Westpac Banking : Pillar 3 Report (December 2021)

For personal use only

ASX Release	Level 18, 275 Kent Street
	Sydney, NSW, 2000

3 FEBRUARY 2022

Pillar 3 Report as at 31 December 2021

Westpac Banking Corporation ("Westpac") today provides the attached Pillar 3 Report (December 2021).

For further information:
Hayden Cooper	Andrew Bowden
Group Head of Media Relations	Head of Investor Relations
0402 393 619	0438 284 863

This document has been authorised for release by Tim Hartin, General Manager & Company Secretary.

For personal use only

For personal use only

Pillar 3 report

Table of contents

Structure of Pillar 3 report

Executive summary	3
Introduction	5
Group structure	6
Capital overview	8
Leverage ratio	12
Credit risk exposures	13
Securitisation	17
Liquidity coverage ratio	20
Appendix
Appendix I | APS330 Quantitative requirements	21
Disclosure regarding forward-looking statements	22

In this report references to 'Westpac', 'Westpac Group', 'the Group', 'we', 'us' and 'our' are to Westpac Banking Corporation and its controlled entities (unless the context indicates otherwise).

In this report, unless otherwise stated or the context otherwise requires, references to '$', 'AUD' or 'A$' are to Australian dollars.

Any discrepancies between totals and sums of components in tables contained in this report are due to rounding.

In this report, unless otherwise stated, disclosures reflect the Australian Prudential Regulation Authority's (APRA) implementation of Basel III.

Information contained in or accessible through the websites mentioned in this report does not form part of this report unless we specifically state that it is incorporated by reference and forms part of this report. All references in this report to websites are inactive textual references and are for information only.

2 | Westpac Group December 2021 Pillar 3 Report

For personal use only

Pillar 3 report

Executive summary

Key capital ratios

	31 December 2021	30 September 2021	31 December 2020
Level 2 Regulatory capital structure
Common equity Tier 1 capital after deductions $m	53,976	53,808	51,048
Risk weighted assets $m	442,411	436,650	430,232
Common equity Tier 1 capital ratio %	12.20	12.32	11.87
Additional Tier 1 capital ratio %	2.17	2.33	2.30
Tier 1 capital ratio %	14.37	14.65	14.17
Tier 2 capital %	4.83	4.21	3.72
Total regulatory capital ratio %	19.20	18.86	17.89
APRA leverage ratio %	5.80	5.99	6.19
Level 1 Regulatory capital structure
Common equity Tier 1 capital after deductions $m	54,220	54,314	51,622
Risk weighted assets $m	438,046	431,422	426,566
Level 1 Common equity Tier 1 capital ratio %	12.38	12.59	12.10

Common equity Tier 1 capital ratio movement for First Quarter 2022 (% and basis points)

Westpac's Common Equity Tier 1 (CET1) capital ratio was 12.20% at 31 December 2021, 12 basis points lower than 30 September 2021. Key movements in the CET1 capital ratio over the quarter were:

• 1Q22 cash earnings of $1,584 million (35 basis points increase);
• Payment of the 2021 final dividend (50 basis points decrease);
• An increase in Risk Weighted Assets (RWA) (21 basis points decrease) mostly from higher market risk RWA and higher lending;
• Capital deductions and other capital movements (20 basis points increase) mainly due to lower deferred tax assets, movements in the fair value on economic hedges recognised in net profit and a decrease in the capital deduction for regulatory expected losses in excess of provisions; and
• A 4 basis points increase from the impact of divestments.

Westpac Group December 2021 Pillar 3 Report | 3

For personal use only

Pillar 3 report

Executive summary

Risk Weighted Assets

$m	31 December 2021	30 September 2021	31 December 2020
Risk weighted assets at Level 2
Credit risk	359,773	357,295	349,844
Market risk	9,202	6,662	9,607
Operational risk	56,214	55,875	54,090
Interest rate risk in the banking book	12,190	11,446	10,309
Other	5,032	5,372	6,382
Total RWA	442,411	436,650	430,232
Total Exposure at Default	1,164,183	1,134,083	1,063,136

Total RWA increased $5.8 billion or 1.3% over the quarter from both higher credit risk RWA and non-credit RWA. The $2.5 billion increase in credit risk RWA included:

• A $6.1 billion increase mainly from higher lending across corporates, specialised lending and residential mortgages, partially offset by;
• A $1.8 billion decrease in credit RWA associated with derivative exposures (counterparty credit risk and mark-to-market related credit risk);
• A $1.1 billion decrease from the sale of Westpac's wholesale dealer loan book; and
• A $0.7 billion decrease in RWA for foreign currency translation impacts mostly from the appreciation of the A$ against the US$ and NZ$.

Non-credit risk RWA was $3.3 billion higher, mainly due to a $2.5 billion increase in market risk RWA. The increase was mainly driven by the introduction of an industry-wide overlay for updated market risk models which require regulatory approval.

Additional Tier 1 and Tier 2 Capital movements for First Quarter 2022

On 20 December 2021, Westpac redeemed approximately $0.55 billion Westpac Capital Notes 4 (WCN 4) that remained on issue1. The net impact was a decrease in Tier 1 capital of approximately 12 basis points.

During the quarter, Westpac issued US$2.25 billion Tier 2 capital instruments. The net impact was an increase in the total regulatory capital ratio of approximately 72 basis points.

Exposure at Default

Exposure at default (EAD) increased $30.1 billion over the quarter, primarily due to an increase in exposure to sovereigns ($25.2 billion) from higher liquid assets, residential mortgage lending ($3.4 billion) and specialised lending ($2.0 billion).

Leverage Ratio

The leverage ratio represents the amount of Tier 1 capital relative to exposure2. At 31 December 2021, Westpac's leverage ratio was 5.8%, down 19 basis points since 30 September 2021 mainly from higher on- balance sheet liquid asset exposures.

Liquidity Coverage Ratio (LCR)

Westpac's average LCR for the quarter ending 31 December 2021 was 142% (30 September 2021: 129%)3.

1. On 15 September 2021, Westpac issued $1.75 billion of Additional Tier 1 capital (Westpac Capital Notes 8), of which approximately $1.15 billion comprised reinvestment by the holders of WCN 4. The remaining $0.55 billion of WCN 4 were redeemed on 20 December 2021.
2. As defined under Attachment D of APS110: Capital Adequacy.
3. Calculated as a simple average of the daily observations over the relevant quarter.
4. | Westpac Group December 2021 Pillar 3 Report