tax credits are very
complex, and each US holder should consult its own tax
adviser regarding the application of such rules.
Taxation of capital gains
If you sell, exchange or otherwise dispose of your
ordinary shares, you will generally recognise a capital
gain or loss for US federal income tax purposes equal
to the difference between the US dollar value of the
amount that you realise and your tax basis, determined
in US dollars, in your ordinary shares. A capital gain of a
non-corporate US holder is generally taxed at a reduced
rate if the holder has a holding period greater than
one year. The deductibility of capital losses is subject
to limitations. Such capital gain or loss generally will
be income from sources within the US, for foreign tax
credit limitation purposes.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Additional information
332
Additional information
Our constitution
Overview
We were incorporated in 1850 under the Bank of New
South Wales Act, a special piece of legislation passed
by the New South Wales Parliament at a time when
there was no general companies’ legislation in Australia.
On 23 August 2002, Westpac became registered under
the Corporations Act 2001 (Cth) as a public company
limited by shares.
As part of the process of becoming a company
regulated under the Corporations Act, shareholders
adopted a new constitution at the AGM on 15 December
2000, which came into operation on 23 August 2002.
Our constitution has been subsequently amended by
shareholders on 15 December 2005, 13 December 2007
and 13 December 2012.
Our objects and purposes
Our constitution does not contain a statement of
our objects and purposes. As a company regulated
by the Corporations Act, we have the legal capacity
and powers of an individual both within and outside
Australia, and all the powers of a body corporate,
including the power to issue and cancel shares, to
issue debentures, to distribute our property among
our equity holders (either in kind or otherwise), to give
security by charging our uncalled capital, to grant a
floating charge over our property and to do any other
act permitted by any law.
Directors’ voting powers
Under clause 9.11(a) of our constitution, subject to
complying with the Corporations Act regarding
disclosure of and voting on matters involving material
personal interests, our Directors may:
(a) hold any office or place of profit in our company,
except that of auditor;
(b) hold any office or place of profit in any other
company, body corporate, trust or entity promoted
by our company or in which it has an interest of any
kind;
(c) enter into any contract or arrangement with our
company;
(d) participate in any association, institution, fund,
trust or scheme for past or present employees or
directors of our company or persons dependent on
or connected with them;
(e) act in a professional capacity (or be a member of
a firm that acts in a professional capacity) for our
company, except as auditor; and
(f) participate in, vote on and be counted in a quorum
for any meeting, resolution or decision of the
Directors and be present at any meeting where any
matter is being considered by the Directors.
Under clause 9.11(b) of our constitution, a Director may
do any of the above despite the fiduciary relationship of
the Director’s office:
(a) without any liability to account to our company
for any direct or indirect benefit accruing to the
Director; and
(b) without affecting the validity of any contract or
arrangement.
Under the Corporations Act, however, a Director who
has a material personal interest in any matter to be
considered at any Board meeting must not be present
while the matter is being considered or vote on the
matter, unless the other Directors resolve to allow that
Director to be present and vote or a declaration is made
by ASIC permitting that Director to participate and
vote. These restrictions do not apply to a limited range
of matters set out in section 191(2) of the Corporations
Act, where the Director’s interest:
(a) arises because the Director is a shareholder of
the company and is held in common with other
shareholders;
(b) arises in relation to the Director’s remuneration as a
Director of the company;
(c) relates to a contract the company is proposing to
enter into that is subject to shareholder approval
and will not impose obligations on the company if
not approved by shareholders;
(d) arises merely because the Director is a guarantor or
has given an indemnity or security for all or part of a
loan (or proposed loan) to the company;
(e) arises merely because the Director has a right of
subrogation in relation to a guarantee or indemnity
referred to in (d);
(f) relates to a contract that insures, or would insure,
the Director against liabilities the Director incurs as
an officer of the company (but only if the contract
does not make the company or related body
corporate the insurer);
(g) relates to any payment by the company or a related
body corporate in respect of certain indemnities
permitted by the Corporations Act or any contract
relating to such an indemnity; or
(h) is in a contract or proposed contract with, or for the
benefit of, or on behalf of, a related body corporate
and arises merely because the Director is a Director
of that related body corporate.
If there are not enough Directors to form a quorum for
the Board meeting because of Directors’ interests in a
particular matter, a general meeting for shareholders
may be called to consider the matter and interested
Directors are entitled to vote on any proposal to
requisition such a meeting.
Under clause 9.7 of our constitution, the maximum
aggregate amount of annual remuneration to be paid
to our Non-executive Directors must be approved by
our shareholders. This aggregate amount is paid to the
Non-executive Directors in such manner as the Board
from time to time determines. Directors’ remuneration
is one of the exceptions under section 191 of the
Corporations Act to the prohibitions against being
present and voting on any matter in which a Director
has a material personal interest.
WESTPAC GROUP 2020 ANNUAL REPORT Additional information
Directors’ borrowing powers
Clause 10.2 of our constitution empowers our Directors,
as a Board, to exercise all the powers of Westpac to
borrow or raise money, to charge any property or
business of Westpac or all or any of its uncalled capital
and to issue debentures or give any other security
for a debt, liability or obligation of Westpac or of any
other person. Such powers may only be changed by
amending the constitution, which requires a special
resolution (that is, a resolution passed by at least 75%
of the votes cast by members entitled to vote on the
resolution and for which notice has been given in
accordance with the Corporations Act).
Minimum number of Directors
Our constitution requires that the minimum number
of Directors is determined in accordance with the
Corporations Act or other regulations. Currently the
Corporations Act prescribes three as a minimum
number of Directors and APRA governance standards
specify five as the minimum number of Directors for
APRA regulated entities. Westpac’s current number of
Directors is above these prescribed minimums.
Share rights
The rights attaching to our ordinary shares are set out
in the Corporations Act and in our constitution, and
may be summarised as follows:
a) Profits and dividends
Holders of ordinary shares are entitled to receive such
dividends on those shares as may be determined by our
Directors from time to time. Dividends that are paid but
not claimed may be invested by our Directors for the
benefit of Westpac until claimed or required to be dealt
with in accordance with any law relating to unclaimed
monies.
Our constitution requires that dividends be paid out
of our profits. In addition, under the Corporations Act,
Westpac must not pay a dividend unless our assets
exceed our liabilities immediately before the dividend
is declared and the excess is sufficient for payment of
the dividend. In addition, the payment must be fair and
reasonable to the company’s shareholders and must not
materially prejudice our ability to pay our creditors.
Subject to the Corporations Act, the constitution, the
rights of persons (if any) entitled to shares with special
rights to dividend and any contrary terms of issue of
or applying to any shares, our Directors may determine
that a dividend is payable, fix the amount and the time
for payment and authorise the payment or crediting
by Westpac to, or at the direction of, each shareholder
entitled to that dividend.
If any dividends are returned unclaimed, we are
generally obliged, under the Banking Act 1959 (Cth), to
hold those amounts as unclaimed monies for a period
of seven years. If at the end of that period the monies
remain unclaimed by the shareholder concerned, we
must submit an annual unclaimed money return to the
Australian Securities and Investment Commission by 31
March each year containing the unclaimed money as at
31 December of the previous year. Upon such payment
being made, we are discharged from further liability in
respect of that amount.
Our Directors may, before paying any dividend, set
aside out of our profits such sums as they think proper
as reserves, to be applied, at the discretion of our
Directors, for any purpose for which the profits may be
333
properly applied. Our Directors may carry forward so
much of the profits remaining as they consider ought
not to be distributed as dividends without transferring
those profits to a reserve.
The following restrictions apply to our ability to declare
and/or pay dividends:
(i) if the payment of the dividend would breach or
cause a breach by us of applicable capital adequacy
or other supervisory requirements of APRA,
including the capital conservation buffer. Currently,
one such requirement is that a dividend should not
be paid without APRA’s prior consent if payment
of that dividend, after taking into account all other
dividends (if any) paid on our shares and payments
on more senior capital instruments, in the preceding
12 consecutive months to which they relate, would
cause the aggregate of such dividend payments
to exceed our after tax earnings for the preceding
12 consecutive months, as reflected in our relevant
audited consolidated financial statements; and
(ii) if, under the Banking Act 1959 (Cth), we are directed
by APRA not to pay a dividend;
(iii) if the declaration or payment of the dividend would
result in us becoming insolvent; or
(iv)if any interest payment, dividend, redemption
payment or other distribution on certain Additional
Tier 1 securities issued by the Group is not paid in
accordance with the terms of those securities, we
may be restricted from declaring and/or paying
dividends on ordinary shares. This restriction is
subject to a number of exceptions.
b) Voting rights
Holders of our fully paid ordinary shares have, at
general meetings, one vote on a show of hands and,
upon a poll, one vote for each fully paid share held by
them.
c) Voting and re-election of Directors
Under our constitution, at each AGM one-third of
eligible Directors (or if their number is not a multiple of
three, the number nearest to one-third) and any other
Director who has held office for three years or more
since the Director’s last election, must retire from office.
In determining the number of Directors to retire, no
account is to be taken of a Director who holds office in
order to fill a casual vacancy or the Managing Director.
A retiring Director holds office until the conclusion of
the meeting at which that Director retires but is eligible
for re-election at the meeting.
Under the ASX Listing Rules, no Director of a listed
entity, apart from the Managing Director, may continue
to hold office, without offering himself or herself
for re-election, past the third AGM following their
appointment or three years, whichever is the longer.
Under the Corporations Act, the election or re-election
of each Director by shareholders at a general meeting
of a public company must proceed as a separate
item, unless the shareholders first resolve that the
elections or re-elections may be voted on collectively.
A resolution to allow collective voting in relation to
elections or re-elections is effective only if no votes are
cast against that resolution. Any resolution electing or
re-electing two or more Directors in contravention of
this requirement is void.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
334
Additional information
d) Winding up
Subject to any preferential entitlement of holders of
preference shares on issue at the relevant time, holders
of our ordinary shares are entitled to share equally in
any surplus assets if we are wound up.
e) Sinking fund provisions
We do not have any class of shares on issue that is
subject to any sinking fund provisions.
Variation of rights attaching to our shares
Under the Corporations Act, unless otherwise provided
by the terms of issue of a class of shares, the terms
of issue of a class of shares in Westpac can only be
varied or cancelled in any way by a special resolution
of Westpac and with either the written consent of our
shareholders holding at least three quarters of the votes
in that class of shares or with the sanction of a special
resolution passed at a separate meeting of the holders
of that class of shares.
Convening general meetings
Under our constitution, our Directors may convene
and arrange to hold a general meeting of Westpac
whenever they think fit and must do so if required to
do so under the Corporations Act and ASX Listing
Rules. Under the Corporations Act, our Directors must
call and arrange to hold a general meeting of Westpac
if requested to do so by our shareholders who hold at
least 5% of the votes that may be cast at the general
meeting. Shareholders who hold at least 5% of the votes
that may be cast at a general meeting may also call and
arrange to hold a general meeting of Westpac at their
own expense.
At least 28 days notice must be given of a meeting of
our shareholders. Written notice must be given to all
shareholders entitled to attend and vote at the meeting.
All ordinary shareholders are entitled to attend and,
subject to the constitution and the Corporations Act, to
vote at general meetings of Westpac.
Limitations on securities ownership
A number of limitations apply in relation to the
ownership of our shares, and these are more fully
described in the section ‘Limitations affecting security
holders’.
Change in control restrictions
Restrictions apply under the Corporations Act, the
Financial Sector (Shareholdings) Act 1998 (Cth) and the
Foreign Acquisitions and Takeovers Act 1975 (Cth).
For more detailed descriptions of these restrictions,
refer to the sections ‘Limitations affecting security
holders’, Foreign Acquisitions and Takeovers Act
1975, Financial Sector (Shareholdings) Act 1998, and
Corporations Act 2001.
Substantial shareholder disclosure
There is no provision in our constitution that requires a
shareholder to disclose the extent of their ownership of
our shares.
Under the Corporations Act, however, any person who
begins or ceases to have a substantial holding of our
shares must notify us within two business days after
they become aware of that information. A further notice
must be given to us if there is an increase or decrease
of 1% in a person’s substantial holding. Copies of these
notices must also be given to the ASX. A person has
a substantial holding of our shares if the total votes
attached to our voting shares in which they or their
associates have relevant interests is 5% or more of the
total number of votes attached to all our voting shares.
For more details, refer to the section ‘Corporations Act
2001’.
We also have a statutory right under the Corporations
Act to trace the beneficial ownership of our shares by
giving a direction to a shareholder, or certain other
persons, requiring disclosure to us of, among other
things, their own relevant interest in our shares and
the name and address of each other person who has a
relevant interest in those shares, the nature and extent
of that interest and the circumstances that gave rise
to that other person’s interest. Such disclosure must,
except in certain limited circumstances, be provided
within two business days after the direction is received.
Australian Company and Business Numbers
All Australian companies have a unique nine-digit
identifier, referred to as an Australian Company Number
(ACN), which must be included on public documents,
eligible negotiable instruments and the company’s
common seal. In addition, entities can apply for
registration on the Australian Business Register and
be allocated a unique eleven-digit identifier known as
an Australian Business Number (ABN). For Australian
companies, the last nine digits of their ABN are identical
to their ACN. The ABN may be quoted on documents in
lieu of the ACN.
Our ACN is 007 457 141 and our ABN is 33 007 457 141.
Documents on display
We are subject to the disclosure requirements of the
US Securities Exchange Act of 1934, as amended. In
accordance with these requirements, we file Annual
Reports with, and furnish other information to, the US
Securities & Exchange Commission (SEC). The SEC
also maintains a website at www.sec.gov that contains
reports, proxy statements and other information
regarding registrants that file electronically with the
SEC. Since April 2002, we have filed our reports on
Form 20-F and have furnished other information to
the SEC in electronic format which may be accessed
through this website.
WESTPAC GROUP 2020 ANNUAL REPORT 335
Additional information
Exchange rates
For each of the years indicated, the high, low, average and year-end noon buying rates1 for Australian dollars were:
(US$ per A$1.00)
High
Low
Average3
Close (on 30 September)4
Year Ended 30 September
20212
0.7237
0.7140
n/a
n/a
2020
0.7388
0.5755
2019
0.7360
0.6730
2018
0.8105
0.7107
2017
0.8071
0.7174
2016
0.7817
0.6855
0.6815
0.7023
0.7583
0.7624
0.7385
0.7160
0.6746
0.7238
0.7840
0.7667
For each of the months indicated, the high and low noon buying rates for Australian dollars were:
(US$ per A$1.00)
High
Low
October
20202
0.7237
0.7140
September
2020
0.7375
0.7012
Month
August
2020
0.7388
0.7107
July
2020
0.7168
0.6917
June
2020
May
2020
0.7004
0.6664
0.6785
0.6410
1.
2.
3.
4.
The noon buying rate in New York City for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve
Bank of New York.
Through to 9 October 2020. On 9 October 2020, the noon buying rate was A$1.00 = 0.7237.
The average is calculated by using the average of the exchange rates on the last day of each month during the period.
The noon buying rate at such date may differ from the rate used in the preparation of our consolidated financial statements at such
date. Refer to Note 1(a) to the financial statements.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
Information for shareholders
336
Information for shareholders
Financial calendar
Westpac shares are listed on the securities exchanges in Australia (ASX) and New Zealand (NZX) and as American
Depository Receipts in New York (NYSE). Westpac Capital Notes 2, Westpac Capital Notes 3, Westpac Capital
Notes 4, Westpac Capital Notes 5 and Westpac Capital Notes 6 are listed on the ASX. Westpac NZD Subordinated
Notes are listed on the NZX.
Important dates to note are set out below, subject to change. Payment of any distribution, dividend or interest
payment is subject to the relevant payment conditions and the key dates for each payment will be confirmed to
the ASX for securities listed on the ASX.
Westpac Ordinary Shares (ASX code: WBC, NYSE code: WBK)
Westpac Capital Notes 3 (ASX code: WBCPF)
9 November 2020
Ex-date for quarterly distribution
11 December 2020
New York ex-dividend date for final
dividend
New York record date for final dividend
10 November 2020
Ex-dividend date for final dividend
11 November 2020
Record date for final dividend
Annual General Meeting
Final dividend payable
Financial Half Year end
Interim results and dividend announcement
New York ex-dividend date for interim
dividend
New York record date for interim dividend
Ex-dividend date for interim dividend
Record date for interim dividend
Interim dividend payable
Financial Year end
12 November 2020
11 December 2020
18 December 2020
31 March 2021
3 May 2021
12 May 2021
13 May 2021
13 May 2021
14 May 2021
25 June 2021
Record date for quarterly distribution
14 December 2020
Payment date for quarterly distribution
22 December 2020
Ex-date for quarterly distribution
Record date for quarterly distribution
Payment date for quarterly distribution
Ex-date for quarterly distribution
Record date for quarterly distribution
Payment date for quarterly distribution
11 March 2021
12 March 2021¹
22 March 2021
10 June 2021
11 June 20211
22 June 2021
Ex-date for quarterly distribution
13 September 2021
Record date for quarterly distribution
14 September 2021
Payment date for quarterly distribution
22 September 2021
Ex-date for quarterly distribution
13 December 2021
Record date for quarterly distribution
14 December 2021
30 September 2021
Payment date for quarterly distribution
22 December 2021
Final results and dividend announcement
1 November 2021
New York ex-dividend date for final
dividend
9 November 2021
1.
Adjusted to immediately preceding business day as record date
falls on a non-ASX business day or a date on which banks are
not open for general business in Sydney.
New York record date for final dividend
10 November 2021
Westpac Capital Notes 4 (ASX code: WBCPG)
Ex-dividend date for final dividend
Record date for final dividend
11 November 2021
12 November 2021
Ex-date for quarterly distribution
21 December 2020
Record date for quarterly distribution
22 December 2020
Annual General Meeting
Final dividend payable
15 December 20211
Payment date for quarterly distribution
30 December 2020
21 December 2021
Ex-date for quarterly distribution
Record date for quarterly distribution
Payment date for quarterly distribution
Ex-date for quarterly distribution
Record date for quarterly distribution
Payment date for quarterly distribution
19 March 2021
22 March 2021
30 March 2021
21 June 2021
22 June 2021
30 June 2021
Ex-date for quarterly distribution
21 September 2021
Record date for quarterly distribution
22 September 2021
Payment date for quarterly distribution
30 September 2021
Ex-date for quarterly distribution
21 December 2021
Record date for quarterly distribution
22 December 2021
Payment date for quarterly distribution
30 December 2021
1.
Details regarding the location of the meeting and the business
to be dealt with will be contained in a Notice of Meeting sent to
shareholders in the November before the meeting.
Westpac Capital Notes 2 (ASX code: WBCPE)
Ex-date for quarterly distribution
14 December 2020
Record date for quarterly distribution
15 December 2020
Payment date for quarterly distribution
23 December 2020
Ex-date for quarterly distribution
Record date for quarterly distribution
Payment date for quarterly distribution
Ex-date for quarterly distribution
Record date for quarterly distribution
Payment date for quarterly distribution
12 March 2021
15 March 2021
23 March 2021
11 June 2021
15 June 2021
23 June 2021
Ex-date for quarterly distribution
14 September 2021
Record date for quarterly distribution
15 September 2021
Payment date for quarterly distribution
23 September 2021
Ex-date for quarterly distribution
14 December 2021
Record date for quarterly distribution
15 December 2021
Payment date for quarterly distribution
23 December 2021
WESTPAC GROUP 2020 ANNUAL REPORT 337
Information for shareholders
Westpac Capital Notes 5 (ASX code: WBCPH)
Westpac NZD Subordinated Notes (NZX code: WBC010)
Ex-date for quarterly distribution
11 December 2020
Ex-date for quarterly interest payment
19 November 2020
Record date for quarterly distribution
14 December 2020
Record date for quarterly interest payment
20 November 2020¹
Payment date for quarterly distribution
22 December 2020
Ex-date for quarterly distribution
Record date for quarterly distribution
Payment date for quarterly distribution
Ex-date for quarterly distribution
Record date for quarterly distribution
Payment date for quarterly distribution
11 March 2021
12 March 20211
22 March 2021
10 June 2021
11 June 20211
22 June 2021
Ex-date for quarterly distribution
13 September 2021
Record date for quarterly distribution
14 September 2021
Payment date for quarterly interest
payment
1 December 2020
Ex-date for quarterly interest payment
18 February 2021
Record date for quarterly interest payment
19 February 2021
Payment date for quarterly interest
payment
Ex-date for quarterly interest payment
Record date for quarterly interest payment
Payment date for quarterly interest
payment
1 March 2021
20 May 2021
21 May 2021¹
1 June 2021
Payment date for quarterly distribution
22 September 2021
Ex-date for quarterly interest payment
19 August 2021
Ex-date for quarterly distribution
13 December 2021
Record date for quarterly interest payment
Record date for quarterly distribution
14 December 2021
Payment date for quarterly distribution
22 December 2021
Payment date for quarterly interest
payment
20 August 2021¹
1 September 2021
Ex-date for quarterly interest payment
18 November 2021
Record date for quarterly interest payment
Payment date for quarterly interest
payment
19 November 2021¹
1 December 2021
1
Adjusted to immediately preceding business day as record date
falls on a date on which banks are not open for general business
in Wellington and Auckland, New Zealand and Sydney, Australia.
1.
Adjusted to immediately preceding business day as record date
falls on a non-ASX business day or a date on which banks are
not open for general business in Sydney.
Westpac Capital Notes 6 (ASX code: WBCPI)
Ex-date for quarterly distribution
9 December 2020
Record date for quarterly distribution
10 December 2020
Payment date for quarterly distribution
18 December 2020
Ex-date for quarterly distribution
Record date for quarterly distribution
Payment date for quarterly distribution
Ex-date for quarterly distribution
Record date for quarterly distribution
Payment date for quarterly distribution
9 March 2021
10 March 2021
18 March 2021
9 June 2021
10 June 2021
18 June 2021
Ex-date for quarterly distribution
9 September 2021
Record date for quarterly distribution
10 September 2021
Payment date for quarterly distribution
20 September 20211
Ex-date for quarterly distribution
9 December 2021
Record date for quarterly distribution
10 December 2021
Payment date for quarterly distribution
20 December 20211
1.
Adjusted to next business day as payment date falls on a non-
ASX business day or a date on which banks are not open for
general business in Sydney.
Annual General Meeting
The Westpac Annual General Meeting (AGM) will be held on Friday, 11 December 2020 at 10:00am (Sydney time).
Westpac will hold its AGM online as a virtual meeting and shareholder registration will open at 9:00am (Sydney
time).
The AGM will be webcast live on Westpac’s website at westpac.com.au/AGM and an archived version of the
webcast will be available on the website after the event.
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
338
Information for shareholders
Useful information
Key sources of information for shareholders
We report our full year performance to shareholders, in
late October or early November, in the following forms: an
Annual Report; a Sustainability Performance Report; an
Investor Discussion Pack and earnings releases.
Electronic communications
Shareholders can elect to receive the following
communications electronically:
•
•
•
•
Annual Report;
Dividend statements when paid by direct credit or via
Westpac’s Dividend Reinvestment Plan (DRP);
Notices of Meetings and proxy forms; and
Major company announcements.
Opt for electronic communications by logging into
Westpac’s Share Registrar’s Investor Centre at www.
linkmarketservices.com.au.
Online information
Australia
Westpac’s website www.westpac.com.au provides
information for shareholders and customers, including:
Share registrars
Shareholders can check and update their information in
Westpac’s Share Registrars’ online Investor Centres, see
details below. In Australia, broker sponsored holders must
contact their broker to amend their address.
Australia – Ordinary shares on the main register, Westpac
Capital Notes 2, Westpac Capital Notes 3, Westpac Capital
Notes 4, Westpac Capital Notes 5 and Westpac Capital
Notes 6
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Postal address: Locked Bag A6015, Sydney South NSW
1235, Australia
www.linkmarketservices.com.au
Shareholder enquiries:
Telephone: 1800 804 255 (toll free within Australia)
International: +61 1800 804 255
Facsimile: +61 2 9287 0303
Email: westpac@linkmarketservices.com.au
New Zealand – Ordinary shares on the New Zealand
Branch register and Westpac NZD Subordinated Notes
access to internet banking and online investing
services;
Link Market Services Limited
Level 11, Deloitte Centre
details on Westpac’s products and services;
80 Queen Street
company history, results, market releases and news;
and
corporate responsibility and Westpac in the community
activities.
Investors can access the Investor Centre at www.westpac.
com.au/investorcentre. The Investor Centre includes the
current Westpac share price and links to the latest ASX
announcements and Westpac’s Share Registrars’ websites.
New Zealand
Westpac’s New Zealand website www.westpac.co.nz
provides:
Auckland 1010, New Zealand
Postal address: P.O. Box 91976, Auckland 1142, New
Zealand
www.linkmarketservices.co.nz
Shareholder enquiries:
Telephone: 0800 002 727 (toll free within New Zealand)
International: +64 9 375 5998
Facsimile: +64 9 375 5990
Email: enquiries@linkmarketservices.co.nz
access to internet banking services;
details on products and services;
Depositary in USA for American Depositary Shares1
Listed on New York Stock Exchange (CUSIP 961214301)
•
•
•
•
•
•
•
BNY Mellon Shareowner Services
PO Box 505000
Louisville, KY 40233-5000, USA
https://www-us.computershare.com/investor
American Depositary Shares holder enquiries:
Telephone: 1-888-269-2377 (toll free in USA)
International: +1 201 680 6825
Email: shrrelations@cpushareownerservices.com
economic updates, news and information, key financial
results; and
•
sponsorships and other community activities.
Westpac Investor Relations
Information other than that relating to your shareholding
can be obtained from:
•
Westpac Investor Relations
275 Kent Street
Sydney NSW 2000 Australia
Telephone: +61 2 8253 3143
Facsimile: +61 2 8253 1207
Email: investorrelations@westpac.com.au
Stock exchange listings
Westpac ordinary shares are listed on:
•
•
Australian Securities Exchange (code WBC);
New York Stock Exchange (NYSE), as American
Depositary Shares (code WBK); and
•
New Zealand Exchange Limited (code WBC).
1.
Each ADS represents one fully paid ordinary share.
WESTPAC GROUP 2020 ANNUAL REPORT Glossary of abbreviations and
defined terms
Glossary of abbreviations and defined terms
339
CGU
CHF
CLF
Cash Generating Unit
Swiss franc
Committed Liquidity Facility
Corporations Act
Corporations Act 2001 (Cth)
Advanced Measurement Approach
D-SIB
COSO
CPM
CRG
CRO
CRS
CVA
DFAT
EAD
ECL
EPS
ESG
ESP
FBT
FCA
FCS
FMA
FTE
FVA
FVIS
FX
GHG
AAS
AASB
ABS
ACCC
ADI
ADRs
ADS
Australian Accounting Standards
Australian Accounting Standards
Board
Asset-backed securities
Australian Competition and
Consumer Commission
Authorised Deposit-taking Institution
American Depositary Receipts
American Depositary Shares
Advanced IRB
Advanced Internal Ratings Based
AGM
ALCO
ALM
AMA
ANZSIC
APRA
ASIC
ASX
Annual General Meeting
Westpac Asset and Liability
Committee
Asset and Liability Management
Australian and New Zealand
Standard Industrial Classification
Australian Prudential Regulation
Authority
Australian Securities and
Investments Commission
Australian Securities Exchange
ASXCGC
ASX Corporate Governance Council
AT1
ATMs
ATO
Additional Tier 1
Automatic teller machines
Australian Taxation Office
AUSTRAC
Australian Transaction Reports and
Analysis Centre
BAC
Board Audit Committee
BankSA
Bank of South Australia
BBSW
BCBS
bps
BRCC
CAGR
CAPs
Bank Bill Swap Reference Rate
Basel Committee on Banking
Supervision
Basis points
Board Risk & Compliance Committee
Compound annual growth rate
Collectively assessed provisions
Cash EPS
Cash earnings per share
CCB
CDS
CEO
CET1
CFO
Capital Conservation Buffer
Credit default swap
Chief Executive Officer
Common Equity Tier 1
Chief Financial Officer
Committee of Sponsoring
Organizations of the Treadway
Commission
Credit Portfolio Management
Customer Risk Grade
Chief Risk Officer
Common Reporting Standard
Credit valuation adjustment
Department of Foreign Affairs and
Trade
Domestic Systemically Important
Banks
Exposure at default
Expected credit loss
Earnings per share
Environmental, social and
governance
Employee Share Plan
Fringe benefits tax
Financial Conduct Authority
Financial Claims Scheme
Financial Markets Authority
Full time equivalent employees
Funding Valuation Adjustment
Fair value through income statement
Foreign Exchange
Greenhouse gas
Hastings
Hastings Funds Management
Limited
IAPs
IASB
ICAAP
IFRS
IFTI
IRRBB
Individually Assessed Provisions
International Accounting Standards
Board
Internal Capital Adequacy
Assessment Process
International Financial Reporting
Standards
International Funds Transfer
Instructions
Interest Rate Risk in the Banking
Book
1
I
S
T
R
A
T
E
G
C
R
E
V
I
E
W
2
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
3
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
4
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
WESTPAC GROUP 2020 ANNUAL REPORT1 STRATEGIC REVIEW3 FINANCIAL STATEMENTS4 SHAREHOLDER INFORMATION2 GROUP PERFORMANCE
340
Glossary of abbreviations and defined terms
SME
SOx
STVR
TCE
TLAC
TSR
UK
UKSS
UNSC
US
VaR
VWAP
Small to medium enterprises
Sarbanes-Oxley Act of 2002
Short Term Variable Reward
Total committed exposures
Total Loss Absorbing Capacity
Total Shareholder Return
United Kingdom
Westpac Banking Corporation UK
Staff Superannuation Scheme
United Nations Security Council
United States
Value at Risk
Volume weighted average price
Westpac CPS
Westpac Convertible Preference
Shares
WGP
WHS
WIB
WNZL
WNZS
WPP
WSNZL
Westpac Group Plan
Workplace Health and Safety
Westpac Institutional Bank
Westpac New Zealand Limited
Westpac New Zealand
Superannuation Scheme
Westpac Performance Plan
Westpac Securities NZ Limited
IRS
ISDA
KMP
LCR
Internal Revenue Service
International Swaps and Derivatives
Association
Key Management Personnel
Liquidity Coverage Ratio
LGBTIQ+
Lesbian, gay, bisexual, transgender,
intersex and queer
LGD
LIBOR
LMI
LTIFR
LTVR
LVR
Loss given default
London InterBank Offer Rate
Lenders mortgage insurance
Lost Time Injury Frequency Rate
Long Term Variable Reward
Loan to value ratio
Moody’s
Moody’s Investors Service
NaR
NCI
NII
NYSE
NSFR
NZX
OCC
OCI
OFAC
OTC
PD
PFIC
PNG
RAMS
RBA
RBNZ
RISKCO
RMBS
Net interest income-at-risk
Non-controlling interests
Net interest income
New York Stock Exchange
Net Stable Funding Ratio
New Zealand Exchange Limited
Office of the Comptroller of the
Currency
Other comprehensive income
Office of Foreign Assets Control
Over the counter
Probability of default
Passive foreign investment company
Papua New Guinea
RAMS Home Loans
Reserve Bank of Australia
Reserve Bank of New Zealand
Westpac Group Executive Risk
Committee
Residential Mortgage Backed
Securities
ROE
Return on equity
Cash ROE
Return on equity on a cash earnings
basis
RSP
RWA
S&P
SEC
Restricted Share Plan
Risk-weighted assets
Standard & Poor’s
US Securities and Exchange
Commission
WESTPAC GROUP 2020 ANNUAL REPORT CONTACT US
Westpac Group
Head Office
275 Kent Street
Sydney NSW 2000 Australia
Tel: +61 2 9155 7713
Facsimile: +61 2 8253 4128
International payments Tel: +61 2 9155 7700
Website: www.westpac.com.au/westpacgroup
Westpac
Telephone – Consumer 132 032
Telephone – Business 132 142
From outside Australia: +61 2 9155 7700
Website: www.westpac.com.au
St.George Bank
St.George House
4-16 Montgomery Street
Kogarah NSW 2217 Australia
Mail: Locked Bag 1
Kogarah NSW 1485 Australia
Tel: 13 33 30
Website: www.stgeorge.com.au
Bank of Melbourne
Level 2, 525 Collins Street
Melbourne VIC 3000 Australia
Tel: 13 22 66
From outside Australia: +61 3 8536 7870
Website: www.bankofmelbourne.com.au
BankSA
Level 8, 97 King William Street,
Adelaide SA 5000 Australia
Mail: GPO Box 399,
Adelaide SA 5001 Australia
Tel: 131 376
From outside Australia: +61 2 9155 7850
Website: www.banksa.com.au
RAMS
RAMS Financial Group Pty Ltd
Level 12, 321 Kent Street
Sydney NSW 2000 Australia
Mail: GPO Box 4008,
Sydney NSW 2001 Australia
Tel: +61 2 8218 7000
Email: communications@rams.com.au
Website: www.rams.com.au
BT
Level 18, 275 Kent Street,
Sydney NSW 2000 Australia
Tel: 132 135
From outside Australia: +61 2 9155 4070
Email: customer.relations@btfinancialgroup.com
Website: www.bt.com.au
Westpac Institutional Bank
Tel: 132 032
Website: www.westpac.com.au
Institutional Bank Locations
Hong Kong
India – Mumbai
People’s Republic of China
– Beijing
– Shanghai
Republic of Indonesia – Jakarta
Republic of Singapore – Singapore
United States of America – New York
United Kingdom – London
1
1
S
S
T
T
R
R
A
A
T
T
E
E
G
G
C
C
R
R
E
E
V
V
I
I
E
E
W
W
I
I
2
2
G
G
R
R
O
O
U
U
P
P
P
P
E
E
R
R
F
F
O
O
R
R
M
M
A
A
N
N
C
C
E
E
I
I
3
3
F
F
I
I
N
N
A
A
N
N
C
C
A
A
L
L
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
4
4
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
I
I
O
O
N
N
Westpac Pacific
www.westpac.com.au/pacific
Westpac PNG
Level 1, Burns Philp Haus
Corner of Champion Parade
and Musgrave Street
Port Moresby, NCD, Papua New Guinea
Tel: +675 322 0511
Email: westpacpngcommunication@westpac.com.au
Westpac Fiji
Level 1, Westpac House
1 Thomson Street
Suva, Fiji
Tel: +67 9 321 7309
Email: westpacfiji@westpac.com.au
Westpac New Zealand
16 Takutai Square,
Auckland 1010 New Zealand
Tel: +64 9 912 8000
Email: customersolutions@westpac.co.nz
Website: www.westpac.co.nz
Global locations
Specific contact details for the many locations
globally can be located on our website at
www.westpac.com.au. Select ‘About Westpac’ from
the top menu bar, then ‘Global Locations’ from the
‘Explore’ menu.
Share Registrar
Link Market Services Limited
680 George Street
Sydney NSW 2000 Australia
Mail: Locked Bag A6015, Sydney South NSW 1235
Tel: 1800 804 255
Facsimile: +61 2 9287 0303
Email: westpac@linkmarketservices.com.au
Website: www.linkmarketservices.com.au
Westpac Group Sustainability
Email: sustainability@westpac.com.au
For further information on Westpac Group’s
sustainability approach, policies and performance,
please visit www.westpac.com.au/sustainability.
To contact the Group Sustainability team, or if you
have a human rights related concern, please email
sustainability@westpac.com.au or write to
275 Kent Street, Sydney NSW 2000 Australia.
PEFC Certified
This product is form
sustainably managed forest
and controlled sources
Recognised in Autralia by
Responsible Wood.
www.pefc.org.au
The 2020 Westpac Group Annual Report is
printed on PEFC certified paper. Compliance
with the certification criteria set out by the
Programme for the Endorsement of Forest
Certification (PEFC) means that the paper
fibre is sourced from sustainable forests.
3943 Westpac AR20_56_onwards V40.indd 65
3943 Westpac AR20_56_onwards V40.indd 65
31/10/20 4:47 pm
31/10/20 4:47 pm
westpac.com.au
3943 Westpac AR20_56_onwards V40.indd 66
3943 Westpac AR20_56_onwards V40.indd 66
31/10/20 4:47 pm
31/10/20 4:47 pm