Form 6-K Westpac Banking Corp

6-K - Report of foreign issuer [Rules 13a-16 and 15d-16]

Published: 2018-05-08 06:07:18
Submitted: 2018-05-08
Period Ending In: 2018-05-08
a18-12371_16k.htm 6-K


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

 

FORM 6-K

 

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

 

May 8, 2018

 

Commission File Number 1-10167

 

WESTPAC BANKING CORPORATION

(Translation of registrant’s name into English)

 

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

(Address of principal executive office)

 

 

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

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

 

Form 20-F              x                       Form 40-F      
__________

 

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

 

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

 



 

Index to Exhibits

 

The information contained in Exhibit 1 to this Report on Form 6-K shall be incorporated by reference in the prospectuses relating to the Registrant’s securities contained in the Registrant’s Registration Statements on Form F-3 (File Nos. 333-207931 and 333-220373), as such prospectuses may be amended or supplemented from time to time.

 

Exhibit
No.

 

Description

 

 

 

   
 
1

 

Westpac Banking Corporation Pillar 3 Report March 2018 – Incorporating the requirements of APS330

   
 
2

 

Westpac Group 2018 Interim Results Presentation & Investor Discussion Pack

   
 
3

 

Appendix 3A.1 – Notification of dividend / distribution

 



 

SIGNATURES

 

 

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

 

 

 

 

 

WESTPAC BANKING CORPORATION

 

                      
(Registrant)

 

 

 

 

 

 

 

 

 

 

Date:   
May 8, 2018

By:

/s/ Sean Crellin
                        

 

 

Sean Crellin

 

 

Director – Corporate, Legal and Secretariat

 


a18-12371_1ex1.htm EX-1


Exhibit 1

 

 



 

Pillar 3 report

Table of contents

 

 

Structure of Pillar 3 report

 

Executive summary

 

3

Introduction

 

6

Risk appetite and risk types

 

7

Controlling and managing risk

 

8

Group structure

 

14

Capital overview

 

16

Leverage ratio disclosure

 

20

Credit risk management

 

22

Credit risk exposures

 

32

Credit risk mitigation

 

55

Counterparty credit risk

 

58

Securitisation

 

61

Market risk

 

71

Liquidity risk management

 

75

Liquidity coverage ratio disclosure

 

76

Operational risk

 

77

Equity risk

 

79

Interest Rate Risk in the Banking Book

 

81

Appendices

 

 

Appendix I – Regulatory capital reconciliation

 

83

Appendix II – Entities included in regulatory consolidation

 

89

Appendix III – Level 3 entities’ asset and liabilities

 

92

Appendix IV – Regulatory expected loss

 

93

Appendix V – APS330 quantitative requirements

 

94

Glossary

 

97

Disclosure regarding forward-looking statements

 

101

 

 

 

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 March 2018 Pillar 3 report

 



 

Pillar 3 report

Executive summary

 

 

 

31 March 2018

30 September 2017

31 March 2017

The Westpac Group at Level 2

 

 

 

Common equity Tier 1 (CET1) capital after deductions $m

43,639

42,670

40,335

Risk weighted assets (RWA) $m

415,744

404,235

404,382

Common equity Tier 1  capital ratio %

10.50

10.56

9.97

Additional Tier 1 capital %

2.31

2.10

1.71

Tier 1 capital ratio %

12.81

12.66

11.68

Tier 2 capital %

2.02

2.16

2.32

Total regulatory capital ratio %

14.83

14.82

14.00

 

 

 

 

APRA leverage ratio %

5.75

5.66

5.30

 

 

Westpac’s common equity Tier 1 (CET1) capital ratio was 10.50% at 31 March 2018, 6 basis points lower than 30 September 2017. Regulatory modelling changes which reduced the ratio by 22 basis points were partially offset by First Half 2018 organic capital generation of 19 basis points.

 

 

Organic capital generation of 19 basis points included:

 

l
    
 
First Half 2018 cash earnings of $4.25 billion (102 basis point increase);

 

l
    
 
The 2017 final dividend payment, net of DRP share issuance (70 basis point decrease);

 

l
    
 
Increase in RWAs before the impact of FX movements and RWA modelling changes (8 basis point decrease); and

 

l
    
 
Other movements reduced the CET1 capital ratio by 5 basis points, mainly from an increase in the deduction for regulatory expected loss in excess of eligible provisions (3 basis points decrease) and other small movements (2 basis point decrease).

 

Other items decreased the CET1 capital ratio by 25 basis points mainly from:

 

l
    
 
Regulatory modelling changes which decreased the ratio by 22 basis points (refer RWA details further below); and

 

l
    
 
Other movements (3 basis point decrease) including foreign currency translation impacts, primarily related to NZ$ lending.

 

 

 

 

 

 

 

 

 

 

Westpac Group March 2018 Pillar 3 report |
3

 



 

Pillar 3 report

Executive summary

 

 

 $m

31 March 2018

30 September 2017

31 March 2017

Risk weighted assets

 

 

 

Credit risk

361,391

349,258

352,713

Market risk

7,406

8,094

7,471

Operational risk

30,866

31,229

31,653

Interest rate risk in the banking book

12,875

11,101

8,143

Other

3,206

4,553

4,402

Total RWA

415,744

404,235

404,382

Total Exposure at Default

1,013,355

990,853

970,367

 

 

Risk Weighted Assets

 

Total RWA increased $11.5 billion or 3% this half:

 

l
    
 
Credit risk RWA increased $12.1 billion or 3%:

 

-
    
 
Modelling changes added $6.0 billion to RWA mostly from:

 

§
    
 
implementation of APRA’s revised prudential standard for securitisation (APS 120) effective from 1 January 2018 ($1.4 billion increase);

 

§
    
 
updates to models for small business in line with APRA guidance on the definition of default ($1.8 billion increase);

 

§
    
 
changes in the modelling for credit cards and personal loans which include updated data for facilities in hardship ($2.1 billion increase); and

 

§
    
 
reclassification of $6.6 billion of mortgages exposures to business related categories ($0.7 billion net RWA increase). The reclassification follows APRA industry guidance that where the purpose of a mortgage loan is business related these loans should be classified under business related categories.

 

-
    
 
Portfolio growth added $3.4 billion to RWA

 

-
    
 
Credit quality movements increased RWA by $0.9 billion with seasonally higher mortgage delinquencies being partly offset by improved credit quality in corporate lending;

 

-
    
 
Foreign currency translation impacts, primarily related to NZ$ lending, increased RWA $1.2 billion; and

 

-
    
 
Increase in mark-to-market related credit risk RWA of $0.6 billion.

 

l
    
 
Non-credit RWA decreased $0.6 billion or 1%. Lower risk weighted assets for other assets ($1.3 billion), market risk ($0.7 billion) and operational risk ($0.4 billion) were partially offset by an increase in interest rate risk in the banking book (IRRBB) ($1.8 billion) mostly from higher capital for credit spread risk for liquid assets.

 

Exposure at Default

 

Over the half, exposure at default (EAD) increased $22.5 billion (up 2%), which included growth in exposures to residential mortgages ($11.6 billion)
1
, sovereigns ($4.8 billion) and corporates ($3.1 billion).

 

Leverage Ratio

 

The leverage ratio represents the amount of Tier 1 capital relative to exposure
2
. At 31 March 2018, Westpac’s leverage ratio was 5.8%, up 9 basis points since 30 September 2017.

 

Liquidity Coverage Ratio (LCR)

 

The LCR regulation requires banks to hold sufficient HQLA, as defined, to withstand 30 days under a regulator-defined acute stress scenario.

 

The Group’s LCR as at 31 March 2018 was 134% (30 September 2017: 124%) and the average LCR for the quarter ended 31 March 2018 was 128%
3
.

 

 

 

 

1
  
Excludes the impact of asset class reclassifications – refer to the table on the next page

2
  
As defined under Attachment D of APS110: Capital Adequacy

3
  
Calculated as a simple average of the daily observations over the 31 March 2018 quarter

 

4
| Westpac Group March 2018 Pillar 3 report

 

 



 

Pillar 3 report

Executive summary

 

 

Reclassification of credit risk exposures

 

Asset class reclassifications in the half impacted a number of the tables in this report.  The impact on EAD and RWA of these reclassifications is summarised below.

 

 

Reclassification of:

 

 

 

Impacts

Mortgages for a

business purpose

 

Exposures to small

business

 

Total

$b

EAD

RWA

 

EAD

RWA

 

EAD

RWA

Residential mortgages

(6.6)

(2.4)

 

-

-

 

(6.6)

(2.4)

Business Lending

3.1

1.6

 

(1.6)

(0.9)

 

1.5

0.7

Small Business

2.6

0.7

 

2.0

1.3

 

4.6

2.0

Specialised lending

0.7

0.7

 

(0.3)

(0.2)

 

0.4

0.5

Corporate

0.2

0.1

 

(0.1)

(0.1)

 

0.1

-

Total

-

0.7

 

-

0.1

 

-

0.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westpac Group March 2018 Pillar 3 report |
5

 



 

Pillar 3 report

Introduction

 

 

Westpac Banking Corporation is an Authorised Deposit-taking Institution (ADI) subject to regulation by 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.

 

This report describes Westpac’s risk management practices and presents the prudential assessment of Westpac’s capital adequacy as at 31 March 2018.

 

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

 

l
    
 
Capital instruments under Attachment B of APS330; and

 

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

 

Capital instruments disclosures are updated when:

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

6
| Westpac Group March 2018 Pillar 3 report

 


 


 

Pillar 3 report

Risk appetite and risk types

 

 

Westpac’s vision is to be one of the world’s great service companies, helping our customers, communities and people to prosper and grow.

 

Westpac’s appetite for risk is informed by our planned business strategy, regulatory rules and ratios, and the potential for adverse outcomes to result in material impacts on our customers, our staff, our reputation, our regulatory relationships and our financial position.

 

Westpac distinguishes between different types of risk and takes an integrated approach toward identifying, assessing and managing all material risks including through the annual review of the Westpac Group Risk Management Strategy and the establishment of additional controls through supporting frameworks and policies.

 

Overview of key risk types

 

·
     
 
credit risk
- the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac;

 

·
     
 
liquidity risk
- the risk that the Group will be unable to fund assets and meet obligations as they become due;

 

·
     
 
market risk
- the risk of an adverse impact on earnings resulting from changes in market factors, such as foreign exchange rates, interest rates, commodity prices and equity prices. This includes interest rate risk in the banking book - the risk to interest income from a mismatch between the duration of assets and liabilities that arises in the normal course of business activities;

 

·
     
 
operational risk
- the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition is aligned to the regulatory (Basel II) definition, including legal and regulatory risk but excluding strategic and reputation risk;

 

·
     
 
conduct risk
- the risk that our provision of services and products results in unsuitable or unfair outcomes for our stakeholders or undermines market integrity;

 

·
     
 
compliance risk
- the risk of legal or regulatory sanction, financial or reputational loss, arising from our failure to abide by the compliance obligations required of us;

 

·
     
 
business risk
- the risk associated with the vulnerability of a line of business to changes in the business environment;

 

·
     
 
sustainability risk
- the risk of reputational or financial loss due to failure to recognise or address material existing or emerging sustainability related environmental, social or governance issues;

 

·
     
 
equity risk
- the potential for financial loss arising from movements in equity values. Equity risk may be direct, indirect or contingent;

 

·
     
 
insurance risk
- the risk in our insurance entities of mis-estimation of the expected cost of insured events, volatility in the number or severity of insured events, and mis-estimation of the cost of incurred claims;

 

·
     
 
related entity (contagion) risk
- the risk that problems arising in other Westpac Group members compromise the financial and operational position of the authorised deposit-taking institution in the Westpac Group; and

 

·
     
 
reputation risk
- the risk of the loss of reputation, stakeholder confidence, or public trust and standing.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westpac Group March 2018 Pillar 3 report |
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Pillar 3 report

Controlling and managing risk

 

 

We adopt a Three Lines of Defence approach to risk management which reflects our culture of ‘risk is everyone’s business’ in which all employees are responsible for identifying and managing risk and operating within the Group’s desired risk profile. Effective risk management enables us to:

 

·
     
 
accurately measure our risk profile and balance risk and reward within our risk appetite, optimising financial growth opportunities and mitigating potential loss or damage;

 

·
     
 
protect Westpac’s depositors, policyholders and investors by maintaining a balance sheet with sound credit quality and buffers over regulatory minimums;

 

·
     
 
embed adequate controls to guard against excessive risk or undue risk concentration; and

 

·
     
 
meet our regulatory and compliance obligations.

 

The Board is responsible for approving the Westpac Group Risk Management Strategy and Westpac Group Risk Appetite Statement and for monitoring the effectiveness of risk management by the Westpac Group, including satisfying itself through appropriate reporting and oversight that appropriate internal control mechanisms are in place and are being implemented in accordance with regulatory requirements.

 

The Board has delegated to the Board Risk & Compliance Committee responsibility to review and recommend the Westpac Group Risk Management Strategy and Westpac Group Risk Appetite Statement to the Board for approval; set risk appetite consistent with the Westpac Group Risk Appetite Statement; approve the frameworks, policies and processes for managing risk (consistent with the Westpac Group Risk Management Strategy and Westpac Group Risk Appetite Statement); and review and, where appropriate, approve risks beyond the approval discretion provided to management.

 

Risk management governance structure

 

Board

·
     
 
approves our overall Westpac Group Risk Management Strategy and the Westpac Group Risk Appetite Statement; and

·
     
 
makes annual declaration to APRA on risk management.

Board Risk & Compliance Committee (BRCC)

·
     
 
reviews and recommends the Risk Management Strategy and Westpac Group Risk Appetite Statement to the Board for approval;

·
     
 
sets risk appetite consistent with the Westpac Group Risk Appetite Statement;

·
     
 
approves the frameworks, policies and processes for managing risk;

·
     
 
reviews and approves the limits and conditions that apply to credit risk approval authority delegated to the Chief Executive Officer (CEO), Chief Financial Officer and Chief Risk Officer (CRO) and any other officers of the Westpac Group to whom the Board has delegated credit approval authority;

·
     
 
monitors the alignment of the Westpac Group’s risk profile and controls with risk appetite, and oversees the identification, management and reporting of risks inherent in the Westpac Group’s operations;

·
     
 
monitors changes anticipated for the economic and business environment and other factors considered relevant to our risk profile and risk appetite;

·
     
 
assists the Board to make its annual declaration to APRA on risk management under APRA prudential standard CPS220 Risk Management; and

·
     
 
may approve risks beyond the approval discretion provided to management.

From the perspective of specific types of risk, the Board Risk & Compliance  Committee’s role includes:

·
     
 
credit risk – approving key policies and limits supporting the Credit Risk Management Framework, and monitoring the risk profile, performance and management of our credit portfolio;

·
     
 
liquidity risk – approving key policies and limits supporting the Liquidity Risk Management Framework, including our annual funding strategy, and recovery and resolution plans and monitoring the liquidity position and requirements;

 

 

 

8
| Westpac Group March 2018 Pillar 3 report

 

 



 

Pillar 3 report

Controlling and managing risk

 

 

Risk management governance structure (continued)

 

 

·
     
 
market risk – approving key policies and limits supporting the Market Risk Management Framework, including, but not limited to, the Value at Risk and Net Interest Income at Risk limits, and monitoring the market risk profile;

·
     
 
operational risk – approving key policies supporting the Operational Risk Management Framework and monitoring the performance of operational risk management and controls;

·
     
 
conduct risk – reviewing and approving the Group’s approach to the management of conduct risk and reviewing and monitoring the performance of conduct risk management and controls;

·
     
 
reputation risk – reviewing and approving the Reputation Risk Management Framework, and reviewing and monitoring the performance of reputation risk management and controls; and

·
     
 
compliance risk – reviewing and approving the Compliance Risk Management Framework and reviewing compliance processes and our compliance with applicable laws, regulations and regulatory requirements, discussing with management and the external auditor any material correspondence with regulators or government agencies and any published reports that raise material issues, and reviewing complaints and whistleblower concerns.

The Board Risk & Compliance Committee also:

·
     
 
approves the Internal Capital Adequacy Assessment Process and in doing so reviews the outcomes of enterprise wide stress testing, sets the preferred capital ranges for regulatory capital and reviews and monitors capital levels for consistency with the Westpac Group’s risk appetite;

·
     
 
provides relevant periodic assurances to the Board Audit Committee;

·
     
 
reviews and approves other risk management frameworks and the monitoring of performance under those frameworks;

·
     
 
oversees Westpac’s risk culture through the assessment of regular risk culture and organisational culture reporting;

·
     
 
refers to other Board Committees any matters that come to the attention of the Board Risk & Compliance Committee that are relevant for those respective Board Committees; and

·
     
 
in its capacity as the Westpac Group’s US Risk Committee, oversees the key risks, risk management framework and policies of Westpac Group’s US operations.

Board Committees with a Risk Focus

Board Audit Committee  (BAC)

·
     
 
oversees the integrity of financial statements and financial reporting systems, and matters relating to taxation risks.

Board Remuneration Committee (BRC)

·
     
 
oversees remuneration policies and practices of the Westpac Group.

Board Technology Committee (BTC)

·
     
 
oversees the implementation of the Westpac Group’s technology strategy, including risks associated with major technology programs.

Executive Team

Westpac Executive Team (ET)

·
     
 
executes the Board-approved strategy;

·
     
 
delivers the Group’s various strategic and performance goals within the approved risk appetite; and

·
     
 
monitors key risks within each business unit, capital adequacy and the Group’s reputation.

 

 

Westpac Group March 2018 Pillar 3 report |
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Pillar 3 report

Controlling and managing risk

 

 

Risk management governance structure (continued)

 

Executive risk committees

Westpac Group Executive Risk Committee (RISKCO)

·
     
 
leads the management and oversight of material risks across the Westpac Group within the context of the risk appetite determined by the BRCC;

·
     
 
oversees the embedding of the Risk Management Strategy in the Group’s approach to risk  governance;

·
     
 
oversees risk-related management frameworks and key supporting policies;

·
     
 
oversees the Group’s material risks;

·
     
 
oversees reputation risk and sustainability risk management frameworks and key supporting policies; and

·
     
 
identifies emerging credit, operational, compliance and market risks and allocates responsibility for assessing impacts and implementing appropriate actions to address these.

 

Westpac Group Asset & Liability Committee (ALCO)

·
     
 
leads the optimisation of funding and liquidity risk-reward across the Group;

·
     
 
reviews the level and quality of capital to ensure that it is commensurate with the Group’s risk profile, business strategy and risk appetite;

·
     
 
oversees the Liquidity Risk Management Framework and key policies;

·
     
 
oversees the funding and liquidity risk profile and balance sheet risk profile; and

·
     
 
identifies emerging funding and liquidity risks and appropriate actions to address these.

 

Westpac Group Credit Risk Committee (CREDCO)

·
     
 
leads the optimisation of credit risk-reward across the Group;

·
     
 
reviews and oversees the Credit Risk Management Frameworks and key supporting policies;

·
     
 
oversees Westpac’s credit risk profile; and

·
     
 
identifies emerging credit risks, allocates responsibility for assessing impacts, and responds as appropriate.

 

Westpac Group Market Risk Committee (MARCO)

·
     
 
leads the optimisation of market risk, equity risk and insurance risk across the Group;

·
     
 
reviews and oversees the Market Risk, Equity Risk and Insurance Risk Management Frameworks and key market risk management policies;

·
     
 
reviews policies and limits for managing traded and non-traded market risk; and

·
     
 
reviews and oversees the market risk, equity risk and insurance risk profile.

 

Westpac Group Operational Risk and Financial Crime Committee (OFCO)

·
     
 
leads the optimisation of operational risk across the Group;

·
     
 
reviews and oversees the Operational Risk and Financial Crime Risk Management Frameworks and key supporting policies;

·
     
 
oversees Westpac’s operational risk and financial crime risk profile; and

·
     
 
identifies emerging operational and financial crime risks, and appropriate actions to address these.

 

 

 

 

 

10
| Westpac Group March 2018 Pillar 3 report

 

 



 

Pillar 3 report

Controlling and managing risk

 

 

Risk management governance structure (continued)

 

 

Westpac Group Remuneration Oversight Committee (ROC)

·
     
 
provides assurance to the CEO and the Board Remuneration Committee (BRC) that remuneration arrangements across Westpac Group including the Westpac Group Remuneration Policy and variable reward plans, are considered from a Human Resources, Risk, Finance, Legal and Compliance perspective in line with regulatory and legislative requirements;

·
     
 
reviews and makes recommendations to the CEO for recommendation to the BRC on the Westpac Group Remuneration Policy and provides assurance that Westpac operates appropriate remuneration arrangements that fairly and responsibly reward individuals having regard to customer interests, long term financial soundness and prudent risk management;

·
     
 
reviews and monitors remuneration outcomes (other than for Group Executives) for Responsible Persons (as defined in the Group Fit and Proper Policy), risk and financial control employees, and all other employees for whom a significant portion of total remuneration is based on performance and whose activities, either individually or collectively, may impact the financial soundness of Westpac;

·
     
 
reviews and makes recommendations to the CEO for recommendation to the BRC on the criteria and rationale for determining the total quantum of the Group variable reward pool; and

·
     
 
reviews and monitors risk adjustments to remuneration across the Group, including the consideration of malus.

Risk and Compliance functions

Risk Function

·
     
 
assists the Board, Board Committees and senior management to establish, maintain and review the Risk Management Strategy, supporting risk management frameworks and policies and risk appetite;

·
     
 
documents and monitors risk appetite across all risk types and classes (including financial crime), risk limits and authorities;

·
     
 
notifies the Board or Board Committees of any significant breach, or material deviation from the Risk Management Strategy, supporting risk management frameworks and policies or risk appetite;

·
     
 
monitors and provides advice on risk policies, procedures, incidents and issues including emerging risk issues;

·
     
 
monitors and provides assurance including testing risk controls as the 2nd Line of Defence;

·
     
 
monitors and maintains the required resources and capabilities (including Risk systems and Risk data) to support the Risk Management Strategy; and

·
     
 
oversees the management of credit risk and making credit decisions in accordance with delegations from the Board.

Compliance Function

·
     
 
assist the Board, Board Committees and senior management to establish, maintain and review the compliance management framework;

·
     
 
design, implement and monitor key compliance processes and controls in support of the compliance management framework;

·
     
 
provide independent advice on the design, implementation, operating effectiveness and monitoring of controls to ensure compliance with internal, regulatory and legislative requirements;

·
     
 
direct the review and development of compliance policies, compliance  plans, controls and procedures;

 

 

Westpac Group March 2018 Pillar 3 report |
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Pillar 3 report

Controlling and managing risk

 

 

Risk management governance structure (continued)

 

 

·
     
 
report on the performance of the compliance management framework; and

·
     
 
maintain resources with the skills and tools required to fulfil their compliance responsibilities and support the strategy.

Independent internal review

Group Audit

·
     
 
reviews the adequacy and effectiveness of management controls over risk.

Divisional business units

Business Units

·
     
 
responsible for identifying, evaluating and managing the risks that they originate within approved risk appetite and policies; and

·
     
 
establish and maintain appropriate risk management and compliance controls, resources and self-assessment processes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12
| Westpac Group March 2018 Pillar 3 report

 

 


 


 

Pillar 3 report

Controlling and managing risk

 

 

Roles and responsibilities

 

Our approach to risk management is that ‘risk is everyone’s business’ and that responsibility and accountability for risk begins with the business units that originate the risk.

 

The 1st Line of Defence – Risk identification, risk management and self-assessment

 

Divisional business units are responsible for identifying, evaluating and managing the risks that they originate within approved risk appetite and policies. They are required to establish and maintain appropriate risk management controls, resources and self-assessment processes.

 

The 2nd Line of Defence – Establishment of risk management frameworks and policies and risk management oversight

 

Our 2nd Line of Defence is a separate risk and compliance advisory, control, assurance and monitoring function which establishes frameworks, policies, limits and processes for the management, monitoring and reporting of risk. The 2nd Line of Defence can approve risks outside the authorities granted to the 1st Line, and evaluates and provides assurance over the adequacy and effectiveness of 1st Line controls and application of frameworks and policies and, where necessary, requires improvement and monitors the 1st Line’s progress toward remediation of identified deficiencies.

 

The 3rd Line of Defence – Independent assurance

 

Group Audit is an independent assurance function that evaluates and opines on the adequacy and effectiveness of both 1st and 2nd Line risk management approaches and tracks remediation progress, with the aim of providing the Board, and senior executives, with comfort that the Group’s governance, risk management and internal controls are operating effectively.

 

Our overall risk management approach is summarised in the following diagram:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westpac Group March 2018 Pillar 3 report |
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Pillar 3 report

Group structure

 

 

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

 

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

 

·
    
 
Level 2, the consolidation of Westpac Banking Corporation and all its subsidiary entities except those entities specifically excluded by APRA regulations. The head of the Level 2 group is Westpac Banking Corporation; and

 

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

 

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

 

The Westpac Group

 

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

 

 

 

Accounting consolidation
3

 

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

 

Group entities excluded from the regulatory consolidation at Level 2

 

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

 

·
    
 
insurance;

 

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

 

·
    
 
non-financial (commercial) operations; or

 

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

 

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

 

 

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

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

3
  Refer to Note 35 of Westpac’s 2017 Annual Report for further details.

 

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| Westpac Group March 2018 Pillar 3 report

 



 

Pillar 3 report

Group Structure

 

 

Subsidiary banking entities

 

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

 

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

 

Minimum capital (‘thin capitalisation’) rules

 

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

 

Tax costs associated with repatriation

 

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

 

Intra-group exposure limits

 

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

 

Prudential regulation of subsidiary entities

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Westpac Group March 2018 Pillar 3 report |
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Pillar 3 report

Capital overview

 

 

Capital Structure

 

This table shows Westpac’s capital resources under APS111 Capital Adequacy: Measurement of Capital.

 

 

31 March

30 September

31 March

$m

2018

2017

2017

 

 

 

 

Common equity Tier 1 capital

 

 

 

Paid up ordinary capital

35,168

34,889

33,765

Treasury shares

(506)

(436)

(420)

Equity based remuneration

1,414

1,356

1,226

Foreign currency translation reserve

(522)

(558)

(482)

Accumulated other comprehensive income

(14)

15

127

Non-controlling interests - other

50

54

57

Retained earnings

27,122

26,100

25,206

Less retained earnings in life and general insurance, funds management and securitisation entities

(1,238)

(1,153)

(1,323)

Deferred fees

254

253

250

Total common equity Tier 1 capital

61,728

60,520

58,406

Deductions from common equity Tier 1 capital

 

 

 

Goodwill (excluding funds management entities)

(8,656)

(8,670)

(8,557)

Deferred tax assets

(1,116)

(1,110)

(1,179)

Goodwill in life and general insurance, funds management and securitisation entities

(1,032)

(1,065)

(1,066)

Capitalised expenditure

(1,867)

(1,913)

(1,859)

Capitalised software

(1,628)

(1,603)

(1,529)

Investments in subsidiaries not consolidated for regulatory purposes

(1,532)

(1,589)

(1,573)

Regulatory expected loss in excess of eligible provisions
1

(1,192)

(861)

(915)

General reserve for credit losses adjustment

(339)

(332)

(311)

Securitisation

-

-

-

Equity investments

(680)

(679)

(948)

Regulatory adjustments to fair value positions

(46)

(27)

(133)

Other Tier 1 deductions

(1)

(1)

(1)

Total deductions from common equity Tier 1 capital

(18,089)

(17,850)

(18,071)

Total common equity Tier 1 capital after deductions

43,639

42,670

40,335

Additional Tier 1 capital

 

 

 

Basel III complying instruments

9,041

7,315

5,720

Basel III transitional instruments

566

1,190

1,190

Total Additional Tier 1 capital

9,607

8,505

6,910

Net Tier 1 regulatory capital

53,246

51,175

47,245

 

 

 

 

Tier 2 capital

 

 

 

Basel III complying instruments

8,102

7,375

6,703

Basel III transitional instruments

473

1,526

3,288

Eligible general reserve for credit loss

55

51

49

Basel III transitional adjustment

-

-

(445)

Total Tier 2 capital

8,630

8,952

9,595

Deductions from Tier 2 capital

 

 

 

Investments in subsidiaries not consolidated for regulatory purposes

(140)

(140)

(140)

Holdings of own and other financial institutions Tier 2 capital instruments

(83)

(77)

(91)

Total deductions from Tier 2 capital

(223)

(217)

(231)

Net Tier 2 regulatory capital

8,407

8,735

9,364

Total regulatory capital

61,653

59,910

56,609

 

 

 

 

 

 

 

 

1
  
An explanation of the relationship between this deduction, regulatory expected loss and provisions for impairment charges is contained in Appendix IV.

 

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| Westpac Group March 2018 Pillar 3 report

 


 


 

Pillar 3 report

Capital overview

 

 

Capital management strategy

 

Westpac’s approach to capital management seeks to balance the fact that capital is an expensive form of funding with the need to be adequately capitalised as an ADI. Westpac considers the need to balance efficiency, flexibility and adequacy when determining sufficiency of capital and when developing capital management plans.

 

Westpac evaluates these considerations 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 economic and regulatory capital requirements;

 

·
    
 
a stress testing framework that challenges the capital measures, coverage and requirements including the impact of adverse economic scenarios; and

 

·
    
 
consideration of the perspectives of external stakeholders including rating agencies and equity and debt investors.

 

In light of APRA’s announcement on “unquestionably strong” capital on 19 July 2017, Westpac has ceased to use its preferred range of 8.75% to 9.25% as a guide to managing capital levels. Westpac will revise its preferred range for the CET1 ratio once APRA finalises its review of the capital adequacy framework.  In the interim, Westpac will seek to operate with a CET1 ratio of at least 10.5% in March and September as measured under the existing capital framework. This also takes into consideration:

 

·
    
 
current regulatory capital minimums and the capital conservation buffer (“CCB”), which together are the total CET1 requirement. In line with the above, the total CET1 requirement for Westpac is at least 8.0%, based upon an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to domestic systemically important banks (D-SIBs)
1
;

 

·
    
 
stress testing to calibrate an appropriate buffer against a downturn; and

 

·
    
 
quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.

 

Should the CET1 ratio fall below the total CET1 requirement, restrictions on the distribution of earnings will apply. This includes restrictions on the amount of earnings that can be distributed through dividends, Additional Tier 1 capital distributions and discretionary staff bonuses.

 

 

Westpac’s capital adequacy ratios

 

%

31 March 2018

30 September 2017

31 March 2017

The Westpac Group at Level 2

 

 

 

Common equity Tier 1 capital ratio

10.5

10.6

10.0

Additional Tier 1 capital

2.3

2.1

1.7

Tier 1 capital ratio

12.8

12.7

11.7

Tier 2 capital

2.0

2.1

2.3

Total regulatory capital ratio

14.8

14.8

14.0

 

 

 

 

The Westpac Group at Level 1

 

 

 

Common equity Tier 1 capital ratio

10.4

10.4

10.2

Additional Tier 1 capital

2.4

2.2

1.8

Tier 1 capital ratio

12.8

12.6

12.0

Tier 2 capital

2.1

2.4

2.6

Total regulatory capital ratio

14.9

15.0

14.6

 

Westpac New Zealand Limited’s capital adequacy ratios

 

%

31 March 2018

30 September 2017

31 March 2017

Westpac New Zealand Limited

 

 

 

Common equity Tier 1 capital ratio

11.8

11.1

10.7

Additional Tier 1 capital

2.8

2.9

-

Tier 1 capital ratio

14.6

14.0

10.7

Tier 2 capital

2.0

2.1

2.1

Total regulatory capital ratio

16.6

16.1

12.8

 

 

 

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

 

Westpac Group March 2018 Pillar 3 report |
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Pillar 3 report

Capital overview

 

 

Capital requirements

 

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

 

31 March 2018

IRB

Standardised

Total Risk

Total Capital

$m

Approach

Approach
2

Weighted Assets

Required
1

Credit risk

 

 

 

 

Corporate

71,590

1,861

73,451

5,876

Business lending

34,872

996

35,868

2,869

Sovereign

1,536

841

2,377

190

Bank

6,253

46

6,299

504

Residential mortgages

129,748

5,470

135,218

10,817

Australian credit cards

6,553

-

6,553

524

Other retail

14,056

1,013

15,069

1,205

Small business

16,017

-

16,017

1,281

Specialised lending

57,239

412

57,651

4,612

Securitisation

5,869

-

5,869

470

Mark-to-market related credit risk
3

-

7,019

7,019

562

Total

343,733

17,658

361,391

28,911

Market risk

 

 

7,406

592

Operational risk

 

 

30,866

2,469

Interest rate risk in the banking book

 

 

12,875

1,030

Other assets
4

 

 

3,206

256

Total

 

 

415,744

33,258

 

30 September 2017

IRB

Standardised

Total Risk

Total Capital

$m

Approach

Approach
2

Weighted Assets

Required
1

Credit risk

 

 

 

 

Corporate

71,160

1,663

72,823

5,826

Business lending

34,638

1,036

35,674

2,854

Sovereign

1,505

960

2,465

197

Bank

5,905

89

5,994

480

Residential mortgages

127,825

4,785

132,610

10,609

Australian credit cards

5,665

-

5,665

453

Other retail

13,250

1,028

14,278

1,142

Small business

11,708

-

11,708

937

Specialised lending

57,081

385

57,466

4,597

Securitisation

4,167

-

4,167

333

Mark-to-market related credit risk
3

-

6,408

6,408

513

Total

332,904

16,354

349,258

27,941

Market risk

 

 

8,094

648

Operational risk

 

 

31,229

2,498

Interest rate risk in the banking book

 

 

11,101

888

Other assets
4

 

 

4,553

364

Total

 

 

404,235

32,339

 

 

 

 

 

 

 

 

 

 

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

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

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

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

 

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| Westpac Group March 2018 Pillar 3 report

 



 

Pillar 3 report

Capital overview

 

 

31 March 2017

IRB

Standardised

Total Risk

Total Capital

$m

Approach

Approach
2

Weighted Assets

Required
1

Credit risk

 

 

 

 

Corporate

76,210

1,444

77,654

6,212

Business lending

33,735

1,019

34,754

2,780

Sovereign

1,665

1,148

2,813

225

Bank

5,887

62

5,949

476

Residential mortgages

127,111

4,568

131,679

10,534

Australian credit cards

6,009

-

6,009

481

Other retail

13,538

1,049

14,587

1,167

Small business

11,482

-

11,482

919

Specialised lending

56,122

392

56,514

4,521

Securitisation

3,992

-

3,992

319

Mark-to-market related credit risk
3

-

7,280

7,280

583

Total

335,751

16,962

352,713

28,217

Market risk

 

 

7,471

598

Operational risk

 

 

31,653

2,532

Interest rate risk in the banking book

 

 

8,143

651

Other assets
4

 

 

4,402

352

Total

 

 

404,382

32,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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

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

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

 

Westpac Group March 2018 Pillar 3 report |
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Pillar 3 report

Leverage ratio disclosure

 

 

Summary leverage ratio

 

The following table summarises Westpac’s leverage ratio at 31 March 2018. This has been determined using APRA’s definition of the leverage ratio as specified in APS110 Capital Adequacy.

 

$ billion

31 March 2018

31 December 2017

30 September 2017

30 June 2017

Tier 1 Capital

53.2

50.0

51.2

47.6

Total Exposures

925.2

909.7

903.5

907.4

Leverage ratio %

5.8%

5.5%

5.7%

5.2%

 

 

Leverage ratio disclosure

 

$m

 

31 March 2018

On-balance sheet exposures

 

1

On-balance sheet items (excluding derivatives and securities financing transactions (SFTs), but including collateral)

834,013

2

(Asset amounts deducted in determining Tier 1 capital)

(18,089)

3

Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of rows 1 and 2)

815,924

 

 

 

Derivative exposures

 

4

Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin)

11,758

5

Add-on amounts for potential future credit exposure (PFCE) associated with all derivatives transactions

17,239

6

Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the Australian Accounting Standards

-

7

(Deductions of receivables assets for cash variation margin provided in derivatives transactions)

(24)

8

(Exempted central counterparty (CCP) leg of client-cleared trade exposures)

-

9

Adjusted effective notional amount of written credit derivatives

5,539

10

(Adjusted effective notional offsets and add-on deductions for written credit derivatives)

(5,323)

11

Total derivative exposures (sum of rows 4 to 10)

29,189

SFT exposures

 

12

Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions

3,119

13

(Netted amounts of cash payables and cash receivables of gross SFT assets)

-

14

Counterparty credit risk exposure for SFT assets

34

15

Agent transaction exposures

-

16

Total SFT exposures (sum of rows 12 to 15)

3,153

Other off-balance sheet exposures

 

17

Off-balance sheet exposure at gross notional amount

203,897

18

(Adjustments for conversion to credit equivalent amounts)

(126,924)

19

Other off-balance sheet exposures (sum of rows 17 and 18)

76,973

Capital and total exposures

 

20

Tier 1 Capital

53,246

21

Total exposures (sum of rows 3, 11, 16 and 19)

925,239

 

 

 

Leverage ratio %

 

22

Leverage ratio

5.8%

 

 

 

 

 

 

 

 

 

 

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| Westpac Group March 2018 Pillar 3 report

 



 

Pillar 3 report

Leverage ratio disclosure

 

 

Summary comparison of accounting assets versus leverage ratio exposure measure

 

$m

 

31 March 2018

1

Total consolidated assets as per published financial statements

871,855

2

Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation

(7,820)

3

Adjustment for assets held on the balance sheet in a fiduciary capacity pursuant to the Australian Accounting Standards but excluded from the leverage ratio exposure measure

-

4

Adjustments for derivative financial instruments

2,285

5

Adjustment for SFTs (i.e. repos and similar secured lending)

34

6

Adjustment for off-balance sheet exposures (i.e. conversion to credit equivalent amounts of off-balance sheet exposures)

76,973

7

Other adjustments

(18,089)

8

Leverage ratio exposure

925,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westpac Group March 2018 Pillar 3 report |
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Pillar 3 report

Credit risk management

 

 

Credit risk is the potential for financial loss where a customer or counterparty fails to meet their financial obligations to Westpac. Westpac maintains a credit risk management framework and a number of supporting policies, processes and controls governing the assessment, approval and management of customer and counterparty credit risk. These incorporate the assignment of risk grades, the quantification of loss estimates in the event of default, and the segmentation of credit exposures.

 

Structure and organisation

 

The Chief Risk Officer (CRO) is responsible for the effectiveness of overall risk management throughout Westpac, including credit risk. Authorised credit officers have delegated authority to approve credit risk exposures, including customer risk grades, other credit parameters and their ongoing review. A portion of consumer lending is subject to automated scorecard-based approval. Our largest exposures are approved by our most experienced authorised credit officers. Line business management is responsible for managing credit risks accepted in their business and for maximising risk-adjusted returns from their business credit portfolios, within the approved risk appetite, risk management framework and policies.

 

Credit risk management framework and policies

 

Westpac maintains a credit risk management framework and supporting policies that are designed to clearly define roles and responsibilities, acceptable practices, limits and key controls.

 

The Credit Risk Management Framework describes the principles, methodologies, systems, roles and responsibilities, reports and controls that exist for managing credit risk in Westpac. The Credit Risk Rating System policy describes the credit risk rating system philosophy, design, key features and uses of rating outcomes.

 

Concentration risk policies cover individual counterparties, specific industries (e.g. property) and individual countries. In addition, we have policies covering risk appetite statements, environmental, social and governance (ESG) risk, credit risks and the delegation of credit approval authorities.

 

At the divisional level, credit manuals embed the Group’s framework requirements for application in line businesses. These manuals include policies covering the origination, evaluation, approval, documentation, settlement and on-going management of credit risks, and sector policies to guide the extension of credit where industry-specific guidelines are considered necessary.

 

Credit approval limits govern the extension of credit and represent the formal delegation of credit approval authority to responsible individuals throughout the organisation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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| Westpac Group March 2018 Pillar 3 report

 



 

Pillar 3 report

Credit risk management

 

 

Approach

 

Westpac adopts two approaches to managing credit risk depending upon the nature of the customer and the product.

 

Transaction-managed approach

 

For larger customers, Westpac evaluates credit requests by undertaking detailed individual customer and transaction risk analysis (the ‘transaction-managed’ approach). Such customers are assigned a customer risk grade (CRG) representing Westpac’s estimate of their probability of default (PD). Each facility is assigned a loss given default (LGD). The Westpac credit risk rating system has 20 risk grades for non-defaulted customers and 10 risk grades for defaulted customers. Non-defaulted CRGs down to the level of normally acceptable risk (i.e. D grade – see table below) are mapped to Moody’s and Standard & Poor’s (S&P) external senior ranking unsecured ratings. This mapping is reviewed annually and allows Westpac to integrate the rating agencies’ default history with internal historical data when calculating PDs.

 

The final assignment of CRGs and LGDs is approved by authorised credit approvers with appropriate delegated approval authority. All material credit exposures are approved by authorised Credit Officers who are part of the risk management stream and operate independently of the areas originating the credit risk proposals. Authorised Credit Officer decisions are subject to reviews to ensure consistent quality and confirm compliance with approval authority. Separate teams are responsible for maintaining accurate and timely recording of all credit risk approvals and changes to customer and facility data. These teams also operate independently of both the areas originating the credit risk proposals and the credit risk approvers. Appropriate segregation of functions is one of the key requirements of our credit risk management framework.

 

Mapping of Westpac risk grades

 

The table below shows the current alignment between Westpac’s CRGs and the corresponding external rating. Note that only high-level CRG groupings are shown.

 

Westpac customer
risk grade

 

Standard & Poor’s
rating

Moody’s
rating

A

AAA to AA–

Aaa to Aa3

B

A+ to A–

A1 to A3

C

BBB+ to BBB–

Baa1 to Baa3

D

BB+ to B+

Ba1 to B1

 

Westpac Rating

 

 

E

Watchlist

 

F

Special mention

 

G

Substandard/default

 

H

Default

 

 

For Specialised Lending Westpac maps exposures to the appropriate supervisory slot based on an assessment that takes into account borrower strength and security quality, as required by APS 113.

 

Program-managed approach

 

High-volume retail customer credit portfolios with homogenous credit risk characteristics are managed on a statistical basis according to pre-determined objective criteria (the ‘program-managed’ approach). Program-managed exposure to a consumer customer may exceed $1 million. Business customer exposures may be program managed for exposure up to $3 million. Quantitative scorecards are used to assign application and behavioural scores to enable risk-based decision making within these portfolios. The scorecard outcomes and decisions are regularly monitored and validated against subsequent customer performance and scorecards are recalibrated or rebuilt when required. For capital estimation and other purposes, risk-based customer segments are created based upon modelled expected PD, Exposure At Default (EAD) and LGD. Accounts are then assigned to respective segments based on customer and account characteristics. Each segment is assigned a quantified measure of its PD, LGD and EAD.

 

For both transaction-managed and program-managed approaches, CRGs, PDs and LGDs are reviewed at least annually.

 

 

 

Westpac Group March 2018 Pillar 3 report |
23

 



 

Pillar 3 report

Credit risk management

 

 

Mapping of Basel categories to Westpac portfolios

 

APS113 Capital Adequacy: Internal Ratings-Based Approach to Credit Risk, states that under the Advanced IRB approach to credit risk, an ADI must categorise banking book exposures into six broad IRB asset classes and apply the prescribed treatment for those classes to each credit exposure within them for the purposes of deriving its regulatory capital requirement. Standardised and Securitised portfolios are subject to treatment under APS112 Capital Adequacy: Standardised Approach to Credit Risk and APS120 Securitisation respectively.

 

APS Asset Class

 

Sub-asset class

Westpac category

Segmentation criteria

Corporate

Corporate

Corporate

All transaction-managed customers not elsewhere classified where annual turnover exceeds $50 million
1
.

 

SME Corporate

Business Lending

All transaction-managed customers not elsewhere classified where annual turnover is $50 million or less.

 

Project Finance

Specialised Lending-Project Finance

Applied to transaction-managed customers where the primary source of debt service, security and repayment is derived from the revenue generated by a completed project (e.g. infrastructure such as toll roads or railways).

 

Income-producing Real Estate

Specialised Lending- Property Finance

Applied to transaction-managed customers where the primary source of debt service, security and repayment is derived from either the sale of a property development or income produced by one or more investment properties
2
.

Sovereign

 

Sovereign

Applied to transaction-managed exposures backed by governments.

Bank

 

Bank

Applied to transaction-managed exposures to deposit-taking institutions and foreign equivalents.

Residential Mortgage

 

Residential Mortgages

Exposures secured by residential mortgages not elsewhere classified.

Qualifying Revolving Retail

 

Australian Credit Cards

Program-managed credit cards with low volatility in loss rates. The New Zealand cards portfolio is not eligible for Qualifying Revolving Retail treatment and is classified in Other Retail.

Other Retail

 

Small Business

Program-managed business lending exposures under $1 million where complex products are not utilised by the customer.

 

 

Other Retail

All other program-managed lending to retail customers, including New Zealand credit cards.

 

 

 

 

 

 

 

 

1
  Includes all NZ agribusiness loans, regardless of turnover.

2
  Excludes large diversified property groups and property trusts, which appear in the Corporate asset class.

 

24
| Westpac Group March 2018 Pillar 3 report

 



 

Pillar 3 report

Credit risk management

 

 

Mapping of Credit risk approach to Basel categories and exposure types

 

Approach

 

APS asset class

Types of exposures

Transaction-Managed
Portfolios

Corporate

Sovereign

Bank

Direct lending

Contingent lending

Derivative counterparty

Asset warehousing

Underwriting

Secondary market trading

Foreign exchange settlement

Other intra-day settlement obligations

Program-Managed
Portfolios

Residential mortgage

Mortgages

Equity access loans

 

Qualifying revolving retail

Australian credit cards

 

Other retail

Personal loans

Overdrafts

New Zealand credit cards

Auto and equipment finance

Business development loans

Business overdrafts

Other term products

 

Internal ratings process for transaction-managed portfolios

 

The process for assigning and approving individual customer PDs and facility LGDs involves:

 

·
     
 
Business unit representatives recommend the CRG and facility LGDs under the guidance of criteria set out in established credit policies. Each CRG is associated with an estimated PD;

 

·
     
 
Authorised credit officers evaluate the recommendations and approve the final CRG and facility LGDs. Authorised credit officers may override line business unit recommendations;

 

·
     
 
An expert judgement decisioning process is employed to evaluate CRG and the outputs of various risk grading models are used as one of several inputs into that process; and

 

·
     
 
Authorised credit officers’ decisions are subject to reviews to ensure consistent quality and confirm compliance with approval authority.

 

For on-going exposures to transaction-managed customers, risk grades and facility LGDs are required to be reviewed at least annually, but also whenever material changes occur.

 

No material deviations from the reference definition of default are permitted.

 

Internal ratings process for program-managed portfolios

 

The process for assigning PDs, LGDs and EADs to the program-managed portfolio involves dividing the portfolio into a number of pools per product. These pools are created by analysing similar risk characteristics that have historically predicted that an account is likely to go into default.

 

No material deviations from the reference definition of default are permitted.

 

Internal credit risk ratings system

 

In addition to using the credit risk estimates as the basis for regulatory capital purposes, they are also used for the purposes described below:

 

 

Westpac Group March 2018 Pillar 3 report |
25

 



 

Pillar 3 report

Credit risk management

 

 

Economic capital
- Westpac calculates economic capital for all exposures. Economic capital includes both credit and non-credit components. Economic credit capital is calculated using a framework that considers estimates of PD, LGD, EAD, total committed exposure and loan tenor, as well as measures of portfolio composition not reflected in regulatory capital formulae.

 

Provisioning
- Impairment provisions are held by Westpac to cover credit losses that are incurred in the loan portfolio. Provisioning includes both individual and collective components. Individual provisions are calculated on impaired loans taking into account management’s best estimate of the present value of future cashflows. Collective provisions are established on a portfolio basis using a framework that considers PD, LGD, EAD, total committed exposure, emergence periods, level of arrears and recent past experience.

 

Risk-adjusted performance measurement
- Business performance is measured using allocated capital, which incorporates charges for economic capital and regulatory capital, including credit capital and capital for other risk types.

 

Pricing
- Westpac prices loans to produce an acceptable return on the capital allocated to the loan. Returns include interest income and fees after expected credit losses and other costs.

 

Credit approval
- For transaction-managed facilities, approval authorities are tiered based on the CRG, with lower limits applicable for customers with a higher PD. Program-managed facilities are approved on the basis of application scorecard outcomes and product based approval authorities.

 

Control mechanisms for the credit risk rating system include:

 

·
     
 
Westpac’s credit risk rating system is reviewed annually to confirm that the rating criteria and procedures are appropriate given the current portfolio and external conditions;

 

·
     
 
All models materially impacting the risk rating process are periodically reviewed in accordance with Westpac’s model risk policy;

 

·
     
 
Specific credit risk estimates (including PD, LGD and EAD levels) are overseen, reviewed annually and supported by the Credit Risk Estimates Committee (a sub-committee of CREDCO) for approval by General Manager, Risk Analytics and Insights;

 

·
     
 
Credit Risk Assurance undertake an independent annual end-to-end technical and operational review of the overall process; and

 

·
     
 
CREDCO, RISKCO and BRCC monitor the risk profile, performance and management of Westpac’s credit portfolio and the development and review of key credit risk policies.

 

Risk reporting

 

A comprehensive report on Westpac’s credit risk portfolio is provided to CREDCO, RISKCO and BRCC quarterly. It details the current level of impairment losses, stressed exposures, delinquency trends, provisions, impaired assets and key performance metrics. It also reports on portfolio concentrations and large exposures.

 

Credit risk and asset quality are also reported to the Board each month, including details of impairment losses, stressed exposures, delinquency trends and key performance metrics.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26
| Westpac Group March 2018 Pillar 3 report

 



 

Pillar 3 report

Credit risk management

 

 

Summary credit risk disclosure

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

Expected

 

Specific

Actual

 

 

Risk

Regulatory

Loss for

 

Provisions

Losses for

31 March 2018

Exposure

Weighted

Expected

non-defaulted

Impaired

for Impaired

the 6 months

$m

at Default

Assets

Loss
1

exposures

Loans

Loans

ended

Corporate

129,865

71,590

585

455

164

94

-

Business lending

53,750

34,872

623

415

317

176

26

Sovereign

76,316

1,536

1

1

-

-

-

Bank

23,866

6,253

8

8

-

-

-

Residential mortgages

547,681

129,748

1,206

998

310

98

47

Australian credit cards

19,640

6,553

371

319

95

47

134

Other retail

17,695

14,056

607

472

290

135

173

Small business

32,904

16,017

443

329

169

77

52

Specialised Lending

66,993

57,239

855

609

167

60

1

Securitisation

26,562

5,869

-

-

-

-

-

Standardised
2

18,083

17,658

-

-

23

12

1

Total

1,013,355

361,391

4,699

3,606

1,535

699

434

 

 

 

 

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

Expected

 

Specific

Actual

 

 

Risk

Regulatory

Loss for

 

Provisions

Losses for

30 September 2017

Exposure

Weighted

Expected

non-defaulted

Impaired

for Impaired

the 12 months

$m

at Default

Assets

Loss
1

exposures

Loans

Loans

ended

Corporate

126,747

71,160

594

458

215

93

384

Business lending

52,525

34,638

637

417

307

166

150

Sovereign

71,471

1,505

1

1

-

-

-

Bank

21,142

5,905

7

7

-

-

-

Residential mortgages

542,687

127,825

1,173

968

271

105

87

Australian credit cards

19,723

5,665

298

227

108

55

330

Other retail

17,929

13,250

527

380

296

139

395

Small business

27,421

11,708

300

191

118

51

73

Specialised Lending

67,109

57,081

849

600

208

94

68

Securitisation

26,712

4,167

-

-

-

-

-

Standardised
2

17,387

16,354

-

-

19

11

1

Total

990,853

349,258

4,386

3,249

1,542

714

1,488

 

 

 

 

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

Expected

 

Specific

Actual

 

 

Risk

Regulatory

Loss for

 

Provisions

Losses for

31 March 2017

Exposure

Weighted

Expected

non-defaulted

Impaired

for Impaired

the 6 months

$m

at Default

Assets

Loss
1

exposures

Loans

Loans

ended

Corporate

129,041

76,210

872

503

557

351

159

Business lending

51,143

33,735

662

402

358

213

57

Sovereign

69,130

1,665

2

2

-

-

-

Bank

20,338

5,887

7

7

-

-

-

Residential mortgages

528,332

127,111

1,155

970

272

86

38

Australian credit cards

19,953

6,009

326

253

123

63

149

Other retail

18,325

13,538

577

426

259

135

170

Small business

26,884

11,482

301

197

109

50

35

Specialised Lending

66,464

56,122

939

582

278

121

40

Securitisation

24,426

3,992

-

-

-

-

-

Standardised
2

16,331

16,962

-

-

22

11

-

Total

970,367

352,713

4,841

3,342

1,978

1,030

648

 

 

 

 

 

 

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

2
  Includes mark-to-market related credit risk.

 

Westpac Group March 2018 Pillar 3 report |
27

 



 

Pillar 3 report

Credit risk management

 

 

Loan impairment provisions

 

Provisions for loan impairment losses represent management’s best estimate of the losses incurred in the loan portfolios as at the balance date. There are two components of Westpac’s loan impairment provisions: individually assessed provisions (IAPs) and collectively assessed provisions (CAPs).

 

In determining IAPs, relevant considerations that have a bearing on the expected future cash flows are taken into account, for example:

 

·
                 
the business prospects of the customer;

 

·
                 
the realisable value of collateral;

 

·
                 
Westpac’s position relative to other claimants;

 

·
                 
the reliability of customer information; and

 

·
                 
the likely cost and duration of the work-out process.

 

These judgements and estimates can change with time as new information becomes available or as work-out strategies evolve, resulting in revisions to the impairment provision as individual decisions are made.

 

CAPs are established on a portfolio basis taking into account:

 

·
                 
the level of arrears;

 

·
                 
collateral;

 

·
                 
past loss experience;

 

·
                 
expected defaults based on portfolio trends; and

 

·
                 
the economic environment.

 

The most significant factors in establishing these provisions are estimated loss rates and the related emergence periods. The future credit quality of these portfolios is subject to uncertainties that could cause actual credit losses to differ from reported loan impairment provisions. These uncertainties include:

 

·
                 
differences between the expected and actual economic environment;

 

·
                 
interest rates and unemployment levels;

 

·
                 
repayment behaviour; and

 

·
                 
bankruptcy rates.

 

Regulatory classification of loan impairment provisions

 

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

 

A GRCL adjustment is made for the amount of GRCL that Westpac reports for regulatory purposes under APS220 in addition to provisions reported by Westpac under AAS. For capital adequacy purposes the GRCL adjustment is deducted from CET1 capital. Eligible GRCL is included in Tier 2 capital.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28
| Westpac Group March 2018 Pillar 3 report

 



 

Pillar 3 report

Credit risk management

 

 

Loan impairment provisions

 

31 March 2018

              AAS Provisions

GRCL

Total Regulatory

$m

IAPs

CAPs

Total

Adjustment

Provisions

Specific Provisions

 

 

 

 

 

for impaired loans

471

228

699

NA

699

for defaulted but not impaired loans

NA

190

190

NA

190

General Reserve for Credit Loss

NA

2,276

2,276

339

2,615

Total provisions for impairment charges

471

2,694

3,165

339

3,504

 

 

 

 

 

 

30 September 2017

              AAS Provisions

GRCL

Total Regulatory

$m

IAPs

CAPs

Total

Adjustment

Provisions

Specific Provisions

 

 

 

 

 

for impaired loans

480

234

714

NA

714

for defaulted but not impaired loans

NA

175

175

NA

175

General Reserve for Credit Loss

NA

2,230

2,230

332

2,562

Total provisions for impairment charges

480

2,639

3,119

332

3,451

 

 

 

 

 

 

31 March 2017

              AAS Provisions

GRCL

Total Regulatory

$m

IAPs

CAPs

Total

Adjustment

Provisions

Specific Provisions

 

 

 

 

 

for impaired loans

787

243

1,030

NA

1,030

for defaulted but not impaired loans

NA

173

173

NA

173

General Reserve for Credit Loss

NA

2,310

2,310

311

2,621

Total provisions for impairment charges

787

2,726

3,513

311

3,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westpac Group March 2018 Pillar 3 report |
29

 

 



 

Pillar 3 report

Credit risk exposures

 

 

The following tables segment the portfolio by characteristics that provide an insight into the assessment of credit risk concentration.

 

Exposure at Default by major type

 

31 March 2018

On balance

Off-balance sheet

Total Exposure

Average

$m

sheet

Non-market related

Market related

at Default

6 months ended
1

Corporate

62,625

54,926

12,314

129,865

128,758

Business lending

40,236

13,514

-

53,750

53,386

Sovereign

72,069

1,770

2,477

76,316

73,561

Bank

14,322

1,612

7,932

23,866

22,560

Residential mortgages

469,967

77,714

-

547,681

543,616

Australian credit cards

9,787

9,853

-

19,640

19,724

Other retail

14,049

3,646

-

17,695

17,795

Small business

25,820

7,084

-

32,904

31,016

Specialised lending

53,317

12,718

958

66,993

67,333

Securitisation
2

20,892

5,549

121

26,562

26,920

Standardised

13,909

1,215

2,959

18,083

17,907

Total

796,993

189,601

26,761

1,013,355

1,002,576

 

 

 

 

 

 

 

 

 

 

30 September 2017

On balance

Off-balance sheet

Total Exposure

Average

$m

sheet

Non-market related

Market related

at Default

12 months ended
3

Corporate

60,844

56,098

9,805

126,747

130,130

Business lending

38,784

13,741

-

52,525

51,174

Sovereign

67,083

1,895

2,493

71,471

73,758

Bank

13,386

1,794

5,962

21,142

20,992

Residential mortgages

463,363

79,324

-

542,687

531,347

Australian credit cards

9,794

9,929

-

19,723

19,960

Other retail

14,288

3,641

-

17,929

18,405

Small business

22,039

5,382

-

27,421

27,424

Specialised lending

51,847

14,308

954

67,109

67,310

Securitisation
2

20,399

6,182

131

26,712

25,029

Standardised

13,738

1,163

2,486

17,387

16,499

Total

775,565

193,457

21,831

990,853

982,028

 

 

 

 

 

 

 

 

 

 

31 March 2017

On balance

Off-balance sheet

Total Exposure

Average

$m

sheet

Non-market related

Market related

at Default

6 months ended
4

Corporate

60,891

57,509

10,641

129,041

132,442

Business lending

37,614

13,529

-

51,143

50,397

Sovereign

63,313

2,073

3,744

69,130

73,596

Bank

12,450

2,157

5,731

20,338

21,184

Residential mortgages

449,596

78,736

-

528,332

525,197

Australian credit cards

10,105

9,848

-

19,953

20,060

Other retail

14,680

3,645

-

18,325

18,592

Small business

21,463

5,421

-

26,884

27,466

Specialised lending

51,518

13,781

1,165

66,464

67,376

Securitisation
2

18,037

6,206

183

24,426

23,914

Standardised

13,029

1,173

2,129

16,331

16,078

Total

752,696

194,078

23,593

970,367

976,302

 

 

 

 

 

 

 


1
  
Average is based on exposures as at 31 March 2018, 31 December 2017, and 30 September 2017.

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

3
  
Average is based on exposures as at 30 September 2017, 30 June 2017, 31 March 2017, 31 December 2016, and 30 September 2016.

4
  
Average is based on exposures as at 31 March 2017, 31 December 2016, and 30 September 2016.

 

30
| Westpac Group March 2018 Pillar 3 report

 



 

Pillar 3 report

Credit risk exposures

 

 

Exposure at Default by measurement method

 

31 March 2018

IRB

Standardised

Total Exposure

$m

Approach

Approach

at Default

Corporate

129,865

5,579

135,444

Business lending

53,750

989

54,739

Sovereign

76,316

841

77,157

Bank

23,866

46

23,912

Residential mortgages

547,681

7,946

555,627

Australian credit cards

19,640

-

19,640

Other retail

17,695

2,271

19,966

Small business

32,904

-

32,904

Specialised lending

66,993

411

67,404

Securitisation

26,562

-

26,562

Total

995,272

18,083

1,013,355

 

 

 

 

 

 

 

 

30 September 2017

IRB

Standardised

Total Exposure

$m

Approach

Approach

at Default

Corporate

126,747

4,846

131,593

Business lending

52,525

1,029

53,554

Sovereign

71,471

960

72,431

Bank

21,142

89

21,231

Residential mortgages

542,687

7,777

550,464

Australian credit cards

19,723

-

19,723

Other retail

17,929

2,303

20,232

Small business

27,421

-

27,421

Specialised lending

67,109

383

67,492

Securitisation

26,712

-

26,712

Total

973,466

17,387

990,853

 

 

 

 

 

 

 

 

31 March 2017

IRB

Standardised

Total Exposure

$m

Approach

Approach

at Default

Corporate

129,041

3,939

132,980

Business lending

51,143

1,012

52,155

Sovereign

69,130

1,148

70,278

Bank

20,338

62

20,400

Residential mortgages

528,332

7,445

535,777

Australian credit cards

19,953

-

19,953

Other retail

18,325

2,337

20,662

Small business

26,884

-

26,884

Specialised lending

66,464

388

66,852

Securitisation

24,426

-

24,426

Total

954,036

16,331

970,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westpac Group March 2018 Pillar 3 report |
31

 

 



 

Pillar 3 report

Credit risk exposures

 

 

Exposure at Default by industry classification

 

31 March 2018
$m

Accommodation,
cafes &
restaurants

Agriculture,
forestry &
fishing

Construction

Finance &
insurance

Government
administration
& defence

Manufacturing

Mining

Property

Property
services &
business
services

Services
1

Trade
2

Transport &
storage

Utilities
3

Retail
lending

Other

Total
Exposure
at Default

Corporate

2,950

9,846

3,266

15,014

112

21,201

6,666

6,589

9,958

11,110

20,691

10,448

10,958

-

1,056

129,865

Business lending

5,958

7,236

4,028

2,369

9

4,638

608

328

6,373

5,965

9,186

2,651

427

-

3,974

53,750

Sovereign

-

-

-

18,525

56,398

148

88

-

150

548

-

125

332

-

2

76,316

Bank

-

-

-

23,683

133

-

-

-

50

-

-

-

-

-

-

23,866

Residential mortgages

-

-

-

-

-

-

-

-

-

-

-

-

-

547,681

-

547,681

Australian credit cards

-

-

-

-

-

-

-

-

-

-

-

-

-

19,640

-

19,640

Other retail

-

-

-

-

-

-

-

-

-

-

-

-

-

17,695

-

17,695

Small business

997

2,488

3,863

1,837

462

1,551

271

2,010

4,851

3,455

3,361

1,792

284

-

5,682

32,904

Specialised lending

639

6

21

83

-

14

1,140

57,399

104

1,945

13

3,191

1,981

-

457

66,993

Securitisation

-

-

-

25,348

-

35

-

-

733

-

446

-

-

-

-

26,562

Standardised

104

13

188

4,707

842

250

16

415

162

91

842

187

17

10,217

32

18,083

Total

10,648

19,589

11,366

91,566

57,956

27,837

8,789

66,741

22,381

23,114

34,539

18,394

13,999

595,233

11,203

1,013,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1
    
Includes education, health & community services, cultural & recreational services and personal & other services.

2
    
Includes wholesale trade and retail trade.

3
    
Includes electricity, gas & water, and communication services.

 

32
| Westpac Group March 2018 Pillar 3 report

 


 


 

Pillar 3 report

Credit risk exposures

 

 

30 September 2017
$m

Accommodation,
cafes &
restaurants

Agriculture,
forestry &
fishing

Construction

Finance &
insurance

Government
administration
& defence

Manufacturing

Mining

Property

Property
services &
business
services

Services
1

Trade
2

Transport &
storage

Utilities
3

Retail
lending

Other

Total
Exposure
at Default

Corporate

2,778

9,394

3,208

13,228

115

21,031

7,246

6,753

8,465

10,940

20,040

10,750

11,725

-

1,074

126,747

Business lending

5,985

7,361

3,858

2,543

8

4,605

629

248

6,623

6,036

9,522

2,726

435

-

1,946

52,525

Sovereign

-

-

-

15,996

53,908

148

87

-

6

782

-

125

418

-

1

71,471

Bank

-

-

-

21,067

25

-

-

-

50

-

-

-

-

-

-

21,142

Residential mortgages

-

-

-

-

-

-

-

-

-

-

-

-

-

542,687

-

542,687

Australian credit cards

-

-

-

-

-

-

-

-

-

-

-

-

-

19,723

-

19,723

Other retail

-

-

-

-

-

-

-

-

-

-

-

-

-

17,929

-

17,929

Small business

876

2,260

3,654

1,645

379

1,412

238

1,662

4,243

2,705

3,021

1,741

267

-

3,318

27,421

Specialised lending

704

6

21

14

-

15

1,179

56,741

103

2,033

8

3,985

2,134

-

166

67,109

Securitisation

-

-

-

25,656

-

50

-

-

733

-

273

-

-

-

-

26,712

Standardised

102

5

165

4,082

960

209

14

387

164

88

835

236

27

10,080

33

17,387

Total

10,445

19,026

10,906

84,231

55,395

27,470

9,393

65,791

20,387

22,584

33,699

19,563

15,006

590,419

6,538

990,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1
    
Includes education, health & community services, cultural & recreational services and personal & other services.

2
    
Includes wholesale trade and retail trade.

3
    
Includes electricity, gas & water, and communication services.

 

Westpac Group March 2018 Pillar 3 report |
33

 


 


 

Pillar 3 report

Credit risk exposures

 

 

31 March 2017
$m

Accommodation,
cafes &
restaurants

Agriculture,
forestry &
fishing

Construction

Finance &
insurance

Government
administration
& defence

Manufacturing

Mining

Property

Property
services &
business
services

Services
1

Trade
2

Transport &
storage

Utilities
3

Retail
lending

Other

Total
Exposure
at Default

Corporate

2,767

9,150

3,536

12,829

82

23,289

7,793

6,549

9,149

11,476

19,277

10,858

11,409

-

877

129,041

Business lending

5,631

6,951

3,700

2,437

9

4,540

594

227

6,415

5,953

9,654

2,665

405

-

1,962

51,143

Sovereign

-

-

-

13,890

52,666

149

120

-

7

1,031

-

126

1,141

-

-

69,130

Bank

-

-

-

20,254

34

-

-

-

50

-

-

-

-

-

-

20,338

Residential mortgages

-

-

-

-

-

-

-

-

-

-

-

-

-

528,332

-

528,332

Australian credit cards

-

-

-

-

-

-

-

-

-

-

-

-

-

19,953

-

19,953

Other retail

-

-

-

-

-

-

-

-

-

-

-

-

-

18,325

-

18,325

Small business

861

2,271

3,547

1,651

287

1,414

231

1,689

4,068

2,595

3,010

1,754

261

-

3,245

26,884

Specialised lending

419

-

23

117

-

17

1,287

56,928

105

1,965

13

3,479

1,914

-

197

66,464

Securitisation

-

-

-

23,433

-

50

-

-

657

-

286

-

-

-

-

24,426

Standardised

108

6

152

3,196

1,149

223

14

393

144

86

775

216

27

9,780

62

16,331

Total

9,786

18,378

10,958

77,807

54,227

29,682

10,039

65,786

20,595

23,106

33,015

19,098

15,157

576,390

6,343

970,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1
    
Includes education, health & community services, cultural & recreational services and personal & other services.

2
    
Includes wholesale trade and retail trade.

3
    
Includes electricity, gas & water, and communication services.

 

34
| Westpac Group March 2018 Pillar 3 report

 



 

Pillar 3 report

Credit risk exposures

 

 

Exposure at Default by geography
1

 

31 March 2018

 

 

 

 

 

 

Total Exposure

$m

Australia

New Zealand

Americas

Asia

Europe

Pacific

at Default

Corporate

85,656

21,513

6,649

13,301

2,746

-

129,865

Business lending

49,513

4,237

-

-

-

-

53,750

Sovereign

59,824

6,137

9,885

470

-

-

76,316

Bank

17,149

1,927

104

4,677

9

-

23,866

Residential mortgages

495,426

51,891

-

364

-

-

547,681

Australian credit cards

19,640

-

-

-

-

-

19,640

Other retail

13,903

3,792

-

-

-

-

17,695

Small business

30,495

2,409

-

-

-

-

32,904

Specialised lending

59,707

7,286

-

-

-

-

66,993

Securitisation

22,801

3,244

-

517

-

-

26,562

Standardised

14,936

-

-

393

-

2,754

18,083

Total

869,050

102,436

16,638

19,722

2,755

2,754

1,013,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 September 2017

 

 

 

 

 

 

Total Exposure

$m

Australia

New Zealand

Americas

Asia

Europe

Pacific

at Default

Corporate

85,598

20,352

6,333

11,614

2,850

-

126,747

Business lending

48,415

4,110

-

-

-

-

52,525

Sovereign