EX-1 2 tm2028769d1_ex1.htm EXHIBIT 1

EXHIBIT 1

 

 

 

 

 

 

Pillar 3 report
Table of contents		  

 

Structure of Pillar 3 report

 

Executive summary 3
Introduction 5
Group structure 7
Capital overview 8
Leverage ratio 12
Credit risk exposures 13
Securitisation 17
Liquidity coverage ratio 20
Appendix  
Appendix I | APS330 Quantitative requirements 21
Disclosure regarding forward-looking statements 22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2020 Pillar 3 Report

 

 

 

 

Pillar 3 report  
Executive summary  

 

Key capital ratios

 

  30 June 2020 31 March 2020 30 June 2019
Level 2 Regulatory capital structure      
Common equity Tier 1 capital after deductions ($m) 48,679 47,982 44,459
Risk weighted assets (RWA) ($m) 450,564 443,905 422,164
Common equity Tier 1 capital ratio % 10.80 10.81 10.53
Additional Tier 1 capital ratio % 2.06 2.13 2.19
Tier 1 capital ratio % 12.86 12.94 12.72
Tier 2 capital % 3.13 3.35 1.78
Total regulatory capital ratio % 15.99 16.29 14.50
APRA leverage ratio % 5.88 5.66 5.67
Level 1 Regulatory capital structure      
Common equity Tier 1 capital after deductions ($m) 49,305 48,482 43,376
Risk weighted assets (RWA) ($m) 443,613 437,137 411,240
Level 1 Common equity Tier 1 capital ratio % 11.11 11.09 10.55

 

 

CET1 capital ratio movement for Third Quarter 2020

 

The Common Equity Tier 1 (CET1) ratio of 10.80% at 30 June 2020 is little changed from the 31 March CET1 ratio of 10.81%. The cash earnings contribution for the quarter was largely offset by higher RWA and an increase in other capital deductions. Higher RWA reflects the impact of credit deterioration across the portfolio together with overlays for potential further deterioration. The ratio of RWA to Exposure at Default (EAD) increased by 1.4 percentage points since March 2020 to 38.4%1, which has reduced the CET1 ratio at 30 June 2020 by 30 basis points.

 

CET1 movement – Third Quarter 2020

 

 

Key movements in the CET1 capital ratio over the quarter due to:

 

·3Q20 cash earnings of $1,318 million (29 basis point increase), which included impairment charges of $826 million. Impairment charges over the quarter have lifted the provision coverage, with the ratio of total provisions to credit RWA of 1.70% at 30 June 2020 up from 1.57% at 31 March 2020

 

·RWA increase (27 basis point decrease), mainly driven by higher credit risk RWA from a deterioration in credit quality and overlays;

 

·Foreign currency impacts (3 basis point decrease)2 from the appreciation of the A$ against the NZ$ and US$; and

 

·Capital deductions and other capital movements (6 basis point decrease), comprising deferred tax assets related to credit provisions (7 basis point decrease) and other deductions (2 basis point decrease), partially offset by the sale of the remaining holding in Pendal Group Limited (3 basis point increase). The capital deduction for regulatory expected loss remained at nil as eligible provisions still exceed regulatory expected loss at 30 June 2020.

 

 

 

 

1 Calculated as EAD/credit RWA excluding sovereigns, banks and standardised exposure classes.

2 Reflecting the net impact of movements in the foreign currency translation reserve and RWA.

 

Westpac Group June 2020 Pillar 3 Report | 3

 

 

 

 

Pillar 3 report  
Executive summary  

 

Risk Weighted Assets (RWA)

 

$m 30 June 2020 31 March 2020 30 June 2019
Risk weighted assets at Level 2      
Credit risk 373,675 369,142 366,701
Market risk 9,486 8,396 8,037
Operational risk 54,090 54,093 41,266
Interest rate risk in the banking book (IRRBB) 6,849 5,305 2,745
Other 6,464 6,969 3,415
Total RWA 450,564 443,905 422,164
Total Exposure at Default 1,058,269 1,089,104 1,033,702

 

 

Total RWA increased $6.7 billion or 1.5% over the quarter mainly driven by an increase in credit risk RWA.

 

The $4.5 billion increase in credit risk RWA included:

 

· An overlay to the probability of default for corporate, business lending and specialised lending1 which led to a $7bn increase in RWA and an associated increase in regulatory expected loss of $323 million. In line with APRA guidance, ADI’s are permitted to maintain the existing internal rating of these borrowers and instead reflect the increase in credit risk (probability of default) of impacted borrowers through an overlay. This overlay will be reviewed regularly as individual customers are assessed and regradings are finalised.

 

·Credit quality deterioration increasing RWA by $6.2 billion mainly comprising:

 

oMortgages up $3.6 billion primarily from a rise in customers in hardship. This reflects our approach to applying COVID-19 relief which means a number of customers were offered assistance through our hardship program. There is no impact to RWA from customers that are on repayment deferral packages in accordance with APRA guidance2;

 

oDowngrades across the corporate and business portfolios, which increased RWA by $2.1 billion; and

 

oSmall business and other portfolios up $0.5 billion mainly from an increase in defaulted and impaired loans.

 

·Offset by a $8.7 billion decline in RWA from:

 

o$1.8 billion from lower lending due to subdued demand across retail and business portfolios, and from exposure reductions in corporate;

 

oForeign currency translation impacts decreased RWA by $4.4 billion due to the appreciation of the A$ against the US$ and NZ$; and

 

oA decrease in mark-to-market related credit risk and counterparty credit risk RWA of $2.5 billion.

 

Non-credit risk RWA increased $2.1 billion from higher market risk RWA (up $1.1 billion) and IRRBB (up $1.5 billion). These were partly offset by a $0.5 billion decrease in Other RWA.

 

 

Exposure at Default

 

Exposure at default (EAD) decreased $30.8 billion (or 2.8%) over the quarter, primarily due to lower sovereign associated with decreased liquidity needs and lower corporate exposures.

 

 

Leverage Ratio

 

The leverage ratio represents the amount of Tier 1 capital relative to exposure3. At 30 June 2020, Westpac’s leverage ratio was 5.88%, up 22 basis points since 31 March 2020.

  

 

Liquidity Coverage Ratio (LCR)

 

Westpac’s average LCR for the quarter ending 30 June 2020 was 146% (March quarter 2020: 140%)4.

 

 

 

1 The overlay has impacted the following assets classes: Corporate ($0.8 billion RWA, $22 million regulatory expected loss), Busines lending ($2.1 billion RWA, $88 million regulatory expected loss) and Specialised lending ($4.1 billion RWA, $213 million regulatory expected loss).

2 23 March 2020 ‘APRA advises regulatory approach to COVID-19 support’ and updated guidance on 8 July 2020 APRA updates regulatory approach to loans subject to repayment deferral’.

3 As defined under Attachment D of APS110: Capital Adequacy.

4 Calculated as a simple average of the daily observations over the relevant quarter.

 

4 | Westpac Group June 2020 Pillar 3 Report

 

 

 

 

Pillar 3 report
Introduction		  

 

Westpac Banking Corporation is an Authorised Deposit–taking Institution (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 website1 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.

 

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

 

Westpac Group June 2020 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 adequacy1 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 basis2.

 

The Westpac Group

 

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

 

 

 

Accounting consolidation3

 

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.

 

 
1APS110 Capital Adequacy outlines the overall framework adopted by APRA for the purpose of assessing the capital adequacy of an ADI.
2Impaired assets and provisions held in Level 3 entities are excluded from the tables in this report.
3Refer to Note 31 of Westpac’s 2019 Annual Report for further details.

 

6 | Westpac Group June 2020 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 (RBNZ). 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 Entities1. 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 4 November 2019, the RBNZ advised it would change WNZL’s conditions of registration to remove the 2% overlay applying to its minimum capital requirements from 31 December 2019. This overlay had been in place since 31 December 2017 following the RBNZ’s review of WNZL’s compliance with the RBNZ’s ‘Capital Adequacy Framework’ (Internal Models Based Approach) (BS2B).

 

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.

 

 
1For 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 2020 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 as well as equity and debt investors.

 

During the period of disruption caused by COVID-19, Westpac will seek to operate 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, where necessary utilise some of the “unquestionably strong” buffer and seek to maintain a buffer above the regulatory minimum.

 

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, taking into account APRA’s expectations for the timing of any capital rebuilding required and the finalisation of APRA’s review of the capital adequacy framework.

 

APRA announcements on capital

 

On 27 July 2020, APRA released further capital management guidance for ADIs3. 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.

 

 

1Noting that APRA may apply higher CET1 requirements for an individual ADI.
2If 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.
3Letter to Authorised Deposit Taking institutions – Capital Management, 29 July 2020.

 

8 | Westpac Group June 2020 Pillar 3 Report

 

 

 

  

Pillar 3 report
Capital overview		  

 

Westpac’s capital adequacy ratios

 

%  30 June 2020 31 March 2020  30 June 2019
The Westpac Group at Level 2      
Common equity Tier 1 capital ratio                            10.8                            10.8                            10.5
Additional Tier 1 capital                              2.1                              2.1                              2.2
Tier 1 capital ratio                            12.9                            12.9                            12.7
Tier 2 capital                              3.1                              3.4                              1.8
Total regulatory capital ratio                            16.0                            16.3                            14.5
       
The Westpac Group at Level 1      
Common equity Tier 1 capital ratio                            11.1                            11.1                            10.5
Additional Tier 1 capital                              2.1                              2.2                              2.3
Tier 1 capital ratio                            13.2                            13.3                            12.8
Tier 2 capital                              3.2                              3.4                              1.9
Total regulatory capital ratio                            16.4                            16.7                            14.7

 

Westpac New Zealand Limited’s capital adequacy ratios

 

%  30 June 2020 31 March 2020  30 June 2019
Westpac New Zealand Limited      
Common equity Tier 1 capital ratio                            11.9                            11.4                            12.0
Additional Tier 1  capital                              2.6                              2.7                              2.7
Tier 1 capital ratio                            14.5                            14.1                            14.7
Tier 2 capital                              2.1                              1.8                              2.0
Total regulatory capital ratio                            16.6                            15.9                            16.7

 

Westpac Group June 2020 Pillar 3 Report | 9

 

 

 

 

Pillar 3 report
Capital overview		  

 

Capital requirements

 

This table shows risk weighted assets and associated capital requirements1 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 2020 IRB Standardised Total Risk  Total Capital
         
$m Approach Approach2 Weighted Assets Required1
Credit risk        
Corporate                    76,303                        1,012                      77,315                        6,185  
Business lending                    37,584                           913                      38,497                        3,080  
Sovereign                      2,194                        1,233                        3,427                           274  
Bank                      6,461                             63                        6,524                           522  
Residential mortgages                  134,425                        4,567                    138,992                      11,119  
Australian credit cards                      4,332                                -                        4,332                           347  
Other retail                    10,594                           796                      11,390                           911  
Small business                    17,638                                -                      17,638                        1,411  
Specialised lending                    59,114                           458                      59,572                        4,766  
Securitisation                      5,429                                -                        5,429                           434  
Mark-to-market related credit risk3                              -                      10,559                      10,559                           845  
Total                  354,074                      19,601                    373,675                      29,894  
Market risk                          9,486                           759  
Operational risk                        54,090                        4,327  
Interest rate risk in the banking book                          6,849                           548  
Other assets4                          6,464                           517  
Total                      450,564                      36,045  
         
         
31 March 2020 IRB Standardised Total Risk  Total Capital
$m Approach Approach2 Weighted Assets Required1
Credit risk        
Corporate                    78,288                        1,087                      79,375                        6,350  
Business lending                    34,493                           993                      35,486                        2,839  
Sovereign                      2,192                        1,354                        3,546                           284  
Bank                      6,956                             51                        7,007                           561  
Residential mortgages                  131,424                        4,714                    136,138                      10,891  
Australian credit cards                      4,837                                -                        4,837                           387  
Other retail                    11,594                           805                      12,399                           992  
Small business                    16,812                                -                      16,812                        1,345  
Specialised lending                    56,004                           503                      56,507                        4,521  
Securitisation                      5,747                                -                        5,747                           460  
Mark-to-market related credit risk3                              -                      11,289                      11,289                           903  
Total                  348,347                      20,795                    369,142                      29,533  
Market risk                          8,396                           672  
Operational risk                        54,093                        4,327  
Interest rate risk in the banking book                          5,305                           424  
Other assets4                          6,969                           558  
Total                      443,905                      35,514  

 

 

1Total capital required is calculated as 8% of total risk weighted assets.
2Westpac’s Standardised risk weighted assets are categorised based on their equivalent IRB categories.
3Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk.
4Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets.

 

10 | Westpac Group June 2020 Pillar 3 Report

 

 

 

 

Pillar 3 report
Capital overview		  

 

30 June 2019 IRB Standardised Total Risk  Total Capital
$m Approach Approach2 Weighted Assets Required1
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 risk3                              -                        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 assets4                          3,415                           273  
Total                      422,164                      33,774  

 

 

1Total capital required is calculated as 8% of total risk weighted assets.
2Westpac’s Standardised risk weighted assets are categorised based on their equivalent IRB categories.
3Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk.
4Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets.

 

Westpac Group June 2020 Pillar 3 Report | 11

 

 

 

 

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 2020 31 March 2020 31 December 2019 30 September 2019
Tier 1 Capital                              57.9                              57.5                              56.8                              55.1
Total Exposures                            985.6                         1,014.2                            948.7                            968.8
Leverage ratio 5.9% 5.7% 6.0% 5.7%

 

 

12 | Westpac Group June 2020 Pillar 3 Report

 

 

 

 

Pillar 3 report  
Credit risk exposures  

 

Summary credit risk disclosure

 

               Regulatory             
               Expected       Specific   Actual 
       Risk   Regulatory   Loss for       Provisions   Losses for 
30 June 2020  Exposure   Weighted   Expected   non-defaulted   Impaired   for Impaired   the 9 months 
$m  at Default   Assets   Loss1   exposures   Loans   Loans   ended 
Corporate   135,178    76,303    820    580    425    236    (4)
Business lending   54,710    37,584    805    538    377    206    55 
Sovereign   116,800    2,194    1    1    -    -    - 
Bank   23,919    6,461    7    7    -    -    - 
Residential mortgages   551,420    134,425    1,898    1,125    379    102    96 
Australian credit cards   17,649    4,332    269    195    127    75    247 
Other retail   14,110    10,594    573    359    387    213    196 
Small business   33,099    17,638    669    393    816    294    55 
Specialised Lending   64,943    59,114    1,011    790    59    25    1 
Securitisation   27,135    5,429    -    -    -    -    - 
Standardised2   19,306    19,601    -    -    49    20    1 
Total   1,058,269    373,675    6,053    3,988    2,619    1,171    647 

 

               Regulatory             
               Expected       Specific   Actual 
       Risk   Regulatory   Loss for       Provisions   Losses for 
31 March 2020  Exposure   Weighted   Expected   non-defaulted   Impaired   for Impaired   the 6 months 
$m  at Default   Assets   Loss1   exposures   Loans   Loans   ended 
Corporate   146,529    78,288    787    547    363    232    (4)
Business lending   54,428    34,493    669    413    347    195    35 
Sovereign   127,064    2,192    2    2    -    -    - 
Bank   26,633    6,956    9    9    -    -    - 
Residential mortgages   553,866    131,424    1,788    1,229    404    114    67 
Australian credit cards   18,601    4,837    314    238    123    92    164 
Other retail   15,223    11,594    601    419    312    218    135 
Small business   33,181    16,812    557    378    501    183    39 
Specialised Lending   65,866    56,004    813    583    52    26    1 
Securitisation   28,097    5,747    -    -    -    -    - 
Standardised2   19,616    20,795    -    -    52    19    - 
Total   1,089,104    369,142    5,540    3,818    2,154    1,079    437 

 

               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   Loss1   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    -    -    -    -    - 
Standardised2   17,255    18,528    -    -    62    17    2 
Total   1,033,702    366,701    5,176    3,677    1,872    819    662 

 

 

1Includes regulatory expected losses for defaulted and non-defaulted exposures.
2Includes mark-to-market related credit risk.

 

 

Westpac Group June 2020 Pillar 3 Report | 13

 

 

 

 

Pillar 3 report  
Credit risk exposures  

 

Exposure at Default by major type

 

30 June 2020  On balance   Off-balance sheet   Total Exposure   Average 
$m  sheet   Non-market related   Market related   at Default   3 months ended1 
Corporate   61,212    60,146    13,820    135,178    140,854 
Business lending   42,209    12,501    -    54,710    54,569 
Sovereign   103,877    1,675    11,248    116,800    121,932 
Bank   14,237    2,010    7,672    23,919    25,276 
Residential mortgages   484,540    66,880    -    551,420    552,643 
Australian credit cards   7,268    10,381    -    17,649    18,125 
Other retail   10,841    3,269    -    14,110    14,667 
Small business   26,023    7,076    -    33,099    33,140 
Specialised lending   53,231    9,652    2,060    64,943    65,405 
Securitisation2   21,554    5,457    124    27,135    27,616 
Standardised   12,838    1,211    5,257    19,306    19,461 
Total   837,830    180,258    40,181    1,058,269    1,073,688 

 

31 March 2020  On balance   Off-balance sheet   Total Exposure   Average 
$m  sheet   Non-market related   Market related   at Default   12 months ended3 
Corporate   69,038    57,950    19,541    146,529    140,586 
Business lending   42,083    12,345    -    54,428    54,546 
Sovereign   119,847    1,857    5,360    127,064    102,570 
Bank   14,899    2,415    9,319    26,633    27,505 
Residential mortgages   486,270    67,596    -    553,866    555,459 
Australian credit cards   8,218    10,383    -    18,601    18,434 
Other retail   11,881    3,342    -    15,223    15,607 
Small business   26,181    7,000    -    33,181    33,311 
Specialised lending   54,066    9,750    2,050    65,866    65,739 
Securitisation2   22,690    5,276    131    28,097    27,269 
Standardised   13,476    1,162    4,978    19,616    19,992 
Total   868,649    179,076    41,379    1,089,104    1,061,018 

 

30 June 2019   On balance    Off-balance sheet    Total Exposure     Average 
$m   sheet    Non-market related     Market related     at Default    3 months ended4 
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 
Securitisation2   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 

 

 
1Average is based on exposures as at 30 June 2020 and 31 March 2020.
2The EAD associated with securitisations is for the banking book only.
3Average is based on exposures as at 31 March 2020, 31 December 2019, and 30 September 2019.
4Average is based on exposures as 30 June 2019 and 31 March 2019.

 

 

 

14 | Westpac Group June 2020 Pillar 3 Report

 

 

  

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 2020  A-IFRS Provisions       Total Regulatory 
$m  IAPs   CAPs   Provisions 
Specific Provisions               
for impaired loans   607    564    1,171 
for defaulted but not impaired loans    NA    860    860 
For Stage 2    NA    2,167    2,167 
Total Specific Provision1   607    3,591    4,198 
General Reserve for Credit Loss1    NA     2,172    2,172 
Total provisions for ECL   607    5,763    6,370 

 

31 March 2020  A-IFRS Provisions        Total Regulatory 
$m  IAPs   CAPs   Provisions 
Specific Provisions               
for impaired loans   606    473    1,079 
for defaulted but not impaired loans    NA    628    628 
For Stage 2    NA    2,184    2,184 
Total Specific Provision1   606    3,285    3,891 
General Reserve for Credit Loss1    NA    1,900    1,900 
Total provisions for ECL   606    5,185    5,791 

 

30 June 2019  A-IFRS Provisions        Total Regulatory 
$m  IAPs   CAPs   Provisions 
Specific Provisions               
for impaired loans   438    381    819 
for defaulted but not impaired loans    NA    573    573 
For Stage 2    NA    1,281    1,281 
Total Specific Provision1   438    2,235    2,673 
General Reserve for Credit Loss1    NA    1,394    1,394 
Total provisions for ECL   438    3,629    4,067 

 

 

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

 

Westpac Group June 2020 Pillar 3 Report | 15

 

 

 

 

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.1

 

      Specific Specific  Actual 
30 June 2020 Defaulted Impaired Provisions for Provisions  to  Losses for the
$m not impaired1 Loans  Impaired Loans Impaired Loans 9 months ended
Corporate                       89                     425                     236 56%                       (4)
Business lending                     568                     377                     206 55%                       55
Sovereign  -  -  -  -  -
Bank  -  -  -  -  -
Residential mortgages                  6,692                     379                     102 27%                       96
Australian credit cards  -                     127                       75 59%                     247
Other retail                         2                     387                     213 55%                     196
Small business                     516                     816                     294 36%                       55
Specialised lending                     331                       59                       25 42%                         1
Securitisation  -  -  -  -  -
Standardised                     105                       49                       20 41%                         1
Total                  8,303                  2,619                  1,171 45%                     647
           
      Specific Specific  Actual 
31 March 2020 Defaulted Impaired Provisions for Provisions  to  Losses for the
$m not impaired1 Loans  Impaired Loans Impaired Loans 12 months ended
Corporate                       91                     363                     232 64%                       (4)
Business lending                     474                     347                     195 56%                       35
Sovereign  -  -  -  -  -
Bank  -  -  -  -  -
Residential mortgages                  4,050                     404                     114 28%                       67
Australian credit cards  -                     123                       92 75%                     164
Other retail  -                     312                     218 70%                     135
Small business                     359                     501                     183 37%                       39
Specialised lending                     357                       52                       26 50%                         1
Securitisation  -  -  -  -  -
Standardised                       78                       52                       19 37%  -
Total                  5,409                  2,154                  1,079 50%                     437
           
      Specific Specific  Actual 
30 June 2019 Defaulted Impaired Provisions for Provisions  to  Losses for the
$m not impaired1 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

 

 

1 Includes items past 90 days not impaired.

 

16 | Westpac Group June 2020 Pillar 3 Report

 

 

 

 

Pillar 3 report
Securitisation		  

 

Banking book summary of securitisation activity by asset type

 

For the 3 months ended    
30 June 2020 Amount Recognised gain or
$m securitised loss on sale
Residential mortgages                                      46,347  -
Credit cards  -  -
Auto and equipment finance  -  -
Business lending  -  -
Investments in ABS  -  -
Other  -  -
Total                                      46,347  -
     
     
For the 6 months ended    
31 March 2020 Amount Recognised gain or
$m securitised loss on sale
Residential mortgages                                      19,547  -
Credit cards  -  -
Auto and equipment finance                                           318  -
Business lending  -  -
Investments in ABS  -  -
Other  -  -
Total                                      19,865  -
     
     
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  -

 

Westpac Group June 2020 Pillar 3 Report | 17

 

 

 

 

Pillar 3 report
Securitisation		  

 

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

 

30 June 2020 On balance sheet Off-balance Total Exposure
$m Securitisation retained Securitisation purchased sheet at Default
Securities  -                                8,165                             37                        8,202
Liquidity facilities  -  -                           287                           287
Funding facilities                                2,702  -                        1,049                        3,751
Underwriting facilities  -  -  -  -
Lending facilities                                   527  -                           291                           818
Warehouse facilities                              10,160  -                        3,917                      14,077
Total                              13,389                                8,165                        5,581                      27,135
         
         
31 March 2020 On balance sheet Off-balance Total Exposure
$m Securitisation retained Securitisation purchased sheet at Default
Securities  -                                8,583                             39                        8,622
Liquidity facilities  -  -                           306                           306
Funding facilities                                3,163  -                           783                        3,946
Underwriting facilities  -  -  -  -
Lending facilities                                   536  -                           299                           835
Warehouse facilities                              10,408  -                        3,980                      14,388
Total                              14,107                                8,583                        5,407                      28,097
         
         
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

 

18 | Westpac Group June 2020 Pillar 3 Report

 

 

 

 

Pillar 3 report
Securitisation		  

 

Trading book summary of on and off-balance sheet securitisation by exposure type1

 

30 June 2020 On balance sheet Off-balance Total Exposure
$m Securitisation retained Securitisation purchased sheet at Default
Securities  -                                       18  -                          18
Liquidity facilities  -  -  -  -
Funding facilities  -  -  -  -
Underwriting facilities  -  -  -  -
Lending facilities  -  -  -  -
Warehouse facilities  -  -  -  -
Credit enhancements  -  -  -  -
Basis swaps  -  -                        109                        109
Other derivatives  -  -                          18                          18
Total  -                                       18                        127                        145
         
         
31 March 2020 On balance sheet Off-balance Total Exposure
$m Securitisation retained Securitisation purchased sheet at Default
Securities  -                                       92  -                          92
Liquidity facilities  -  -  -  -
Funding facilities  -  -  -  -
Underwriting facilities  -  -  -  -
Lending facilities  -  -  -  -
Warehouse facilities  -  -  -  -
Credit enhancements  -  -  -  -
Basis swaps  -  -                        116                        116
Other derivatives  -  -                          16                          16
Total  -                                       92                        132                        224
         
         
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

 

 

1EAD associated with trading book securitisation is not included in EAD by major type on page 14. Trading book securitisation exposure is captured and risk weighted under APS116 Capital Adequacy: Market Risk.

 

 

Westpac Group June 2020 Pillar 3 Report | 19

 

 

 

Pillar 3 report
Liquidity Coverage Ratio		  

 

Liquidity Coverage Ratio (LCR)

 

Westpac’s LCR as at 30 June 2020 was 140%1 (31 March 2020: 154%) and the average LCR for the quarter was 146%2 (31 March 2020: 140%).

 

Liquid assets included in the LCR comprise High Quality Liquid Assets (HQLA), the Committed Liquidity Facility (CLF) offered by the Reserve Bank of Australia and additional qualifying Reserve Bank of New Zealand securities. LCR liquid assets also includes Westpac’s Initial Allowance and Additional Allowance of the Term Funding Facility (TFF) of $21.1 billion.

 

Westpac’s portfolio of HQLA averaged $112.2 billion over the quarter2.

 

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 2020 31 March 2020
$m Total unweighted
value (average)2		 Total weighted
value (average)2		 Total unweighted
value (average)2		 Total weighted
value (average)2
Liquid assets, of which:         
1 High-quality liquid assets (HQLA)             112,215               98,611
2 Alternative liquid assets (ALA)               64,641               46,069
3 Reserve Bank of New Zealand (RBNZ) securities                 8,524                 8,238
           
Cash Outflows        
4 Retail deposits and deposits from small business customers, of which:             260,515             23,415             252,779             22,866
5 Stable deposits             127,633               6,382             121,722               6,086
6 Less stable deposits             132,882             17,033             131,057             16,780
           
7 Unsecured wholesale funding, of which:             163,325             78,824             133,858             65,160
8 Operational deposits (all counterparties) and deposits in networks for cooperative banks               65,410             16,277               53,192             13,224
9 Non-operational deposits (all counterparties)               86,445             51,077               68,623             39,893
10 Unsecured debt               11,470             11,470               12,043             12,043
           
11 Secured wholesale funding    -    -
           
12 Additional requirements, of which:             197,854             30,143             193,136             28,113
13 Outflows related to derivatives exposures and other collateral requirements               15,071             15,071               12,582             12,582
14 Outflows related to loss of funding on debt products                    546                  546                 1,269               1,269
15 Credit and liquidity facilities             182,237             14,526             179,285             14,262
           
16 Other contractual funding obligations                    324                  324                    526                  526
17 Other contingent funding obligations               38,670               3,331               42,212               3,642
           
18 Total cash outflows             136,037             120,307
           
Cash inflows        
19 Secured lending (e.g. reverse repos)                 5,906  -                 6,381  -
20 Inflows from fully performing exposures               10,458               6,216               11,675               7,057
21 Other cash inflows                 2,791               2,791                 4,282               4,282
22 Total cash inflows               19,155               9,007               22,338             11,339
           
23 Total liquid assets             185,380             152,918
24 Total net cash outflows             127,030             108,968
25 Liquidity Coverage Ratio (%)   146%   140%
  Number of data points used   63   64

 

 

 

 

 

 

 

1Calculated as total liquid assets divided by total net cash outflows.
2Calculated as a simple average of the daily observations over the quarter.

 

20 | Westpac Group June 2020 Pillar 3 Report

 

 

 

 

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 12
       
Attachment C      

Table 3:

 

Capital Adequacy

(a) to (e)

 

(f)

Capital requirements

 

Westpac’s capital adequacy ratios

 

Capital adequacy ratios of major subsidiary banks

10

 

8

 

8

 

Table 4:

 

Credit Risk - general disclosures

(a)

 

(b)

 

(c)

Exposure at Default by major type

 

Impaired and past due loans

 

General reserve for credit loss

 

14

 

16

 

15

 

Table 5:

Securitisation exposures

(a)

 

(b)

 

Banking Book summary of securitisation activity by asset type

 

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

 

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

 

17

 

18

 

19

 

Attachment F      
Table 20: Liquidity Coverage Ratio disclosure template   Liquidity Coverage Ratio disclosure 20
       

 

 

Exchange rates

 

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

 

$ 30 June 2020 31 March 2020 30 June 2019
USD                         0.6856                         0.6191                         0.7014
GBP                         0.5584                         0.5017                         0.5534
NZD                         1.0698                         1.0264                         1.0461
EUR                         0.6114                         0.5620                         0.6168

 

Westpac Group June 2020 Pillar 3 Report | 21

 

 

 

 

 

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:

 

lthe 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 affect a wide-range of Westpac's customers, create increased volatility in financial markets and may result in increased impairments, defaults and write-offs;

 

ldisruptions to our business and operations and to the business and operations of key suppliers, third party contractors and customers connected with the COVID-19 pandemic;

 

lthe effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government policy, particularly changes to liquidity, leverage and capital requirements;

 

lregulatory 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;

 

linternal and external events which may adversely impact Westpac's reputation;

 

linformation security breaches, including cyberattacks;

 

lreliability and security of Westpac's technology and risks associated with changes to technology systems;

 

lthe 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;

 

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

 

ladverse asset, credit or capital market conditions;

 

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

 

lthe conduct, behaviour or practices of Westpac or its staff;

 

lchanges to Westpac's credit ratings or to the methodology used by credit rating agencies;

 

llevels of inflation, interest rates (including low or negative rates), exchange rates and market and monetary fluctuations;

 

lmarket liquidity and investor confidence;

 

lchanges in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and in other countries (including as a result of tariffs and 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;

 

lthe 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;

 

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

 

lthe effectiveness of Westpac's risk management policies, including internal processes, systems and employees;

 

lthe incidence or severity of Westpac-insured events;

 

lthe 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;

 

lchanges to the value of Westpac's intangible assets;

 

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

 

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

 

lvarious other factors beyond Westpac's control.

 

 

22 | Westpac Group June 2020 Pillar 3 Report

 

 

 

Pillar 3 report
Disclosure regarding forward-looking statements		  

 

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 2020 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 2020 Pillar 3 Report | 23