05/03/2021 | Press release | Distributed by Public on 05/03/2021 04:15
Appendix II - Entities included in regulatory consolidation | 93 |
Appendix III - Level 3 entities' assets and liabilities | 96 |
Appendix IV - Regulatory expected loss | 97 |
Appendix V - APS330 quantitative requirements | 98 |
Glossary | 101 |
Disclosure regarding forward-looking statements | 106 |
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 March 2021 Pillar 3 report |
Pillar 3 report Executive summary |
Key capital ratios
31 March 2021 | 30 September 2020 | 31 March 2020 | |
Level 2 Regulatory capital structure | |||
Common equity Tier 1 capital after deductions $m | 52,932 | 48,733 | 47,982 |
Risk weighted assets $m | 428,899 | 437,905 | 443,905 |
Common equity Tier 1 capital ratio % | 12.34 | 11.13 | 10.81 |
Additional Tier 1 capital ratio % | 2.21 | 2.10 | 2.13 |
Tier 1 capital ratio % | 14.55 | 13.23 | 12.94 |
Tier 2 capital % | 3.88 | 3.15 | 3.35 |
Total regulatory capital ratio % | 18.43 | 16.38 | 16.29 |
APRA leverage ratio % | 6.27 | 5.78 | 5.66 |
Level 1 Regulatory capital structure | |||
Common equity Tier 1 capital after deductions $m | 53,313 | 49,453 | 48,482 |
Risk weighted assets $m | 424,656 | 433,727 | 437,137 |
Level 1 Common equity Tier 1 capital ratio % | 12.55 | 11.40 | 11.09 |
Common equity Tier 1 capital ratio movement for First Half 2021 (basis points)
Westpac's Common Equity Tier 1 (CET1) capital ratio was 12.34% at 31 March 2021, 121 basis points higher than 30 September 2020. Key movements in the CET1 capital ratio over the half were:
• | First Half 2021 cash earnings of $3,537 million (82 basis point increase); |
• | A decline in Risk Weighted Assets (RWA) (20 basis point increase) mostly from a decrease in credit risk RWA from a reduction in lending and an improvement in credit metrics; |
• | Capital deductions and other capital movements (12 basis point increase) from lower deferred tax assets and from higher other comprehensive income from a revaluation of debt securities. This was partly offset by higher earnings held in entities that are not consolidated for regulatory purposes which are deducted from capital; |
• |
Foreign currency impacts from the appreciation of the A$ against the US$ and NZ$ (1 basis point decrease)1; and |
• |
An 8 basis points increase from the sale of Westpac's stake in Zip Co Limited. |
Payment of Westpac's 2020 final dividend had no net impact on capital as the dividend reinvestment plan was fully underwritten. On 18 December 2020 Westpac issued 56.9 million new ordinary shares (Shares) ($1.12 billion) comprising 20.2 million Shares ($401 million) to participants in the dividend reinvestment plan (approximately 36% participation rate) and 36.7 million Shares ($719 million) to the underwriter.
1 |
Reflecting the net impact of movements in the foreign currency translation reserve and RWA |
Westpac Group March 2021 Pillar 3 report | 3 |
Pillar 3 report Executive summary |
Risk Weighted Assets (RWA)
$m | 31 March 2021 | 30 September 2020 | 31 March 2020 |
Risk weighted assets at Level 2 | |||
Credit risk | 347,127 | 359,389 | 369,142 |
Market risk | 9,490 | 8,761 | 8,396 |
Operational risk | 54,090 | 54,090 | 54,093 |
Interest rate risk in the banking book | 11,998 | 9,124 | 5,305 |
Other | 6,194 | 6,541 | 6,969 |
Total RWA | 428,899 | 437,905 | 443,905 |
Total Exposure at Default | 1,076,503 | 1,062,238 | 1,089,104 |
Total RWA decreased $9.0 billion or 2.1% over the half from lower credit risk RWA partially offset by an increase in non-credit RWA.
The $12.3 billion decline in credit risk RWA included:
• | A $1.6 billion decrease from lower lending, mostly from the further reduction in Trade Finance in Asia, as we consolidated our international operations along with lower personal, auto and business lending. This was partially offset by an increase in residential mortgage exposure over the half; |
• | A $4.4 billion decrease from improved credit metrics driven by lower stressed assets, mainly across small business and corporate lending; |
• | A $1.6 billion reduction in the RWA overlay for corporate, business and specialised lending. This overlay balance is currently $0.4 billion and was established in June 2020 to take account of facilities where reviews had not been completed. The overlay will be reassessed as customer reviews are completed; |
• | A methodology change within business lending which decreased RWA by $1.0 billion; |
• | Foreign currency translation impacts which decreased RWA by $1.4 billion mostly from the appreciation of the A$ against the US$ and NZ$; and |
• | A decrease in credit RWA associated with derivative exposures (counterparty credit risk and mark-to-market related credit risk) of $2.3 billion mainly due to market and collateral movements. |
At 31 March 2021 Westpac applied a floor of 23.8% to its mortgage risk weights in response to the temporary positive effects of COVID-19 stimulus and support measures on customer account behaviours. The floor is consistent with the mortgage risk weight at 30 September 2020 and has resulted in a $3.7 billion increase in mortgage RWA.
Non-credit risk RWA increased by $3.3 billion mainly due to a $2.9 billion increase in Interest Rate Risk in the Banking Book (IRRBB). IRRBB has increased as the embedded gain balance has declined over the period as historical interest rate hedges that were entered into at higher interest rates have matured.
Additional Tier 1 and Tier 2 Capital movements for first half 2021
On 4 December 2020, Westpac issued $1.72 billion of Additional Tier 1 capital (Westpac Capital Notes 7), of which approximately $0.87 billion comprised reinvestment by the holders of Westpac Capital Notes 3 (WCN 3). On 22 March 2021, Westpac redeemed approximately $0.46 billion WCN 3 that remained on issue. The net impact was an increase in Tier 1 capital of approximately 9 basis points.
During the half, Westpac issued US$2.5 billion and A$1.25 billion of Tier 2 capital. Westpac also redeemed A$0.7 billion of Tier 2 capital instruments. The net impact was an increase in the total regulatory capital ratio of approximately 90 basis points. These issues will assist to meet APRA's increased total capital requirements that must be achieved by 1 January 2024.
Exposure at Default
Exposure at default (EAD) increased $14.3 billion over the half, primarily due to an increase in exposure to sovereigns and residential mortgages. This was partly offset by further reduction in Trade Finance in Asia, as we consolidated our international operations along with lower personal, auto and business lending.
Leverage Ratio
The leverage ratio represents the amount of Tier 1 capital relative to exposure1. At 31 March 2021, Westpac's leverage ratio was 6.27%, up 49 basis points since 30 September 2020.
1 | As defined under Attachment D of APS110: Capital Adequacy. |
4 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report Executive summary |
Liquidity Coverage Ratio (LCR)
Westpac's average LCR for the quarter ending 31 March 2021 was 124% (quarter ending 30 September 2020: 151%)1, 2.
Net Stable Funding Ratio (NSFR)
Westpac had an NSFR of 122.5%3 as at 31 March 2021 (31 December 2020: 122.3%).
1 | Calculated as a simple average of the daily observations over the relevant quarter. |
2 | Effective 1 January 2021, the Group is required by APRA to increase the value of its net cash outflows by 10% for the purpose of calculating LCR. As of 31 March 2021, the average impact over the quarter to the LCR is a reduction by 12.4 percentage points. |
3 |
Calculated as total available stable funding divided by total required stable funding as at end of the quarter. |
Westpac Group March 2021 Pillar 3 report | 5 |
Pillar 3 report Introduction |
Westpac Banking Corporation is an Authorised Deposit-taking Institution (ADI) subject to regulation by 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.
This report describes Westpac's risk management practices and presents the prudential assessment of Westpac's capital adequacy as at 31 March 2021.
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/ |
6 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report Risk appetite and risk types |
Westpac's appetite for risk is informed by our strategic objectives and business plans, regulatory rules and ratios, and the potential for adverse outcomes that result in material impacts on our customers, our staff, our reputation, our regulatory relationships and/or our financial position including the potential for capital and liquidity ratios to fall below target levels in stressed scenarios.
Westpac distinguishes between different types of risk and takes an integrated approach toward identifying, assessing and managing risks. The annual review of Westpac's Risk Management Framework, which includes the Risk Management Strategy and Risk Appetite Statement, together with the establishment and monitoring of key controls through supporting frameworks and policies all play vital roles.
Overview of key risk types
• |
risk culture - the risk that our culture does not promote and reinforce behavioural expectations or structures to identify, understand, discuss and act on risks. This leads to ineffective risk management, poor risk awareness, risk-taking outside of risk appetite that is tolerated and a culture where key learnings are not integrated into Group-wide and customer outcomes, impeding continuous improvement; |
• | strategic risk - the risk that Westpac makes incomplete strategic choices, does not implement its strategies successfully, or does not respond effectively to changes in the operating environment; |
• | capital adequacy risk - the risk that Westpac has an inadequate level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions; |
• | funding and liquidity risk - the risk that Westpac cannot meet its payment obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets; |
• | credit risk - the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac; |
• | market risk - the risk of an adverse impact on earnings resulting from changes in the value of Westpac's positions as a result of a change in financial market factors, such as foreign exchange rates, interest rates, commodity prices and equity prices. This includes interest rate risk in the banking book - the risk to interest income from a mismatch between the duration of assets and liabilities that arises in the normal course of business activities; |
• | operational risk - the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The definition excludes strategic risk. While legal risk and regulatory risk arise through inadequate or failed processes, people and systems or from external events, these are reflected primarily in compliance and conduct risk; |
• | cyber risk - the risk that Westpac or its third parties' data or technology are inappropriately accessed, manipulated or damaged from cybersecurity threats or vulnerabilities; |
• | compliance and conduct risk - the risk of failing to abide by compliance obligations required of us or otherwise failing to have behaviours and practices that deliver suitable, fair and clear outcomes for our customers and that support market integrity; |
• | reputational and sustainability risk − the risk that an action, inaction, transaction, investment or event will reduce trust in Westpac's integrity and competence by clients, counterparties, investors regulators, employees or the public; and |
• | financial crime risk - the risk that Westpac fails to prevent financial crime and comply with applicable global financial crime regulatory obligations. |
Westpac Group March 2021 Pillar 3 report | 7 |
Pillar 3 report Controlling and managing risk |
We have adopted and continue to embed a Three Lines of Defence model to aid in end-to-end management of risk, within which all employees play an active role. We have put in place a risk management framework that seeks to:
• | deliver suitable, fair and clear outcomes for our customers that support market integrity; |
• | protect Westpac's depositors, policyholders and investors by maintaining a balance sheet with sound credit quality and buffers over regulatory minimums; and |
• | meet our regulatory and statutory obligations. |
The Board is responsible for approving Westpac's overall Risk Management Framework for managing financial and non-financial risk, including the Westpac Group Risk Management Strategy and the Westpac Group Risk Appetite Statement and for monitoring the effectiveness of risk management by Westpac.
The Board has delegated to the Board Risk Committee responsibility to: establish a view of the Group's current and future risk position relative to its risk appetite and capital strength; review and approve frameworks and policies for managing risk; and review and, where appropriate, approve risks beyond the approval discretion provided to management.
In June 2020, the Board Legal, Regulatory & Compliance Committee was established as a sub-committee of the Board Risk Committee to assist with overseeing financial crime risk, material litigation and regulatory investigations, customer remediation activities and customer complaints, compliance and conduct risk and material legal and regulatory change relevant to the Group.
Risk management governance structure as at 31 March 2021
Board | • |
approves our overall risk management framework - the Westpac Group Risk Management Framework, the Westpac Group Risk Management Strategy and the Westpac Group Risk Appetite Statement and monitors the effectiveness of risk management by Westpac; and |
• |
makes an annual declaration to APRA on risk management in accordance with regulatory requirements. |
|
Board Risk Committee (BRiskC) | • |
assists the Board to consider and approve Westpac's overall risk framework for managing financial and non-financial risks; |
• |
reviews and oversees the risk culture across Westpac; |
|
• |
reviews and recommends the Westpac Group Risk Management Framework, the Westpac Group Risk Management Strategy and the Westpac Group Risk Appetite Statement to the Board for approval on an annual basis; |
|
• | reviews and monitors Westpac's risk profile and controls for consistency with the Westpac Group Risk Appetite Statement and assists the Board to set the risk appetite for material risks; | |
• |
reviews and approves material frameworks, policies and processes for managing risk; |
|
• | oversees and approves the Group's Recovery Plan; | |
• |
reviews and approves the limits and conditions that apply to credit risk approval authority delegated to the CEO, CFO, CRO and any other officers of Westpac to whom the Board has delegated credit approval authority; |
|
• |
monitors changes anticipated for the economic and business environment including consideration of emerging risks, and other factors considered relevant to our risk profile and risk appetite; |
|
• |
assists the Board to make its annual declaration to APRA on risk management under APRA prudential standard CPS220 Risk Management; |
|
• | reviews and where appropriate approves risks beyond the approval discretion provided to management; and | |
• | assists the Board to oversee compliance management within Westpac. |
8 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Controlling and managing risk
Risk management governance structure (continued)
From the perspective of specific types of risk, the Board Risk Committee's role includes: | ||
• | credit risk - reviewing and approving material policies and limits supporting the Westpac Group Credit Risk Management Framework, approving credit provisioning, and monitoring the risk profile, performance and management of our credit portfolio; | |
• | funding and liquidity risk - reviewing and approving key policies and limits supporting the Westpac Group Liquidity Risk Management Framework including our annual funding strategy, liquidity targets and limits and monitoring the liquidity position and requirements; | |
• | capital adequacy risk - reviewing and approving the Capital Adequacy Risk Management Framework along with supporting key policies. Oversee and approve the Internal Capital Adequacy Assessment Process (ICAAP); | |
• | market risk - reviewing and approving key policies and limits supporting the Westpac Group Market Risk Management Framework and reviewing and monitoring the market risk performance, exposures and risk positions; | |
• | operational risk - reviewing and approving key policies supporting the Westpac Group Operational Risk Management Framework, and monitoring the performance of operational risk management and controls; and | |
• | reputation and sustainability risk - reviewing and approving the Westpac Group Reputation Risk and Sustainability Risk Management Frameworks, and monitoring the associated management of these risks. | |
The Board Risk Committee also: | ||
• | oversees and approves the Internal Capital Adequacy Assessment Process and in doing so reviews and recommends the target capital ranges for regulatory capital and reviews and monitors capital levels for consistency with Westpac's risk appetite; | |
• | oversees and approves Westpac's stress testing, including review and approval of the material scenarios adopted and monitors material stress testing results and management responses; | |
• | provides relevant periodic assurances and reports (as appropriate) to the Board Audit Committee; | |
• | reviews and approves other risk management frameworks and/or the monitoring of performance under those frameworks (as appropriate); | |
• | forms a view on Westpac's risk culture and the extent to which it supports the ability of Westpac to operate consistently within the Westpac Group's Risk Management Framework and the Westpac Group Risk Appetite Statement and oversees the identification of, and steps taken to address, any desirable changes to risk culture and periodically reports to the Board; | |
• | refers or recommends to the Board and any other Board Committees (as appropriate) any matters that have come to the attention of the Board Risk Committee that are relevant for the Board or the respective Board Committee; and | |
• | in its capacity as the Westpac Group's US Risk Committee, oversees the key risks, risk management framework and policies of Westpac's US operations. | |
Westpac Group March 2021 Pillar 3 report | 9 |
Pillar 3 report
Controlling and managing risk
Risk management governance structure (continued)
Board Legal, Regulatory and Compliance Committee (BLRCC) | Assist the Board Risk Committee as it oversees: | ||
• | material legal and regulatory change relevant to Westpac; | ||
• | Westpac's management of: | ||
○ | material litigation (including class actions) and regulatory investigations; | ||
○ | compliance; | ||
○ | conduct risk; | ||
○ | financial crime risk; | ||
○ | customer remediation activities and customer complaints; and | ||
○ | such other operational risk activities as are delegated to the Board Legal, Regulatory & Compliance Committee by the Board Risk Committee. | ||
From the perspective of specific types of risk, the BLRCC role includes: | |||
• | financial crime risk - reviewing and approving the Financial Crime Risk Management Framework and key supporting policies and standards, including receiving information regarding material breaches of Westpac's Anti-Bribery and Corruption (ABC) Policy and monitoring Westpac's financial crime risk performance and controls; and | ||
• | compliance and conduct risk - reviewing and approving Westpac's Compliance and Conduct Risk Management Framework and key supporting policies and standards, and reviewing and monitoring Westpac's risk performance and controls. | ||
Board Committees with a Risk Focus | Board Audit Committee (BAC) | ||
• | oversees the integrity of the financial statements, financial reporting systems, and the Group's corporate reporting including the Group's financial reporting, and compliance with prudential regulatory reporting and professional accounting requirements and matters relating to taxation risks. | ||
Board Remuneration Committee (BRC) | |||
• | oversees remuneration policies and practices of Westpac, in the context that these policies and practices reflect Westpac's risk management framework, including making recommendations to the Board for the reduction or lapsing of incentive-based equity grants to employees as a result of risk or compliance failures. | ||
Board Technology Committee (BTC) | |||
• | oversees the implementation of Westpac's technology and data strategy and oversees the implementation of programs within the Enterprise Change Portfolio including monitoring the delivery of the major technology related transformation programs. | ||
Executive Team | Westpac Executive Team (ET) | ||
• | executes the Board-approved strategy; | ||
• | delivers Westpac's various strategic and performance goals within the approved risk appetite; | ||
• | approves position statements that guide Westpac's response to sustainability issues; and | ||
• | monitors key risks within each business unit, capital adequacy and Westpac's reputation. | ||
10 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Controlling and managing risk
Risk management governance structure (continued)
Executive risk committees | Westpac Group Executive Risk Committee (RISKCO) | |
• | leads the management and oversight of material risks across Westpac within the context of the risk appetite approved by the Board; | |
• | oversees the effectiveness of the Risk Management Framework and the execution of the Risk Management Strategy; | |
• | monitors and reviews Westpac's risk profile for all identified material risks; | |
• | shapes and promotes a strong risk culture; and | |
• | oversees emerging risks and allocates responsibility for assessing impacts and implementing appropriate actions to address these; | |
Westpac Group Executive Technical Risk Committee | ||
• | reviews, supports, approves and monitors risk class risk management frameworks and key supporting policies; | |
• | monitors the review of risk models, model risk and capital measurements and methodologies; and | |
• | monitors and reviews stress testing and scenario analysis; and | |
• | supports the Internal Capital Adequacy Assessment Process and Recovery Plan for approval by the Board Risk Committee. | |
Westpac Group Asset & Liability Committee (ALCO) | ||
• | leads the optimisation of funding and liquidity risk-reward across Westpac; | |
• | reviews the level and quality of capital to ensure that it is commensurate with Westpac's risk profile, business strategy and risk appetite; | |
• | oversees the Liquidity Risk Management Framework and key policies; | |
• | oversees the funding and liquidity risk profile and balance sheet risk profile; and | |
• | identifies emerging funding and liquidity risks and appropriate actions to address these. | |
Westpac Group Credit Risk Committee (CREDCO) | ||
• | reviews and oversees the Credit Risk Management Framework and key supporting policies; | |
• | oversees Westpac's credit risk profile; | |
• | oversees the Climate Change Financial Risk Committee, which is chaired by the Group Chief Credit Officer and is responsible for the oversight of climate-related credit risk, including the potential impact on credit exposures from climate change-related transition and physical risks; and | |
• | identifies emerging credit risks, allocates responsibility for assessing impacts, and responds as appropriate. | |
Westpac Group Market Risk Committee (MARCO) | ||
• | reviews and oversees the Market Risk Management Framework and key market risk management policies; | |
• | reviews policies and limits for managing traded and non-traded market risk; and | |
• | reviews and oversees the market risk, equity risk and insurance risk profile. | |
Westpac Group Operational and Compliance Risk Committee (OPCO) | ||
• | reviews and oversees the Operational Risk Management Framework and the Compliance and Conduct Risk Management Framework, and key supporting policies; | |
• | oversees Westpac's operational risk and conduct and compliance risk profiles; and | |
• | identifies emerging operational, conduct and compliance risks and appropriate actions to address these. | |
Westpac Group March 2021 Pillar 3 report | 11 |
Pillar 3 report
Controlling and managing risk
Risk management governance structure (continued)
Westpac Group Remuneration Oversight Committee (ROC) | ||
• | supporting the CEO, BRC and the Board by reviewing and approving remuneration frameworks, guidelines and short term variable reward plans underpinning the Board-approved Westpac Group Remuneration Policy from a Human Resources, Risk (including Compliance), Finance and Legal perspective and in line with external requirements; | |
• | assisting the BRC and the Board in fulfilling its responsibility to oversee remuneration policies and practices of Westpac in the context that these policies and practices fairly and responsibly reward individuals having regard to customer and shareholder interests, long term financial soundness and prudent risk management; | |
• | recommending to the CEO for recommendation to the BRC remuneration arrangements including remuneration review and remuneration adjustment outcomes for Responsible Persons, risk and financial control employees, Material Risk Takers and other individuals whose activities may impact the financial soundness of Westpac below the Group Executive level; and | |
• | recommending to the CEO for recommendation to the BRC the criteria and rationale for determining the total quantum of Westpac's variable reward pool. | |
Prudential Reporting and Compliance Committee | ||
• | oversees from a Group-wide perspective, Westpac's compliance with prudential requirements and regulatory reporting; | |
• | oversees the effective management of prudential compliance breaches, incidents and issues including remediation actions; and | |
• | monitors and reviews ongoing prudential governance activities, including changes to prudential standards. | |
Reputation Risk Committee | ||
• | reviews issues with material reputation risk that arise in the operations of Westpac's business to mitigate reputation risk and detrimental customer impacts. | |
Westpac Group Financial Crime Risk and Compliance Committee | ||
• | oversees Anti-Money Laundering and Counter-Terrorism Financing, Anti-Bribery and Corruption, Sanctions and Tax Transparency within the context of the risk appetite approved by the Board; | |
• | reviews and oversees the Financial Crime Risk Management Framework, key supporting policies, programs and standards; | |
• | monitors and oversees Westpac's financial crime risk profile; and | |
• | identifies emerging financial crime risks, and appropriate actions to address these. | |
12 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Controlling and managing risk
Risk management governance structure (continued)
Risk function | Risk Function | |
• | promotes a strong risk culture; | |
• | owns the design and content of the Risk Management Framework; | |
• | defines the structure and coverage of risk appetite; | |
• | defines the annual risk strategy to execute the Risk Management Framework ensuring that the management of risks is in alignment with risk appetite and business strategy; | |
• | establishes risk policies, procedures and limits; | |
• | measures and reports on risk levels; and | |
• | provides oversight of and direction on the management of risks. | |
Independent internal review | Group Audit | |
• | reviews the adequacy and effectiveness of management controls over risk. | |
Divisional business units and Functions | Business Units and Functions | |
• | responsible for identifying, evaluating and managing the risks that they originate within approved risk appetite and policies; and | |
• | establish and maintain appropriate risk management and compliance controls, resources and self-assessment processes. | |
Westpac Group March 2021 Pillar 3 report | 13 |
Pillar 3 report
Controlling and managing risk
Roles and responsibilities
Our Three Lines of Defence approach is designed on a functional basis and covers all employees within Westpac.
The 1st Line of Defence - Business: manages the risks they originate
The 1st Line proactively identifies, evaluates, owns and manages the risks in their business/domain. It also seeks to ensure that business activities are within approved risk appetite and policies. This accountability cannot be abrogated. The 1st Line of defence is accountable for 'self-certification'.
In managing its risk, the 1st Line is required to establish and maintain appropriate governance structures, controls, resources and self-assessment processes, including issue identification, recording and escalation procedures.
The 2nd Line of Defence - Risk: provides oversight, insight and control of 1st Line activities
The 2nd Line sets frameworks, controls (including policies and limits), and standards for use across the Group. The 2nd Line can require remediation or cessation of activity where these are not adhered to. Their approach is intended to be risk-based and proportionate to 1st Line activities.
The 2nd Lines role is to review and challenge 1st Line activities and decisions that may materially affect Westpac's risk position, and independently evaluates the effectiveness of the 1st Line's controls, monitoring, compliance, and monitors progress towards mitigating risks. In addition, the 2nd Line provides insight to the 1st Line, assisting in developing, maintaining and enhancing the Business' approach to risk management.
The 2nd Line considers and reports the aggregated risk profile of the Group to facilitate end-to-end oversight of risk.
The 3rd Line of Defence - Audit: provides independent audit
Group Audit is Westpac's internal 3rd Line assurance function that provides Board and Executives with independent and objective evaluation of the adequacy and effectiveness of the Group's governance, risk management and internal controls.
14 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Group Structure
APRA applies a tiered approach to measuring Westpac's capital adequacy1 by assessing financial strength at three levels:
• | Level 1, comprising Westpac Banking Corporation and its subsidiary entities that have been approved by APRA as being part of a single 'Extended Licensed Entity' (ELE) for the purposes of measuring capital adequacy; |
• | Level 2, the consolidation of Westpac Banking Corporation and all its subsidiary entities except those entities specifically excluded by APRA regulations. The head of the Level 2 group is Westpac Banking Corporation; and |
• | Level 3, the consolidation of Westpac Banking Corporation and all its subsidiary entities. |
Unless otherwise specified, all quantitative disclosures in this report refer to the prudential assessment of Westpac's financial strength on a Level 2 basis2.
The Westpac Group
The following diagram shows the Level 3 conglomerate group and illustrates the different tiers of regulatory consolidation.
Accounting consolidation3
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries (including structured entities) controlled by Westpac. Westpac and its subsidiaries are referred to collectively as the 'Group'. The effects of all transactions between entities in the Group are eliminated on consolidation. Control exists when the parent entity is exposed to, or has rights to, variable returns from its involvement with an entity, and has the ability to affect those returns through its power over that entity. Subsidiaries are fully consolidated from the date on which control commences and they are no longer consolidated from the date that control ceases.
Group entities excluded from the regulatory consolidation at Level 2
Regulatory consolidation at Level 2 covers the global operations of Westpac and its subsidiary entities, including other controlled banking, securities and financial entities, except for those entities involved in the following business activities:
• | insurance; |
• | acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds management; |
• | non-financial (commercial) operations; or |
• | special purpose entities to which assets have been transferred in accordance with the requirements of APS120 Securitisation. |
Retained earnings and equity investments in subsidiary entities excluded from the consolidation at Level 2 are deducted from capital, with the exception of securitisation special purpose entities.
1 | APS110 Capital Adequacy outlines the overall framework adopted by APRA for the purpose of assessing the capital adequacy of an ADI. |
2 | Impaired assets and provisions held in Level 3 entities are excluded from the tables in this report. |
3 | Refer to Note 31 of Westpac's 2020 Annual Report for further details. |
Westpac Group March 2021 Pillar 3 report | 15 |
Pillar 3 report
Group structure
Subsidiary banking entities
Westpac New Zealand Limited (WNZL), a wholly owned subsidiary entity, is a registered bank incorporated in New Zealand and regulated by the Reserve Bank of New Zealand (RBNZ). WNZL uses the Advanced IRB approach for credit risk and the AMA for operational risk. Other subsidiary banking entities in the Group include Westpac Europe Limited. For the purposes of determining Westpac's capital adequacy subsidiary banking entities are consolidated at Level 2.
Restrictions and major impediments on the transfer of funds or regulatory capital within the Group
Minimum capital ('thin capitalisation') rules
Tax legislation in most jurisdictions in which the Group operates prescribes minimum levels of capital that must be retained in that jurisdiction to avoid a portion of the interest costs incurred in the jurisdiction ceasing to be tax deductible. Capital for these purposes includes both contributed capital and non-distributed retained earnings. Westpac seeks to maintain sufficient capital/retained earnings to comply with these rules.
Tax costs associated with repatriation
Repatriation of retained earnings (and capital) may result in tax being payable in either the jurisdiction from which the repatriation occurs or Australia on receipt of the relevant amounts. This cost would reduce the amount actually repatriated.
Intra-group exposure limits
Exposures to related entities are managed within the prudential limits prescribed by APRA in APS222 Associations with Related Entities1. Westpac has an internal limit structure and approval process governing credit exposures to related entities. This limit structure and approval process, combined with APRA's prudential limits, is designed to reduce the potential for unacceptable contagion risk.
Prudential regulation of subsidiary entities
Certain subsidiary banking, insurance and trustee entities are subject to local prudential regulation in their own right, including capital adequacy requirements and investment or intra-group exposure limits. Westpac seeks to ensure that its subsidiary entities are adequately capitalised and adhere to regulatory requirements at all times. There are no capital deficiencies in subsidiary entities excluded from the regulatory consolidation at Level 2.
On 23 March 2021, the RBNZ issued two notices to WNZL under section 95 of the Reserve Bank of New Zealand Act 1989 requiring WNZL to supply two external reviews to the RBNZ. The reports are required to address concerns raised by the RBNZ around WNZL's risk governance processes following various compliance issues reported over recent years. Those issues include non-compliance with the RBNZ's liquidity, capital adequacy and outsourcing requirements (as previously reported in WNZL's RBNZ disclosure statements) and IT outages. While work has been underway to address these areas for some time, more work is required to meet WNZL's expectations and those of the regulator.
With effect from 31 March 2021, the RBNZ amended WNZL's conditions of registration to apply an overlay to WNZL's mismatch ratios. The overlay requires WNZL to discount the value of its liquid assets by approximately NZ$2.3 billion. This overlay will apply until the RBNZ is satisfied that:
• | the RBNZ's concerns regarding liquidity risk controls have been resolved; and |
• | sufficient progress has been made to address risk culture issues in WNZL's Treasury and Market and Liquidity Risk functions. |
WNZL is currently engaging with Westpac and the RBNZ in relation to potential experts to prepare the independent reports.
1 | For the purposes of APS222, subsidiaries controlled by Westpac, other than subsidiaries that form part of the ELE, represent 'related entities'. Prudential and internal limits apply to intra-group exposures between the ELE and related entities, both on an individual and aggregate basis. |
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Pillar 3 report
Capital overview
Capital Structure
This table shows Westpac's capital resources under APS111 Capital Adequacy: Measurement of Capital.
31 March | 30 September | 31 March | ||||||||||
$m | 2021 | 2020 | 2020 | |||||||||
Common equity Tier 1 capital | ||||||||||||
Paid up ordinary capital | 41,604 | 40,509 | 40,503 | |||||||||
Treasury shares | (660 | ) | (620 | ) | (619 | ) | ||||||
Equity based remuneration | 1,731 | 1,661 | 1,645 | |||||||||
Foreign currency translation reserve | (519 | ) | (309 | ) | 59 | |||||||
Accumulated other comprehensive income | 507 | 126 | (190 | ) | ||||||||
Non-controlling interests - other | 49 | 57 | 61 | |||||||||
Retained earnings | 29,097 | 26,533 | 25,985 | |||||||||
Less retained earnings in life and general insurance, funds management and securitisation entities | (1,680 | ) | (1,132 | ) | (1,326 | ) | ||||||
Deferred fees | 230 | 214 | 229 | |||||||||
Total common equity Tier 1 capital | 70,359 | 67,039 | 66,347 | |||||||||
Deductions from common equity Tier 1 capital | ||||||||||||
Goodwill (excluding funds management entities) | (8,529 | ) | (8,532 | ) | (8,673 | ) | ||||||
Deferred tax assets | (2,260 | ) | (2,963 | ) | (2,610 | ) | ||||||
Goodwill in life and general insurance, funds management and securitisation entities | (451 | ) | (535 | ) | (935 | ) | ||||||
Capitalised expenditure | (1,749 | ) | (1,576 | ) | (1,656 | ) | ||||||
Capitalised software | (2,049 | ) | (2,137 | ) | (2,029 | ) | ||||||
Investments in subsidiaries not consolidated for regulatory purposes | (2,063 | ) | (1,941 | ) | (1,633 | ) | ||||||
Regulatory expected loss in excess of eligible provisions1 | (93 | ) | (40 | ) | - | |||||||
Defined benefit superannuation fund surplus | (69 | ) | (71 | ) | (80 | ) | ||||||
Equity investments | (162 | ) | (492 | ) | (327 | ) | ||||||
Regulatory adjustments to fair value positions | (1 | ) | (18 | ) | (407 | ) | ||||||
Other Tier 1 deductions | (1 | ) | (1 | ) | (15 | ) | ||||||
Total deductions from common equity Tier 1 capital | (17,427 | ) | (18,306 | ) | (18,365 | ) | ||||||
Total common equity Tier 1 capital after deductions | 52,932 | 48,733 | 47,982 | |||||||||
Additional Tier 1 capital | ||||||||||||
Basel III complying instruments | 9,493 | 9,206 | 9,473 | |||||||||
Total Additional Tier 1 capital | 9,493 | 9,206 | 9,473 | |||||||||
Deductions from Additional Tier 1 capital | ||||||||||||
Holdings of own and other financial institutions Additional Tier 1 capital instrument | (25 | ) | - | - | ||||||||
Total deductions from Additional Tier 1 capital | (25 | ) | - | - | ||||||||
Net Addititional Tier 1 regulatory capital | 9,468 | 9,206 | 9,473 | |||||||||
Net Tier 1 regulatory capital | 62,400 | 57,939 | 57,455 | |||||||||
Tier 2 capital | ||||||||||||
Basel III complying instruments | 16,373 | 13,161 | 14,455 | |||||||||
Basel III transitional instruments | 462 | 494 | 567 | |||||||||
Eligible general reserve for credit loss | 161 | 397 | 79 | |||||||||
Total Tier 2 capital | 16,996 | 14,052 | 15,101 | |||||||||
Deductions from Tier 2 capital | ||||||||||||
Investments in subsidiaries not consolidated for regulatory purposes | (140 | ) | (140 | ) | (140 | ) | ||||||
Holdings of own and other financial institutions Tier 2 capital instruments | (199 | ) | (121 | ) | (102 | ) | ||||||
Total deductions from Tier 2 capital | (339 | ) | (261 | ) | (242 | ) | ||||||
Net Tier 2 regulatory capital | 16,657 | 13,791 | 14,859 | |||||||||
Total regulatory capital | 79,057 | 71,730 | 72,314 |
1 | An explanation of the relationship between this deduction, regulatory expected loss and provisions for impairment charges is contained in Appendix IV. |
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Pillar 3 report
Capital overview
Capital management strategy
Westpac's approach to capital management seeks to ensure that it is adequately capitalised as an ADI. Westpac evaluates its approach to capital management through an Internal Capital Adequacy Assessment Process (ICAAP), the key features of which include:
• | the development of a capital management strategy, including consideration of regulatory minimums, capital buffers and contingency plans; |
• | consideration of both regulatory and economic capital requirements; |
• | a stress testing framework that challenges the capital measures, coverage and requirements including the impact of adverse economic scenarios; and |
• | consideration of the perspectives of external stakeholders including rating agencies as well as equity and debt investors. |
During the period of disruption caused by COVID-19, Westpac is operating with the following principles in relation to capital:
• | prioritise maintaining capital strength; |
• | retain capital to absorb further downside on credit quality and acknowledge a high degree of uncertainty regarding the length and depth of this stress; |
• | allow for capital flexibility to support lending to customers; and |
• | in line with APRA guidance, Westpac will seek to maintain a buffer above the regulatory requirement including buffers (currently at least 8% for D-SIBs including Westpac). |
These principles take into consideration:
• | current regulatory capital minimums and the capital conservation buffer (CCB), which together are the Total CET1 Requirement. In line with the above, the Total CET1 Requirement for Westpac is at least 8.0%, based upon an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to D- SIBs1, 2; |
• | stress testing to calibrate an appropriate buffer against a downturn; and |
• | quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments. |
Westpac will revise its capital management preferred range once APRA's review of the capital adequacy framework is finalised.
APRA announcements on capital
On 15 December 2020 APRA issued revised capital management guidance3. From 1 January 2021 APRA will no longer hold banks to a minimum level of earnings retention (previously 50% of net profit after tax in 2020). APRA has also stated that it expects banks to moderate dividend payout ratios, consider the use of dividend reinvestment plans (DRPs) and/or other capital management initiatives to offset the impact from dividends and conduct regular stress testing.
In addition, APRA has released further guidance on the implementation of Basel III reforms which will embed the 'unquestionably strong' level of capital in the framework. On 8 December 2020 APRA outlined its proposals for changes to the capital framework including proposed changes to RWA effective from 1 January 20234.
1 | Noting that APRA may apply higher CET1 requirements for an individual ADI. |
2 | If an ADI's CET1 ratio falls below the Total CET1 Requirement (at least 8%), they face restrictions on the distribution of earnings, such as dividends, distribution payments on AT1 capital instruments and discretionary staff bonuses. |
3 | Letter to all authorised deposit taking institutions and insurers - 'Capital Management' dated 15 December 2020. |
4 | Discussion paper: A more flexible and resilient capital framework for ADIs published 8 December 2020. |
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Capital overview
Westpac's capital adequacy ratios
% | 31 March 2021 | 30 September 2020 | 31 March 2020 | |||||||||
The Westpac Group at Level 2 | ||||||||||||
Common equity Tier 1 capital ratio | 12.3 | 11.1 | 10.8 | |||||||||
Additional Tier 1 capital | 2.2 | 2.1 | 2.1 | |||||||||
Tier 1 capital ratio | 14.5 | 13.2 | 12.9 | |||||||||
Tier 2 capital | 3.9 | 3.1 | 3.4 | |||||||||
Total regulatory capital ratio | 18.4 | 16.4 | 16.3 | |||||||||
The Westpac Group at Level 1 | ||||||||||||
Common equity Tier 1 capital ratio | 12.6 | 11.4 | 11.1 | |||||||||
Additional Tier 1 capital | 2.2 | 2.1 | 2.2 | |||||||||
Tier 1 capital ratio | 14.8 | 13.5 | 13.3 | |||||||||
Tier 2 capital | 4.0 | 3.2 | 3.4 | |||||||||
Total regulatory capital ratio | 18.8 | 16.7 | 16.7 |
Westpac New Zealand Limited's capital adequacy ratios
% | 31 March 2021 | 30 September 2020 | 31 March 2020 | |||||||||
Westpac New Zealand Limited | ||||||||||||
Common equity Tier 1 capital ratio | 13.4 | 12.3 | 11.4 | |||||||||
Additional Tier 1 capital | 2.8 | 2.7 | 2.7 | |||||||||
Tier 1 capital ratio | 16.2 | 15.0 | 14.1 | |||||||||
Tier 2 capital | 2.0 | 2.1 | 1.8 | |||||||||
Total regulatory capital ratio | 18.2 | 17.1 | 15.9 |
Westpac Group March 2021 Pillar 3 report | 19 |
Pillar 3 report
Capital overview
Capital requirements
This table shows risk weighted assets and associated capital requirements1 for each risk type included in the regulatory assessment of Westpac's capital adequacy. Westpac's approach to managing these risks, and more detailed disclosures on the prudential assessment of capital requirements, are presented in the following sections of this report.
31 March 2021 | IRB | Standardised | Total Risk | Total Capital | ||||||||||||
$m | Approach | Approach2 | Weighted Assets | Required1 | ||||||||||||
Credit risk | ||||||||||||||||
Corporate | 66,086 | 849 | 66,935 | 5,355 | ||||||||||||
Business lending | 34,061 | 774 | 34,835 | 2,787 | ||||||||||||
Sovereign | 2,355 | 1,081 | 3,436 | 275 | ||||||||||||
Bank | 5,708 | 132 | 5,840 | 467 | ||||||||||||
Residential mortgages | 133,938 | 4,090 | 138,028 | 11,042 | ||||||||||||
Australian credit cards | 4,279 | - | 4,279 | 342 | ||||||||||||
Other retail | 9,266 | 779 | 10,045 | 804 | ||||||||||||
Small business | 16,097 | - | 16,097 | 1,288 | ||||||||||||
Specialised lending | 55,314 | 386 | 55,700 | 4,456 | ||||||||||||
Securitisation | 5,513 | - | 5,513 | 441 | ||||||||||||
Mark-to-market related credit risk3 | - | 6,419 | 6,419 | 514 | ||||||||||||
Total | 332,617 | 14,510 | 347,127 | 27,771 | ||||||||||||
Market risk | 9,490 | 759 | ||||||||||||||
Operational risk | 54,090 | 4,327 | ||||||||||||||
Interest rate risk in the banking book | 11,998 | 960 | ||||||||||||||
Other assets4 | 6,194 | 496 | ||||||||||||||
Total | 428,899 | 34,313 |
30 September 2020 | IRB | Standardised | Total Risk | Total Capital | ||||||||||||
$m | Approach | Approach2 | Weighted Assets | Required1 | ||||||||||||
Credit risk | ||||||||||||||||
Corporate | 73,666 | 976 | 74,642 | 5,971 | ||||||||||||
Business lending | 36,777 | 880 | 37,657 | 3,013 | ||||||||||||
Sovereign | 2,376 | 1,216 | 3,592 | 287 | ||||||||||||
Bank | 5,640 | 144 | 5,784 | 463 | ||||||||||||
Residential mortgages | 130,787 | 4,431 | 135,218 | 10,818 | ||||||||||||
Australian credit cards | 4,405 | - | 4,405 | 352 | ||||||||||||
Other retail | 10,174 | 774 | 10,948 | 876 | ||||||||||||
Small business | 16,977 | - | 16,977 | 1,358 | ||||||||||||
Specialised lending | 57,019 | 432 | 57,451 | 4,596 | ||||||||||||
Securitisation | 5,413 | - | 5,413 | 433 | ||||||||||||
Mark-to-market related credit risk3 | - | 7,302 | 7,302 | 584 | ||||||||||||
Total | 343,234 | 16,155 | 359,389 | 28,751 | ||||||||||||
Market risk | 8,761 | 701 | ||||||||||||||
Operational risk | 54,090 | 4,327 | ||||||||||||||
Interest rate risk in the banking book | 9,124 | 730 | ||||||||||||||
Other assets4 | 6,541 | 523 | ||||||||||||||
Total | 437,905 | 35,032 |
1 | Total capital required is calculated as 8% of total risk weighted assets. |
2 | Westpac's standardised risk weighted assets are categorised based on their equivalent IRB categories. |
3 | Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk. |
4 | Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets. |
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Capital overview
31 March 2020 | IRB | Standardised | Total Risk | Total Capital | ||||||||||||
$m | Approach | Approach2 | Weighted Assets | Required1 | ||||||||||||
Credit risk | ||||||||||||||||
Corporate | 78,288 | 1,087 | 79,375 | 6,350 | ||||||||||||
Business lending | 34,493 | 993 | 35,486 | 2,839 | ||||||||||||
Sovereign | 2,192 | 1,354 | 3,546 | 284 | ||||||||||||
Bank | 6,956 | 51 | 7,007 | 561 | ||||||||||||
Residential mortgages | 131,424 | 4,714 | 136,138 | 10,891 | ||||||||||||
Australian credit cards | 4,837 | - | 4,837 | 387 | ||||||||||||
Other retail | 11,594 | 805 | 12,399 | 992 | ||||||||||||
Small business | 16,812 | - | 16,812 | 1,345 | ||||||||||||
Specialised lending | 56,004 | 503 | 56,507 | 4,521 | ||||||||||||
Securitisation | 5,747 | - | 5,747 | 460 | ||||||||||||
Mark-to-market related credit risk3 | - | 11,289 | 11,289 | 903 | ||||||||||||
Total | 348,347 | 20,795 | 369,142 | 29,533 | ||||||||||||
Market risk | 8,396 | 672 | ||||||||||||||
Operational risk | 54,093 | 4,327 | ||||||||||||||
Interest rate risk in the banking book | 5,305 | 424 | ||||||||||||||
Other assets4 | 6,969 | 558 | ||||||||||||||
Total | 443,905 | 35,514 |
1 | Total capital required is calculated as 8% of total risk weighted assets. |
2 | Westpac's standardised risk weighted assets are categorised based on their equivalent IRB categories. |
3 | Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk. |
4 | Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets. |
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Pillar 3 report
Leverage ratio
Leverage ratio
The following table summarises Westpac's leverage ratio. This has been determined using APRA's definition of the leverage ratio as specified in APS110 Capital Adequacy.
$ billion | 31 March 2021 | 31 December 2020 | 30 September 2020 | 30 June 2020 | ||||||||||||
Tier 1 Capital | 62.4 | 61.0 | 57.9 | 57.9 | ||||||||||||
Total Exposures | 995.8 | 984.3 | 1,001.8 | 985.6 | ||||||||||||
Leverage ratio | 6.3% | 6.2% | 5.8% | 5.9% |
Leverage ratio disclosure
$m | 31 March 2021 | ||||
On-balance sheet exposures | |||||
1 | On-balance sheet items (excluding derivatives and securities financing transactions (SFTs), but including collateral) | 861,191 | |||
2 | (Asset amounts deducted in determining Tier 1 capital) | (17,427 | ) | ||
3 | Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of rows 1 and 2) | 843,764 | |||
Derivative exposures | |||||
4 | Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin) | 7,813 | |||
5 | Add-on amounts for potential future credit exposure (PFCE) associated with all derivatives transactions | 14,753 | |||
6 | Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the | 3,336 | |||
Australian Accounting Standards | - | ||||
7 | (Deductions of receivables assets for cash variation margin provided in derivatives transactions) | (6,258 | ) | ||
8 | (Exempted central counterparty (CCP) leg of client-cleared trade exposures) | - | |||
9 | Adjusted effective notional amount of written credit derivatives | 1,209 | |||
10 | (Adjusted effective notional offsets and add-on deductions for written credit derivatives) | (1,189 | ) | ||
11 | Total derivative exposures (sum of rows 4 to 10) | 19,664 | |||
SFT exposures | |||||
12 | Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions | 37,385 | |||
13 | (Netted amounts of cash payables and cash receivables of gross SFT assets) | - | |||
14 | Counterparty credit risk exposure for SFT assets | 15,164 | |||
15 | Agent transaction exposures | - | |||
16 | Total SFT exposures (sum of rows 12 to 15) | 52,549 | |||
Other off-balance sheet exposures | - | ||||
17 | Off-balance sheet exposure at gross notional amount | 207,942 | |||
18 | (Adjustments for conversion to credit equivalent amounts) | (128,082 | ) | ||
19 | Other off-balance sheet exposures (sum of rows 17 and 18) | 79,860 | |||
Capital and total exposures | |||||
20 | Tier 1 Capital | 62,400 | |||
21 | Total exposures (sum of rows 3, 11, 16 and 19) | 995,837 | |||
Leverage ratio % | |||||
22 | Leverage ratio | 6.27 | % |
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Leverage ratio
Summary comparison of accounting assets versus leverage ratio exposure measure
$m | 31 March 2021 | ||||
1 | Total consolidated assets as per published financial statements | 889,459 | |||
2 | Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for | (3,060 | ) | ||
accounting purposes but outside the scope of regulatory consolidation | - | ||||
3 | Adjustment for assets held on the balance sheet in a fiduciary capacity pursuant to the Australian Accounting | - | |||
Standards but excluded from the leverage ratio exposure measure | - | ||||
4 | Adjustments for derivative financial instruments | (2,715 | ) | ||
5 | Adjustment for SFTs (i.e. repos and similar secured lending) | 49,721 | |||
6 | Adjustment for off-balance sheet exposures (i.e. conversion to credit equivalent amounts of off-balance sheet | 79,859 | |||
exposures) | - | ||||
7 | Other adjustments | (17,427 | ) | ||
8 | Leverage ratio exposure | 995,837 |
Westpac Group March 2021 Pillar 3 report | 23 |
Pillar 3 report
Credit risk management
Credit risk is the potential for financial loss where a customer or counterparty fails to meet their financial obligations to Westpac. Westpac maintains a credit risk management framework and a number of supporting policies, processes and controls governing the assessment, approval and management of customer and counterparty credit risk. These incorporate the assignment of risk grades, the quantification of loss estimates in the event of default, and the segmentation of credit exposures.
Structure and organisation
The Chief Risk Officer (CRO) is responsible for the effectiveness of overall risk management throughout Westpac, including credit risk. The Group Chief Credit Officer is responsible for the effectiveness of credit risk management, including credit approval decisioning beyond business authority level and appointing our most senior authorised credit officers. Authorised credit officers have delegated authority to approve credit risk exposures, including customer risk grades, other credit parameters and their ongoing review. Our largest exposures are approved by our most experienced authorised credit officers. Line business management is responsible for managing credit risks originated in their business and for managing risk adjusted returns from their business credit portfolios, within the approved risk appetite, risk management framework and policies.
Credit risk management framework and policies
Westpac maintains a credit risk management framework and supporting policies that are designed to clearly define roles and responsibilities, acceptable practices, limits and key controls.
The Credit Risk Management Framework describes the principles, methodologies, systems, roles and responsibilities, reports and controls that exist for managing credit risk in Westpac. The Credit Risk Rating System policy describes the credit risk rating system philosophy, design, key features and uses of rating outcomes.
Concentration risk policies cover individual counterparties, specific industries (e.g. property) and individual countries. In addition, we have policies covering risk appetite statements, environmental, social and governance (ESG) risk, credit risks and the delegation of credit approval authorities.
At the divisional level, credit manuals embed the Group's framework requirements for application in line businesses. These manuals include policies covering the origination, evaluation, approval, documentation, settlement and on-going management of credit risks, and sector policies to guide the extension of credit where industry-specific guidelines are considered necessary.
Credit approval limits govern the extension of credit and represent the formal delegation of credit approval authority to responsible individuals throughout the organisation.
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Credit risk management
Approach
Westpac adopts two approaches to managing credit risk depending upon the nature of the customer and the product.
Transaction-managed approach
For larger customers, Westpac evaluates credit requests by undertaking detailed individual customer and transaction risk analysis (the 'transaction-managed' approach). Such customers are assigned a customer risk grade (CRG) representing Westpac's estimate of their probability of default (PD). Each facility is assigned a loss given default (LGD). The Westpac credit risk rating system has 20 risk grades for non-defaulted customers and 10 risk grades for defaulted customers. Non-defaulted CRGs down to the level of normally acceptable risk (i.e. D grade - see table below) are mapped to Moody's and Standard & Poor's (S&P) external senior ranking unsecured ratings. This mapping allows Westpac to integrate the rating agencies' default history with internal historical data when calculating PDs.
The final assignment of CRGs and LGDs is approved by authorised credit approvers with appropriate delegated approval authority. All material credit exposures are approved by authorised Credit Officers who are part of the risk management stream and operate independently of the areas originating the credit risk proposals. Authorised Credit Officer decisions are subject to reviews to ensure consistent quality and confirm compliance with approval authority. Separate teams are responsible for maintaining accurate and timely recording of all credit risk approvals and changes to customer and facility data. These teams also operate independently of both the areas originating the credit risk proposals and the credit risk approvers. Appropriate segregation of functions is one of the key requirements of our credit risk management framework.
Mapping of Westpac risk grades
The table below shows the current alignment between Westpac's internal CRGs and the corresponding external rating. Note that only high-level CRG groupings are shown.
Westpac customer risk grade |
Standard & Poor's rating |
Moody's rating |
||
A | AAA to AA- | Aaa to Aa3 | ||
B | A+ to A- | A1 to A3 | ||
C | BBB+ to BBB- | Baa1 to Baa3 | ||
D | BB+ to B+ | Ba1 to B1 | ||
Westpac Rating | ||||
E | Watchlist | |||
F | Special mention | |||
G | Substandard/default | |||
H | Default |
For Specialised Lending Westpac maps exposures to the appropriate supervisory slot based on an assessment that takes into account borrower strength and security quality, as required by APS 113.
Program-managed approach
High-volume retail customer credit portfolios with homogenous credit risk characteristics are managed on a statistical basis according to pre-determined objective criteria (the 'program-managed' approach). Program-managed exposure to a consumer customer may exceed $1 million. Business customer exposures may be program managed for exposure up to $3 million. Quantitative scorecards are used to assign application and behavioural scores to enable risk-based decision making within these portfolios. The scorecard outcomes and decisions are regularly monitored and validated against subsequent customer performance and scorecards are recalibrated or rebuilt when required. For capital estimation and other purposes, risk-based customer segments are created based upon modelled expected PD, Exposure At Default (EAD) and LGD. Accounts are then assigned to respective segments based on customer and account characteristics. Each segment is assigned a quantified measure of its PD, LGD and EAD.
For both transaction-managed and program-managed approaches, CRGs, PDs and LGDs are reviewed at least annually.
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Pillar 3 report
Credit risk management
Mapping of Basel categories to Westpac portfolios
APS113 Capital Adequacy: Internal Ratings-Based Approach to Credit Risk, states that under the Advanced IRB approach to credit risk, an ADI must categorise banking book exposures into six broad IRB asset classes and apply the prescribed treatment for those classes to each credit exposure within them for the purposes of deriving its regulatory capital requirement. Standardised and Securitised portfolios are subject to treatment under APS112 Capital Adequacy: Standardised Approach to Credit Risk and APS120 Securitisation respectively.
APS Asset Class | Sub-asset class | Westpac category | Segmentation criteria | |||
Corporate | Corporate | Corporate | All transaction-managed customers not elsewhere classified where annual turnover exceeds $50 million1. | |||
SME Corporate | Business Lending | All transaction-managed customers not elsewhere classified where annual turnover is $50 million or less. | ||||
Project Finance (including Object Finance) | Specialised Lending-Project Finance | Applied to transaction-managed customers where the primary source of debt service, security and repayment is derived from the revenue generated by a completed project (e.g. infrastructure such as toll roads or railways). | ||||
Income-producing Real Estate | Specialised Lending-Property Finance | Applied to transaction-managed customers where the primary source of debt service, security and repayment is derived from either the sale of a property development or income produced by one or more investment properties2. | ||||
Sovereign | Sovereign | Applied to transaction-managed exposures backed by governments. | ||||
Bank | Bank | Applied to transaction-managed exposures to deposit-taking institutions and foreign equivalents. | ||||
Residential Mortgages | Residential Mortgages | Exposures secured by residential mortgages not elsewhere classified. | ||||
Qualifying Revolving Retail | Australian Credit Cards | Program-managed credit cards with low volatility in loss rates. The New Zealand cards portfolio is not eligible for Qualifying Revolving Retail treatment and is classified in Other Retail. | ||||
Other Retail | Small Business | Program-managed business lending exposures under $1 million where complex products are not utilised by the customer. | ||||
Other Retail | All other program-managed lending to retail customers, including New Zealand credit cards. |
1 | Includes all NZ agribusiness loans, regardless of turnover. |
2 | Excludes large diversified property groups and property trusts, which appear in the Corporate asset class. |
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Credit risk management
Mapping of Credit risk approach to Basel categories and exposure types
Approach | APS asset class | Types of exposures | ||
Transaction-Managed Portfolios |
Corporate Sovereign Bank |
Direct lending Contingent lending Derivative counterparty Asset warehousing Underwriting Secondary market trading Foreign exchange settlement Other intra-day settlement obligations |
||
Program-Managed Portfolios | Residential mortgage |
Mortgages Equity access loans |
||
Qualifying revolving retail | Australian credit cards | |||
Other retail |
Personal loans Overdrafts New Zealand credit cards Auto and equipment finance Business development loans Business overdrafts Other term products |
Internal ratings process for transaction-managed portfolios
The process for assigning and approving individual customer PDs and facility LGDs involves:
• | Business unit representatives recommend the CRG and facility LGDs under the guidance of criteria set out in established credit policies. Each CRG is associated with an estimated PD; |
• | Authorised credit officers evaluate the recommendations and approve the final CRG and facility LGDs. Authorised credit officers may override line business unit recommendations; |
• | An expert judgement decisioning process is employed to evaluate CRG and the outputs of various risk grading models are used as one of several inputs into that process; and |
• | Authorised credit officers' decisions are subject to reviews to ensure consistent quality and confirm compliance with approval authority. |
For on-going exposures to transaction-managed customers, risk grades and facility LGDs are required to be reviewed at least annually, but also whenever material changes occur.
No material deviations from the reference definition of default are permitted.
Internal ratings process for program-managed portfolios
The process for assigning PDs, LGDs and EADs to the program-managed portfolio involves dividing the portfolio into a number of pools per product. These pools are created by analysing risk characteristics that have historically predicted that an account is likely to go into default or loss.
No material deviations from the reference definition of default are permitted.
Internal credit risk ratings system
In addition to using the credit risk estimates as the basis for regulatory capital purposes, they are also used for the purposes described below:
Economic capital - Economic capital includes both credit and non-credit components. Economic credit capital is calculated using a framework that considers estimates of PD, LGD, EAD, total committed exposure and loan tenor, as well as measures of portfolio composition not reflected in regulatory capital formulae.
Provisioning - Credit provisions are held by Westpac to cover expected credit losses in the loan portfolio. Provisioning includes both individual and collective components. Individual provisions are calculated on impaired loans taking into account management's best estimate of the present value of future cashflows.
Westpac Group March 2021 Pillar 3 report | 27 |
Pillar 3 report
Credit risk management
Collective provisions are established on a portfolio basis using a framework that considers PD, LGD, EAD, total committed exposure, level of arrears, recent past experience and forward looking macro-economic forecasts.
Risk-adjusted performance measurement - Business performance is measured using allocated capital, which incorporates charges for economic capital and regulatory capital, including credit capital and capital for other risk types.
Pricing - Westpac prices loans to produce an acceptable return on the capital allocated to the loan. Returns include interest income and fees after expected credit losses and other costs.
Credit approval - For transaction-managed facilities, approval authorities are tiered based on the CRG, with lower limits applicable for customers with a higher PD. Program-managed facilities are approved on the basis of application scorecard outcomes and product based approval authorities.
Control mechanisms for the credit risk rating system include:
• | Westpac's credit risk rating system is reviewed annually to confirm that the rating criteria and procedures are appropriate given the current portfolio and external conditions; |
• | All models materially impacting the risk rating process are periodically reviewed in accordance with Westpac's model risk policy; |
• | Specific credit risk estimates (including PD, LGD and EAD levels) are overseen, reviewed annually and supported by the Credit Risk Estimates Committee (a sub-committee of CREDCO) for approval by General Manager, Enterprise Risk; |
• | Credit Risk Assurance undertake an independent annual end-to-end technical and operational review of the overall process; and |
• | CREDCO, RISKCO and BRiskC monitor the risk profile, performance and management of Westpac's credit portfolio and the development and review of key credit risk policies. |
Risk reporting
A comprehensive report on Westpac's credit risk portfolio is provided to CREDCO, RISKCO and BRiskC quarterly. It details the current level of impairment losses, stressed exposures, delinquency trends, provisions, impaired assets and key performance metrics. It also reports on portfolio concentrations and large exposures.
Credit risk and asset quality are also reported to the Board including details of impairment losses, stressed exposures, delinquency trends and key performance metrics.
Response to COVID-19
Westpac remains focused on supporting customers. In response to the COVID-19 pandemic Westpac introduced a range of support packages such as lowering interest rates on certain products, waiving certain fees and providing impacted customers with an option to defer repayments. APRA permitted customers approved for deferrals to be excluded from traditional stress metrics while part of these support packages but customers were to be closely monitored, particularly once the deferral period ended.
APRA also revised prudential standard APS 220 Credit Quality to provide temporary capital relief where an eligible borrower's ability to repay according to loan terms had been, or was likely to be, affected by the COVID-19 pandemic, subject to defined criteria. This temporary capital treatment ceased to be available on 31 March 2021. Westpac no longer offers COVID-19 related support packages.
The Australian Government has announced further government stimulus packages to support the economic recovery and those companies still in receipt of JobKeeper stimulus in the quarter ended 31 March 2021 under the SME Recovery Loan Scheme (SMERLS). Westpac has confirmed to the Australian Government Federal Treasury our participation to the scheme.
28 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report Credit risk management |
Summary credit risk disclosure
Regulatory | |||||||
Expected | Specific | Actual | |||||
Risk | Regulatory | Loss for | Provisions | Losses for | |||
31 March 2021 $m |
Exposure at Default |
Weighted Assets |
Expected Loss1 |
non-defaulted exposures |
Impaired Loans |
for Impaired Loans |
the 6 months ended |
Corporate | 124,567 | 66,086 | 654 | 431 | 319 | 220 | 56 |
Business lending | 53,052 | 34,061 | 750 | 475 | 388 | 198 | 25 |
Sovereign | 143,237 | 2,355 | 2 | 2 | - | - | - |
Bank | 23,404 | 5,708 | 7 | 7 | - | - | - |
Residential mortgages | 562,798 | 133,938 | 1,919 | 1,126 | 263 | 78 | 44 |
Australian credit cards | 16,459 | 4,279 | 202 | 154 | 82 | 49 | 71 |
Other retail | 12,579 | 9,266 | 459 | 301 | 277 | 158 | 78 |
Small business | 31,941 | 16,097 | 613 | 373 | 639 | 229 | 24 |
Specialised Lending | 64,867 | 55,314 | 813 | 598 | 39 | 12 | 1 |
Securitisation | 28,299 | 5,513 | - | - | - | - | - |
Standardised2 | 15,300 | 14,510 | - | - | 64 | 30 | - |
Total | 1,076,503 | 347,127 | 5,419 | 3,467 | 2,071 | 974 | 299 |
Regulatory | |||||||
Expected | Specific | Actual | |||||
Risk | Regulatory | Loss for | Provisions | Losses for | |||
30 September 2020 $m |
Exposure at Default |
Weighted Assets |
Expected Loss1 |
non-defaulted exposures |
Impaired Loans |
for Impaired Loans |
the 12 months ended |
Corporate | 129,988 | 73,666 | 758 | 514 | 558 | 244 | 95 |
Business lending | 54,542 | 36,777 | 809 | 534 | 392 | 208 | 71 |
Sovereign | 131,857 | 2,376 | 1 | 1 | - | - | - |
Bank | 23,244 | 5,640 | 7 | 7 | - | - | - |
Residential mortgages | 550,133 | 130,787 | 1,966 | 1,033 | 345 | 93 | 125 |
Australian credit cards | 16,944 | 4,405 | 214 | 166 | 83 | 48 | 332 |
Other retail | 13,471 | 10,174 | 522 | 341 | 326 | 187 | 275 |
Small business | 32,758 | 16,977 | 685 | 350 | 933 | 328 | 74 |
Specialised Lending | 65,491 | 57,019 | 837 | 659 | 86 | 25 | 3 |
Securitisation | 26,817 | 5,413 | - | - | - | - | - |
Standardised2 | 16,993 | 16,155 | - | - | 56 | 19 | 2 |
Total | 1,062,238 | 359,389 | 5,799 | 3,605 | 2,779 | 1,152 | 977 |
Regulatory | |||||||
Expected | Specific | Actual | |||||
Risk | Regulatory | Loss for | Provisions | Losses for | |||
31 March 2020 $m |
Exposure at Default |
Weighted Assets |
Expected Loss1 |
non-defaulted exposures |
Impaired Loans |
for Impaired Loans |
the 6 months ended |
Corporate | 146,529 | 78,288 | 787 | 547 | 363 | 232 | (4) |
Business lending | 54,428 | 34,493 | 669 | 413 | 347 | 195 | 35 |
Sovereign | 127,064 | 2,192 | 2 | 2 | - | - | - |
Bank | 26,633 | 6,956 | 9 | 9 | - | - | - |
Residential mortgages | 553,866 | 131,424 | 1,788 | 1,229 | 404 | 114 | 67 |
Australian credit cards | 18,601 | 4,837 | 314 | 238 | 123 | 92 | 164 |
Other retail | 15,223 | 11,594 | 601 | 419 | 312 | 218 | 135 |
Small business | 33,181 | 16,812 | 557 | 378 | 501 | 183 | 39 |
Specialised Lending | 65,866 | 56,004 | 813 | 583 | 52 | 26 | 1 |
Securitisation | 28,097 | 5,747 | - | - | - | - | - |
Standardised2 | 19,616 | 20,795 | - | - | 52 | 19 | - |
Total | 1,089,104 | 369,142 | 5,540 | 3,818 | 2,154 | 1,079 | 437 |
1 Includes regulatory expected losses for defaulted and non-defaulted exposures.
2 Includes mark-to-market related credit risk.
Westpac Group March 2021 Pillar 3 report | 29 |
Pillar 3 report Credit risk management |
Loan impairment provisions
Expected credit losses (ECL) are estimates of the cashflow shortfalls expected to result from defaults over the relevant timeframe. They are determined by evaluating a range of possible outcomes and taking into account the time value of money, past events, current conditions and forecasts of future economic conditions. Westpac calculates provisions for ECL based on a three-stage approach:
• | Stage 1: 12 months ECL (performing) - For financial assets where there has been no significant increase in credit risk since origination, a provision for 12-month ECL is recognised. |
• | Stage 2: Lifetime ECL (performing) - For financial assets where there has been a significant increase in credit risk since origination and where the asset is still performing, a provision for lifetime ECL is recognised. |
Determining when a financial asset has experienced a significant increase in credit risk is primarily based on changes in internal risk grades since origination of the financial asset. An internal risk grade assessed using both quantitative and qualitative factors. The number of notches (changes) in the internal risk grade that Westpac uses to represent a significant increase in credit risk is determined on a sliding scale where the number of notches will generally be greater for a financial asset with a lower credit risk compared to a financial asset with a higher credit risk.
• | Stage 3: Lifetime ECL (non-performing) - For financial assets that are non-performing a provision for lifetime ECL is recognised. Indicators include a breach of contract with Westpac such as a default on interest or principal payments, a borrower experiencing significant financial difficulties. |
Collective and individual assessment - Financial assets that are in stages 1 and 2 are assessed on a collective basis as are financial assets in stage 3 below specified exposure thresholds. Those financial assets in stage 3 above the specified exposure thresholds are assessed on an individual basis.
Expected life - Lifetime ECL represents the expected credit losses that result from default events over the expected life of a financial instrument. In considering lifetime ECL, the remaining contractual life is used for non-retail portfolios. For retail portfolios lifetime ECL is calibrated to historically observed portfolio behaviour.
Forward looking information - The measurement of ECL for each stage and the assessment of significant increase in credit risk considers information about past events and current conditions as well as reasonable and supportable projections of future events and economic conditions. In order to capture the asymmetry of the losses expected over the range of plausible future events and economic conditions, Westpac considers three future macroeconomic scenarios i.e. base, upside and downside scenarios.
The macroeconomic variables used in these scenarios, include (but are not limited to) employment to population ratio, real gross domestic product growth rates and residential and commercial property price indices.
The ECL is a weighted average of the credit losses expected under these three scenarios. The scenario weights are based on Westpac's assessment of upside and downside risks taking into account current trends, forward looking conditions and the degree of uncertainty attached to these projections.
Regulatory classification of loan impairment provisions
APS220 Credit Quality requires that Westpac report specific provisions and a General Reserve for Credit Loss (GRCL). All IAPs raised under Australian Accounting Standards (AAS) are classified as specific provisions. All Collectively Assessed Provisions (CAPs) raised under AAS are either classified into specific provisions or a GRCL.
30 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report Credit risk management |
Expected credit loss provision
31 March 2021 | A-IFRS Provisions | Total Regulatory | |
$m | IAPs | CAPs | Provisions |
Specific Provisions | |||
for impaired loans | 564 | 410 | 974 |
for defaulted but not impaired loans | NA | 918 | 918 |
For Stage 2 | NA | 2,051 | 2,051 |
Total Specific Provision1 | |||
564 | 3,379 | 3,943 | |
General Reserve for Credit Loss1 | NA | 1,565 | 1,565 |
Total provisions for ECL | 564 | 4,944 | 5,508 |
30 September 2020 | A-IFRS Provisions | Total Regulatory | |
$m | IAPs | CAPs | Provisions |
Specific Provisions | |||
for impaired loans | 611 | 541 | 1,152 |
for defaulted but not impaired loans | NA | 1,021 | 1,021 |
For Stage 2 | NA | 2,199 | 2,199 |
Total Specific Provision1 | |||
611 | 3,761 | 4,372 | |
General Reserve for Credit Loss1 | NA | 1,791 | 1,791 |
Total provisions for ECL | 611 | 5,552 | 6,163 |
31 March 2020 | A-IFRS Provisions | Total Regulatory | |
$m | IAPs | CAPs | Provisions |
Specific Provisions | |||
for impaired loans | 606 | 473 | 1,079 |
for defaulted but not impaired loans | NA | 628 | 628 |
For Stage 2 | NA | 2,184 | 2,184 |
Total Specific Provision1 | |||
606 | 3,285 | 3,891 | |
General Reserve for Credit Loss1 | NA | 1,900 | 1,900 |
Total provisions for ECL | 606 | 5,185 | 5,791 |
1 Provisions classified according to APRA's letter dated 4 July 2017 'Provisions for regulatory purposes and AASB 9 financial instruments'.
Westpac Group March 2021 Pillar 3 report | 31 |
Pillar 3 report Credit risk management |
Movement in provisions for impairment
For the 6 months ended | Non- | Collectively | Individually | ||||
31 March 2021 | Performing | performing | assessed | assessed | |||
$m | Stage 1 | Stage 2 | Stage 3 | provisions | provisions | Total | |
Balance as at 30 September 2020 for Loans and Credit | 1,084 | 2,875 | 2,173 | 6,132 | |||
Commitments | |||||||
Transfers to Stage 1 | 695 | (662) | (33) | - | |||
Transfers to Stage 2 | (112) | 719 | (607) | - | |||
Transfers to Stage 3 | (3) | (244) | 247 | - | |||
Business activity during the period | 52 | (107) | (171) | (226) | |||
Net remeasurement of provision for ECL | (689) | (8) | 688 | (9) | |||
Write-offs | - | - | (431) | (431) | |||
Exchange rate and other adjustments | (5) | (5) | 26 | 16 | |||
Balance as at 31 March 2021 for Loans and Credit Commitments | 1,022 | 2,568 | 1,892 | 5,482 | |||
Balance as at 30 September 2020 for debt securities | 2 | 29 | - | 31 | |||
Provision for ECL on debt securities at amortised cost | 1 | (7) | - | (6) | |||
Provision for ECL on debt securities at FVOCI1 | 1 | - | - | 1 | |||
Total provision for ECL as at 31 March 2021 | 4 | 22 | - | 26 | |||
Total provision for ECL as at 31 March 2021 | |||||||
1,026 | 2,590 | 1,892 | 5,508 | ||||
For the 12 months ended | Non- | Collectively | Individually | ||||
30 September 2020 | Performing | performing | assessed | assessed | |||
$m | Stage 1 | Stage 2 | Stage 3 | provisions | provisions | Total | |
Balance as at 30 September 2019 for Loans and Credit Commitments | 884 | 1,674 | 1,355 | - | - | 3,913 | |
Transfers to Stage 1 | 1,577 | (1,528) | (49) | - | - | - | |
Transfers to Stage 2 | (344) | 1,161 | (817) | - | - | - | |
Transfers to Stage 3 | (8) | (955) | 963 | - | - | - | |
Business activity during the period | 212 | 60 | (77) | - | - | 195 | |
Net remeasurement of provision for ECL | (1,232) | 2,475 | 1,914 | - | - | 3,157 | |
Write-offs | - | - | (1,170) | - | - | (1,170) | |
Exchange rate and other adjustments | (5) | (12) | 54 | - | - | 38 | |
Balance as at 30 September 2020 for Loans and Credit Commitments |
1,084 | 2,875 | 2,173 | - | - | 6,132 | |
Balance as at 30 September 2019 for debt securities | 11 | - | - | 11 | |||
Provision for ECL on debt securities at amortised cost | (9) | 27 | - | 18 | |||
Provision for ECL on debt securities at FVOCI1 | 2 | - | - | 2 | |||
Total provision for ECL as at 30 September 2020 | 4 | 27 | - | - | - | 31 | |
Total provision for ECL as at 30 September 2020 | |||||||
1,088 | 2,902 | 2,173 | - | - | 6,163 | ||
1 | Impairment of debt securities at Fair Value through Other Comprehensive Income (FVOCI) is recognised in the income statement with a corresponding amount in other comprehensive income. There is no reduction of the carrying value of the debt securities which remain at fair value. |
32 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report Credit risk management |
For the 6 months ended | Non- | Collectively | Individually | |||||||||||||
31 March 2020 | Performing | performing | assessed | assessed | ||||||||||||
$m | Stage 1 | Stage 2 | Stage 3 | provisions | provisions | Total | ||||||||||
Balance as at 30 September 2019 for Loans and Credit Commitments | 884 | 1,674 | 1,355 | - | - | 3,913 | ||||||||||
Transfers to Stage 1 | 600 | (583 | ) | (17 | ) | - | - | - | ||||||||
Transfers to Stage 2 | (131 | ) | 466 | (335 | ) | - | - | - | ||||||||
Transfers to Stage 3 | (2 | ) | (334 | ) | 336 | - | - | - | ||||||||
Business activity during the period | 120 | 114 | (50 | ) | - | - | 184 | |||||||||
Net remeasurement of provision for ECL | (297 | ) | 1,527 | 911 | - | - | 2,141 | |||||||||
Write-offs | - | - | (537 | ) | - | - | (537 | ) | ||||||||
Exchange rate and other adjustments | 7 | 14 | 44 | - | - | 65 | ||||||||||
Balance as at 31 March 2020 for Loans and Credit Commitments | 1,181 | 2,878 | 1,707 | - | - | 5,766 | ||||||||||
Balance as at 30 September 2019 for debt securities | 11 | - | - | 11 | ||||||||||||
Provision for ECL on debt securities at amortised cost | 10 | 3 | - | 13 | ||||||||||||
Provision for ECL on debt securities at FVOCI1 | 1 | - | - | 1 | ||||||||||||
Total provision for ECL as at 31 March 2020 | 22 | 3 | - | - | - | 25 | ||||||||||
Total provision for ECL as at 31 March 2020 | 1,203 | 2,881 | 1,707 | - | - | 5,791 |
1 | Impairment of debt securities at Fair Value through Other Comprehensive Income (FVOCI) is recognised in the income statement with a corresponding amount in other comprehensive income. There is no reduction of the carrying value of the debt securities which remain at fair value. |
Westpac Group March 2021 Pillar 3 report | 33 |
Pillar 3 report Credit risk exposures |
The following tables segment the portfolio by characteristics that provide an insight into the assessment of credit risk concentration.
Exposure at Default by major type
31 March 2021 | On balance | Off-balance sheet | Total Exposure | Average | |
$m | sheet | Non-market related | Market related | at Default | 6 months ended1 |
Corporate | 52,808 | 57,449 | 14,310 | 124,567 | 126,100 |
Business lending | 39,220 | 13,832 | - | 53,052 | 53,786 |
Sovereign | 109,514 | 1,490 | 32,233 | 143,237 | 137,438 |
Bank | 14,085 | 1,829 | 7,490 | 23,404 | 22,546 |
Residential mortgages | 486,802 | 75,996 | - | 562,798 | 556,398 |
Australian credit cards | 6,664 | 9,795 | - | 16,459 | 16,731 |
Other retail | 9,467 | 3,112 | - | 12,579 | 13,060 |
Small business | 24,730 | 7,211 | - | 31,941 | 32,410 |
Specialised lending | 52,619 | 10,598 | 1,650 | 64,867 | 65,297 |
Securitisation2 | 20,145 | 8,033 | 121 | 28,299 | 27,319 |
Standardised | 12,192 | 1,048 | 2,060 | 15,300 | 16,208 |
Total | 828,246 | 190,393 | 57,864 | 1,076,503 | 1,067,293 |
30 September 2020 | On balance | Off-balance sheet | Total Exposure | Average | |
$m | sheet | Non-market related | Market related | at Default | 12 months ended3 |
Corporate | 57,485 | 60,099 | 12,404 | 129,988 | 137,385 |
Business lending | 40,989 | 13,553 | - | 54,542 | 54,578 |
Sovereign | 106,524 | 1,604 | 23,729 | 131,857 | 111,274 |
Bank | 13,161 | 1,873 | 8,210 | 23,244 | 25,935 |
Residential mortgages | 481,096 | 69,037 | - | 550,133 | 553,586 |
Australian credit cards | 6,652 | 10,292 | - | 16,944 | 17,979 |
Other retail | 10,210 | 3,261 | - | 13,471 | 14,880 |
Small business | 25,463 | 7,295 | - | 32,758 | 33,158 |
Specialised lending | 52,803 | 10,629 | 2,059 | 65,491 | 65,530 |
Securitisation2 | 20,542 | 6,138 | 137 | 26,817 | 27,152 |
Standardised | 12,911 | 1,178 | 2,904 | 16,993 | 19,255 |
Total | 827,836 | 184,959 | 49,443 | 1,062,238 | 1,060,712 |
31 March 2020 | On balance | Off-balance sheet | Total Exposure | Average | |
$m | sheet | Non-market related | Market related | at Default | 6 months ended4 |
Corporate | 69,038 | 57,950 | 19,541 | 146,529 | 140,586 |
Business lending | 42,083 | 12,345 | - | 54,428 | 54,546 |
Sovereign | 119,847 | 1,857 | 5,360 | 127,064 | 102,570 |
Bank | 14,899 | 2,415 | 9,319 | 26,633 | 27,505 |
Residential mortgages | 486,270 | 67,596 | - | 553,866 | 555,459 |
Australian credit cards | 8,218 | 10,383 | - | 18,601 | 18,434 |
Other retail | 11,881 | 3,342 | - | 15,223 | 15,607 |
Small business | 26,181 | 7,000 | - | 33,181 | 33,311 |
Specialised lending | 54,066 | 9,750 | 2,050 | 65,866 | 65,739 |
Securitisation2 | 22,690 | 5,276 | 131 | 28,097 | 27,269 |
Standardised | 13,476 | 1,162 | 4,978 | 19,616 | 19,992 |
Total | 868,649 | 179,076 | 41,379 | 1,089,104 | 1,061,017 |
1 | Average is based on exposures as at 31 March 2021, 31 December 2020, and 30 September 2020. |
2 | EAD associated with securitisations is for the banking book only. |
3 | Average is based on exposures as at 30 September 2020, 30 June 2020, 31 March 2020, 31 December 2019, and 30 September 2019. |
4 | Average is based on exposures as at 31 March 2020, 31 December 2019, and 30 September 2019. |
34 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report Credit risk exposures |
Exposure at Default by measurement method
31 March 2021 | IRB | Standardised | Total Exposure |
$m | Approach | Approach | at Default |
Corporate | 124,567 | 5,113 | 129,680 |
Business lending | 53,052 | 766 | 53,818 |
Sovereign | 143,237 | 1,081 | 144,318 |
Bank | 23,404 | 140 | 23,544 |
Residential mortgages | 562,798 | 6,006 | 568,804 |
Australian credit cards | 16,459 | - | 16,459 |
Other retail | 12,579 | 1,812 | 14,391 |
Small business | 31,941 | - | 31,941 |
Specialised lending | 64,867 | 382 | 65,249 |
Securitisation | 28,299 | - | 28,299 |
Total | 1,061,203 | 15,300 | 1,076,503 |
30 September 2020 | IRB | Standardised | Total Exposure |
$m | Approach | Approach | at Default |
Corporate | 129,988 | 6,131 | 136,119 |
Business lending | 54,542 | 866 | 55,408 |
Sovereign | 131,857 | 1,216 | 133,073 |
Bank | 23,244 | 152 | 23,396 |
Residential mortgages | 550,133 | 6,471 | 556,604 |
Australian credit cards | 16,944 | - | 16,944 |
Other retail | 13,471 | 1,735 | 15,206 |
Small business | 32,758 | - | 32,758 |
Specialised lending | 65,491 | 422 | 65,913 |
Securitisation | 26,817 | - | 26,817 |
Total | 1,045,245 | 16,993 | 1,062,238 |
31 March 2020 | IRB | Standardised | Total Exposure |
$m | Approach | Approach | at Default |
Corporate | 146,529 | 8,133 | 154,662 |
Business lending | 54,428 | 975 | 55,403 |
Sovereign | 127,064 | 1,354 | 128,418 |
Bank | 26,633 | 60 | 26,693 |
Residential mortgages | 553,866 | 6,844 | 560,710 |
Australian credit cards | 18,601 | - | 18,601 |
Other retail | 15,223 | 1,758 | 16,981 |
Small business | 33,181 | - | 33,181 |
Specialised lending | 65,866 | 492 | 66,358 |
Securitisation | 28,097 | - | 28,097 |
Total | 1,069,488 | 19,616 | 1,089,104 |
Westpac Group March 2021 Pillar 3 report | 35 |
Pillar 3 report
Credit risk exposures
Exposure at Default by industry classification
31 March 2021 $m |
Accommodation, cafes & restaurants |
Agriculture, forestry & fishing |
Construction |
Finance & insurance |
Government administration & defence |
Manufacturing | Mining | Property |
Property services & business services |
Services1 | Trade2 |
Transport & storage |
Utilities3 |
Retail lending |
Other |
Total Exposure at Default |
||||||||||||||||||||||||||||||||
Corporate | 2,560 | 10,933 | 2,909 | 14,355 | 153 | 16,569 | 6,056 | 7,460 | 9,975 | 11,582 | 18,105 | 10,284 | 12,778 | - | 848 | 124,567 | ||||||||||||||||||||||||||||||||
Business lending | 5,830 | 9,724 | 4,230 | 2,035 | 19 | 4,553 | 476 | 1,098 | 6,451 | 5,901 | 8,173 | 2,318 | 434 | - | 1,810 | 53,052 | ||||||||||||||||||||||||||||||||
Sovereign | - | 1 | - | 60,118 | 82,411 | 55 | 64 | 388 | 6 | 192 | - | 2 | - | - | - | 143,237 | ||||||||||||||||||||||||||||||||
Bank | - | - | - | 23,354 | - | - | - | - | 50 | - | - | - | - | - | - | 23,404 | ||||||||||||||||||||||||||||||||
Residential mortgages | - | - | - | - | - | - | - | - | - | - | - | - | - | 562,798 | - | 562,798 | ||||||||||||||||||||||||||||||||
Australian credit cards | - | - | - | - | - | - | - | - | - | - | - | - | - | 16,459 | - | 16,459 | ||||||||||||||||||||||||||||||||
Other retail | - | - | - | - | - | - | - | - | - | - | - | - | - | 12,579 | - | 12,579 | ||||||||||||||||||||||||||||||||
Small business | 950 | 2,263 | 3,921 | 1,612 | 788 | 1,747 | 574 | 2,131 | 5,011 | 3,931 | 3,186 | 1,720 | 359 | - | 3,748 | 31,941 | ||||||||||||||||||||||||||||||||
Specialised lending | 435 | 17 | 35 | 9 | - | 3 | 757 | 55,562 | 203 | 1,467 | 21 | 3,535 | 2,323 | - | 500 | 64,867 | ||||||||||||||||||||||||||||||||
Securitisation | - | - | - | 27,305 | - | - | - | - | 788 | - | 206 | - | - | - | - | 28,299 | ||||||||||||||||||||||||||||||||
Standardised | 117 | 12 | 150 | 4,581 | 1,081 | 158 | 56 | 383 | 107 | 34 | 536 | 173 | 53 | 7,818 | 41 | 15,300 | ||||||||||||||||||||||||||||||||
Total | 9,892 | 22,950 | 11,245 | 133,369 | 84,452 | 23,085 | 7,983 | 67,022 | 22,591 | 23,107 | 30,227 | 18,032 | 15,947 | 599,654 | 6,947 | 1,076,503 |
1 Includes education, health & community services, cultural & recreational services and personal & other services. |
2 Includes wholesale trade and retail trade. |
3 Includes electricity, gas & water, and communication services. |
36 | Westpac Group September 2020 Pillar 3 report |
Pillar 3 report
Credit risk exposures
30 September 2020 $m |
Accommodation, cafes & restaurants |
Agriculture, forestry & fishing |
Construction |
Finance & insurance |
Government administration & defence |
Manufacturing | Mining | Property |
Property services & business services |
Services1 | Trade2 |
Transport & storage |
Utilities3 |
Retail lending |
Other |
Total Exposure at Default |
||||||||||||||||||||||||||||||||
Corporate | 2,517 | 11,148 | 2,977 | 12,292 | 625 | 18,833 | 7,101 | 6,607 | 11,678 | 11,808 | 19,896 | 10,383 | 13,260 | - | 863 | 129,988 | ||||||||||||||||||||||||||||||||
Business lending | 5,894 | 9,456 | 4,488 | 2,225 | 24 | 4,757 | 556 | 1,021 | 6,704 | 6,010 | 8,685 | 2,343 | 508 | - | 1,871 | 54,542 | ||||||||||||||||||||||||||||||||
Sovereign | - | 1 | - | 46,537 | 84,464 | 7 | 69 | 602 | 9 | 151 | - | 4 | 13 | - | - | 131,857 | ||||||||||||||||||||||||||||||||
Bank | - | - | - | 23,194 | - | - | - | - | 50 | - | - | - | - | - | - | 23,244 | ||||||||||||||||||||||||||||||||
Residential mortgages | - | - | - | - | - | - | - | - | - | - | - | - | - | 550,133 | - | 550,133 | ||||||||||||||||||||||||||||||||
Australian credit cards | - | - | - | - | - | - | - | - | - | - | - | - | - | 16,944 | - | 16,944 | ||||||||||||||||||||||||||||||||
Other retail | - | - | - | - | - | - | - | - | - | - | - | - | - | 13,471 | - | 13,471 | ||||||||||||||||||||||||||||||||
Small business | 966 | 2,297 | 4,065 | 1,698 | 748 | 1,786 | 574 | 2,138 | 5,163 | 3,812 | 3,296 | 1,804 | 364 | - | 4,047 | 32,758 | ||||||||||||||||||||||||||||||||
Specialised lending | 393 | 18 | 34 | 17 | - | 4 | 1,004 | 55,681 | 59 | 1,747 | 16 | 3,649 | 2,326 | - | 543 | 65,491 | ||||||||||||||||||||||||||||||||
Securitisation | - | - | - | 25,777 | - | - | - | - | 827 | - | 213 | - | - | - | - | 26,817 | ||||||||||||||||||||||||||||||||
Standardised | 121 | 12 | 161 | 5,504 | 1,216 | 222 | 58 | 425 | 121 | 46 | 625 | 215 | 12 | 8,206 | 49 | 16,993 | ||||||||||||||||||||||||||||||||
Total | 9,891 | 22,932 | 11,725 | 117,244 | 87,077 | 25,609 | 9,362 | 66,474 | 24,611 | 23,574 | 32,731 | 18,398 | 16,483 | 588,754 | 7,373 | 1,062,238 |
1 Includes education, health & community services, cultural & recreational services and personal & other services. |
2 Includes wholesale trade and retail trade. |
3 Includes electricity, gas & water, and communication services. |
Westpac Group September 2020 Pillar 3 report | 37 |
Pillar 3 report
Credit risk exposures
31 March 2020 $m |
Accommodation, cafes & restaurants |
Agriculture, forestry & fishing |
Construction |
Finance & insurance |
Government administration & defence |
Manufacturing | Mining | Property |
Property services & business services |
Services1 | Trade2 |
Transport & storage |
Utilities3 |
Retail lending |
Other |
Total Exposure at Default |
||||||||||||||||||||||||||||||||
Corporate | 2,458 | 11,349 | 3,320 | 17,822 | 1,170 | 23,828 | 8,341 | 7,092 | 10,550 | 11,845 | 21,970 | 13,018 | 12,866 | - | 900 | 146,529 | ||||||||||||||||||||||||||||||||
Business lending | 5,853 | 8,759 | 4,280 | 2,437 | 19 | 4,842 | 544 | 1,230 | 6,794 | 5,914 | 8,929 | 2,435 | 505 | - | 1,887 | 54,428 | ||||||||||||||||||||||||||||||||
Sovereign | - | 1 | - | 47,479 | 79,069 | 8 | 95 | 146 | 6 | 187 | - | 60 | 13 | - | - | 127,064 | ||||||||||||||||||||||||||||||||
Bank | - | - | - | 26,582 | - | - | - | - | 50 | - | - | 1 | - | - | - | 26,633 | ||||||||||||||||||||||||||||||||
Residential mortgages | - | - | - | - | - | - | - | - | - | - | - | - | - | 553,866 | - | 553,866 | ||||||||||||||||||||||||||||||||
Australian credit cards | - | - | - | - | - | - | - | - | - | - | - | - | - | 18,601 | - | 18,601 | ||||||||||||||||||||||||||||||||
Other retail | - | - | - | - | - | - | - | - | - | - | - | - | - | 15,223 | - | 15,223 | ||||||||||||||||||||||||||||||||
Small business | 973 | 2,378 | 4,111 | 1,779 | 699 | 1,776 | 568 | 2,176 | 5,242 | 3,650 | 3,354 | 1,840 | 363 | - | 4,272 | 33,181 | ||||||||||||||||||||||||||||||||
Specialised lending | 489 | 19 | 32 | 22 | - | 4 | 823 | 56,845 | 26 | 1,272 | 17 | 3,340 | 2,426 | - | 551 | 65,866 | ||||||||||||||||||||||||||||||||
Securitisation | - | - | - | 26,432 | - | 162 | - | - | 1,236 | - | 267 | - | - | - | - | 28,097 | ||||||||||||||||||||||||||||||||
Standardised | 132 | 27 | 176 | 7,358 | 1,354 | 240 | 62 | 494 | 142 | 60 | 694 | 198 | 23 | 8,601 | 55 | 19,616 | ||||||||||||||||||||||||||||||||
Total | 9,905 | 22,533 | 11,919 | 129,911 | 82,311 | 30,860 | 10,433 | 67,983 | 24,046 | 22,928 | 35,231 | 20,892 | 16,196 | 596,291 | 7,665 | 1,089,104 |
1 Includes education, health & community services, cultural & recreational services and personal & other services. |
2 Includes wholesale trade and retail trade. |
3 Includes electricity, gas & water, and communication services. |
38 | Westpac Group September 2020 Pillar 3 report |
Pillar 3 report | |
Credit risk exposures |
Exposure at Default by geography1
31 March 2021 $m |
Australia | New Zealand | Americas | Asia | Europe | Pacific |
Total Exposure at Default |
Corporate | 81,694 | 22,429 | 7,281 | 6,121 | 7,042 | - | 124,567 |
Business lending | 48,255 | 4,797 | - | - | - | - | 53,052 |
Sovereign | 124,825 | 12,824 | 4,721 | 462 | 405 | - | 143,237 |
Bank | 22,165 | 574 | 106 | 531 | 28 | - | 23,404 |
Residential mortgages | 501,445 | 61,160 | - | 193 | - | - | 562,798 |
Australian credit cards | 16,459 | - | - | - | - | - | 16,459 |
Other retail | 9,626 | 2,953 | - | - | - | - | 12,579 |
Small business | 29,582 | 2,358 | - | 1 | - | - | 31,941 |
Specialised lending | 56,748 | 8,119 | - | - | - | - | 64,867 |
Securitisation | 23,923 | 4,376 | - | - | - | - | 28,299 |
Standardised | 12,504 | - | - | 14 | - | 2,782 | 15,300 |
Total | 927,226 | 119,590 | 12,108 | 7,322 | 7,475 | 2,782 | 1,076,503 |
30 September 2020 $m |
Australia | New Zealand | Americas | Asia | Europe | Pacific |
Total Exposure at Default |
Corporate | 83,682 | 23,058 | 7,662 | 10,111 | 5,475 | - | 129,988 |
Business lending | 49,557 | 4,985 | - | - | - | - | 54,542 |
Sovereign | 107,694 | 11,611 | 11,060 | 1,064 | 428 | - | 131,857 |
Bank | 20,834 | 793 | 130 | 1,462 | 25 | - | 23,244 |
Residential mortgages | 491,418 | 58,497 | - | 218 | - | - | 550,133 |
Australian credit cards | 16,944 | - | - | - | - | - | 16,944 |
Other retail | 10,409 | 3,062 | - | - | - | - | 13,471 |
Small business | 30,364 | 2,393 | - | 1 | - | - | 32,758 |
Specialised lending | 57,388 | 8,103 | - | - | - | - | 65,491 |
Securitisation | 22,522 | 4,295 | - | - | - | - | 26,817 |
Standardised | 13,872 | - | - | 19 | - | 3,102 | 16,993 |
Total | 904,684 | 116,797 | 18,852 | 12,875 | 5,928 | 3,102 | 1,062,238 |
31 March 2020 $m |
Australia | New Zealand | Americas | Asia | Europe | Pacific |
Total Exposure at Default |
Corporate | 86,984 | 24,577 | 10,991 | 16,829 | 7,148 | - | 146,529 |
Business lending | 49,307 | 5,121 | - | - | - | - | 54,428 |
Sovereign | 97,932 | 10,359 | 16,633 | 1,655 | 485 | - | 127,064 |
Bank | 20,388 | 2,408 | 139 | 3,646 | 52 | - | 26,633 |
Residential mortgages | 494,238 | 59,404 | - | 224 | - | - | 553,866 |
Australian credit cards | 18,601 | - | - | - | - | - | 18,601 |
Other retail | 11,784 | 3,439 | - | - | - | - | 15,223 |
Small business | 30,646 | 2,534 | - | 1 | - | - | 33,181 |
Specialised lending | 57,147 | 8,673 | 46 | - | - | - | 65,866 |
Securitisation | 23,627 | 4,106 | - | 364 | - | - | 28,097 |
Standardised | 16,207 | - | - | 42 | - | 3,367 | 19,616 |
Total | 906,861 | 120,621 | 27,809 | 22,761 | 7,685 | 3,367 | 1,089,104 |
1 | Geographic segmentation of exposures is based on the location of the office in which these items were booked. |
Westpac Group March 2021 Pillar 3 report | 39 |
Pillar 3 report | |
Credit risk exposures |
Exposure at Default by residual contractual maturity
31 March 2021 $m |
On demand | < 12 months | 1 to < 3 years | 3 to < 5 years | > 5 years |
Total Exposure at Default |
Corporate | 13,056 | 24,564 | 64,353 | 19,072 | 3,522 | 124,567 |
Business lending | 4,693 | 15,186 | 23,029 | 4,407 | 5,737 | 53,052 |
Sovereign | 1,409 | 34,033 | 49,207 | 19,787 | 38,801 | 143,237 |
Bank | 3,026 | 3,641 | 15,956 | 643 | 138 | 23,404 |
Residential mortgages | 29,630 | 4,104 | 13,415 | 2,665 | 512,984 | 562,798 |
Australian credit cards | 16,459 | - | - | - | - | 16,459 |
Other retail | 2,848 | 357 | 4,376 | 3,316 | 1,682 | 12,579 |
Small business | 4,490 | 3,291 | 8,950 | 7,643 | 7,567 | 31,941 |
Specialised lending | 421 | 21,633 | 32,317 | 6,917 | 3,579 | 64,867 |
Securitisation | - | 3,860 | 11,183 | 2,011 | 11,245 | 28,299 |
Standardised | 1,604 | 381 | 6,793 | 252 | 6,270 | 15,300 |
Total | 77,636 | 111,050 | 229,579 | 66,713 | 591,525 | 1,076,503 |
30 September 2020 $m |
On demand | < 12 months | 1 to < 3 years | 3 to < 5 years | > 5 years |
Total Exposure at Default |
Corporate | 14,419 | 27,059 | 64,555 | 19,980 | 3,975 | 129,988 |
Business lending | 3,102 | 13,635 | 24,154 | 5,699 | 7,952 | 54,542 |
Sovereign | 1,452 | 29,198 | 32,192 | 25,851 | 43,164 | 131,857 |
Bank | 3,697 | 4,102 | 14,328 | 1,106 | 11 | 23,244 |
Residential mortgages | 29,233 | 4,315 | 12,766 | 2,734 | 501,085 | 550,133 |
Australian credit cards | 16,944 | - | - | - | - | 16,944 |
Other retail | 2,899 | 351 | 4,718 | 3,570 | 1,933 | 13,471 |
Small business | 4,481 | 2,949 | 8,923 | 8,044 | 8,361 | 32,758 |
Specialised lending | 377 | 20,479 | 31,409 | 9,017 | 4,209 | 65,491 |
Securitisation | - | 7,074 | 7,217 | 1,625 | 10,901 | 26,817 |
Standardised | 1,522 | 472 | 7,900 | 281 | 6,818 | 16,993 |
Total | 78,126 | 109,634 | 208,162 | 77,907 | 588,409 | 1,062,238 |
31 March 2020 $m |
On demand | < 12 months | 1 to < 3 years | 3 to < 5 years | > 5 years |
Total Exposure at Default |
Corporate | 18,087 | 27,376 | 71,404 | 23,057 | 6,605 | 146,529 |
Business lending | 3,081 | 13,297 | 23,945 | 5,912 | 8,193 | 54,428 |
Sovereign | 1,899 | 44,635 | 18,625 | 22,685 | 39,220 | 127,064 |
Bank | 5,188 | 4,025 | 15,961 | 1,390 | 69 | 26,633 |
Residential mortgages | 28,723 | 4,658 | 13,725 | 2,760 | 504,000 | 553,866 |
Australian credit cards | 18,601 | - | - | - | - | 18,601 |
Other retail | 3,218 | 388 | 5,206 | 4,267 | 2,144 | 15,223 |
Small business | 4,658 | 2,786 | 9,028 | 8,224 | 8,485 | 33,181 |
Specialised lending | 408 | 19,699 | 32,119 | 9,198 | 4,442 | 65,866 |
Securitisation | - | 1,706 | 12,585 | 2,075 | 11,731 | 28,097 |
Standardised | 1,574 | 398 | 10,150 | 252 | 7,242 | 19,616 |
Total | 85,437 | 118,968 | 212,748 | 79,820 | 592,131 | 1,089,104 |
40 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report | |
Credit risk exposures |
Impaired and past due loans
The following tables disclose the crystallisation of credit risk as impairment and loss. Analysis of exposures defaulted not impaired, impaired loans, related provisions and actual losses are broken down by concentrations reflecting Westpac's asset categories, industry and geography.
Impaired and past due loans by portfolio
31 March 2021 $m |
Defaulted not impaired1 |
Impaired Loans |
Specific Provisions for Impaired Loans |
Specific Provisions to Impaired Loans |
Actual Losses for the 6 months ended |
Corporate | 155 | 319 | 220 | 69% | 56 |
Business lending | 793 | 388 | 198 | 51% | 25 |
Sovereign | - | - | - | - | - |
Bank | - | - | - | - | - |
Residential mortgages | 5,298 | 263 | 78 | 30% | 44 |
Australian credit cards | - | 82 | 49 | 60% | 71 |
Other retail | - | 277 | 158 | 57% | 78 |
Small business | 423 | 639 | 229 | 36% | 24 |
Specialised lending | 367 | 39 | 12 | 31% | 1 |
Securitisation | - | - | - | - | - |
Standardised | 73 | 64 | 30 | 47% | - |
Total | 7,109 | 2,071 | 974 | 47% | 299 |
30 September 2020 $m |
Defaulted not impaired1 |
Impaired Loans |
Specific Provisions for Impaired Loans |
Specific Provisions to Impaired Loans |
Actual Losses for the 12 months ended |
Corporate | 127 | 558 | 244 | 44% | 95 |
Business lending | 598 | 392 | 208 | 53% | 71 |
Sovereign | - | - | - | - | - |
Bank | - | - | - | - | - |
Residential mortgages | 7,042 | 345 | 93 | 27% | 125 |
Australian credit cards | - | 83 | 48 | 58% | 332 |
Other retail | - | 326 | 187 | 57% | 275 |
Small business | 440 | 933 | 328 | 35% | 74 |
Specialised lending | 229 | 86 | 25 | 29% | 3 |
Securitisation | - | - | - | - | - |
Standardised | 96 | 56 | 19 | 34% | 2 |
Total | 8,532 | 2,779 | 1,152 | 41% | 977 |
31 March 2020 $m |
Defaulted not impaired1 |
Impaired Loans |
Specific Provisions for Impaired Loans |
Specific Provisions to Impaired Loans |
Actual Losses for the 6 months ended |
Corporate | 91 | 363 | 232 | 64% | (4) |
Business lending | 474 | 347 | 195 | 56% | 35 |
Sovereign | - | - | - | - | - |
Bank | - | - | - | - | - |
Residential mortgages | 4,050 | 404 | 114 | 28% | 67 |
Australian credit cards | - | 123 | 92 | 75% | 164 |
Other retail | - | 312 | 218 | 70% | 135 |
Small business | 359 | 501 | 183 | 37% | 39 |
Specialised lending | 357 | 52 | 26 | 50% | 1 |
Securitisation | - | - | - | - | - |
Standardised | 78 | 52 | 19 | 37% | - |
Total | 5,409 | 2,154 | 1,079 | 50% | 437 |
1 | Includes items past 90 days not impaired. |
Westpac Group March 2021 Pillar 3 report | 41 |
Pillar 3 report | |
Credit risk exposures |
Impaired and past due loans by industry classification
31 March 2021 $m |
Defaulted not impaired1 |
Impaired Loans |
Specific Provisions for Impaired Loans |
Specific Provisions to Impaired Loans |
Actual Losses for the 6 months ended |
Accommodation, cafes & restaurants | 187 | 65 | 32 | 49% | 2 |
Agriculture, forestry & fishing | 281 | 71 | 27 | 38% | 13 |
Construction | 108 | 123 | 51 | 41% | 3 |
Finance & insurance | 71 | 55 | 39 | 71% | 16 |
Government administration & defence | - | - | - | - | |
Manufacturing | 91 | 200 | 135 | 68% | 43 |
Mining | 13 | 20 | 6 | 30% | 3 |
Property | 489 | 96 | 30 | 31% | - |
Property services & business services | 142 | 266 | 130 | 49% | 3 |
Services2 | 121 | 97 | 48 | 49% | 7 |
Trade3 | 165 | 252 | 126 | 50% | 4 |
Transport & storage | 23 | 84 | 31 | 37% | 7 |
Utilities4 | 3 | 8 | 2 | 25% | - |
Retail lending | 5,365 | 634 | 293 | 46% | 195 |
Other | 50 | 100 | 24 | 24% | 3 |
Total | 7,109 | 2,071 | 974 | 47% | 299 |
30 September 2020 $m |
Defaulted not impaired1 |
Impaired Loans |
Specific Provisions for Impaired Loans |
Specific Provisions to Impaired Loans |
Actual Losses for the 12 months ended |
Accommodation, cafes & restaurants | 132 | 71 | 34 | 48% | 5 |
Agriculture, forestry & fishing | 242 | 95 | 38 | 40% | 13 |
Construction | 69 | 188 | 71 | 38% | 12 |
Finance & insurance | 39 | 68 | 43 | 63% | - |
Government administration & defence | - | - | - | - | - |
Manufacturing | 92 | 302 | 188 | 62% | 61 |
Mining | 5 | 44 | 14 | 32% | 2 |
Property | 335 | 103 | 29 | 28% | 49 |
Property services & business services | 113 | 452 | 120 | 27% | 14 |
Services2 | 129 | 145 | 67 | 46% | 5 |
Trade3 | 148 | 274 | 112 | 41% | 56 |
Transport & storage | 30 | 143 | 52 | 36% | 17 |
Utilities4 | 2 | 12 | 3 | 25% | 4 |
Retail lending | 7,122 | 770 | 336 | 44% | 735 |
Other | 74 | 112 | 45 | 41% | 4 |
Total | 8,532 | 2,779 | 1,152 | 41% | 977 |
31 March 2020 $m |
Defaulted not impaired1 |
Impaired Loans |
Specific Provisions for Impaired Loans |
Specific Provisions to Impaired Loans |
Actual Losses for the 6 months ended |
Accommodation, cafes & restaurants | 109 | 37 | 18 | 49% | 7 |
Agriculture, forestry & fishing | 233 | 90 | 34 | 38% | 3 |
Construction | 50 | 107 | 45 | 42% | 9 |
Finance & insurance | 29 | 62 | 44 | 71% | 5 |
Government administration & defence | - | - | - | - | - |
Manufacturing | 81 | 221 | 149 | 67% | 7 |
Mining | 6 | 17 | 6 | 35% | (1) |
Property | 284 | 77 | 39 | 51% | 10 |
Property services & business services | 83 | 130 | 67 | 52% | 9 |
Services2 | 243 | 72 | 38 | 53% | 4 |
Trade3 | 124 | 327 | 152 | 46% | 6 |
Transport & storage | 27 | 72 | 25 | 35% | 9 |
Utilities4 | 2 | 7 | 2 | 29% | - |
Retail lending | 4,097 | 851 | 431 | 51% | 366 |
Other | 41 | 84 | 29 | 35% | 3 |
Total | 5,409 | 2,154 | 1,079 | 50% | 437 |
1 | Includes items past 90 days not impaired. |
2 | Includes education, health & community services, cultural & recreational services and personal & other services. |
3 | Includes wholesale trade and retail trade. |
4 | Includes electricity, gas & water, and communication services. |
42 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report | |
Credit risk exposures |
Impaired and past due loans by geography1
31 March 2021 $m |
Defaulted not impaired2 |
Impaired Loans |
Specific Provisions for Impaired Loans |
Specific Provisions to Impaired Loans |
Actual Losses for the 6 months ended |
Australia | 6,601 | 1,671 | 756 | 45% | 234 |
New Zealand | 471 | 159 | 85 | 53% | 23 |
Americas | - | - | - | - | - |
Asia | 1 | 178 | 112 | 63% | 42 |
Europe | - | - | - | - | - |
Pacific | 36 | 63 | 21 | 33% | - |
Total | 7,109 | 2,071 | 974 | 47% | 299 |
30 September 2020 $m |
Defaulted not impaired2 |
Impaired Loans |
Specific Provisions for Impaired Loans |
Specific Provisions to Impaired Loans |
Actual Losses for the 12 months ended |
Australia | 7,989 | 2,253 | 903 | 40% | 859 |
New Zealand | 502 | 193 | 96 | 50% | 21 |
Americas | - | - | - | - | - |
Asia | 1 | 280 | 134 | 48% | 95 |
Europe | - | - | - | - | - |
Pacific | 40 | 53 | 19 | 36% | 2 |
Total | 8,532 | 2,779 | 1,152 | 41% | 977 |
31 March 2020 $m |
Defaulted not impaired2 |
Impaired Loans |
Specific Provisions for Impaired Loans |
Specific Provisions to Impaired Loans |
Actual Losses for the 6 months ended |
Australia | 4,964 | 1,681 | 818 | 49% | 423 |
New Zealand | 390 | 208 | 99 | 48% | 13 |
Americas | - | - | - | - | - |
Asia | 2 | 216 | 145 | 67% | - |
Europe | - | - | - | - | - |
Pacific | 53 | 49 | 17 | 35% | 1 |
Total | 5,409 | 2,154 | 1,079 | 50% | 437 |
1 | Geographic segmentation of exposures is based on the location of the office in which these items were booked. |
2 | Includes items past 90 days not impaired. |
Westpac Group March 2021 Pillar 3 report | 43 |
Pillar 3 report | |
Credit risk exposures |
Portfolios subject to the standardised approach
This table presents exposures subject to the standardised approach for the calculation of risk weighted assets.
As at 31 March 2021, exposures subject to the standardised approach and categorised by risk weight are primarily Westpac Pacific, Asian retail exposures, the margin lending portfolio, self-managed superannuation fund exposures and some other small portfolios. Mark-to-market related credit risk and qualifying central clearing counterparties exposure1 is also included in the standardised approach.
31 March 2021 | Total Exposure | Risk Weighted |
Risk Weight % | at Default $m | Assets $m |
0% | 2,013 | - |
2% | 2,253 | 45 |
20% | 1,289 | 258 |
35% | 382 | 134 |
50% | 1,311 | 655 |
75% | 4,053 | 3,041 |
100% | 3,826 | 3,826 |
150% | 26 | 39 |
Default fund contributions1 | 147 | 94 |
Mark-to-market related credit risk | - | 6,419 |
Total | 15,300 | 14,510 |
30 September 2020 Risk Weight % |
Total Exposure at Default $m |
Risk Weighted Assets $m |
0% | 1,780 | - |
2% | 3,406 | 68 |
20% | 1,200 | 240 |
35% | 415 | 145 |
50% | 1,328 | 664 |
75% | 4,451 | 3,338 |
100% | 4,239 | 4,239 |
150% | 54 | 81 |
Default fund contributions1 | 120 | 78 |
Mark-to-market related credit risk | - | 7,302 |
Total | 16,993 | 16,155 |
31 March 2020 Risk Weight % |
Total Exposure at Default $m |
Risk Weighted Assets $m |
0% | 1,650 | - |
2% | 5,481 | 110 |
20% | 1,190 | 238 |
35% | 478 | 167 |
50% | 1,340 | 670 |
75% | 4,631 | 3,473 |
100% | 4,651 | 4,651 |
150% | 67 | 100 |
Default fund contributions1 | 128 | 98 |
Mark-to-market related credit risk | - | 11,289 |
Total | 19,616 | 20,795 |
1 | Portfolios subject to the standardised approach include exposures to qualifying central clearing counterparties used to clear derivative transactions. Derivative counterparty exposure and initial margin are risk weighted at 2%. Default fund contributions to qualifying central clearing counterparties are shown separately and are subject to higher risk weights. |
44 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report | |
Credit risk exposures |
Portfolios subject to supervisory risk-weights in the IRB approach
Exposures subject to supervisory risk-weights in the IRB approach include assets categorised as specialised lending, where a regulatory capital 'slotting' approach applies.
Westpac has property finance and project finance credit risk exposures categorised as specialised lending. The 'Credit Risk Management' section of this report describes the mapping of Westpac risk grades to both external rating equivalents and regulatory capital 'slots'.
Property finance1
31 March 2021 | Exposure at | Regulatory | Risk Weighted | |
$m | Risk Weight | Default | Expected Loss | Assets |
Strong | 70% | 24,621 | 98 | 17,234 |
Good | 90% | 25,264 | 207 | 22,840 |
Satisfactory | 115% | 5,099 | 143 | 5,864 |
Weak | 250% | 1,195 | 96 | 2,987 |
Default | NA | 430 | 215 | - |
Total | 56,609 | 759 | 48,925 |
30 September 2020 | Exposure at | Regulatory | Risk Weighted | |
$m | Risk Weight | Default | Expected Loss | Assets |
Strong | 70% | 23,604 | 94 | 16,523 |
Good | 90% | 26,218 | 251 | 24,359 |
Satisfactory | 115% | 5,224 | 146 | 6,008 |
Weak | 250% | 1,344 | 107 | 3,359 |
Default | NA | 339 | 170 | - |
Total | 56,729 | 768 | 50,249 | |
31 March 2020 | Exposure at | Regulatory | Risk Weighted | |
$m | Risk Weight | Default | Expected Loss | Assets |
Strong | 70% | 23,013 | 92 | 16,110 |
Good | 90% | 29,436 | 236 | 26,491 |
Satisfactory | 115% | 4,479 | 125 | 5,151 |
Weak | 250% | 795 | 64 | 1,988 |
Default | NA | 297 | 148 | - |
Total | 58,020 | 665 | 49,740 |
1 | The above table reflects that at 31 March 2021 and 30 September 2020 Westpac applied an overlay for property finance to take into account facilities where reviews had not been completed. The overlay is reassessed as customer reviews are completed. This has resulted in a $0.1 billion increase in RWA at 31 March 2021 and a $0.6 billion increase in RWA at 30 September 2020. |
Westpac Group March 2021 Pillar 3 report | 45 |
Pillar 3 report | |
Credit risk exposures |
Project and object finance
31 March 2021 | Exposure at | Regulatory | Risk Weighted | |
$m | Risk Weight | Default | Expected Loss | Assets |
Strong | 70% | 6,341 | 25 | 4,439 |
Good | 90% | 1,521 | 12 | 1,369 |
Satisfactory | 115% | 303 | 8 | 348 |
Weak | 250% | 93 | 7 | 233 |
Default | NA | - | - | - |
Total | 8,258 | 54 | 6,389 |
30 September 2020 | Exposure at | Regulatory | Risk Weighted | |
$m | Risk Weight | Default | Expected Loss | Assets |
Strong | 70% | 6,769 | 27 | 4,738 |
Good | 90% | 1,183 | 9 | 1,065 |
Satisfactory | 115% | 751 | 21 | 864 |
Weak | 250% | 41 | 3 | 103 |
Default | NA | 18 | 9 | - |
Total | 8,762 | 69 | 6,770 |
31 March 2020 | Exposure at | Regulatory | Risk Weighted | |
$m | Risk Weight | Default | Expected Loss | Assets |
Strong | 70% | 5,803 | 23 | 4,063 |
Good | 90% | 1,064 | 9 | 957 |
Satisfactory | 115% | 589 | 16 | 677 |
Weak | 250% | 227 | 18 | 567 |
Default | NA | 163 | 82 | - |
Total | 7,846 | 148 | 6,264 |
46 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report | |
Credit risk exposures |
Portfolios subject to IRB approaches
In the table below Westpac's transaction-managed exposures are classified by the external credit rating. Each external credit rating aligns to one or more internally assigned credit risk grades, as outlined in the 'Credit Risk Management' section of this report. Westpac's internal rating scale has more risk grades than does the external rating scale, and as a result, average PD can vary from portfolio to portfolio for the same external grade. Westpac's program-managed exposures are classified by PD band and the average PD within a band can, likewise, vary from portfolio to portfolio.
For both non-defaulted and defaulted exposures, regulatory expected loss is defined at facility level. For non-defaulted exposures, regulatory expected loss is the product of PD, LGD and EAD while for defaulted exposures, this is the best estimates of loss. Total regulatory expected loss as shown in the table below is the sum of both non-defaulted and defaulted regulatory expected loss and given the difference in methodology, regulatory expected loss reported is not equal to the product of the corresponding reported average PD, average LGD and aggregate EAD.
Corporate portfolio by external credit rating1
31 March 2021 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | 56 | 4 | 60 | 0.01% | 41% | - | 7 | 12% |
AA | 3,380 | 1,884 | 5,238 | 0.03% | 48% | 1 | 721 | 14% |
A | 16,564 | 12,110 | 28,566 | 0.07% | 51% | 10 | 7,192 | 25% |
BBB | 26,975 | 24,710 | 50,951 | 0.22% | 48% | 53 | 24,436 | 48% |
BB | 24,581 | 11,278 | 35,667 | 1.13% | 37% | 151 | 26,775 | 75% |
B | 1,174 | 157 | 1,328 | 4.78% | 41% | 26 | 1,787 | 135% |
Other | 1,688 | 412 | 2,095 | 23.70% | 39% | 190 | 4,383 | 209% |
Subtotal | 74,418 | 50,555 | 123,905 | 0.89% | 45% | 431 | 65,301 | 53% |
Default | 509 | 154 | 662 | NA | 40% | 223 | 785 | 119% |
Total | 74,927 | 50,709 | 124,567 | 1.41% | 45% | 654 | 66,086 | 53% |
30 September 2020 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | 189 | - | 189 | 0.01% | 50% | - | 20 | 11% |
AA | 2,424 | 2,461 | 4,884 | 0.03% | 52% | 1 | 883 | 18% |
A | 15,987 | 12,099 | 28,039 | 0.07% | 52% | 10 | 7,463 | 27% |
BBB | 29,416 | 25,139 | 54,099 | 0.22% | 49% | 57 | 26,466 | 49% |
BB | 26,213 | 11,255 | 37,328 | 1.14% | 38% | 167 | 28,739 | 77% |
B | 1,305 | 209 | 1,515 | 4.78% | 41% | 30 | 2,067 | 136% |
Other | 2,396 | 658 | 3,054 | 21.07% | 39% | 249 | 6,160 | 202% |
Subtotal | 77,930 | 51,821 | 129,108 | 0.99% | 46% | 514 | 71,798 | 56% |
Default | 699 | 182 | 880 | NA | 42% | 244 | 1,868 | 212% |
Total | 78,629 | 52,003 | 129,988 | 1.66% | 46% | 758 | 73,666 | 57% |
31 March 2020 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | 101 | - | 101 | 0.01% | 50% | - | 28 | 28% |
AA | 7,126 | 2,490 | 9,611 | 0.03% | 50% | 1 | 1,487 | 15% |
A | 19,424 | 13,330 | 32,702 | 0.07% | 52% | 12 | 8,898 | 27% |
BBB | 39,261 | 22,664 | 61,632 | 0.22% | 49% | 64 | 29,637 | 48% |
BB | 28,062 | 8,919 | 36,876 | 1.13% | 37% | 152 | 27,522 | 75% |
B | 1,554 | 209 | 1,719 | 4.78% | 44% | 36 | 2,671 | 155% |
Other | 2,765 | 616 | 3,382 | 21.23% | 41% | 282 | 7,083 | 209% |
Subtotal | 98,293 | 48,228 | 146,023 | 0.94% | 46% | 547 | 77,326 | 53% |
Default | 365 | 142 | 506 | NA | 65% | 240 | 962 | 190% |
Total | 98,658 | 48,370 | 146,529 | 1.29% | 47% | 787 | 78,288 | 53% |
1 | The above table reflects that at 31 March 2021 and 30 September 2020 Westpac applied an overlay for corporate to take into account facilities where reviews had not been completed. The overlay is reassessed as customer reviews are completed. This has resulted in a $0.1 billion increase in RWA at 31 March 2021 and a $0.3 billion increase in RWA at 30 September 2020. |
2 | Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items. |
3 | Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
Westpac Group March 2021 Pillar 3 report | 47 |
Pillar 3 report | |
Credit risk exposures |
Business lending portfolio by external credit rating1
31 March 2021 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | - | - | - | - | - | - | - | - |
AA | - | - | - | - | - | - | - | - |
A | 187 | 89 | 276 | 0.08% | 43% | - | 56 | 20% |
BBB | 1,274 | 574 | 1,844 | 0.21% | 27% | 1 | 384 | 21% |
BB | 34,034 | 11,292 | 45,205 | 1.60% | 29% | 218 | 26,031 | 58% |
B | 1,569 | 267 | 1,836 | 4.78% | 32% | 28 | 1,547 | 84% |
Other | 2,410 | 307 | 2,716 | 22.45% | 36% | 228 | 4,445 | 164% |
Subtotal | 39,474 | 12,529 | 51,877 | 2.75% | 30% | 475 | 32,463 | 63% |
Default | 1,116 | 59 | 1,175 | NA | 31% | 275 | 1,598 | 136% |
Total | 40,590 | 12,588 | 53,052 | 4.90% | 30% | 750 | 34,061 | 64% |
30 September 2020 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | - | - | - | - | - | - | - | - |
AA | - | - | - | - | - | - | - | - |
A | 188 | 74 | 261 | 0.08% | 42% | - | 53 | 20% |
BBB | 1,224 | 625 | 1,845 | 0.21% | 26% | 1 | 383 | 21% |
BB | 36,088 | 10,955 | 46,914 | 1.59% | 30% | 261 | 28,799 | 61% |
B | 1,384 | 226 | 1,612 | 4.78% | 32% | 25 | 1,369 | 85% |
Other | 2,569 | 354 | 2,924 | 22.12% | 37% | 247 | 4,929 | 169% |
Subtotal | 41,453 | 12,234 | 53,556 | 2.75% | 30% | 534 | 35,533 | 66% |
Default | 952 | 32 | 986 | NA | 34% | 275 | 1,244 | 126% |
Total | 42,405 | 12,266 | 54,542 | 4.51% | 30% | 809 | 36,777 | 67% |
31 March 2020 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | - | - | - | - | - | - | - | - |
AA | - | - | - | - | - | - | - | - |
A | 218 | 65 | 282 | 0.08% | 42% | - | 60 | 21% |
BBB | 1,469 | 502 | 1,969 | 0.21% | 26% | 1 | 430 | 22% |
BB | 38,131 | 10,024 | 48,015 | 1.56% | 30% | 221 | 28,438 | 59% |
B | 1,063 | 142 | 1,206 | 4.78% | 33% | 19 | 1,036 | 86% |
Other | 1,833 | 266 | 2,099 | 21.74% | 37% | 172 | 3,516 | 168% |
Subtotal | 42,714 | 10,999 | 53,571 | 2.37% | 30% | 413 | 33,480 | 62% |
Default | 828 | 26 | 857 | NA | 35% | 256 | 1,013 | 118% |
Total | 43,542 | 11,025 | 54,428 | 3.90% | 30% | 669 | 34,493 | 63% |
1 | The above table reflects that at 31 March 2021 and 30 September 2020 Westpac applied an overlay for business lending to take into account facilities where reviews had not been completed. The overlay is reassessed as customer reviews are completed. This has resulted in a $0.2 billion increase in RWA at 31 March 2021 and a $0.9 billion increase in RWA at 30 September 2020. |
2 | Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items. |
3 | Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
48 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report | |
Credit risk exposures |
Sovereign portfolio by external credit rating
31 March 2021 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | 79,518 | 106 | 82,215 | 0.01% | 6% | 1 | 1,086 | 1% |
AA | 55,760 | 968 | 60,446 | 0.02% | 7% | 1 | 1,163 | 2% |
A | 295 | 146 | 443 | 0.05% | 25% | - | 54 | 12% |
BBB | 106 | 10 | 116 | 0.22% | 35% | - | 37 | 32% |
BB | 3 | 14 | 17 | 2.30% | 35% | - | 15 | 88% |
B | - | - | - | - | - | - | - | - |
Other | - | - | - | - | - | - | - | - |
Subtotal | 135,682 | 1,244 | 143,237 | 0.01% | 7% | 2 | 2,355 | 2% |
Default | - | - | - | NA | - | - | - | - |
Total | 135,682 | 1,244 | 143,237 | 0.01% | 7% | 2 | 2,355 | 2% |
30 September 2020 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | 71,383 | 157 | 77,107 | 0.01% | 6% | - | 1,135 | 1% |
AA | 49,201 | 984 | 54,057 | 0.02% | 8% | 1 | 1,121 | 2% |
A | 352 | 117 | 479 | 0.05% | 27% | - | 50 | 10% |
BBB | 191 | 7 | 198 | 0.20% | 33% | - | 57 | 29% |
BB | 5 | 11 | 16 | 2.23% | 33% | - | 13 | 81% |
B | - | - | - | - | - | - | - | - |
Other | - | - | - | - | - | - | - | - |
Subtotal | 121,132 | 1,276 | 131,857 | 0.01% | 7% | 1 | 2,376 | 2% |
Default | - | - | - | NA | - | - | - | - |
Total | 121,132 | 1,276 | 131,857 | 0.01% | 7% | 1 | 2,376 | 2% |
31 March 2020 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | 56,238 | 150 | 60,998 | 0.01% | 6% | - | 718 | 1% |
AA | 59,725 | 1,160 | 64,805 | 0.02% | 7% | 2 | 1,220 | 2% |
A | 594 | 233 | 828 | 0.05% | 27% | - | 84 | 10% |
BBB | 407 | 7 | 414 | 0.21% | 33% | - | 154 | 37% |
BB | 8 | 11 | 19 | 2.07% | 36% | - | 16 | 84% |
B | - | - | - | - | 0% | - | - | - |
Other | - | - | - | - | - | - | - | - |
Subtotal | 116,972 | 1,561 | 127,064 | 0.02% | 7% | 2 | 2,192 | 2% |
Default | - | - | - | NA | 0% | - | - | - |
Total | 116,972 | 1,561 | 127,064 | 0.02% | 7% | 2 | 2,192 | 2% |
1 | Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items. |
2 | Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
Westpac Group March 2021 Pillar 3 report | 49 |
Pillar 3 report | |
Credit risk exposures |
Bank portfolio by external credit rating
31 March 2021 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | 2,413 | - | 2,463 | 0.01% | 11% | - | 101 | 4% |
AA | 9,013 | 211 | 9,258 | 0.03% | 59% | 2 | 1,903 | 21% |
A | 9,297 | 576 | 9,690 | 0.05% | 58% | 3 | 2,522 | 26% |
BBB | 1,745 | 302 | 1,962 | 0.19% | 60% | 2 | 1,150 | 59% |
BB | 15 | 17 | 30 | 0.92% | 57% | - | 28 | 90% |
B | - | - | - | - | - | - | - | - |
Other | 1 | - | 1 | 22.50% | 60% | - | 4 | 400% |
Subtotal | 22,484 | 1,106 | 23,404 | 0.05% | 54% | 7 | 5,708 | 24% |
Default | - | - | - | NA | - | - | - | - |
Total | 22,484 | 1,106 | 23,404 | 0.05% | 54% | 7 | 5,708 | 24% |
30 September 2020 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | 2,324 | - | 2,351 | 0.01% | 10% | - | 90 | 4% |
AA | 7,917 | 152 | 8,078 | 0.03% | 59% | 1 | 1,543 | 19% |
A | 10,391 | 490 | 10,731 | 0.05% | 58% | 4 | 2,708 | 25% |
BBB | 1,884 | 243 | 2,048 | 0.19% | 59% | 2 | 1,263 | 62% |
BB | 17 | 17 | 34 | 0.74% | 53% | - | 29 | 85% |
B | - | - | - | - | - | - | - | - |
Other | 2 | - | 2 | 18.77% | 60% | - | 7 | 350% |
Subtotal | 22,535 | 902 | 23,244 | 0.05% | 54% | 7 | 5,640 | 24% |
Default | - | - | - | NA | - | - | - | - |
Total | 22,535 | 902 | 23,244 | 0.05% | 54% | 7 | 5,640 | 24% |
31 March 2020 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
AAA | 625 | 55 | 680 | 0.01% | 11% | - | 24 | 4% |
AA | 8,861 | 173 | 9,015 | 0.03% | 58% | 2 | 1,762 | 20% |
A | 14,412 | 473 | 14,800 | 0.05% | 54% | 4 | 4,057 | 27% |
BBB | 1,984 | 173 | 2,110 | 0.19% | 54% | 3 | 1,091 | 52% |
BB | 15 | 12 | 27 | 0.60% | 48% | - | 19 | 70% |
B | - | - | - | - | - | - | - | - |
Other | 1 | - | 1 | 12.11% | 60% | - | 3 | 300% |
Subtotal | 25,898 | 886 | 26,633 | 0.05% | 54% | 9 | 6,956 | 26% |
Default | - | - | - | NA | - | - | - | - |
Total | 25,898 | 886 | 26,633 | 0.05% | 54% | 9 | 6,956 | 26% |
1 | Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items. |
2 | Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
50 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report | |
Credit risk exposures |
Residential mortgages portfolio by PD band1
31 March 2021 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 143,271 | 42,989 | 184,454 | 0.06% | 20% | 23 | 10,643 | 6% |
0.10 to 0.25 | 75,814 | 14,566 | 89,695 | 0.22% | 20% | 39 | 13,149 | 15% |
0.25 to 1.0 | 199,560 | 22,352 | 217,749 | 0.56% | 20% | 244 | 55,617 | 26% |
1.0 to 2.5 | 35,525 | 3,779 | 38,296 | 1.44% | 21% | 115 | 18,110 | 47% |
2.5 to 10.0 | 13,032 | 624 | 13,351 | 4.62% | 20% | 126 | 12,276 | 92% |
10.0 to 99.99 | 13,467 | 235 | 13,656 | 21.18% | 20% | 579 | 18,956 | 139% |
Subtotal | 480,669 | 84,545 | 557,201 | 1.00% | 20% | 1,126 | 128,751 | 23% |
Default | 5,586 | 28 | 5,597 | NA | 20% | 793 | 5,187 | 93% |
Total | 486,255 | 84,573 | 562,798 | 1.99% | 20% | 1,919 | 133,938 | 24% |
30 September 2020 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 143,626 | 42,300 | 184,084 | 0.06% | 20% | 23 | 10,339 | 6% |
0.10 to 0.25 | 72,665 | 11,777 | 83,738 | 0.22% | 20% | 36 | 11,936 | 14% |
0.25 to 1.0 | 192,438 | 19,166 | 207,435 | 0.57% | 20% | 235 | 51,848 | 25% |
1.0 to 2.5 | 37,467 | 3,583 | 39,993 | 1.43% | 21% | 120 | 18,368 | 46% |
2.5 to 10.0 | 15,125 | 668 | 15,470 | 4.52% | 20% | 143 | 13,657 | 88% |
10.0 to 99.99 | 11,794 | 232 | 11,968 | 19.93% | 20% | 476 | 16,328 | 136% |
Subtotal | 473,115 | 77,726 | 542,688 | 0.95% | 20% | 1,033 | 122,476 | 23% |
Default | 7,430 | 30 | 7,445 | NA | 20% | 933 | 8,311 | 112% |
Total | 480,545 | 77,756 | 550,133 | 2.29% | 20% | 1,966 | 130,787 | 24% |
31 March 2020 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 145,843 | 40,976 | 185,030 | 0.06% | 20% | 23 | 10,384 | 6% |
0.10 to 0.25 | 75,031 | 11,716 | 86,067 | 0.22% | 20% | 37 | 12,272 | 14% |
0.25 to 1.0 | 194,476 | 19,051 | 209,423 | 0.57% | 20% | 237 | 52,333 | 25% |
1.0 to 2.5 | 36,418 | 3,655 | 38,978 | 1.44% | 21% | 118 | 17,782 | 46% |
2.5 to 10.0 | 15,317 | 669 | 15,657 | 4.69% | 21% | 150 | 14,043 | 90% |
10.0 to 99.99 | 14,062 | 200 | 14,215 | 23.35% | 20% | 664 | 19,141 | 135% |
Subtotal | 481,147 | 76,267 | 549,370 | 1.11% | 20% | 1,229 | 125,955 | 23% |
Default | 4,486 | 30 | 4,496 | NA | 20% | 559 | 5,469 | 122% |
Total | 485,633 | 76,297 | 553,866 | 1.91% | 20% | 1,788 | 131,424 | 24% |
1 | The above table reflects that at 31 March 2021 Westpac applied a floor of 23.8% to its mortgage risk weights to offset the temporary positive effects of COVID-19 stimulus and support measures on customer account behaviours. The floor is consistent with the mortgage risk weight at 30 September 2020 and has resulted in a $3.7 billion increase in mortgage RWA. |
2 | Outstandings are balances that were drawn down as at the reporting date. |
3 | Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
Westpac Group March 2021 Pillar 3 report | 51 |
Pillar 3 report | |
Credit risk exposures |
Australian credit cards portfolio by PD band1
31 March 2021 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 1,730 | 9,636 | 7,739 | 0.05% | 70% | 3 | 180 | 2% |
0.10 to 0.25 | 1,058 | 3,929 | 3,219 | 0.16% | 73% | 4 | 221 | 7% |
0.25 to 1.0 | 1,047 | 1,193 | 1,792 | 0.47% | 74% | 6 | 300 | 17% |
1.0 to 2.5 | 1,233 | 867 | 1,843 | 1.56% | 74% | 21 | 765 | 42% |
2.5 to 10.0 | 1,158 | 376 | 1,384 | 4.53% | 73% | 46 | 1,173 | 85% |
10.0 to 99.99 | 370 | 89 | 388 | 26.90% | 71% | 74 | 1,344 | 346% |
Subtotal | 6,596 | 16,090 | 16,365 | 1.30% | 72% | 154 | 3,983 | 24% |
Default | 94 | 14 | 94 | NA | 71% | 48 | 296 | 315% |
Total | 6,690 | 16,104 | 16,459 | 1.87% | 72% | 202 | 4,279 | 26% |
30 September 2020 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 1,596 | 9,952 | 7,755 | 0.05% | 70% | 3 | 181 | 2% |
0.10 to 0.25 | 987 | 4,388 | 3,400 | 0.16% | 73% | 4 | 233 | 7% |
0.25 to 1.0 | 1,024 | 1,367 | 1,871 | 0.45% | 73% | 7 | 307 | 16% |
1.0 to 2.5 | 1,826 | 1,103 | 2,529 | 1.67% | 74% | 31 | 1,099 | 43% |
2.5 to 10.0 | 725 | 211 | 850 | 6.18% | 73% | 38 | 895 | 105% |
10.0 to 99.99 | 424 | 99 | 446 | 26.52% | 70% | 83 | 1,401 | 314% |
Subtotal | 6,582 | 17,120 | 16,851 | 1.37% | 72% | 166 | 4,116 | 24% |
Default | 93 | 16 | 93 | NA | 71% | 48 | 289 | 311% |
Total | 6,675 | 17,136 | 16,944 | 1.91% | 72% | 214 | 4,405 | 26% |
31 March 2020 $m |
Outstandings2 |
Committed Undrawn3 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 1,704 | 9,799 | 7,793 | 0.05% | 70% | 3 | 181 | 2% |
0.10 to 0.25 | 1,146 | 4,397 | 3,603 | 0.16% | 73% | 4 | 247 | 7% |
0.25 to 1.0 | 1,260 | 1,335 | 2,109 | 0.46% | 73% | 7 | 346 | 16% |
1.0 to 2.5 | 2,350 | 1,146 | 3,124 | 1.70% | 74% | 39 | 1,373 | 44% |
2.5 to 10.0 | 1,060 | 245 | 1,222 | 6.22% | 73% | 55 | 1,295 | 106% |
10.0 to 99.99 | 608 | 95 | 629 | 29.22% | 70% | 130 | 1,186 | 189% |
Subtotal | 8,128 | 17,017 | 18,480 | 1.80% | 72% | 238 | 4,628 | 25% |
Default | 121 | 17 | 121 | NA | 72% | 76 | 209 | 173% |
Total | 8,249 | 17,034 | 18,601 | 2.44% | 72% | 314 | 4,837 | 26% |
1 | The above table reflects that at 31 March 2021 and 30 September 2020 Westpac applied a floor of 26% to its Australian Credit Cards risk weights. This has resulted in a $0.6 billion increase in RWA at 31 March 2021 and 30 September 2020. |
2 | Outstandings are balances that were drawn down as at the reporting date. |
3 | Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
52 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report | |
Credit risk exposures |
Other retail portfolio by PD band
31 March 2021 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 224 | 911 | 781 | 0.05% | 47% | - | 59 | 8% |
0.10 to 0.25 | 335 | 1,202 | 1,128 | 0.20% | 59% | 2 | 288 | 26% |
0.25 to 1.0 | 3,186 | 1,002 | 4,035 | 0.66% | 58% | 15 | 2,024 | 50% |
1.0 to 2.5 | 2,458 | 830 | 3,109 | 1.63% | 66% | 35 | 2,613 | 84% |
2.5 to 10.0 | 2,108 | 291 | 2,359 | 4.79% | 70% | 85 | 2,555 | 108% |
10.0 to 99.99 | 838 | 46 | 897 | 26.05% | 67% | 164 | 1,347 | 150% |
Subtotal | 9,149 | 4,282 | 12,309 | 3.47% | 63% | 301 | 8,886 | 72% |
Default | 267 | 11 | 270 | NA | 67% | 158 | 380 | 141% |
Total | 9,416 | 4,293 | 12,579 | 5.54% | 63% | 459 | 9,266 | 74% |
30 September 2020 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 217 | 878 | 750 | 0.05% | 47% | - | 57 | 8% |
0.10 to 0.25 | 339 | 1,263 | 1,177 | 0.20% | 60% | 3 | 306 | 26% |
0.25 to 1.0 | 3,301 | 1,080 | 4,210 | 0.66% | 59% | 16 | 2,121 | 50% |
1.0 to 2.5 | 2,690 | 904 | 3,386 | 1.63% | 66% | 39 | 2,854 | 84% |
2.5 to 10.0 | 2,329 | 320 | 2,603 | 4.78% | 69% | 92 | 2,822 | 108% |
10.0 to 99.99 | 968 | 52 | 1,032 | 27.02% | 67% | 191 | 1,582 | 153% |
Subtotal | 9,844 | 4,497 | 13,158 | 3.72% | 63% | 341 | 9,742 | 74% |
Default | 310 | 10 | 313 | NA | 66% | 181 | 432 | 138% |
Total | 10,154 | 4,507 | 13,471 | 5.95% | 63% | 522 | 10,174 | 76% |
31 March 2020 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 215 | 940 | 786 | 0.05% | 48% | - | 59 | 8% |
0.10 to 0.25 | 365 | 1,376 | 1,307 | 0.19% | 60% | 2 | 329 | 25% |
0.25 to 1.0 | 3,469 | 961 | 4,252 | 0.67% | 56% | 16 | 2,068 | 49% |
1.0 to 2.5 | 3,114 | 919 | 3,837 | 1.66% | 66% | 45 | 3,232 | 84% |
2.5 to 10.0 | 3,197 | 340 | 3,486 | 4.90% | 67% | 121 | 3,630 | 104% |
10.0 to 99.99 | 1,185 | 46 | 1,254 | 27.19% | 66% | 235 | 1,854 | 148% |
Subtotal | 11,545 | 4,582 | 14,922 | 4.07% | 62% | 419 | 11,172 | 75% |
Default | 298 | 11 | 301 | NA | 67% | 182 | 422 | 140% |
Total | 11,843 | 4,593 | 15,223 | 5.96% | 62% | 601 | 11,594 | 76% |
1 | Outstandings are balances that were drawn down as at the reporting date. |
2 | Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
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Pillar 3 report | |
Credit risk exposures |
Small business portfolio by PD band
31 March 2021 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 222 | 378 | 430 | 0.07% | 51% | - | 46 | 11% |
0.10 to 0.25 | 148 | 206 | 346 | 0.19% | 21% | - | 29 | 8% |
0.25 to 1.0 | 5,969 | 3,721 | 9,600 | 0.46% | 29% | 13 | 2,008 | 21% |
1.0 to 2.5 | 13,940 | 1,908 | 15,808 | 1.63% | 38% | 96 | 7,982 | 50% |
2.5 to 10.0 | 2,561 | 282 | 2,844 | 5.09% | 35% | 53 | 1,909 | 67% |
10.0 to 99.99 | 1,837 | 82 | 1,921 | 29.07% | 38% | 211 | 2,168 | 113% |
Subtotal | 24,677 | 6,577 | 30,949 | 3.25% | 35% | 373 | 14,142 | 46% |
Default | 982 | 36 | 992 | NA | 36% | 240 | 1,955 | 197% |
Total | 25,659 | 6,613 | 31,941 | 6.26% | 35% | 613 | 16,097 | 50% |
30 September 2020 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 222 | 395 | 431 | 0.07% | 51% | - | 46 | 11% |
0.10 to 0.25 | 125 | 192 | 310 | 0.19% | 21% | - | 27 | 9% |
0.25 to 1.0 | 6,041 | 3,723 | 9,667 | 0.47% | 29% | 13 | 2,024 | 21% |
1.0 to 2.5 | 14,216 | 1,976 | 16,145 | 1.63% | 39% | 100 | 8,195 | 51% |
2.5 to 10.0 | 2,936 | 332 | 3,270 | 5.09% | 35% | 61 | 2,198 | 67% |
10.0 to 99.99 | 1,573 | 78 | 1,652 | 28.10% | 38% | 176 | 1,864 | 113% |
Subtotal | 25,113 | 6,696 | 31,475 | 2.99% | 35% | 350 | 14,354 | 46% |
Default | 1,273 | 29 | 1,283 | NA | 39% | 335 | 2,623 | 204% |
Total | 26,386 | 6,725 | 32,758 | 6.79% | 36% | 685 | 16,977 | 52% |
31 March 2020 $m |
Outstandings1 |
Committed Undrawn2 |
Exposure at Default |
Probability of Default |
Loss Given Default |
Regulatory Expected Loss |
Risk Weighted Assets |
Average Risk Weight |
0.0 to 0.10 | 241 | 361 | 435 | 0.07% | 50% | - | 46 | 11% |
0.10 to 0.25 | 131 | 191 | 314 | 0.19% | 21% | - | 27 | 9% |
0.25 to 1.0 | 6,267 | 3,602 | 9,770 | 0.47% | 28% | 13 | 2,039 | 21% |
1.0 to 2.5 | 14,668 | 1,805 | 16,447 | 1.64% | 39% | 104 | 8,476 | 52% |
2.5 to 10.0 | 3,331 | 309 | 3,643 | 5.25% | 36% | 71 | 2,534 | 70% |
10.0 to 99.99 | 1,762 | 66 | 1,831 | 27.83% | 38% | 190 | 2,039 | 111% |
Subtotal | 26,400 | 6,334 | 32,440 | 3.14% | 35% | 378 | 15,161 | 47% |
Default | 731 | 19 | 741 | NA | 37% | 179 | 1,651 | 223% |
Total | 27,131 | 6,353 | 33,181 | 5.30% | 35% | 557 | 16,812 | 51% |
1 | Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items. |
2 | Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
54 | Westpac Group March 2021 Pillar 3 report |
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Credit risk exposures |
Credit Quality
Actual losses
31 March 2020 | Write-offs | Legal and | Write-offs from | Actual Losses for the | |||||||
$m | direct | recovery costs | provisions1 | Recoveries | 6 months ended | ||||||
Corporate | - | - | 56 | - | 56 | ||||||
Business lending | 30 | - | 3 | (8 | ) | 25 | |||||
Sovereign | - | - | - | - | - | ||||||
Bank | - | - | - | - | - | ||||||
Residential mortgages | 8 | - | 37 | (1 | ) | 44 | |||||
Australian credit cards | 121 | - | - | (50 | ) | 71 | |||||
Other retail | 142 | 4 | - | (68 | ) | 78 | |||||
Small business | 10 | 1 | 14 | (1 | ) | 24 | |||||
Specialised lending | - | 2 | 3 | (4 | ) | 1 | |||||
Securitisation | - | - | - | - | - | ||||||
Standardised | - | - | - | - | - | ||||||
Total | 311 | 7 | 113 | (132 | ) | 299 |
30 September 2020 | Write-offs | Legal and | Write-offs from | Actual Losses for the | |||||||
$m | direct | recovery costs | provisions1 | Recoveries | 12 months ended | ||||||
Corporate | - | - | 101 | (6 | ) | 95 | |||||
Business lending | 44 | 2 | 34 | (9 | ) | 71 | |||||
Sovereign | - | - | - | - | - | ||||||
Bank | - | - | - | - | - | ||||||
Residential mortgages | 18 | - | 108 | (1 | ) | 125 | |||||
Australian credit cards | 392 | - | - | (60 | ) | 332 | |||||
Other retail | 373 | 10 | - | (108 | ) | 275 | |||||
Small business | 27 | 2 | 48 | (3 | ) | 74 | |||||
Specialised lending | 1 | 4 | 4 | (6 | ) | 3 | |||||
Securitisation | - | - | - | - | - | ||||||
Standardised | 2 | - | - | - | 2 | ||||||
Total | 857 | 18 | 295 | (193 | ) | 977 |
31 March 2020 | Write-offs | Legal and | Write-offs from | Actual Losses for the | |||||||
$m | direct | recovery costs | provisions1 | Recoveries | 6 months ended | ||||||
Corporate | 1 | - | 1 | (6 | ) | (4 | ) | ||||
Business lending | 21 | - | 19 | (5 | ) | 35 | |||||
Sovereign | - | - | - | - | - | ||||||
Bank | - | - | - | - | - | ||||||
Residential mortgages | 8 | - | 59 | - | 67 | ||||||
Australian credit cards | 197 | - | - | (33 | ) | 164 | |||||
Other retail | 181 | 7 | 1 | (54 | ) | 135 | |||||
Small business | 20 | - | 19 | - | 39 | ||||||
Specialised lending | 1 | 2 | - | (2 | ) | 1 | |||||
Securitisation | - | - | - | - | - | ||||||
Standardised | - | - | - | - | - | ||||||
Total | 429 | 9 | 99 | (100 | ) | 437 |
1 | Write-offs from individually assessed provisions. |
Westpac Group March 2021 Pillar 3 report | 55 |
Pillar 3 report | |
Credit risk exposures |
Regulatory loss estimates and actual losses
The table below compares regulatory credit risk estimates used in the calculation of risk weighted assets to the average of actual outcomes observed since the time of Advanced IRB accreditation for each portfolio.
Predicted parameters represent average internally predicted long-run probabilities of default for non-defaulted obligors at the start of each year, as well as downturn estimates of loss (or the regulatory minimum where required). They are averaged using data from the financial years beginning at the time of Advanced IRB accreditation (2008 for most portfolios) and compared to observed outcomes over the same period1.
Predicted parameters are reviewed annually utilising observed outcomes from prior periods as a key input.
Default rates
At the start of each year, a predicted default probability is assigned to all non-defaulted obligors. This is averaged over the portfolio for the period since IRB accreditation and reported as the predicted default rate. The actual default rate reflects the fraction of obligors who start the year not in default but default during the one year period. The observed annual default rates are averaged over the period since IRB accreditation.
Loss Given Default (LGD)
The LGD analysis excludes recent defaults in order to allow sufficient time for the full workout of the facility and hence an accurate LGD to be determined. The workout period varies by portfolio: a two year workout period is assumed for transaction-managed and residential mortgage lending; and a one year period for other program-managed portfolios.
Exposure at Default (EAD)
The EAD variance compares the observed EAD to the predicted EAD up to one year prior to default. For transaction-managed portfolios, predicted EAD is currently mandated to be 100% of committed exposures. The observed EAD is averaged for all obligors that defaulted over the observation period.
Observed EAD | ||||||||||||
31 March 2021 | Regulatory | Default rate | Loss Given Default | variance to | ||||||||
$m | Expected Loss2 | Predicted | Observed | Predicted | Observed | Predicted3 | ||||||
Corporate | 654 | 2.26% | 0.93% | 47% | 35% | (23%) | ||||||
Business lending | 750 | 2.25% | 1.65% | 35% | 16% | (13%) | ||||||
Sovereign | 2 | 0.22% | - | - | - | - | ||||||
Bank | 7 | 0.42% | 0.12% | - | - | - | ||||||
Residential mortgages | 1,919 | 0.70% | 0.59% | 20% | 1% | (1%) | ||||||
Australian credit cards | 202 | 1.69% | 1.61% | 75% | 59% | (2%) | ||||||
Other retail | 459 | 4.75% | 3.65% | 68% | 43% | (7%) | ||||||
Small business | 613 | 3.61% | 2.67% | 38% | 9% | (10%) | ||||||
Specialised lending | 813 | NA | 2.13% | NA | 20% | (9%) | ||||||
Securitisation | - | NA | NA | NA | NA | NA | ||||||
Standardised | - | NA | NA | NA | NA | NA | ||||||
Total | 5,419 |
1 | Predicted parameters are not available for specialised lending, securitisation or standardised exposures because risk weights for these portfolios do not rely on credit estimates and are shown as NA in the tables above. |
2 | Includes regulatory expected losses for defaulted and non-defaulted exposures. |
3 | A negative outcome indicates observed EAD was lower than predicted EAD, which can happen because exposures were managed down prior to default or off-balance sheet items or undrawn limits were not fully drawn prior to default. |
56 | Westpac Group March 2021 Pillar 3 report |
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Credit risk exposures |
Observed EAD | ||||||||||||
30 September 2020 | Regulatory | Default rate | Loss Given Default | variance to | ||||||||
$m | Expected Loss1 | Predicted | Observed | Predicted | Observed | Predicted2 | ||||||
Corporate | 758 | 2.25% | 0.92% | 47% | 35% | (23%) | ||||||
Business lending | 809 | 2.24% | 1.54% | 35% | 17% | (13%) | ||||||
Sovereign | 1 | 0.23% | - | - | - | - | ||||||
Bank | 7 | 0.43% | 0.13% | - | - | - | ||||||
Residential mortgages | 1,966 | 0.68% | 0.54% | 20% | 1% | (1%) | ||||||
Australian credit cards | 214 | 1.70% | 1.63% | 75% | 59% | (2%) | ||||||
Other retail | 522 | 4.79% | 3.71% | 69% | 44% | (7%) | ||||||
Small business | 685 | 3.55% | 2.52% | 38% | 11% | (9%) | ||||||
Specialised lending | 837 | NA | 1.90% | NA | 20% | (9%) | ||||||
Securitisation | - | NA | NA | NA | NA | NA | ||||||
Standardised | - | NA | NA | NA | NA | NA | ||||||
Total | 5,799 |
Observed EAD | ||||||||||||
31 March 2020 | Regulatory | Default rate | Loss Given Default | variance to | ||||||||
$m | Expected Loss1 | Predicted | Observed | Predicted | Observed | Predicted2 | ||||||
Corporate | 787 | 2.25% | 0.93% | 47% | 36% | (23%) | ||||||
Business lending | 669 | 2.24% | 1.56% | 34% | 17% | (13%) | ||||||
Sovereign | 2 | 0.23% | - | - | - | - | ||||||
Bank | 9 | 0.43% | 0.13% | - | - | - | ||||||
Residential mortgages | 1,788 | 0.66% | 0.53% | 20% | 1% | (1%) | ||||||
Australian credit cards | 314 | 1.68% | 1.63% | 75% | 59% | (2%) | ||||||
Other retail | 601 | 4.83% | 3.80% | 69% | 45% | (8%) | ||||||
Small business | 557 | 3.28% | 2.21% | 39% | 12% | (9%) | ||||||
Specialised lending | 813 | NA | 1.93% | NA | 22% | (9%) | ||||||
Securitisation | - | NA | NA | NA | NA | NA | ||||||
Standardised | - | NA | NA | NA | NA | NA | ||||||
Total | 5,540 | |||||||||||
1 | Includes regulatory expected losses for defaulted and non-defaulted exposures |
2 | A negative outcome indicates observed EAD was lower than predicted EAD, which can happen because exposures were managed down prior to default or off-balance sheet items or undrawn limits were not fully drawn prior to default. |
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Credit risk mitigation |
This section describes the way in which Westpac reduces its credit risk by using financial collateral, guarantees or credit derivatives for the Corporate, Sovereign and Bank asset classes.
Approach
Westpac recognises credit risk mitigation only when formal legal documentation is held that establishes Westpac's direct, irrevocable and unconditional recourse to the collateral or to an unrelated credit risk mitigation provider. Minimum standards for recognising credit risk mitigation are set out in Westpac's credit rules and policies. All proposals for recognising risk mitigation require approval by an authorised credit officer. Authorised credit officer approval is also required for existing risk mitigation to be discontinued or withdrawn.
The amount of credit risk mitigation recognised is the face value of the mitigation instrument, adjusted by the application of discounts for any maturity and/or currency mismatch with the underlying obligation, so that a discounted amount is recognised when calculating the residual exposure after mitigation.
For regulatory capital purposes:
• | exposures secured by eligible financial collateral, either cash or certain government or semi-government securities, or where protection is bought via credit linked notes, provided proceeds are invested in eligible financial collateral, are included at the gross value, with risk weighted assets for the portion thus secured calculated by applying a 5% LGD1; |
• | exposures mitigated by eligible guarantees, standby letters of credit or similar instruments, where Westpac has direct recourse to an unrelated third party, or credit protection bought via credit default swaps where Westpac is entitled to recover either full principal or credit losses on occurrence of defined credit events, are treated under double default rules where the protection provider is rated A-/A3 or better. The GCCO has the authority to approve exceptions to the A-/A3 minimum; and |
• | exposures mitigated by guarantees, letters of credit, credit default swaps or similar instruments, which are not eligible for double default treatment are treated under the substitution approach. |
When Westpac uses credit risk mitigation techniques to reduce counterparty exposure, limits are applied to both gross (i.e. pre-mitigation) and net exposure. Furthermore, exposure is recorded against the provider of any credit risk mitigation and a limit framework prevents excessive concentration to such counterparties.
Netting
Risk reduction by way of current account set-offs is recognised for exposures to creditworthy customers domiciled in Australia and New Zealand only. Customers are required to enter into formal agreements giving Westpac the unfettered right to set-off gross credit and debit balances in their nominated accounts to determine Westpac's net exposure within each of these two jurisdictions. Cross-border set-offs are not permitted.
Close-out netting is undertaken for off-balance sheet financial market transactions with counterparties with whom Westpac has entered into master netting agreements which allow such netting in specified jurisdictions. Close-out netting effectively aggregates pre-settlement risk exposure at time of default, thus reducing overall exposure.
Collateral valuation and management
Westpac revalues financial markets and associated collateral positions on a daily basis to monitor the net risk position, and has formal processes in place so that calls for collateral top-up or exposure reduction are made promptly. An independent operational unit has responsibility for monitoring these positions. The collateralisation arrangements are documented via the Credit Support Annex of the International Swaps and Derivatives Association (ISDA) master agreement for derivatives transactions and Global Master Repurchase Agreement (GMRA) for repurchase transactions and Clearing Agreements for cleared trades.
1 | Excludes collateralised derivative transactions. |
58 | Westpac Group March 2021 Pillar 3 report |
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Credit risk mitigation |
Total exposure covered by collateral, credit derivatives and guarantees
Impact | Total exposure for | Credit Risk Mitigants | ||||||||||||
31 March 2021 | Total before | of credit | Total after | which some credit | Eligible Financial | Covered by | Covered by | |||||||
$m | mitigation | mitigation1 | mitigation | risk is mitigated | Collateral | Guarantees | Credit Derivatives | |||||||
Corporate | 124,955 | (388 | ) | 124,567 | 3,642 | 902 | 436 | - | ||||||
Sovereign | 143,292 | (55 | ) | 143,237 | 712 | 56 | 120 | - | ||||||
Bank | 24,899 | (1,495 | ) | 23,404 | 7,991 | 1,495 | - | - | ||||||
Standardised | 15,300 | - | 15,300 | 1,794 | - | - | - | |||||||
Total | 308,446 | (1,938 | ) | 306,508 | 14,139 | 2,453 | 556 | - |
Impact | Total exposure for | Credit Risk Mitigants | ||||||||||||
30 September 2020 | Total before | of credit | Total after | which some credit | Eligible Financial | Covered by | Covered by | |||||||
$m | mitigation | mitigation1 | mitigation | risk is mitigated | Collateral | Guarantees | Credit Derivatives | |||||||
Corporate | 130,473 | (485 | ) | 129,988 | 4,357 | 1,879 | 295 | - | ||||||
Sovereign | 132,020 | (163 | ) | 131,857 | 757 | 164 | 79 | - | ||||||
Bank | 24,458 | (1,214 | ) | 23,244 | 7,981 | 1,214 | - | - | ||||||
Standardised | 16,993 | - | 16,993 | 2,797 | - | - | - | |||||||
Total | 303,944 | (1,862 | ) | 302,082 | 15,892 | 3,257 | 374 | - |
Impact | Total exposure for | Credit Risk Mitigants | ||||||||||||
31 March 2020 | Total before | of credit | Total after | which some credit | Eligible Financial | Covered by | Covered by | |||||||
$m | mitigation | mitigation1 | mitigation | risk is mitigated | Collateral | Guarantees | Credit Derivatives | |||||||
Corporate | 150,294 | (3,765 | ) | 146,529 | 8,562 | 5,617 | 305 | - | ||||||
Sovereign | 127,690 | (626 | ) | 127,064 | 1,422 | 626 | 103 | - | ||||||
Bank | 34,129 | (7,496 | ) | 26,633 | 15,088 | 7,496 | - | - | ||||||
Standardised | 19,616 | - | 19,616 | 4,932 | - | - | - | |||||||
Total | 331,729 | (11,887 | ) | 319,842 | 30,004 | 13,739 | 408 | - | ||||||
1 | Impact of credit mitigation under the substitution approach. |
Westpac Group March 2021 Pillar 3 report | 59 |
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Counterparty credit risk |
This section describes Westpac's exposure to credit risk arising from derivative and treasury products.
Approach
Westpac actively assesses and manages the derivative and treasury credit risk (known collectively as counterparty credit risk) arising from its derivatives business. Westpac's process for managing counterparty credit risk is based on its assessment of the potential future credit risk Westpac is exposed to when dealing in derivatives products and securities financing transactions. Westpac quantifies this risk through a daily simulation of future market price and rate shocks and converts the effect of these shocks on the mark-to-market value of Westpac's positions to a credit exposure using Westpac's Derivative Risk Equivalent (DRE) methodology. Exposures are loaded into Westpac's credit limit management system where they are checked against pre-settlement risk limits that are set at the counterparty level. Limit excesses are reported to credit managers and actioned within strict timeframes.
Structure and organisation
The Financial Markets Credit management team is charged with managing the counterparty credit exposure arising from derivatives and treasury products.
Market related credit risk
There are two components to the regulatory capital requirements for credit risk arising from derivative products:
• | capital to absorb losses arising from the default of derivative counterparties; and |
• | capital to absorb losses arising from mark-to-market valuation movements resulting from changes in the credit quality of derivative counterparties. These valuation movements are referred to as credit valuation adjustments (CVA) and this risk is sometimes labelled as CVA risk. Westpac refers to this requirement as mark-to-market related credit risk. |
Risk mitigation
Mitigation is achieved in a number of ways:
• | the limit system monitors for excesses of the pre-defined limits, with any excesses being notified to authorised credit officers; |
• | Westpac has netting agreements with counterparties to allow the exposure across a portfolio of trades with the same counterparty to be netted; |
• | Westpac has collateral agreements with its largest counterparties. The market value of the counterparty's portfolio is used to recalculate the credit position at each end of day, with collateral being called for when certain pre-set limits are met or exceeded. Westpac exchanges Initial Margin with eligible counterparties for eligible products as protection against potential future exposure to changes in market value; |
• | Westpac has initial margin agreements with qualifying counterparties subject to relevant international regulations. The exchange of initial margin for eligible products covers the potential future exposure that could arise from changes in the market value of derivative transactions over the close-out period in the event of a counterparty default; |
• | credit derivatives are used to mitigate credit exposure against certain counterparties; and |
• | regular marking to market and settling of the foreign exchange components of foreign exchange reset contracts. |
Counterparty derivative exposures and limits
The risk management methodology for counterparty derivatives exposures is similar to the credit methodology for transaction-managed loans. The main difference is in the estimation of the exposure for derivatives which is based on the DRE methodology. DRE is a credit exposure measure for derivative trades which is calibrated to a 'loan-equivalent' exposure.
Counterparty credit limits are approved on an uncommitted and unadvised basis by authorised credit officers. This follows an evaluation of each counterparty's credit worthiness and establishing an agreed credit risk appetite for the nature and extent of prospective business.
60 | Westpac Group March 2021 Pillar 3 report |
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Counterparty credit risk |
Wrong-way risk exposures
Westpac defines wrong-way risk as exposure to a counterparty which is adversely correlated with the credit quality of that counterparty. With respect to credit derivatives, wrong-way risk refers to credit protection purchased from a counterparty highly correlated to the reference obligation.
Wrong-way risk exposures using credit derivatives are controlled by only buying protection from highly rated counterparties. These transactions are assessed by an authorised credit officer who has the right to decline any transaction where they feel there is an unacceptably high correlation between the ability to perform under the trade and the performance of the underlying counterparty.
Consequences of a downgrade in Westpac's credit rating
A downgrade in Westpac's credit rating can have an impact on Westpac's collateral agreements. Where an outright threshold and minimum transfer amount are agreed, there will not be any impact on the amount of collateral posted by Westpac in the event of a credit rating downgrade. Where the threshold and minimum transfer amount are tiered according to credit rating, the impact of Westpac being downgraded below its current credit rating would be: for a one notch downgrade, postings of $81 million; while for a two notch downgrade, postings would be $90 million1.
Counterparty credit risk summary
31 March | 30 September | 31 March | ||||
$m | 2021 | 2020 | 2020 | |||
Gross positive fair value | 23,141 | 24,320 | 58,420 | |||
Netting and collateral benefits | (14,978 | ) | (16,086 | ) | (45,783 | ) |
including cash collateral held | 875 | 1,850 | (7,463 | ) | ||
Replacement cost | 8,163 | 8,234 | 12,637 | |||
Potential future exposure | 9,853 | 9,613 | 11,755 | |||
Impact of scaling factor of 1.4 and incurred credit | 7,036 | 6,923 | 9,500 | |||
value adjustment | ||||||
Net derivatives credit exposure under SA-CCR | 25,052 | 24,770 | 33,891 | |||
Exposure type | ||||||
Interest rate contracts | 8,930 | 10,320 | 12,144 | |||
Foreign exchange contracts | 15,590 | 13,772 | 20,397 | |||
Equity contracts | 5 | 5 | 5 | |||
Credit derivatives | 5 | 8 | 141 | |||
Commodity contracts | 521 | 665 | 1,201 | |||
Other | - | 1 | 4 | |||
Total | 25,052 | 24,770 | 33,891 |
The format and content this table (including the comparative disclosures for prior periods) has been revised to align to the Standardised Approach - Counterparty Credit Risk (SA-CCR) applicable under the Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk (July 2019). This change does not impact SA-CCR capital.
Credit derivative transactions that create exposures to counterparty credit risk
31 March 2021 | Westpac Portfolio | Intermediation activities | ||||||
Credit derivatives products used ($m) | Bought | Sold | Bought | Sold | ||||
Credit Default Swaps | - | 5 | - | - | ||||
Total Return Swaps | - | - | - | - | ||||
Credit options | - | - | - | - | ||||
Credit linked notes | - | - | - | - | ||||
Collateralised Loan Obligations | - | - | - | - | ||||
Other | - | - | - | - | ||||
Total | - | 5 | - | - |
1 | Credit rating downgrade postings are cumulative. |
Westpac Group March 2021 Pillar 3 report | 61 |
Pillar 3 report | |
Counterparty credit risk |
30 September 2020 | Westpac Portfolio | Intermediation activities | ||||||
Credit derivatives products used ($m) | Bought | Sold | Bought | Sold | ||||
Credit Default Swaps | - | 8 | - | - | ||||
Total Return Swaps | - | - | - | - | ||||
Credit options | - | - | - | - | ||||
Credit linked notes | - | - | - | - | ||||
Collateralised Loan Obligations | - | - | - | - | ||||
Other | - | - | - | - | ||||
Total | - | 8 | - | - | ||||
31 March 2020 | Westpac Portfolio | Intermediation activities | ||||||
Credit derivatives products used ($m) | Bought | Sold | Bought | Sold | ||||
Credit Default Swaps | 69 | 72 | - | - | ||||
Total Return Swaps | - | - | - | - | ||||
Credit options | - | - | - | - | ||||
Credit linked notes | - | - | - | - | ||||
Collateralised Loan Obligations | - | - | - | - | ||||
Other | - | - | - | - | ||||
Total | 69 | 72 | - | - |
62 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Securitisation
A securitisation is a financial structure where the cash flow from a pool of assets is used to service obligations to at least two different tranches or classes of creditors (typically holders of debt securities), with each class or tranche reflecting a different degree of credit risk (i.e. one class of creditors is entitled to receive payments from the pool before another class of creditors).
Securitisation transactions are generally grouped into two broad categories:
• | traditional or true sale securitisations, which involve the transfer of ownership of the underlying asset pool to a third party; and |
• | synthetic transactions, where the ownership of the pool remains with the originator and only the credit risk of the pool is transferred to a third party, using credit derivatives or guarantees. |
Covered bond transactions, in which bonds issued by Westpac are guaranteed by assets held in a special purpose vehicle, are not considered to be securitisation transactions.
Approach
Westpac's involvement in securitisation activities ranges from a seller of its own assets to an investor in third-party transactions and includes the arranging of transactions, the provision of securitisation services and the provision of funding for clients, including clients requiring access to capital markets.
Securitisation of Westpac originated assets - Securitisation is a funding, liquidity and capital management tool. It allows Westpac the ability to liquefy a pool of assets and increase Westpac's wholesale funding capacity. Westpac may provide arm's length facilities to the securitisation vehicles. The facilities entered into typically include the provision of liquidity, funding, underwriting and derivative contracts.
Westpac has entered into on balance sheet securitisation transactions whereby loans originated by Westpac are transformed into stocks of saleable mortgage backed securities and held in the originating bank's liquid asset portfolio. These 'self securitisations' do not change risk weighted assets1. No securitisation transactions for Westpac originated assets are classified as a resecuritisation.
Securitisation in the management of Westpac's credit portfolio - Westpac uses securitisation, including portfolio credit default swaps, to manage its corporate and institutional loan and counterparty credit risk portfolios. Single name credit default swaps are not treated as securitisations but as credit risk mitigation facilities. Transactions are entered into to manage counterparty credit risk or concentration risks.
Provision of securitisation services, including funding and arranging asset backed bond issues - Westpac provides services to clients wishing to access asset-backed financing through securitisation. Those services include the provision of warehouse and term funding of securitised assets and arranging asset backed bond issues.
Securitisation facilities provided by Westpac include resecuritisation exposures which are securitisation exposures in which the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is itself a securitisation exposure. Westpac also buys and sells securitisation exposures in the secondary market to facilitate portfolio management activity by its institutional customers who hold asset backed bonds.
Westpac's role in the securitisation process
Securitisation activity | Role played by Westpac | |||
Securitisation of Westpac originated assets | • | Arranger | • | Note holder |
• | Asset originator | • | Trust manager | |
• | Bond distributor | • | Swap provider | |
• | Facility provider | • | Servicer | |
Securitisation in the management of Westpac's credit portfolio | • | Hedger - protection purchaser | ||
• | Investor - protection seller | |||
• | Investor - purchaser of securitisation exposures | |||
Provision of securitisation services including funding and arranging asset backed bond issues | • | Arranger | • | Liquidity facility |
• | Bond distributor | provider | ||
• | Credit enhancement | • | Swap counterparty | |
provider | servicer | |||
• | Funder | • | Market maker and | |
broker for distributed | ||||
bonds |
1 | The credit exposures of the underlying loans are measured in accordance with APS113. |
Westpac Group March 2021 Pillar 3 report | 63 |
Pillar 3 report
Securitisation
Key Objectives
Securitisation of Westpac originated assets - The securitisation of Westpac's own assets provides funding diversity, and is a core tool of liquidity management.
Securitisation in the management of Westpac's credit portfolio - Westpac acts as principal in transactions and will buy and sell protection in order to meet its portfolio management objectives. Westpac also purchases securitisation exposures in order to earn income. All securitisation activity must follow Westpac's credit policies and approval processes.
Provision of securitisation services, including funding and arranging asset backed bond issues - Westpac receives market-based fees in return for its services as servicer, swap counterparty, arranger and facility provider and program fees, interest margins and bond distribution fees on warehouse and term funding facilities. Westpac facilitates portfolio management activity by its institutional customers by buying and selling securitisation exposures in the secondary market and is compensated through an interest margin and bid-offer spread on the transactions.
Structure and organisation
Securitisation of Westpac originated assets - Westpac's Treasury operations are responsible for all Westpac originated securitisation activity including funding, liquidity and capital management.
Securitisation in the management of Westpac's credit portfolio - Westpac's exposure arising from securitisation, including portfolio hedging, is managed by Westpac Institutional Bank (WIB) and integrated within Westpac's standard risk reporting and management systems.
Provision of securitisation services including funding and arranging asset backed bond issues - These services are provided by WIB and include the provision of liquidity, credit enhancement, funding and derivative facilities, servicer and arranger services, and market-making and broking of asset-backed bonds.
Risk reporting
Credit exposure - Funding, liquidity, credit enhancement and redraw facilities, swap arrangements and counterparty exposures are captured and monitored in key source systems along with other facilities/derivatives entered into by Westpac.
Operational risk exposure - The operational risk review process for Westpac includes the identification of risks, controls and key performance indicators in relation to all securitisation activity and services provided by Westpac or any of its subsidiaries.
Market risk exposure - Exposures arising from transactions with the securitisation conduit and other counterparties are captured as part of Westpac's traded and non-traded market risk reporting and limit management framework.
Liquidity risk exposure - Exposure to, and the impact of, securitisation transactions are managed under the Liquidity Risk Management Framework and are integrated into routine reporting for capital and liquidity positions, net interest margin analysis, balance sheet forecasting and funding scenario testing. The annual funding plan incorporates consideration of overall liquidity risk limits and the securitisation of Westpac originated assets.
Risk mitigation
Securitisation of Westpac originated assets - The interest rate and basis risks generated by Westpac's hedging arrangements to each securitisation trust are captured and managed within Westpac's asset and liability management framework. The liquidity risk generated by Westpac's liquidity and redraw facilities to each securitisation trust is captured and managed in accordance with Westpac's liquidity management policies along with all other contingent liquidity facilities.
Securitisation in the management of Westpac's credit portfolio - Transactions are approved in accordance with Westpac's credit risk mitigation approach (see pages 58 and 59).
Provision of securitisation services including funding and arranging asset backed bond issues - All securitisation transactions are approved within the context of a securitisation credit policy that sets detailed transaction-specific guidelines that regulate servicer counterparty risk appetite, transaction tenor, asset class, third party credit support and portfolio quality. This policy is applied in conjunction with other credit and market risk policies that governs the provision of derivative and other services that support securitisation transactions. In particular, credit hedging transactions are subject to Westpac's credit risk mitigation approach (see pages 58 and 59). Any interest rate or currency hedging is subject to counterparty credit risk management (see pages 60 and 61) and market risk management (see pages 73 and 74) policies and processes.
64 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Securitisation
Regulatory capital approaches
The regulatory capital treatment of all securitisation exposures is measured in accordance with APS120. APS120 specifies that securitisation exposures held in the trading book are subject to the requirements of Prudential Standard APS 116 Capital Adequacy: Market Risk.
Under APS120 the approaches employed include the External Rating Based Approach (ERBA) and the Supervisory Formula Approach (SFA). Under the ERBA, APRA provides risk-weights that are matched to external credit ratings and takes into account tranche maturity and tranche thickness. The SFA applicable to unrated exposures dynamically looks at the type and performance of underlying asset pools funded by the securitisation exposure as well as the structural features of the transaction to determine capital requirements. The Internal Assessment Approach (IAA) is not permitted under APS120.
Securitisation of Westpac originated assets - The assets sold by Westpac to a securitisation trust are excluded from Westpac's calculation of credit risk weighted assets if capital relief is sought and the requirements of APS120 are satisfied1. Westpac cannot rely on external rating when risk weighting its exposure to these trusts and must use the SFA instead.
In instances where insufficient risk transfer is achieved by the transaction for regulatory purposes, the capital calculation is performed on the underlying asset pool while the facilities provided to such securitisation vehicles do not attract regulatory capital charges.
Securitisation in the management of Westpac's credit portfolio - Securitisation exposures are assessed using either the ERBA or SFA approaches.
Provision of securitisation services including funding - Westpac uses the ERBA and the SFA methodology when determining regulatory capital requirements for warehouse and term funding facilities related to securitised assets on Westpac's balance sheet.
The External Credit Assessment Institutions that can be used by Westpac for securitisations are Standard & Poor's, Moody's and Fitch.
Westpac's accounting policies for securitisation activities
Securitisation of Westpac originated assets - The assets sold by Westpac to a securitisation trust remain on Westpac's balance sheet for accounting purposes.
Securitisation in the management of Westpac's credit portfolio - For risk mitigation using synthetic securitisation, the underlying assets remain on Westpac's balance sheet for accounting purposes. The accounting treatment of the assets will depend on their nature. They could include loans and receivables, available for sale securities or derivatives. The most common form of synthetic securitisation is via a credit default swap, which is treated as a derivative and recognised in the profit and loss statement at fair value.
For investment in securitisation exposures, if the instrument has been designated on initial recognition at fair value (including instruments containing a credit default swap), the exposure will be measured at fair value through the Income Statement. All other investments in securitisation exposures will be classified as available-for-sale (AFS) and measured at fair value through Other Comprehensive Income (within the AFS securities reserve).
Provision of securitisation services including funding and arranging asset backed bond issues - Fee income from these services is recognised on an accrual basis. Liquidity and funding facilities are treated as commitments to provide finance, with fee and margin income recognised on an accrual basis. Warehouse and term funding facilities are treated as loans.
1 | Including the requirements to achieve capital relief. |
Westpac Group March 2021 Pillar 3 report | 65 |
Pillar 3 report
Securitisation
Banking book summary of assets securitised by Westpac
This table shows outstanding banking book securitisation assets and assets intended to be securitised1 for Westpac originated assets by underlying asset type. It includes the amount of impaired and past due assets, along with any losses recognised by Westpac during the current period.
Securitised assets are held in securitisation trusts. Trusts which meet requirements to achieve capital relief do not form part of the Level 2 consolidated group. Self securitisation trusts remain consolidated at Level 2 and the assets transferred to these trusts are risk weighted in accordance with APS113.
Total outstanding securitised by ADI | Assets | Westpac | |||||||||||||||||
31 March 2021 | Traditional | Synthetic | intended to be | Impaired | Past due | recognised | |||||||||||||
$m | Securitisation | 2 | Securitisation | securitised | loans | assets | losses | ||||||||||||
Residential mortgages | 137,681 | - | - | 42 | 1,068 | - | |||||||||||||
Credit cards | - | - | - | - | - | - | |||||||||||||
Auto and equipment finance | 1,483 | - | - | 34 | - | - | |||||||||||||
Business lending | - | - | - | - | - | - | |||||||||||||
Investments in ABS | - | - | - | - | - | - | |||||||||||||
Other | - | - | - | - | - | - | |||||||||||||
Total | 139,164 | - | - | 76 | 1,068 | - | |||||||||||||
Total outstanding securitised by ADI | Assets | Westpac | |||||||||||||||||
30 September 2020 | Traditional | Synthetic | intended to be | Impaired | Past due | recognised | |||||||||||||
$m | Securitisation | 2 | Securitisation | securitised | loans | assets | losses | ||||||||||||
Residential mortgages | 145,384 | - | - | 56 | 1,407 | - | |||||||||||||
Credit cards | - | - | - | - | - | - | |||||||||||||
Auto and equipment finance | 1,735 | - | - | 53 | - | - | |||||||||||||
Business lending | - | - | - | - | - | - | |||||||||||||
Investments in ABS | - | - | - | - | - | - | |||||||||||||
Other | - | - | - | - | - | - | |||||||||||||
Total | 147,119 | - | - | 109 | 1,407 | - | |||||||||||||
Total outstanding securitised by ADI | Assets | Westpac | |||||||||||||||||
31 March 2020 | Traditional | Synthetic | intended to be | Impaired | Past due | recognised | |||||||||||||
$m | Securitisation | 2 | Securitisation | securitised | loans | assets | losses | ||||||||||||
Residential mortgages | 106,523 | - | - | 68 | 838 | - | |||||||||||||
Credit cards | - | - | - | - | - | - | |||||||||||||
Auto and equipment finance | 2,306 | - | - | 38 | - | - | |||||||||||||
Business lending | - | - | - | - | - | - | |||||||||||||
Investments in ABS | - | - | - | - | - | - | |||||||||||||
Other | - | - | - | - | - | - | |||||||||||||
Total | 108,829 | - | - | 106 | 838 | - |
Banking book summary of total Westpac sponsored third party assets securitised
This table represents banking book third party assets where Westpac acts as a sponsor.
31 March | 30 September | 31 March | ||||||||
$m | 2021 | 2020 | 2020 | |||||||
Residential mortgages | 95 | 113 | 122 | |||||||
Credit cards | - | - | - | |||||||
Auto and equipment finance | - | - | - | |||||||
Business lending | - | - | - | |||||||
Investments in ABS | - | - | - | |||||||
Other | - | - | - | |||||||
Total | 95 | 113 | 122 |
1 | Represents securitisation activity from the end of the reporting period to the disclosure date of this report. |
2 | Includes self-securitisation assets of $131,646 million as at 31 March 2021 ($138,333 million as at 30 September 2020 and $98,212 million as at 31 March 2020). |
66 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Securitisation
Banking book summary of securitisation activity by asset type
This table shows assets transferred into securitisation schemes by underlying asset type (ADI originated) for the relevant period.
For the 6 months ended | ||||||||
31 March 2021 | Amount | Recognised gain or | ||||||
$m | securitised | loss on sale | ||||||
Residential mortgages | 9,925 | - | ||||||
Credit cards | - | - | ||||||
Auto and equipment finance | 325 | - | ||||||
Business lending | - | - | ||||||
Investments in ABS | - | - | ||||||
Other | - | - | ||||||
Total | 10,250 | - | ||||||
For the 12 months ended | ||||||||
30 September 2020 | Amount | Recognised gain or | ||||||
$m | securitised | loss on sale | ||||||
Residential mortgages | 76,353 | - | ||||||
Credit cards | - | - | ||||||
Auto and equipment finance | 506 | - | ||||||
Business lending | - | - | ||||||
Investments in ABS | - | - | ||||||
Other | - | - | ||||||
Total | 76,859 | - | ||||||
For the 6 months ended | ||||||||
31 March 2020 | Amount | Recognised gain or | ||||||
$m | securitised | loss on sale | ||||||
Residential mortgages | 19,547 | - | ||||||
Credit cards | - | - | ||||||
Auto and equipment finance | 318 | - | ||||||
Business lending | - | - | ||||||
Investments in ABS | - | - | ||||||
Other | - | - | ||||||
Total | 19,865 | - |
Westpac Group March 2021 Pillar 3 report | 67 |
Pillar 3 report
Securitisation
Banking book summary of on and off-balance sheet securitisation by exposure type
31 March 2021 | On balance sheet | Off-balance | Total Exposure | |||||||||||||
$m | Securitisation retained | Securitisation purchased | sheet | at Default | ||||||||||||
Securities | - | 7,303 | 37 | 7,340 | ||||||||||||
Liquidity facilities | - | - | 273 | 273 | ||||||||||||
Funding facilities | 2,951 | - | 1,451 | 4,402 | ||||||||||||
Underwriting facilities | - | - | - | - | ||||||||||||
Lending facilities | 625 | - | 540 | 1,165 | ||||||||||||
Warehouse facilities | 9,265 | - | 5,854 | 15,119 | ||||||||||||
Total | 12,841 | 7,303 | 8,155 | 28,299 | ||||||||||||
30 September 2020 | On balance sheet | Off-balance | Total Exposure | |||||||||||||
$m | Securitisation retained | Securitisation purchased | sheet | at Default | ||||||||||||
Securities | - | 7,650 | 19 | 7,669 | ||||||||||||
Liquidity facilities | - | - | 308 | 308 | ||||||||||||
Funding facilities | 2,167 | - | 1,589 | 3,756 | ||||||||||||
Underwriting facilities | - | - | - | - | ||||||||||||
Lending facilities | 551 | - | 404 | 956 | ||||||||||||
Warehouse facilities | 10,173 | - | 3,955 | 14,128 | ||||||||||||
Total | 12,892 | 7,650 | 6,275 | 26,817 | ||||||||||||
31 March 2020 | On balance sheet | Off-balance | Total Exposure | |||||||||||||
$m | Securitisation retained | Securitisation purchased | sheet | at Default | ||||||||||||
Securities | - | 8,583 | 39 | 8,622 | ||||||||||||
Liquidity facilities | - | - | 306 | 306 | ||||||||||||
Funding facilities | 3,163 | - | 783 | 3,946 | ||||||||||||
Underwriting facilities | - | - | - | - | ||||||||||||
Lending facilities | 536 | - | 299 | 835 | ||||||||||||
Warehouse facilities | 10,408 | - | 3,980 | 14,388 | ||||||||||||
Total | 14,107 | 8,583 | 5,407 | 28,097 |
68 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Securitisation
Banking book securitisation exposure at default by risk weight band
31 March 2021 | Exposure | Total Exposure | Risk Weighted Assets | Total Risk | |||||||||||||||
$m | Securitisation | Resecuritisation | at Default | Securitisation | Resecuritisation | Weighted Assets | |||||||||||||
Less than or equal to 10% | 15 | - | 15 | - | - | - | |||||||||||||
Greater than 10 - 20% | 24,511 | - | 24,511 | 4,205 | - | 4,205 | |||||||||||||
Greater than 20 - 30% | 2,117 | - | 2,117 | 540 | - | 540 | |||||||||||||
Greater than 30 - 50% | 946 | - | 946 | 351 | - | 351 | |||||||||||||
Greater than 50 - 75% | 664 | - | 664 | 370 | - | 370 | |||||||||||||
Greater than 75 - 100% | 15 | - | 15 | 15 | - | 15 | |||||||||||||
Greater than 100 - 250% | 30 | - | 30 | 33 | - | 33 | |||||||||||||
Greater than 250 - 425% | - | - | - | - | - | - | |||||||||||||
Greater than 425 - 650% | - | - | - | - | - | - | |||||||||||||
Other | - | - | - | - | - | - | |||||||||||||
Deductions | - | - | - | - | - | - | |||||||||||||
Total | 28,299 | - | 28,299 | 5,513 | - | 5,513 | |||||||||||||
30 September 2020 | Exposure | Total Exposure | Risk Weighted Assets | Total Risk | |||||||||||||||
$m | Securitisation | Resecuritisation | at Default | Securitisation | Resecuritisation | Weighted Assets | |||||||||||||
Less than or equal to 10% | 7 | - | 7 | - | - | - | |||||||||||||
Greater than 10 - 20% | 22,686 | - | 22,686 | 3,892 | - | 3,892 | |||||||||||||
Greater than 20 - 30% | 1,804 | - | 1,804 | 451 | - | 451 | |||||||||||||
Greater than 30 - 50% | 1,639 | - | 1,639 | 659 | - | 659 | |||||||||||||
Greater than 50 - 75% | 599 | - | 599 | 329 | - | 329 | |||||||||||||
Greater than 75 - 100% | 54 | - | 54 | 54 | - | 54 | |||||||||||||
Greater than 100 - 250% | 26 | - | 26 | 29 | - | 29 | |||||||||||||
Greater than 250 - 425% | - | - | - | - | - | - | |||||||||||||
Greater than 425 - 650% | - | - | - | - | - | - | |||||||||||||
Other | - | - | - | - | - | - | |||||||||||||
Deductions | - | - | - | - | - | - | |||||||||||||
Total | 26,817 | - | 26,817 | 5,413 | - | 5,413 | |||||||||||||
31 March 2020 | Exposure | Total Exposure | Risk Weighted Assets | Total Risk | |||||||||||||||
$m | Securitisation | Resecuritisation | at Default | Securitisation | Resecuritisation | Weighted Assets | |||||||||||||
Less than or equal to 10% | 5 | - | 5 | - | - | - | |||||||||||||
Greater than 10 - 20% | 22,579 | - | 22,579 | 3,887 | - | 3,887 | |||||||||||||
Greater than 20 - 30% | 2,787 | - | 2,787 | 680 | - | 680 | |||||||||||||
Greater than 30 - 50% | 2,109 | - | 2,109 | 814 | - | 814 | |||||||||||||
Greater than 50 - 75% | 554 | - | 554 | 306 | - | 306 | |||||||||||||
Greater than 75 - 100% | 2 | - | 2 | 2 | - | 2 | |||||||||||||
Greater than 100 - 250% | 48 | - | 48 | 57 | - | 57 | |||||||||||||
Greater than 250 - 425% | - | - | - | - | - | - | |||||||||||||
Greater than 425 - 650% | - | - | - | - | - | - | |||||||||||||
Other | - | - | - | - | - | - | |||||||||||||
Deductions | 14 | - | 14 | - | - | - | |||||||||||||
Total | 28,097 | - | 28,097 | 5,747 | - | 5,747 |
Banking book securitisation exposure deducted from capital
$m | 31 March 2021 | 30 September 2020 | 31 March 2020 | |||||||||
Securities | - | - | - | |||||||||
Liquidity facilities | - | - | - | |||||||||
Funding facilities | - | - | 14 | |||||||||
Underwriting facilities | - | - | - | |||||||||
Credit enhancements | - | - | - | |||||||||
Derivative transactions | - | - | - | |||||||||
Total | - | - | 14 |
Westpac Group March 2021 Pillar 3 report | 69 |
Pillar 3 report
Securitisation
Banking book securitisation subject to early amortisation treatment
There is no securitisation exposure in the banking book that is subject to early amortisation treatment as at 31 March 2021 (nil as at 30 September 2020).
Banking book resecuritisation exposure subject to credit risk mitigation (CRM)
As at 31 March 2021 resecuritisation exposures subject to CRM was nil (nil as at 30 September 2020).
Banking book resecuritisation exposure to guarantors
Westpac has no third party guarantors providing guarantees for securitised assets, principal or interest repayments as at 31 March 2021 (nil as at 30 September 2020).
Trading book summary of assets securitised by Westpac
As at 31 March 2021 there was nil in outstanding securitisation exposures for Westpac originated assets held in the trading book (nil as at 30 September 2020).
Trading book summary of total Westpac sponsored third party assets securitised
There are no third party assets held in the trading book where Westpac is responsible for the establishment of the securitisation program and subsequent management as at 31 March 2021 (nil as at 30 September 2020).
Trading book summary of securitisation activity by asset type
There is no originated securitisation activity in the trading book for the 12 months to 31 March 2021 (nil for the 6 months to 30 September 2020).
Trading book aggregated amount of exposure securitised by Westpac and subject to APS116 Capital Adequacy: Market Risk
As at 31 March 2021 there is no Westpac originated outstanding securitisation exposure held in the trading book subject to APS116 Capital Adequacy: Market Risk (nil as at 30 September 2020).
70 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report |
Securitisation |
Trading book summary of on and off-balance sheet securitisation by exposure type1
31 March 2021 | On balance sheet | Off-balance | Total Exposure | |
$m | Securitisation retained | Securitisation purchased | sheet | at Default |
Securities | - | 29 | - | 29 |
Liquidity facilities | - | - | - | - |
Funding facilities | - | - | - | - |
Underwriting facilities | - | - | - | - |
Lending facilities | - | - | - | - |
Warehouse facilities | - | - | - | - |
Credit enhancements | - | - | - | - |
Basis swaps | - | - | 112 | 112 |
Other derivatives | - | - | 11 | 11 |
Total | - | 29 | 123 | 152 |
30 September 2020 | On balance sheet | Off-balance | Total Exposure | |
$m | Securitisation retained | Securitisation purchased | sheet | at Default |
Securities | - | 30 | - | 30 |
Liquidity facilities | - | - | - | - |
Funding facilities | - | - | - | - |
Underwriting facilities | - | - | - | - |
Lending facilities | - | - | - | - |
Warehouse facilities | - | - | - | - |
Credit enhancements | - | - | - | - |
Basis swaps | - | - | 103 | 103 |
Other derivatives | - | - | 17 | 17 |
Total | - | 30 | 120 | 150 |
31 March 2020 | On balance sheet | Off-balance | Total Exposure | |
$m | Securitisation retained | Securitisation purchased | sheet | at Default |
Securities | - | 92 | - | 92 |
Liquidity facilities | - | - | - | - |
Funding facilities | - | - | - | - |
Underwriting facilities | - | - | - | - |
Lending facilities | - | - | - | - |
Warehouse facilities | - | - | - | - |
Credit enhancements | - | - | - | - |
Basis swaps | - | - | 116 | 116 |
Other derivatives | - | - | 16 | 16 |
Total | - | 92 | 132 | 224 |
Trading book securitisation exposure subject to specific risk
There is no trading book securitisation exposure subject to specific risk for 31 March 2021 (nil for 30 September 2020).
Trading book securitisation exposure subject to APS120 Securitisation specific risk by risk weight band
There is no trading book securitisation exposure subject to APS120 specific risk for 31 March 2021 (nil for 30 September 2020).
Trading book capital requirements for securitisation exposures subject to internal models approach (IMA) by risk classification
There is no trading book capital requirement for securitisation subject to IMA for 31 March 2021 (nil for 30 September 2020).
Trading book capital requirements for securitisation regulatory capital approaches by risk weight band
There is no trading book capital requirement for securitisation subject to regulatory capital approaches for 31 March 2021 (nil for 30 September 2020).
1 | EAD associated with trading book securitisation is not included in the EAD by Major Type on page 34. Trading book securitisation exposure is captured and risk weighted under APS116. |
Westpac Group March 2021 Pillar 3 report | 71 |
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Securitisation |
Trading book securitisation exposure deducted from capital
There is no trading book capital deduction for 31 March 2021 (nil for 30 September 2020).
Trading book securitisation subject to early amortisation treatment
There is no securitisation exposure in the trading book that is subject to early amortisation treatment for 31 March 2021 (nil for 30 September 2020).
Trading book resecuritisation exposure subject to CRM
Westpac has no resecuritisation exposure subject to CRM at 31 March 2021 (nil for 30 September 2020).
Trading book resecuritisation by guarantor creditworthiness
Westpac has no third party guarantors providing guarantees for securitised assets, principal or interest repayments for 31 March 2021 (nil for 30 September 2020).
72 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report Market risk |
Westpac's exposure to market risk arises out of its Financial Markets and Treasury trading activities. This is quantified for regulatory capital purposes using both the standard method and the internal model approach, details of which are provided below.
Approach
Financial Markets' trading activity includes dealings that encompass book running and distribution activity. The types of market risk arising from these activities include interest rate, foreign exchange, commodity, equity price, credit spread and volatility risk.
Treasury's trading activity includes the management of interest rate, foreign exchange and credit spread risks associated with the wholesale funding book, liquid asset portfolios and foreign exchange repatriations. Treasury also manages banking book risk which is discussed in the Interest Rate Risk in the Banking Book section.
Trading activities are managed within a BRiskC approved market risk framework that incorporates BRiskC approved value at risk (VaR) and stressed value at risk (SVaR) limits. VaR and SVaR are the primary mechanisms for measuring and managing market risk. Market risk is managed using VaR, SVaR and structural risk limits (including volume limits and basis point value limits) in conjunction with scenario analysis and stress testing. Market risk limits are allocated to business management based upon Westpac's risk appetite and business strategies, in addition to the consideration of market liquidity and concentration risk.
Trades are fair valued daily using rates that have been captured from an independent market data source that has been approved by the Revaluation Committee (RC). Where there is no source of independent rates, data will either be derived using a methodology approved by the RC or sourced from dealer contributions. Rates that are dealer-sourced or have limited independent sources are reviewed at least on a monthly basis. The RC will meet monthly to review the results of independent price verification performed by the Finance valuation function. In addition, valuation adjustments may be made as deductions from Common Equity Tier 1 Capital for exposures which are not be captured through the fair valuation framework.
VaR and SVaR limits
Market risk arising from trading book activities is primarily measured using VaR based on an historical simulation methodology. Westpac estimates VaR as the potential loss in earnings from adverse market movements and is calculated to a 99% confidence level using the most recent 12 months of historical market data. SVaR is an additional VaR measure which uses 12 months of historical market data that includes a period of significant financial stress. VaR and SVaR take account of all material market variables that may cause a change in the value of the trading portfolio, including interest rates, foreign exchange rates, price changes, volatility, and the correlation between these variables.
The BRiskC approved market risk VaR and SVaR limits for trading activities include separate VaR and SVaR sub-limits for the trading activities of Financial Markets and Treasury.
Backtesting
Daily backtesting of VaR results is performed to ensure that model integrity is maintained. A review of both the actual and potential profit and loss outcomes is also undertaken to monitor any skew created by the historical data.
Stress testing
Daily stress testing against pre-determined scenarios is carried out to analyse potential losses beyond the 99% confidence level. An escalation framework around selective stress tests is approved by the Head of Market Risk.
Profit and loss notification framework
The BRiskC has approved a profit and loss notification framework. Included in this framework are levels of escalation in accordance with the size of the profit or loss. Triggers are applied to both a 1-day and a rolling 20-day cumulative total.
Westpac Group March 2021 Pillar 3 report | 73 |
Pillar 3 report Market risk |
Risk reporting
Daily monitoring of current exposure and limit utilisation is conducted independently by risk managers in the Market Risk and Treasury Risk teams, who monitor market risk exposures against VaR, SVaR and structural limits. Daily VaR and SVaR position reports are produced by risk type, by product lines and by geographic region. These are supplemented by structural risk reporting, advice of profit and loss trigger levels and stress test escalation trigger points. Model accreditation has been granted by APRA for the use of an internal model for the determination of regulatory capital for the key classes of interest rate (general market), foreign exchange, commodity and equity risks (including equity specific risk). Under the model, regulatory capital is derived from both the current VaR window (based upon the most recent 12 months of historical market data) and a SVaR window (12 months of market data that includes a period of significant financial stress), where these VaR measures are calculated over a 10-day time horizon to a 99th percentile, one-tailed confidence interval. Specific risk refers to the variations in individual security prices that cannot be explained by general market movements, and event and default risk. Interest rate specific risk capital (specific issuer risk) is calculated using the Standard method and is added to the VaR regulatory capital measure.
Risk mitigation
Market risk positions are managed by the trading desks consistent with delegated trading and product authorities. Risks are consolidated into portfolios based on product and risk type. Risk management is carried out by qualified personnel with varying levels of seniority commensurate with the nature and scale of market risks under management.
The following controls allow monitoring by management:
• | trading authorities and responsibilities are clearly delineated at all levels; |
• | a structured system of limits and reporting of risk exposures, including stress testing; |
• | surveillance of dealing room conduct; |
• | all new products and significant product variations undergo a rigorous approval process to identify business risks prior to launch; |
• | models that are used to determine risk or profit and loss for Westpac's accounts are independently reviewed; |
• | duties are segregated so that employees involved in the origination, processing and valuation of transactions operate under separate reporting lines, minimising the opportunity for collusion; and |
• | legal personnel review documentation for compliance with relevant laws and regulations. |
In addition, Group Audit independently reviews compliance with policies, procedures and limits.
Market risk regulatory capital and risk weighted assets
The Internal model approach uses VaR and Stressed VaR, while the Standard approach is used for interest rate specific risk.
$m | 31 March 2021 | 30 September 2020 | 31 March 2020 |
Internal model approach | 680 | 630 | 571 |
Standard approach | 79 | 71 | 101 |
Total capital required | 759 | 701 | 672 |
Risk weighted assets | 9,490 | 8,761 | 8,396 |
74 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report Market risk |
VaR by risk type
31 March 2021 | For the 6 months ended | |||
$m | High | Low | Average | Period end |
Interest rate risk | 28.7 | 8.1 | 18.4 | 8.1 |
Foreign exchange risk | 6.3 | 0.7 | 2.2 | 1.3 |
Equity risk | 3.2 | 0.0 | 0.4 | 0.4 |
Commodity risk | 7.9 | 0.5 | 1.5 | 0.7 |
Other market risks | 23.8 | 3.9 | 17.7 | 4.0 |
Diversification benefit | NA | NA | (13.7) | (5.1) |
Net market risk1 | ||||
41.5 | 9.5 | 26.5 | 9.5 | |
30 September 2020 | For the 6 months ended | |||
$m | High | Low | Average | Period end |
Interest rate risk | 25.5 | 14.2 | 19.2 | 16.6 |
Foreign exchange risk | 11.7 | 0.8 | 4.0 | 2.4 |
Equity risk | 0.7 | 0.1 | 0.3 | 0.3 |
Commodity risk | 3.4 | 0.6 | 1.6 | 0.9 |
Other market risks | 28.2 | 14.7 | 22.7 | 20.0 |
Diversification benefit | NA | NA | (18.5) | (14.9) |
Net market risk1 | ||||
42.0 | 20.5 | 29.3 | 25.2 | |
31 March 2020 | For the 6 months ended | |||
$m | High | Low | Average | Period end |
Interest rate risk | 21.7 | 7.0 | 9.9 | 15.4 |
Foreign exchange risk | 11.2 | 0.5 | 3.9 | 1.5 |
Equity risk | 0.4 | 0.0 | 0.1 | 0.4 |
Commodity risk | 3.4 | 1.2 | 2.2 | 2.7 |
Other market risks | 32.9 | 2.4 | 6.5 | 28.1 |
Diversification benefit | NA | NA | (10.9) | (25.1) |
Net market risk1 | ||||
31.8 | 7.1 | 11.6 | 23.0 |
Stressed VaR by risk type
31 March 2021 | For the 6 months ended | |||
$m | High | Low | Average | Period end |
Interest rate risk | 76.5 | 35.1 | 58.7 | 59.8 |
Foreign exchange risk | 10.3 | 0.9 | 3.9 | 3.3 |
Equity risk | 3.5 | 0.1 | 0.4 | 1.0 |
Commodity risk | 3.5 | 0.6 | 1.5 | 1.7 |
Other market risks | 15.2 | 11.2 | 12.5 | 13.9 |
Diversification benefit | NA | NA | (105.6) | (20.7) |
Net market risk1 | 80.8 | 35.6 | 62.4 | 59.0 |
30 September 2020 | For the 6 months ended | |||
$m | High | Low | Average | Period end |
Interest rate risk | 76.0 | 41.0 | 58.7 | 42.5 |
Foreign exchange risk | 17.4 | 1.5 | 6.3 | 2.5 |
Equity risk | 0.9 | 0.1 | 0.2 | 0.2 |
Commodity risk | 5.1 | 0.8 | 2.4 | 1.1 |
Other market risks | 19.2 | 12.2 | 14.9 | 12.9 |
Diversification benefit | NA | NA | (72.5) | (10.3) |
Net market risk1 | ||||
94.0 | 40.9 | 68.6 | 49.0 |
1 | VaR and SVaR measures shown here use a 1 day time horizon. The net market risk measure reflects the aggregate diversified risk position for the period. Therefore, individual risk factors will not sum to this total. |
Westpac Group March 2021 Pillar 3 report | 75 |
Pillar 3 report Market risk |
31 March 2020 | For the 6 months ended | |||
$m | High | Low | Average | Period end |
Interest rate risk | 85.7 | 39.5 | 58.0 | 55.5 |
Foreign exchange risk | 34.3 | 0.9 | 10.8 | 2.4 |
Equity risk | 0.3 | 0.0 | 0.1 | 0.2 |
Commodity risk | 13.1 | 2.2 | 5.0 | 5.9 |
Other market risks | 23.3 | 16.2 | 18.8 | 19.0 |
Diversification benefit | NA | NA | (66.6) | (22.5) |
Net market risk1 | 89.4 | 34.0 | 56.0 | 60.6 |
Back-testing results
The following graph gives a comparison of actual profit and loss to VaR over the 6 months ended 31 March 2021.
Each point on the graph represents 1 day's trading profit or loss. This result is placed on the graph relative to the associated VaR utilisation. The downward sloping line represents the point where a loss is equal to VaR utilisation.
1 The net market risk measure reflects the aggregate diversified risk position for the period. Therefore, individual risk factors will not sum to this total.
76 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report |
Interest Rate Risk in the Banking Book (IRRBB) |
Interest Rate Risk in the Banking Book (IRRBB) is the risk to interest income arising from a mismatch between the duration of assets and liabilities that arises in the normal course of banking activities.
Approach
The banking book activities that give rise to market risk include lending activities, balance sheet funding and capital management. Interest rate risk, basis risk, currency risk and funding and liquidity risk are inherent in these activities. Treasury's Asset & Liability Management (ALM) unit is responsible for managing market risk arising from Westpac's banking book activity.
All material regions, business lines and legal entities are included in Westpac's IRRBB framework.
Model accreditation has been granted by APRA for the use of an internal model for the determination of IRRBB regulatory capital. Under the model, regulatory capital is primarily derived from a VaR measure using 6 years of historical data with a scaled 1 year, 99th percentile, one-tailed confidence interval.
Asset and liability management
The ALM unit manages the structural interest rate mismatch associated with the transfer priced balance sheet, including the investment of Westpac's capital to its agreed benchmark duration. A key risk management objective is to achieve reasonable stability of Net Interest Income (NII) over time. These activities are performed under the oversight of ALCO and the Treasury Risk team.
Net Interest Income sensitivity
NII sensitivity is managed in terms of the net interest income-at-risk (NaR) modelled over a set time horizon using defined scenarios for movements in wholesale market interest rates. The NII measurement framework combines the underlying statement of financial position data with assumptions about runoff and new business, expected repricing behaviour and changes in wholesale market interest rates. The interest rate scenarios modelled include those projected using 100 and 200 basis point shifts up and down from current market yield curves.
A comparison between the NII outcomes from these modelled scenarios indicates the sensitivity to interest rate changes. On and off-balance sheet instruments are then used to manage this interest rate risk.
NaR limit
The BRiskC has approved a NaR limit. This limit is managed by the Group Treasurer and is expressed as a defined basis point shock over a one year risk horizon. This limit is monitored by the Treasury Risk team.
VaR limit
The BRiskC has also approved an interest rate VaR limit for ALM activities. This limit is managed by the Group Treasurer and monitored by the Treasury Risk team. Additionally, the BRiskC and the Treasury Risk team set structural risk limits to prevent undue concentration of risk.
Structural foreign exchange rate risk
Structural foreign exchange rate risk results from the generation of foreign currency denominated earnings and from Westpac's capital deployed in offshore branches and subsidiaries, where it is denominated in currencies other than Australian dollars. The Australian dollar equivalent of offshore earnings and capital is subject to change as exchange rates fluctuate, which could introduce significant variability to Westpac's reported financial results. ALCO provides oversight of the appropriateness of foreign exchange hedges on earnings and capital.
Risk reporting
Interest rate risk in the banking book risk measurement systems include front office product systems, which capture all treasury funding and derivative transactions; the transfer pricing system, which captures all retail and other business transactions; and non-traded Interest Rate Risk systems, which calculate amongst other things, ALM VaR and NaR.
Daily monitoring of market risk exposure against VaR and structural risk limits is conducted independently by the Treasury Risk team, with NaR monitored on a monthly basis. Management reports detailing structural positions and VaR are produced and distributed daily for use by dealers and management across all stakeholder groups. Quarterly reports are produced for the senior management market risk forums of RISKCO and BRiskC to provide transparency of material market risks and issues.
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Pillar 3 report
Interest Rate Risk in the Banking Book (IRRBB) |
Risk mitigation
Market risk arising in the banking book stems from the ordinary course of banking activities, including structural interest rate risk (the mismatch between the duration of assets and liabilities) and capital management. Hedging Westpac's exposure to interest rate risk is undertaken using derivatives. The hedge accounting strategy adopted utilises a combination of the cash flow, fair value and net investment hedge approaches. Some derivatives held for economic hedging purposes do not meet the criteria for hedge accounting as defined under AASB 139 Financial Instruments: Recognition and Measurement and therefore are accounted for in the same way as derivatives held for trading.
The same controls used to monitor traded market risk allow for continuous monitoring by management.
Change in economic value of a sudden upward and downward movement in interest rates
31 March 2021 | 200bp parallel | 200bp parallel | |
$m | increase | decrease | |
AUD | (470.2) | 511.5 | |
NZD | 4.7 | (4.2) | |
USD | 32.5 | (38.8) | |
Total | (433.0) | 468.5 | |
30 September 2020 | 200bp parallel | 200bp parallel | |
$m | increase | decrease | |
AUD | (290.1) | 237.4 | |
NZD | (10.0) | 12.3 | |
USD | 45.8 | (54.9) | |
Total | (254.3) | 194.8 | |
31 March 2020 | 200bp parallel | 200bp parallel | |
$m | increase | decrease | |
AUD | 7.7 | 5.6 | |
NZD | 10.2 | 10.6 | |
USD | 71.1 | (38.9) | |
Total | 89.0 | (22.7) | |
VaR results for non-traded interest rate risk1 | ||||
For the | For the | For the | ||
6 months ended | 6 months ended | 6 months ended | ||
31 March | 30 September | 31 March | ||
$m | 2021 | 2020 | 2020 | |
High | 224.3 | 219.7 | 169.2 | |
Low | 69.9 | 166.9 | 31.0 | |
Average | 190.1 | 207.0 | 45.7 | |
Period end | 69.9 | 202.4 | 169.2 | |
Interest rate risk in the banking book regulatory capital and risk weighted assets | ||||
31 March | 30 September | 31 March | ||
$m | 2021 | 2020 | 2020 | |
Total capital required | 960 | 730 | 424 | |
Risk weighted assets | 11,998 | 9,124 | 5,305 | |
1 | IRRBB VaR includes interest rate risk, credit spread risk in liquid assets and other basis risks as used for internal management reporting purposes. |
78 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Operational risk |
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal and regulatory risk but excludes strategic risk. Westpac's operational risk definition is aligned to APS115 Capital Adequacy: Advanced Measurement Approaches to Operational Risk (AMA).
Approach
Westpac has been accredited to use the AMA in accordance with APS115. Westpac's operational risk is measured and managed in accordance with the policies and processes defined in its Operational Risk Management Framework.
Westpac's Operational Risk Management Framework
The Operational Risk Management Framework outlines our approach to the:
• | identification, measurement and management of operational risks that may impede Westpac's ability to achieve its strategic objectives and vision; |
• | identification and escalation of operational risk incidents in order to mitigate potential financial loss, regulatory impacts and reputational damage that may impact shareholders, the community, and employees; and |
• |
calculation of operational risk capital. |
The key components of Westpac's operational risk management framework are listed below:
Governance - The governance structure provides clearly defined roles and responsibilities for overseeing and reviewing operational risk exposure and its management.
The Board and BRiskC are supported by committees, including RISKCO, that monitor the Group's operational risk profile and the effectiveness of operational risk management practices, including operational risk capital.
Risk and Control Assessment (RCA) - The RCA process provides a structured and consistent approach for the Business to develop risk profiles and thereby supports them in implementing appropriate actions where the risk is outside the defined Risk Appetite.
Issue and Action Management - The Issue and Action Management process encompasses the identification and management of issues, which relate to control deficiencies or gaps, to ensure that they are effectively addressed through action plans.
Key Indicators (KIs) - are objective measures used by management to monitor the current risk and control environment, inform the assessment of risk and to assist in prompting management action when the metrics indicate that the level of risk is increasing.
Incident Management - The Incident Management process assists in implementing consistent identification, recording, escalation and rectification of incidents and related losses in a transparent and practical way. This assists the Group to comply with all legal and regulatory obligations and licensing conditions (including reporting material regulatory breaches to regulatory authorities).
Data - The framework includes principles and processes to ensure the integrity of operational risk data used to support management decision-making and calculate and allocate capital. The principles apply to the governance, input and capture, reconciliation and validation, reporting and storage of operational risk data. Operational risk data is subject to independent validation on a regular basis.
Scenario Analysis - is used to provide a forward looking-view and facilitate a structured and consistent approach to assess the impacts of severe but plausible loss events on the Group's objectives and operations. Scenario Analysis is also an input to the calculation of operational risk capital.
Reporting - Regular reporting of operational risk information to governance bodies and senior management is used to support timely and proactive management of operational risk and enable transparent and formal oversight of the risk and control environment.
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Pillar 3 report
Operational risk |
AMA capital model overview
Operational risk regulatory capital is calculated on a quarterly basis. Westpac's operational risk capital is based on three data sources:
• | Internal Loss Data - operational risk losses experienced by Westpac; |
• | External Loss Data - operational risk losses experienced by other financial institutions; and |
• | Scenario Data - potential losses from severe but plausible events relevant to Westpac. |
These data sources together represent the internal and external operational risk profile, across the spectrum of operational risk losses, from both historical and forward-looking perspectives. The model combines these data sources to produce a loss distribution.
Expected loss offsets and risk mitigation
No adjustments or deductions are currently made to Westpac's measurement of operational risk regulatory capital for the mitigating impacts of insurance or expected operational risk losses.
Operational Risk regulatory capital and risk weighted assets
31 March | 30 September | 31 March | |
$m | 2021 | 2020 | 2020 |
Advanced measurement approach | 2,562 | 2,562 | 2,562 |
Standardised approach overlay | 765 | 765 | 765 |
Culture, Governance & Accountability Review overlay | 500 | 500 | 500 |
AUSTRAC related overlay | 500 | 500 | 500 |
Total capital required | 4,327 | 4,327 | 4,327 |
Risk weighted assets | 54,090 | 54,090 | 54,093 |
80 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Equity risk
Equity risk is defined as the potential for financial loss arising from movements in equity values. The disclosures in this section exclude investments in equities made by Westpac subsidiaries outside the regulatory Level 2 group.
Structure and organisation
Portfolio and transactional limits for Westpac's direct equity investments are governed by various supporting policies and delegated approval limits. Where appropriate, the BRiskC (under delegation from the Westpac Board) will consider and approve risks beyond management's approval authority.
Approach
Westpac has established a comprehensive set of policies defining the management of equity risk. These policies are reviewed and approved periodically (in most cases annually).
Risk mitigation
Westpac does not use financial instruments to mitigate its exposure to equities in the banking book.
Banking book positions
Hybrid equity underwriting and equity warehousing risk - As a financial intermediary Westpac underwrites listed and unlisted hybrid equity securities.
Investment securities - Westpac undertakes, as part of the ordinary course of business, certain investments in strategic equity holdings and over time the nature of underlying investments will vary.
Measurement of equity securities - Equity securities are generally carried at their fair value. Fair value for equities that have a quoted market price (in an active market) is determined based upon current bid prices. If a market for a financial asset is not active, fair value is determined based upon a valuation technique. This includes the use of recent arms-length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants to price similar instruments. In the event that the fair value of an unlisted security cannot be measured reliably, these investments are measured at cost.
Where the investment is held for long term strategic purposes, these investments are accounted for either at fair value through other comprehensive income (OCI), fair values through profit and loss, or equity accounted for and recognised as a share in associates.
Other related matters
• | Fair value should not differ to the listed stock price. Should a listed stock price not be available, fair value is estimated using the valuation techniques referred to above. The book value of certain unlisted investments for which active markets do not exist are measured at cost because cost is considered to be a reasonable approximation of fair value. |
• | The equity method of accounting is used for investments in Associates. Associates are entities in which the Group has significant influence, but not control, over the operating and financial policies. |
Risk reporting
Westpac manages equity risk in two ways, VaR limits and investment limits:
• | A VaR limit (in conjunction with structural limits) is used to manage traded equity. This limit is a sub-limit of the overall VaR limit for Financial Markets trading activities. Equity trading activity is overseen by the independent Market Risk function applying the same controls used for monitoring other trading book activities in Financial Markets and Treasury; and |
• | Investment exposures are reported annually to MARCO. |
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Pillar 3 report
Equity risk
Book value of equity exposures
31 March | 30 September | 31 March | |
$m | 2021 | 2020 | 2020 |
Listed equity exposures (publicly traded) | 40 | 365 | 199 |
Unlisted equity exposures (privately traded) | 122 | 127 | 128 |
Total book value of equity exposures | 162 | 492 | 327 |
Gains/losses | |||
31 March | 30 September | 31 March | |
$m | 2021 | 2020 | 2020 |
Cumulative realised gains (losses) | 32 | 47 | - |
Total unrealised gains (losses) through profit & loss | - | 303 | (91) |
Total unrealised gains (losses) through equity | - | - | - |
Total latent revaluation gains (losses) | - | - | - |
82 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Funding and liquidity risk management
Funding and liquidity risk is the risk that Westpac cannot meet its payment obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets.
Approach
Funding and liquidity risk is measured and managed in accordance with the policies and processes defined in the Board-approved Liquidity Risk Management Framework which is part of the Westpac Board-approved Risk Management Strategy.
Responsibility for managing Westpac's liquidity and funding positions in accordance with the Liquidity Risk Management Framework is delegated to Treasury, under the oversight of Group ALCO and Treasury Risk.
Liquidity Risk Management Framework
The Liquidity Risk Management Framework sets out Westpac's funding and liquidity risk appetite, roles and responsibilities of key people managing funding and liquidity risk within Westpac, risk reporting and control processes and limits and targets used to manage Westpac's balance sheet. Key components of Westpac's approach to liquidity risk management are listed below.
Funding strategy
Treasury undertakes an annual funding review that outlines Westpac's balance sheet funding strategy over a three year period. This review encompasses trends in global markets, peer analysis, wholesale funding capacity, expected funding requirements and a funding risk analysis. This strategy is continuously reviewed to take account of changing market conditions, investor sentiment and estimations of asset and liability growth rates.
Westpac monitors the composition and stability of its funding so that it remains within its funding risk appetite. This includes compliance with both the LCR and NSFR.
Liquid asset holdings
Westpac holds a portfolio of liquid assets for several purposes, including as a buffer against unforeseen funding requirements. The level of liquid assets held takes into account the liquidity requirements of Westpac's balance sheet under normal and stress conditions.
Liquidity modelling
In managing liquidity for Westpac, Treasury utilises balance sheet forecasts and the maturity profile of Westpac's wholesale funding portfolio to project liquidity outcomes. Local liquidity limits are also used by Westpac in applicable jurisdictions to ensure liquidity is managed efficiently and prudently.
In addition, Westpac conducts regular stress testing to assess its ability to meet cash flow obligations under a range of market conditions and scenarios. These scenarios inform liquidity limits and strategic planning.
Liquidity transfer pricing
Westpac has a liquidity transfer pricing framework which allocates liquidity costs across Westpac.
Contingency planning
Treasury maintains a contingent funding plan that outlines the steps that should be taken by Westpac in the event of an emerging 'funding crisis'. The plan is aligned with Westpac's broader Liquidity Crisis Management Policy which is approved annually by the Board.
Liquidity reporting
Daily liquidity risk reports are reviewed by the Group's Treasury and Treasury Risk teams. Liquidity reports are presented to ALCO monthly and to the Board quarterly.
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Pillar 3 report
Liquidity coverage ratio
Liquidity Coverage Ratio
Westpac's average LCR for the quarter was 124%1 (31 December 2020: 152%).
Liquid assets included in the LCR comprise High Quality Liquid Assets (HQLA), the Committed Liquidity Facility (CLF) offered by the Reserve Bank of Australia and additional qualifying Reserve Bank of New Zealand securities. LCR liquid assets also includes Westpac's Additional Allowance of the Term Funding Facility (TFF).
Westpac's portfolio of HQLA averaged $117.3 billion over the quarter2.
Funding is sourced from retail, small business, corporate and institutional customer deposits and wholesale funding. Westpac seeks to minimise the outflows associated with this funding by targeting customer deposits with lower LCR outflow rates and actively manages the maturity profile of its wholesale funding portfolio. Westpac maintains a buffer over the regulatory minimum of 100%.
Effective 1 January 2021, the Group is required by APRA to increase the value of its net cash outflows by 10% for the purpose of calculating LCR.
31 March 2021 | 31 December 2020 | |||||||||||||||||
Total unweighted | Total weighted | Total unweighted | Total weighted | |||||||||||||||
$m | value (average)2 | value (average)2 | value (average)2 | value (average)2 | ||||||||||||||
Liquid assets, of which: | ||||||||||||||||||
1 | High-quality liquid assets (HQLA) | 117,280 | 126,801 | |||||||||||||||
2 | Alternative liquid assets (ALA) | 39,604 | 53,291 | |||||||||||||||
3 | Reserve Bank of New Zealand (RBNZ) securities | 8,196 | 7,019 | |||||||||||||||
Cash Outflows | ||||||||||||||||||
4 | Retail deposits and deposits from small business customers, of which: | 287,212 | 25,064 | 283,038 | 24,896 | |||||||||||||
5 | Stable deposits | 142,384 | 7,119 | 141,806 | 7,090 | |||||||||||||
6 | Less stable deposits | 144,828 | 17,945 | 141,232 | 17,806 | |||||||||||||
7 | Unsecured wholesale funding, of which: | 161,362 | 73,242 | 163,105 | 75,875 | |||||||||||||
8 | Operational deposits (all counterparties) and deposits in networks for cooperative banks | 79,933 | 19,898 | 75,421 | 18,773 | |||||||||||||
9 | Non-operational deposits (all counterparties) | 68,405 | 40,320 | 75,751 | 45,169 | |||||||||||||
10 | Unsecured debt | 13,024 | 13,024 | 11,933 | 11,933 | |||||||||||||
11 | Secured wholesale funding | 1 | - | |||||||||||||||
12 | Additional requirements, of which: | 204,259 | 27,461 | 200,526 | 25,969 | |||||||||||||
13 | Outflows related to derivatives exposures and other collateral requirements | 10,882 | 10,882 | 10,198 | 10,198 | |||||||||||||
14 | Outflows related to loss of funding on debt products | 1,365 | 1,365 | 656 | 656 | |||||||||||||
15 | Credit and liquidity facilities | 192,012 | 15,214 | 189,672 | 15,115 | |||||||||||||
16 | Other contractual funding obligations | 251 | 251 | 689 | 689 | |||||||||||||
17 | Other contingent funding obligations | 37,718 | 3,185 | 39,735 | 3,346 | |||||||||||||
18 | Total cash outflows | 129,204 | 130,775 | |||||||||||||||
Cash inflows | ||||||||||||||||||
19 | Secured lending (e.g. reverse repos) | 5,891 | - | 10,551 | - | |||||||||||||
20 | Inflows from fully performing exposures | 8,817 | 5,202 | 9,337 | 5,532 | |||||||||||||
21 | Other cash inflows | 2,559 | 2,559 | 2,206 | 2,206 | |||||||||||||
22 | Total cash inflows | 17,267 | 7,761 | 22,094 | 7,738 | |||||||||||||
23 | Total liquid assets | 165,080 | 187,111 | |||||||||||||||
24 | Total net cash outflows | 133,587 | 123,037 | |||||||||||||||
24.1 Of which: Net cash outflows overlay | 12,144 | - | ||||||||||||||||
25 | Liquidity Coverage Ratio (%) | 124 | % | 152 | % | |||||||||||||
Number of data points used | 64 | 65 |
1 | Calculated as a simple average of the daily observations over the quarter. |
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Pillar 3 report
Net stable funding ratio
Net Stable Funding Ratio
The NSFR is a structural measure which requires that a bank has sufficient Available Stable Funding (ASF) to cover its Required Stable Funding (RSF) over a one year horizon. Westpac's NSFR as at 31 March 2021 was 122.5%1 (31 December 2020 122.3%). Westpac maintains a buffer over the regulatory minimum of 100%.
Unweighted value by residual maturity | ||||||||||||||||||
31 March 2021 | No maturity | < 6 months 6 months to | > 1 year | Weighted | ||||||||||||||
$m | < 1yr | value | ||||||||||||||||
Available Stable Funding (ASF) Item | ||||||||||||||||||
1 | Capital | 70,338 | - | 1,702 | 23,371 | 95,411 | ||||||||||||
2 | Regulatory capital | 70,338 | - | 1,702 | 23,371 | 95,411 | ||||||||||||
3 | Other capital instruments | - | - | - | - | - | ||||||||||||
4 | Retail deposits and deposits from small business customers | 275,760 | 77,621 | 322 | 129 | 326,631 | ||||||||||||
5 | Stable deposits | 140,094 | 23,293 | 5 | 8 | 155,231 | ||||||||||||
6 | Less stable deposits | 135,666 | 54,328 | 316 | 120 | 171,400 | ||||||||||||
7 | Wholesale funding | 130,620 | 126,051 | 29,295 | 110,121 | 202,544 | ||||||||||||
8 | Operational deposits | 80,437 | - | - | - | 40,218 | ||||||||||||
9 | Other wholesale funding | 50,183 | 126,051 | 29,295 | 110,121 | 162,326 | ||||||||||||
10 | Liabilities with matching interdependent assets | - | - | - | - | - | ||||||||||||
11 | Other liabilities | - | 21,214 | 445 | 377 | 600 | ||||||||||||
12 | NSFR derivative liabilities | 3,746 | ||||||||||||||||
13 | All other liabilities and equity not included in the above categories | - | 17,467 | 445 | 377 | 600 | ||||||||||||
14 | Total ASF | 625,185 | ||||||||||||||||
Required Stable Funding (RSF) Item | ||||||||||||||||||
15a) | Total NSFR (High quality liquid assets - HQLA) | 4,082 | ||||||||||||||||
15b) | Alternate Liquid Assets (ALA) | 6,678 | ||||||||||||||||
15c) | Reserve Bank of New Zealand (RBNZ) securities | 186 | ||||||||||||||||
16 | Deposits held at other financial institutions for operational purposes | - | - | - | - | - | ||||||||||||
17 | Performing loans and securities | 1,041 | 49,101 | 37,602 | 554,116 | 451,546 | ||||||||||||
18 | Performing loans to financial institutions secured by Level 1 HQLA | 649 | 2,178 | - | - | 867 | ||||||||||||
19 | Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions | 392 | 3,972 | 1,938 | 13,826 | 15,784 | ||||||||||||
20 | Performing loans to nonfinancial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and public sector entities (PSEs), of which: | - | 34,457 | 26,970 | 114,962 | 128,341 | ||||||||||||
21 | With a risk weight of less than or equal to 35% under APS 112 | - | 29 | 219 | 451 | 417 | ||||||||||||
22 | Performing residential mortgages, of which: | - | 7,867 | 8,172 | 421,220 | 302,512 | ||||||||||||
23 | With a risk weight equal to 35% under APS 112 | - | 7,275 | 7,562 | 376,600 | 263,410 | ||||||||||||
24 | Securities that are not in default and do not qualify as HQLA, including exchange-traded equities | - | 627 | 522 | 4,108 | 4,043 | ||||||||||||
25 | Assets with matching interdependent liabilities | - | - | - | - | - | ||||||||||||
26 | Other assets: | 11,205 | 18,649 | 482 | 18,627 | 37,892 | ||||||||||||
27 | Physical traded commodities, including gold | - | - | |||||||||||||||
28 | Assets posted as initial margin for derivative contracts and contributions to default funds of central counterparties (CCPs) | 2,294 | 1,950 | |||||||||||||||
29 | NSFR derivative assets | 6,897 | 3,151 | |||||||||||||||
30 | NSFR derivative liabilities before deduction of variation margin posted | 7,298 | 1,460 | |||||||||||||||
31 | All other assets not included in the above categories | 11,205 | 2,159 | 482 | 18,627 | 31,332 | ||||||||||||
32 | Off-balance sheet items | 194,928 | 9,902 | |||||||||||||||
33 | Total RSF | 510,287 | ||||||||||||||||
34 | Net Stable Funding Ratio (%) | 122.5 | % |
1 | Calculated as total available stable funding divided by total required stable funding as at end of the quarter. |
Westpac Group March 2020 Pillar 3 report | 85 |
Pillar 3 report
Net stable funding ratio
Unweighted value by residual maturity | ||||||||||||||||||
31 December 2020 | No maturity | < 6 months 6 months to | > 1 year | Weighted | ||||||||||||||
$m | < 1yr | value | ||||||||||||||||
Available Stable Funding (ASF) Item | ||||||||||||||||||
1 | Capital | 68,655 | 458 | 1,702 | 22,368 | 93,184 | ||||||||||||
2 | Regulatory capital | 68,655 | 458 | 1,702 | 22,368 | 93,184 | ||||||||||||
3 | Other capital instruments | - | - | - | - | - | ||||||||||||
4 | Retail deposits and deposits from small business customers | 271,845 | 81,331 | 311 | 149 | 326,458 | ||||||||||||
5 | Stable deposits | 139,057 | 24,349 | 8 | 10 | 155,253 | ||||||||||||
6 | Less stable deposits | 132,788 | 56,982 | 304 | 139 | 171,205 | ||||||||||||
7 | Wholesale funding | 129,135 | 132,476 | 16,193 | 116,956 | 202,400 | ||||||||||||
8 | Operational deposits | 80,677 | - | - | - | 40,339 | ||||||||||||
9 | Other wholesale funding | 48,458 | 132,476 | 16,193 | 116,956 | 162,061 | ||||||||||||
10 | Liabilities with matching interdependent assets | - | - | - | - | - | ||||||||||||
11 | Other liabilities | - | 25,787 | 475 | 727 | 964 | ||||||||||||
12 | NSFR derivative liabilities | 7,186 | ||||||||||||||||
13 | All other liabilities and equity not included in the above categories | - | 18,601 | 475 | 727 | 964 | ||||||||||||
14 | Total ASF | 623,005 | ||||||||||||||||
Required Stable Funding (RSF) Item | ||||||||||||||||||
15a) | Total NSFR (High quality liquid assets - HQLA) | 4,181 | ||||||||||||||||
15b) | Alternate Liquid Assets (ALA) | 6,678 | ||||||||||||||||
15c) | Reserve Bank of New Zealand (RBNZ) securities | 173 | ||||||||||||||||
16 | Deposits held at other financial institutions for operational purposes | - | - | - | - | - | ||||||||||||
17 | Performing loans and securities | 1,458 | 48,859 | 41,479 | 548,105 | 449,621 | ||||||||||||
18 | Performing loans to financial institutions secured by Level 1 HQLA | 1,138 | 3,417 | - | - | 1,479 | ||||||||||||
19 | Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions | 320 | 5,309 | 2,719 | 11,698 | 14,174 | ||||||||||||
20 | Performing loans to nonfinancial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and public sector entities (PSEs), of which: | - | 31,632 | 29,835 | 118,531 | 131,262 | ||||||||||||
21 | With a risk weight of less than or equal to 35% under APS 112 | - | 29 | 31 | 1,115 | 755 | ||||||||||||
22 | Performing residential mortgages, of which: | - | 7,905 | 8,315 | 414,486 | 299,245 | ||||||||||||
23 | With a risk weight equal to 35% under APS 112 | - | 7,282 | 7,657 | 368,518 | 258,871 | ||||||||||||
24 | Securities that are not in default and do not qualify as HQLA, including exchange-traded equities | - | 596 | 610 | 3,390 | 3,460 | ||||||||||||
25 | Assets with matching interdependent liabilities | - | - | - | - | - | ||||||||||||
26 | Other assets: | 11,197 | 26,042 | 738 | 20,571 | 38,673 | ||||||||||||
27 | Physical traded commodities, including gold | - | - | |||||||||||||||
28 | Assets posted as initial margin for derivative contracts and contributions to default funds of central counterparties (CCPs) | 2,372 | 2,016 | |||||||||||||||
29 | NSFR derivative assets | 7,473 | 287 | |||||||||||||||
30 | NSFR derivative liabilities before deduction of variation margin posted | 14,998 | 3,000 | |||||||||||||||
31 | All other assets not included in the above categories | 11,197 | 1,199 | 738 | 20,571 | 33,370 | ||||||||||||
32 | Off-balance sheet items | 194,021 | 9,879 | |||||||||||||||
33 | Total RSF | 509,206 | ||||||||||||||||
34 | Net Stable Funding Ratio (%) | 122.3 | % |
86 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Appendix I | Regulatory capital reconciliation
Balance Sheet Reconciliation
Reconciliation Table | ||||||||||||||
31 March 2021 | Group Balance | Level 2 Regulatory | Capital Disclosure | |||||||||||
$m | Sheet | Adjustment | Balance Sheet | Template | ||||||||||
Assets | ||||||||||||||
Cash and balances with central banks | 33,877 | (12 | ) | 33,865 | ||||||||||
Collateral paid | 3,917 | - | 3,917 | |||||||||||
Due from subsidiaries | - | 532 | 532 | |||||||||||
Trading securities and financial assets measured at fair value through income statement (FVIS) | 20,928 | (670 | ) | 20,258 | ||||||||||
Derivative financial instruments | 22,373 | - | 22,373 | |||||||||||
Investment securities | 91,303 | (139 | ) | 91,164 | ||||||||||
Loans | 688,218 | - | 688,218 | |||||||||||
Other financial assets | 3,312 | 149 | 3,461 | |||||||||||
Current tax assets | 221 | - | 221 | |||||||||||
Life insurance assets | 3,416 | (3,416 | ) | - | ||||||||||
Investments in associates | 78 | - | 78 | |||||||||||
Property and equipment | 3,337 | (1 | ) | 3,336 | ||||||||||
Deferred tax assets | 2,335 | (94 | ) | 2,241 | Table a | |||||||||
Intangible assets | 10,997 | 32 | 11,029 | Table b | ||||||||||
Investments in life & general insurance, funds management & securitisation entities | - | 2,063 | 2,063 | Table c | ||||||||||
Other assets | 788 | (200 | ) | 588 | ||||||||||
Assets held for sale | 4,359 | (1,245 | ) | 3,114 | ||||||||||
Total assets | 889,459 | (3,001 | ) | 886,458 | ||||||||||
Liabilities | ||||||||||||||
Collateral received | 2,504 | - | 2,504 | |||||||||||
Due to subsidiaries | - | 1,187 | 1,187 | |||||||||||
Deposits and other borrowings | 585,401 | - | 585,401 | |||||||||||
Other financial liabilities | 42,996 | (196 | ) | 42,800 | ||||||||||
Derivative financial instruments | 20,303 | - | 20,303 | |||||||||||
Debt issues | 127,850 | - | 127,850 | |||||||||||
Current tax liabilities | 26 | (20 | ) | 6 | ||||||||||
Life insurance liabilities | 1,070 | (1,070 | ) | - | ||||||||||
Provisions | 3,820 | (54 | ) | 3,766 | ||||||||||
Deferred tax liabilities | 107 | (41 | ) | 66 | ||||||||||
Loan capital | 26,294 | - | 26,294 | Table d and e | ||||||||||
Other liabilities | 3,938 | (190 | ) | 3,748 | ||||||||||
Liabilities held for sale | 3,049 | (844 | ) | 2,205 | ||||||||||
Total liabilities | 817,358 | (1,228 | ) | 816,130 | ||||||||||
Equity | ||||||||||||||
Ordinary share capital | 41,604 | - | 41,604 | Row 1 | ||||||||||
Treasury shares and RSP treasury shares | (603 | ) | - | (603 | ) | Table f | ||||||||
Reserves | 1,954 | (93 | ) | 1,861 | Table g | |||||||||
Retained Profits | 29,097 | (1,680 | ) | 27,417 | Row 2 | |||||||||
Non-controlling interests | 49 | - | 49 | |||||||||||
Total equity | 72,101 | (1,773 | ) | 70,328 |
Westpac Group March 2021 Pillar 3 report | 87 |
Pillar 3 report
Appendix I | Regulatory capital reconciliation
Capital | ||||||||
Disclosure | ||||||||
Template | ||||||||
$m | 31 March 2021 | Reference | ||||||
Table a | ||||||||
Deferred Tax Assets | ||||||||
Total Deferred Tax Assets per level 2 Regulatory Balance Sheet | 2,241 | |||||||
Add: Held for sale deferred tax assets (per Level 2) | 19 | |||||||
Deferred tax asset adjustment before applying prescribed thresholds | 2,260 | Row 26e | ||||||
Less: Amounts below prescribed threshold - risk weighted | (2,260 | ) | Row 75 | |||||
Total per Capital Disclosure Template - Deferred Tax Asset | - | Row 21 / 25 | ||||||
Capital | ||||||||
Disclosure | ||||||||
Template | ||||||||
$m | 31 March 2021 | Reference | ||||||
Table b | ||||||||
Goodwill and other intangible assets | ||||||||
Total Goodwill and Intangibles Assets per level 2 Regulatory Balance Sheet | 11,029 | |||||||
Less: Capitalised Software Disclosed Under Intangibles | (2,049 | ) | Row 9 | |||||
Total per Capital Disclosure Template - Goodwill | 8,980 | Row 8 | ||||||
Capital | ||||||||
Disclosure | ||||||||
Template | ||||||||
$m | 31 March 2021 | Reference | ||||||
Table c | ||||||||
Equity Investments | ||||||||
Significant Investment in financial entities | 56 | |||||||
Equity Investments in non-consolidated subsidiaries | 2,063 | |||||||
Total Significant Investment in financial entities | 2,119 | Row 73 | ||||||
Non-significant Investment in financial entities | 66 | Row 72 | ||||||
Total Investments in financial institutions | 2,185 | Row 26d | ||||||
Investment in commercial entities | 40 | Row 26g | ||||||
Total Equity Investments before applying prescribed threshold | 2,225 | |||||||
Less: Amounts below prescribed threshold | (2,225 | ) | ||||||
Total per Capital Disclosure Template - Equity Investments | - | Row 18/ 19/ 23 | ||||||
Capital | ||||||||
Disclosure | ||||||||
Template | ||||||||
$m | 31 March 2021 | Reference | ||||||
Table d | ||||||||
Additional Tier 1 Capital | ||||||||
Total Loan Capital per Level 2 Regulatory Balance Sheet | 26,294 | |||||||
Less: Tier 2 Capital Instruments Reported Below | (16,766 | ) | ||||||
Add: Capitalised Issue Costs for Additional Tier 1 Capital Instruments1 | 45 | |||||||
Less: Fair Value Adjustment2 | (80 | ) | ||||||
Total per Capital Disclosure Template - Tier 1 Capital | 9,493 | Row 36 | ||||||
Additional Tier 1 Capital included in Regulatory Capital | ||||||||
Westpac Capital Notes 2 | 1,311 | |||||||
Westpac Capital Notes 4 | 1,702 | |||||||
Westpac Capital Notes 5 | 1,690 | |||||||
Westpac Capital Notes 6 | 1,423 | |||||||
SEC Registered Capital Securities | 1,644 | |||||||
Westpac Capital Notes 7 | 1,723 | |||||||
Total Basel III complying instruments | 9,493 | Row 30 | ||||||
Total Basel III non complying instruments | - | Row 33 | ||||||
Total per Capital Disclosure Template - Additional Tier 1 Capital Instruments | 9,493 | Row 36 |
1 | Unamortised issue costs relating to capital instruments are netted off against each instrument in the Balance Sheet. For regulatory capital purposes, these capital instruments are shown gross of unamortised issue costs. The unamortised issue costs are deducted from CET1 as part of capitalised expenses in Row 26f in the capital disclosure template. |
2 | For regulatory capital purposes, APRA requires these instruments to be included as if they were unhedged. |
88 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report
Appendix I | Regulatory capital reconciliation
Capital | ||||||||
Disclosure | ||||||||
Template | ||||||||
$m | 31 March 2021 | Reference | ||||||
Table e | ||||||||
Tier 2 Capital | ||||||||
Total Tier 2 Capital per Level 2 Regulatory Balance Sheet | 16,766 | |||||||
Add: Capitalised Issue Costs for Tier 2 Capital Instruments1 | 39 | |||||||
Less: Fair Value Adjustment2 | 30 | |||||||
Less: Cumulative amortisation of Tier 2 Capital Instruments | - | |||||||
Less: Basel III transitional adjustment | - | Row 56c | ||||||
Provisions | 161 | Row 50 / 76 | ||||||
Total per Capital Disclosure Template - Tier 2 | 16,996 | Row 51 | ||||||
Tier 2 Capital included in Regulatory Capital | ||||||||
AUD350 million Westpac Subordinated Notes | 350 | |||||||
SDG325 million Westpac Subordinated Notes | 317 | |||||||
USD100 million Westpac Subordinated Notes | 131 | |||||||
JPY20,000 million Westpac Subordinated Notes | 238 | |||||||
JPY10,200 million Westpac Subordinated Notes | 121 | |||||||
JPY10,000 million Westpac Subordinated Notes | 119 | |||||||
AUD175 million Westpac Subordinated Notes | 175 | |||||||
NZD400 million Westpac Subordinated Notes | 368 | |||||||
USD1,500 million Westpac Subordinated Notes | 1,969 | |||||||
JPY8,000 million Westpac Subordinated Notes | 95 | |||||||
JPY13,500 million Westpac Subordinated Notes | 160 | |||||||
JPY12,000 million Westpac Subordinated Notes | 143 | |||||||
HKD 600 million Westpac Subordinated Notes | 102 | |||||||
AUD350 million Westpac Subordinated Notes | 350 | |||||||
AUD185 million Westpac Subordinated Notes | 185 | |||||||
AUD250 million Westpac Subordinated Notes | 250 | |||||||
AUD130 million Westpac Subordinated Notes | 130 | |||||||
AUD725 million Westpac Subordinated Notes II | 725 | |||||||
USD1,000 million Westpac Subordinated Notes | 1,309 | |||||||
USD1,250 million Westpac Subordinated Notes | 1,640 | |||||||
AUD1,000 million Westpac Subordinated Notes | 1,000 | |||||||
USD1,500 million Westpac Subordinated Notes | 1,970 | |||||||
USD1,000 million Westpac Subordinated Notes | 1,308 | |||||||
USD1,500 million Westpac Subordinated Notes | 1,967 | |||||||
AUD1,250 million Westpac Subordinated Notes | 1,250 | |||||||
Total Basel III complying instruments | 16,373 | Row 46 | ||||||
USD352 million Perpetual Floating Rate Notes | 462 | |||||||
Total Basel III non complying instruments | 462 | |||||||
Less: Basel III transitional adjustment | - | Row 85 | ||||||
Total Basel III non complying instruments after transitional adjustment | 462 | Row 47 | ||||||
Provisions | 161 | Row 50 / 76 | ||||||
Total per Capital Disclosure Template - Tier 2 Capital Instruments | 16,996 | Row 51 | ||||||
Capital | ||||||||
Disclosure | ||||||||
Template | ||||||||
$m | 31 March 2021 | Reference | ||||||
Table f | ||||||||
Treasury Shares and RSP Treasury Shares | ||||||||
Total treasury shares per Level 2 Regulatory Balance Sheet | (603 | ) | ||||||
Less: Treasury Shares not included for Level 2 Regulatory Capital | (57 | ) | ||||||
Total per Capital Disclosure Template - Treasury Shares | (660 | ) | Row 26a | |||||
Capital | ||||||||
Disclosure | ||||||||
Template | ||||||||
$m | 31 March 2021 | Reference | ||||||
Table g | ||||||||
Accumulated Other Comprehensive Income (and other reserves) | ||||||||
Total reserves per Level 2 Regulatory Balance Sheet | 1,861 | |||||||
Less: Share Based Payment Reserve not included within capital | (47 | ) | ||||||
Total per Capital Disclosure Template - Accumulated Other Comprehensive Income (and other reserves) | 1,814 | Row 3 |
1 | For regulatory capital purposes, APRA requires these instruments to be included as if they were unhedged. |
Westpac Group March 2021 Pillar 3 report | 89 |
Pillar 3 report | |
Appendix I | Regulatory capital reconciliation |
The capital disclosure template below represents the post 1 January 2018 Basel III template.
$m |
31 March 2021 |
Table Reference |
|
Common Equity Tier 1 capital: instruments and reserves | |||
1 | Directly issued qualifying ordinary shares (and equivalent for mutually-owned entities) capital | 41,604 | |
2 | Retained earnings | 27,417 | |
3 | Accumulated other comprehensive income (and other reserves) | 1,814 | Table g |
4 | Directly issued capital subject to phase out from CET1 (only applicable to mutually-owned companies) | - | |
5 | Ordinary share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) | 49 | |
6 | Common Equity Tier 1 capital before regulatory adjustments | 70,884 | |
Common Equity Tier 1 capital : regulatory adjustments | |||
7 | Prudential valuation adjustments | - | |
8 | Goodwill (net of related tax liability) | (8,980) | Table b |
9 | Other intangibles other than mortgage servicing rights (net of related tax liability) | (2,049) | Table b |
10 | Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) | - | |
11 | Cash-flow hedge reserve | (95) | |
12 | Shortfall of provisions to expected losses | (93) | |
13 | Securitisation gain on sale (as set out in paragraph 562 of Basel II framework) | - | |
14 | Gains and losses due to changes in own credit risk on fair valued liabilities | (1) | |
15 | Defined benefit superannuation fund net assets | (69) | |
16 | Investments in own shares (if not already netted off paid-in capital on reported balance sheet) | - | |
17 | Reciprocal cross-holdings in common equity | - | |
18 | Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10% of the issued share capital (amount above 10% threshold) | - | Table c |
19 | Significant investments in the ordinary shares of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold) | - | Table c |
20 | Mortgage service rights (amount above 10% threshold) | - | |
21 | Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) | - | Table a |
22 | Amount exceeding the 15% threshold | - | |
23 | of which: significant investments in the ordinary shares of financial entities | - | Table c |
24 | of which: mortgage servicing rights | - | |
25 | of which: deferred tax assets arising from temporary differences | - | Table a |
26 | National specific regulatory adjustments (sum of rows 26a, 26b, 26c, 26d, 26e, 26f, 26g, 26h, 26i and 26j) | (6,665) | |
26a | of which: treasury shares | (660) | Table f |
26b | of which: offset to dividends declared under a dividend reinvestment plan (DRP), to the extent that the dividends are used to purchase new ordinary shares issued by the ADI | - | |
26c | of which: deferred fee income | 230 | |
26d | of which: equity investments in financial institutions not reported in rows 18, 19 and 23 | (2,185) | Table c |
26e | of which: deferred tax assets not reported in rows 10, 21 and 25 | (2,260) | Table a |
26f | of which: capitalised expenses | (1,749) | |
26g | of which: investments in commercial (non-financial) entities that are deducted under APRA prudential requirements | (40) | Table c |
26h | of which: covered bonds in excess of asset cover in pools | - | |
26i | of which: undercapitalisation of a non-consolidated subsidiary | - | |
26j | of which: other national specific regulatory adjustments not reported in rows 26a to 26i | (1) | |
27 | Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions | - | |
28 | Total regulatory adjustments to Common Equity Tier 1 | (17,952) | |
29 | Common Equity Tier 1 Capital (CET1) | 52,932 |
90 | Westpac Group March 2021 Pillar 3 report |
Pillar 3 report | |
Appendix I | Regulatory capital reconciliation |
$m |
31 March 2021 |
Table Reference |
|
Additional Tier 1 Capital: instruments | |||
30 | Directly issued qualifying Additional Tier 1 instruments | 9,493 | Table d |
31 | of which: classified as equity under applicable accounting standards | - | |
32 | of which: classified as liabilities under applicable accounting standards | 9,493 | Table d |
33 | Directly issued capital instruments subject to phase out from Additional Tier 1 | - | |
34 | Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties (amount allowed in group AT1) | - | |
35 | of which: instruments issued by subsidiaries subject to phase out | - | |
36 | Additional Tier 1 Capital before regulatory adjustments | 9,493 | Table d |
Additional Tier 1 Capital: regulatory adjustments | |||
37 | Investments in own Additional Tier 1 instruments | (25) | |
38 | Reciprocal cross-holdings in Additional Tier 1 instruments | - | |
39 | Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10% of the issued share capital (amount above 10% threshold) | - | |
40 | Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) | - | |
41 | National specific regulatory adjustments (sum of rows 41a, 41b and 41c) | - | |
41a | of which: holdings of capital instruments in group members by other group members on behalf of third parties | - | |
41b | of which: investments in the capital of financial institutions that are outside the scope of regulatory consolidations not reported in rows 39 and 40 | - | |
41c | of which: other national specific regulatory adjustments not reported in rows 41a and 41b | - | |
42 | Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions | - | |
43 | Total regulatory adjustments to Additional Tier 1 capital | (25) | |
44 | Additional Tier 1 capital (AT1) | 9,468 | Table d |
45 | Tier 1 Capital (T1=CET1+AT1) | 62,400 | |
Tier 2 Capital: instruments and provisions | |||
46 | Directly issued qualifying Tier 2 instruments | 16,373 | Table e |
47 | Directly issued capital instruments subject to phase out from Tier 2 | 462 | Table e |
48 | Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties (amount allowed in group T2) | - | |
49 | of which: instruments issued by subsidiaries subject to phase out | - | |
50 | Provisions | 161 | Table e |
51 | Tier 2 Capital before regulatory adjustments | 16,996 | Table e |
Tier 2 Capital: regulatory adjustments | |||
52 | Investments in own Tier 2 instruments | (100) | |
53 | Reciprocal cross-holdings in Tier 2 instruments | - | |
54 | Investments in the Tier 2 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10% of the issued share capital (amount above 10% threshold) | - | |
55 | Significant investments in the Tier 2 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions | (140) | |
56 | National specific regulatory adjustments | (99) | |
(sum of rows 56a, 56b and 56c) | |||
56a | of which: holdings of capital instruments in group members by other group members on behalf of third parties | - | |
56b | of which: investments in the capital of financial institutions that are outside the scope of regulatory consolidation not reported in rows 54 and 55 | (99) | |
56c | of which: other national specific regulatory adjustments not reported in rows 56a and 56b | - | |
57 | Total regulatory adjustments to Tier 2 capital | (339) | |
58 | Tier 2 capital (T2) | 16,657 | |
59 | Total capital (TC=T1+T2) | 79,057 | |
60 | Total risk-weighted assets based on APRA standards | 428,899 |
Westpac Group March 2021 Pillar 3 report | 91 |
Pillar 3 report | |
Appendix I | Regulatory capital reconciliation |
$m |
31 March 2021 |
Table Reference |
|
Capital ratios and buffers | |||
61 | Common Equity Tier 1 (as a percentage of risk-weighted assets) | 12.3% | |
62 | Tier 1 (as a percentage of risk-weighted assets) | 14.5% | |
63 | Total capital (as a percentage of risk-weighted assets) | 18.4% | |
64 | Buffer requirement (minimum CET1 requirement of 4.5% plus capital conservation buffer of 2.5% plus any countercyclical buffer requirements expressed as a percentage of risk-weighted assets)1 | 8.0% | |
65 | of which: capital conservation buffer requirement1 | 3.5% | |
66 | of which: ADI-specific countercyclical buffer requirements | 0.0% | |
67 | of which: G-SIB buffer requirement (not applicable) | NA | |
68 | Common Equity Tier 1 available to meet buffers (as a percentage of risk-weighted assets) | 12.3% | |
National minima (if different from Basel III) | |||
69 | National Common Equity Tier 1 minimum ratio (if different from Basel III minimum) | 4.5% | |
70 | National Tier 1 minimum ratio (if different from Basel III minimum) | 6.0% | |
71 | National total capital minimum ratio (if different from Basel III minimum) | 8.0% | |
Amount below thresholds for deductions (not risk-weighted) | |||
72 | Non-significant investments in the capital of other financial entities | 66 | Table c |
73 | Significant investments in the ordinary shares of financial entities | 2,119 | Table c |
74 | Mortgage servicing rights (net of related tax liability) | - | |
75 | Deferred tax assets arising from temporary differences (net of related tax liability) | 2,260 | Table a |
Applicable caps on the inclusion of provisions in Tier 2 | |||
76 | Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach (prior to application of cap) | 65 | Table e |
77 | Cap on inclusion of provisions in Tier 2 under standardised approach | 181 | |
78 | Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) | 96 | Table e |
79 | Cap for inclusion of provisions in Tier 2 under internal ratings-based approach | 1,961 | |
Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2018 and 1 Jan 2022) | |||
80 | Current cap on CET1 instruments subject to phase out arrangements | NA | |
81 | Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities | NA | |
82 | Current cap on AT1 instruments subject to phase out arrangements | 557 | |
83 | Amount excluded from AT1 instruments due to cap (excess over cap after redemptions and maturities) | - | |
84 | Current cap on T2 instruments subject to phase out arrangements | 569 | |
85 | Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) | - | Table e |
Countercyclical buffer
The table below details Westpac's countercyclical buffer requirement.
Exposure at default |
Risk Weighted Assets2 |
Jurisdictional buffer |
ADI-specific buffer | |
Hong Kong | 1,518 | 660 | 1.000% | 0.00187% |
Luxembourg | 53 | 44 | 0.500% | 0.00006% |
Norway | 1 | 5 | 1.000% | 0.00002% |
Other | 1,074,931 | 352,826 | 0.000% | 0.00000% |
Total | 1,076,503 | 353,535 | 0.00195% | |
Total Risk Weighted Assets | 428,899 | |||
Countercyclical capital buffer | 8 |
1 | Includes 1% Domestic Systemically Important Bank (D-SIB) requirement. |
2 | Represents total private sector (excludes Banks and Sovereigns) credit and specific market risk weighted assets. |
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Appendix II | Entities included in regulatory consolidation
This appendix lists all subsidiaries controlled by Westpac according to their level of regulatory consolidation.
Level 1 Entities
The following controlled entities have been approved by APRA for inclusion in the Westpac ADI's 'Extended Licensed Entity' (ELE) for the purposes of measuring capital adequacy at Level 1:
Westpac Banking Corporation | Westpac Capital-NZ-Limited |
1925 (Commercial) Pty Limited | Westpac Debt Securities Pty Limited |
1925 (Industrial) Pty Limited | Westpac Direct Equity Investments Pty Limited |
Belliston Pty Limited | Westpac Equity Investments NZ Limited |
Bill Acceptance Corporation Pty Limited | Westpac Finance (HK) Limited |
Capital Finance Australia Limited | Westpac Financial Holdings Pty Limited |
CBA Limited | Westpac Group Investment-NZ-Limited |
Challenge Limited | Westpac Holdings-NZ-Limited |
Mortgage Management Pty Limited | Westpac Investment Capital Corporation |
Partnership Pacific Pty Limited | Westpac Investment Vehicle No.2 Pty Limited |
Partnership Pacific Securities Pty Limited | Westpac Investment Vehicle Pty Limited |
Pashley Investments Pty Limited | Westpac Leasing Nominees-Vic.-Pty Limited |
Sallmoor Pty Limited | Westpac New Zealand Group Limited |
Sixty Martin Place (Holdings) Pty Limited | Westpac Overseas Holdings No. 2 Pty Limited |
St.George Business Finance Pty Limited | Westpac Overseas Holdings Pty Limited |
St.George Equity Finance Limited | Westpac Properties Limited |
St.George Finance Holdings Limited | Westpac Securitisation Holdings Pty Limited |
St.George Security Holdings Pty Limited | Westpac Structured Products Limited |
Value Nominees Pty Limited | Westpac TPS Trust |
Westpac Administration 2 Pty Limited | Westpac Unit Trust |
Westpac Administration Pty Limited | Westpac USA Inc. |
Westpac Americas Inc. |
Level 2 Entities
The following controlled entities are included in the Level 2 consolidation (along with the ELE entities) for the purposes of measuring capital adequacy:
1925 Advances Pty Limited | Capital Fleetlease Pty Limited |
Altitude Administration Pty Limited | Capital Motor Finance Pty Limited |
Altitude Rewards Pty Limited | Capital Rent Group Pty Limited |
Aotearoa Financial Services Limited | Crusade ABS Series 2017-1 Trust |
BT (Queensland) Pty Limited | Crusade ABS Series 2017-1P Trust |
BT Australia Pty Limited | Crusade ABS Series 2018-1P Trust |
BT Financial Group (NZ) Limited | Crusade Trust No.2P of 2008 |
BT Financial Group Pty Limited | Danaby Pty Limited |
BT Securities Limited | General Credits Pty Limited |
Capital Corporate Finance Limited | Hastings Management Pty Limited |
Capital Finance (NZ) Pty Limited | Net Nominees Limited |
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Appendix II | Entities included in regulatory consolidation
Level 2 Entities (Continued)
Number 120 Limited | Westpac Capital Markets LLC |
Oniston Pty Limited | Westpac Cash PIE Fund |
Qvalent Pty Limited | Westpac Covered Bond Trust |
RAMS Financial Group Pty Limited | Westpac Digital Partnerships Pty Ltd |
RMS Warehouse Trust 2007-1 | Westpac Equity Holdings Pty Limited |
Series 2008-1M WST Trust | Westpac Europe Limited |
Series 2012-1 WST Trust | Westpac Financial Consultants Pty Limited |
Series 2013-1 WST Trust | Westpac Financial Services Group Limited |
Series 2013-2 WST Trust | Westpac Financial Services Group-NZ-Limited |
Series 2014-1 WST Trust | Westpac Global Capital Markets Pty Limited |
Series 2014-2 WST Trust | Westpac Investment Vehicle No.3 Pty Limited |
Series 2015-1 WST Trust | Westpac New Zealand Limited |
Series 2019-1 WST Trust | Westpac Notice Saver PIE Fund |
Series 2020-1 WST Trust | Westpac NZ Covered Bond Holdings Limited |
SIE-LEASE (Australia) Pty Limited | Westpac NZ Covered Bond Limited |
St.George Commercial Credit Corporation Pty Limited | Westpac NZ Operations Limited |
St.George Finance Limited | Westpac NZ Securitisation Holdings Limited |
St.George Motor Finance Limited | Westpac NZ Securitisation Limited |
The Home Mortgage Company Limited | Westpac NZ Securitisation No.2 Limited |
W2 Investments Pty Limited | Westpac Securities Limited |
Westpac (NZ) Investments Limited | Westpac Securities NZ Limited |
Westpac Administration 3 Pty Limited | Westpac Securitisation Management Pty Limited |
Westpac Administration 4 Pty Limited | Westpac Singapore Limited |
Westpac Altitude Rewards Trust | Westpac Syndications Management Pty Limited |
Westpac Asian Lending Pty Limited | Westpac Term PIE Fund |
Westpac Bank-PNG-Limited | Westpac Europe GmbH |
Westpac Capital Markets Holding Corp. |
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Appendix II | Entities included in regulatory consolidation
Level 3 Entities
The following controlled entities are excluded from the Level 2 consolidation but form part of the conglomerate group at Level 3:
Advance Asset Management Limited | Reinventure Special Purpose Investment Unit Trust |
Asgard Capital Management Limited | Securitor Financial Group Pty Limited |
Asgard Wealth Solutions Limited | Sydney Capital Corporation Inc. |
BT Funds Management (NZ) Limited | Waratah Receivables Corporation Pty Limited |
BT Funds Management Limited | Waratah Securities Australia Limited |
BT Funds Management No.2 Limited | Westpac Custodian Nominees Pty Limited |
BT Portfolio Services Limited | Westpac Financial Services Limited |
eQR Securities Pty. Limited | Westpac General Insurance Limited |
GIS Private Nominees Pty Limited | Westpac General Insurance Services Limited |
Hastings Funds Management Pty Limited | Westpac Lenders Mortgage Insurance Limited |
Magnitude Group Pty Limited | Westpac Life Insurance Services Limited |
Pendal Long Term Income Fund | Westpac Life-NZ-Limited |
Pendal Short Term Income Fund |
Westpac New Zealand Staff Superannuation Scheme Trustee Limited |
Planwise AU Pty Ltd | |
Red Bird Ventures Limited | Westpac Nominees-NZ-Limited |
Reinventure Fund II I.L.P | Westpac RE Limited |
Reinventure Fund III I.L.P | Westpac Securities Administration Limited |
Reinventure Fund, I.L.P. | Westpac Superannuation Nominees-NZ-Limited |
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Appendix III | Level 3 entities' assets and liabilities
The following legal entities are excluded from the regulatory scope of consolidation.
The total assets and liabilities should not be aggregated because some of the entities are holding companies for other entities in the table shown below.
31 March 2021 | Liabilities (excluding | |||||
$m | Total Assets | equity) | ||||
a) Securitisation | ||||||
Sydney Capital Corporation Inc. | - | - | ||||
Waratah Receivables Corporation Pty Limited | - | 1 | ||||
Waratah Securities Australia Limited | - | - | ||||
b) Insurance, funds management and other | ||||||
Advance Asset Management Limited | 56 | 30 | ||||
Asgard Capital Management Limited | 56 | 19 | ||||
Asgard Wealth Solutions Limited | 54 | 7 | ||||
BT Funds Management (NZ) Limited | 82 | 18 | ||||
BT Funds Management Limited | 362 | 311 | ||||
BT Funds Management No.2 Limited | 10 | 1 | ||||
BT Portfolio Services Limited | 190 | 111 | ||||
eQR Securities Pty. Limited | - | - | ||||
GIS Private Nominees Pty Limited | 5 | 2 | ||||
Hastings Funds Management Pty Limited | - | - | ||||
Magnitude Group Pty Limited | 4 | - | ||||
Pendal Long Term Income Fund | 499 | 499 | ||||
Pendal Short Term Income Fund | 409 | 409 | ||||
Planwise AU Pty Ltd | 5 | 2 | ||||
Red Bird Ventures Limited | 5 | 3 | ||||
Reinventure Fund II I.L.P | 45 | - | ||||
Reinventure Fund III I.L.P | 22 | - | ||||
Reinventure Fund, I.L.P. | 632 | 122 | ||||
Reinventure Special Purpose Investment Unit Trust | 39 | - | ||||
Securitor Financial Group Pty Limited | 3 | - | ||||
Westpac Custodian Nominees Pty Limited | - | - | ||||
Westpac Financial Services Limited | 29 | 14 | ||||
Westpac General Insurance Limited | 918 | 765 | ||||
Westpac General Insurance Services Limited | 62 | 6 | ||||
Westpac Lenders Mortgage Insurance Limited | 1,152 | 836 | ||||
Westpac Life Insurance Services Limited | 3,075 | 1,127 | ||||
Westpac Life-NZ-Limited | 223 | (28 | ) | |||
Westpac New Zealand Staff Superannuation Scheme Trustee Limited | - | - | ||||
Westpac Nominees-NZ-Limited | 4 | - | ||||
Westpac RE Limited | 9 | 1 | ||||
Westpac Securities Administration Limited | 7 | - | ||||
Westpac Superannuation Nominees-NZ-Limited | - | - |
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Appendix IV | Regulatory expected loss
Capital deduction for regulatory expected loss
For capital adequacy purposes APRA requires the amount of regulatory expected credit losses in excess of eligible provisions to be deducted from capital. The following table shows how the deduction is calculated.
$m |
31 March 2021 |
30 September 2020 |
31 March 2020 |
||||||
Provisions associated with eligible portfolios | |||||||||
Total provisions for impairment charges |
5,508 | 6,163 | 5,791 | ||||||
plus general reserve for credit losses adjustment | - | - | - | ||||||
plus provisions associatedwithpartial write-offs | 20 | 26 | 41 | ||||||
less ineligible provisions1 | (106 | ) | (118 | ) | (129 | ) | |||
Total eligible provisions | 5,422 | 6,071 | 5,703 | ||||||
Regulatory expected downturn loss | 5,419 | 5,801 | 5,540 | ||||||
Excess/(shortfall) in eligible provisions compared to | |||||||||
regulatory expected downturn loss | 3 | 270 | 163 | ||||||
Common equity Tier 1 capital deduction for regulatory expected | |||||||||
downturn loss in excess of eligible provisions2 | (93 | ) | (40 | ) | - |
1 | Provisions associated with portfolios subject to the Basel standardised approach to credit risk are not eligible. |
2 | Regulatory expected loss is calculated for portfolios subject to the Baseladvanced IRB approach to credit risk. The comparison between regulatory expected loss and eligible provisions is performed separately for defaulted and non-defaulted exposures. As at 31 March 2021, there was $93 million excessof eligible provisions compared to regulatory expected loss for defaulted exposures(30 September 2020: $40 million). |
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Appendix V | APS330 quantitative requirements
The following table cross-references the quantitative disclosure requirements given by Attachments A, C, D and E of APS330 to the quantitative disclosures made in this report. The continuous reporting requirements for capital instruments under Attachment B are satisfied separately and can be found on the regulatory disclosures section on the Westpac website.
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). |
APS330 reference | Westpac disclosure | Page | ||||
General Requirements | ||||||
Paragraph 12 | (a) (c) to (d) | Balance Sheet Reconciliation | 87 | |||
Paragraph 13 | Level 3 entities' assets and liabilities | 96 | ||||
Paragraph 49 | Summary leverage ratio | 22 | ||||
Attachment A: | ||||||
Table 1: Capital disclosure template | Capital disclosure template | 90 | ||||
Attachment C: | ||||||
Table 3: Capital adequacy | (a) to (e) | Capital requirements | 20 | |||
(f) | Westpac's capital adequacy ratios | 19 | ||||
Capital adequacy ratios of major subsidiary banks | 19 | |||||
Table 4: Credit risk | (a) | Exposure at Default by major type | 34 | |||
(b) | Impaired and past due loans by portfolio | 41 | ||||
(c) | General reserve for credit losses | 31 | ||||
Table 5: Securitisation exposures | (a) | Banking book summary of securitisation activity by asset type | 67 | |||
(b) | Banking book summary of on and off-balance sheet securitisation by exposure type | 68 | ||||
Trading book summary of on and off-balance sheet securitisation by exposure type | 73 | |||||
Attachment D: | ||||||
Table 6: Capital adequacy | (b) to (f) | Capital requirements | 20 | |||
(g) | Westpac's capital adequacy ratios | 19 | ||||
Capital adequacy ratios of major subsidiary banks | 19 | |||||
Table 7: Credit risk - general disclosures | (b) | Exposure at Default by major type | 34 | |||
(c) | Exposure at Default by geography | 39 | ||||
(d) | Exposure at Default by industry classification | 36 | ||||
(e) | Exposure at Default by residual contractual maturity | 40 | ||||
(f) | Impaired and past due loans by industry classification | 42 | ||||
(g) | Impaired and past due loans by geography | 43 | ||||
(h) | Movement in provisions for impairment charges | 32 | ||||
(h) | Loan impairment provisions | 31 | ||||
(i) | Exposure at Default by measurement method | 35 | ||||
(j) | General reserve for credit losses | 31 | ||||
Table 8: Credit risk - disclosures for portfolios subject to the standardised approach and supervisory risk-weights in the IRB approaches (formerly Table 5) | (b) | Portfolios subject to the standardised approach | 44 | |||
Property finance | 45 | |||||
Project finance | 46 |
1 http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/
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Appendix V | APS330 quantitative requirements
APS330 reference | Westpac disclosure | Page | ||||
Table 9: Credit risk - disclosures for portfolios subject to IRB approaches |
(d) | Corporate portfolio by external credit rating | 47 | |||
Business lending portfolio by external credit rating | 48 | |||||
Sovereign portfolio by external credit rating | 49 | |||||
Bank portfolio by external credit rating | 50 | |||||
Residential mortgages portfolio by PD band | 51 | |||||
Australian credit cards portfolio by PD band | 52 | |||||
Other retail portfolio by PD band | 53 | |||||
Small business portfolio by PD band | 54 | |||||
(e) | Actual losses | 55 | ||||
(f) | Comparison of regulatory expected and actual loss rates | 56 | ||||
Table 10: Credit risk mitigation disclosures | (b) to (c) | Total exposure covered by collateral, credit derivatives and guarantees | 59 | |||
Table 11: General disclosure for exposures related to counterparty credit risk | (b) | Counterparty credit risk summary | 61 | |||
(c) | Credit derivative transactions that create exposures to counterparty credit risk | 61 | ||||
Table 12: Securitisation exposures | Banking Book | |||||
(g) part i and (h) to (i) | Summary of assets securitised by Westpac | 66 | ||||
(g) part ii | Summary of total Westpac sponsored third party assets securitised | 66 | ||||
(j) | Summary of securitisation activity by asset type | 67 | ||||
(k) | Summary of on and off-balance sheet securitisation by exposure type | 68 | ||||
(l) part i | Securitisation exposure by risk weight band | 69 | ||||
(l) part ii | Securitisation exposures deducted from capital | 69 | ||||
(m) | Securitisation subject to early amortisation treatment | 70 | ||||
(n) part i | Resecuritisation exposure subject to credit risk mitigation | 70 | ||||
(n) part ii | Resecuritisation exposure to guarantors | 70 | ||||
Trading Book | ||||||
(o) part i and (p) | Summary of assets securitised by Westpac | 70 | ||||
(o) part ii | Summary of total Westpac sponsored third party assets securitised | 70 | ||||
(q) | Summary of securitisation activity by asset type | 70 | ||||
(r) | Aggregate amount of exposures securitised by Westpac and subject to APS116 Capital Adequacy: Market Risk | 70 | ||||
(s) | Summary of on and off-balance sheet securitisation by exposure type | 71 | ||||
(t) part i | Securitisation exposure retained or purchase subject to specific risk | 71 | ||||
(t) part ii | Securitisation exposure subject to APS120 for Specific risk by risk weight band | 71 | ||||
(u) part i | Capital requirements for securitisation exposure subject to internal models approach (IMA) by risk classification | 71 | ||||
(u) part ii | Capital requirements for securitisation regulatory capital approaches by risk weight band | 71 | ||||
(u) part iii | Securitisation exposures deducted from capital | 72 | ||||
(v) | Securitisation subject to early amortisation treatment | 72 | ||||
(w) part i | Aggregate resecuritisation exposures retain or purchased subject to credit risk mitigation | 72 | ||||
(w) part ii | Resecuritisation exposure to guarantors credit worthiness | 72 |
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Appendix V | APS330 quantitative requirements
APS330 reference | Westpac disclosure | Page | ||||
Table 13: Market risk - disclosures for ADIs using the standard method | (b) | Market Risk regulatory capital and risk weighted assets | 74 | |||
Table 14: Market risk - disclosures for ADIs using the IMA for trading portfolios | (d) | VaR and Stressed VaR by risk type | 75 | |||
Table 16: Equities - disclosures for banking book positions | (b) to (c) | Book value of listed equity exposures by industry classification / Book value of unlisted equity exposures by industry classification | 82 | |||
(d) to (e) | Gains/losses | 82 | ||||
(f) | Capital requirement1 | NA | ||||
Table 17: Interest rate risk in the banking book | (b) | Change in economic value of sudden upward and downward movement in interest rates | 78 | |||
(b) | Capital requirement | 78 | ||||
Attachment E | ||||||
Table 18: Leverage ratio disclosure template | Leverage ratio disclosure | 22 | ||||
Table 19: Summary comparison of accounting assets vs leverage ratio exposure measure | Summary comparison of accounting assets vs leverage ratio exposure measure | 23 | ||||
Attachment F | ||||||
Table 20: Liquidity Coverage Ratio disclosure template | Liquidity Coverage Ratio disclosure | 84 | ||||
Table 21: Net Stable Funding Ratio template | Net Stable Funding Ratio disclosure | 85 | ||||
Attachment G2 | ||||||
Table 21: Remuneration disclosure requirements | (g) | Governance structure | NA | |||
(h) | Quantitative Disclosures | NA | ||||
(i) | Deferred remuneration | NA | ||||
(j) to (k) | Total value of remuneration awards for the current financial year for senior managers and material risk takers | NA |
1 Equity exposures are not risk weighted at Level 2.
2 Remuneration disclosure is an annual reporting requirement under APS330.
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Glossary |
Term | Description |
Actual losses | Represent direct write-offs and write-offs from provisions after adjusting for recoveries. |
Additional Tier 1 capital | Comprises high quality components of capital that provide a permanent and unrestricted commitment of funds that are freely available to absorb losses but rank behind claims of depositors and other more senior creditors. They also provide for fully discretionary capital distributions. |
Alternate Liquid Assets (ALA) | Assets that qualify for inclusion in the numerator of the LCR in jurisdictions where there is insufficient supply of HQLA. |
Advanced measurement approach (AMA) | The capital requirement using the AMA is based on a bank's internal operational risk systems, which must both measure and manage operational risk. |
Assets intended to be securitised | Represents securitisation activity from the end of the reporting period to the disclosure date of this report. |
Australian accounting standards (AAS) | A set of Australian reporting standards and interpretations issued by the Australian Accounting Standards Board. |
Australian and New Zealand standard industrial classification (ANZSIC) | A code used by the Australian Bureau of Statistics and Statistics New Zealand for classifying businesses. |
Authorised deposit-taking institution (ADI) | ADIs are corporations that are authorised under the Banking Act 1959 to carry on banking business in Australia. |
Banking book | The banking book includes all securities that are not actively traded by Westpac. |
Committed Liquidity Facility (CLF) | Facility established with the RBA to cover the shortfall in Australian dollars between the ADI's holding of HQLA and net cash outflows. The CLF is an ALA for the Group's LCR calculation. |
Common equity Tier 1 (CET1) capital | The highest form of capital. The key components of common equity are shares, retained earnings and undistributed current year earnings. |
Credit valuation adjustment (CVA) risk | Refer to mark-to-market related credit risk. |
Default | A customer default is deemed to have occurred when Westpac considers that either or both of the following events have taken place: |
• the customer is unlikely to pay its credit obligations to its financiers in full, without recourse by any of them to actions such as realising security (where held); and | |
• the customer is past due 90 or more calendar days on any material credit obligation to its financiers. Overdrafts will be considered past due once the customer has breached an advised limit, or been advised of a limit smaller than the current outstandings. |
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Glossary |
Term | Description |
Defaulted not impaired | Includes facilities where: |
• contractual payments of interest and/or principal are 90 or more calendar days overdue, including overdrafts or other revolving facilities that remain continuously outside approved limits by material amounts for 90 or more calendar days (including accounts for customers who have been granted hardship assistance); or | |
• an order has been sought for the customer's bankruptcy or similar legal action has been instituted, which may avoid or delay repayment of its credit obligations; and | |
• the estimated net realisable value of assets/security to which Westpac has recourse is sufficient to cover repayment of all principal and interest, or where there are otherwise reasonable grounds to expect payment in full and interest is being taken to profit on an accrual basis. | |
These facilities, while in default, are not treated as impaired for accounting purposes. | |
Double default rules | Double default applies to exposures where a particular obligor's exposure has been hedged by the purchase of credit protection from a counterparty and loss will only occur if both obligor and counterparty default. In this instance, capital can be reduced. |
Exposure at default (EAD) | EAD is calculated at facility level and includes outstandings as well as the proportion of committed undrawn that is expected to be drawn in the event of a future default. |
Extended licensed entity (ELE) | An extended licensed entity (ELE) comprises an ADI and any subsidiaries of the ADI that have been approved by APRA as being part of a single 'stand- alone' entity. |
External credit assessment institution (ECAI) | ECAI is an external institution recognised by APRA (directly or indirectly) to provide credit assessment in determining the risk-weights on financial institutions' rated credit exposures (including securitisation exposures). |
Geography | Geographic segmentation of exposures is based on the location of the office in which these items were booked. |
High-quality liquid assets (HQLA) | Assets which meet APRA's criteria for inclusion as HQLA in the numerator of the LCR. |
Impaired exposures | Includes exposures that have deteriorated to the point where full collection of interest and principal is in doubt, based on an assessment of the customer's outlook, cashflow, and the net realisation of value of assets to which recourse is held: |
• facilities 90 days or more past due, and full recovery is in doubt: exposures where contractual payments are 90 or more days in arrears and the net realisable value of assets to which recourse is held may not be sufficient to allow full collection of interest and principal, including overdrafts or other revolving facilities that remain continuously outside approved limits by material amounts for 90 or more calendar days; | |
• non-accrual facilities: exposures with individually assessed impairment provisions held against them, excluding restructured loans; | |
• restructured facilities: exposures where the original contractual terms have been formally modified to provide for concessions of interest or principal for reasons related to the financial difficulties of the customer; | |
• other assets acquired through security enforcement (includes other real estate owned): includes the value of any other assets acquired as full or partial settlement of outstanding obligations through the enforcement of security arrangements; and | |
• any other facilities where the full collection of interest and principal is in doubt. |
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Glossary |
Term | Description |
Industry | Exposures to businesses, government and other financial institutions are classified into industry clusters based upon groups of related ANZSIC codes. Companies that operate in multiple industries are classified according to their primary industry. Consumer customers as classified as 'retail' and not further broken down. |
Interest rate risk in the banking book (IRRBB) | The risk to current and future year interest income arising from a mismatch between the duration of assets and liabilities that arises in the normal course of banking activities. |
Internal ratings-based approach (IRB & Advanced IRB) | These approaches allow banks to use internal estimates of the risks of their loans as inputs into the determination of the amount of credit risk capital needed to support the organisation. In the Advanced IRB approach, banks must supply their own estimates for all three credit parameters - Probability of Default, Loss Given Default and Exposure at Default. |
Leverage ratio | The leverage ratio is defined by APRA as Tier 1 capital divided by the 'Exposure measure' and is expressed as a percentage. 'Exposure measure' includes on-balance sheet exposures, derivatives exposures, securities financing transaction (SFT) exposures, and other off-balance sheet exposures. |
Liquidity coverage ratio (LCR) | An APRA requirement to maintain an adequate level of unencumbered high quality liquid assets, to meet liquidity needs for a 30 calendar day period under an APRA-defined severe stress scenario. Absent a situation of financial stress, the value of the LCR must not be less than 100%. LCR is calculated as the percentage ratio of stock of HQLA, CLF and qualifying Reserve Bank of New Zealand securities over the total net cash out flows in a modelled 30 day defined stressed scenario. |
Loss given default (LGD) | The LGD represents an estimate of the expected severity of a loss to Westpac should a customer default occur during a severe economic downturn. Westpac assigns LGD to each credit facility, assuming an event of default has occurred and taking into account a conservative estimate of the net realisable value of assets to which Westpac has recourse and over which it has security. LGDs also reflect the seniority of exposure in the customer's capital and debt structure. |
Maturity | The maturity date used is drawn from the contractual maturity date of the customer loans. |
Mark-to-market related credit risk | The risk of mark-to-market losses related to deterioration in the credit quality of a derivative counterparty also referred to as credit valuation adjustment (CVA) risk. |
Monte Carlo simulation | A method of random sampling to achieve numerical solutions to mathematical problems. |
Net cash outflows | Total expected cash outflows minus total expected cash inflows in the specified LCR stress scenario calculated in accordance with APRA's liquidity standard. |
Net interest income at risk (NaR) | BRiskC-approved limit expressed as a defined basis point shock in interest rates over a one year risk horizon. |
Net Stable Funding Ratio (NSFR) | The NSFR is defined as the ratio of the amount of available stable funding (ASF) to the amount of required stable funding (RSF) defined by APRA. The amount of ASF is the portion of an ADI's capital and liabilities expected to be a reliable source of funds over a one year time horizon. The amount of RSF is a function of the liquidity characteristics and residual maturities of an ADI's assets and off-balance sheet activities. ADI's must maintain an NSFR of at least 100%. |
Off-balance sheet exposure | Credit exposures arising from facilities that are not recorded on Westpac's balance sheet (under accounting methodology). Undrawn commitments and the expected future exposure calculated for Westpac's derivative products are included in off-balance sheet exposure. |
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Glossary |
Term | Description |
On balance sheet exposure | Credit exposures arising from facilities that are recorded on Westpac's balance sheet (under accounting methodology). |
Potential future credit exposure (PFCE) | The PFCE for each transaction is calculated by multiplying the effective notional principal amount by a credit conversion factor specified in APS112. |
Probability of default (PD) | Probability of default is a through-the-cycle assessment of the likelihood of a customer defaulting on its financial obligations within one year. |
Resecuritisation | A resecuritisation exposure is a securitisation exposure in which the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is a securitisation exposure. In addition, an exposure to one or more resecuritisation exposures is a resecuritisation exposure; |
Risk weighted assets (RWA) | Assets (both on and off-balance sheet) are risk weighted according to each asset's inherent potential for default and what the likely losses would be in case of default. In the case of non-asset backed risks (i.e. market and operational risk), RWA is determined by multiplying the capital requirements for those risks by 12.5. |
Securitisation purchased | The purchase of third party securitisation exposure, for example residential mortgage backed securities. |
Securitisation retained | Securitisation exposures arising through Westpac originated assets or generated by Westpac third party securitisation activity. |
Securities financing transactions (SFT) | APRA defines SFTs as 'transactions such as repurchase agreements, reverse repurchase agreements, and security lending and borrowing, and margin lending transactions, where the value of the transactions depends on the market valuation of securities and the transactions are typically subject to margin agreements.' |
Sponsor | An ADI would generally be considered a sponsor if it, in fact or substance, manages or advises the securitisation program, places securities into the market, or provide liquidity and/or credit enhancements. |
Standard model | The standard model for Market risk applies supervisory risk weights to trading positions. |
Stressed VaR (SVaR) | Stressed VaR uses the approved VaR model but applies a period of significant market stress. Market risk capital is estimated by adding Stressed VaR to regular VaR. |
Substitution approach | Substitutions refers to the rules governing the circumstances when capital can be reduced because an obligor's exposure has been hedged by the purchase of credit protection from a counterparty and the counterparty's PD is used in place of the obligors' PD. |
Supervisory Formula Approach (SFA) | The SFA applicable to unrated exposures dynamically looks at the type and performance of underlying asset pools funded by the securitisation exposure as well as the structural features of the transaction to determine capital requirements |
Tier 2 capital | Includes other capital elements, which, to varying degrees, fall short of the quality of Tier 1 capital but still contribute to the overall strength of an entity as a gone concern capital. |
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Glossary |
Term | Description |
Trading book | Trading book activity represents dealings that encompass book running and distribution activity. The types of market risk arising from trading activity include interest rate risk, foreign exchange risk, commodity risk, equity price risk, credit spread risk and volatility risk. Financial Markets and Treasury are responsible for managing market risk arising from Westpac's trading activity. |
Value at risk (VaR) | VaR is the potential loss in earnings from adverse market movements and is calculated over a one-day time horizon at a 99% confidence level using a minimum of one year of historical rate data. VaR takes account of all material market variables that may cause a change in the value of the trading portfolio and the banking book including interest rates, foreign exchange rates, price changes, volatility, and the correlation among these variables. |
Exchange rates
The following exchange rates were used in the Westpac Pillar 3 report, and reflect spot rates for the period end.
$ | 31 March 2021 | 30 September 2020 | 31 March 2020 |
USD | 0.7596 | 0.7108 | 0.6191 |
GBP | 0.5536 | 0.5540 | 0.5017 |
NZD | 1.0892 | 1.0802 | 1.0264 |
EUR | 0.6487 | 0.6060 | 0.5620 |
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Disclosure regarding forward-looking statements |
This report contains statements that constitute 'forward-looking statements' within the meaning of Section 21E of the US Securities Exchange Act of 1934.
Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements appear in a number of places in this report and include statements regarding Westpac's intent, belief or current expectations with respect to its business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions and financial support to certain borrowers. Words such as 'will', 'may', 'expect', 'intend', 'seek', 'would', 'should', 'could', 'continue', 'plan', 'estimate', 'anticipate', 'believe', 'probability', 'risk', 'aim', 'outlook' or other similar words are used to identify forward-looking statements. These forward-looking statements reflect Westpac's current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond Westpac's control, and have been made based upon management's expectations and beliefs concerning future developments and their potential effect upon Westpac. There can be no assurance that future developments will be in accordance with Westpac's expectations or that the effect of future developments on Westpac will be those anticipated. Actual results could differ materially from those expected, depending on the outcome of various factors, including, but not limited to:
● | information security breaches, including cyberattacks; |
● | the effect of the global COVID-19 pandemic, which has had, and may continue to have, a negative impact on our business and global economic conditions, adversely affect a wide-range of Westpac's key suppliers, third-party contractors and customers, create increased volatility in financial markets and result in increased impairments, defaults and write-offs; |
● | the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government policy, particularly changes to liquidity, leverage and capital requirements; |
● | regulatory investigations, reviews and other actions, inquiries, litigation, fines, penalties, restrictions or other regulator imposed conditions, including as a result of our actual or alleged failure to comply with laws (such as financial crime laws), regulations or regulatory policy; |
● | the effectiveness of Westpac's risk management policies, including internal processes, systems and employees, and operational risks resulting from ineffective processes and controls, as well as breakdowns in processes and procedures requiring remediation activity; |
● | the failure to comply with financial crime obligations, which has had, and could further have, adverse effects on our business and reputation; |
● | the occurrence of environmental change (including as a result of climate change) or external events in countries in which Westpac or its customers or counterparties conduct their operations; |
● | internal and external events which may adversely impact Westpac's reputation; |
● | litigation and other legal proceedings and regulator investigations and enforcement actions; |
● | reliability and security of Westpac's technology and risks associated with changes to technology systems; |
● | the stability of Australian and international financial systems and disruptions to financial markets and any losses or business impacts Westpac or its customers or counterparties may experience as a result; |
● | market volatility, including uncertain conditions in funding, equity and asset markets; |
● | an increase in defaults in credit exposures because of a deterioration in economic conditions; |
● | adverse asset, credit or capital market conditions; |
● | the incidence of inadequate capital levels under stressed conditions; |
● | the risk that governments will default on their debt obligations or will be unable to refinance their debts as they fall due; |
● | changes to Westpac's credit ratings or the methodology used by credit rating agencies; |
● | levels of inflation, interest rates (including low or negative interest rates), exchange rates and market and monetary fluctuations and volatility; |
● | an increase in defaults, write-offs and provisions for credit impairments; |
● | changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and other countries (including as a result of tariffs and other protectionist trade measures) in which Westpac or its customers or counterparties conduct their operations and Westpac's ability to maintain or to increase market share, margins and fees, and control expenses; |
● | the effects of competition, including from established providers of financial services and from non-financial services entities, in the geographic and business areas in which Westpac conducts its operations; |
● | poor data quality or poor data retention; |
● | the incidence or severity of Westpac-insured events; |
● | changes to Westpac's critical accounting estimates and judgements and changes to the value of Westpac's intangible assets; |
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Disclosure regarding forward-looking statements |
● | changes in political, social or economic conditions in any of the major markets in which Westpac or its customers or counterparties operate; |
● | the inability to syndicate or sell down underwritten securities, particularly during times of heightened market volatility; |
● | strategic decisions including diversification, innovation, divestment, acquisitions or business expansion activity, including the integration of new businesses; and |
● | various other factors beyond Westpac's control. |
The above list is not exhaustive. For certain other factors that may impact on forward-looking statements made by Westpac, refer to 'Risk factors' in the Directors' report the 2021 Interim Financial Results Announcement. When relying on forward-looking statements to make decisions with respect to Westpac, investors and others should carefully consider the foregoing factors and other uncertainties and events.
Westpac is under no obligation to update any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise, after the date of this report.
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