Fixed Income Investor Presentation

Transcription

1 Fixed Income Investor Presentation May 215 Comparison of 1H15 versus 2H1 cash earnings basis (unless otherwise stated)

2 Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation ( Westpac ) and its activities. It does not constitute a prospectus, offering memorandum or offer of securities. It should not be reproduced, distributed or transmitted to any person without the consent of Westpac and is not intended for distribution in any jurisdiction in which such distribution would be contrary to local law or regulation. This presentation is directed only at persons who (i) have professional experience in matters relating to investments; or (ii) are persons falling within Article 9(2)(a) to (d) ( high net worth companies, unincorporated associations etc. ) of the Financial Services and Markets Act 2 (Financial Promotion) Order 21 (as amended); or (iii) are outside the United Kingdom (all such persons together being referred to as relevant persons ). This document must not be acted on or relied on by persons who are not relevant persons. The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending upon their specific investment objectives, financial situation or particular needs. The material contained in this presentation may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. All amounts are in Australian dollars unless otherwise indicated. Financial information in this presentation may be presented on a cash earnings basis. Cash earnings is a non-gaap measure. Refer to Westpac s 215 Interim Financial Results (incorporating the requirements of Appendix D) for the six months ended 31 March 215 available at for details of the basis of preparation of cash earnings. Refer to Appendix 1 for a reconciliation of reported net profit to cash earnings. Information contained in or otherwise accessible through the websites mentioned in this presentation does not form part of the presentation unless we specifically state that the information is incorporated by reference thereby forming part of the presentation. All references in this presentation to websites are inactive textual references and are for information only. Disclosure regarding forward-looking statements This presentation contains statements that constitute forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 193. Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements appear in a number of places in this presentation and include statements regarding our intent, belief or current expectations with respect to our business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions, financial support to certain borrowers, indicative drivers, forecasted economic indicators and performance metric outcomes. We use words such as will, may, expect, 'indicative', intend, seek, would, should, could, continue, plan, probability, risk, forecast, likely, estimate, anticipate, believe, or other similar words to identify forward-looking statements. These forward-looking statements reflect our current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond our control and have been made based upon management s expectations and beliefs concerning future developments and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations or that the effect of future developments on us will be those anticipated. Should one or more of the risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results could differ materially from the expectations described in this presentation. Factors that may impact on the forward-looking statements made include, but are not limited to, those described in the section entitled Risk factors in Westpac s 21 Annual Report available at When relying on forward-looking statements to make decisions with respect to us, investors and others should carefully consider such factors and other uncertainties and events. We are under no obligation, and do not intend, to update any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise, after the date of this presentation. 2

3 Contents Highlights Highlights of Westpac s financial performance for First Half 215 Australian Home Lending 2 Westpac s Australian mortgage portfolio statistics and performance Economic data on the Australian home lending market Economics 3 Key forecasts and economic data on the Australian, New Zealand and Chinese economies Secured Funding 3 Westpac s covered bond and securitisation programs Additional Information 56 Includes additional information on Westpac s capital and asset quality Appendices 67 Earnings and capital reconciliations and relevant definitions 3

4 A high quality credit with a clear domestic focus and strong market positions Clear focus on Australia and New Zealand Total income by geography 1 (%) Australia New Zealand Asia, Pacific, Europe & Americas Westpac Peer 1 Peer 2 Peer 3 Large domestic presence Top 1 banks in Australia by total resident assets 2 (A$bn) Westpac CBA NAB ANZ Macquarie Bank Suncorp-Metway Bendigo and Adelaide Bank ING Bank (Australia) Bank of Queensland Limited Citibank 2,, 6, 8, Strong market share positions Unique portfolio of national and regional brands Customers 13m Australian retail banking and wealth Australian household deposit market share 3 23% Australian housing market share 23% Australian business market share 19% Australian wealth platforms market share 5 2% New Zealand deposit market share 6 21% Westpac Institutional Bank Westpac New Zealand New Zealand consumer lending market share 6 2% 1 Source: Company Annual Reports. Westpac, Peer 1 and Peer 3 as at 3 September 21. Peer 2 as at 3 June APRA Banking Statistics February 215. Total resident assets refers to all assets on the banks' domestic books that are due from residents. 3 APRA Banking Statistics March 215. RBA Financial Aggregates, March Plan for Life, December 21, All Master Funds Admin. 6 RBNZ, March 215.

5 A high quality credit with balance sheet strength and consistent returns Maintaining a strong balance sheet Risk management a competitive advantage Westpac key balance sheet ratios at 31 March 215 (%) >75 8. Total impaired loans to total loans 1 (%) Stable Funding Ratio Target (internal) LCR Regulatory minimum from 1 Jan 215 CET1 capital ratio (APRA Basel III) APRA Regulatory minimum from 1 Jan 216 Westpac ANZ CBA NAB Stable, high-quality earnings by global standards Return on average ordinary equity 2 (%) One of the world s most efficient banks Cost to income ratio 3 (%) Westpac Asia ex- Japan Canada Australia US Western Europe US regional bank average Canadian bank average European banks UK bank average Korean bank average NAB Hong Kong bank average ANZ Singapore bank average Westpac CBA 1 Source: Company Reports. Westpac, Peer 1 and Peer 3 as at 31 March 215. Peer 2 as at 31 December Source: Citi Research, Company reports. Bottom-up based on Citi coverage stocks. Westpac presented on a cash earnings basis as at 31 March Source Company data, Credit Suisse. Expense to income ratio average for banks outside Australia are based on their FY1 results. Westpac, ANZ, CBA and NAB based on 1H15 results. 5

6 First Half 215 Financial performance 1H15 Financial Results Financial results (A$m) 1H15 % Change 1H15 2H1 Net profit after tax 3,69 (8) Cash earnings 1 3,778 (2) Net operating income 1 1,2 1 Expenses 1,25 2 Impairment charges 31 1 Financial metrics Cash earnings 1H15 2H1 ($m) 3,856 2H Derivative adjustments 2 $122m impact Excluding derivative Cash earnings adjustments ($m) Cash earnings flat Net operating income up 2% Income (exderivative adjustments) Derivative adjustments Expenses ,778 Impairment charges Tax & NCI 1H15 Return on average ordinary equity % (5bps) Earnings per share c (2) Net interest margin 1 2.5% (1bp) Expense to income ratio 1 2.5% 9bps Net interest margin 1 (%) NIM NIM excl. Treasury and Markets Impairment charges to avg. gross loans annualised (bps) 73 Balance sheet and asset quality Net loans $65bn Customer deposits $2bn Net write-offs to average loans annualised 16bps (9bps) Total provisions to risk weighted assets 1.1% (bps) 1H1 2H1 1H11 2H11 1H12 2H12 1H13 2H13 1H1 2H1 1H H11 1H12 1H13 1H1 1H15 1 Cash earnings basis. Cash earnings is a non-gaap measure. Refer to Appendix 1 for a reconciliation of reported net profit to cash earnings. 2 In 1H15 changes were made to derivative valuation methodologies, which include the first time adoption of the FVA for uncollateralised derivatives. The impact of these changes resulted in a $122m pre-tax charge which reduced non-interest income. 2 Pre-28 does not include St.George. 28 and 29 are pro forma including St.George for the entire period with 1H9 ASX Profit Announcement providing details of pro forma adjustments. Does not include interest carrying adjustment. 6

7 Steadily building our customer franchise Retail banking driving earnings Increasing customer numbers Leading consumer satisfaction 1H15 cash earnings by division (%) Australian retail customer numbers (#m) Total consumer satisfaction 2 (%) WRBB SGB BTFG WIB NZ Other inc. Treasury and Westpac Pacific WRBB SGB H13 1H1 1H15 WRBB SGB Peers Mar-13 Mar-1 Mar Leading wealth and banking integration Customers with a wealth product 1 (%) Increasing use of digital by customers Active digital customers (m) (lhs) Expansion in wealth and insurance 1H1 2H1 1H15 WRBB SGB Peers 21.8% 19.5% 17.1% 1.6% 12.3% 5 3 Digital banking sessions via mobile (%) (rhs) Mar-12 Mar-13 Mar-1 Mar H13 2H13 1H1 2H1 1H15 3 FUM ($bn) FUA ($bn) General 3 GWP ($m) Life in-force premium ($m) 1 Refer Appendix for wealth metrics provider. 2 Refer Appendix customer satisfaction details. 3 GWP is gross written premiums. 7

8 Asset quality a highlight Stressed exposures as a % of TCE and provisions 1 ($m) Impaired 9+ days past due and not impaired Watchlist & substandard FY7 FY8 FY9 FY1 FY11 1H12 2H12 1H13 2H13 1H1 2H1 1H15 New and increased gross impaired assets ($m) Provisioning coverage ratios 1H1 2H1 1H15 1,798 2,19 1,218 1,78 1,519 1,33 1,6 1, Collectively assessed provisions to credit risk weighted assets Collectively assessed provisions to performing non-housing loans 97bps 93bps 89bps 13bps 129bps 128bps Impairment provisions to impaired assets 6% 5% 8% Total provisions to gross loans 67bps 6bps 58bps 1H9 2H9 1H1 2H1 1H11 2H11 1H12 2H12 1H13 2H13 1H1 2H1 1H15 Economic overlay $398m $389m $387m 1 TCE is Total Committed Exposures. FY7 and FY8 do not include St.George. 8

9 Portfolio well diversified across industries Exposures at default 1 by sector 2 ($m) Stressed exposure by industry over last 3 halves ($bn) Finance & insurance Property Wholesale & Retail Trade Manufacturing H15 lower stressed exposure 1H15 higher stressed exposure Government admin. & defence Property & business services Services Agriculture, forestry & fishing Transport & storage Utilities Construction Accommodation, cafes & restaurants Mining Other 5 1H1 2H1 1H Property & business services Retail lending Wholesale & retail trade Agriculture, forestry & fishing Manufacturing Transport & storage Accommodation, cafes & restaurants Construction Mining Finance & insurance Services Utilities Other 9 1 Exposures at default represents an estimate of the amount of committed exposure expected to be drawn by the customer at the time of default. Chart excludes retail lending. 2 All residential mortgage exposures are now reported under the retail lending classification to align with our treatment of other consumer portfolios. Comparatives have been restated to reflect this change. 3 Finance and insurance includes banks, non-banks, insurance companies and other firms providing services to the finance and insurance sectors. Property includes both residential and non-residential property investors and developers, and excludes real estate agents. 5 Construction includes building and non-building construction, and industries serving the construction sector.

10 Sector deep dives Commercial property and mining Commercial property portfolio Mining portfolio Total committed exposure (TCE) $6.8bn Total committed exposure (TCE) $11.7bn Lending $5.5bn Lending $7.bn Commercial property as a % of Group TCE 7.11% Mining as a % of Group TCE 1.28% Average risk grade 1 BB- equivalent Average risk grade 1 BBB equivalent % of portfolio graded as stressed % % of portfolio in impaired.8% % of portfolio graded as stressed % % of portfolio in impaired.97% Commercial property (TCE) by borrower (%) Mining portfolio (TCE) by sector (%) 22 3 Exposures <$1m Developers >$1m 17 7 Oil and gas Iron ore Other metal ore 25 1 Investors >$1m Diversified property groups and property trusts >$1m Coal Mining services Other 1 Includes impaired exposures. 1

11 High levels of borrower equity support Australian mortgage portfolio Australian housing portfolio 1H1 balance 2H1 balance 1H15 balance 1H15 flow 1 Total portfolio ($bn) Owner-occupied (%) Investment property loans (%) Portfolio loan/line of credit (%) Variable rate / Fixed rate (%) 81 / / / / 18 Low Doc (%) Proprietary channel (%) Australian housing loan-to-value ratios (LVRs) 2 (%) H15 drawdowns LVR at origination Portfolio LVR at origination Portfolio dynamic LVR 9% of portfolio with dynamic LVR <8% First Home Buyer (%) Mortgage insured (%) <=6 6<=7 7<=8 8<=9 9<= H1 2H1 1H15 Average LVR at origination 2 (%) Average dynamic 2,3, LVR (%) 7 3 Average LVR of new loans 2,5 (%) Average loan size ($ ) Australian mortgages delinquencies (%) 9+ Past Due Total 9+ First Home Buyer Investor 3+ Past Due 1.5 Customers ahead on repayments, including offset accounts 2,6 (%) Actual mortgage losses (net of insurance) 7 ($m) Actual mortgage loss rate annualised (bps) Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-1 Sep-1 Mar-15 1 Flow is all new mortgage originations settled during the 6 month period ended 31 March 215 and includes RAMS. 2 Excludes RAMS. 3 Dynamic LVR represents the loan-to-value ratio taking into account the current outstanding loan balance, changes in security value and other loan adjustments. Property valuation source Australian Property Monitors. 5 Average LVR of new loans is based on rolling 6 month window. 6 Customer loans ahead on payments exclude equity/line of credit products as there are no scheduled payments. 7 Mortgage insurance claims 1H15 $1m (2H1 $6m, 1H1 $3m). 11

12 Mortgage customers continuing to repay ahead of schedule Australian home loan customers ahead on repayments 1,2 (%) Australian mortgage lending volumes ($bn) 3 25 Mar-1 Sep-1 Mar-15 73% ahead on repayments ( 23.9) ( 25.2) Behind On Time < 1 Month < 1 Year < 2 Years > 2 Years 1H1 New lending Run-off 2H1 New lending Run-off 1H15 Borrower repayments Australian mortgage customers continue to display a cautious approach to debt levels, taking advantage of historically low mortgage rates to pay down debt and build buffers Including mortgage offset account balances, 73% of customers are ahead of scheduled payments, with 23% of these being more than 2 years ahead Mortgage offset account balances up $3.3bn or 1% (up 29% 1H15/1H1) to $27bn Credit decisions across all brands are made by the Westpac Group, regardless of the origination channel Australian mortgage offset account balances ($bn) 8. FY FY1 FY11 1H12 2H12 1H13 2H13 1H1 2H1 1H15 Serviceability assessment Loan serviceability assessments include an interest rate buffer, adequate surplus test and discounts to certain forms of income (e.g. dividends, rental income) Westpac has a minimum assessment rate, often referred to as a floor rate, now set at 7.1% p.a. The minimum assessment rate is at least 21bps higher than the lending rate and is applied to all mortgage debt, not just the loan being applied for The minimum assessment rate and buffer has increased from 6.8% p.a. and 18bps respectively 1 Excludes RAMS. 2 Customer loans ahead on payments exclude equity loans/line of credit products as there are no scheduled principal payments. Includes mortgage offset account balances. Behind is more than 3 days past due. On time includes up to 3 days past due. 12

13 Capital strength maintained Common equity tier 1 capital ratio (CET1) (% and bps) (72) (7) (12) (19) (1) (6) Organic (+18bps) Other items (-39bps) Mar-1 Sep-1 Cash earnings Final ordinary dividend RWA movement Other Model changes 2 FX translation DB plan changes Mar-15 DRP and DRP u'write Mar-15 pro forma after DRP Mar-15 Internationally comparable1 pro forma after DRP Key capital ratios (%) Preferred Range 1H1 2H1 1H15 Mar-15 (A$bn) Common equity tier 1 capital 8.75% % Additional tier 1 capital Tier 1 capital Tier 2 capital Total regulatory capital Risk weighted assets ($bn) Common equity tier 1 capital (Internationally comparable 1 ) For a full reconciliation of Westpac s APRA Basel III common equity Tier 1 capital to internationally comparable Basel III, please refer Appendix 2. 2 Includes the impact of change to mortgage PDs of 22bps and other smaller model changes. 13

14 Regulatory agenda Considerations for capital Westpac s capital base and APRA regulatory minimums (%) Capital considerations DRP and DRP underwrite 8.% APRA CET1 regulatory minimum (effective Jan 216) 3.5% D-SIB HLA 1 + CCB 2.5% CET1 APRA regulatory minimums 12.6% Total regulatory capital ratio (pro forma after DRP) 1.8% Tier 2 1.5% AT1 8.8% CET1 Westpac 1H15 pro forma (APRA Basel III) 13.% CET1 pro forma after DRP 9.3% CET1 pro forma after DRP 17.5% Total regulatory capital ratio (pro forma after DRP) 2.2% Tier 2 1.9% AT1 12.7% CET1 Westpac 1H15 (Internationally comparable) Current considerations Capital reviews with impact and timing uncertain RBNZ changes to investment property loans Changes in IRRBB calculations Adjustment for wealth leverage 3 (Westpac Group not affected) Westpac potential sale of certain Pacific Island operations Financial System Inquiry (FSI) Final Report released to the Australian Federal Treasurer in December 21. The Government and APRA are considering the Inquiry s recommendations Basel IV Consultation papers released December 21. Consultation process expected to continue through 215 Proposed changes to standardised approach to determining Credit RWA and consultation on RWA capital floors for advanced banks BCBS review of calculation of RWA for traded risk and operational risk Leverage ratio Draft prudential standard for reporting of leverage ratio released by APRA December 21 Becomes a Pillar 1 requirement from January 218 TLAC In Australia, the FSI Final Report recommended the implementation of a framework for minimum loss absorbing and recapitalisation capacity in line with emerging international practice for Australian ADIs FSB has stated that TLAC for G-SIBs would not be introduced before HLA is Higher Loss Absorbency capital requirement. 2 CCB is Capital Conservation Buffer. 3 APRA have clarified that holding companies are to be part of the Level 2 group for regulatory purposes. Transitional arrangements are in place for major banks. 1

15 Internationally comparable CET1 capital ratio In top quartile of global peers Global peer comparison of Basel III pro forma CET1 capital ratios 1 (%) Pre- DRP and DRP underwrite (approx. 7bps) 12.7 Handelsbanken SEB Nordea Danske Bank DnB UBS CBA Intesa Sanpaolo Lloyds WBC United Overseas Bank ANZ Deutsche Bank DBS Rabobank Natixis NAB HSBC RBS Sumitomo Mitsui Goldman Sachs Standard Chartered Scotiabank Macquarie Mitsubishi UFG Morgan Stanley Barclays BNP Paribas OCBC Credit Agricole SA Citigroup Wells Fargo Societe Generale BBVA Banco Popular CIBC Bank of Montreal JPMorgan Chase Unicredit Royal Bank of Canada Santander Bank of America TD Bank Commerzbank Miziho FG Source: Company reports and investor presentations. 1 Based on internationally comparable, refer Appendix 2 for definition. 2 As at 31 March As at 31 October 21. As at 31 December As at 3 September NAB as at 31 March 215 and excludes impact of capital raising announced 7 May

16 Strong liquidity position LCR 11% Westpac s Liquidity Coverage Ratio (LCR) 11% The LCR requires banks to hold 1% of their net cash outflows over a modelled 3-day stressed scenario in qualifying liquid assets Westpac held $57bn of eligible High Quality Liquid Assets (HQLA) at 31 March 215 In addition, APRA has approved access to the Committed Liquidity Facility (CLF) for $66bn for calendar year 215 $136.7bn in unencumbered liquid assets held at 31 March 215 Securities are eligible for repo with a central bank Sufficient to cover all short term debt outstanding (including long term debt with a residual maturity less than or equal to one year) Sufficient to cover all outstanding debt for 19 months Differs from LCR qualifying liquid assets due to applicable haircuts and eligibility criteria Liquidity Coverage Ratio ($m) Pro forma as at 2H1 as at 1H15 % Mov t 1H15 pro forma 2H1 High Quality Liquid Assets 1 (HQLA) (3) Committed Liquidity Facility 2 (CLF) Total LCR liquid assets (1) Customer deposits (11) Wholesale funding 2 17 (15) Other flows (7) Total cash outflows (11) LCR 13% 11% 11 Unencumbered liquid assets ($bn) Self securitisation Private securities 5 Cash, government and semi-government bonds H1 2H1 1H15 Total short term debt outstanding at 1H Includes HQLA as defined in APS 21, BS-13 qualifying liquids, less RBA open repos funding end of day ESA balances with the RBA. 2 The RBA makes available to Australian Authorised Deposit-taking Institutions a CLF that, subject to qualifying conditions, can be accessed to meet LCR requirements under APS21 Liquidity. 3 Other flows include credit and liquidity facilities, collateral outflows and inflows from customers. LCR is calculated as the percentage ratio of stock of HQLA and CLF over the total net cash outflows in a modelled 3 day defined stressed scenario. Calculated on a spot basis. September 21 LCR is on a pro forma basis. 5 Private securities include Bank paper, RMBS, and Supra-nationals. 6 Includes long term wholesale funding with a residual maturity less than or equal to 1 year. 16

17 Sound funding profile Stable sources providing 83% of all funding Stable Funding Ratio maintained at 83.2% as the Group continues to focus on funding growth through stable funding sources Focus on deposit quality household deposits grew at system in 1H15 1 $15.9bn of term wholesale funding raised in 1H15, with a weighted average term to maturity of.6 years 2, providing a stable source of funds for the Group Short term funding maintained at 16.8% of total funding Weighted average maturity of short term funding portfolio 13 days Customer deposit composition 1H15 (%) 27% 17% 16% % Term deposits Savings Online Transaction 5 Maintaining a stable funding profile Funding composition by residual maturity (%) Stable Funding Ratio 63.8% 82.8% 83.9% 83.2% 83.2% Wholesale Onshore <1yr Wholesale Offshore <1yr Wholesale Onshore >1yr Wholesale Offshore >1yr Securitisation Equity Customer deposits Total customer deposits $2bn 3 FY8 FY12 FY13 FY1 1H15 1 Source APRA Banking Statistics March Excluding securitisation. 3 FY8 does not include St.George. Equity excludes FX translation, Available-for-Sale Securities and Cash Flow Hedging Reserves. 5 Mortgage offset accounts are included in transaction accounts. 17

18 Wholesale term issuance well diversified Benefit from broad product capabilities 1H15 new term issuance composition 1 (%) Australian covered bond issuance 5 By type Senior Unsecured Covered Bonds RMBS ABS Subordinated Debt 1 1 By tenor 2, Year 2 Years 3 Years Years 5 Years >5 years 1 2 By currency AUD USD EUR GBP Other Remaining capacity (8% cap & over-collateralisation) ($bn) Issued ($bn) ANZ CBA NAB Westpac Term debt issuance and maturity profile 1,2, ($bn) 5 3 Covered Bond Hybrid Senior Govt Guaranteed Sub Debt Issuance Maturities FY9 FY1 FY11 FY12 FY13 FY1 1H15 2H15 FY16 FY17 FY18 FY19 FY2 >FY2 1 Based on residual maturity and FX spot currency translation. Includes all debt issuance with contractual maturity greater than 37 days excluding US Commercial Paper and Yankee Certificates of Deposit. 2 Contractual maturity date for hybrids and callable subordinated instruments is the first scheduled conversion date or call date for the purposes of this disclosure. 3 Tenor excludes RMBS and ABS. Perpetual subdebt has been included in >FY2 maturity bucket. Maturities exclude securitisation amortisation. 5 Sources: Westpac, APRA Banking Statistics March

19 Areas of interest Economic snapshot Key economic indicators (%) as at April 215 Calendar year 215f 216f World GDP Australia GDP Source: Westpac Economics. CPI headline year end Interest rates cash rate Credit growth, Total year end New Zealand GDP Interest rates official cash rate 3.5. China GDP Lower Australian dollar providing some support USD Australian dollar (AUD/USD) USD Fair value band AUD/USD actual & forecast Forecasts latest: Mar-92 Mar-96 Mar- Mar- Mar-8 Mar-12 Mar-16 Includes WCFI+BI commodities index, 2 year swap spread, and NFD to GDP. Sources: RBA, Westpac Economics. Australia s economy is diversified and flexible Sector contribution to GDP (%) Sources: ABS, Westpac Economics. 1 Excludes ownership of dwellings and taxes less subsidies. House price increases mainly in Sydney % Manufacturing Construction Mining Rural Capital city dwelling prices Sources: ABS, RP Data-Rismark, APM, Residex, Westpac Economics. Utilities & transport Wholesale & retail Property, business services Finance Communications Household services Education & health Government * 6mth annualised growth rates, all dwellings, composite of all measures, seasonally adjusted -1 Sydney Melbourne Brisbane Perth -2 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-1 19

20 Australian Home Lending May 215 Westpac Banking Corporation ABN Comparison of 1H15 versus 2H1 cash earnings basis (unless otherwise stated)

21 Australian mortgage market Sound fundamentals underpin asset quality Australian mortgage market Australian housing credit market share 1 (% of financial system) Bank market share Lenders recourse Products Regulation Performance major banks have 78% share of housing credit 1 Major banks have a lower share of low doc market, with low flow in this segment over recent years Banks in Australia have full recourse to the borrower s mortgaged property, other assets and future earnings Banks can and do pursue defaulting borrowers for losses Reduces speculative buying behaviour Majority of housing loans are variable rate Fixed rate loans for short periods of time in most cases customers opt for 3 to 5 years Fixed rate borrowers generally incur a break fee if they choose to refinance within the fixed period Interest rate buffers built into loan serviceability tests at application; Interest-only loans assessed on a full Principal & Interest basis Interest payments on primary residence are not tax deductible, provides incentive to pay off mortgage For mortgage insured loans, mortgage insurance covers the entire loan Strict prudential supervision provided by one national regulator, APRA Sound underwriting and origination requirements National Consumer Protection Bill replaced the statebased Uniform Consumer Credit Code (UCCC) with an enhanced single Federal consumer credit regulation Australian 9+ day prime arrears at low levels - absolutely and relative to other major economies 9+ day prime arrears by country 2 (%) Westpac CBA NAB ANZ Other banks Non-banks Australia UK US Netherlands Jun-3 Dec-3 Jun- Dec- Jun-5 Dec-5 Jun-6 Dec-6 Jun-7 Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-1 1 Source: APRA Banking Statistics February Source: S&P and Bloomberg. 21

22 Australian housing market Sound fundamentals Australian housing market continues to face a significant structural undersupply Persistently low level of new building over the last decade has combined with a strong migration-led burst in population growth over the last 15yrs Australia s annual population increase has lifted from around 2, a year in recent decades to over 35, in the last years. Construction has been adding about 125, new dwellings net of demolitions over the same time More recently, new construction has increased to a relatively high level and is expected to remain elevated in 215 with net additions tracking around 16, dwellings a year While this may result in pockets of excess dwelling stock, it will only begin to address shortages across the broader market Population versus dwelling stock (annual average change ) population dwelling stock* * net of demolitions implied by Census data; Westpac estimates Sources: REIA, Westpac Economics s 196s 197s 198s 199s 2s last years Australia s housing stock deficiency Residential rental vacancy rates (%) ' indicative accumulated deficiency 3 Aus dwelling approvals (SA annualised) 25 2 underlying Feb-93 Feb-95 Feb-97 Feb-99 Feb-1 Feb-3 Feb-5 Feb-7 Feb-9 Feb-11 ' f'casts Feb-13 Feb % Australia Sydney Melbourne investor housing boom Dec-8 Dec-89 Dec-9 Dec-99 Dec- Dec-9 Dec Sources: ABS, Westpac Economics. Sources: ABS, Westpac Economics. 22

23 House price growth and activity Some moderation, wide range of conditions Price growth and activity have moderated somewhat since the start of 215 but remains robust at around 8% yr nationally Capital city dwelling prices Growth rates continue to vary significantly between capital cities Sydney up 13.9%yr; average since 27: 6.% Melbourne up 5.6%yr; average since 27:.6% Brisbane up 3.%yr, average since 27:.2% 1 Perth flat over the year, average since 27:.9% Housing credit growth is currently tracking at 7.%yr, however new growth is stronger with total credit tempered by high levels of repayment -1 Repayment-based measures of affordability remain around their long run Sydney Melbourne Brisbane Perth average levels only partly reflecting low interest rates -2 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-1 % 3 2 * 6mth annualised growth rates, all dwellings, composite of all measures, seasonally adjusted Sources: ABS, Westpac Economics. Australia: dwelling prices vs labour incomes index dwelling prices 25 labour income per household 22 labour income per capita Dec-95 Dec-98 Dec-1 Dec- Dec-7 Dec-1 Dec-13 Sources: RP Data-Rismark, ABS, Westpac Economics. Sources: ABS, RP Data-Rismark, APM, Residex, Westpac Economics. Housing credit momentum 6mth %change, annualised Sources: RBA, Westpac Economics. Total Owner-occupier Investor Feb-1 Feb-3 Feb-5 Feb-7 Feb-9 Feb-11 Feb-13 Feb

24 Investment property lending Remains buoyant Investor housing activity is buoyant, responding to low vacancy rates, solid rental yields, and low interest rates, including low fixed rates that also offer the opportunity to hedge interest rate risk Gross rental yields are attractive compared to returns on other asset classes, many of which exhibit much greater volatility New investor loans currently account for almost % of the value of total housing loan approvals while that is high, activity is coming from a relatively low starting point and evidence suggests borrowing and lending decisions are conservative Total market turnover remains below recent peaks and well below the levels seen in 22-3, when activity was clearly overheating (high levels of turnover are often associated with increased speculative activity) Sources: ABS, Westpac Economics. Housing finance approvals: value of housing finance ($bn/mth) $bn/mth 'upgraders', ex-refinancing investor finance first home buyers Feb-95 Feb- Feb-5 Feb-1 Feb-15 Sources: ABS, Westpac Economics. Dwelling turnover thousands 2 18 *quarterly Dec-9 Dec-98 Dec-2 Dec-6 Dec-1 Dec-1 Sources: RP Data-Rismark, ABS, FIRB, Westpac Economics Investor housing yields vs shares, deposits %pa improved access to finance and CGT changes investor boom Sources: REIA, RBA, Westpac Economics. estimated investor purchases all dwellings units FIRB approvals rental yield* ASX 2 dividend yield 1yr term deposit *gross yield, median rent on 2bdrm unit as % of median unit price Mar-95 Mar-99 Mar-3 Mar-7 Mar-11 Mar-15 2

25 Australian households A cautious approach to household finances Australian households: debt to income ratio (%) % * Westpac estimates prior to 1988 Dec-77 Dec-82 total (gross) debt total debt net of offset accounts total debt net of deposits* trend since Jun-7 Dec-87 Dec-92 Sources: ABS, RBA, Westpac Economics. Dec-97 Dec-2 Housing affordability: all dwellings Dec-7 Dec-12 includes funds held in mortgage offset accounts 2pts since peak Consumer survey: Wisest place for savings % shares real estate deposits pay down debt Mar-97 Mar- Mar-3 Mar-6 Mar-9 Mar-12 Mar-15 Sources: Melbourne Institute, Westpac Economics. Household savings rate (% income) % % 35 3 % income required to service mortgage of 75% median dwelling, all regions deteriorate improve if mortgage rate was 1% higher % income long run avg 1yr avg estimates based on capital cities prior to Mar-79 Mar-8 Mar-89 Mar-9 Mar-99 Mar- Mar-9 Mar-1 Sources: RP Data-Rismark, Residex, Westpac Economics. -3 Dec-9 Dec-9 Dec-98 Dec-2 Dec-6 Dec-1 Dec-1 Sources: ABS, Westpac Economics. 25

26 Australian investment property portfolio Sound origination profile Investment property loans (IPLs) are 6.3% of Westpac s Australian mortgage portfolio Compared to owner-occupied applicants, IPL applicants are on average older (75% over 35 years), have higher incomes and higher credit scores 87% of IPLs originated at or below 8% LVR Majority of IPLs are interest-only, however the repayment profile closely tracks the profile of the principal and interest portfolio 62% of interest-only IPL customers are ahead on repayments IPL 9+ days delinquencies 36bps continue to outperform the total portfolio average IPL portfolio losses represent an annualised loss rate of 2bps (net of insurance claims) in line with total portfolio losses of 2bps Self-managed Superannuation Fund balances are a very small part of the portfolio, at 1% of Australian mortgage balances Strong origination standards All IPLs 1 are full recourse Loan serviceability assessments include an interest rate buffer, minimum assessment rate, adequate surplus test and discounts to certain forms of income (e.g. dividends, rental income) All IPLs, including interest-only loans, are assessed on a principal & interest basis Specific credit policies apply to IPLs to assist risk mitigation, including Holiday apartments subject to tighter acceptance requirements Additional LVR restrictions apply to single industry towns Minimum property size and location restrictions apply Restrictions on non-resident lending include lower maximum LVR and discounts to foreign income recognition High levels of equity in the portfolio Loan-to-value ratio at origination 2 (%) Applicants by gross income band 2 (%) Australian IPL portfolio 1H15 Average LVR at origination 2 (%) 72 Average dynamic 2,3, LVR (%) Owner Occupied IPL Owner Occupied IPL Average LVR of new loans 2,5 (%) Average loan size ($ ) 292 Customers ahead on repayments, including offset accounts 2 (%) <=5 5<=75 75<=1 1<= <=15 15<=2 2<=5 5<=1m 1m+ 1 Self Managed Super Fund (SMSF) IPLs are limited recourse however do require member guarantees. 2 Excludes RAMS. 3 Dynamic LVR represents the loan-to-value ratio taking into account the current outstanding loan balance, changes in security value and other loan adjustments. Property valuation source Australian Property Monitors. 5 Average LVR of new loans is based on rolling 6 month window. 26

27 Australian mortgage delinquencies Remain at low levels Australian mortgage portfolio 1H1 2H1 1H15 3+ days delinquencies (bps) days delinquencies (bps) days delinquencies investment property loans (bps) Properties in possession (#) Australian mortgage delinquencies have declined given improved serviceability in low interest rate environment Properties in possession remain <2bps of the portfolio, however have increased, mainly in Qld, where natural disasters and a decline in mining investment have seen weaker conditions Review of treatment of hardship will likely see a rise in reported delinquencies in future periods Australian mortgage loss rates (bps) Portfolio losses of $38m in 1H15 represent an annualised loss rate of 2bps (net of insurance claims 2 ) Loss rates remain very low by international standards due to supportive economic environment, sound underwriting standards, high levels of borrower equity, mortgage insurance and active collections strategies 2 2 1H15 total portfolio 1H15 IPL portfolio 1 1H15 Owner Occ. portfolio total portfolio (last recession) Westpac Australian housing portfolio and system by State (%) Australian mortgages delinquencies by state (%) Australian banking system Total Westpac portfolio (all brands) 1H15 Westpac drawdowns (all brands) ALL NSW/ACT VIC/TAS QLD WA SA/NT NSW & ACT VIC & TAS QLD WA SA & NT Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-1 Sep-1 Mar-15 1 Source ABA Cannex February Mortgage insurance claims 1H15 $1m (2H1 $6m, 1H1 $3m). 27

28 Lenders mortgage insurance Lenders mortgage insurance (LMI) provides benefits to the Westpac Group Risk transfer / loss mitigation Improvement in the quality of risk acceptance via the additional layer of independent review provided by the mortgage insurers Mortgages are insured through Westpac s captive mortgage insurer, Westpac Lenders Mortgage Insurance (WLMI), and through external LMI providers, based on risk profile WLMI provides the Westpac Group with an increased return on the mortgages it insures through the capture of underwriting profit WLMI is strongly capitalised (separate from bank capital) and subject to APRA regulation. Capitalised at 1.7x PCR 1 Lenders mortgage insurance LVR Band LVR 8% Low Doc LVR 6% LVR >8% to 9% Low Doc LVR >6% to 8% Insurance Not required Generally insured through captive insurer, WLMI. LMI not required for certain approved borrower groups. LMI required for all Low Doc borrowers where LVR >6% to 8% Reinsurance arrangements: % risk retained by WLMI 6% risk transferred through quota share arrangements 2 with Arch Capital Group Limited, Tokio Millennium Re, Everest Re, Endurance Re, Trans Re and AWAC Australian mortgage portfolio (%) Scenarios indicate sufficient capital to fund claims arising from events of severe stress estimated losses for WLMI from a 1 in 79.8 Not insured 2 year event are $15m (net of reinsurance recoveries). This is $18m lower parties Insured by third compared to 2H1 in line with reductions in Insured by WLMI s portfolio WLMI Insurance statistics Insurance claims ($m) WLMI loss ratio (%) Gross written premiums ($m) LVR >9% Insured externally through Arch Capital Group Limited for all new business effective from 18 May 215 (Prior to 18 May 215, external insurance provided by QBE (Westpac brand) and Genworth (St George and RAMS brands). Existing LMI policies remain in force) 1H1 2H1 1H Prudential Capital Requirement (PCR) determined by APRA. 2 For all new business effective from 1 October Insured coverage is net of quota share. Loss ratio is claims over the total of earned premium plus reinsurance plus exchange commission. 28

29 Australian mortgage portfolio Stress testing outcomes Westpac regularly conducts a range of portfolio stress tests as part of its regulatory and risk management activities The Australian mortgage portfolio stress testing scenario presented represents a severe recession and assumes that significant reductions in consumer spending and business investment lead to six consecutive quarters of negative GDP growth. This results in a material increase in unemployment and nationwide falls in property and other asset prices Estimated Australian housing portfolio losses under these stressed conditions are manageable and within the Group s risk appetite and capital base Cumulative total losses of $2.3bn over three years for the uninsured portfolio (2H1: $2.2bn) Cumulative claims on LMI, both WLMI and external insurers, of $879m over the three years (2H1: $793m) WLMI separately conducts stress testing so that it is sufficiently capitalised to cover mortgage claims arising from a stressed mortgage environment Preferred capital ranges incorporate buffers at the Westpac Group level that also consider the combined impact on the mortgage portfolio and WLMI of severe stress scenarios Australian mortgage portfolio stress testing as at 31 March 215 Key assumptions Stressed scenario Current Year 1 Year 2 Year 3 Portfolio size ($bn) Unemployment rate (%) Interest rates (cash rate, %) House prices (% change cumulative) (13.) (22.) (26.2) Annual GDP growth (%) 2.5 (3.9) (.2) 1.7 Stressed loss outcomes (net of LMI recoveries) 1 $m ,65 1, bps Assumes 3% of LMI claims will be rejected in a stressed scenario. 2 Represents 1H15 actual losses of $38m annualised. 3 Stressed loss rates are calculated as a percentage of mortgage exposure at default. 29

30 Economics May 215 Westpac Banking Corporation ABN Comparison of 1H15 versus 2H1 cash earnings basis (unless otherwise stated)

31 Australian and New Zealand Economic forecasts Calendar year Key economic indicators 1 (%) as at April f 215f 216f World GDP Australia GDP Private consumption Business investment 2, Unemployment end period CPI headline year end Interest rates cash rate Credit growth, Total year end Credit growth, Housing year end Credit growth, Business year end New Zealand GDP Unemployment end period Consumer prices Interest rates official cash rate Credit growth Total Credit growth Housing Credit growth Business Source: Westpac Economics. 2 GDP and component forecasts updated following the release of quarterly national accounts. 3 Business investment adjusted to exclude the effect of private sector purchases of public assets. 31

32 Australia remains well-placed relative to developed economies Net public debt levels as a % of GDP 213 Australia s economy: diversified and flexible 11.7 Sector contribution to GDP (%) Aus 26. NZ 38.5 Canada 55.7 Germany 6. Spain 81.3 US UK France Italy Manufacturing Construction Mining Rural Utilities & transport Wholesale & retail Property, business services Finance Communications Household services Education & health Government Sources: IMF, Westpac Economics. Real GDP growth (%) % growth, year-ended Dec-98 Dec-2 Dec-6 Dec-1 Dec-1 Sources: OECD, Westpac Economics. Australia UK Canada US Euro Sources: ABS, Westpac Economics. 1 Excludes ownership of dwellings and taxes less subsidies. Australian economic growth and external shocks GDP %yr 8 Global recession, but home grown 6 property bust 2 Asian Crisis, ~ 6% of export markets in recession Tech Wreck, ~ 9% of export markets in recession GFC, ~ 7% of export markets in recession shock GDP %yr Dec-86 Dec-9 Dec-9 Dec-98 Dec-2 Dec-6 Dec-1 Dec-1 Sources: ABS, Westpac Economics

33 Australia s economic transition From mining to non-mining Australian growth mix: contributions to GDP growth (%) Investment: share of Australian economy (% of GDP) 3 ppts e 215f 216f ann% avg 1yrs to 27 3 % of GDP 15 1 mining, CAPEX housing investment business investment (ex mining) F casts end Dec-9 Dec-9 Dec-98 Dec-2 Dec-6 Dec-1 Sources: ABS, Westpac Economics. Iron ore cash cost curve (total supply free-on-board) USD/t Brazil Australia 1 China Dec-1 USD/t others current MB $8/t cfr 5-2 consumer housing inv. mining inv. Sources: ABS, Westpac Economics. business inv. govt demand net exports GDP Cumulative export supply, mt Sources: AME, Westpac Economics

34 Australian state economies Shift in growth with NSW the pace setter Domestic demand growth is shifting from the mining states of WA and Qld, to NSW and, to a lesser extent, Victoria 1 in 3 Australians live in NSW, with a similar number spread across WA and Qld, some 25% are in Victoria, and 12% reside in the smaller states and territories The downturn in mining investment and in global commodity prices is being particularly hard felt in WA and Qld, with per capita consumer spending growth now quite weak In Victoria, structural change associated with the recent high level of the Australian dollar has been a significant headwind, with a number of large manufacturers announcing their intended exit from the Australian market In contrast, the NSW economy, held back by the high interest rates prevailing during the mining boom, has responded strongly to record low rates. Home building is in a catch-up phase and consumer spending growth is above trend, supported by strong gains in population, house prices and wage incomes Domestic demand (% ann) Dec-13 yr Population (# m) Dec-1 yr Qld WA Aus Tas SA Vic NSW Sources: ABS, Westpac Economics Australia: 23.5 million Jun Business investment by state ($bn) Equipment NSW + Vic WA + Qld 3/ to 7/8 Dec- Dec-8 Dec- Sources: ABS, Westpac Economics Construction NSW + Vic WA + Qld Dec-8 Gross State Product 213/1 (%) Tas SA WA 2 6 % of Australian GDP The exchange rate plays a key role in adjusting to swings in global commodity prices and in facilitating a rebalancing of growth between the mining and non-mining sectors of the economy Qld Vic NSW NSW Vic Qld WA SA Tas ACT NT Sources: ABS, Westpac Economics Sources: ABS, Westpac Economics 3

35 Australian labour market Unemployment rates (%) % Australia Canada UK US Euro Feb-99 Feb-3 Feb-7 Feb-11 Feb-15 Sources: OECD, Westpac Economics. Personal bankruptcies vs company insolvencies (%) % Company insolvencies (rhs) % Personal bankruptcies (lhs) Feb-1 *seasonally adjusted by Westpac; bankruptcies shown as per 1 people, insolvencies shown as per employing businesses Feb-2 Feb-3 Feb- Feb-5 Feb-6 Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 Feb-12 Feb-13 Feb-1 Feb Australia: employment by sector (annual change, ) Business services Leisure & hospitality Construction Finance & real estate Retail Wholesale & transp. Agriculture Health & education Government Q13-1Q1 Utilities Q1-1Q15 Manufacturing Mining change in employment Sources: ASIC, ITSA, ABS, Westpac Economics. Sources: ABS, Westpac Economics. 1 The group of industries collectively called the household services sector includes those industries that provide services primarily to households, including health, education, hospitality, accommodation, food services and art and recreation. 35

36 Australia s population growth Australia s population is just over 23 million and growing at a comparatively rapid pace Population growth (%) Population growth was 1.8% in 213, a touch above Australia s long run average pace of 1.% and well above world population growth of 1.2% Much stronger than that seen in most advanced economies, many of which are seeing static or even declining populations Also strong compared to population growth seen in many emerging economies % % *average 25-1 world The growth of Australia's population has two main components natural increase (the number of births minus the number of deaths) and net overseas migration Natural increase and net overseas migration contributed % and 6% respectively to total population growth in the 12 months to March 213 Australia is very much a migrant country.5.5 Approximately one-third of the population born overseas Overall, the proportion of overseas-born residents from European countries of birth is declining, while the proportion of migrants coming from Asia is increasing Germany Hungary Poland Greece Japan Netherlands China France Italy UK Sweden US Canada New Zealand Spain India Indonesia Australia Sources: UN, Westpac 36

37 Interest rates to remain low AUD high relative to fundamentals Major countries policy rates (%) Australian dollar (AUD/USD) % 8 7 Australia UK Canada US Euro USD Fair value band AUD/USD actual & forecast USD F casts Mar-8 Mar-9 Mar-1 Mar-11 Mar-12 Mar-13 Mar-1 Mar latest: 78 Includes WCFI+BI commodities index, 2 year swap spread, and NFD to GDP Mar-92 Mar-96 Mar- Mar- Mar-8 Mar-12 Mar-16 Sources: RBA, OECD, Westpac Economics. The economy has been hit by a negative income shock since mid 21, with commodity prices falling sharply, particularly iron ore as global supply expands and China navigates a soft spot The Reserve Bank cut rates by 25bps in May 215 to 2.%. In our view, this will be the resting place for this easing cycle Price pressures are expected to remain benign with core CPI inflation forecast to be 2.3% in 215 and wages growth subdued. Labour markets are only expected to improve slowly Sources: RBA, Westpac Economics. The Australian dollar has not fully adjusted to the sharp fall in commodity prices since mid 21. The currency remains above fair value based on long run fundamentals Commodity prices have fallen by around 32% since mid 21, while the AUD has depreciated by 18% against the USD and by only 12% on a TWI basis over the same period The AUD is expected to decline further to US72 by the end of 215, holding around that level through much of

38 Credit growth picking up at a modest pace Business confidence and consumer confidence (net balance) Australian private sector credit growth (% ann) monthly Consumer (lhs) Business * (rhs) 3 2 % annual % annual Housing Total credit Business 25 Forecasts 25 end * rebased to avg -3 (5) Mar-3 Mar-7 Mar-11 Mar-15 Sources: Westpac MI, NAB, Westpac Economics. Confidence remains relatively subdued After a weak 21, consumer sentiment responded positively to the RBA s February rate cut but has since drifted lower again and remains in pessimistic territory Job loss fears and concerns around a Budget tightening by the Federal Government have been the main factors weighing on sentiment Business confidence was more resilient for a time but has slipped back in recent months (1) Mar-95 Mar-99 Mar-3 Mar-7 Mar-11 Mar-15 Sources: RBA, Westpac Economics. Credit growth increased to over 5.5% during 21, as both housing and business responded to declining interest rates A potential loss of momentum in business credit, following the recent dip in confidence, could see the 215 year be one of consolidation ahead of an improvement in 216, supported by record low interest rates, investors continuing to move in to the housing market, and an improved international environment -1 38

39 Australian commercial property market Australian commercial investment sales over $5 million ($ ) Total vacancy rates in capital cities (%) NSW Vic Qld SA WA ACT 22 Source: CBRE research Recent sector activity largely in NSW and Vic Brisbane CBD Perth CBD 35 Sydney CBD Melbourne CBD Jan-9 Jan-95 Jan- Jan-5 Jan-1 Jan-15 Source: PCA OMR 1/215 Premium property prime yields over 1 year bond rate (%) Factors driving vacancy change (%) 8.% 6.% Prime Office Prime Retail Prime Industrial 2.5% 1.5% Change in occupied space Net supply Net changes over second half 21.%.5% 2.% -.5%.% -2.% -.% Average premium since 2 Prime Office = 2.52%; Prime Industrial = 3.31%; Prime Retail = 2.1% Dec-9 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec- Dec-1 Dec-2 Dec-3 Dec- Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-1-1.5% -2.5% Sydney CBD Melbourne CBD Canberra Adelaide CBD Brisbane CBD Gold Coast Sunshine Coast Perth CBD West Perth Source: CBRE, RBA, Westpac Economics Source: PCA OMR 2/215 39

40 China growth remains a positive for Australia As a $US7 trillion economy, China grew at 1%. As a $US1 trillion economy, Westpac expects China to grow at 7.1% Represents an equivalent incremental contribution to global growth, at higher levels of energy, protein, metal and consumer goods demand per head Were China to slow immediately to a 5% pace (a big downside shock that we do not envisage), it would still double its 212 size by 225 Chinese authorities have shown a clear commitment to maintaining growth above 7% but will be less tolerant of strong credit driven expansions the double digit growth rates that have featured regularly over the past 2 years are now unlikely to occur Australia will continue to benefit as Chinese households progressively expand their living standards and their consumption basket Real GDP % ann f 215f 216f China Chinese real GDP increments: scenarios (% of 212 GDP) % CAGR History & 7% CAGR 6% CAGR 5% CAGR 35 3 Per capita growth from middle income stage index China Japan Korea Thailand Middle income is defined as 2% of contemporaneous US per capita GDP in PPP terms Sources: GGDC, Westpac Economics. Malaysia Taiwan Hong Kong years % of 212 GDP Source: Westpac Economics % of 212 GDP

41 New Zealand domestic demand to underpin growth The economy grew by 3.3% over 21 - its fastest pace in seven years. Growth is expected to remain strong over 215 and 216 Growth is being support by robust domestic demand. Construction activity is ramping up in Canterbury (associated with the Christchurch earthquake) and more generally. At the same time, household and business spending has been increasing supported by gains in employment, strong population growth, and low borrowing costs Strength in domestic demand is helping to offset the effects of softness in the prices for some exports and the high exchange rate Inflation will fall close to zero over 215 as a result of earlier oil price declines and lingering strength in the NZD With domestic demand looking robust, the RBNZ is not expected to cut rates, however, weak inflation means the OCR is likely to remain on hold for an extended period OCR increases are not expected until September 216 at the earliest New Zealand GDP growth and forecast (%) % 7 Forecasts Source: Statistics NZ, Westpac Economics. Selected NZ export commodity prices index Source: ANZ, Westpac Economics. Meat and wool Dairy Forestry index F cast Earthquake-related construction activity in Christchurch ($bn) $bn Residential 1. Estimate Forecasts 1.2 Commercial 1. Infrastructure Source: Westpac Economics. 1

42 New Zealand housing market remains firm Housing market activity slowed in 21 following the introduction of restrictions on high loan-to-value lending. It picked up again in late 21 as the impact of lending restrictions waned, and volatility associated with the general election passed Housing demand is being supported by the low fixed mortgage rates Strong population growth is also boosting housing demand We expect a 7.5% increase in nationwide house prices this year, up from.9% in 21. Auckland will probably exceed that figure, while the rest of New Zealand (including Christchurch) will be a little more subdued The RBNZ has been consulting on requirements for banks to set aside more capital if they lend to property investors This may have only a modest impact on interest rates for investor property, however, it could open the door to further policy changes in the future Annual growth in system housing lending (% annual change) Ann % change 2 18 Westpac 16 forecast Sep- Sep-2 Sep- Sep-6 Sep-8 Sep-1 Sep-12 Sep-1 Sep-16 Source: RBNZ, Westpac Economics. New Zealand house price inflation (annual %) Annual % Source: QV, Westpac Economics. New Zealand Official Cash Rate (%) Source: RBNZ, Westpac Economics. Westpac forecast 9 % 8 Westpac forecast

43 Secured Funding May 215 Westpac Banking Corporation ABN Comparison of 1H15 versus 2H1 cash earnings basis (unless otherwise stated)

44 Westpac s covered bond program Providing valuable diversity for issuer and investor Westpac issues covered bonds through its US$bn covered bond program Westpac also maintains RCB/N-bond capability Westpac Securities New Zealand EUR5billion covered bond program is separate, and guaranteed by Westpac New Zealand Limited as well as the covered bond guarantor At 31 March 215, A$2.9bn of covered bonds issued since November 211, with benchmark transactions in USD, EUR and AUD In Australia, covered bond issuance is capped at 8% of Australian assets Limits balance sheet encumbrance 8% of Westpac s covered bond capacity utilised (including overcollateralisation) at 31 March 215 Weighted average remaining tenor is 3.6 years for issuance since November 211 to 31 March 215 for the Australian covered bond program Westpac Australian covered pool highlights (as at 31 March 215) Total pool loan balance Average loan size Westpac covered bond issuance (%) Westpac Australian covered bond maturity profile as at 31 March 215 (A$bn) A$29,69,18,73 A$21,371 Weighted average current LVR (unindexed/indexed) 59.91% / 53.6% Weighted average seasoning 59 months Owner occupied security 76.9% Moody s collateral score 1 6.% Moody s market risk / collateral risk 1 1.8% /.% Min. overcollateralisation required (Fitch/Moody s) 11.7% / 6.2% Min. WBC rating to maintain AAA (Fitch/Moody s) Issued Issuance capacity remaining 52 8 Maturity profile well managed, with view to maintaining capacity A+ / A3 < 1 yr 1yr - 2yrs 2yr - 3yrs 3yr - yrs yr - 5yrs 5yr - 1yrs > 1 yrs 1 The collateral score is Moody s opinion of how much credit enhancement is needed to protect investors from the credit deterioration of assets in a cover pool in order to reach a theoretical Aaa expected loss, assuming those assets are otherwise unsupported. The higher the credit quality of the cover pool, the lower the collateral score. Source: Moodys Covered Bond program Performance Overview

45 Australian covered bond legislation Timing Legislation was passed in October 211 to amend Banking Act and enable Australian banks to issue covered bonds Covered bond issuances previously prohibited by Banking Act and Regulator Structure Covered bond issuance only permitted in accordance with the legislative framework Segregation of cover assets to be achieved via sale into an insolvency remote special purpose vehicle Legal certainty for the segregation of the cover pool in the event of bankruptcy of the issuing ADI Priority Bondholders have priority against a cover pool of financial assets APRA has no direction making powers over assets held by the SPV for the benefit of covered bondholders and service providers Cover Pool Issuance limits Eligible cover assets include cash equivalents, bank bills and certificate of deposits with maturity less than 1 days (limited to 15%), Australian government or semi-government bonds, residential or commercial mortgage loans (separate programs expected for each loan class), and derivatives Minimum level of over-collateralisation of 3% (programs also to include an asset coverage test) Value only provided up to 8% LVR for residential loans and 6% for commercial loans Senior ranking voluntary overcollaterialisation is excluded Covered bond issuance not permitted if cover assets exceeds 8% of ADI s Australian assets Capital neutral for ADI if the cover pool is less than 8% of ADI s Australian assets Implies potential combined covered bond issuance capacity of circa A$176bn by four major ADIs Implies potential covered bond issuance capacity of circa A$52bn by Westpac 5

46 Westpac s Australian Covered Bond Program Issuer Issuer rating Format Covered Bond rating Program size Maturity options Covered Bond Guarantor Covered Bond Guarantee LVR cap in asset coverage test Westpac Banking Corporation AA-/Aa2/AA- by S&P / Moody s / Fitch Legislative Covered Bond Aaa / AAA by Moody s / Fitch US$ billion Soft and Hard Bullet Westpac Covered Bond Trust, a special purpose vehicle (trust) Covered Bond Guarantor has guaranteed payments of interest and principal under the Covered Bonds secured over the Mortgage Loans and its other assets (limited in recourse to its assets) 8% (subject to indexation) Asset percentage Subject to rating agency requirements, program maximum 95% Collateral Listing Prime Australian residential mortgages London Stock Exchange 6

47 Covered Bond Program Key features Structure Covered Bonds are issued by Westpac, backed by an unconditional and irrevocable guarantee by the Covered Bond Guarantor (the CBT Guarantor ), which is limited in recourse to the assets in the Westpac Covered Bond Trust Security Security comprises a pool of Australian residential mortgages which meet the eligibility criteria (the cover pool ). It also includes certain other assets such as cash and investments (subject to legislative and rating agency limits). Mortgages in the cover pool sold to the CBT Guarantor to ensure that covered bondholders have a priority claim over the cover pool in the event of Issuer insolvency Overcollateralisation Prior to service of a Notice to Pay on the CBT Guarantor, an Asset Coverage Test will be run monthly to ensure the CBT Guarantor has sufficient assets to support the outstanding covered bonds. Defaulted loans will have nil value applied to them and remaining loans adjusted by the Asset Percentage. The Asset Percentage is confirmed by the rating agencies quarterly and is subject to a maximum of 95%, which represents a minimum level of overcollateralisation of just over 5%. Following service of a Notice to Pay on the CBT Guarantor, an Amortisation Test is run monthly to ensure the CBT Guarantor has sufficient assets to meet the covered bond obligations Asset Monitor Hedging PricewaterhouseCoopers monitors the calculation of the Asset Coverage Test and the Amortisation Test on at least an annual basis. They also provide the asset monitor reporting requirements in relation to the legislation on at least a six monthly basis. This includes verification of the asset register and provision of any other information APRA requires The Interest Rate Swap and Covered Bond Swap are used to hedge any exposure of the CBT Guarantor to interest rate and currency risks 7

48 Westpac s legislative covered bond program International comparisons Terms Westpac UK Sweden Canada Legislation Amendment to the Banking Act 1959 Asset allocation Inclusion of hedge positions 1 Australian Property Monitor. All assets transferred to SPV Hedge positions are part of the structural enhancements intended to protect bondholders UK Regulated Covered Bonds Regulations All assets transferred to SPV All assets on the cover register Hedge positions are part of the structural enhancements intended to protect bondholders Lag om Utgivning av Säkerställda Obligationer All assets on the cover register Hedge positions can be included in the cover register National Housing Act Substitute collateral Up to 15% Up to 1% /15% Up to 2% Up to 1% Inclusion of commercial mortgages 1% residential Australian mortgage loans 1% residential mortgage loans in regulated programs Commercial mortgage loans should not exceed 1% of total cover assets LTV barrier Resi 8% Resi 8% Resi 75% CRE 6% 8% Valuation check Special supervision Protection against credit risk Mandatory overcollateralisation Bankruptcy remoteness of SPV Compliance with Article 122a In the event of insolvency, first claim is on... In the event of insufficient pool assets... Subject to internal bank procedures and indexed to house price index (APM) 1 Independent trustee and Cover Pool monitor Yes, defined by asset coverage test Yes; 15% per the maximum asset percentage in the asset coverage test of 95% Indexed to house price index FCA, independent trustee and Cover Pool Monitor Yes, defined by asset coverage test Yes; subject to the asset percentage applied in the asset coverage test Regular monitoring of property values Swedish FSA and independent inspector Issuer may replace non-performing loans No All assets transferred to SPV All assets on the cover register Hedge positions are part of the structural enhancements intended to protect bondholders Non-CMHC insured one to four unit Canadian residential mortgage loans Indexed to house price index CMHC under the OSFI, independent trustee and Cover Pool Monitor Yes, defined by asset coverage test Yes, subject to the asset percentage applied in the asset coverage test with minimum and maximum for each program Yes, assets sold to SPV Yes, assets sold to SPV No but assets within the cover pool No but all assets ring fenced in SPV No - Not an EU issuer Yes Yes No - Not an EU issuer...all the payments received from SPV assets which are collected in GI account...investors rank pari passu with senior debt holders...all the payments received from SPV assets which are collected in GI account...investors rank pari passu with senior debt holders...all the payments received from the earmarked assets...investors rank pari passu with senior debt holders...all the payments received from SPV assets which are collected in GI account...investors rank pari passu with senior debt holders 8

49 Westpac s high quality cover pool Covered bond pool eligibility criteria Covered pool loan statistics as at 31 March 215 At the time of sale, each loan: Is denominated and payable only in A$ in Australia Is secured by a mortgage that constitutes a first ranking Australian mortgage (second allowed as long as first held with the CBT Guarantor) Is secured by a mortgage over a property which has erected on it a residential dwelling Was approved and originated by the seller in the ordinary course of business Is a loan under which the outstanding principal balance owed by the borrower is not more than A$2,, Is a loan under which the relevant borrower is required to repay the loan within 3 years of the relevant cut-off date Is not a delinquent loan or a defaulted loan and no legal demand has been served on the relevant borrower in respect of a payment on the loan The sale of an interest in, or the sale of an interest in any related security, does not contravene or conflict with any law The relevant borrower is a resident of Australia Not a loan with an interest only payment period of >1 years The related mortgage has been or will be stamped Where applicable, all progress drawings have been made by the borrower and the residential dwelling has been completed; and The borrower has made at least one monthly payment or two fortnightly payments in respect of the loan Total pool loan balance 1 A$29,69,18,73 Number of loans 122,91 Average loan size A$21,371 Max loan size A$2,, Weighted average current LVR (unindexed) 59.91% Weighted average current LVR (indexed) 53.6% Mortgage Insured 13.1% 9 day + arrears.% Weighted average seasoning 59 months Weighted average remaining term to maturity 273 months Weighted average interest rate.95% Fixed / variable split (by bal) 18.6% / 81.5% Interest only (by bal) 27.78% Owner occupied security 76.92% 1 Pool loan balance excludes cash balances of A$5,53,819,266 Loans included in the cover pool are currently only originated by Westpac Retail and Business Banking. 9

50 Cover pool statistics as at 31 March 215 Loan to value ratio by balance (%) Geographic distribution by state 3 Current LVR (unindexed) Current LVR (indexed) 2 1-5% 5-55% 55-6% 6-65% 65-7% 7-75% 75-8% 8-1% > 1% Portfolio seasoning % of pool by balance (lhs) Number of loans (rhs) 2 25, 15 2, 15, 1 1, 5 5, < 6Mth 6 mths - 1yr 1yr - 2yrs 2yrs - 3yrs 3yrs - yrs yrs - 5yrs 5yrs - 6yrs 6yrs - 7yrs 7yrs - 8yrs 8yrs - 9yrs 9yrs - 1yrs > 1 yrs Western Australia $,53.m, 13.8% Distribution by region Northern Territory $285.2m, 1% South Australia $1,35.m,.9% Victoria $7,82.m 26.6% Queensland $,9.2m, 15.1% Value of loans (A$m) New South Wales $1,313.2m, 35% Tasmania $335.5m, 1.1% Australian Capital Territory $773.5m, 2.6% % of pool by value Metropolitan 22, % Non-Metropolitan 6, % 5

51 Cover pool statistics as at 31 March 215 (cont.) Mortgage principal balance distribution Interest rate split (%) % of pool (lhs) Number of loans (rhs) 35, 3, 25, 2, 15, 1, 5, K 1-2k 2-3k 3-k -5k 5-75k 75k -1m 1m - 1.5m > 1.5m Fixed Floating Years to maturity (legal) Interest only expiry date remaining period % of pool by balance (lhs) Number of loans (rhs) 12, 1, 8, 6,, 2, % of interest only loans by balance (lhs) Number of loans (rhs) 1, 8, 6,, 2, - < 1 yr 1yr - 5yrs 5yrs - 1yrs > 1 yrs - < 6 mths 6 mths - 1yr 1yr - 2yrs 2yrs - 3yrs 3yrs - yrs yrs - 5yrs > 5 yrs 51

52 Securitisation an important part of the Group s funding Active RMBS and ABS capabilities Outstanding securitisation issuance A$12.5bn, represents 1.8% of the Group s total funding, mostly RMBS issuance Securitisation provides additional diversity to Westpac s funding and investor base Only Australian major bank to have an active Auto ABS capability Westpac s RMBS and Auto ABS transactions have been well supported by the Australian domestic market, as well as offshore investors Westpac is a consistent issuer of RMBS and ABS Original RMBS and ABS issuance by calendar year (A$bn) (excludes Bella) WST Crusade All A$ Class A Notes from RMBS and ABS transactions are repo eligible securities with the Reserve Bank of Australia Westpac has outstanding securitisation transactions under both the WST and Crusade programs Westpac Securitisation Trust (WST) Program is Westpac s program for securitising Westpac-originated residential mortgages Crusade Program is Westpac s vehicle for securitising St.George originated residential mortgages and auto loans Bella securitisation program acquired 31 December Issuance highlights 1997 Westpac Securitisation Trust program established 27 Westpac issues its largest RMBS transaction A$7.bn (equiv.) WST Trust Series 27-1G 29 Westpac issues first major bank RMBS since 27 and first non AOFM 1 supported RMBS trade since 27 A$2bn WST Trust Series Issued first Auto ABS for an Australian major bank A$1.2bn Crusade ABS Series Trust 1H15 transactions to date Dec 21 A$2.7bn WST Trust Series 21-2 Mar 215 A$8m Crusade ABS Series Trust 1 AOFM is The Australian Office of Financial Management. 52

53 WST RMBS Product highlights High quality product All WST transactions backed by prime residential mortgages WST weighted average arrears have consistently outperformed the Australian Prime S&P Mortgage Performance Index ( Prime SPIN ) 1 Consistent pool characteristics and transaction structures across the WST program All WST transactions have low LVRs and relatively high seasoning Class A Notes ratings are independent of LMI providers Performance of weighted average WST arrears vs S&P SPIN 3% 2% 1% WST Arrears Major Bank SPIN Source: Standard and Poor s, Westpac Prime SPIN Regional Bank SPIN % Jan-7 Jan-9 Jan-11 Jan-13 Jan-15 Key pool comparison statistics (issuance) WST 21-2 WST 21-1 WST WST WST WST Pricing Date Dec-1 May-1 Sep-13 Feb-13 May-12 Oct-11 Tranche A A A A A A WAL (yrs) Price (bps) Notes Issued A$m 2,8 2,3 2,7 1,932 1,58 1,72 Average Loan Size A$' Wtd Avg LVR 63% 62% 62% 61% 63% 63% LVR > 8% 11.9% 11.1% 1.8% 6.% 3.1% 1.9% Max LVR 95% 95% 95% 9.6% 9.% 95% Wtd Avg Seasoning mths Low Doc Loans.%.%.%.%.%.% Interest Only Loans 25% 25% 2% 1% 5% 6% NSW & ACT 36% 36% 35% 36% 38% % VIC 28% 26% 27% 25% 26% 25% Metro / Non-metro 78%/22% 77%/ 23% 78%/ 22% 76%/ 2% 76%/ 2% 77%/ 23% LMI Coverage 1% 13% 13% 16% 19% 1% S&P Credit Support Pre-LMI 5.3% 5.1% 5.%.3%.3%.% Credit Support Provided 8.% 8.% 8.% 8.% 8.% 8.% Source: Presales, Bloomberg, Westpac ABS Strategy 1 As at January 215, WST weighted average arrears.67% vs Prime SPIN of 1.16%. 53

54 Crusade ABS Product comparison and highlights Crusade ABS 1% auto receivables Granular portfolios comprising solely auto loans 12 month revolving period (the only Australian ABS program to have this feature) to increase duration Credit enhancement in excess of minimum required by rating agencies High levels of subordination (15-19%) to AAA notes Low prepayment sensitivity Relatively high portfolio yield leading to high excess spread Deal Crusade ABS Crusade ABS Crusade ABS SMART 215-1US VW Driver Two REDS EHP 21-1 (Issue Date) (Mar 15) (Dec 13) (Dec 12) (Mar 15) (Feb 15) (Sept 1) Size $8m $1.bn $1.2bn $755m $5m $95m AAA Credit Enhancement 19% 16% 15% 1% 1% 2% Collateral Auto: 1% Auto: 1% Auto: 1% Auto: 1% Auto: 1% Auto: 53.2% Equipment: 6.8% Number of Contracts 36,25 52,39 59,69 22,86 13, 9 1,765 W.A. Yield 9.7% 11% 11% 6.8% 6.9% 6.3% W.A. Seasoning (mth) W.A. Remaining term (mth) W.A. Balloon 8% 8% 8% 3% 37% 12% % of Pool with Balloon 33% 31% 32% 82% 6% 5% New vs. Used New: 71% New: 7% New: 69% New: 63% New: 89% New: n/a Used: 29% Used: 3% Used: 31% Used: 37% Used: 11% Used: n/a Average Loan Size A$ 22,27 19,117 2,131 3,172 38,317 63,537 Max Loan Size A$ 263,8 2,96 262,97 7,93 26, , 319 Receivable Contracts Finance Lease 1% Finance Lease 12% Finance Lease 12% Finance Lease 63% Consumer Finance 3% Finance Lease 6% Goods Loan 17% Goods Loan 15% Goods Loan 1% Chattel Mortgage 36% Chattel Mortgage 63% Specific Security Agreement 86% Hire Purchase 1% Hire Purchase 5% Hire Purchase 8% Hire Purchase 2% Hire Purchase 3% Hire Purchase 8% Consumer Finance 68% Consumer Finance 68% Consumer Finance 66% Adverse Credit History % % % % % n/a Novated receivables 1% 12% 12% 62% % n/a 1 Denotes the split of new and used Cars and Light Commercial Vehicles only (57% of the collateral pool) 5

55 Limited asset encumbrance Westpac has limited asset encumbrance Covered bond capacity has legislated cap in Australia and New Zealand In Australia, capped at 8% of Australian assets, providing $52bn total capacity (including overcollateralisation) In NZ, capped at 1% of Westpac New Zealand Ltd assets, providing $6bn total capacity RMBS and ABS are primarily issued at tenors that match the underlying assets (i.e. match funded) Covered bonds used mainly to access longer dated funding, with average issue tenor around 5 years Westpac s asset encumbrance 1H15 total assets $796bn Westpac Total Assets (1H15) Life insurance and other assets Derivative financial instruments Trading securities, other financial assets at fair value & available-for-sale securities Receivables due from other financial institutions Cash and balances with central banks Loans - housing and personal Westpac encumbered assets 1H15 Remaining covered bond capacity (Aust. & NZ) Assets sold under normal market repo arrangements Waratah Auto loans 8% of assets encumbered (12% including remaining covered bond capacity) Securitised mortgages Australia & NZ covered bond pools 55

56 Additional Information May 215 Westpac Banking Corporation ABN Comparison of 1H15 versus 2H1 cash earnings basis (unless otherwise stated)

57 Westpac business divisions A unique portfolio of brands Westpac Retail & Business Banking Australian national brand for consumer and business banking, SMEs and commercial customers under the Westpac brand Division Cash earnings 1H15 ($m) Cash earnings 1H15-2H1 % change Core earnings 1H15-2H1 % change Westpac RBB 1,35 2% 2% St.George Banking Group Australian local brand for consumer, business and commercial banking customers under the St.George, BankSA, Bank of Melbourne and RAMS brands BT Financial Group Australian Wealth and Insurance division with $13bn funds under management and $125bn funds under administration at 31 March 215 St.George 837 % 3% BT Financial Group 51 (2%) (2%) Westpac Institutional Bank 62 (13%) (9%) Westpac NZ (in A$) 13 5 Westpac Pacific and Group Businesses inc. Treasury 13 (3) (11) Contribution to cash earnings by division (%) Westpac Institutional Bank Leading Australasian institutional bank, with branches and representative offices in Australia, NZ, US, UK and Asia Westpac Retail & Business Banking St.George Banking Group BT Financial Group Westpac Institutional Bank Westpac New Zealand Banking and wealth services to consumers, businesses and institutions in New Zealand Westpac New Zealand Westpac Pacific and Group Businesses inc. Treasury 57

58 First Half 215 Balance sheet trends Net loans ($bn) Australian housing flow (gross loans) ($bn) (25.2) Up % Up 3% Mar-1 Sep-1 Australian housing Australian business Australian other New Zealand Other Mar-15 1 Australian retail business lending 3 ($bn) 77. 2H New lending (8.5) Run-off 3.7 Lloyds 9.1 (7.9) 9.1 (8.6) Up % Up 2% Up 1% 1H1 New lending Mar-1 Run-off Sep-1 2H1 WRBB new lending 2 New lending SGB new lending Run-off 2 Customer deposit composition ($bn) 1H15 Net run-off Mar Up 5% 9 2 Up 3% H1 2H1 1H15. Other 5 Westpac Institutional Bank Australian retail business Australian retail household 1 Other includes other offshore lending. 2 Includes Private Bank business within BT. 3 Includes WRBB, SGB and BT. Prior period balances have been restated for Working Capital adjustments. Australian retail includes Private Bank within BT. 5 Other is predominately comprised of NZ and Westpac Pacific. 58

59 High quality portfolio Bias to secured consumer lending Asset composition as at 31 March 215 (%) Cash and balances with central banks Total assets On balance sheet lending Receivables due from other financial institutions Trading securities, financial assets at fair value and available-for-sale securities Derivative financial instruments Loans Life insurance assets Goodwill Housing Business Institutional Other consumer Other assets 1 Exposure by risk grade as at 31 March 215 ($m) Standard and Poor s risk grade Australia NZ / Pacific Asia Americas Europe Group % of Total AAA to AA- 88,897 7,68 1,99 5,7 1,31 1,738 12% A+ to A- 32,259 5,271 6,35 3,539 3,71 5,9 5% BBB+ to BBB- 59,2 8,713 8,679 1,37 2,153 8,182 9% BB+ to BB 66,95 11,29 1, ,99 9% BB- to B+ 59,8 9, ,2 8% <B+ 6,25 1, ,919 1% Secured consumer 18,13 8, ,787 51% Unsecured consumer 6,586 5, ,93 5% Total committed exposures 776,676 97,59 18,682 11,65 6,579 91,551 Exposure by region 1 (%) 85% 11% 2% 1% <1% 1% 1 Does not add to 1% due to rounding. 2 Exposure by booking office. 59

60 Australian unsecured lending portfolio Continues to perform well Total Australian consumer unsecured 9+ day delinquencies increased 18bps to 12bps (up 5bps 1H1/1H15) Changes in delinquencies reflect some seasonality, with the Christmas and holiday season typically seeing higher delinquencies, as well as weakening employment conditions in some areas Australian credit card 9+ days delinquencies were up 26bps to 18bps (up 9bps 1H1/1H15) although most of the year on year rise was due to timing differences associated with debt sales The average credit card payments to balance ratio remained high, increasing to 9.3%, with customers remaining disciplined Australian personal loan portfolio 9+ day delinquencies were up 26bps to 168bps (up 13bps 1H1/1H15) Australian auto loan 9+ day delinquencies were flat at 82bps (down 11bps 1H1/1H15) Review of treatment of hardship will likely see a rise in reported delinquencies in future periods Australian unsecured lending 9+ days delinquencies (%) Sep-1 Dec-1 Mar-11 Credit cards Total unsecured lending Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Australian unsecured lending portfolio as at 31 March 215 ($bn and %) Credit cards Personal loans Auto loans 22.9 % Sep-12 Dec-12 Mar-13 Jun-13 Personal loans (excl Auto loans) Auto loans Sep-13 Dec-13 Mar-1 Jun-1 Sep-1 Australian credit card average payments to balance ratio 1 (%) Dec Mar H15 1H7 2H7 1H8 2H8 1H9 2H9 1H1 2H1 1H11 2H11 1H12 2H12 1H13 2H13 1H1 2H1 1H15 1 Cards average payments to balance ratio is calculated using the average payment received compared to the average statement balance at the end of the reporting month. 6

61 New Zealand Residential mortgage portfolio Portfolio highlights Mortgage portfolio NZ$.7bn, up 3% The proportion of fixed rate mortgages remains at 73%, as the outlook for cash rate rises have been delayed to late 216 Loan origination through proprietary channels remained steady at 7% Well secured portfolio, with 83% of the portfolio having LVR of 8% or less Mortgage 9+ days delinquencies remains low at 25bps up bps from low 21bps in 2H1, reflecting seasonal increases Westpac New Zealand uses a servicing assessment approach to assess capacity to repay mortgages. This includes an adequate surplus test and discounts to certain forms of non-salary income. Also included is an interest rate buffer which in the current interest rate environment is in the range of 2% higher than the standard lending rate New Zealand mortgage portfolio by region (%) Auckland Wellington Christchurch Rest of New Zealand New Zealand mortgage portfolio LVR 1 (%) of portfolio 83% of mortgage portfolio less than 8% LVR 3% Mortgage 9+ days delinquencies (%) Mortgage loss rates each half (%) % 23% 12% 3% 2% <=6 6<=7 7<=8 8<=9 9<= H9 2H9 1H1 2H1 1H11 2H11 1H12 2H12 1H13 2H13 1H1 2H1 1H15 1H9 2H9 1H1 2H1 1H11 2H11 1H12 2H12 1H13 2H13 1H1 2H1 1H15 1 LVR based on current loan balance and current assessment of property value. 61

62 Sustainability Part of doing business at Westpac Sustainability strategic priorities Help improve the way people work and live as our society changes Help find solutions to environmental challenges Help customers to have a better relationship with money for a better life Globally recognised as a sustainability leader Ranked as one of the Global 1 Most Sustainable Corporations in the World by Corporate Knights for 9 of the last 1 years, including being ranked number 1 in 21 Global banking leader in the Dow Jones Sustainability Index since 22. Westpac achieved sector leadership from 22-27, in 211 and in 21 Named Best Bank in Socially Responsible Performance (ESG) of the Year in the AB+F Awards 21 Named Money Consumer Finance Award 21 Socially Responsible Bank of the Year Assigned a Gold Class ranking in the RobecoSam Sustainability Yearbook reflecting the Group s position as the most sustainable bank globally in the 21 DJSI Significant achievements $1 million Launched Australia s largest ever private education scholarship fund, the Westpac Bicentennial Fund in April 21 designed to support 1 scholars every year in perpetuity and have now named first cohort of scholarship recipients % Women in Leadership $8 billion Invested in Cleantech and environmental services Carbon neutral On track to maintain carbon neutrality for FY15 and achieve electricity and paper reduction targets $1 billion Made available to social and affordable housing sector 62

63 Broad funding capabilities Ability to meet investor preferences Diverse and flexible funding capabilities Wholesale funding capabilities USCP/USCD USMTN SEC Shelf Covered Bonds Short Term Debt ECP/ECD EMTN Long Term Debt Samurai/ Uridashi NCD TCD/MTN RCD MTN Short term markets Term markets Issuance currencies Include Prime floaters, Federal Funds, Extendibles, Stepups, Range accruals, CDs, CP and Flippers Issuance in senior unsecured, securitisation and covered bond format, as well as subordinated debt Only major Australian bank to be SEC registered. SEC registered deals are included in the index, deliver greater liquidity for investors and have higher disclosure requirements Westpac also maintains its ability to issue in US 1A format Include AUD, CAD, CHF, CNH, EUR, GBP, HKD, JPY, NOK, NZD, SGD, TRY and USD Wholesale funding composition 1 as at 31 March 215 (%) Domestic Certificates of Deposit Commercial Paper Medium term notes Covered bonds Securitisation Hybrids 1A SEC Registered Samurai Interbank deposits Other Selected debt programs Issuer Program Limit WBC Domestic CD ECP/CD Yankee CD USCP 1A US SEC registered shelf Global Covered Bond No limit US$2bn No limit US$5bn US$35bn No limit US$bn WNZL Domestic CD No limit WSNZL 2 ECP/CD USCP Global Covered Bond US$2bn US$1bn EUR5bn 1 At FX spot currency translation. 2 WSNZL London Branch. 63

64 Tier 2 capital Basel III compliant securities Westpac Basel III Tier 2 highlights Significant capital buffers Issuer Westpac is a highly rated, major Australia bank, with a Stable rating outlook from Moody s, S&P and Fitch. Strength of Westpac s business provides a significant buffer for the bank to remain solvent / viable Interest must pay coupons subject to solvency. Interest accumulates if not paid Maturity must be redeemed at the maturity date subject to solvency Ranking rank ahead of ordinary shares and Additional Tier 1 capital (unless converted) Basel III compliant Tier 2 differences to Old style Tier 2 No step-ups or other incentives to redeem early Point of Non-Viability (PONV) trigger event (contractual) APRA notifies Westpac that it believes conversion or write-off or a public sector injection of capital (or equivalent support), is necessary because, without it, Westpac would become non-viable No explicit APRA guidance regarding likely triggers. Non-viability could be expected to include serious impairment of financial position, insolvency, capital ratios and liquidity Conversion primary loss absorption mechanism Conversion is most likely principal loss absorption mechanism due to tax inefficiencies of write-off alternative If Conversion is not possible, rights of holders will be terminated. Program facilitates an elective cash out facility Conversion (full or partial as necessary) or permanent write-off in contractual terms, only after Additional Tier 1 (some or all as necessary to return to viability) hierarchy is preserved Potential measures to support CET1 capital levels Management actions including DRP discount and underwrite, new share issuance, reducing/limiting RWAs, reducing dividend payout, lowering expenses CCB restrictions including to ordinary share dividends and buy backs, discretionary bonuses and AT1 coupon payments AT1 Conversion Trigger mandatory conversion to equity or write-off of AT1 securities if CET1 ratio reaches 5.125% Annualised earnings preprovisioning $11.5bn CET1 above 5.125% $12.6bn Additional Tier 1 $5.bn 1 Tier 2 $6.6bn 2 Westpac 1H15 1 Includes $2.7bn of Basel III complying instruments and $2.7bn of non-basel III complying instruments. 2 Includes $2.5bn of Basel III complying instruments and $.bn of non-basel III complying instruments. $29.5bn $18.bn 6