Westpac Banking : 3Q22 Capital, Funding and Asset Quality slides (PDF 859KB)

3Q22

Capital, Credit Quality and Funding Update

This document should be read in conjunction with Westpac's June 2022 Pillar 3 Report. Contents principally covers and compares the 3Q22 and 1H22 quarterly average periods unless otherwise stated. All amounts are in Australian dollars.

FOR THE 3 MONTHS ENDED 30 JUNE 2022

WESTPAC BANKING CORPORATION

ABN 33 007 457 141

3Q22 Summary.	Summary

	• CET1 capital ratio 10.75% at Jun-22 (11.33% at Mar-22) lower
Capital	from dividend payment (45 bps), higher risk-weighted assets
	(RWA, 42 bps) and higher capital deductions
	• RWA up $18.0bn or 3.9% in 3Q22, mostly from higher interest
	rate risk in the banking book (IRRBB) RWA
	• Pro forma1 CET1 capital ratio 11.00%
	• Provision cover little changed. Total provisions to credit RWAs
Credit quality	1.25%, down 5bps over the quarter
	• Credit quality improved, stressed assets to TCE 1.06%, 4bps
	lower than Mar-22
	• Mortgage 90+ day delinquencies improved - Australia 0.83%
	(down 5bps), New Zealand 0.28% (down 2bps)
Funding and liquidity	• Funding and liquidity strong. LCR 130% and NSFR 123%
• Deposit to loan ratio 83.1%, compared to 83.5% at Mar-22

1 Reflecting divestments of Westpac Life Insurance, 17bps, (completed 1 August 2022) and Superannuation and Advance Asset Management Limited (AAML) businesses, 8bps, (sales have been announced but are not yet completed).

2 Westpac Group 3Q22 Capital, Credit Quality and Funding Update

CET1 capital ratio 10.75%, pro forma1 11.00%.

Capital

Level 2 CET1 capital ratio movements (%)			Key capital ratios (%)	Sep-21	Mar-22	Jun-22
							Level 2 CET1 capital ratio	12.32	11.33	10.75
See details on		3Q22 cash earnings partly offset by higher	Additional Tier 1 capital ratio	2.33	2.08	2.02
	deductions for capitalised software and
following page
		other regulatory deductions		Tier 1 capital ratio	14.65	13.41	12.77
							Tier 2 capital ratio	4.21	4.30	4.40
11.33	(0.45)	(0.42)	0.29	10.75	0.25	11.00	Total regulatory capital ratio	18.86	17.71	17.17
		Risk weighted assets
							437	460	478
							(RWA) ($bn)
							Leverage ratio	5.99	5.60	5.35
							Level 1 CET1 capital ratio2	12.59	11.23	10.59
							Internationally comparable ratios3
							Leverage ratio	6.6	6.1	5.8
							(internationally comparable)
							CET1 capital ratio	18.2	17.4	17.1
							(internationally comparable)
Mar-22	1H22	RWA	Other	Jun-22	Asset	Pro forma
	dividend				sales1	Jun-22

1 Reflecting divestments of Westpac Life Insurance, 17bps, (completed 1 August 2022) and Superannuation and AAML businesses, 8bps, (sales have been announced but are not yet completed). 2 The difference between the Level 1 CET1 capital ratio and Level 2 CET capital ratio is mainly due to APRA's treatment of the equity investment in Westpac New Zealand Limited under APS111. 3 Internationally comparable methodology aligns with the APRA study titled 'International Capital Comparison Study' dated 13 July 2015.

3 Westpac Group 3Q22 Capital, Credit Quality and Funding Update

Increased risk weighted assets mostly from higher IRRBB RWA. Capital

Risk weighted assets (RWA) ($bn)

				15.8	-	(0.6)	478.0
	460.0	2.6	0.2
436.7
			Up $18.0bn or 3.9%
Sep-21	Mar-22	Credit	Market	IRRBB	Operational	Other	Jun-22
		risk	risk		risk

Commentary

• RWA up $18.0bn over 3Q22
• IRRBB RWA up $15.8bn (37bps impact on capital) mainly from a higher regulatory embedded loss from increased market interest rates. An embedded loss occurs as Westpac's equity is invested over a three year investment horizon compared to the regulatory investment term of one year
• Credit RWA increased $2.6bn (6bps impact on capital) mainly from higher exposures across residential mortgages, specialised lending and corporates

Movement in credit risk weighted assets ($bn)

	Growth in mortgages, specialised				Improved credit quality metrics and
				model changes across corporate and
	lending and corporates
				business exposures

357.3	359.7	5.1	(3.0)	0.4	0.1	362.3
			Up $2.6bn or 0.7%

	Sep-21	Mar-22	Exposures	Credit quality and	FX translation	Conterparty credit and	Jun-22
				model changes		mark-to-market risk
4	Westpac Group 3Q22 Capital, Credit Quality and Funding Update

Impairment provision coverage remains strong.

Provisioning

Total impairment provisions1 ($m)

Provision coverage

Overlay

Stage 2 CAP 2

Stage 3 IAP3

5,007

647

3,922 791

171

818

1,606

1,578

1,131

Stage 1 CAP

Stage 3 CAP

4,682 4,544

1,136 911

794 725

1,262 1,441

Overlays reduced as some factors are now reflected in modelled economic scenarios

Lower stage 1 and 3 mainly from improved credit quality metrics

Higher stage 2 reflecting changes in modelled economic scenarios

	Mar-21Sep-21	Mar-22	Jun-22
Provisions to credit RWA	159bps	140bps	130bps	125bps
Provisions to TCE	51bps	44bps	40bps	38bps
IAP to impaired assets	47%	54%	48%	51%

Forecasts used in base case economic scenario4

	At Mar 2022	At Jun 2022
Forecast period
2022	2022	2023
GDP growth	5.5%	4.0%	2.0%
Unemployment	3.8%	3.3%	3.5%

943		989	946
412	832	501	521
Sep-19	Sep-21	Mar-22	Jun-22

Small increase, mainly in institutional lending

Residential property price	1.6%	(5.2%)	(7.8%)
increase/(decrease)5

1 Includes provisions for debt securities. 2 CAP is Collectively Assessed Provision. 3 IAP is Individually Assessed Provision. 4 Forecast provided by Westpac Economics as at 7 June 2022. GDP and residential property price growth is annual growth to December each year. Unemployment rate forecast is at year end. 5 Residential house price assumptions used in our modelling are from Westpac Economics but may not be identical to other published data due to timing and rolling averages.

5 Westpac Group 3Q22 Capital, Credit Quality and Funding Update