Westpac Banking : Pillar 3 Report for 30 June 2021 (PDF 462KB)

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.

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Pillar 3 report

Executive summary

Key capital ratios

%	30 June 2021	31 March 2021	30 June 2020
Level 2 Regulatory capital structure
Common equity Tier 1 capital ratio	12.0	12.3	10.8
Additional Tier 1 capital ratio	2.2	2.2	2.1
Tier 1 capital ratio	14.2	14.5	12.9
Tier 2 capital	4.2	3.9	3.1
Total regulatory capital ratio	18.4	18.4	16.0
APRA leverage ratio	5.9	6.3	5.9
Level 1 Common equity Tier 1 capital ratio	12.2	12.6	11.1

Westpac's Common equity Tier 1 (CET1) capital ratio was 12.0% at 30 June 2021. The CET1 ratio was lower than the CET1 ratio of 12.3% at 31 March 2021 due to payment of the 2021 interim dividend and a 2% increase in risk weighted assets (RWA). These impacts were partly offset by earnings over the quarter and divestments related to the sale of Coinbase Inc shares.

Risk Weighted Assets

$m	30 June 2021	31 March 2021	30 June 2020
Risk weighted assets at Level 2
Credit risk	358,249	347,127	373,675
Market risk	6,642	9,490	9,486
Operational risk	54,090	54,090	54,090
Interest rate risk in the banking book	12,155	11,998	6,849
Other	6,263	6,194	6,464
Total RWA	437,399	428,899	450,564
Total Exposure at Default	1,110,454	1,076,503	1,058,269

Total RWA increased $8.5 billion or 2.0% over the quarter from higher credit risk RWA partly offset by a decrease in non-credit RWA. The $11.1 billion increase in credit risk RWA included:

• A $4.7 billion increase from higher lending, mostly residential mortgage lending and from a rise in corporate lending facilities;
• A $6.9 billion increase from mortgage RWA. At 30 June 2021 Westpac has chosen to apply an overlay to our modelled outcomes to increase the mortgage risk weight floor to 25%. This is to reflect the anticipated unwind of temporary COVID-19 stimulus effects and our expectation that mortgage risk weights will rise from APRA's capital changes;
• Foreign currency translation impacts increased RWA by $0.8 billion mostly from the depreciation of the A$ against the and NZ$; partially offset by;
• A $0.6 billion decrease from improved credit quality metrics; and
• A decrease in credit RWA associated with derivative exposures (counterparty credit risk and mark-to- market related credit risk) of $0.7 billion.

Non-credit risk RWA was $2.6 billion lower, mainly due to a $2.8 billion decrease in market risk RWA as the volatile period around March 2020 (related to the onset of COVID-19) rolled out of the one-year Value at Risk (VaR) lookback window.

Tier 2 Capital movements for third quarter 2021

On 13 May 2021, Westpac issued EUR 1.0 billion (approximately A$1.6 billion) Tier 2 capital instruments increasing our total capital ratio by approximately 37 basis points.

Exposure at Default

Exposure at default (EAD) increased $34.0 billion over the quarter, primarily due to an increase in exposure to sovereigns ($18.3 billion) due to higher liquid assets, residential mortgage lending ($12.5 billion) and corporate lending facilities ($2.9 billion).

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Pillar 3 report

Executive summary

Leverage Ratio

Westpac's leverage ratio was 5.9%, down 35 basis points since 31 March 2021. The decline in the ratio was mainly due to an increase in total exposures1 by 5.4%.

Liquidity Coverage Ratio (LCR)

Westpac's average LCR for the quarter ending 30 June 2021 was 127% (quarter ending 31 March 2021: 124%)2.

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

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Pillar 3 report

Introduction

Westpac Banking Corporation is an Authorised Deposit-taking Institution (ADI) subject to regulation by the Australian Prudential Regulation Authority (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.

In addition to this report, the regulatory disclosures section of the Westpac website1 contains the reporting requirements for:

• Capital instruments under Attachment B of APS330; and
• The identification of potential Global-Systemically Important Banks (G-SIB) under Attachment H of APS330 (disclosed annually).

Capital instruments disclosures are updated when:

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

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