Westpac Banking : Pillar 3 Report (June 2022)

For personal use only

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

15 AUGUST 2022

Pillar 3 Report as at 30 June 2022

Westpac Banking Corporation ("Westpac") today provides the attached Pillar 3 Report (June 2022).

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

This document has been authorised for release by Tim Hartin, 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	18
Liquidity coverage ratio	21
Appendix
Appendix I | APS330 Quantitative requirements	22
Disclosure regarding forward-looking statements	23

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 June 2022 Pillar 3 Report

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Pillar 3 report

Executive summary

Key capital ratios

%	30 June 2022	31 March 2022	30 June 2021
Level 2 Regulatory capital structure
Common equity Tier 1 capital ratio	10.75	11.33	12.05
Additional Tier 1 capital ratio	2.02	2.08	2.16
Tier 1 capital ratio	12.77	13.41	14.21
Tier 2 capital ratio	4.40	4.30	4.19
Total regulatory capital ratio	17.17	17.71	18.40
APRA leverage ratio	5.35	5.60	5.92
Level 1 Common equity Tier 1 capital ratio	10.59	11.23	12.19

Westpac's Level 2 common equity Tier 1 (CET1) capital ratio was 10.75% at 30 June 2022. The CET1 capital ratio was lower than the CET1 capital ratio of 11.33% at 31 March 2022 due to payment of the 2022 interim dividend, an increase in interest rate risk in the banking book (IRRBB) risk weighted assets (RWA) from increased market interest rates over the quarter, and higher deductions for capitalised software and other regulatory deductions. These impacts were partly offset by the contribution of earnings over the quarter.

Risk Weighted Assets

$m	30 June 2022	31 March 2022	30 June 2021
Risk weighted assets at Level 2
Credit risk	362,279	359,673	358,249
Market risk	9,837	9,596	6,642
Operational risk	57,875	57,875	54,090
Interest rate risk in the banking book	43,498	27,710	12,155
Other	4,540	5,102	6,263
Total RWA	478,029	459,956	437,399
Total Exposure at Default	1,212,775	1,183,812	1,129,830

Total RWA increased $18.1 billion or 3.9% over the quarter with most of the increase in non-credit risk RWA.

Non-credit risk RWA were $15.5 billion higher mainly from a $15.8 billion increase in IRRBB RWA over the quarter. The increase in IRRBB RWA has mainly been driven by the regulatory embedded loss from increased market interest rates. A regulatory embedded loss occurs as Westpac's equity is invested over a three-year investment horizon, compared to the regulatory investment term of one year.

The $2.6 billion increase in credit risk RWA included:

• A $5.1 billion increase from higher lending across residential mortgages, specialised lending and corporates;
• A $0.4 billion increase for foreign currency translation impacts mostly from the depreciation of the Australian dollar against the United States dollar;
• A $0.1 billion increase associated with derivative exposures (counterparty credit risk and mark-to-market related credit risk); partly offset by
• A $3.0 billion decrease from improved credit quality metrics and model changes across corporate and business lending.

Additional Tier 1 Capital movements for third quarter 2022

On 21 June 2022 Westpac offered a new Additional Tier 1 Capital instrument, Westpac Capital Notes 9 (WCN 9). Westpac also announced that it would redeem $1.31 billion of Westpac Capital Notes 2 (WCN 2) on 23 September 2022. Under the offer, eligible holders of WCN 2 had the opportunity to reinvest their WCN 2 in WCN 9. At 30 June 2022 the offer had not been completed and had no impact on the Group's capital ratios. On 20 July 2022, Westpac issued $1.51 billion of WCN 9. The net impact of the issue of WCN 9 and redemption of WCN 2 is expected to add around 4 basis points to the Tier 1 capital ratio at 30 September 2022.

Tier 2 Capital movements for third quarter 2022

During the quarter, Westpac issued JPY 26 billion (approximately A$0.3 billion) of Tier 2 capital instruments which increased the total regulatory capital ratio by 6bps.

Westpac Group June 2022 Pillar 3 Report | 3

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Pillar 3 report

Executive summary

Exposure at Default

Exposure at default (EAD) increased $29.0 billion over the quarter primarily due to:

• A $10.2 billion increase in sovereign exposures due to an increase in liquid assets;
• A $8.5 billion increase in corporate exposures mainly from an increase in market-relatedoff-balance sheet exposures; and
• A $5.1 billion increase from residential mortgages.

Leverage Ratio

The leverage ratio represents the amount of Tier 1 capital relative to exposure1. At 30 June 2022, Westpac's leverage ratio was 5.35%, down 25 basis points since 31 March 2022. The decrease in the leverage ratio reflected higher balance sheet exposures and lower Tier 1 capital as a result of payment of the 2022 interim dividend.

Liquidity Coverage Ratio (LCR)

Westpac's average LCR for the quarter ending 30 June 2022 was 130% (31 March 2022: 137%)2 and continues to be comfortably above the regulatory minimum of 100%. The LCR decrease was mainly driven by a second reduction to Westpac's allocation of the Committed Liquidity Facility (CLF).

1. As defined under Attachment D of APS110: Capital Adequacy.
2. Calculated as a simple average of the daily observations over the quarter.

4 | Westpac Group June 2022 Pillar 3 Report