2016 Interim Financial Results Announcement

145 Pages·2016·2.86 MB·English

Resultsannouncementtothemarket
ASXAppendix4D
Resultsforannouncementtothemarket1
Reportforthehalfyearended31March20162
Revenuefromordinaryactivities3,4($m) up 5% to $10,473
Profitfromordinaryactivitiesaftertaxattributabletoequityholders4($m) up 3% to $3,701
Netprofitfortheperiodattributabletoequityholders4($m) up 3% to $3,701
Amount Frankedamount
DividendDistributions(centsperordinaryshare) persecurity persecurity
InterimDividend 94 94
13May2016 (Sydney)
Recorddatefordeterminingentitlementstothedividend
12May2016(New York)
1 ThisdocumentcomprisestheWestpacGroup2016InterimFinancialResults,includingtheInterimFinancialReportandisprovidedto
theAustralianSecuritiesExchangeunderListingRule4.2A.
2 ThisreportshouldbereadinconjunctionwiththeWestpacGroupAnnualReport2015andanypublicannouncementsmadeinthe
period by the Westpac Group in accordance with the continuous disclosure requirements of the Corporations Act 2001 and ASX
ListingRules.
3 Comprisesreportedinterestincome,interestexpenseandnon-interestincome.
4 Allcomparisonsarewiththereportedresultsforthesixmonthsended31March2015.
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Resultsannouncementtothemarket
Mediareleaseandoutlook
Media
Release
2May2016
WESTPACDELIVERSSOUNDRESULTINCHALLENGINGCONDITIONS
WestpacGrouptodayannouncedFirstHalf2016statutorynetprofitof$3,701million,up3%overtheprior
correspondingperiod.
Keyfeaturesoftheresultcomparedtothepriorcorrespondingperiodincluded1:
 Cashearningsof$3,904million,up3%;
 Cashearningspershareof118.2cents,down2%;
 Cashreturnonequity(ROE)of14.2%,down166basispoints;
 Interim,fullyfrankeddividendof94centspershare(cps),up1%;
 CommonequityTier1capitalratioof10.5%,up171basispoints;
 Lendingandcustomerdepositgrowthof6%and5%respectively;and
 Expensetoincomeratioat41.6%downfrom42.5%.
Westpac Chief Executive Officer,MrBrian Hartzer,saidthe Group had delivered a sound result in a volatile
economicenvironmentwithsignificantregulatorychange.
"The quality and value of our franchise continues to grow, with increased customer numbers, deeper customer
relationships and strategic technology investments that make it easier for customers to do their banking. At the
sametimewehavecontinuedtofocusoncontrollingcostsanddeliveringsustainablereturns,"MrHartzersaid.
“The Consumer Bankdelivered strong home loan and deposit growth and well-managed margins. The Business
Bankalsorecordedsoundbalancesheetgrowth,particularlyinSME,withmarginsstableovertheperiod.
“However, sector headwinds contributed to a softer performance in other divisions. In particular, Westpac
Institutional Bank (WIB) was affected by lower net interest margins and significantly higher impairment charges
relatedprincipallytofourlargeexposureswhichadded$252milliontoprovisions.”
In response to regulatory change, the Group raised around $6 billion in equity over calendar 2015, lifting the
Group’scommonequityTier1ratioto10.5%,oraround2percentagepointshigherthanayearearlier.
“These actions have materially strengthened the Group’s capital base but have impacted earnings per share and
returnonequity,”MrHartzersaid.
“Importantly, on most measures, overall asset quality remains sound, with the level of stressed assets little
changedoverthehalf.Therehavebeenafewpocketsofstress,mostlyrelatedtolowercommodityprices,andan
increaseinprovisionsforasmallnumberoflargerexposures,whichcontributedtoariseinimpairmentcharges.
“Westpac remains well-placed to respond to this challenging environment. We have strengthened our balance
sheet and made good progressimplementing our strategy to build one of the world’s great service companies by
investingingrowth,service,andproductivityinitiatives.”
1 Reportedonacashearningsbasisunlessotherwisestated.Foranexplanationofcashearningsandreconciliationtoreportedresults
refertopages4,5and123-125oftheGroup’s2016InterimFinancialResultsAnnouncement.
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DELIVERINGONTHESTRATEGY
MrHartzersaidsignificantprogresshadbeenmadeondeliveringWestpac’sstrategyincluding:
 Launch of the ‘Service Promise’ program across the entire organisation. Building on the success of a similar
initiative in St.George, this brings together a common set of service standards and behaviours across the
Group;
 A 24% reduction in complaints across the Australian Consumer and Business Banks compared to First Half
2015;
 Continuedreconfigurationofthenetwork,with39%ofbranchesnowinthenewformat;
 Simplified the process for establishing new transaction accounts, and enabling customers to block/unblock
creditcardsonline;
 Launched‘Wonder’–whichallowsWestpaccustomerstoeasilysee(andputtouse)theequityintheirhomes;
 Upgraded 100,000 merchant terminals to our new market leading EFTPOS1 technology, which accepts cards
issuedbyUnionPayInternational;
 Rolled-out new functionality for BT Panorama, includingdirect trading of listed securities for advised investors
andlaunchofthefirstphaseoftheSelf-ManagedSuperFundoffering;and
 Commenced development of the customer service hub, the first major program in our new systems
architecture.
CAPITALPOSITIONANDDIVIDENDS
Mr Hartzer said the 2015 calendar year was significant for the Group, including having raised around $6 billion in
capitalthroughcapitalissuanceandthepartialsaleofBTInvestmentManagement(BTIM).
On an internationally comparable basis, Westpac’s CET1 ratio was 14.7% and comfortably in the top quartile of
banksglobally.
“Our strong level of capital positions us well for further regulatory changes, while ensuring we can continue to
supportourcustomersandeconomicgrowthinAustralia,”MrHartzersaid.
TheWestpac Board has determined a dividend of 94cps, up 1% on the 2015 interim dividend and in line with the
2015 final dividend. The Group will issue shares to satisfy the Dividend Reinvestment Plan (DRP) for the interim
dividend,withnodiscountapplied.
Thedividendwillbepaidon4July2016,toshareholdersregisteredat13May2016.
CREDITQUALITY
The creditqualityof the Group’s portfolio was littlechanged since FirstHalf 2015 with stressed exposures to total
committedexposuresof1.03%,downfrom1.12%.
The increase in the stressed exposures ratio of 4 basis points over Second Half 2015 principally reflects a rise in
consumerdelinquencies,includingingeographiesmoreaffectedbytheslowdowninmining.
Impaired assets remained low at 0.26% of total committed exposures, up 2 basis points over the year, while the
provisioncoverageofimpairedassetshasremainedhighat48%.
FINANCIALHIGHLIGHTS
KeyfinancialaspectsoftheFirstHalf2016result1,2:
 Totalincomeup6%,withgoodgrowthinnetinterestincome;
 Net interest income of $7,653 million, up 10%, with net interest margin up 9 basis points. Excluding Treasury
andMarkets,netinterestmarginswereup6basispoints;
 Total lending rose 6% from March 2015, with above system growth in Australian mortgages, up 8%, and
Australianbusinesslendingrising6%.LendinginNewZealandincreased7%inNZdollars.Customerdeposits
increased$21.7billion,or5%,withthedeposittoloanratioat69%;
 Non-interest income of $2,966 million was down 4%. This outcome reflects a range of infrequent and volatile
items including lower revenue from BTIM following the partial sell down in Second Half 2015. Excluding
infrequent and volatile items, most of the decline was due to lower Australian credit card interchange income
andlowerinstitutionalfeeincomeinlinewithmoresubdueddebtorigination;
1 Cashearningsbasis.
2 Allcomparisonsinthecommentaryaretothepriorcorrespondingperiodunlessotherwisestated.
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 An improved expense to income ratio, with expenses up 4%, mostly related to higher investment including
increasedtechnologyandprofessionalservicescosts;and
 Assetqualitywaslittlechangedovertheyear,withstressedassetstototalcommittedexposuresfalling9basis
points to 1.03%. However, impairment charges increased $326 million due to lower write-backs, increased
provisions for a small number of larger institutional facilities, and from a modest rise in consumer
delinquencies.
DIVISIONALPERFORMANCE:1H16CASHEARNINGS
%mvt %mvt
Cashearnings($million) 1H16 2H15 1H15
1H16-2H15 1H16-1H15
ConsumerBank 1,444 1,380 1,240 5 16
BusinessBank 988 962 1,017 3 (3)
BTFinancialGroup 452 461 453 (2) -
WestpacInstitutionalBank 517 690 653 (25) (21)
WestpacNewZealand(NZ$) 445 468 437 (5) 2
Consumer Bank continued to grow the value of the franchise, with more customers and above system lending
growthcontributingtoa15%riseincoreearningsanda16%riseincashearnings.However,theimpactof higher
capital for mortgages reduced returns in this business. The business has continued to invest in improving service
bytransformingthenetworkthroughtheupgradeof22branchesoverthehalf,enhancementstoself-serveoptions
includingmoreSmartATMs,andincreasingthefunctionalityofitsonlineplatforms.
Business Bank grew core earnings by 5%, with good growth in lending. Non-interest income grew 3%, mostly
through higher merchant revenue supported by the roll-out of new state-of-the-art payment terminals. Cash
earnings were lower, down 3%,due tohigherimpairment charges. While asset qualityhas improved, a reduction
inwrite-backsandanincreaseinautodelinquenciescontributedtoa$118millionincreaseinimpairments.
BT Financial Group continues to be a leading provider of wealth solutions in Australia, with a Funds Under
Administration (FUA) share of 19.6%. BTFG saw cash earnings little changed over the year with business growth
offset by a reduction in Funds Management earnings mostly due to lower markets and the partial sale of BTIM in
SecondHalf2015.ThebusinesscontinuedtobenefitfromgoodflowsintoFUMandFUA,whilecontinuedsuccess
in Private Wealth has seen lending increase 8%. Insurance has also continued to expand with Life in-force
premiumsup12%.
Westpac Institutional Bank delivered cash earnings of $517 million, down $136 million. The lower result was
drivenbya$201millionincreaseinimpairmentcharges,areductioninfundperformancefees,andlowermargins.
The division maintained its leading market position, growing customer numbers and generating good flows in FX.
However, the more challenging market conditions from high levels of global liquidity continues to place pressure
onmargins.Whileassetqualitywasmaintained,includingafurtherreductioninstressedassets,downgradestoa
smallnumberofexposureswasthemaincontributortothehigherimpairmentcharge.
Westpac New Zealand’s cash earnings were up 2% to NZ$445 million. The business has continued to grow
broadly in line with system while steadily expanding its wealth and insurance business. However, intense
competition for new lending and a shift to lower spread fixed rate mortgages has compressed margins.
Notwithstanding deteriorating financial conditions in the dairy sector, asset quality has remained sound and
consumerdelinquenciesremainnearhistoriclows,contributingtocontinuedlowimpairmentcharges.
OUTLOOK
Mr Hartzer said despite the mixed global economic conditions he remained positive about the outlook for the
Australianeconomyandexpectedanotheryearofsoundgrowth,withGDPincreasingbyaround2.8%inthe2016
calendaryear.
“Australia’s transition to a more services-based economy is now well underway. While the higher than expected
Australian dollar represents some risks on the export front, other aspects of the Australian economy are
encouraging. The recent firming of commodity prices, solid employment growth – particularly in the services
sectors–andongoinglowinterestratesallsupportthatoutlook.
“The main threat we see is from global factors, which create fragility in businesses and regions that are more
dependent on mining and mining construction. We also see signs of moderating housing investment, although
housingfundamentalsremainingoodshape.”
Mr Hartzer said that this environment is likely to see a slight moderation in credit and deposit growth through the
year,ashousingactivityeasesandtheimpactofthesystemtighteningofcreditstandardsflowsthrough.
WestpacGroupInterim2015ASXProfitAnnouncement|v
Resultsannouncementtothemarket
“We think asset quality will remain sound overall. While there have been a small number of large firms
experiencing difficulties during the first half, these have been predominantly due to company specific issues that
havebeen,insomecases,exacerbatedbytheminingcycle.
“Companybalancesheetsaregenerallyingoodshape– havingusedlowerinterestratestopaydown debt–and
levels of stress remain low.Weexpectsomeincreaseinconsumerdelinquencies overthe second half,but thisis
likely to be concentrated in segments and sectors that are more reliant on the resources industry. In this
environment,and withthesignificantstrengtheningof ourbalancesheet,wewillcontinueto managethe Groupin
adisciplinedway.”
Mr Hartzer said Westpac remains strongly positioned in its key markets, with a modest underweight position in
boththeNewZealanddairyandminingsectors,andthoseregionsmorereliantonresources.
“Westpac’s strategy of having a strong and prudently managed balance sheet, strictperformance disciplines, and
a strategy built around embracing technology to deliver great service and deeper customer relationships, is the
rightoneforthetimes.Givenourposition,uniqueportfolioof brandsandhighqualitymanagement team,Iremain
positiveaboutouroutlook.”
ForFurtherInformation
DavidLording AndrewBowden
HeadofMediaRelations HeadofInvestorRelations
T.0282198512 T.0282534008
M.0419683411 M.0438284863
vi|WestpacGroup2016InterimResultsAnnouncement
Resultsannouncementtothemarket
2016InterimFinancialResults
01 Groupresults 1
1.1 Reportedresults 1
1.2 Keyfinancialdata 2
1.3 Cashearningsresults 3
1.4 Marketshareandsystemmultiplemetrics 6
02 ReviewofGroupoperations 7
2.1 Performanceoverview 8
2.2 Reviewofearnings 15
2.3 Creditquality 29
2.4 Balancesheetandfunding 31
2.5 Capitalanddividends 36
2.6 Sustainabilityperformance 42
03 Divisionalresults 45
3.1 ConsumerBank 45
3.2 BusinessBank 48
3.3 BTFinancialGroup(Australia) 51
3.4 WestpacInstitutionalBank 58
3.5 WestpacNewZealand 61
3.6 GroupBusinesses 64
04 2016Interimfinancialreport 66
4.1 Directorsreport 67
4.2 Consolidatedincomestatement 82
4.3 Consolidatedstatementofcomprehensiveincome 83
4.4 Consolidatedbalancesheet 84
4.5 Consolidatedstatementofchangesinequity 85
4.6 Consolidatedcashflowstatement 86
4.7 Notestotheconsolidatedfinancialstatements 87
4.8 Statutorystatements 114
05 Cashearningssupplementaryinformation 116
06 Otherinformation 127
6.1 Disclosureregardingforward-lookingstatements 127
6.2 Websites 128
6.3 Creditratings 128
6.4 Dividendreinvestmentplan 128
6.5 ChangesincontrolofGroupentities 128
6.6 FinancialcalendarandShareRegistrydetails 129
6.7 Exchangerates 132
07 Glossary 134
In this announcement references to ‘Westpac’, ‘WBC’, ‘Westpac Group’, ‘the Group’, ‘we’, ‘us’ and ‘our’ are to Westpac Banking
Corporationanditscontrolledentities,unlessitclearlymeansjustWestpacBankingCorporation.
Allreferencesto$inthisdocumentaretoAustraliandollarsunlessotherwisestated.
Financialcalendar
Interimresultsannouncement 2May2016
Ex-dividenddateforinterimdividend 12May2016
Recorddateforinterimdividend(Sydney) 13May2016
Interimdividendpayable 4July2016
Finalresultsannouncement(scheduled) 7November2016
WestpacGroup2016InterimResultsAnnouncement|vii
Resultsannouncementtothemarket
[Thispageisintentionallyblank].
viii|WestpacGroup2016InterimResultsAnnouncement
Interimfinancialresults2016
Groupresults
1.0 Groupresults
1.1 Reportedresults
Reported net profit attributable to owners of Westpac Banking Corporation is prepared in accordance with the
requirements of Australian Accounting Standards (AAS) and regulations applicable to Australian Authorised
Deposit-takingInstitutions(ADIs).
%Mov't1 %Mov't1
HalfYear HalfYear HalfYear Mar16- Mar16-
$m March16 Sept15 March15 Sept15 Mar15
Netinterestincome 7,477 7,283 6,984 3 7
Non-interestincome 2,996 4,362 3,013 (31) (1)
Netoperatingincomebeforeoperatingexpensesandimpairmentcharges 10,473 11,645 9,997 (10) 5
Operatingexpenses (4,568) (5,063) (4,410) (10) 4
Netprofitbefore impairmentchargesandincome taxexpense 5,905 6,582 5,587 (10) 6
Impairmentcharges (667) (412) (341) 62 96
Profitbeforeincometax 5,238 6,170 5,246 (15) -
Incometaxexpense (1,528) (1,744) (1,604) (12) (5)
Netprofitforthe period 3,710 4,426 3,642 (16) 2
Netprofitattributabletonon-controllinginterests (9) (23) (33) (61) (73)
NETPROFITATTRIBUTABLETOOWNERSOF
WESTPACBANKINGCORPORATION 3,701 4,403 3,609 (16) 3
Net profit attributable to owners of Westpac Banking Corporation for First Half 2016 was $3,701 million, an
increase of $92 million or 3% compared to First Half 2015. Features of this result included a $476 million or 5%
increase in net operating income before operating expenses and impairment charges, a $158 million or 4%
increaseinoperatingexpensesanda$326millionor96%increaseinimpairmentcharges.
Net interest income increased $493 million or 7% compared to First Half 2015, with total loan growth of 6% and
customer deposit growth of 5%. Net interest margin increased 3 basis points, primarily due to repricing of
mortgages for increased regulatory capital requirements, repricing of customer deposits, and higher Treasury
income including the impact of ineffective hedges, partially offset by competitive pricing for new loans and higher
short term wholesale funding costs. Net interest income, loans, customer deposits and net interest margins are
discussedfurtherinSections2.2.1to2.2.4.
Non-interestincomedecreased$17 millionor1%comparedtoFirst Half2015primarilydue tolowerbankingfees
and commissions, including the impact of credit card interchange reductions, and lower institutional activity.
Wealth management income reduced due to the partial sale of our BT Investment Management (BTIM)
shareholding in Second Half 2015, and the impact of lower asset market values. The increase in trading income
mostlyreflectedlowerderivativevaluationadjustments.Non-interestincomeisdiscussedfurtherinSection2.2.5.
Operating expenses increased $158 million or 4% compared to First Half 2015. The lift in operating expenses
related to the Group’s investment programs, with operating expense increases offset by productivity savings.
OperatingexpensesarediscussedfurtherinSection2.2.8.
Impairment charges increased $326 million or 96% compared to First Half 2015. On most measures asset quality
remained sound, with stressed exposures as a percentage of total committed exposures reducing from 1.12% to
1.03%. The increase in impairment charges was primarily due to additional provisioning following the downgrade
of a small number of institutional customers, a small rise in delinquencies and reductions in write-backs.
ImpairmentchargesarediscussedfurtherinSection2.2.9.
The effective tax rate of 29.2% in First Half 2016 was lower compared to 30.6% in First Half 2015 due to the
finalisationofapriorperiodtaxmatterinthishalf.IncometaxexpenseisdiscussedfurtherinSection2.2.10.
1 Percentagemovementrepresentsanincrease/(decrease)totherelevantcomparativeperiod.
WestpacGroup2016InterimResultsAnnouncement|1
Interimfinancialresults2016
Groupresults
1.2 Keyfinancialdata
%Mov't %Mov't
HalfYear HalfYear HalfYear Mar16- Mar16-
March16 Sept15 March15 Sept15 Mar15
Shareholdervalue
Earningsperordinaryshare(cents)1 112.3 139.4 115.5 (19) (3)
Weightedaverageordinaryshares(millions)1,2 3,294 3,157 3,122 4 6
Fullyfrankeddividendsperordinaryshare(cents) 94 94 93 - 1
Returnonaverageordinaryequity 13.41% 17.29% 15.10% (388bps) (169bps)
Averageordinaryequity($m) 55,180 50,794 47,920 9 15
Averagetotalequity($m) 55,945 51,645 48,777 8 15
Nettangibleassetperordinaryshare($) 13.74 13.08 11.84 5 16
Productivityandefficiency
Expensetoincomeratio 43.62% 43.48% 44.11% 14bps (49bps)
Business performance
Interestspread 1.90% 1.93% 1.89% (3bps) 1bps
Benefitof netnon-interestbearingassets,liabilitiesandequity 0.19% 0.18% 0.17% 1bps 2bps
Netinterestmargin 2.09% 2.11% 2.06% (2bps) 3bps
Averageinterest-earningassets($m) 714,856 689,031 678,568 4 5
Capitaladequacyratio
CommonequityTier1capitalratio
-APRABaselIII 10.47% 9.50% 8.76% 97bps 171bps
-Internationallycomparable3 14.67% 13.20% 12.19% 147bps 248bps
Creditriskweightedassets(creditRWA)($m) 313,048 310,342 303,026 1 3
Totalriskweightedassets(RWA)($m) 363,248 358,580 346,823 1 5
Assetquality
Totalcommittedexposures(TCE)($m) 956,431 937,052 910,551 2 5
Grossimpairedassetstogrossloans 0.39% 0.30% 0.35% 9bps 4bps
Grossimpairedassetstoequityandtotalprovisions 4.0% 3.3% 4.0% 72bps 4bps
Grossimpairedassetprovisionstogrossimpairedassets 47.6% 46.3% 47.8% 137bps (16bps)
Totalstressedexposuresasa%of TCE 1.03% 0.99% 1.12% 4bps (9bps)
Totalprovisionstogrossloans 57bps 53bps 58bps 4bps (1bps)
Collectivelyassessedprovisionstoperformingnon-housingloans4 124bps 123bps 128bps 1bps (4bps)
Mortgages90dayspastdue 0.52% 0.42% 0.45% 10bps 7bps
Otherconsumerloans90dayspastdue 1.42% 1.07% 1.17% 35bps 25bps
CollectivelyassessedprovisionstocreditRWA 87bps 86bps 89bps 1bps (2bps)
Balance sheet5($m)
Loans 640,687 623,316 605,064 3 6
Totalassets 831,760 812,156 795,961 2 4
Depositsandotherborrowings 494,246 475,328 466,743 4 6
Totalliabilities 773,779 758,241 745,644 2 4
Totalequity 57,981 53,915 50,317 8 15
WealthManagement
AverageFundsUnderManagementexBTIM($b)6 62 62 59 1 6
AverageFundsUnderAdministration($b) 126 127 120 (1) 5
1 ComparativeinformationhasbeenrestatedtoincorporatethebonuselementoftheShareEntitlementOfferintheweightedaverage
numberofordinaryshares.
2 Weighted average number of fully paid ordinary shares listed on the ASX for the relevant period less Westpac shares held by the
Group(“Treasuryshares”).
3 ReferGlossaryfordefinition.
4 Non-housingloanshavebeendeterminedonaloanpurposebasis.
5 Spotbalances.
6 Half Year September 2015 and Half Year March 2015 have been adjusted to remove BTIM FUM previously consolidated. This
providesacomparableviewoftheperformanceofthebusiness.
2|WestpacGroup2016InterimResultsAnnouncement