UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

August 19, 2019

 

Commission File Number 1-10167

 

WESTPAC BANKING CORPORATION

(Translation of registrant’s name into English)

 

275 KENT STREET, SYDNEY, NEW SOUTH WALES 2000, AUSTRALIA

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports

under cover of Form 20-F or Form 40-F.

 

Form 20-F               x                        Form 40-F       __________

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  __________

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ___________

 


 

Incorporation by Reference

 

The information contained in this Report on Form 6-K , excluding the information set forth in Exhibit No. 2, shall be incorporated by reference in the prospectuses relating to the Registrant’s securities contained in the Registrant’s Registration Statements on Form F-3 (File Nos. 333-228295 , 333-228294 and 333-220373 ), as such prospectuses may be amended or supplemented from time to time.

 

Index to Exhibits

 

Exhibit
No.

 

Description

 

 

 

      1

 

Westpac Group June 2019 Pillar 3 Report

      2

 

Westpac Group 3Q19 Capital, Funding and Credit Quality Update

 


 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

WESTPAC BANKING CORPORATION

 

                       (Registrant)

 

 

 

 

 

 

 

 

 

 

Date:   August 19, 2019

By:

/s/ Leisha White

 

 

Leisha White

 

 

Practice Leader

 


 

Exhibit 1

 

 


 

Pillar 3 report

Table of contents

 

 

 

Structure of Pillar 3 report

 

Executive summary

 

3

Introduction

 

5

Group structure

 

6

Capital overview

 

8

Leverage ratio

 

11

Credit risk exposures

 

12

Securitisation

 

16

Liquidity coverage ratio

 

19

Appendix

 

 

Appendix I | APS330 Quantitative requirements

 

20

Disclosure regarding forward-looking statements

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In this report references to ‘Westpac’, ‘Westpac Group’, ‘the Group’, ‘we’, ‘us’ and ‘our’ are to Westpac Banking Corporation and its controlled entities (unless the context indicates otherwise).

 

In this report, unless otherwise stated or the context otherwise requires, references to ‘$’, ‘AUD’ or ‘A$’ are to Australian dollars.

 

Any discrepancies between totals and sums of components in tables contained in this report are due to rounding.

 

In this report, unless otherwise stated, disclosures reflect the Australian Prudential Regulation Authority’s (APRA) implementation of Basel III.

 

Information contained in or accessible through the websites mentioned in this 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.

 

 

 

2 | Westpac Group June 2019 Pillar 3 Report

 


 

Pillar 3 report

Executive summary

 

 

 

  $m

30 June 2019

31 March 2019

30 June 2018

The Westpac Group at Level 2

 

 

 

Common equity Tier 1  capital ratio %

10.5

10.6

10.4

Additional Tier 1 capital %

2.2

2.2

2.2

Tier 1 capital ratio %

12.7

12.8

12.6

Tier 2 capital %

1.8

1.8

2.2

Total regulatory capital ratio %

14.5

14.6

14.8

 

 

 

 

APRA leverage ratio %

5.7

5.7

5.6

Level 1 common equity Tier 1 capital ratio (CET1) %

10.5

10.7

10.2

 

 

Westpac’s common equity Tier 1 (CET1) capital ratio was 10.5% at 30 June 2019. The CET1 ratio was lower than the 10.6% reported in March 2019 consistent with the normal quarterly movement in the CET1 capital ratio associated with the payment of the 2019 interim dividend.  The quarterly movement in the CET1 capital ratio was impacted by:

 

·                   relatively modest risk weighted asset (RWA) growth over the quarter (up 0.6%); and

 

·                   participation in the dividend reinvestment plan (DRP), which was 35.8% following the 1.5% discount being placed on the DRP market price.

 

 $m

30 June 2019

31 March 2019

30 June 2018

Risk weighted assets at Level 2

 

 

 

Credit risk

366,701

362,762

361,558

Market risk

8,037

8,338

8,672

Operational risk

41,266

38,641

30,850

Interest rate risk in the banking book

2,745

7,076

13,064

Other

3,415

3,002

3,399

Total RWA

422,164

419,819

417,543

Total Exposure at Default

1,033,702

1,029,817

1,024,015

 

Total RWA increased $2.3 billion or 0.6% this quarter with most of the rise due to an increase in the operational risk RWA overlay of $2.4bn to align Westpac’s operational risk capital to the standardised approach.  Other movements in RWA largely offset each other with credit RWA increasing $3.9bn while non-credit RWA (excluding the operational risk capital increase indicated above) decreased by $4.2bn.

 

The $3.9 billion increase in credit risk RWA included:

 

·                   Portfolio growth of $0.8 billion in RWA mainly driven by mortgage growth;

 

·                   Changes to credit quality, which increased RWA by $2.0 billion, mostly due to higher mortgage delinquencies; and

 

·                   An increase in mark-to-market related credit risk RWA of $1.1 billion, mostly due to lower interest rates over the quarter.

 

The $4.2 billion decrease in non-credit RWA (excluding the movement in operational risk RWA) was mostly due to a $4.3 billion fall in interest rate risk in the banking book RWA as a result of lower interest rates.

 

Exposure at Default

 

Exposure at default (EAD) increased $3.9 billion (up 0.4%) over the quarter, primarily due to growth in residential mortgage exposures of $3.9 billion.

 

Leverage Ratio

 

The leverage ratio represents the amount of Tier 1 capital relative to exposure 1 . At 30 June 2019, Westpac’s leverage ratio was 5.7% (31 March 2019: 5.7%).

 

Liquidity Coverage Ratio (LCR)

 

Westpac’s average LCR for the quarter ending 30 June 2019 was 137% 2 . Spot LCR at 30 June 2019 was 128% (31 March 2019: 138%).

 

Future capital developments

 

On 11 July 2019 Westpac Group received the Australian Prudential Regulation Authority’s (APRA) response to its Culture, Governance and Accountability (CGA) self-assessment. As part of its response, APRA has decided to apply an additional $500 million to Westpac’s operational risk capital requirement

 


1   As defined under Attachment D of APS110: Capital Adequacy

2   Calculated as a simple average of the daily observations over the 30 June 2019 quarter.

 

Westpac Group June 2019 Pillar 3 Report | 3

 


 

Pillar 3 report

Executive summary

 

 

 

reflecting a need to improve its management of non-financial risks. The $500 million requirement will apply at 30 September 2019 and will remain until APRA is satisfied that Westpac has completed the action plan set out in the CGA self-assessment. This change is expected to reduce Westpac’s Level 1 and Level 2 CET1 capital ratio by approximately 16 basis points.

 

In addition, the following capital developments are expected to emerge in the near future:

 

·                   New derivative standard from 1 July 2019, expected to reduce CET1 capital ratio by approximately 20 basis points;

 

·        AASB 1  16 Leasing standard from 1 October 2019 (no impact in FY19), expected to reduce CET1 capital ratio by approximately 8 basis points;

 

·                   APRA unquestionably strong benchmark for CET1 capital ratio of at least 10.5% commences 1 January 2020 (based on current RWA methodology);

 

·                   Reserve Bank of New Zealand (RBNZ) capital announcement expected to be finalised late 2019; and

 

·                   APRA advised that it will be reviewing its current approach to risk-weighting Authorised Deposit-taking Institution’s (ADI) equity exposures to subsidiaries (including NZ subsidiaries) at Level 1 later in 2019.

 

The CET1 capital ratio at 30 September 2019 will depend on 4Q19 earnings, which may be impacted by the risks described in Westpac’s 2019 Interim Results announcement (including changes in remediation provisions or potential fines and penalties).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


1   Australian Accounting Standards Board.

 

4 | Westpac Group June 2019 Pillar 3 Report

 


 

Pillar 3 report

Introduction

 

 

 

Westpac Banking Corporation is an ADI subject to regulation by the APRA. APRA has accredited Westpac 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 (Advanced IRB) for credit risk and the Advanced Measurement Approach (AMA) for operational risk.

 

In accordance with APS330 Public Disclosure, financial institutions that have received this accreditation, such as Westpac, are required to disclose prudential information about their risk management practices on a semi-annual basis. A subset of this information must be disclosed quarterly.

 

In addition to this report, the regulatory disclosures section of the Westpac website 1  contains the reporting requirements for:

 

·      Capital instruments under Attachment B of APS330; and

 

·      The identification of potential Global-Systemically Important Banks (G-SIB) under Attachment H of APS330 (disclosed annually).

 

Capital instruments disclosures are updated when:

 

·      A new capital instrument is issued that will form part of regulatory capital; or

 

·      A capital instrument is redeemed, converted into CET1 capital, written off, or its terms and conditions are changed.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1       http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/

 

Westpac Group June 2019 Pillar 3 Report | 5

 


 

Pillar 3 report

Group structure

 

 

 

Westpac seeks to ensure that it is adequately capitalised at all times. APRA applies a tiered approach to measuring Westpac’s capital adequacy 1  by assessing financial strength at three levels:

 

·       Level 1, comprising Westpac Banking Corporation and its subsidiary entities that have been approved by APRA as being part of a single ‘Extended Licensed Entity’ (ELE) for the purposes of measuring capital adequacy;

 

·       Level 2, 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; and

 

·       Level 3, the consolidation of Westpac Banking Corporation and all its subsidiary entities.

 

Unless otherwise specified, all quantitative disclosures in this report refer to the prudential assessment of Westpac’s financial strength on a Level 2 basis 2 .

 

The Westpac Group

 

The following diagram shows the Level 3 conglomerate group and illustrates the different tiers of regulatory consolidation.

 

 

Accounting consolidation 3

 

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries (including structured entities) controlled by Westpac. Westpac and its subsidiaries are referred to collectively as the ‘Group’. The effects of all transactions between entities in the Group are eliminated. Control exists when the parent entity is exposed to, or has rights to, variable returns from its involvement with an entity, and has the ability to affect those returns through its power over that entity. Subsidiaries are fully consolidated from the date on which control commences and they are no longer consolidated from the date that control ceases.

 

Group entities excluded from the regulatory consolidation at Level 2

 

Regulatory consolidation at Level 2 covers the global operations of Westpac and its subsidiary entities, including other controlled banking, securities and financial entities, except for those entities involved in the following business activities:

 

·       insurance;

 

·       acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds management;

 

·       non-financial (commercial) operations; or

 

·       special purpose entities to which assets have been transferred in accordance with the requirements of APS120 Securitisation.

 

Retained earnings and equity investments in subsidiary entities excluded from the consolidation at Level 2 are deducted from capital, with the exception of securitisation special purpose entities.

 

 

 

 

1    APS110 Capital Adequacy outlines the overall framework adopted by APRA for the purpose of assessing the capital adequacy of an ADI.

2    Impaired assets and provisions held in Level 3 entities are excluded from the tables in this report.

3    Refer to Note 35 of Westpac’s 2018 Annual Report for further details.

 

6 | Westpac Group June 2019 Pillar 3 Report

 


 

Pillar 3 report

Group structure

 

 

 

Subsidiary banking entities

 

Westpac New Zealand Limited (WNZL), a wholly owned subsidiary entity, is a registered bank incorporated in New Zealand and regulated by the Reserve Bank of New Zealand. WNZL uses the Advanced IRB approach for credit risk and the AMA for operational risk. Other subsidiary banking entities in the Group include Westpac Bank-PNG-Limited and Westpac Europe Limited. For the purposes of determining Westpac’s capital adequacy subsidiary banking entities are consolidated at Level 2.

 

Restrictions and major impediments on the transfer of funds or regulatory capital within the Group

 

Minimum capital (‘thin capitalisation’) rules

 

Tax legislation in most jurisdictions in which the Group operates prescribes minimum levels of capital that must be retained in that jurisdiction to avoid a portion of the interest costs incurred in the jurisdiction ceasing to be tax deductible. Capital for these purposes includes both contributed capital and non-distributed retained earnings. Westpac seeks to maintain sufficient capital/retained earnings to comply with these rules.

 

Tax costs associated with repatriation

 

Repatriation of retained earnings (and capital) may result in tax being payable in either the jurisdiction from which the repatriation occurs or Australia on receipt of the relevant amounts. This cost would reduce the amount actually repatriated.

 

Intra-group exposure limits

 

Exposures to related entities are managed within the prudential limits prescribed by APRA in APS222 Associations with Related Entities 1 . Westpac has an internal limit structure and approval process governing credit exposures to related entities. This limit structure and approval process, combined with APRA’s prudential limits, is designed to reduce the potential for unacceptable contagion risk.

 

Prudential regulation of subsidiary entities

 

Certain subsidiary banking, insurance and trustee entities are subject to local prudential regulation in their own right, including capital adequacy requirements and investment or intra-group exposure limits. Westpac seeks to ensure that its subsidiary entities are adequately capitalised and adhere to regulatory requirements at all times. There are no capital deficiencies in subsidiary entities excluded from the regulatory consolidation at Level 2.

 

On 15 November 2017, the RBNZ advised WNZL of changes to its conditions of registration resulting from its review of WNZL’s compliance with the RBNZ’s ‘Capital Adequacy Framework’ (Internal Models Based Approach) (BS2B). The changes to WNZL’s conditions of registration came into effect on 31 December 2017 and increase the minimum Total Capital ratio, Tier 1 Capital ratio and Common Equity Tier 1 Capital ratio of WNZL and its controlled entities by 2%. WNZL has also undertaken to the RBNZ to maintain the Total Capital ratio of WNZL and its controlled entities above 15.1%. WNZL and its controlled entities retain an appropriate amount of capital to comply with the increased minimum ratios.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1    For the purposes of APS222, subsidiaries controlled by Westpac, other than subsidiaries that form part of the ELE, represent ‘related entities’. Prudential and internal limits apply to intra-group exposures between the ELE and related entities, both on an individual and aggregate basis.

 

Westpac Group June 2019 Pillar 3 Report | 7

 


 

Pillar 3 report

Capital overview

 

 

 

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 an 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 perspectives of external stakeholders including rating agencies and equity and debt investors.

 

In light of APRA’s announcement on ‘unquestionably strong’ capital benchmarks on 19 July 2017, Westpac will seek to operate with a CET1 capital ratio of at least 10.5% in March and September as measured under the existing capital framework. This also takes 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 domestic systemically important banks (D-SIBs) 1 ;

 

·        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.

 

Should the CET1 ratio fall below the total CET1 requirement, restrictions on the distribution 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.

 

Westpac will revise its target capital levels once APRA finalises its review of the capital adequacy framework.

 

Total regulatory capital developments

 

On 9 July 2019 APRA announced that it will require the major banks (including Westpac) to lift Total Capital by three percentage points of RWA by 1 January 2024 in order to boost loss absorbing capacity and support orderly resolution. APRA also confirmed that its overall long term target of an additional four to five percentage points of loss absorbing capacity remains unchanged, and that it will consider the most feasible alternative method of sourcing the remaining one to two percentage points, taking into account the particular characteristics of the Australian financial system.

 

Westpac’s capital adequacy ratios

 

%

 

30 June 2019

 

31 March 2019

 

30 June 2018

 

The Westpac Group at Level 2

 

 

 

 

 

 

 

Common equity Tier 1 capital ratio

 

10.5

 

10.6

 

10.4

 

Additional Tier 1 capital

 

2.2

 

2.2

 

2.2

 

Tier 1 capital ratio

 

12.7

 

12.8

 

12.6

 

Tier 2 capital

 

1.8

 

1.8

 

2.2

 

Total regulatory capital ratio

 

14.5

 

14.6

 

14.8

 

 

 

 

 

 

 

 

 

The Westpac Group at Level 1

 

 

 

 

 

 

 

Common equity Tier 1 capital ratio

 

10.5

 

10.7

 

10.2

 

Additional Tier 1 capital

 

2.3

 

2.3

 

2.3

 

Tier 1 capital ratio

 

12.8

 

13.0

 

12.5

 

Tier 2 capital

 

1.9

 

1.8

 

2.3

 

Total regulatory capital ratio

 

14.7

 

14.8

 

14.8

 

 

Westpac New Zealand Limited’s capital adequacy ratios

 

%

 

30 June 2019

 

31 March 2019

 

30 June 2018

 

Westpac New Zealand Limited

 

 

 

 

 

 

 

Common equity Tier 1 capital ratio

 

12.0

 

11.7

 

12.2

 

Additional Tier 1 capital

 

2.7

 

2.8

 

2.8

 

Tier 1 capital ratio

 

14.7

 

14.5

 

15.0

 

Tier 2 capital

 

2.0

 

2.0

 

2.1

 

Total regulatory capital ratio

 

16.7

 

16.5

 

17.1

 

 

 

 

 

1    Noting that APRA may apply higher CET1 requirements for an individual ADI.

 

8 | Westpac Group June 2019 Pillar 3 Report

 


 

Pillar 3 report

Capital overview

 

 

 

Capital requirements

 

This table shows risk weighted assets and associated capital requirements 1  for each risk type included in the regulatory assessment of Westpac’s capital adequacy. More detailed disclosures on the prudential assessment of capital requirements are presented in the following sections of this report.

 

30 June 2019

 

IRB

 

Standardised

 

Total Risk

 

Total Capital

 

$m

 

Approach

 

Approach 2

 

Weighted Assets

 

Required 1

 

Credit risk

 

 

 

 

 

 

 

 

 

Corporate

 

73,728

 

1,720

 

75,448

 

6,036

 

Business lending

 

35,921

 

969

 

36,890

 

2,951

 

Sovereign

 

1,899

 

1,074

 

2,973

 

238

 

Bank

 

7,317

 

44

 

7,361

 

589

 

Residential mortgages

 

134,702

 

5,155

 

139,857

 

11,189

 

Australian credit cards

 

5,741

 

-

 

5,741

 

459

 

Other retail

 

12,898

 

917

 

13,815

 

1,105

 

Small business

 

16,331

 

-

 

16,331

 

1,307

 

Specialised lending

 

53,887

 

446

 

54,333

 

4,347

 

Securitisation

 

5,749

 

-

 

5,749

 

460

 

Mark-to-market related credit risk 3

 

-

 

8,203

 

8,203

 

656

 

Total

 

348,173

 

18,528

 

366,701

 

29,337

 

Market risk

 

 

 

 

 

8,037

 

643

 

Operational risk

 

 

 

 

 

41,266

 

3,301

 

Interest rate risk in the banking book

 

 

 

 

 

2,745

 

220

 

Other assets 4

 

 

 

 

 

3,415

 

273

 

Total

 

 

 

 

 

422,164

 

33,774

 

 

 

 

 

 

 

 

 

 

 

31 March 2019

 

IRB

 

Standardised

 

Total Risk

 

Total Capital

 

$m

 

Approach

 

Approach 2

 

Weighted Assets

 

Required 1

 

Credit risk

 

 

 

 

 

 

 

 

 

Corporate

 

73,551

 

1,737

 

75,288

 

6,023

 

Business lending

 

35,294

 

982

 

36,276

 

2,902

 

Sovereign

 

1,653

 

1,042

 

2,695

 

216

 

Bank

 

7,066

 

31

 

7,097

 

568

 

Residential mortgages

 

132,133

 

5,273

 

137,406

 

10,992

 

Australian credit cards

 

5,910

 

-

 

5,910

 

473

 

Other retail

 

13,082

 

944

 

14,026

 

1,122

 

Small business

 

16,092

 

-

 

16,092

 

1,287

 

Specialised lending

 

54,833

 

446

 

55,279

 

4,422

 

Securitisation

 

5,583

 

-

 

5,583

 

447

 

Mark-to-market related credit risk 3

 

-

 

7,110

 

7,110

 

569

 

Total

 

345,197

 

17,565

 

362,762

 

29,021

 

Market risk

 

 

 

 

 

8,338

 

667

 

Operational risk

 

 

 

 

 

38,641

 

3,091

 

Interest rate risk in the banking book

 

 

 

 

 

7,076

 

566

 

Other assets 4

 

 

 

 

 

3,002

 

240

 

Total

 

 

 

 

 

419,819

 

33,585

 

 

 

 

 

 

 

 

 

 

 

1    Total capital required is calculated as 8% of total risk weighted assets.

2    Westpac’s Standardised risk weighted assets are categorised based on their equivalent IRB categories.

3    Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk.

4    Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets.

 

Westpac Group June 2019 Pillar 3 Report | 9

 


 

Pillar 3 report

Capital overview

 

 

 

30 June 2018

 

IRB

 

Standardised

 

Total Risk

 

Total Capital

 

$m

 

Approach

 

Approach 2

 

Weighted Assets

 

Required 1

 

Credit risk

 

 

 

 

 

 

 

 

 

Corporate

 

70,539

 

1,811

 

72,350

 

5,788

 

Business lending

 

35,402

 

984

 

36,386

 

2,911

 

Sovereign

 

1,616

 

962

 

2,578

 

206

 

Bank

 

6,482

 

48

 

6,530

 

522

 

Residential mortgages

 

129,827

 

5,481

 

135,308

 

10,825

 

Australian credit cards

 

6,464

 

-

 

6,464

 

517

 

Other retail

 

14,213

 

1,011

 

15,224

 

1,218

 

Small business

 

16,144

 

-

 

16,144

 

1,292

 

Specialised lending

 

57,299

 

432

 

57,731

 

4,618

 

Securitisation

 

5,932

 

-

 

5,932

 

475

 

Mark-to-market related credit risk 3

 

-

 

6,911

 

6,911

 

553

 

Total

 

343,918

 

17,640

 

361,558

 

28,925

 

Market risk

 

 

 

 

 

8,672

 

694

 

Operational risk

 

 

 

 

 

30,850

 

2,468

 

Interest rate risk in the banking book

 

 

 

 

 

13,064

 

1,045

 

Other assets 4

 

 

 

 

 

3,399

 

272

 

Total

 

 

 

 

 

417,543

 

33,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1    Total capital required is calculated as 8% of total risk weighted assets.

2    Westpac’s Standardised risk weighted assets are categorised based on their equivalent IRB categories.

3    Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk.

4    Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets.

 

10 | Westpac Group June 2019 Pillar 3 Report

 


 

Pillar 3 report

Leverage ratio disclosure

 

 

 

Leverage ratio

 

The following table summarises Westpac’s leverage ratio. This has been determined using APRA’s definition of the leverage ratio as specified in APS110 Capital Adequacy.

 

$ billion

 

30 June 2019

 

31 March 2019

 

31 December 2018

 

30 September 2018

Tier 1 Capital

 

53.7

 

53.9

 

53.6

 

54.4

Total Exposures

 

946.7

 

942.4

 

936.0

 

931.1

Leverage ratio

 

5.7%

 

5.7%

 

5.7%

 

5.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westpac Group June 2019 Pillar 3 Report | 11

 


 

Pillar 3 report

Credit risk exposures

 

 

 

Summary credit risk disclosure

 

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected

 

 

 

Specific

 

Actual

 

 

 

 

 

Risk

 

Regulatory

 

Loss for

 

 

 

Provisions

 

 Losses for

 

30 June 2019

 

Exposure

 

Weighted

 

Expected

 

non-defaulted

 

Impaired

 

for Impaired

 

the 9 months

 

$m

 

at Default

 

Assets

 

Loss 1

 

exposures

 

Loans

 

Loans

 

ended

 

Corporate

 

134,686

 

73,728

 

554

 

468

 

161

 

75

 

(5)

 

Business lending

 

55,274

 

35,921

 

646

 

428

 

294

 

160

 

33

 

Sovereign

 

80,171

 

1,899

 

2

 

2

 

-

 

-

 

-

 

Bank

 

26,224

 

7,317

 

8

 

8

 

-

 

-

 

-

 

Residential mortgages

 

562,101

 

134,702

 

1,708

 

1,139

 

422

 

119

 

87

 

Australian credit cards

 

18,493

 

5,741

 

355

 

283

 

116

 

74

 

235

 

Other retail

 

16,375

 

12,898

 

619

 

448

 

310

 

169

 

246

 

Small business

 

33,429

 

16,331

 

504

 

347

 

399

 

164

 

53

 

Specialised Lending

 

63,525

 

53,887

 

780

 

554

 

108

 

41

 

11

 

Securitisation

 

26,169

 

5,749

 

-

 

-

 

-

 

-

 

-

 

Standardised 2

 

17,255

 

18,528

 

-

 

-

 

62

 

17

 

2

 

Total

 

1,033,702

 

366,701

 

5,176

 

3,677

 

1,872

 

819

 

662

 

 

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected

 

 

 

Specific

 

Actual

 

 

 

 

 

Risk

 

Regulatory

 

Loss for

 

 

 

Provisions

 

 Losses for

 

31 March 2019

 

Exposure

 

Weighted

 

Expected

 

non-defaulted

 

Impaired

 

for Impaired

 

the 6 months

 

$m

 

at Default

 

Assets

 

Loss 1

 

exposures

 

Loans

 

Loans

 

ended

 

Corporate

 

135,502

 

73,551

 

561

 

468

 

176

 

79

 

(3)

 

Business lending

 

54,299

 

35,294

 

642

 

424

 

279

 

161

 

23

 

Sovereign

 

79,572

 

1,653

 

2

 

1

 

-

 

-

 

-

 

Bank

 

25,471

 

7,066

 

8

 

8

 

-

 

-

 

-

 

Residential mortgages

 

558,161

 

132,133

 

1,649

 

1,106

 

391

 

126

 

52

 

Australian credit cards

 

18,850

 

5,910

 

363

 

292

 

101

 

63

 

150

 

Other retail

 

16,583

 

13,082

 

640

 

459

 

297

 

173

 

162

 

Small business

 

33,280

 

16,092

 

497

 

345

 

374

 

148

 

33

 

Specialised Lending

 

64,781

 

54,833

 

798

 

562

 

118

 

44

 

10

 

Securitisation

 

25,929

 

5,583

 

-

 

-

 

-

 

-

 

-

 

Standardised 2

 

17,389

 

17,565

 

-

 

-

 

13

 

6

 

1

 

Total

 

1,029,817

 

362,762

 

5,160

 

3,665

 

1,749

 

800

 

428

 

 

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected

 

 

 

Specific

 

Actual

 

 

 

 

 

Risk

 

Regulatory

 

Loss for

 

 

 

Provisions

 

 Losses for

 

30 June 2018

 

Exposure

 

Weighted

 

Expected

 

non-defaulted

 

Impaired

 

for Impaired

 

the 9 months

 

$m

 

at Default

 

Assets

 

Loss 1

 

exposures

 

Loans

 

Loans

 

ended

 

Corporate

 

129,145

 

70,539

 

555

 

455

 

115

 

49

 

20

 

Business lending

 

54,185

 

35,402

 

631

 

427

 

316

 

182

 

54

 

Sovereign

 

82,167

 

1,616

 

2

 

2

 

-

 

-

 

-

 

Bank

 

24,985

 

6,482

 

8

 

8

 

-

 

-

 

-

 

Residential mortgages

 

551,333

 

129,827

 

1,211

 

998

 

309

 

94

 

73

 

Australian credit cards

 

19,522

 

6,464

 

365

 

312

 

95

 

48

 

203

 

Other retail

 

17,418

 

14,213

 

614

 

477

 

294

 

137

 

266

 

Small business

 

33,021

 

16,144

 

454

 

333

 

174

 

80

 

77

 

Specialised Lending

 

67,388

 

57,299

 

846

 

599

 

170

 

68

 

2

 

Securitisation

 

26,815

 

5,932

 

-

 

-

 

-

 

-

 

-

 

Standardised 2

 

18,036

 

17,640

 

-

 

-

 

22

 

12

 

1

 

Total

 

1,024,015

 

361,558

 

4,686

 

3,611

 

1,495

 

670

 

696

 

 

 

 

 

 

 


1      Includes regulatory expected losses for defaulted and non-defaulted exposures.

2      Includes mark-to-market related credit risk.

 

12 | Westpac Group June 2019 Pillar 3 Report

 


 

Pillar 3 report

Credit risk exposures

 

 

 

Exposure at Default by major type

 

30 June 2019

On balance

Off-balance sheet

Total Exposure

Average

$m

sheet

Non-market related

Market related

at Default

3 months ended 1

Corporate

63,514

59,650

11,522

134,686

135,094

Business lending

43,029

12,245

-

55,274

54,787

Sovereign

76,109

1,518

2,544

80,171

79,872

Bank

16,609

2,236

7,379

26,224

25,848

Residential mortgages

488,220

73,881

-

562,101

560,131

Australian credit cards

9,477

9,016

-

18,493

18,672

Other retail

12,974

3,401

-

16,375

16,479

Small business

26,622

6,807

-

33,429

33,355

Specialised lending

51,704

10,503

1,318

63,525

64,153

Securitisation 2

20,619

5,354

196

26,169

26,049

Standardised

13,451

1,149

2,655

17,255

17,322

Total

822,328

185,760

25,614

1,033,702

1,031,766

 

 

 

 

 

 

 

 

 

 

31 March 2019

On balance

Off-balance sheet

 Total Exposure

Average

$m

sheet

Non-market related

 Market related

at Default

6 months ended 3

Corporate

66,944

57,852

10,706

135,502

135,502

Business lending

41,345

12,954

-

54,299

54,299

Sovereign

75,685

1,487

2,400

79,572

79,572

Bank

16,034

2,184

7,253

25,471

25,471

Residential mortgages

482,670

75,491

-

558,161

558,161

Australian credit cards

9,575

9,275

-

18,850

18,850

Other retail

13,145

3,438

-

16,583

16,583

Small business

26,246

7,034

-

33,280

33,280

Specialised lending

52,780

10,918

1,083

64,781

64,781

Securitisation 2

20,767

4,997

165

25,929

25,929

Standardised

13,641

1,195

2,553

17,389

17,389

Total

818,832

186,825

24,160

1,029,817

1,029,818

 

 

 

 

 

 

 

 

 

 

30 June 2018

On balance

Off-balance sheet

Total Exposure

Average

$m

sheet

  Non-market related

 Market related

at Default

3 months ended 4

Corporate

61,514

54,850

12,781

129,145

129,505

Business lending

41,181

13,004

-

54,185

53,968

Sovereign

78,106

1,845

2,216

82,167

79,242

Bank

14,660

1,783

8,542

24,985

24,426

Residential mortgages

475,193

76,140

-

551,333

549,507

Australian credit cards

9,671

9,851

-

19,522

19,581

Other retail

13,851

3,567

-

17,418

17,557

Small business

26,177

6,844

-

33,021

32,963

Specialised lending

53,400

13,060

928

67,388

67,191

Securitisation 2

21,966

4,724

125

26,815

26,689

Standardised

13,945

1,216

2,875

18,036

18,060

Total

809,664

186,884

27,467

1,024,015

1,018,685

 

 

 

 

 

 

 

 

 


1       Average is based on exposures as at 30 June 2019 and 31 March 2019.

2       The EAD associated with securitisations is for the banking book only.

3       Average is based on exposures as at 31 March 2019, 31 December 2018, and 30 September 2018.

4       Average is based on exposures as at 30 June 2018 and 31 March 2018.

 

Westpac Group June 2019 Pillar 3 Report | 13

 


 

Pillar 3 report

Credit risk exposures

 

 

 

Loan impairment provisions

 

APS220 Credit Quality requires that Westpac report specific provisions and a General Reserve for Credit Loss (GRCL). All Individually Assessed Provisions (IAP) raised under Australian Accounting Standards (AAS) are classified as specific provisions. All Collectively Assessed Provisions (CAP) raised under AAS are either classified into specific provisions or a GRCL.

 

30 June 2019

               AAS Provisions

GRCL

Total Regulatory

$m

IAPs

CAPs

Total

Adjustment

Provisions

Specific Provisions

 

 

 

 

 

for impaired loans

438

381

819

NA

819

for defaulted but not impaired loans

NA

573

573

NA

573

For Stage 2

NA

1,281

1,281

NA

1,281

Total Specific Provision 1

438

2,235

2,673

NA

2,673

General Reserve for Credit Loss 1

NA

1,394

1,394

NA

1,394

Total provisions for Expected Credit Losses

438

3,629

4,067

NA

4,067

 

 

 

 

 

 

31 March 2019

               AAS Provisions

GRCL

Total Regulatory

$m

IAPs

CAPs

Total

Adjustment

Provisions

Specific Provisions

 

 

 

 

 

for impaired loans

433

367

800

NA

800

for defaulted but not impaired loans

NA

558

558

NA

558

For Stage 2

NA

1,264

1,264

NA

1,264

Total Specific Provision 1

433

2,189

2,622

NA

2,622

General Reserve for Credit Loss 1

NA

1,375

1,375

NA

1,375

Total provisions for Expected Credit Losses

433

3,564

3,997

NA

3,997

 

 

 

 

 

 

30 June 2018

               AAS Provisions

GRCL

Total Regulatory

$m

IAPs

CAPs

Total

Adjustment

Provisions

Specific Provisions

 

 

 

 

 

for impaired loans

437

233

670

NA

670

for defaulted but not impaired loans

NA

201

201

NA

201

Total Specific Provision

437

434

871

NA

871

General Reserve for Credit Loss

NA

2,235

2,235

355

2,590

Total provisions for impairment charges

437

2,669

3,106

355

3,461

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


1   Provisions classified according to APRA’s letter dated 4 July 2017 “Provisions for regulatory purposes and AASB 9 financial instruments”.

 

14 | Westpac Group June 2019 Pillar 3 Report

 


 

Pillar 3 report

Credit risk exposures

 

 

 

Impaired and past due loans

 

The following tables disclose the crystallisation of credit risk as impairment and loss. Analysis of exposures defaulted not impaired, impaired loans, related provisions and actual losses is broken down by concentrations reflecting Westpac’s asset categories.

 

 

 

 

Specific

Specific

Actual

30 June 2019

Defaulted

Impaired

Provisions for

Provisions to

Losses for the

$m

not impaired

Loans

Impaired Loans

Impaired Loans

9 months ended

Corporate

95

161

75

47%

(5)

Business lending

423

294

160

54%

33

Sovereign

-

-

-

-

-

Bank

-

-

-

-

-

Residential mortgages

3,872

422

119

28%

87

Australian credit cards

-

116

74

64%

235

Other retail

-

310

169

55%

246

Small business

331

399

164

41%

53

Specialised lending

315

108

41

38%

11

Securitisation

-

-

-

-

-

Standardised

65

62

17

27%

2

Total

5,101

1,872

819

44%

662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specific

Specific

Actual

31 March 2019

Defaulted

Impaired

Provisions for

Provisions to

Losses for the

$m

not impaired

Loans

Impaired Loans

Impaired Loans

6 months ended

Corporate

108

176

79

45%

(3)

Business lending

380

279

161

58%

23

Sovereign

-

-

-

-

-

Bank

-

-

-

-

-

Residential mortgages

3,376

391

126

32%

52

Australian credit cards

-

101

63

62%

150

Other retail

-

297

173

58%

162

Small business

310

374

148

40%

33

Specialised lending

314

118

44

37%

10

Securitisation

-

-

-

-

-

Standardised

34

13

6

46%

1

Total

4,522

1,749

800

46%

428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specific

Specific

Actual

30 June 2018

Defaulted

Impaired

Provisions for

Provisions to

Losses for the

$m

not impaired

Loans

Impaired Loans

Impaired Loans

9 months ended

Corporate

78

115

49

43%

20

Business lending

264

316

182

58%

54

Sovereign

-

-

-

-

-

Bank

-

-

-

-

-

Residential mortgages

3,145

309

94

30%

73

Australian credit cards

-

95

48

51%

203

Other retail

-

294

137

47%

266

Small business

165

174

80

46%

77

Specialised lending

292

170

68

40%

2

Securitisation

-

-

-

-

-

Standardised

24

22

12

55%

1

Total

3,968

1,495

670

45%

696

 

 

 

 

 

 

 

Westpac Group June 2019 Pillar 3 Report | 15

 


 

Pillar 3 report

Securitisation

 

 

 

Banking book summary of securitisation activity by asset type

 

For the 3 months ended

 

 

30 June 2019

Amount

Recognised gain or

$m

securitised

loss on sale

Residential mortgages

4,137

-

Credit cards

-

-

Auto and equipment finance

305

-

Business lending

-

-

Investments in ABS

-

-

Other

-

-

Total

4,442

-

 

 

 

 

 

 

For the 6 months ended

 

 

31 March 2019

Amount

Recognised gain or

$m

securitised

loss on sale

Residential mortgages

17,444

-

Credit cards

-

-

Auto and equipment finance

295

-

Business lending

-

-

Investments in ABS

-

-

Other

-

-

Total

17,739

-

 

 

 

 

 

 

For the 3 months ended

 

 

30 June 2018

Amount

Recognised gain or

$m

securitised

loss on sale

Residential mortgages

10,002

-

Credit cards

-

-

Auto and equipment finance

567

-

Business lending

-

-

Investments in ABS

-

-

Other

-

-

Total

10,569

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16 | Westpac Group June 2019 Pillar 3 Report

 


 

Pillar 3 report

Securitisation

 

 

 

Banking book summary of on and off-balance sheet securitisation by exposure type

 

30 June 2019

On balance sheet

Off-balance

Total Exposure

$m

Securitisation retained

Securitisation purchased

sheet

at Default

Securities

-

8,817

34

8,851

Liquidity facilities

-

-

356

356

Funding facilities

2,388

-

1,483

3,871

Underwriting facilities

-

-

-

-

Lending facilities

8

-

298

306

Warehouse facilities

9,409

-

3,376

12,785

Total

11,805

8,817

5,547

26,169

 

 

 

 

 

 

 

 

 

 

31 March 2019

On balance sheet

Off-balance

Total Exposure

$m

Securitisation retained

Securitisation purchased

sheet

at Default

Securities

-

8,746

34

8,780

Liquidity facilities

-

-

299

299

Funding facilities

2,577

-

1,168

3,745

Underwriting facilities

-

-

-

-

Lending facilities

9

-

8

17

Warehouse facilities

9,435

-

3,653

13,088

Total

12,021

8,746

5,162

25,929

 

 

 

 

 

 

 

 

 

 

30 June 2018

On balance sheet

Off-balance

Total Exposure

$m

Securitisation retained

Securitisation purchased

sheet

at Default

Securities

-

9,102

32

9,134

Liquidity facilities

-

-

266

266

Funding facilities

5,157

-

1,932

7,089

Underwriting facilities

-

-

-

-

Lending facilities

505

-

24

529

Warehouse facilities

7,178

-

2,619

9,797

Total

12,840

9,102

4,873

26,815

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westpac Group June 2019 Pillar 3 Report | 17

 


 

Pillar 3 report

Securitisation

 

 

 

Trading book summary of on and off-balance sheet securitisation by exposure type 1

 

30 June 2019

On balance sheet

Off-balance

Total Exposure

$m

Securitisation retained

Securitisation purchased

sheet

at Default

Securities

-

14

-

14

Liquidity facilities

-

-

-

-

Funding facilities

-

-

-

-

Underwriting facilities

-

-

-

-

Lending facilities

-

-

-

-

Warehouse facilities

-

-

-

-

Credit enhancements

-

-

-

-

Basis swaps

-

-

59

59

Other derivatives

-

-

13

13

Total

-

14

72

86

 

 

 

 

 

 

 

 

 

 

31 March 2019

On balance sheet

Off-balance

Total Exposure

$m

Securitisation retained

Securitisation purchased

sheet

at Default

Securities

-

30

-

30

Liquidity facilities

-

-

-

-

Funding facilities

-

-

-

-

Underwriting facilities

-

-

-

-

Lending facilities

-

-

-

-

Warehouse facilities

-

-

-

-

Credit enhancements

-

-

-

-

Basis swaps

-

-

48

48

Other derivatives

-

-

7

7

Total

-

30

55

85

 

 

 

 

 

 

 

 

 

 

30 June 2018

On balance sheet

Off-balance

Total Exposure

$m

Securitisation retained

Securitisation purchased

sheet

at Default

Securities

-

150

-

150

Liquidity facilities

-

-

-

-

Funding facilities

-

-

-

-

Underwriting facilities

-

-

-

-

Lending facilities

-

-

-

-

Warehouse facilities

-

-

-

-

Credit enhancements

-

-

-

-

Basis swaps

-

-

51

51

Other derivatives

-

-

36

36

Total

-

150

87

237

 

 

 

 

 

 

 

 

 

 

 

 

 


1      EAD associated with trading book securitisation is not included in EAD by major type on page 13. Trading book securitisation exposure is captured and risk weighted under APS116 Capital Adequacy: Market Risk.

 

18 | Westpac Group June 2019 Pillar 3 Report

 


 

Pillar 3 report

Liquidity coverage ratio

 

 

 

Liquidity Coverage Ratio

 

The Liquidity Coverage Ratio (LCR) requires banks to hold sufficient high-quality liquid assets, as defined by APRA, to withstand 30 days under a regulator-defined acute stress scenario. Westpac’s LCR as at 30 June 2019 was 128% 1  (31 March 2019: 138%) and the average LCR for the quarter was 137% 2  (31 March 2019: 134%).

 

Liquid assets included in the LCR comprise High Quality Liquid Assets (HQLA), the Committed Liquidity Facility (CLF) from the Reserve Bank of Australia and additional qualifying Reserve Bank of New Zealand securities. Westpac received approval from APRA for a CLF of $54.0 billion for the calendar year 2019 (2018 calendar year: $57.0 billion). Westpac maintains a portfolio of HQLA and these averaged $82.7 billion over the quarter 2 .

 

Funding is sourced from retail, small business, corporate and institutional customer deposits and wholesale funding. Westpac seeks to minimise the outflows associated with this funding by targeting customer deposits with lower LCR outflow rates and actively manages the maturity profile of its wholesale funding portfolio. Westpac maintains a buffer over the regulatory minimum of 100%.

 

 

 

30 June 2019

31 March 2019

$m

Total unweighted
value (average)
2

Total weighted
value (average)
2

Total unweighted
value (average)
3

Total weighted
value (average)
3

Liquid assets, of which:

 

 

 

 

1

High-quality liquid assets (HQLA)

 

82,684

 

78,869

2

Alternative liquid assets (ALA)

 

47,992

 

46,948

3

Reserve Bank of New Zealand (RBNZ) securities

 

4,756

 

4,601

 

 

 

 

 

 

Cash Outflows

 

 

 

 

4

Retail deposits and deposits from small business customers, of which:

237,242

21,658

233,942

21,398

5

Stable deposits

114,136

5,707

112,686

5,634

6

Less stable deposits

123,106

15,951

121,256

15,764

 

 

 

 

 

 

7

Unsecured wholesale funding, of which:

120,209

58,863

120,609

60,613

8

Operational deposits (all counterparties) and deposits in networks for cooperative banks

44,529

11,062

42,567

10,572

9

Non-operational deposits (all counterparties)

64,785

36,906

65,914

37,913

10

Unsecured debt

10,895

10,895

12,128

12,128

 

 

 

 

 

 

11

Secured wholesale funding

 

1

 

2

 

 

 

 

 

 

12

Additional requirements, of which:

198,241

28,040

198,647

26,569

13

Outflows related to derivatives exposures and other collateral requirements

10,843

10,843

10,368

10,368

14

Outflows related to loss of funding on debt products

1,536

1,536

34

34

15

Credit and liquidity facilities

185,862

15,661

188,245

16,167

 

 

 

 

 

 

16

Other contractual funding obligations

1,367

1,367

728

728

17

Other contingent funding obligations

46,488

4,196

44,213

3,981

 

 

 

 

 

 

18

Total cash outflows

 

114,125

 

113,291

 

 

 

 

 

 

Cash inflows

 

 

 

 

19

Secured lending (e.g. reverse repos)

5,704

-

5,345

-

20

Inflows from fully performing exposures

19,522

12,592

19,323

12,538

21

Other cash inflows

2,671

2,671

3,476

3,476

22

Total cash inflows

27,897

15,263

28,144

16,014

 

 

 

 

 

 

23

Total liquid assets

 

135,432

 

130,418

24

Total net cash outflows

 

98,862

 

97,277

25

Liquidity Coverage Ratio (%)

 

137%

 

134%

 

Number of data points used

 

62

 

63

 


1      Calculated as total liquid assets divided by total net cash outflows for 30 June 2019.

2      Calculated as a simple average of the daily observations over the 30 June 2019 quarter.

3       Calculated as a simple average of the daily observations over the 31 March 2019 quarter.

 

Westpac Group June 2019 Pillar 3 Report | 19

 


 

Pillar 3 report

Appendix I | APS330 quantitative requirements

 

 

 

The following table cross-references the quantitative disclosure requirements outlined in Attachment C of APS330 to the quantitative disclosures made in this report.

 

APS330 reference

 

 

Westpac disclosure

Page

General Requirements

 

 

 

 

Paragraph 49

 

 

Summary leverage ratio

11

 

 

 

 

 

Attachment C

 

 

 

 

Table 3:

 

(a) to (e)

Capital requirements

9

Capital Adequacy

 

(f)

Westpac’s capital adequacy ratios

8

 

 

 

Capital adequacy ratios of major subsidiary banks

8

 

 

 

 

 

Table 4:

 

(a)

Exposure at Default by major type

13

Credit Risk - general disclosures

 

(b)

Impaired and past due loans

15

(c)

General reserve for credit loss

14

 

 

 

 

 

Table 5:

 

(a)

Banking Book summary of securitisation activity by asset type

16

Securitisation exposures

 

(b)

Banking Book summary of on and off-balance sheet securitisation by exposure type

17

 

 

 

Trading Book summary of on and off-balance sheet securitisation by exposure type

18

 

 

 

 

 

Attachment F

 

 

 

 

Table 20: Liquidity Coverage Ratio disclosure template

 

 

Liquidity Coverage Ratio disclosure

19

 

 

 

 

 

 

 

 

Exchange rates

 

The following exchange rates were used in this Westpac Pillar 3 report, and reflect spot rates for the period end.

 

$

30 June 2019

31 March 2019

30 June 2018

USD

0.7014

0.7092

0.7387

GBP

0.5534

0.5425

0.5635

NZD

1.0461

1.0439

1.0911

EUR

0.6168

0.6313

0.6347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20 | Westpac Group June 2019 Pillar 3 Report

 


 

Pillar 3 report

Disclosure regarding forward-looking statements

 

 

 

This 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 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’ 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:

 

l                   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;

 

l                   regulatory investigations, 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;

 

l                   internal and external events which may adversely impact Westpac’s reputation;

 

l                   information security breaches, including cyberattacks;

 

l                   reliability and security of Westpac’s technology and risks associated with changes to technology systems;

 

l                   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;

 

l                   market volatility, including uncertain conditions in funding, equity and asset markets;

 

l                   adverse asset, credit or capital market conditions;

 

l                   an increase in defaults in credit exposures because of a deterioration in economic conditions;

 

l                   the conduct, behaviour or practices of Westpac or its staff;

 

l                   changes to Westpac’s credit ratings or to the methodology used by credit rating agencies;

 

l                   levels of inflation, interest rates, exchange rates and market and monetary fluctuations;

 

l                   market liquidity and investor confidence;

 

l                   changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and in other countries 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;

 

l                   the effects of competition, including from established providers of financial services and from non-financial service entities in the geographic and business areas in which Westpac conducts its operations;

 

l                   the timely development and acceptance of new products and services and the perceived overall value of these products and services by customers;

 

l                   the effectiveness of Westpac’s risk management policies, including internal processes, systems and employees;

 

l                   the incidence or severity of Westpac insured events;

 

l                   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;

 

l                   changes to the value of Westpac’s intangible assets;

 

l                   changes in political, social or economic conditions in any of the major markets in which Westpac or its customers or counterparties operate;

 

l                   the success of strategic decisions involving diversification or innovation, in addition to business expansion activity, business acquisitions and the integration of new businesses; and

 

l                   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’ in Westpac’s 2019 Interim Financial Results Announcement. 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 report, whether as a result of new information, future events or otherwise, after the date of this report.

 

 

 

Westpac Group June 2019 Pillar 3 Report | 21

 


Exhibit 2

3Q19 Capital, Funding and Credit Quality Update 19 August 2019 Westpac Banking Corporation | ABN 33 007 457 141 Financial results based on cash earnings unless otherwise stated. Refer to the 2019 Interim Investor Discussion Pack for definition. This document should be read in conjunction with Westpac’s June 2019 Pillar 3 Report, incorporating the requirements of APS330. All comparisons in this document refer to 30 June 2019 compared to 31 March 2019 (unless otherwise stated)

 

Summary of 3Q19 capital, funding and credit quality Overview 2 increased model overlay to keep operational risk RWA in line with standardised model outcomes. Otherwise, RWA down 1 Dividend reinvestment plan. 2 Internationally comparable methodology aligns with the APRA study titled ‘International Capital Comparison Study’ dated 13 July 2015. 3 TCE is total committed exposure. Westpac Group 3Q19 Capital, Funding and Credit Quality Update CET1 capital ratio at 10.5% •Common equity Tier 1 (CET1) capital ratio 10.5% at 30 June 2019 •CET1 capital ratio lower over 3Q19 (from 10.6% at 31 March 2019) due to payment of the 2019 interim dividend partially offset by organic capital generation and DRP1 participation (35.8% participation due to 1.5% discount placed on DRP market price) •Risk weighted assets (RWA) up $2.3bn (0.6%) over quarter, mostly due to additional operational risk RWA of $2.6bn following $0.3bn mostly from a $4.3bn decrease in interest rate risk in the banking book associated with lower interest rates, partly offset by a $3.9bn increase in credit RWAs from portfolio growth, changes to credit quality (mostly from higher mortgage delinquencies), and an increase in mark-to-market credit risk RWA associated with lower interest rates •Internationally comparable2 CET1 capital ratio 15.9% at 30 June 2019 Credit quality •Small increase in impaired assets over the quarter (up $0.1bn to $1.9bn) •Stressed assets to TCE3 increased 10bps to 1.20% –1bp increase in impaired –3bps increase in watchlist and substandard facilities, particularly retail trade, manufacturing and property –6bps increase in 90+ day past due but not impaired mostly from higher mortgage delinquencies •Australian unsecured 90+ day delinquencies 1.91% (up 4bps over the quarter) •Total provision balances up 1.8%, total provisions to gross loans unchanged at 56bps Australian mortgage portfolio •Australian mortgage 90+ day delinquencies 0.9% (up 8bps over the quarter) •Properties in possession 550 (up 68 over the quarter), increase mostly in WA and Qld •Higher stress in portfolio combined with softness in property market contributing to an increase in the time it takes to sell a property have contributed to the rise in delinquencies and properties in possession Funding/liquidity position •3Q19 average liquidity coverage ratio (LCR) 137% (spot LCR 128%), net stable funding ratio (NSFR) 111% – both well above regulatory minimums •$28bn term funding issued to end June 2019 •Further A$4bn in term funding raised in July 2019, including a US$2.25bn SEC Registered Tier 2 capital transaction (only Australian bank able to access SEC registered market)

 

capital changes1 Expected timetable on various regulatory Regulatory timeline 3 Second half 2019 First half 2020 Second half 2020 2021 2022+2 1 July 2019 Implementation 1 Regulatory change timeline based on APRA’s paper ‘Revisions to the capital framework for authorised deposit-taking institutions’ (published 12 June 2019). 2 Implementation 2022 unless otherwise stated. Westpac Group 3Q19 Capital, Funding and Credit Quality Update Standardised approach to credit risk Advanced approach to credit risk Operational risk Leverage ratio Measurement of capital Capital floor Interest-rate risk in the banking book Counterparty credit risk RBNZ capital framework Related party exposures Loss absorbing capacity Consult, additional quantitative impact study Finalise Implementation Consult, additional quantitative impact study Finalise Implementation Consult and finalise Implementation Finalise Implementation Consult Finalise Implementation Consult Finalise Implementation Consult Finalise Implementation Implemented Finalise Implementation date and transition yet to be outlined Implementation 1st phase announced +3ppts of RWA as Tier 2 Further consultation on 2nd phase 2024

 

Capital considerations Capital considerations 4 Australian D-SIBs (US$2.25bn Tier 2 capital instrument in July 2019) of total loss absorbing capacity approximately 8bps on current RWA methodology) Westpac Group 3Q19 Capital, Funding and Credit Quality Update Regulatory developments in 3Q19 TLAC •APRA released revised requirements for Total Regulatory Capital to increase loss absorbing capacity. The changes will increase Total Regulatory Capital requirements for the major Australian banks (including Westpac) by 3ppts of RWA from 1 January 2024. To meet the new requirements Westpac is expected to raise an additional $13bn by 2024 (based on RWA as at 30 June 2019) •Issued the first Tier 2 capital instrument from an Australian bank following APRA’s TLAC announcement for •In addition, over the next four years, APRA will consider feasible alternative methods for raising an additional 1-2ppts Capital framework •Finalisation of RWA framework now expected in 2020 •Additional consultation released from APRA on RWA in 3Q19 mainly on proposed changes to standardised credit risk, operational risk and residential mortgages •Further updates from APRA on proposals to the capital framework expected later in 2019/2020 Future CET1 capital regulatory developments •An additional $500m operational risk capital overlay to be applied from 30 September 2019, expected to reduce CET1 capital ratio by 16bps •New derivative standard from 1 July 2019, expected to reduce CET1 capital ratio by approximately 20bps •AASB 16 Leasing standard from 1 October 2019 (no impact in FY19), expected to reduce CET1 capital ratio by •APRA unquestionably strong benchmark for CET1 capital ratio of at least 10.5% commences 1 January 2020 (based •RBNZ capital announcement expected to be finalised late 2019 •APRA advised that it will be reviewing its current approach to risk-weighting ADI’s equity exposures to subsidiaries (including NZ subsidiaries) at Level 1 later in 2019 Other •CET1 capital ratio at 30 September 2019 will depend on 4Q19 earnings, which may be impacted by the risks described in Westpac’s 2019 Interim Results announcement (including changes in remediation provisions or potential fines and penalties)

 

CET1 capital ratio 10.5% at 30 June 2019 Capital 5 Capital ratios (%) (APRA basis) $bn Impact of APRA’s % guidelines 10.5% 4 16.1 16.2 15.9 comparable) 1 Internationally comparable methodology aligns with the APRA study titled ‘International Capital Comparison Study’ dated 13 July 2015. 2 APRA’s revision to the calculation of RWA for Australian residential mortgages, which came into effect on 1 July 2016. Westpac Group 3Q19 Capital, Funding and Credit Quality Update Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 CET1 capital ratio (%) and CET1 capital ($bn) Sep-18Mar-19Jun-19 Westpac CET1 capital (lhs, $bn) Westpac CET1 capital ratio (rhs, %) APRA industry changes to 55mortgage RWA2unquestionably strong12 50 10 45 8 40 356 30 25 2 20 150 CET1 capital ratio10.610.610.5 Additional Tier 1 capital2.22.22.2 Tier 1 capital ratio12.812.812.7 Tier 2 capital1.91.81.8 Total regulatory capital ratio14.714.614.5 Risk weighted assets (RWA) ($bn)425420422 Leverage ratio5.85.75.7 Internationally comparable ratios1 Leverage ratio (internationally comparable)6.56.46.3 CET1 capital ratio (internationally 10.510.610.5 10.4 10.6 10.4 10.6 10.5 10.110.0 10.010.1 9.5 9.3 45 45 44 44 44 44 43 42 40 41 39 38 38 37