UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Or
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2009
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Or
o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-10167

WESTPAC BANKING CORPORATION
Australian Business Number 33 007 457 141
(Exact name of Registrant as specified in its charter)

New South Wales, Australia
(Jurisdiction of incorporation or organization)

275 Kent Street, Sydney, NSW 2000, Australia
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Ordinary shares	Listed on the New York Stock Exchange, not for trading, but only in connection with the registration of related American Depositary Shares, pursuant to the requirements of the New York Stock Exchange.
American Depositary Shares, each representing the right to receive five ordinary shares	New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:  None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: 4.20% Notes Due February 27, 2015 and 4.625% Subordinated Notes Due 2018

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Ordinary shares                                                                         2,940,946,145 fully paid

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x    No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o    No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x    No o

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer x       Accelerated Filer o       Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP o   International Financial Reporting Standards as issued by the International Accounting Standards Board x

Other o

If this is an annual report, indicate by check mark whether the registrant is a shell company.

Yes o    No x

2009 Annual Report

The Westpac Group Annual Report 2009

Westpac Banking Corporation

ABN 33 007 457 141

Information contained in or accessible through the web sites mentioned in this Annual 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 web sites are inactive textual references and are for information only.

Table of contents

Annual Report
Form 20-F cross-reference index	2
Guide 3 cross-reference index	4
Section 1	5
Information on Westpac	6
Corporate governance	13
Directors’ report	29
Section 2	67
Five year summary	68
Reading this report	69
Review of Group operations	71
Income statement review	73
Balance sheet review	82
Capital resources	87
Commitments	89
Divisional performance	90
Westpac Retail and Business Banking	91
St.George Bank	92
BT Financial Group (Australia)	93
Westpac Institutional Bank	94
New Zealand Banking	96
Other divisions	97
Risk and risk management	102
Other Westpac business information	116
Additional financial information	118
Section 3	121
Financial statements	122
Notes to the financial statements	126
Statutory statements	278
Section 4	285
Shareholding information	286
Additional information	295
Information for shareholders	300
Glossary of abbreviations	302

In this Annual Report references to ‘Westpac’, ‘Group’, ‘The Westpac Group’, ‘we’, ‘us’ and ‘our’ are to Westpac Banking Corporation ABN 33 007 457 141 and its subsidiaries unless they clearly mean just Westpac Banking Corporation.

In this Annual Report references to ‘St.George’ are to St.George Bank Limited ABN 92 055 513 070 and its subsidiaries unless they clearly mean just St.George Bank Limited.

For certain information about the basis of preparation of the financial information in this Annual Report see ‘Reading this report’ in Section 2. In addition, this Annual Report contains statements that constitute ‘forward-looking statements’ within the meaning of section 21E of the US Securities Exchange Act of 1934. For an explanation of forward-looking statements and the risks, uncertainties and assumptions to which they are subject, see ‘Reading this report’ in Section 2.

1

Form 20-F cross-reference index

(for the purpose of filing with the United States Securities and Exchange Commission)

20-F item number and description		Page
Part I
Item 1.	Identity of directors, senior management and advisers	Not applicable
Item 2.	Offer statistics and expected timetable	Not applicable
Item 3.	Key information
	Selected financial data	68, 73, 82-83, 298
	Capitalisation and indebtedness	Not applicable
	Reasons for the offer and use of proceeds	Not applicable
	Risk factors	102-105
Item 4.	Information on Westpac
	History and development of Westpac	6-10
	Business overview	6-12
	Organisational structure	6-7, 259-263
	Property, plant and equipment	116-117
Item 4A.	Unresolved staff comments	Not applicable
Item 5.	Operating and financial review and prospects
	Operating results	71-86, 90-101, 142-144
	Liquidity and capital resources	87-88, 109-110, 113
	Research and development, patents, licences etc.	Not applicable
	Trend information	73-86, 90-101
	Off-balance sheet arrangements	113
	Tabular disclosure of contractual obligations	89
	Safe harbor	69
Item 6.	Directors, senior management and employees
	Directors and senior management	29-35, 37-38
	Compensation	41-63, 265-273
	Board practices	15-26, 29-32
	Employees	116
	Share ownership	37-38, 265-273
Item 7.	Major equity holders and related party transactions
	Major equity holders	286-290
	Related party transactions	117, 265
	Interests of experts and counsel	Not applicable
Item 8.	Financial information
	Consolidated statements and other financial information	121-282
	Significant changes	8-10, 277
Item 9.	The offer and listing	290
Item 10.	Additional information
	Share capital	Not applicable
	Memorandum and articles of association	295-297
	Material contracts	251-252
	Exchange controls	291-292
	Taxation	292-294
	Dividends and paying agents	Not applicable
	Statements by experts	Not applicable
	Documents on display	297
	Subsidiary information	Not applicable
Item 11.	Quantitative and qualitative disclosures about market risk	106-108, 111-112, 229-232
Item 12.	Description of securities other than equity securities	Not applicable

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Part II
Item 13.	Defaults, dividend arrearages and delinquencies	None
Item 14.	Material modifications to the rights of security holders and use of proceeds	None
Item 15.	Controls and procedures	115, 279, 282
Item 16A.	Audit committee financial expert	21-22
Item 16B.	Code of ethics	19-20
Item 16C.	Principal accountant fees and services	22, 250
Item 16D.	Exemptions from the Listing Standards for audit committees	Not applicable
Item 16E.	Purchases of equity securities by the issuer and affiliated purchasers	88, 179-180, 193
Item 16F	Change in Registrant’s Certifying Accountant	Not applicable
Item 16G	Corporate Governance	13
Part III
Item 17 & 18	Financial statements	121-277
Item 19.	Exhibits
Consolidated income statements for the years ended 30 September 2009, 2008 and 2007		122
Consolidated balance sheets as at 30 September 2009 and 2008		123
Consolidated statements of recognised income and expense for the years ended 30 September 2009, 2008 and 2007		124
Consolidated statements of cash flows for the years ended 30 September 2009, 2008 and 2007		125
Notes to the financial statements		126-277
Management’s report on internal control over financial reporting		279
Report of independent registered public accounting firm		280-282

3

Guide 3 cross-reference index

	Page
Part I Distribution of assets, liabilities and stockholder’s equity: interest rates and interest differential
Average balance sheets	82, 194-197
Analysis of net interest earnings	74-75, 79, 194-197
Volume and rate movement	74, 194-197
Part II Investment portfolio
Book value of investments	154-155
Maturity profile	156, 226-227
Book value and market value > 10% of shareholders	154
Part III Loan portfolio
Types of loans	118, 157-158
Maturities and sensitivities of loans to changes in interest rates	159-160
Risk elements
Non-accrual, past due and restructured loans	85-86, 218-219
Potential problem loans	85-86
Foreign outstandings	108
Loan concentrations	Not applicable
Other interest bearing assets	153-156, 213
Part IV Summary of loan loss experience
Analysis of the allowance for loan losses	119-120, 161-164
Allocation of the allowance for loan losses	119-120, 161-164
Part V Deposits	171-172
Part VI Return on equity and assets	68, 83
Part VII Short-term borrowings	175-176

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Section 1

Information on Westpac

Corporate governance

Directors’ report

5

Information on Westpac

Westpac is one of the four major banking organisations in Australia and, through our New Zealand operations, we are also one of the largest banking organisations in New Zealand. We provide a broad range of banking and financial services in these markets, including retail, business and institutional banking and wealth management services.

We have branches, affiliates and controlled entities(1) throughout Australia, New Zealand and the near Pacific region, and maintain offices in some of the key financial centres around the world.

We were founded in 1817 and were the first bank established in Australia. In 1850 we were incorporated as the Bank of New South Wales by an Act of the New South Wales Parliament. In 1982 we changed our name to Westpac Banking Corporation following our merger with the Commercial Bank of Australia. On 23 August 2002, we were registered as a public company limited by shares under the Australian Corporations Act 2001 (Corporations Act).

The 2009 financial year marked a strategically important and transformational period for the Group, with the completion of the merger with St.George Bank Limited on 1 December 2008. The merger provides us with an enhanced growth platform, an expanded customer base, greater distribution capability, an enhanced suite of products and an improved efficiency profile. In addition, we believe that by maintaining and indeed investing more in the separate brands, including Westpac, St.George, RAMS, BankSA, BT Financial Group and Asgard, the Group has increased its strategic flexibility to better meet customer needs.

As at 30 September 2009, our market capitalisation was $77.2 billion(2) and we had total assets of $589.6 billion.

Business strategy

Our vision is to be the leading financial services company in Australia and New Zealand.

We see our fundamental purpose as helping every customer achieve all their financial goals.

Our ambition is to earn all of our customers’ business by delighting them with the service and support that we provide and by serving them as a single team.

Our strategy focuses on customers in our core markets of Australia, New Zealand and the near Pacific region and is based on:

·developing a deep understanding of our customers’ needs;

·providing value-added solutions that seek to meet those needs;

·deepening and building long-term customer relationships; and

·dramatically improving the experience they have with us.

We have strong values, which are well embedded in our culture. We believe that the following values will help us deliver our strategy:

·working as one team;

·delighting customers;

·integrity;

·achievement; and

·valuing each other.

Strategic priorities

Our strategic priorities are particularly centred on improving our distribution and customer offerings, specifically to:

a)drive a strong, active customer-centric culture to delight our customers by

·putting the customer at the centre of everything we do;

·establishing and driving high performing and locally empowered businesses very close to the communities they serve;

·developing and implementing compelling customer segment strategies, bringing banking and wealth management together for the customer; and

·strengthening the skills and depth of our people;

b)become easier to do business with

·by having processes and solutions designed from the customers’ perspective;

·through a focus on convenience, simplicity and flexibility; and

·by achieving integration across all channels.

c)realise our multi-brand advantage by

·having a clear, shared vision of success across the Group;

·offering an even greater choice to customers; and

·continuing to invest in and support the individual brands across The Westpac Group.

d)invest in operations improvements to

·transform service delivery, redesigning processes end-to-end from a customer perspective; strengthen technology capabilities to increase the reliability and consistency of service;

·focus on driving productivity, eliminating duplication to provide headroom for additional investment; and

·launch a multi-year technology transformation program to renew our overall technology base.

e)lead in reputational and sustainability matters

·by ensuring that each decision we make is consistent with our customer-focused strategy, and by continuing to actively support the communities in which we operate;

·through further embedding sustainability concepts in all elements of our businesses;

(1)     Refer to Note 39 to the financial statements for a list of our controlled entities as at 30 September 2009.

(2)      Based on the closing share price of our ordinary shares on the Australian Securities Exchange as at 30 September 2009.

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·through on-going joint endeavours with our non-profit partners; and

·by continuing to develop strong risk management capabilities as a competitive advantage.

By putting the customer at the centre of everything we do, engaging our customers through brands they know and trust, and focusing on the key elements of customer advocacy, we believe we will realise our vision to be the leading financial services company in Australia and New Zealand.

Organisational structure

Our operations comprise the following five key customer-facing business divisions operating under multiple brands, serving around 10 million customers(1):

·Westpac Retail and Business Banking, which we refer to as WRBB, is responsible for sales, marketing and customer service for all consumer and small-to-medium enterprise customers within Australia under the ‘Westpac’ and ‘RAMS’(2) brands;

·St.George Bank is responsible for sales, marketing and customer service for our consumer, business and corporate customers in Australia under the St.George brand. It also includes the management and operation of BankSA;

·BT Financial Group Australia, which we refer to as BTFG, is Westpac’s wealth management business. As a result of the merger with St.George, BTFG now includes operations under the Asgard, Advance, Licensee Select, Magnitude, BankSA, and Securitor brands. BTFG designs, manufactures and distributes financial products that are designed to help our customers achieve their financial goals by administering, managing and protecting their assets;

·Westpac Institutional Bank, which we refer to as WIB, delivers a broad range of financial services to commercial, corporate, institutional and government customers either based in or with interests in Australia and New Zealand. Customers are supported through Westpac branches and subsidiaries located in Australia, New Zealand, New York, London and Asia; and

·New Zealand Banking, which provides a full range of retail and commercial banking and wealth management products and services to consumer and business customers throughout New Zealand. New Zealand Banking operates under the Westpac New Zealand, Westpac Life New Zealand and BT New Zealand brands.

Other business divisions in the Group comprise:

·Pacific Banking, which provides banking services for retail and business customers throughout near South Pacific Island Nations;

·Group Treasury, which is primarily focused on the management of the Group’s interest rate risk and funding requirements;

·Product and Operations, which is responsible for consumer and business product development and operations;

·Technology, which is responsible for developing and maintaining reliable and flexible technology capabilities and technology strategies; and

·Core Support, which comprises those functions performed centrally including finance, risk, legal and human resources.

These businesses are described in more detail in Section 2, including a summary of net profit and total assets by business division and management discussion and analysis of business division performance.

Structure chart of our businesses

(1)All customers, primary and secondary, with an active relationship (excludes channel only and potential relationships) as at 30 September 2009.

(2)      RAMS Home Loans is a home loan franchise distribution business.

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Competition

The Australian financial services market is strongly competitive and is likely to become more so as the economy recovers from the current slowdown.

The competition for deposits, in particular, has intensified and may increase further.

We expect competition within the lending market to further intensify as all competitors respond to the changing conditions.

The New Zealand economy has suffered a more significant slowdown in economic activity than Australia. While a number of smaller non-bank institutions have exited the New Zealand market, competition has remained strong.

Outlook(1)

The 2009 financial year was a period of significant change, starting the year in the midst of the global financial crisis, with the world economy deep in recession and ending the year with some economies beginning to recover, confidence improving in Australia and the most intense impact of the financial crisis waning. Through the 2009 financial year, Australia avoided a technical recession and navigated the global downturn, due in part to a strong financial sector, pro-active monetary and fiscal stimulus and Australia’s exposure to the Chinese economy, which rebounded strongly.

The Australian economic outlook for the 2010 financial year is positive overall, and we believe that real GDP growth will be above 2% in the 2010 calendar year. However, we expect conditions to be uneven across the economy, as is typical in the early stages of recovery. A strong upturn in housing construction and a pick-up in Australian Government investment spending are expected to support growth. Current measures of both business and consumer confidence in Australia also point to improved spending. However, ongoing uncertainty about the aftermath of the global financial crisis and the partial reversal of highly stimulatory monetary and fiscal policies are likely to ensure that households and businesses remain cautious.

From a banking sector perspective, Australian credit growth is expected to remain relatively subdued over the coming year from the impacts and lessons from the global financial crisis. We expect housing credit growth to remain at similar levels to the 2009 financial year and business credit growth to continue to experience softness, with the deleveraging process having further to run. Average funding costs are also likely to rise given the intense competition for retail deposits and as wholesale funding continues to be sourced at a cost well above pre-global financial crisis levels.

For The Westpac Group, the 2009 financial year was a transformational year. The Group not only successfully navigated the global financial crisis, but ended the year in strong shape with increased capital ratios, higher provision cover and improved liquidity. The merger with St.George was also a catalyst, increasing the scale and reach of our organisation while our multi-brand strategy created an organisation that can better meet different customer needs. The Group has consistently grown at above financial system growth, with particular strength in key targeted areas of mortgages, deposits and superannuation. In the latter quarter of the 2009 financial year, improving asset markets, particularly equities, has given good momentum to our wealth management business and we are beginning to see new customer flows.

The 2010 financial year will not be without its challenges. In particular, fee income is likely to be lower following changes to fee structures implemented over the year. Treasury and markets income was also very high in the 2009 financial year, and is unlikely to be matched in the year ahead as the significant volatility that contributed to the gains has now abated.

It is important to note that the global financial crisis is likely to have a lasting impact on the operating environment. This is particularly true for the financial system where risk appetites have changed and business models have adjusted.

Changes in the global regulatory environment are also underway, seeking to address some of the systemic issues that emerged in world markets. While some change is inevitable in Australia, we believe the initiatives already undertaken by Westpac to enhance funding, grow liquidity and strengthen our balance sheet puts us in a solid position to respond.

With Australian economic activity improving, The Westpac Group is seeing positive trends in its portfolio, with the growth in stressed assets moderating. The Australian consumer sector has performed very well through this cycle and we expect the sector to continue to perform well in the year ahead.

The merger with St.George is set to continue to deliver benefits in the 2010 financial year, with the full period impact of prior synergies to flow through, and as the Group continues to pursue technology and operations consolidation and to further cross sell, particularly wealth and insurance products. As a result, we believe The Westpac Group is well positioned for the year ahead.

Significant developments

Merger with St.George Bank Limited

On 1 December 2008, Westpac completed its merger with St.George Bank Limited by way of scheme of arrangement. This merger, originally announced on 13 May 2008, was approved by holders of St.George ordinary shares on 13 November 2008 and subsequently approved by the Federal Court of Australia on 17 November 2008. Under the terms of the merger, holders of St.George ordinary shares received 1.31 Westpac ordinary shares for each St.George ordinary share held on the record date. Based on the closing price of Westpac ordinary shares on the Australian Securities Exchange on 17 November 2008 of A$16.32 per ordinary share and the 742,594,256 Westpac ordinary shares issued to holders of St.George ordinary shares as at the record date, the total value of the Westpac ordinary shares issued to St.George ordinary shareholders was A$12.1 billion. St.George currently operates as a wholly owned Westpac subsidiary, however, it is anticipated that Westpac and St.George will become a

(1)       All data and opinions under ‘Outlook’ are generated by our internal economists and management.

8

single Authorised Deposit-taking Institution (ADI) in the first half of the 2010 calendar year. This will involve transferring the assets, liabilities, business and undertaking of St.George to Westpac. St.George Bank Limited will be deregistered as a separate company immediately after the transfer. The move to a single ADI is driven by regulatory requirements and will not affect the continued operation of Westpac and St.George Bank as separate brands.

Global financial crisis, impairments and ongoing regulatory response

In the first half of the 2009 financial year, the severity of the global financial crisis deepened, which created a period of extreme uncertainty that saw the near closure of financial and funding markets followed by the failure of a number of financial institutions globally, and with many of the world’s major economies in recession. This environment had many impacts on the banking system, including a reduction in funding availability and dramatically increased wholesale funding costs, increased market volatility, declining values in asset markets, a weakening of operating conditions and an escalation in company stress and associated impairments.

Impairment charges increased significantly during the 2009 financial year driven initially by the immediate impacts of the global financial crisis and increased further with the subsequent economic slowdown. For additional information on impairments refer to ‘Review of Group Operations — Impairment Charges 2009 v 2008’ in Section 2.

Globally, there has been a rapid and ongoing regulatory response to the global financial crisis.

Government Guarantee Schemes

As an early response to the global financial crisis, with a view to promoting financial system stability in Australia and ensuring the continued flow of credit through the economy, the Australian Government announced that it would guarantee deposits held with eligible Australian ADIs (including Westpac, its foreign branches and St.George Bank) for a three year period from 12 October 2008. The guarantee applies to the first $1 million of ‘protected accounts’ per customer per ADI without charge. The Australian Government also provided a guarantee facility for deposits of amounts over $1 million and for wholesale funding of an eligible ADI, in return for a fee payable by the ADI, provided an eligibility certificate has been issued in respect of the liability. The fee applicable to Westpac and St.George is currently 70 basis points (or 0.70%) of the amount guaranteed per annum. The New Zealand Government implemented similar schemes within that jurisdiction.

Remuneration

In response to the global financial crisis, the Australian Government and regulators are implementing a number of changes that seek to ensure that companies align their remuneration policies with sustainable company performance.

Legislation proposed by the Australian Government, regulating termination payments to directors and key management, is currently being considered by Parliament. The legislation will significantly lower the threshold for requiring shareholder approval of termination payments, to payments exceeding one year’s base salary.

The Australian Productivity Commission has released its draft recommendations for reform of Australia’s executive remuneration regulatory framework with the final recommendations and report expected in December 2009.

In addition, the Australian Prudential Regulation Authority (APRA) will amend its Prudential Standards on governance and remuneration, effective from 1 April 2010, to require that remuneration practices of ADIs, life companies and general insurers, align with and support, long-term financial soundness and prudent risk taking.

Liquidity

In addition, APRA is proposing to enhance the prudential standards for liquidity risk management for ADIs. The proposed changes include:

·enhancing qualitative requirements, consistent with the ‘Principles for Sound Liquidity Risk Management and Supervision’ issued by the Basel Committee on Banking Supervision in September 2008; and

·strengthening quantitative requirements to ensure ADIs meet a minimum acceptable level of resilience under normal and stress conditions.

APRA intends to issue final standards and reporting forms in the first half of 2010, although this timetable may be amended as international initiatives in this area evolve. A consultation process is currently being undertaken and details of the proposed liquidity enhancements may change through that process. Until there is greater clarity regarding the new prudential requirements, any impact on Westpac cannot be determined.

Changes to accounting standards

In further response to the global financial crisis, governments, regulators and accounting standard setters are working to revise accounting standards. The objective is to achieve convergence towards a single set of high-quality, global and independent accounting standards. The specific areas that have been targeted include accounting for financial instruments, loan-loss provisioning, off-balance sheet exposures, and the impairment and valuation of financial assets. We expect that there will be a number of new standards issued in calendar year 2010 that may require changes to our current accounting approaches.

Further regulatory developments

The Australian Federal Government has embarked on a program of regulatory reform, which will affect Westpac. This includes:

·credit law reform;

·the introduction of an unfair contracts regime in relation to contracts with consumers;

·margin lending reform;

·superannuation changes; and

·the introduction of a new regulatory framework for personal property securities.

9

Westpac continues to review these developments and will be amending its systems, processes and operations to align with regulatory changes as they occur.

Operating model review in New Zealand

Until 1 November 2006, Westpac Banking Corporation conducted its operations within New Zealand in a branch structure. On that date, and after extensive consultation with the Reserve Bank of New Zealand (RBNZ), Westpac adopted a dual registration operating model, including a locally incorporated subsidiary, Westpac New Zealand Limited (WNZL), to conduct its retail and business banking activities in New Zealand, and a branch, Westpac Banking Corporation New Zealand Branch (NZ Branch) to conduct its institutional and financial markets activities. The conditions of registration of each of WNZL and NZ Branch are consistent with these operating model arrangements. In 2008, it became apparent that both WNZL and NZ Branch had been non-compliant with certain of their conditions of registration. Consequently, the RBNZ asked Westpac to review the structure of its operating model in New Zealand to ensure that it is able to sustain durable compliance with the RBNZ’s prudential policies. Accordingly, it was agreed that an independent review would take place, with the terms of reference for the review established through consultation between the RBNZ, WNZL and NZ Branch. The review was conducted under the well established processes and framework of section 95 of the Reserve Bank of New Zealand Act 1989. The report from the independent reviewer to the RBNZ was completed on 30 September 2009. The report contained various observations, which are being considered by the Westpac Banking Corporation and WNZL Boards. The independent reviewer made some observations regarding some aspects of WNZL’s compliance with the RBNZ’s outsourcing policy (BS11) which WNZL is currently addressing. Operating model and governance changes that may result from this process will be the subject of future discussions with the RBNZ and will be appropriately disclosed.

Changes to exception fees

On 3 August 2009, Westpac announced that both Westpac and St.George would reduce exception fees on consumer and business accounts and credit cards to $9.00, effective 1 October 2009 following progressive reductions in exception fees over the preceding 18 months. The relevant fees include account overdrawn fees, outward dishonour fees, periodic payments not made, and credit card missed payment and over the limit fees. The reduction in fees is expected to impact The Westpac Group results for the 2010 financial year by reducing revenue and net profit by approximately $300 million and $210 million, respectively.

Litigation

New Zealand Inland Revenue Department

Tax assessments for nine structured finance transactions undertaken between 1998 and 2002 have been the subject of proceedings between Westpac and the Commissioner of Inland Revenue (CIR) New Zealand. The proceedings challenged amended assessments issued by the CIR in respect of Westpac’s tax treatment of these transactions. The High Court in Auckland found in favour of the CIR on four representative transactions. When taking into account all of the nine transactions, the financial cost of the judgment would be NZ$918 million (A$753 million), made up of core tax of NZ$586 million and interest of NZ$332 million. This amount has been fully provided for in our financial statements for the year ended 30 September 2009. Additional information is included in Note 37 to the financial statements.

Capital transactions

As part of implementing the merger with St.George, and in addition to issuing 742,594,256 Westpac ordinary shares to holders of St.George ordinary shares as discussed above under ‘Merger with St.George Bank Limited’, Westpac acquired St.George’s SAINTS securities on 1 December 2008 for $350 million and St.George redeemed its SPS, CPS and CPS II Tier 1 securities on 31 March 2009 for a combined face value of $875 million.

Westpac also undertook a number of significant initiatives to increase its Tier 1 capital during the year ended 30 September 2009.

On 16 December 2008, Westpac issued 156,250,000 fully paid ordinary shares at an issue price of $16.00 each in an underwritten institutional share placement that raised in the aggregate $2.5 billion in capital. These ordinary shares rank equally with existing ordinary shares in Westpac, other than with respect to Westpac’s dividend for the financial year ended 30 September 2008 to which holders of these new ordinary shares were not entitled. In February 2009, Westpac issued $441 million of ordinary shares to shareholders under a share purchase plan.

In administering Westpac’s Dividend Reinvestment Plan, 29,622,866 ordinary shares were issued at a price of $16.13 in respect of Westpac’s 2008 final dividend and 29,135,654 ordinary shares were issued at a price of $18.46 in relation to the 2009 interim dividend.

In addition, Westpac entered into an agreement with J.P. Morgan Australia Limited to underwrite 100% of Westpac’s 2008 final dividend, which resulted in the issue of $887 million of ordinary shares to the underwriter, in addition to the ordinary shares issued to Dividend Reinvestment Plan participants.

Finally, on 31 March 2009, Westpac issued $908 million of new non-innovative residual Tier 1 securities known as Westpac SPS II.

Supervision and regulation

Australia

Within Australia we are subject to supervision and regulation by five principal agencies: the Australian Prudential Regulation Authority (APRA); the Reserve Bank of Australia (RBA); the Australian Securities and Investments Commission (ASIC); the Australian Securities Exchange (ASX); and the Australian Competition and Consumer Commission (ACCC).

APRA is responsible for the prudential supervision of banks, credit unions, building societies, life and general insurance companies, friendly societies and most superannuation (pension) funds. APRA’s roles include the establishment and enforcement of prudential standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by the institutions it supervises are met.

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As an ADI, we report prudential information to APRA including in relation to capital adequacy, large exposures, credit quality and liquidity. Our controlled entities in Australia that are authorised insurers and trustees of superannuation funds are also subject to the regulatory regime of APRA. Reporting is supplemented by consultations, on-site inspections and targeted reviews. Our external auditors also have an obligation to report on compliance with certain statutory and regulatory banking requirements and on any matters that in their opinion may have the potential to materially prejudice the interests of depositors and other stakeholders.

Australia’s risk-based capital adequacy guidelines are generally consistent with the approach agreed upon by the Basel Committee on Banking Supervision. Refer to ‘Capital Resources — Basel Capital Accord’ in Section 2.

The RBA is responsible for monetary policy, maintaining financial system stability and promoting the safety and efficiency of the payments system. The RBA is an active participant in the financial markets, manages Australia’s foreign reserves, issues Australian currency notes and serves as banker to the Australian Government.

ASIC is the national regulator of Australian companies. Its primary responsibility is for regulation and enforcement of company, financial markets and financial services laws that protect consumers, investors and creditors. With respect to financial services, it promotes honesty and fairness through the provision of consumer protection, using as necessary its regulatory powers to enforce laws relating to deposit-taking activities, general insurance, life insurance, superannuation, retirement savings accounts, securities (such as shares, debentures and managed investments) and futures contracts and financial advice. ASIC will become the principal regulator of consumer credit providers in 2010 following the introduction of new national consumer credit regulation.

The ASX operates Australia’s primary national market for securities issued by listed companies. Some of our securities (including our ordinary shares) are listed on the ASX and we therefore have obligations to comply with the ASX Listing Rules that have statutory backing under the Corporations Act. Oversight of listed companies’ compliance with the ASX Listing Rules is currently shared between the ASX and ASIC. The Australian Government has recently announced that ASIC will take over the supervision and surveillance of financial markets and broker participants, effective in the third quarter of 2010 calendar year. Currently this function is performed by ASX Markets Supervision. Individual markets will retain supervision of entities listed upon them.

The ACCC is an independent statutory authority responsible for the regulation and prohibition of anti-competitive and unfair market practices and mergers and acquisitions in Australia. Its objectives are to ensure that corporations do not act in a way that may have the effect of eliminating or reducing competition, and to oversee product safety and liability issues, pricing practices and third party access to facilities of national significance. The ACCC’s role in consumer protection complements that of Australian State and Territory consumer affairs agencies that administer the unfair trading legislation of their jurisdictions.

The Australian Government’s present policy, known as the ‘four pillars policy’, is that there should be no fewer than four major banks to maintain appropriate levels of competition in the banking sector. Under the Financial Sector (Shareholding) Act, the Australian Government’s Treasurer must approve an entity acquiring a stake in a financial sector company of more than 15%.

Proposals for foreign acquisitions of Australian banks are subject to approval by the Australian Government under the Australian Foreign Acquisitions and Takeovers Act 1975.

As discussed above, in response to the global financial crisis, governments are reviewing the regulation and supervision of, in particular, financial institutions which may result in legislative, regulatory, and prudential changes in various jurisdictions, including Australia and New Zealand.

New Zealand

The Reserve Bank of New Zealand (RBNZ) is responsible for the supervision of the New Zealand banking industry. This is primarily achieved through an extensive disclosure regime that requires all banks to publish financial statements on a quarterly basis, which also incorporates director attestation on a bank’s risk management disciplines.

It is a policy of the RBNZ that all systemically important banks must incorporate as a local entity in New Zealand and comply with New Zealand prudential requirements, rather than operate through a branch structure. Until 1 November 2006, we conducted our New Zealand business through a branch (NZ Branch), however, the NZ Branch was deemed to be a systemically important bank and therefore required to incorporate locally.

The RBNZ allows an overseas bank to operate in New Zealand as both a branch of its overseas parent and through a subsidiary.

Accordingly, we established Westpac New Zealand Limited to assume and carry on the New Zealand consumer and business banking operations of our NZ Branch. Westpac New Zealand Limited commenced operating as a registered bank under the Reserve Bank of New Zealand Act 1989 on 1 November 2006. The NZ Branch continues to operate in New Zealand, retaining the New Zealand wholesale and financial markets business.

The reorganisation of our New Zealand business was facilitated by legislation, which was the only means by which our New Zealand consumer and business banking operations could be vested in Westpac New Zealand Limited efficiently, economically and without affecting the continuity of the provision of those banking services. The Westpac New Zealand Act 2006 provided for the vesting of designated NZ Branch assets and liabilities in Westpac New Zealand Limited on 1 November 2006.

In light of the global financial crisis, the RBNZ and other regulators are reviewing prudential regulation, particularly for systematically important banks. The ‘dual registration’ model under which we operate in New Zealand has recently been under review and may be subject to change, as discussed above under ‘Significant developments — Operating model review in New Zealand’.

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The Banking Act 1959 (Australia) gives priority over our Australian assets to Australian depositors. Accordingly, unsecured creditors and depositors of the remaining NZ Branch will rank after our Australian depositors in relation to claims against Westpac Banking Corporation’s Australian assets.

Based on the statement of financial position, as at 30 September 2009, the carrying value of the New Zealand assets of the NZ Branch of Westpac Banking Corporation was greater than its New Zealand deposit liabilities.

United States

Our New York branch is a US federally licensed branch and, as such, is subject to supervision, examination and extensive regulation by the US Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System (the US Federal Reserve) under the US International Banking Act of 1978 (IBA) and related regulations. Under the IBA, we may not open any branch, agency or representative office in the US or acquire more than 5% of the voting stock of any US bank without the prior approval of the US Federal Reserve.

A US federal branch must maintain, with a US Federal Reserve member bank, a capital equivalency deposit as prescribed by the US Comptroller of the Currency in an amount which is the greater of:

·the amount of capital that would be required of a national bank organised at the same location; or

·5% of the total liabilities (excluding, among other things, liabilities to affiliates and liabilities of any international banking facilities) of the US federal branch.

In addition, a US federal branch is examined by the US Comptroller of the Currency at least once each calendar year and periodically by the US Federal Reserve. The examination covers risk management, operations, credit and asset quality and compliance with the record-keeping and reporting requirements that apply to national banks, including the maintenance of its accounts and records separate from those of the foreign bank and any additional requirements prescribed by the US Comptroller of the Currency.

A US federal branch of a foreign bank is, by virtue of the IBA, subject to the receivership powers exercisable by the US Comptroller of the Currency.

At this time we have not elected to become, and therefore we are not, a financial holding company as defined in the Gramm-Leach-Bliley Act of 1999.

The Obama Administration has proposed financial regulatory reform legislation that would make significant changes in the existing US regulatory system for banks and other financial institutions. Individual members of the US Congress have also indicated that they intend to propose their own versions of financial regulatory reform legislation in the current session of Congress. It is not possible to predict whether or in what form any such legislation might be enacted. Nor is it possible to predict what effects such legislation, if enacted, would have on a foreign bank such as Westpac that operates a branch in the United States.

Anti-Money Laundering Regulation

Australia

Westpac has a Group-wide program to manage changes required by the Anti-Money Laundering and Counter Terrorism Financing Act 2006, scheduled for introduction in March 2010. We continue to actively consult with the regulator, Australian Transactions Reports and Analysis Centre (AUSTRAC), on those implementation activities. All changes required for identifying new customers have been completed. The remaining work centres on implementing changes to support ongoing monitoring and reporting of suspicious transactions. These changes will be completed in the first half of 2010.

United States

The USA Patriot Act requires US financial institutions, including the US branches of foreign banks, to take certain steps to prevent, detect and report individuals and entities involved in international money laundering and the financing of terrorism. The required actions include verifying the identity of financial institutions, terminating correspondent accounts for foreign ‘shell banks’ and obtaining information about the owners of foreign bank clients and the identity of the foreign bank’s agent for service of process in the US. Many of the new anti-money laundering compliance requirements of the USA Patriot Act are consistent with the anti-money laundering compliance obligations previously imposed on US financial institutions, including the US branches of foreign banks, under the Bank Secrecy Act and under regulations of the applicable US bank regulatory agency such as the US Comptroller of the Currency. These include requirements to adopt and implement an effective anti-money laundering program, report suspicious transactions or activities, and implement due diligence procedures for correspondent and other customer accounts. The USA Patriot Act and other recent events have resulted in heightened scrutiny of Bank Secrecy Act and anti-money laundering compliance programs by US federal bank regulatory and law enforcement authorities.

Outsourcing contracts

Westpac’s significant long-term contracts are summarised in Note 35 to the financial statements.

Legal proceedings

Our entities are defendants from time-to-time in legal proceedings arising from the conduct of our business. We have contingent liabilities in respect of actual and potential claims and proceedings that have not been determined. Material legal proceedings are described in Note 37 to the financial statements. An assessment of likely losses is made on a case-by-case basis for the purposes of the financial statements and specific provisions have been made where appropriate, as described in Note 37 to the financial statements.

Principal office

Our principal office is located at 275 Kent Street, Sydney, New South Wales, 2000, Australia. Our telephone number for calls within Australia is 132 032 and our international telephone number is (+61) 2 9293 9270.

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Corporate Governance

Introduction

This statement describes our corporate governance framework, policies and practices as at 4 November 2009.

Framework and approach

Our approach to corporate governance is based on a set of values and behaviours that underpin day-to-day activities, provide transparency and fair dealing, and protect stakeholder interests.

This approach includes a commitment to excellence in governance standards, which Westpac sees as fundamental to the sustainability of our business and its performance. This includes monitoring local and global developments in corporate governance and their implications for us.

Australia

In Australia, we take into account the revised Corporate Governance Principles and Recommendations (ASXCGC’s Recommendations) published in August 2007 by the ASX Corporate Governance Council (ASXCGC), and the Corporations Act 2001 (Corporations Act). As an ADI, we must also comply with good governance requirements prescribed by the Australian Prudential Regulation Authority (APRA) under Prudential Standard APS 510 Governance.

This statement addresses each of the eight ASXCGC’s Recommendations with an explanation of our corporate governance practices, demonstrating our compliance with each Recommendation. A checklist summarising our compliance is included at the end of this statement.

Further details about the ASXCGC’s Recommendations can be found on the ASX website www.asx.com.au.

New Zealand

Westpac also has ordinary shares quoted on the New Zealand Stock Market (NZSX). As an overseas listed issuer in New Zealand, we are deemed to satisfy and comply with the NZSX Listing Rules, provided that we remain listed on the ASX and comply with the ASX Listing Rules.

The ASX, through the ASXCGC’s Recommendations, and the New Zealand Exchange (NZX) have adopted a similar ‘comply or explain’ general approach to corporate governance. However, the ASXCGC’s Recommendations may materially differ from the corporate governance rules and the principles of the NZX’s Corporate Governance Best Practice Code.

United States

Westpac has American Depositary Shares (ADS) quoted on the New York Stock Exchange (NYSE). Under the NYSE listing rules, foreign private issuers are permitted to follow home country practice in respect of corporate governance in lieu of the NYSE listing rules. However, we are still required to comply with certain audit committee and additional notification requirements.

We are in compliance with all NYSE listing rules applicable to us in all material respects.

Under the NYSE listing rules, foreign private issuers are required to disclose any significant ways in which their corporate governance practices differ from those followed by domestic United States companies. We have compared our corporate governance practices to the corporate governance requirements of the NYSE listing rules and note the significant differences below.

The NYSE listing rules require that, subject to limited exceptions, shareholders be given the opportunity to vote on equity compensation plans and material revisions to those plans.

In Australia there are no laws or stock exchange listing rules that require shareholder approval of equity-based incentive plans (other than for Directors) or individual grants under the plans (other than awards to Directors, including the CEO). However, for equity-based incentive plans introduced since 2006, shareholder approval has been obtained, including for the Westpac Reward Plan, our Restricted Share Plan, and the Chief Executive Officer’s (CEO) equity-based remuneration. Employee equity plans introduced in 2002 that have not been approved by shareholders include the Westpac Performance Plan, the Employee Share Plan, and the Deferral Share Plan.

All of these plans have been disclosed in the Remuneration Report in Section 9 of the Directors’ Report, which is subject to a non-binding shareholder vote at the Annual General Meeting (AGM). The details of all grants under our equity-based incentive plans have been disclosed in Note 26 of our financial statements for the year ended 30 September 2009.

The NYSE listing rules provide that the Nominations Committee’s responsibilities should include selecting, or recommending that the Board select, the Director nominees for the next annual meeting for shareholders.

Our constitution states that at each AGM one-third of our Directors (excluding the CEO and any Director appointed during the year to fill a casual vacancy) and any other Director who has held office for three or more years since their last election, must retire. In 2009, only one of our Directors met this three year threshold. A determination needed to be made regarding which additional two Directors would retire and seek re-election at the 2009 AGM. Westpac considered that it was appropriate for the full Board, rather than the Nominations Committee, to determine the Board candidates for retirement under the rotation policy, and to review and recommend their re-election by shareholders at the 2009 AGM.

Websites

This statement and a range of documents referred to in it are available on our corporate governance website at www.westpac.com.au/corpgov. This website is regularly updated and contains copies and summaries of our charters, principles and policies. These documents are also available to our shareholders in print from our Investor Relations department.

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Focus and events in 2009

·Merger with St.George Bank Limited successfully completed. Governance, risk and reporting structures have allowed integration to proceed smoothly, and deliver on customer-centric multi-brand strategy despite the complexities associated with a merger of this scale and the challenging external environment arising from the global financial crisis.

·Managing through the challenging and volatile economic and financial conditions resulting from the global financial crisis. Strong risk and capital management, and a culture of pro actively identifying and acting on emerging issues, have enabled us to continue to support our customers through this difficult period.

·We have established a Board Technology Committee to have focused, rigorous oversight of information technology within the Group, and approve strategies and their implementation, and related policies. A comprehensive IT strategy for the Group has been developed and approved, and robust governance established to facilitate implementation of the associated program of work.

·With the release of our first Prudential Market Disclosure Report (Pillar 3 Report) in November 2008, and the following quarterly disclosures, we now provide additional information on our regulatory capital, risk exposures and risk management practices. The Pillar 3 Report release marked the completion of Westpac’s adoption of all elements of the Basel Capital Accord (Basel II) framework.

·Governance of sustainability performance was enhanced with the formalisation of the Group-wide Sustainability Council. Further, Westpac’s Community Consultative Council, which is chaired by our CEO and has senior representation from key external stakeholder groups, convened a special meeting on financial hardship.

·Continued top (10.0) rating by GovernanceMetrics International in our 19th consecutive assessment — one of only 43 so rated out of over 4,200 companies assessed.

Governance framework

The Executive Team, Disclosure Committee and Executive Risk Committees sit beneath the CEO and the Board Committees to implement Board-approved strategies, policies and management of risk across the Group.

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Board, committees and oversight of management

Board of Directors

Roles and responsibilities

The Board Charter outlines the roles and responsibilities of the Board. Key responsibilities in summary are:

·approving the strategic direction of The Westpac Group;

·evaluating Board performance and determining Board size and composition;

·appointing and determining the duration, remuneration and other terms of appointment of the CEO and Chief Financial Officer (CFO), and ratifying the appointments of other senior executives;

·evaluating the performance of the CEO and CFO, and monitoring the performance of other senior executives;

·Board, CEO and CFO succession planning;

·approval of the annual budget and financial statements and monitoring performance against the approved budget;

·determining our dividend policy;

·determining our capital structure;

·approving our risk management strategy and frameworks, and monitoring their effectiveness;

·considering the social, ethical and environmental impact of our activities and monitoring compliance with our sustainability policies and practices;

·maintaining a constructive and ongoing relationship with the exchanges and regulators, and approving policies regarding disclosure and communications with the market and our shareholders; and

·internal governance including delegated authorities, policies for appointments to our controlled entity Boards and monitoring resources available to senior executives.

Delegated authority

The constitution and the Board Charter enable the Board to delegate to Committees and management.

The roles and responsibilities delegated to the Board Committees are captured in the Charters of each of the six established Committees, namely:

·Audit;

·Risk Management;

·Nominations;

·Remuneration;

·Sustainability; and

·Technology.

The Board establishes other Committees from time to time to consider matters of special importance or to exercise specific delegated authority from the Board.

The Board has also delegated to the CEO, and through the CEO to other executives, responsibility for the day-to-day management of our business. The scope of, and limitations to, management delegated authority is clearly documented and covers areas such as operating and capital expenditure, funding and securitisation, and lending. The Delegated Authority Policy Framework outlines principles to govern decision-making within the Group including appropriate escalation and reporting to the Board. These delegations balance effective oversight with appropriate empowerment and accountability of management.

Independence

Together, the Board members have a broad range of relevant financial and other skills and knowledge combined with the extensive experience necessary to guide our business. Details are set out in Section 1 of the 2009 Directors’ Report.

All of our Non-executive Directors satisfy our criteria for independence, which are consistent with those applied by the NYSE.

The Board assesses the independence of our Directors on appointment and annually. Each Director provides an annual attestation of his or her interests and independence.

Directors are considered independent if they are independent of management and free from any business or other relationship that could materially interfere with, or reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgment. Materiality is assessed on a case-by-case basis by reference to each Director’s individual circumstances rather than by applying general materiality thresholds. The assessment has regard to the criteria applied by the NYSE and SEC.

Each Director is expected to disclose any business or other relationship which he or she has directly or as a partner, shareholder or officer of a company or other entity that has an interest, or a business or other relationship, with Westpac or a related entity. The Board considers information about any such interests or relationships, including any related financial or other details, when it assesses the Director’s independence.

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Size and membership of Board Committees as at 30 September 2009

	Status	Board Audit Committee	Board Risk Management Committee	Board Nominations Committee	Board Remuneration Committee	Board Sustainability Committee	Board Technology Committee
Ted Evans	Chairman, Non-executive, Independent	ü	ü	Chairü			ü
John Curtis	Deputy Chairman, Non-executive, Independent	ü	ü		ü
Gail Kelly	CEO, Executive					ü	ü
Elizabeth Bryan	Non-executive, Independent	ü	ü	ü			Chairü
Gordon Cairns	Non-executive, Independent	ü	ü	ü	Chairü
Peter Hawkins	Non-executive, Independent	ü	ü				ü
Carolyn Hewson	Non-executive, Independent	ü	Chairü	ü	ü
Lindsay Maxsted	Non-executive, Independent	Chair ü	ü	ü
Graham Reaney	Non-executive, Independent	ü	ü			ü
Peter Wilson	Non-executive, Independent	ü	ü	ü		Chairü

The charts below demonstrate that our Board comprises a majority of independent Directors and the tenure of our current Directors.

Length of tenure of Non-executive Directors	Balance of Non-executive and executive Directors

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The Chairman

The Board elects one of the independent Non-executive Directors as Chairman. Our Chairman is Ted Evans. The Chairman’s role includes:

·providing effective leadership to the Board in relation to all Board matters;

·representing the views of the Board to the public;

·convening regular Board meetings throughout the year, and ensuring that minutes of meetings accurately record decisions taken and, where appropriate, the views of individual Directors;

·guiding the agenda and conduct of all Board meetings;

·reviewing the performance of Non-executive Directors;

·overseeing Non-executive Director and CEO succession; and

·promoting constructive and respectful relations between the Board and management.

The Deputy Chairman

Our Deputy Chairman is John Curtis. The Deputy Chairman’s role includes:

·chairing Board, Board Nominations Committee and shareholder meetings when the Chairman is unable to do so; and

·undertaking additional matters on the Chairman’s behalf as requested by the Chairman.

CEO

Our CEO is Gail Kelly. The CEO’s role includes:

·effective leadership of the management team;

·the development of strategic objectives for the business; and

·the day-to-day management of the Group’s operations.

Board meetings

The Board has 11 scheduled meetings each year, with additional meetings held as required. In July each year the Board discusses our strategic plan and approves our overall strategic direction. The Board also conducts a half year review of our strategy. The Board also conducts workshops on specific subjects throughout the year. Board meetings are characterised by robust exchanges of views, with Directors bringing their experience and independent judgment to bear on the issues and decisions at hand.

Non-executive Directors regularly meet without management present, so that they can discuss issues appropriate to such a forum. In all other respects, senior executives are invited to participate in Board Meetings. They also are available to be contacted by Directors between meetings.

Meetings attended by Directors for the 2009 financial year are reported in Section 8 of the 2009 Directors’ report.

Nomination and appointment

The Board Nominations Committee is responsible for:

·developing and reviewing policies on Board composition, strategic function and size;

·annually evaluating performance and effectiveness of the Board, its Committees and individual Directors;

·succession planning for the Non-executive Directors;

·developing and implementing induction programs for new Directors and ongoing education for existing Directors;

·developing eligibility criteria for the appointment of Directors;

·recommending appointment of Directors to the Board;

·considering and recommending candidates for appointment to the Boards of relevant subsidiaries; and

·reviewing our corporate governance policies having regard to international corporate governance standards.

The Board Nominations Committee assesses nominations of new Directors against a range of criteria including the candidate’s background, experience, professional skills, personal qualities, whether their skills and experience will complement the existing Board and their availability to commit themselves to the Board’s activities. External consultants are used to access a wide base of potential Directors.

New Directors receive a letter of appointment, which sets out the expectations of the role, conditions of appointment including expected term of appointment, and remuneration. This letter conforms to the ASXCGC’s Recommendations.

Term of office

The Board may appoint a new Director, either to fill a casual vacancy or as an addition to the existing Directors, provided the total number of Directors does not exceed 15 Non-executive Directors and three Executive Directors. Except for the Managing Director, a Director appointed by the Board holds office only until the close of the next AGM but is eligible for election by shareholders at that meeting.

Our constitution states that, at each AGM, one-third of our Directors, and any other Director who has held office for three or more years since their last election, must retire. In determining the number of Directors to retire, no account is to be taken of Directors holding casual vacancy positions or of the CEO. The Directors to retire by rotation are those who have been the longest in office. A retiring Director holds office until the conclusion of the meeting at which he or she retires but is eligible for re-election by shareholders at that meeting.

The Board makes recommendations concerning the election or re-election of any Director by shareholders. In considering whether to support a candidate, the Board takes into account the results of the Board performance evaluation conducted during the year. In addition to the relevant information on the candidates provided to shareholders in the Notice of Meeting, the candidates are invited to give a short presentation at the AGM.

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The Board has a Tenure Policy, which limits the number of terms of office that any Non-executive Director other than the Chairman may serve to the longer of three consecutive terms or nine years. The maximum tenure for the Chairman is the longer of four terms or twelve years (inclusive of any term as a Director prior to being elected as Chairman), from the date of first election by shareholders.

Education

On appointment, all Directors are offered an induction program appropriate to their experience to familiarise them with our business, strategy and any current issues before the Board. The induction program includes meetings with the Chairman, the CEO, the Board Committee Chairs, each Group Executive and the Chief Strategy Officer.

The Board encourages Directors to continue their education by participating in workshops held throughout the year, attending relevant site visits and undertaking relevant external education.

Access to information and advice

All Directors have unrestricted access to company records and information, and receive regular detailed financial and operational reports from executive management. Each Director also enters into an access and indemnity agreement which, amongst other things, provides for access to documents up to seven years after his or her retirement as a Director.

The Chairman and other Non-executive Directors regularly consult with the CEO, CFO, and other senior executives and may consult with, and request additional information from, any of our employees.

All Directors have access to advice from the Group Executive, Counsel and Secretariat.

In addition the Board collectively, and all Directors individually, have the right to seek independent professional advice, at our expense, to help them carry out their responsibilities. While the Chairman’s prior approval is needed, it may not be unreasonably withheld.

Company secretaries

The Board is responsible for the appointment of our two Company Secretaries. The Group Executive, Counsel and Secretariat attends Board and Committee meetings and is responsible for providing Directors with advice on legal and corporate governance issues. The Head of Group Secretariat is responsible for the operation of the secretariat function, including implementing our governance framework and, in conjunction with management, giving practical effect to the Board’s decisions.

Profiles of our Company Secretaries are set out in Section 1 of the 2009 Directors’ report.

Committees

Composition and independence

Committee members are chosen for the skills and experience they can contribute to the respective Committees. All of the Committees comprise independent Non-executive Directors. The CEO is also a member of the Board Sustainability and Board Technology Committees.

Operation and reporting

Scheduled meetings of the Board Committees occur quarterly, with the exception of the Board Sustainability and Board Technology Committees which have scheduled meetings three times a year. All Committees are able to meet more frequently as necessary. Each Committee is entitled to the resources and information it requires and has direct access to our employees and advisers. The CEO attends all Committee meetings, except where she has a material personal interest in a matter being considered. Senior executives and other selected employees are invited to attend Committee meetings as required. All Directors receive all Committee papers and can attend any Committee meeting, provided there is no conflict of interest.

Performance

Board, Committees and Directors

The Board undertakes ongoing self-assessment as well as commissioning an annual performance review by an independent consultant.

The performance review process conducted in 2009 included interviews with Directors and a number of senior executives. The review was wide-ranging, with outputs collected and analysed and presented to the Board. The Chairman also discussed the results with individual Directors and Committee Chairs.

The full Board (excluding the Chairman) reviewed the results of the performance review of the Chairman. These results were then privately discussed between the Chairman and Deputy Chairman.

Management

The Board, in conjunction with its Board Remuneration Committee, is responsible for approving the performance objectives and measures for the CEO and other senior executives and providing input into the evaluation of performance against these objectives. The Board Risk Management Committee also refers to the Board Remuneration Committee any matters that come to its attention that are relevant with respect to remuneration policy or practices.

The management performance evaluations for the 2008 financial year were conducted in November 2008. Management performance evaluations for the 2009 financial year will be conducted at the end of the 2009 calendar year.

There is a further discussion on performance in the Remuneration Report in the 2009 Directors’ report.

All new senior executives are provided with extensive briefing on our strategies and operations, and the respective roles and responsibilities of the Board and senior management.

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Ethical and responsible decision-making

Code of Conduct and Principles for Doing Business

Our ‘Code of Conduct’ sets out seven values that we believe will maintain the trust and confidence placed in us by our customers, shareholders, suppliers and the community at large. We recognise that this trust can only be retained by acting ethically and responsibly in all our dealings and by seeking to continually improve in all that we do. The Code of Conduct applies to all of our employees and contractors and is supported by the Board. The seven values are that:

·we act with honesty and integrity;

·we respect the law and act accordingly;

·we respect confidentiality and do not misuse information;

·we value and maintain our professionalism;

·we work as a team;

·we manage conflicts of interest responsibly; and

·we strive to be a good corporate citizen and achieve community respect.

Our ‘Principles for Doing Business’ (the Principles) set out how we aim to conduct ourselves across our business in the areas of:

·governance and ethical practices;

·employees;

·customers;

·environment;

·community; and

·suppliers.

The Principles are also aligned with significant global initiatives that promote responsible business practices. Our Principles apply to all Directors and employees. We report our performance against them annually.

We also have a range of internal guidelines, communications and training processes and tools, including an online learning module entitled ‘Doing the Right Thing’, which apply to and support our Code of Conduct and Principles.

In addition to our Code of Conduct and Principles, we have a number of key policies to manage our compliance and human resource requirements. We also voluntarily subscribe to a range of external industry codes, such as the Code of Banking Practice and the Electronic Funds Transfer Code of Conduct.

Code of Ethics for Senior Finance Officers

The Code of Accounting Practice and Financial Reporting (the Code) complements our Code of Conduct. The Code is designed to assist the CEO, CFO and other principal financial officers in applying the highest ethical standards to the performance of their duties and responsibilities with respect to accounting practice and financial reporting. The Code requires that those officers:

·act honestly and ethically, particularly with respect to conflicts of interest;

·provide full, fair, accurate and timely disclosure in reporting and other communications;

·comply with applicable laws, rules and regulations;

·promptly report violations of the Code; and

·be accountable for adherence to the Code.

Conflicts of interest

Westpac has a conflicts of interest framework, which includes a Group policy supported by more specific policies and guidelines aimed at recognising and managing potential conflicts.

The Board

All Directors are required to disclose any actual or potential conflict of interest upon appointment and are required to keep these disclosures to the Board up to date.

Any Director with a material personal interest in a matter being considered by the Board must declare their interest and, unless the Board resolves otherwise, may not be present during boardroom discussions or vote on the relevant matter.

Our employees

Our employees are not permitted to participate in activities that involve a conflict with their duties and responsibilities or which are prejudicial to our business. We expect our employees to:

·avoid conflicts of interest;

·obtain consent from senior management before accepting a directorship on the board of a non-Westpac Group company;

·disclose any material interests they have with our customers or suppliers to their manager and not be involved with customer relationships where they have such an interest;

·not participate in business activities outside their employment with us (whether as a principal, partner, director, agent, guarantor, investor or employee) without approval or when it could adversely affect their ability to carry out their duties and responsibilities; and

·not solicit, accept or offer money, gifts, favours or entertainment which might influence, or might appear to influence, their business judgment.

Fit and Proper Person Assessments

Our Fit and Proper Policy complies with the related APRA Prudential Standards and ASIC Guidelines. In accordance with that policy, we assess the fitness and propriety of our Directors and also of employees who perform specified roles. The Board Nominations Committee and the Board are responsible for assessing the main Board Directors and Non-executive Directors on subsidiary Boards. The Chairman has delegated authority from the Board to make fit and proper assessments for senior executives. An executive Fit and Proper Committee assesses other employees. In all cases the individual is asked to provide a detailed declaration and background checks are undertaken. Assessments are performed upon appointment to the relevant position and are re-assessed annually.

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Concern reporting and whistleblowing

Under our Whistleblower Protection Policy, our employees are encouraged to raise any concerns of activities or behaviour that may be unlawful or unethical with either management, the human resources team (People), the compliance team or the Fraud and AML Control business unit. Concerns may include suspected breaches of the Code of Conduct, the Principles and any internal policy or regulatory requirement.

Employees can also raise these concerns on an anonymous basis through either of our internal or external whistleblower reporting mechanisms; logging their report onto an internal reporting system (Concern Online); or by telephone or email to an external and independent professional services firm with employees who are trained in confidential reporting and whistleblower protection (Employee Concern Hotline).

Employees may also choose to involve the Whistleblower Protection Officer, who is responsible for protecting the employee against disadvantage.

We investigate concerns raised in a manner that is fair, objective and affords natural justice to all people involved. If the investigation shows that wrongdoing has occurred, we are committed to changing our processes and taking action in relation to employees who have behaved incorrectly. Where illegal conduct has occurred, this may involve reporting the matter to relevant authorities.

The concern reporting system meets all relevant Australian and New Zealand legislative requirements, including the Australian Standard AS8004 (Whistleblower Protection Programs for Entities), in addition to our obligations under the United States Sarbanes-Oxley Act of 2002. The system is monitored and reviewed annually and statistics about concerns raised are reported quarterly to both the Board Risk Management Committee and the Westpac Group Operational Risk & Compliance Committee.

Securities trading

Westpac Directors and all Westpac employees are restricted from dealing in our shares and other financial products if they are in possession of inside information. They are also prohibited from passing on inside information to others who may use that information to trade in securities. In addition, Directors and any employees who, because of their seniority or the nature of their position, may have access to material non-public information about Westpac (Prescribed Employees), are subject to further restrictions including only trading in permitted windows following annual and half year profit announcements.

The mechanisms we use to manage and monitor our obligations include:

·the insider trading provisions of our policy, which prohibits any dealing in any securities where a Director or employee has access to inside information that may affect the price of those securities;

·the new issues provisions of our policy, which places limitations upon Directors and employees participating in a new product issue where their position puts them in a real or perceived position of conflict of interest;

·restrictions limiting the periods in which the Directors and Prescribed Employees can trade in our shares or other company securities (Trading Windows);

·requiring Directors and Prescribed Employees to notify their intention to trade during those Trading Windows and confirm that they have no inside information;

·monitoring the trading of Westpac securities by Directors and Prescribed Employees;

·maintaining a register of Prescribed Employees, which is regularly updated;

·trades by Directors of Westpac securities are notified to ASX within five business days as required under the ASX Listing Rules; and

·employees are forbidden to enter into hedging arrangements in relation to their unvested employee shares or securities, whether directly or indirectly.

Corporate responsibility and sustainability

We view sustainable and responsible business practices as important for our business and to add shareholder value. This means conducting our business in a responsible, trustworthy and ethical manner, while accepting accountability for our impacts on society and the environment.

We are committed to transparency and fair dealing, treating employees and customers responsibly and having solid links with the community.

Reporting

We report on our social, ethical and environmental performance as a part of the Annual Review with additional detailed information available on our website. Where appropriate, we include what we believe are the most material environmental, social and governance metrics within our financial results announcements.

Our reporting and our management of sustainability aims to address the issues that we believe are the most material for our business and stakeholders. These issues are reflected in our business strategies and specific sustainability priorities.

We follow the widely accepted reporting framework, the Global Reporting Initiative.

The sustainability content of the Annual Review and the additional reporting on our website is also independently assured against the AA1000 Assurance Standard. This goes beyond testing the integrity of the data, to testing the effectiveness of our underlying systems and processes, and the extent to which corporate responsibility and sustainability policies and processes are embedded across our organisation.

In addition, we actively participate in various independent external assessments by authoritative sustainability and governance rating organisations benchmarking us against the highest standards of governance.

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Board Sustainability Committee

The Board Sustainability Committee oversees and provides guidance regarding our commitment to operate our business ethically, responsibly and sustainably, consistent with evolving community expectations.

The Board Sustainability Committee:

·reviews the social, environmental and ethical impacts of our policies and practices;

·oversees initiatives to enhance our sustainability;

·agrees standards for our corporate responsibility and sustainability policies and practices and monitors compliance with these policies and practices;

·reviews sustainability strategies, objectives and performance;

·monitors and oversees our environmental, social, governance and other material business risks (along with the BRMC) including the strategic and operational response to climate change; and

·reviews and approves the independent assurance of our annual sustainability reporting.

Financial reporting

Approach to financial reporting

Our approach to financial reporting reflects three core principles:

·that our financial reports present a true and fair view;

·that our accounting methods are comprehensive and relevant and comply with applicable accounting rules and policies; and

·that our external auditor is independent and serves security holder interests.

The Board monitors Australian and international developments relevant to these principles and reviews our practices accordingly.

The Board delegates oversight responsibility for risk management between the Board Audit Committee and the Board Risk Management Committee.

Board Audit Committee

The Board Audit Committee oversees all matters concerning:

·the integrity of the financial statements and financial reporting systems;

·the external auditor’s qualifications, performance, independence and fees;

·oversight and performance of the internal audit function;

·compliance with financial reporting and related regulatory requirements (in conjunction with the Board Risk Management Committee, this includes an oversight of APRA statutory reporting requirements); and

·procedures for the receipt, retention and treatment of financial complaints, including accounting, internal accounting controls or auditing matters and the confidential reporting by employees of concerns regarding accounting or auditing matters.

The Board Audit Committee reviews and assesses:

·any significant estimates and judgments in financial reports, and monitors the methods used to account for unusual transactions;

·the processes used to monitor and comply with laws, regulations and other requirements relating to external reporting of financial and non-financial information;

·the major financial risk exposures; and

·the process surrounding the disclosures made by the CEO and CFO in connection with their personal certifications of the half year and annual financial statements.

The Board Audit Committee conducts regular discussions with:

·the Board Risk Management Committee, CFO, Chief Risk Officer (CRO), Group Assurance, management and the external auditor about our major financial risk exposures and the steps management has taken to monitor and control such exposures;

·the external auditor concerning their audit and any significant findings, and the adequacy of management’s responses;

·management and the external auditor concerning the half year and annual financial statements;

·management and the external auditor regarding any correspondence, with regulators or government agencies, and reports that raise issues of a material nature; and

·the Group Executive, Counsel and Secretariat regarding any legal matters that may have a material impact on the financial statements and/or our compliance with financial reporting and related regulatory policies.

The Board Audit Committee meets with the external auditor without management being present at each meeting. Periodically the Board Audit Committee meets with the General Manager of Group Assurance (our internal audit function) without management.

Financial knowledge

The Board Audit Committee comprises nine independent, Non-executive Directors.

All of the Board Audit Committee members have appropriate financial experience, an understanding of the financial services industry and satisfy the independence requirements under the ASXCGC’s Recommendations, the United States Securities Exchange Act of 1934 (as amended) and its related rules, and the rules of the NYSE.

The Board has determined that Lindsay Maxsted, Chair of the Board Audit Committee, is an ‘audit committee financial expert’ and independent in accordance with US securities law.

The designation of Mr Maxsted as an audit committee financial expert does not impose duties, obligations or

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liability on Mr Maxsted that are greater than those imposed on him as a Board Audit Committee member, nor does it affect the duties, obligations or liability of any other Board Audit Committee member or Board member. Audit committee financial experts are not deemed as an ‘expert’ for any other purpose.

The Board Audit Committee’s membership is set out in the table entitled ‘Size and membership of Board Committees as at 30 September 2009’. The full qualifications of the Audit Committee members and their attendance at Board Audit Committee meetings are set out in Sections 1 and 8 of the 2009 Directors’ report.

External auditor

The role of the external auditor is to provide an independent opinion that our financial reports are true and fair, and comply with applicable regulations.

Our external auditor is PricewaterhouseCoopers (PwC), appointed by shareholders at the 2002 AGM. Our present PwC lead audit partner is Ian Hammond and the review audit partner is Rob Ward. Mr Hammond and Mr Ward assumed responsibility for these roles in 2008 and 2009, respectively.

The external auditor receives all Board Audit Committee papers, attends all Board Audit Committee meetings and is available to Board Audit Committee members at any time. The external auditor also attends the AGM to answer questions from shareholders regarding the conduct of PwC’s audit, the audit report and financial statements and PwC’s independence.

As our external auditor, PwC is required to confirm their independence and compliance with specified independence standards on a quarterly basis.

The roles of lead audit partner and review audit partner must be rotated every five years and cannot be resumed by the same person for a minimum of five years.

We strictly govern our relationship with the external auditor, including restrictions on employment, business relationships, financial interests and use of our financial products by the external auditor.

Engagement of the external auditor

To avoid possible independence or conflict issues, the external auditor is not permitted to carry out certain types of non-audit services for Westpac and may be limited as to the extent to which it can perform other non-audit services as specified in our ‘Pre-approval of engagement of PwC for audit and non-audit services’ (the Guidelines). Use of the external audit firm for any non-audit services must be assessed and approved in accordance with the pre-approval process determined by the Board Audit Committee and set out in the Guidelines.

The breakdown of the aggregate fees billed by the external auditor in respect of each of the two most recent financial years for audit, audit-related, tax and other services is provided in Note 34 to our financial statements for the year ended 30 September 2009. A declaration regarding the Board’s satisfaction that the provision of non-audit services by PwC is compatible with the general standards of auditor independence is provided in Section 10 of the 2009 Directors’ report.

Group Assurance (internal audit)

Group Assurance includes an independent and objective internal audit review function charged with evaluating, testing and reporting on the adequacy and effectiveness of management’s control of operational risk. Group Assurance has access to all of our entities, and conducts audits and reviews following a risk-based planning approach.

Group Assurance provides regular reports to both the Board Audit Committee and the Board Risk Management Committee, and raises any significant issues with the Board Audit Committee. The General Manager Group Assurance has a reporting line to the Chairman of the Board Audit Committee.

Market disclosure

We maintain a level of disclosure that provides all investors with equal, timely, balanced and meaningful information. Consistent with these standards the Board approved our Market Disclosure Policy, which governs how we communicate with our shareholders and the investment community.

The policy reflects the requirements of the ASX, NZX and other offshore stock exchanges where we have disclosure obligations, as well as relevant securities and corporations legislation. Under our policy, information that a reasonable person would expect to have a material effect on the price or value of our securities must be disclosed unless an exception applies under regulatory requirements.

Our Disclosure Committee is responsible for determining what information should be disclosed publicly under the policy, and for assisting employees in understanding what information may require disclosure to the market on the basis that it is price sensitive. The Disclosure Committee is comprised of the CEO, senior executives, and the General Manager Corporate Affairs and Sustainability.

The Group Executive, Counsel and Secretariat is the Disclosure Officer. The Disclosure Officer is ultimately responsible for all communication with relevant stock exchanges and notifying regulators in any jurisdiction as a result of market disclosure.

To supplement the information already available to investors we publish investor discussion packs, containing presentations on and explanations about our financial results, on our website. We also publish on our website our Annual Reviews, Annual Reports, profit announcements, CEO and executive briefings (including webcasts), economic updates, notices of meetings, media releases and briefing transcripts.

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Shareholder communication and participation

We employ a wide range of approaches to communication with our shareholders. These are regularly reviewed to improve our communications, including using new technologies. These approaches include direct communications with shareholders, the publication of all relevant company information in the Investor Centre section of our website, and access to all major market briefings and shareholder meetings via webcasting facilities. Shareholders are given the option to receive information in print or electronic format. One of our most important communications is our Shareholder Newsletter, which is sent to all of our shareholders with the interim and annual dividend notices. The Newsletter provides information on our performance and developments, details on accessing further information and contact numbers for both the Investor Relations Unit and the Share Registry.

We regard the AGM as an important opportunity for engaging and communicating with shareholders. Shareholders are encouraged to attend and actively participate in our AGM, the proceedings of which are webcast and can also be viewed on demand at a later time from our website. An information meeting is linked directly to the AGM for shareholders to participate and ask questions when the AGM is held outside Sydney.

At the time of receipt of the Notice of Meeting, shareholders are invited to put forward questions that they would like addressed at the AGM.

Risk management

Roles and responsibilities

The Board is responsible for reviewing and approving our overall risk management strategy, including determining our appetite for risk. The Board has delegated to the Board Risk Management Committee responsibility for setting risk appetite, approving frameworks, policies and processes for managing risk, and determining whether to accept risks beyond management’s approval discretion.

The Board Risk Management Committee monitors the alignment of our risk profile with our risk appetite, which is defined in the Board Risk Appetite Statement, and with our current and future capital requirements. The Board Risk Management Committee receives regular reports from management on the effectiveness of our management of Westpac’s material business risks. More detail about the role of the Board Risk Management Committee is set out later in this section under ‘Board Risk Management Committee’.

The CEO and executive management team are responsible for implementing our risk management strategy and frameworks, and for developing policies, controls, processes and procedures for identifying and managing risk in all of Westpac’s activities.

Our Group Risk function is independent from the business divisions and reports to the Chief Risk Officer.

Our business model recognises that the responsibility for managing risks in our business lies with the various divisions. This responsibility includes developing division-specific policies, controls, procedures, and monitoring and reporting capability, which align to the frameworks approved by the Board Risk Management Committee.

Our Group Assurance function independently evaluates the adequacy and effectiveness of management controls for risk.

Our overall risk management governance structure is set out in the table of the same name in this section of the statement.

Risk management approach

We regard managing the risks that affect our business as a fundamental activity, as they influence our performance, reputation and future success. Effective risk management involves taking an integrated and balanced approach to risk and reward, and assists us in achieving our objectives of mitigating potential loss or damage and optimising financial growth opportunities. Mitigation and optimisation strategies are of equal importance and need to be effectively aligned and integrated.

We distinguish four main types of risk:

·credit risk — the risk of financial loss where a customer or counterparty fails to meet their financial obligations;

·market risk — the risk to earnings from changes in market factors, such as foreign exchange rates, interest rates, commodity prices and equity prices. This includes interest rate risk in the banking book (IRRBB)  — the risk to interest income from a mismatch between the duration of assets and liabilities that arises in the normal course of business activities;

·liquidity risk — the risk that we will be unable to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses; and

·operational risk — the risk that arises from inadequate or failed internal processes, people and systems or from external events. This includes compliance risk, the risk of legal or regulatory sanction, financial or reputation loss arising from our failure to apply the regulatory standards expected of us as a financial services group.

In addition to, and linked to, these four main types of risk, we also manage the following risks:

·equity risk — the potential for financial loss arising from movements in the value of our direct and indirect equity investments;

·insurance risk — the risk of not being able to meet insurance claims (related to insurance subsidiaries);

·model risk — the risk of financial, reputation or operational losses arising because of a model;

·reputation risk — the risk to earnings or capital arising from negative public opinion resulting from the loss of reputation or public trust and standing. This risk encompasses social, ethical and environmental risks arising out of areas such as people management, climate change, governance and supply chain management;

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·business risk — the risk associated with the vulnerability of a line of business to changes in the business environment; and

·contagion risk — the risk that problems arising in other Westpac Group members compromise the financial and operational position of the authorised deposit-taking institutions in The Westpac Group.

In December 2007 Westpac received advanced accreditation from the APRA and the Reserve Bank of New Zealand under the Basel II capital framework. This allows us to use the most Advanced Internal Ratings Based (AIRB) approach for credit risk and the Advanced Measurement Approach (AMA) for operational risk to determine our regulatory capital position. We received accreditation for interest rate risk in the banking book capital calculation in July 2008, in accordance with APRA’s implementation timetable.

Board Risk Management Committee

The Board Risk Management Committee:

·sets risk appetite;

·reviews and approves the frameworks for managing risk, including credit, market & liquidity, and operational risk;

·reviews and approves the limits and conditions that apply to the taking of risk, including the authority delegated by the Board to the CEO, CFO and CRO;

·monitors the risk profile, performance, capital levels, exposures against limits and the management and control of our risks;

·monitors changes anticipated in the economic and business environment and other factors considered relevant to our risk profile;

·oversees the development and ongoing review of appropriate policies that support our frameworks for managing risk;

·reviews any significant issues that may be raised by internal audit as well as the length of time and action taken to resolve such issues; and

·may approve accepting risks beyond management’s approval discretion.

From the perspective of specific types of risk, the Board Risk Management Committee role includes:

·credit risk - approving key policies and limits supporting the credit risk management framework; and monitoring the risk profile, performance and management of our credit portfolio;

·market and liquidity risk — approving key policies and limits supporting the market and liquidity risk management framework including the Value at Risk and Net Interest Income at Risk limits, and our funding strategy and liquidity requirements; and monitoring the market and liquidity risk profile; and

·operational risk — monitoring the operational risk profile, the performance of operational risk management and controls, and the development and ongoing review of operational risk policies; reviewing compliance risk processes and our compliance with applicable laws, regulations and regulatory requirements; discussing with management and the external auditor any material correspondence with regulators or government agencies and any published reports that raise material issues; and reviewing complaints and whistleblower concerns.

The Board Risk Management Committee also:

·provides relevant periodic assurances to and refers any relevant matters to the Board Audit Committee; and

·refers to the Board Remuneration Committee any matters that come to its attention that are relevant with respect to remuneration policy or practices.

Managing compliance risk

Westpac’s Operational Risk Management Framework incorporates our Managing Compliance Risk Policy and reflects the following core principles and practices:

·compliance is about our responsibilities as employees, our culture, and the systems and processes we use every day;

·complying with both the letter and spirit of regulatory standards is an essential part of our core values and is critical to our success as a leading Australian financial services organisation;

·ensuring that the letter and spirit of regulatory standards are embedded into how we do business, how we conduct ourselves, how our systems and processes are designed and how they operate;

·compliance with regulatory standards is the responsibility of everyone in every part of Westpac. Visibility and accountability of senior management encourages a strong compliance culture;

·the role of the compliance function is to guide the organisation in embedding compliance into how we do business; and

·actively engaging with regulatory bodies and industry forums to maintain high standards across the industry.

Key components of the framework established to support these principles include:

·environment — Board and management oversight and accountability, culture and independent review;

·identification — identifying obligations, developing and maintaining compliance plans and implementing change;

·controls — policies, processes, procedures, communication, training and documentation; and

·monitoring and reporting — monitoring, incident and breach escalation, reporting, issue management and managing regulatory relationships.

As with other forms of risk, business line management is primarily responsible for managing compliance risk and within each major business area there is a dedicated operational risk and compliance function.

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Our Compliance function provides the following support:

·infrastructure to facilitate compliance planning and reporting;

·specialist advice to divisions in implementing regulatory initiatives and policies, and establishing compliance programs;

·analytical tools and advice for independent oversight of areas of strategic compliance risk; and

·reports on potential weaknesses across the enterprise.

We measure the effectiveness of our compliance program by the mechanisms set out in the Operational Risk Management Framework, including audit, file reviews, mystery shopping, customer surveys and operational risk assessments.

Regular reports are provided by our Compliance function to the Board Risk Management Committee on the status of compliance across the company.

CEO and CFO assurance

The Board receives regular reports from management about our financial condition and operational results, as well as that of our controlled entities. The CEO and the CFO annually provide formal statements to the Board, and have done so for the year ended 30 September 2009, that state in all material respects:

·Westpac’s financial records for the financial year and half year have been properly maintained in that they:

·correctly record and explain its transactions, and financial position and performance;

·enable true and fair financial statements to be prepared and audited; and

·are retained for seven years after the transactions covered by the records are completed;

·the financial statements and notes required by the accounting standards for the financial year comply with the accounting standards;

·the financial statements and notes for the financial year give a true and fair view of Westpac’s and its consolidated entities’ financial position and of their performance;

·any other matters that are prescribed by the Corporations Act and regulations as they relate to the financial statements and notes for the financial year are satisfied; and

·the declarations provided in accordance with section 295A of the Corporations Act are founded on a sound system of risk management and internal control, and that the system is operating effectively in all material respects in relation to financial reporting risks.

Remuneration

The Board Remuneration Committee assists the Board by reviewing and approving our remuneration policies and practices. The Board Remuneration Committee’s consideration of reward structures is based on fairness, business performance, legal obligations and high standards of corporate governance.

The Board Remuneration Committee:

·reviews and approves executive remuneration policy;

·reviews and makes recommendations to the Board on corporate goals and objectives relevant to the remuneration of the CEO and performance of the CEO in light of these objectives;

·makes recommendations to the Board on the remuneration of the CEO;

·makes recommendations to the Board on the remuneration of Non-executive Directors (the company and subsidiary Boards), taking into account the shareholder-approved fee pool;

·approves contracts and remuneration packages for positions reporting directly to the CEO;

·reviews and makes recommendations to the Board on equity-based plans;

·oversees succession planning for senior executives;

·approves all merit recognition expenditure; and

·oversees general remuneration practices across the Group.

The Board Remuneration Committee also reviews and makes recommendations to the Board about the recruitment, retention, termination, and succession planning policies and procedures for the CEO and senior positions reporting directly to the CEO. In addition, the Board Remuneration Committee considers and evaluates the performance of senior executives when making remuneration determinations and otherwise as required. This process was undertaken during the reporting year.

Independent remuneration consultants are engaged by the Board Remuneration Committee to ensure that our reward practices and levels are consistent with market practice.

Further details of our remuneration framework are included in the Remuneration Report in Section 9 of the Directors’ report.

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Risk Management Governance Structure

Westpac’s risk management governance structure is set out in the table below:

Board

·reviews and approves our overall risk management strategy.

Board Risk Management Committee (BRMC)

·sets risk appetite;

·approves frameworks and key policies for managing risk;

·monitors our risk profile, performance, capital levels, exposures against limits and management and control of our risks;

·monitors changes anticipated in the economic and business environment and other factors relevant to our risk profile;

·oversees the development and ongoing review of appropriate policies that support our frameworks for managing risk;

·reviews any significant issues raised by internal audit, as well as the length of time and action taken to resolve such issues; and

·determines whether to accept risks beyond the approval discretion provided to management.

Board Committees with a risk focus
Board Audit Committee	Board Sustainability Committee
·oversees the integrity of financial statements and financial reporting systems.	·oversees environmental, social, governance and ethical performance and issues.
Board Technology Committee	Board Remuneration Committee
·oversees information technology strategy and implementation.	·reviews any matters raised by the BRMC with respect to risk-adjusted remuneration.

Executive risk committees
Westpac Group Risk-Reward Committee (GRRC)	Westpac Group Market Risk Committee (MARCO)
·leads the risk optimisation agenda for the Group; ·recommends appropriate risk-reward positioning and integrates decisions on overall capital levels and earnings profile; ·initiates and oversees strategies to align our risk profile to Board-determined risk appetite and earnings volatility; and ·approves any changes to Westpac’s measures of risk-adjusted performance and monitors their use.	·leads the optimisation of market and liquidity risk-reward across the Group; ·oversees the market and liquidity risk management framework and key policies; ·oversees our market and liquidity risk profile; and ·identifies emerging market and liquidity risks and appropriate actions.
Westpac Group Credit Risk Committee (CREDCO)	Westpac Group Operational Risk & Compliance Committee (OPCO)
·leads the optimisation of credit risk-reward across the Group; ·oversees the credit risk management framework and key policies; ·oversees our credit risk profile; and	·leads the optimisation of operational risk-reward across the Group; ·oversees the operational risk management framework and key supporting policies;
·identifies emerging credit risks and appropriate actions.	·oversees our operational risk profile; and
	·identifies emerging operational risks and appropriate actions.

Executive management forum focused on global economic and market-related events

·proactively tracks and responds to emerging trends;

·seeks and harnesses opportunities to re-enter capital markets and proactively addresses issues relating to balance sheet management and funding; and

·maintains intensity of effort on risk management in the current environment.

Divisional risk management

Group risk

·develops the Group-level risk management frameworks for approval by the BRMC;

·directs the review and development of key policies supporting the risk management frameworks;

·establishes risk concentration limits and monitors risk concentrations; and

·monitors compliance, regulatory obligations and emerging risk issues.

Divisional risk management

·develops division-specific policies, controls, procedures, and monitoring and reporting capability that align to the frameworks approved by the BRMC.

Independent internal review

Group Assurance

·reviews the adequacy and effectiveness of management controls for risk.

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Checklist of Westpac’s compliance with ASXCGC’s recommendations

	ASXCGC’s Recommendations	Reference	Compliance
Principle 1:	Lay solid foundations for management and oversight
1.1	Establish the functions reserved to the Board and those delegated to senior executives and disclose those functions.	Page 15	Comply
1.2	Disclose the process for evaluating the performance of senior executives.	Page 18	Comply
1.3	Provide the information indicated in Guide to reporting on Principle 1.	Pages 15, 18	Comply
Principle 2:	Structure the Board to add value
2.1	A majority of the Board should be independent Directors.	Pages 15, 16	Comply
2.2	The chair should be an independent Director.	Page 17	Comply
2.3	The roles of chair and chief executive officer should not be exercised by the same individual.	Page 17	Comply
2.4	The Board should establish a nomination committee.	Page 17	Comply
2.5	Disclose the process for evaluating the performance of the Board, its committees and individual Directors.	Page 18	Comply
2.6	Provide the information indicated in Guide to reporting on Principle 2.	Pages 15-18	Comply
Principle 3:	Promote ethical and responsible decision-making
3.1	Establish a code of conduct and disclose the code or a summary of the code as to: 3.1.1the practices necessary to maintain confidence in the company’s integrity 3.1.2the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders 3.1.3the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.	Page 19	Comply
3.2	Establish a policy concerning trading in company securities by Directors, senior executives and employees, and disclose the policy or a summary of that policy.	Page 20	Comply
3.3	Provide the information indicated in Guide to reporting on Principle 3.	Pages 19, 20	Comply
Principle 4:	Safeguard integrity in financial reporting
4.1	The Board should establish an audit committee.	Page 21	Comply
4.2	Structure the audit committee so that it: ·consists only of Non-executive Directors; ·consists of a majority of independent Directors; ·is chaired by an independent chair, who is not chair of the Board; and ·has at least three members.	Page 16, 21, 22	Comply
4.3	The audit committee should have a formal charter.	Page 21	Comply
4.4	Provide the information indicated in Guide to reporting on Principle 4.	Pages 21, 22	Comply
Principle 5:	Make timely and balanced disclosure
5.1	Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.	Page 22	Comply
5.2	Provide the information indicated in Guide to reporting on Principle 5.	Page 22	Comply

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	ASXCGC’s Recommendations	Reference	Compliance
Principle 6:	Respect the rights of shareholders
6.1	Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.	Page 23	Comply
6.2	Provide the information indicated in Guide to reporting on Principle 6.	Page 23	Comply
Principle 7:	Recognise and manage risk
7.1	Establish policies for the oversight and management of material business risks and disclose a summary of those policies.	Pages 23-26	Comply
7.2	The Board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks.	Pages 23-26	Comply
7.3	The Board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.	Page 25	Comply
7.4	Provide the information indicated in Guide to reporting on Principle 7.	Pages 23-26	Comply
Principle 8:	Remunerate fairly and responsibly
8.1	Establish a remuneration Committee	Page 25	Comply
8.2	Clearly distinguish the structure of Non-executive Directors’ remuneration from that of executive Directors and senior executives.	Page 25	Comply
8.3	Provide the information indicated in Guide to reporting on Principle 8.	Page 25	Comply

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Directors’ report

Our Directors present their report together with the financial statements of the Group for the financial year ended 30 September 2009.

1. Directors

The names of the persons who have been Directors, or appointed as Directors, during the period since 1 October 2008 and up to the date of this report are: Edward (Ted) Alfred Evans, Gail Patricia Kelly, John Simon Curtis, Elizabeth Blomfield Bryan, Gordon McKellar Cairns, Peter John Oswin Hawkins, Carolyn Judith Hewson, Lindsay Philip Maxsted, Graham John Reaney and Peter David Wilson.

Particulars of the skills, experience, expertise and responsibilities of the Directors at the date of this report, including all directorships of other listed companies held by a Director at any time in the past three years immediately before 30 September 2009 and the period for which each Directorship has been held, are set out below.

Name:Ted Evans AC,
BEcon (Hons.)

Age: 68

Term of office: Director since November 2001. Chairman since April 2007.

Date of next scheduled re-election: December 2009.

Independent: Yes.

Current directorships of listed entities and dates of office: Navitas Limited (since November 2004).

Other principal directorships: Nil.

Other interests: Member of the Asia Pacific Regional Advisory Group of the International Monetary Fund.

Other Westpac related entities directorships and dates of office: Nil.

Skills, experience and expertise: Ted has extensive experience in the financial sector, having joined the Australian Treasury in 1969. From 1984 to 1989 he held the position of Deputy Secretary and was Secretary to the Treasury from 1993 to 2001. From 1976 to 1979 he was a member of the Australian Permanent Delegation to the OECD in Paris and, from 1989 to 1993, Executive Director on the Board of the International Monetary Fund, representing Australia and a number of other countries, mainly in the Asia Pacific region. He was a Director of the Reserve Bank of Australia from 1993 to 2001 and the Commonwealth Bank of Australia from 1993 to 1996.

Westpac Board Committee membership: Chairman of the Nominations Committee. Member of each of the Audit, Risk Management and Technology Committees.

Directorships of other listed entities over the past three years and dates of office: Nil.

Name:Gail Kelly,
Dip. ED, BA, MBA, Doctor of Bus.

Age: 53

Term of office: Managing Director and Chief Executive Officer since February 2008.

Date of next scheduled re-election: Not applicable.

Independent:No.

Current directorships of listed entities and dates of office: Nil.

Other principal directorships: The Melbourne Business School Limited and the Financial Markets Foundation for Children.

Other interests: Member of each of the Financial Services Advisory Council and the Australian Bankers’ Association.

Other Westpac related entities directorships and dates of office: Director of St.George Bank Limited (since December 2008). Director of Westpac New Zealand Limited (since February 2008).

Skills, experience and expertise: Immediately prior to her appointment at Westpac, Gail served as Chief Executive Officer and Managing Director of St.George Bank Limited for five and a half years. Between October 1997 and December 2001, Gail was employed at the Commonwealth Bank, firstly as General Manager, Strategic Marketing, and later as Head of Customer Service and a member of the bank’s Executive Committee. Gail began her career at Nedcor Bank, one of the largest banks in South Africa, where she held various General Manager positions, including HR, cards and personal banking.

Westpac Board Committee membership: Member of each of the Sustainability and Technology Committees.

Directorships of other listed entities over the past three years and dates of office: St.George Bank Limited (January 2002 — August 2007). Gail was reappointed as Director of St.George Bank Limited effective on and from 1 December 2008 when St.George Bank Limited became a subsidiary of Westpac.

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Name:John Curtis,
BA, LLB (Hons.)

Age: 59

Term of office: Director and Deputy Chairman since December 2008.

Date of next scheduled re-election: December 2011.

Independent: Yes.

Current directorships of listed entities and dates of office: Nil.

Other principal directorships: Chairman of each of Allianz Australia Limited and the University of Technology Sydney Faculty of Business Executive Council.

Other interests: Nil.

Other Westpac related entities directorships: Chairman of St.George Bank Limited (since December 2008).

Skills, experience and expertise: For the past 22 years John has been a professional company director and has been Chairman and Director of a wide variety of public companies, government entities and foreign corporations. In more recent times he has been largely involved in the financial services sector with his current appointments as set out above and former appointments with Merrill Lynch, Perpetual Limited and First Data Corporation in Australia. Prior to 1987 John was a main Board director of Wormald International Limited and was responsible for its operations in Australia, Europe, Asia and the Americas. During part of that time he was Chairman of the National Building and Construction Council, the peak industry body.

Westpac Board Committee membership: Member of each of the Audit, Risk Management and Remuneration Committees.

Directorships of other listed entities over the past three years and dates of office: St.George Bank Limited (October 1997 — November 2008, Chairman since April 2008). John was reappointed as Chairman of St.George Bank Limited effective on and from 1 December 2008 when St.George Bank Limited became a subsidiary of Westpac.

Name: Elizabeth Bryan,
BA (Econ.), MA (Econ.)

Age: 63

Term of office:Director since November 2006.

Date of next scheduled re-election: December 2011.

Independent:Yes.

Current directorships of listed entities and dates of office: Director of Caltex Australia Limited (since July 2002, Chairman since October 2007).

Other principal directorships: Australian Institute of Company Directors and Chairman of UniSuper Limited.

Other interests: Nil.

Other Westpac related entities directorships and dates of office: Director of Westpac New Zealand Limited (since March 2007).

Skills, experience and expertise: Elizabeth has over 30 years experience in the financial services industry, government policy and administration and on the boards of companies and statutory organisations. Prior to becoming a professional director she served for six years as Managing Director of Deutsche Asset Management and its predecessor organisation, NSW State Superannuation Investment and Management Corporation.

Westpac Board Committee membership: Chairman of the Technology Committee. Member of each of the Audit, Risk Management and Nominations Committees.

Directorships of other listed entities over the past three years and dates of office: Ridley Corporation Limited (September 2001 — October 2007).

Name: Gordon Cairns,

MA (Hons.)

Age: 59

Term of office:Director since July 2004.

Date of next scheduled re-election: December 2009.

Independent: Yes.

Current directorships of listed entities and dates of office: Origin Energy Limited (since June 2007).

Other principal directorships: Centre for Independent Studies and World Education Australia Limited.

Other interests: Member of the Asia Pacific Advisory Board of CVC Capital Partners. Senior Advisor to each of McKinsey & Company and Caliburn Partnership.

Other Westpac related entities directorships and dates of office: Nil.

Skills, experience and expertise: Gordon has extensive Australian and international experience as a senior executive, most recently as CEO of Lion Nathan Limited. Gordon has also held a wide range of senior management positions in marketing and finance with PepsiCo, Cadbury Schweppes and Nestlé (Spillers).

Westpac Board Committee membership: Chairman of the Remuneration Committee. Member of each of the Audit, Risk Management and Nominations Committees.

Directorships of other listed entities over the past three years and dates of office: Seven Network Limited (November 2004 — February 2007).

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Name:Peter Hawkins,
BCA (Hons.) SSFin, FAIM ACA (NZ)

Age: 55

Term of office: Director since December 2008.

Date of next scheduled re-election: December 2011.

Independent: Yes.

Current directorships of listed entities and dates of office: Mirvac Limited Group (since January 2006). Visa Inc. (since October 2007, listed in the USA).

Other principal directorships: Liberty Financial Pty Limited, Treasury Corporation of Victoria, Murray Goulburn Co-operative Co. Limited, Clayton Utz and the Camberwell Grammar School.

Other interests: Nil.

Other Westpac related entities directorships and dates of office: Director of St.George Bank Limited (since December 2008).

Skills, experience and expertise: Peter’s career in the banking and financial services industry spans over 36 years in Australia and overseas at both the highest levels of management and directorship of major organisations. Peter has held various senior management and directorship positions with Australia and New Zealand Banking Group Limited, from 1971 to 2005, and was also a Director of BHP (NZ) Steel Limited from 1990 to 1991, ING Australia Limited from 2002 to 2005 and Esanda Finance Corporation from 2002 to 2005.

Westpac Board Committee membership: Member of each of the Audit, Risk Management and Technology Committees.

Directorships of other listed entities over the past three years and dates of office: St.George Bank Limited. (April 2007 — November 2008). Peter was reappointed as a director of St.George Bank Limited effective on and from 1 December 2008 when St.George Bank Limited became a subsidiary of Westpac.

Name: Carolyn Hewson AO,
BEc (Hons.), MA (Econ.)

Age: 54

Term of office: Director since February 2003.

Date of next scheduled re-election: December 2011.

Independent: Yes.

Current directorships of listed entities and dates of office: Stockland Corporation Limited (since March 2009).

Other principal directorships: Nil.

Other interests: Board and advisory roles with Nanosonics Limited and the Australian Charities Fund and The Neurosurgical Research Foundation.

Other Westpac related entities directorships and dates of office: Director of BT Investment Management Limited (since September 2007).

Skills, experience and expertise: Carolyn has over 25 years experience in the finance sector and was an Executive Director of Schroders Australia Limited between 1989 and 1995.

Westpac Board Committee membership: Chairman of the Risk Management Committee. Member of each of the Audit, Nominations and Remuneration Committees.

Directorships of other listed entities over the past three years and dates of office: Australian Gas Light Company (October 1996 — October 2006). AGL Energy Limited (October 2006 — March 2009).

Name: Lindsay Maxsted,
DipBus (Gordon), FCA

Age: 55

Term of office: Director since March 2008.

Date of next scheduled re-election: December 2011.

Independent: Yes.

Current directorships of listed entities and dates of office: Transurban Group (since March 2008).

Other principal directorships: Chairman of VicRacing Pty Ltd, Managing Director of Align Capital Pty Ltd and Director of Baker IDI Heart & Diabetes Institute Holdings Limited.

Other interests: Nil.

Other Westpac related entities directorships and period of office: Director of St.George Bank Limited (since December 2008).

Skills, experience and expertise: Lindsay was the CEO of KPMG from January 2001 to December 2007 and was a partner of KPMG from July 1984 to February 2008. Lindsay’s principal area of practice prior to his becoming CEO was in the Corporate Recovery field managing a number of Australia’s largest insolvency/ workout/turnaround engagements. At the request of the Victorian State Government, Lindsay was appointed to the Board of the Public Transport Corporation in December 1995 and was Chairman from 1997 to 2001.

Westpac Board Committee membership: Chairman of the Audit Committee. Member of each of the Risk Management and Nominations Committees.

Directorships of other listed entities over the past three years and dates of office: Nil.

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Name:Graham Reaney,

BComm, CPA

Age: 66

Term of office: Director since December 2008.

Date of next scheduled re-election: December 2011.

Independent: Yes.

Current directorships of listed entities and dates of office: AGL Energy Limited (since July 2006). Chairman of PMP Limited (since September 2002).

Other principal directorships: Holcim (Australia) Pty Limited.

Other interests: Nil.

Other Westpac related entities directorships and dates of office: Member of the BankSA Advisory Board (since December 2008).

Skills, experience and expertise: Graham’s business experience spans 30 years, during which time he has held a number of senior corporate appointments, including as Managing Director of National Foods Limited. Other former positions include Managing Director of Industrial Equity Limited. Graham has gained extensive experience both in Australia and overseas in a broad range of industries, including mining and mining services, energy, food, rural, fast moving consumer goods and financial services.

Westpac Board Committee membership: Member of each of the Audit, Risk Management and Sustainability Committees.

Directorships of other listed entities over the past three years and dates of office: St.George Bank Limited (November 1996 — November 2008). AGL Energy Limited (July 2006 — October 2009).

Name:Peter Wilson, CA

Term of office: Director since October 2003.

Age: 68

Date of next scheduled re-election: December 2009.

Independent: Yes.

Current directorships of listed entities and dates of office: The Colonial Motor Company Limited (since July 1998, listed in NZ). Chairman of Kermadec Property Fund Limited (since October 2006, listed in NZ).

Other principal directorships: P F Olsen Limited and Farmlands Trading Society Limited.

Other interests: Member of the New Zealand Markets Disciplinary Tribunal and Chairman of the Special Division of that Tribunal.

Other Westpac related entities directorships and dates of office: Director of Westpac New Zealand Limited (since September 2006, Chairman since January 2008).

Skills, experience and expertise: Peter is a chartered accountant and formerly a partner with Ernst & Young, with extensive experience in banking, business establishment, problem resolution, asset sale and management of change functions. Peter was a Director and (from 1991) Chairman of Trust Bank New Zealand Limited which Westpac acquired in 1996.

Westpac Board Committee membership: Chairman of the Sustainability Committee. Member of each of the Audit, Risk Management and Nominations Committees.

Directorships of other listed entities over the past three years and dates of office: Nil.

Company Secretary

Our Company Secretaries as at 30 September 2009 were Anna Sandham and John Arthur.

Anna Sandham (nee O’Connell) (BEc, GradDip (AppCorpGov) and FCIS) joined Westpac in 2001. She has 11 years experience as a Company Secretary in various large public companies. Anna resumed the role of Company Secretary on 3 February 2009. Alex Crompton served as Company Secretary from 5 February 2008 until 3 February 2009.

John Arthur (LLB (Hons.)) was appointed to his role of Group Executive, Counsel and Secretariat and a Company Secretary of Westpac on 1 December 2008. Prior to the appointment, John was Managing Director and Chief Executive of Investa Property Group until 2007. Previously, John has been a partner at Freehills and Group General Counsel of Lend Lease Limited. He also served as Chairman of legal firm Gilbert + Tobin and has had a distinguished career as legal partner, corporate executive and non-executive director.

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2. Group Executives

As at 30 September 2009 our Group Executives were:

Name of Group Executive	Position	Year Joined Group	Year Appointed to Position
Gail Kelly	Managing Director and Chief Executive Officer	2008	2008
John Arthur	Group Executive, Counsel and Secretariat	2008	2008
Ilana Atlas(1)	Group Executive, People	2000	2003
Greg Bartlett	Chief Executive, St.George Bank	2008	2008
Peter Clare	Group Executive, Product and Operations	2008	2008
Philip Coffey	Chief Financial Officer	1996	2005
Rob Coombe	Chief Executive, BT Financial Group	2002	2005
Brad Cooper	Group Chief Transformation Officer	2007	2008
George Frazis	Chief Executive, Westpac New Zealand Limited	2009	2009
Peter Hanlon	Group Executive, Westpac Retail and Business Banking	1995	2008
Bob McKinnon	Group Executive, Technology	2008	2008
Greg Targett	Chief Risk Officer	2008	2009
Rob Whitfield	Group Executive, Westpac Institutional Bank	1986	2009

(1)On 22 September 2009, Westpac announced that Ilana Atlas had decided to retire from the Group in December 2009.

There are no family relationships between or among any of our Directors or Group Executives.

Gail Kelly Dip. ED, BA, MBA, Doctor of Bus. Age 53
Managing Director and Chief Executive Officer

Gail was appointed Managing Director and Chief Executive Officer of Westpac on 1 February 2008.

Immediately prior to this, she served as Chief Executive Officer and Managing Director of St.George Bank Limited for five and a half years. During this period, St.George doubled its assets and net profit after tax. Between October 1997 and December 2001, Gail was employed at the Commonwealth Bank as General Manager, Strategic Marketing, and later became Head of Customer Service and a member of the bank’s Executive Committee.

Gail began her career at Nedcor Bank, one of the largest banks in South Africa, where she held various General Manager positions, including HR, cards and personal banking.

Gail is currently a Director of Melbourne Business School Limited and member of the Financial Services Advisory Council.

John Arthur LLB(Hons). Age 54.
Group Executive, Counsel and Secretariat

John was appointed Group Executive, Counsel and Secretariat on 1 December 2008. Most recently, prior to the appointment, John was Managing Director and Chief Executive of Investa Property Group until 2007.

Previously, John has been a partner at Freehills and Group General Counsel of Lend Lease Limited. He also served as Chairman of legal firm Gilbert + Tobin and has had a distinguished career as legal partner, corporate executive and non-executive director.

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Ilana Atlas BJur(Hons), LLB(Hons), LLM. Age 55
Group Executive, People

Ilana was appointed Group Executive, People & Performance in 2003. She is responsible for all human resources strategy and management including reward and recognition, learning and development, careers and talent, employee relations and employment policy. She is also responsible for Corporate Affairs and Sustainability including internal and external communications, government relations and Westpac’s strategy in relation to corporate affairs and sustainability. Ilana joined Westpac in 2000 as Group Secretary and General Counsel.

Prior to joining Westpac, Ilana was a partner at Mallesons Stephen Jaques. She practised as a corporate lawyer and held a number of managerial roles in the firm including Managing Partner and Executive Partner, People & Information.

Greg Bartlett Advanced Business Management (Princeton University). Age 57
Chief Executive, St.George Bank

Greg was appointed Chief Executive St.George Bank in December 2008 at the time of the merger of St.George with Westpac. He has over 35 years experience in the banking and finance industry. Greg leads a team of over 5,000 people offering comprehensive Retail and Corporate & Business Banking services to over 2.6 million customers nationally under the St.George and BankSA brands. Previously with the Commercial Banking Company of Sydney Ltd, he has been with St.George for more than 25 years and was a member of St.George Executive Management Committee for over 18 years. Most recently he was Group Executive, St.George Institutional and Business Bank for nine years. Greg’s previous roles at St.George include Group Treasurer and Chief General Manager, Group Treasury and Capital Markets.

Peter Clare BCom, MBA. Age 46
Group Executive, Product and Operations

Peter was appointed Group Executive, Product and Operations on 17 July 2008, with responsibility for all consumer and business product development, management and operations. Peter joined Westpac as Group Executive, Consumer Financial Services in March 2008, with responsibility for sales, service, third party consumer product relationships and product development for Westpac’s consumer customers across Australia. Prior to joining Westpac, Peter was Group Executive, Group Technology and Operations of St.George Bank Limited following five years as Group Executive, Strategy with St.George Bank Limited. Prior to that Peter worked for the Commonwealth Bank of Australia between 1997 and 2002 in a range of senior roles, covering strategy, merger programs, operations and performance improvement. He has also worked in management consultancy and accountancy roles.

Philip Coffey BEc(Hons). Age 52.
Chief Financial Officer

Philip was appointed Chief Financial Officer in December 2005, with responsibility for Westpac’s finance, tax, treasury and investor relations functions. He joined Westpac in 1996, and was appointed Group Executive, Westpac Institutional Bank in 2002. He has extensive experience in financial markets, funds management and finance, firstly with the Reserve Bank of Australia, then Citicorp and AIDC Ltd. He has held roles in the UK and New Zealand. Philip has an honours degree in Economics and has completed the Executive Program at Stanford University Business School.

Rob Coombe LLB(Hons). Age 46
Chief Executive, BT Financial Group

Rob joined Westpac with the acquisition of the BT Financial Group in 2002 and has over 25 years experience in banking, finance and wealth management. Rob was appointed CEO of BT in January 2005 and leads a team of over 3,000 people across private banking, insurance, advice, funds management and wealth and superannuation solutions. He started with BT in 1991 and has held a number of positions, including Senior Legal Counsel, Head of BT’s International Funds Management and CEO of BT’s Funds Management business in Malaysia. Rob has also led BT in the development, packaging, distribution, administration and service of BT’s range of retail products, margin lending, corporate super, discount broking and wrap platform businesses. Rob is actively involved in industry issues and is a Director of Investment and Financial Services Association Limited (IFSA) and The Australian Indigenous Education Foundation.

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Brad Cooper DipBM, MBA. Age 47
Group Chief Transformation Officer

Brad was appointed Group Chief Transformation Officer on 9 June 2008, to lead the merger implementation planning and integration. Brad was Chief Executive, Westpac New Zealand Limited from April 2007 until this appointment. Prior to joining Westpac, Brad was Chairman of GE Capital Bank and Chief Executive Officer of GE Consumer Finance UK & Ireland. He drove GE’s UK Six Sigma program and was certified as a Quality Leader (Black Belt) in December 2002. He was promoted to Chief Executive Officer of GE Consumer Finance UK in January 2003 and appointed Chairman of GE Capital Bank in April 2004.

George Frazis B Eng(Hons), MBA(AGSM/Wharton). Age 45
Chief Executive, Westpac New Zealand Limited

George joined Westpac New Zealand Limited in March 2009 as Chief Executive, Westpac New Zealand Limited. George is highly experienced in the financial services industry. He was formerly Group Executive General Manager at National Australia Bank. Prior to that, George was a senior executive in Commonwealth Bank of Australia’s Institutional Banking Division and has also been a partner with the Boston Consulting Group.

Peter Hanlon BA(Comms), C Tech (Aero Eng), AMP (Harvard). Age 54
Group Executive, Westpac Retail and Business Banking

Peter was appointed Group Executive, Westpac Retail and Business Banking on 17 July 2008, with responsibility for the sales and service interactions for all consumers, small-to-medium enterprises and commercial customers in Australia. Prior to this position, he was Westpac’s Group Executive, Business Financial Services, responsible for business banking sales, relationship management, customer service, and product and risk management in Australia. Peter has held several other senior roles in Westpac including General Manager roles in Marketing, Branch Banking and Consumer Credit. Peter joined Westpac in 1995 from BankSA where he was Chief Manager of Branch Sales and Service and Head of Strategic Marketing. Prior to his banking career, Peter served in The Royal Australian Air Force.

Bob McKinnon BCom. Age 56
Group Executive, Technology

Bob was appointed Group Executive, Technology on 17 July 2008. Prior to joining Westpac, Bob was Joint Managing Director of Multiplex Limited and Multiplex Funds Management Limited. Bob has over 36 years of extensive financial and senior management experience, having held senior positions with Lend Lease Corporation, MLC Group, State Street Australia and Commonwealth Bank of Australia. He is also currently a non-executive director of Alesco Corporation Limited.

Greg Targett BEc, DipEd, F Fin. Age 52
Chief Risk Officer

Greg Targett was appointed Chief Risk Officer on 2 July 2009. Greg joined Westpac as Deputy Chief Risk Officer on 1 December 2008. Prior to the merger between Westpac and St.George Bank Limited, Greg was Chief Risk Officer of St.George Bank Limited and was a member of the St.George Executive Management Committee from 2006. He joined St.George Bank Limited in May 2003 from National Australia Bank where he held the role of General Manager, Wholesale and Business Banking Credit. During his 22 year career with NAB, Greg had a variety of senior roles in Australia and overseas in Venture Capital, Planning and Strategy, Credit Risk, Corporate Banking and Retail Banking.

Rob Whitfield BCom, GradDipBanking, GradDipFin, AMP (Harvard). Age 45
Group Executive, Westpac Institutional Bank

Rob was appointed Group Executive, Westpac Institutional Bank in July 2009. He has responsibility for Westpac’s global relationships with corporate, institutional and government clients, and core product offerings across financial and capital markets, transactional banking, and working capital and payments. In addition, Rob has responsibility for Hastings funds management and Westpac’s equities, structured finance, global treasury, Asian and Pacific Island businesses. Rob joined Westpac as a graduate in 1986, where he gained broad experience in the financial markets. He joined Treasury in 1993 and was appointed Group Treasurer in 2000. In 2004 he became Chief Risk Officer and joined the executive team in December 2005. From April 2007, Rob undertook advisory work as a Group Executive for Westpac’s Chief Executive with responsibility for the oversight of the merger with St.George Bank Limited. He was appointed Group Executive, Risk Management in November 2008 prior to assuming his role.

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3. Report on the business

a)Principal activities

The principal activities of the Group during the financial year ended 30 September 2009 were the provision of financial services including lending, deposit taking, payments services, investment portfolio management and advice, unit trust and superannuation fund management, insurance services, leasing, general finance, foreign exchange and money market services.

There have been no significant changes in the nature of the principal activities of the Group during the financial year.

b)Review of and results of operations

A review of the operations of the Group and its divisions and their results for the financial year ended 30 September 2009 is set out in Section 2 of the Annual Report under the sections ‘Review of Group operations’ and ‘Divisional performance’, which form part of this report.

The net profit attributable to equity holders of Westpac for the financial year ended 30 September 2009 was $3,446 million.

c)Dividends

Since 30 September 2009, Westpac has announced a final dividend of 60 cents per ordinary share, totalling approximately $1,765 million for the year ended 30 September 2009 (2008 final dividend of 72 cents per Westpac ordinary share, totalling $1,364 million). The final dividend will be fully franked and will be paid on 21 December 2009.

An interim dividend for the current financial year of 56 cents per ordinary share, totalling $1,630 million, was paid as a fully franked dividend on 2 July 2009 (2008 interim dividend of 70 cents per ordinary share, totalling $1,315 million).

d)Significant changes in state of affairs and events during and after the end of 2009 financial year

Significant changes in the state of affairs of the Group during the financial year were:

·our merger with St.George Bank Limited, which occurred in December 2008;

·the global financial crisis and subsequent economic slowdown which impacted operations and increased impairments;

·ongoing regulatory response to the global financial crisis, which has included the introduction of the government guarantee schemes in Australia and New Zealand and proposed changes to executive remuneration regulation and liquidity requirements;

·capital transactions which included initiatives to increase Westpac’s Tier 1 capital, including the $2.5 billion institutional share placement, the share purchase plan, the underwritten issue of shares under the Dividend Reinvestment Plan and the issue of the new Westpac SPS II hybrid securities; and

·the announcement of reduction in exception fees effective 1 October 2009.

For a discussion of these matters, please refer to ‘Significant developments’ in Section 1 under ‘Information on Westpac’ which forms part of this report.

Since the end of the 2009 financial year, a matter that has arisen which may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years was the New Zealand High Court delivering judgment in favour of the Commissioner of Inland Revenue (CIR) New Zealand in relation to four representative transactions of nine structured finance transactions undertaken between 1998 and 2002 in respect of which the CIR issued amended tax assessments. When taking into account all of the nine transactions the financial cost of the judgment would be NZ$918 million. This amount has been fully provided for in our financial statements for the 2009 financial year. For a discussion of this matter, please refer to ‘Significant developments’ in Section 1 under ‘Information on Westpac’ which forms part of this report.

The Directors are not aware of any other matter or circumstance that have arisen during the financial year or since 30 September 2009 which has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years.

e)Likely developments and expected results

Likely major developments in the operations of the Group in future financial years and the expected results of those operations are discussed in Section 1 under ‘Information on Westpac’, including under ‘Significant developments’.

Further information on likely developments in our operations and the expected results of operations have not been included in this Directors’ report because the Directors believe it would be likely to result in unreasonable prejudice to us.

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4. Directors’ interests

a)Directors’ interests in securities

The following particulars for each Director are set out in the Remuneration Report and Note 42 of our consolidated financial statements for the year ended 30 September 2009 and in the tables below:

·their relevant interests in our shares or the shares of any of our related bodies corporate;

·their relevant interests in debentures of, or interests in, any registered managed investment scheme made available by us or any of our related bodies corporate;

·their rights or options over shares in, debentures of, or interests in, any registered managed investment scheme made available by us or any of our related bodies corporate; and

·any contracts:

·to which the Director is a party or under which they are entitled to a benefit; and

·that confer a right to call for or deliver shares in, debentures of, or interests in, any registered managed investment scheme made available by us or any of our related bodies corporate.

Directors’ interests in Westpac and related bodies corporate as at 4 November 2009

	Number of Westpac Ordinary Shares		Number of Westpac Share Options		Number of Westpac Share Rights		Westpac SPS	Westpac SPS II
Westpac Banking Corporation securities
Ted Evans	19,130		—		—		—	—
Gail Kelly	1,544,883	(1)	720,556	(2)	202,021	(3)	—	—
John Curtis	72,787		—		—		—	—
Elizabeth Bryan	19,444		—		—		—	—
Gordon Cairns	17,038		—		—		—	—
Peter Hawkins	15,218		—		—		—	—
Carolyn Hewson	16,348		—		—		—	—
Lindsay Maxsted	7,404		—		—		—	—
Graham Reaney	75,361		—		—		—	—
Peter Wilson	13,597		—		—		—	—

	Number of BTIM Ordinary Shares
BT Investment Management Limited securities
Carolyn Hewson	15,385

(1)Westpac ordinary shares granted under the CEO Restricted Share Plan in relation to the CEO’s sign-on arrangements.

(2)Options issued under the Chief Executive Officer Performance Plan.

(3)Share rights issued under the Chief Executive Officer Performance Plan.

b)Other relevant interests as at 4 November 2009

Certain subsidiaries of Westpac offer a range of registered schemes and infrastructure notes. The Directors from time to time invest in these schemes and notes and are required to provide a statement to the ASX when any of their interests in these schemes or notes change (except interests in a number of cash management trusts)(1). The level of interest held by Directors is set out below.

The level of interests held directly and indirectly by Directors as at 4 November 2009

	Relevant Interests in Infrastructure Notes	Relevant Interests in Cash Management Trusts (Units)(1)	Other Relevant Interests in Registered Schemes (Units)	Date of Last Notification to the ASX
Elizabeth Bryan	1,400	—	—	3 July 2009
John Curtis	1,300	—	—	22 July 2009

(1)ASIC has exempted each Director from the obligation to notify the ASX of a relevant interest in a security that is an interest in BT Cash Management Trust (ARSN 087 531 539), BT Premium Cash Fund (ARSN 089 299 730), Westpac Cash Management Trust (ARSN 088 187 928), BT Institutional Managed Cash Fund (ARSN 088 832 491) or BT Institutional Enhanced Cash Fund (ARSN 088 863 469).

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c)Indemnities and insurance

Under our constitution, we must indemnify, unless the indemnity is prohibited by statute, each of the Directors and Company Secretaries of Westpac and of each of our related bodies corporate (except related bodies corporate listed on a recognised stock exchange), each employee of Westpac or our subsidiaries (except subsidiaries listed on a recognised stock exchange), and each person acting as a responsible manager under an Australian Financial Services licence of any of Westpac’s wholly-owned subsidiaries against every liability incurred by each such person in their capacity as director, secretary, employee or responsible manager, as the case may be; and all legal costs incurred in defending or resisting (or otherwise in connection with) proceedings, whether civil or criminal or of an administrative or investigatory nature, in which the person becomes involved because of that capacity.

Each of the Directors named in this Directors’ report and each of the Company Secretaries of Westpac has the benefit of this indemnity.

Consistent with shareholder approval at the 2000 AGM, Westpac has entered into a Deed of Access and Indemnity with each of the Directors, which includes indemnification in identical terms to that provided in our constitution.

Westpac also executed a deed poll in September 2009 providing indemnification equivalent to that provided under the constitution as described above to individuals acting as:

·statutory officers (other than as a director) of Westpac;

·directors and other statutory officers of wholly owned subsidiaries of Westpac (including St.George Bank Limited); and

·directors and statutory officers of other nominated companies as approved by Westpac in accordance with the terms of the deed poll and Westpac’s contractual indemnity policy.

Some employees of related bodies corporate and responsible managers of Westpac and its related bodies corporate are also currently covered by a deed poll in similar terms that was executed in November 2004.

Under the September 2009 deed poll, Westpac also agrees to provide directors’ and officers’ insurance to directors of Westpac and directors of Westpac’s wholly owned subsidiaries.

As part of the merger with St.George Bank Limited, Westpac indemnified each member of the St.George Group and certain of their representatives, including their directors and officers, in respect of breaches of certain obligations and warranties provided by Westpac in the Merger Implementation Agreement between Westpac and St.George Bank Limited and also in respect of the inclusion or disclosure of certain types of information in disclosure or regulatory documents prepared by Westpac. Those indemnities continue to apply to those St.George Bank Limited directors, some of whom have subsequently been appointed as directors of Westpac. The indemnity also applies to KPMG, as St.George Bank Limited’s auditor at the time of the merger.

St.George Bank Limited agreed with Westpac to provide indemnities in corresponding terms under the Merger Implementation Agreement, which also continue to apply.

No amount has been paid under any of these indemnities during the financial year ended 30 September 2009 or since that date.

Our constitution permits us, to the extent permitted by law, to pay or agree to pay premiums in respect of any contract of insurance, which insures any person who is or has been a Director or Company Secretary of Westpac or any of its related bodies corporate against liability incurred by that person in that capacity, including a liability for legal costs, unless:

·we are forbidden by statute to pay or agree to pay the premium; or

·the contract would, if we paid the premium, be made void by statute.

For the year ended 30 September 2009 the Group has insurance cover in respect of the amounts which we may have to pay under the indemnities set out above. The insurance policy prohibits disclosure of the premium payable and the nature of the liabilities covered.

d)Options and share rights outstanding

As at the date of this report there are 15,034,990 share options outstanding and 3,047,094 share rights outstanding in relation to Westpac ordinary shares. The expiry date of the share options range between 29 December 2009 and 1 March 2019 and the weighted average exercise price is $20.83. The latest dates for exercise of the share rights range between 20 January 2013 and 1 June 2019.

Holders of share options outstanding in relation to Westpac ordinary shares do not have any rights under the share options to participate in any share issue or interest of Westpac or any other body corporate.

e)Proceedings on behalf of Westpac

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of Westpac, or to intervene in any proceedings to which Westpac is a party, for the purpose of taking responsibility on behalf of Westpac for all or part of those proceedings.

No proceedings have been brought or intervened in on behalf of Westpac with leave of the Court under section 237 of the Corporations Act 2001.

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5. Environmental disclosure

The Westpac Group’s environmental framework starts with ‘Our Principles for Doing Business’, which outline our broad environmental principles. This framework includes:

·our environmental policy statement ‘Westpac and the Environment: Our Environmental Policy’, which has been in place since 1992;

·an internally developed Sustainable Supply Chain Management framework; and

·public reporting of our environmental performance. We also participate in a number of voluntary initiatives including the Carbon Disclosure Project, the Equator Principles and the United Nations Global Compact CEO Water Mandate.

More recently, in 2008, we launched a five-year climate change strategy. The strategy outlines specific objectives for our direct environmental impacts, and continued engagement and advocacy along our value chain with customers and suppliers. We expect that the cost of implementing this strategy will not have a material impact on the operating expenses of the Group.

The Group is required to comply with the NSW Energy Administration Amendment (Water & Savings) Act 2005 (EAA). We comply with our obligations pursuant to the EAA as a designated energy user and a designated water user through an:

·Energy Savings Action Plan for Westpac’s North Ryde site which was approved by the NSW Government on 14 February 2008. The Annual Progress Report for the North Ryde site was submitted for this year and is due to be submitted by 30 September in each subsequent year. We comply with our obligations under the EAA and the Action Plan; and

·Energy Savings Action Plan and a Water Savings Action Plan for the St.George House Building at Kogarah. Both plans were approved by the NSW Government during 2006 and require Annual Progress Reports (submitted to the NSW Government on 29 December 2008 and 31 October 2008 respectively). The Annual Progress Reports for each Action Plan are due in 2009 and subsequent years by 31 December. We comply with our obligations under the EAA and these Action Plans.

The National Greenhouse and Energy Reporting Act 2007 (Cth) (National Greenhouse Act) came into effect in July 2008. The Group has reported on greenhouse gas emissions, energy consumption and production under the National Greenhouse Act for the period June 2008 through July 2009 and will continue to report annually thereafter. The Group complies with the National Greenhouse Act and submitted its first report to the Commonwealth Government in October 2009.

Following the merger between Westpac and St.George Bank Limited, the Group has exceeded the threshold for reporting requirements of the Energy Efficiency Opportunities Act 2006 (Cth) (EEO), which requires a report to be submitted to the Commonwealth Government identifying, evaluating and publicly reporting on cost effective energy savings opportunities. The report is to be submitted by 31 December 2010. We comply with our obligations under the EEO.

Our operations are not subject to any other particular and significant environmental regulation under any law of the Commonwealth of Australia or of any State or Territory of Australia. We may, however, become subject to environmental regulation as a result of our lending activities in the ordinary course of business and we have policies in place to ensure that this potential risk is addressed as part of our normal processes.

We have not incurred any liability (including for rectification costs) under any environmental legislation.

Further details on our environmental performance, including progress against our climate change strategy and details of our emissions profile are available on our website at www.westpac.com.au/corporateresponsibility.

6. Rounding of amounts

Westpac is an entity to which ASIC Class Order 98/100 dated 10 July 1998, relating to the rounding of amounts in Directors’ reports and financial reports, applies. Pursuant to this Class Order, amounts in this report and the accompanying financial report have been rounded to the nearest million dollars, unless indicated to the contrary.

7. Political expenditure

In line with Westpac policy, no cash donations were made to political parties during the financial year ended 30 September 2009. The expenditure reflected in the table below relates to payment for participation in legitimate political activities where there was assessed to be direct business benefit to Westpac. Such activities include business observer programmes attached to annual party conferences, policy dialogue forums and other political functions such as speeches and dinners.

Political expenditure, year ended 30 September 2009

Australia

	Amount $(1)
Australian Labor Party	73,734.50
Liberal Party of Australia	50,890.00
National Party of Australia	16,795.00
Total	141,419.50

(1)Represents aggregate amount at both Federal and State/Territory levels.

New Zealand

The total expenditure on political activities in New Zealand for the year ended 30 September 2009 was NZ$950.00. In line with Westpac policy, no cash donations were made to political parties in New Zealand during the year.

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8. Directors’ meetings

Each Director attended the following meetings of the Board and Committees of the Board during the financial year ended 30 September 2009:

Number of meetings		Board Meetings		Audit Committee		Risk Management Committee		Nominations Committee		Remuneration Committee		Sustainability Committee		Technology Committee
held during the year		15		4		5		4		6		3		3
Director	Notes	A	B	A	B	A	B	A	B	A	B	A	B	A	B
Ted Evans	1	15	15	3	3	5	5	4	4	2	2	—	—	3	3
Gail Kelly	2	15	15	—	—	—	—	—	—	—	—	3	3	3	3
John Curtis	3	13	11	3	3	3	3	—	—	4	4	—	—	—	—
Elizabeth Bryan	4	15	14	4	4	5	5	3	3	—	—	—	—	3	3
Gordon Cairns	5	15	14	4	4	5	4	4	4	6	6	—	—	—	—
Peter Hawkins	6	13	12	3	3	3	3	—	—	—	—	—	—	3	3
Carolyn Hewson	7	15	14	4	4	5	5	4	4	6	6	—	—	—	—
Lindsay Maxsted	8	15	13	4	4	5	5	4	4	—	—	—	—	—	—
Graham Reaney	9	13	13	3	3	3	3	—	—	—	—	3	3	—	—
Peter Wilson	10	15	15	4	4	5	5	4	4	—	—	3	3	—	—

A - Meetings eligible to attend as a member B - Meetings attended as a member

Unless otherwise stated, each Director has been a member, or the Chairman, of the relevant Committee for the whole of the period from 1 October 2008.

(1)	Chairman of the Nominations Committee. He was a member of the Audit Committee until 1 December 2008 and a member of the Audit Committee from 3 March 2009. He is a member of the Risk Management Committee and from 1 December 2008 a member of the Technology Committee. He was a member of the Remuneration Committee until 1 December 2008.
(2)	Member of the Sustainability Committee and Technology Committee.
(3)	John Curtis was appointed Director and Deputy Chairman on 1 December 2008. Since 1 December 2008 he has been a member of the Audit Committee, Risk Management Committee and Remuneration Committee.
(4)	Chairman of the Technology Committee from 1 December 2008. She is a member of the Audit Committee and Risk Management Committee. She was a member of the Sustainability Committee until 1 December 2008. She has been a member of the Nominations Committee from 1 December 2008.
(5)	Chairman of the Remuneration Committee. He is a member of the Audit Committee, Risk Management Committee and Nominations Committee.
(6)	Peter Hawkins was appointed Director on 1 December 2008. Since 1 December 2008 he has been a member of the Audit Committee, Risk Management Committee and Technology Committee.
(7)	Chairman of the Risk Management Committee. She is a member of the Audit Committee, Nominations Committee and Remuneration Committee.
(8)	Chairman of the Audit Committee. He is a member of the Risk Management Committee and Nominations Committee.
(9)	Graham Reaney was appointed Director on 1 December 2008. Since 1 December 2008 he has been a member of the Audit Committee, Risk Management Committee and Sustainability Committee.
(10)	Chairman of the Sustainability Committee. He is a member of the Audit Committee, Risk Management Committee and Nominations Committee.

All Directors receive the papers for all meetings of the Board and all Committee meetings and are invited to attend all Committee meetings (even where they are not members of the relevant Committee). The above table only sets out attendance by members of the relevant Committees. It does not reflect attendance at Committee meetings by other Directors who were not members of the relevant Committee.

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9. Remuneration report

Introduction from the Chairman of the Board Remuneration Committee

Dear Shareholder,

The Board thinks it is important to introduce our Remuneration Report with a section explaining the thinking behind our remuneration strategy, and how we design, implement, and validate it. We have tried to explain this in as clear a way as possible.

Our remuneration strategy is designed around six overarching principles, all of which are aimed at getting the best outcome for shareholders:

1. Most talented employees;

2. Pay for performance;

3. Competitive and fair;

4. Aligned with shareholders’ interests;

5. Risk adjusted remuneration; and

6. Simple, flexible and transparent.

First we aim to attract and retain the most talented employees globally. We believe that these employees will have the highest impact on our organisation, by formulating the most compelling strategic choices, by out-executing our competitors, and by creating an achievement culture where everyone feels empowered to achieve their potential.

Secondly we have designed the structure of remuneration to pay for performance both absolute and relative to our peers over both the short and the longer term.

The third principle is to ensure that this remuneration strategy is both competitive and fair. We do this as a Board, by hiring independent remuneration consultants, reporting directly to us, to give us an informed opinion from the market place. We also benchmark our total incentive pool for the year, as a percentage of earnings, and compare it to previous years, and to the other areas where we allocate the surplus, in dividends and reinvesting back in the company.

The fourth principle is to ensure that the outcomes of our remuneration strategy are aligned to the interests of shareholders. This we seek to achieve by rewarding senior management with equity in their variable reward, and for this equity to vest over a longer time period, during which it cannot be hedged.

Fifthly we want our remuneration strategy to be consistent with sound risk management principles. This we do by measuring our financial performance on the basis of economic profit which takes into account, both at a Group and business unit level, the amount of capital that needs to be charged, consistent with the risk. And as a Board we reserve the right to adjust the outcome of the incentive element of compensation, based on our assessment of risk. We believe this approach best ensures a direct linkage between reward, return and risk.

The sixth and final principle is to attempt to make our remuneration strategy as simple, flexible and transparent as we can. We recognise in the design that one size does not fit all, and are prepared to tailor where external conditions dictate. We acknowledge that remuneration has become a complex subject, with reports best understood by experts. We do not believe that this is in the best interests of good governance, and therefore have sought in this report to try and make the content as straight-forward as possible.

Undoubtedly there will be areas where we can make further improvements, and with your feedback we shall commit to this endeavour.

Gordon Cairns
Chairman
Board Remuneration Committee

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1.Remuneration snapshot for 2009

This section provides an overview of remuneration at the Group during 2009.

1.1 Material factors impacting remuneration this year

The external environment has changed significantly during 2009. The global financial crisis escalated early in the year and heralded a period of significant uncertainty in the financial sector. In this context, our major priorities for the year were to successfully navigate our way through the global financial crisis, to continue to implement our customer-focused strategy and to execute the merger with St.George, using the merger to facilitate our overall Transformation.

The Group has made very good progress this year against these objectives. We have successfully completed the merger with St.George, with excellent customer retention, improved business momentum and high staff engagement. We finish the year very well placed, with a set of powerful, iconic brands, a much larger customer base and stronger distribution network, and with the most improved customer advocacy of all our peers.

A fundamental element to enable this success has been the improved quality of our key teams, as well as the high levels of engagement of our people.

The developments in the external environment, the completion of the merger with St.George and the Group’s overall performance this year have given rise to a number of important remuneration outcomes which we wish to highlight here.

Remuneration changes

As a result of the merger with St.George, the Group materially increased in size and complexity. In line with this, some executive roles and responsibilities increased similarly from 1 December 2008. These changes resulted in increases to fixed remuneration and/or variable reward target opportunities for some Senior Executives(1).

In response to the global financial crisis, effective May 2009, we stopped any increase in fixed remuneration and variable reward targets for the CEO, Senior Executives and all employees earning more than $100,000 (other than on promotion), until the 2011 financial year.

Variable reward outcomes

Performance during the year, and the remuneration outcomes associated with it, are discussed in more detail in the next section. The remuneration framework includes mechanisms to ensure a fair variable reward outcome for employees compared to the position of shareholders. However, the impact of both the merger and the particularly challenging external environment this year warranted an additional level of review by the Remuneration Committee.

The Remuneration Committee primarily uses Economic Profit(2) to measure financial performance and to consider the overall variable reward pool to allocate to employees. In a merger year, Economic Profit is materially impacted by accounting adjustments and as a sole indicator in these circumstances can have significant limitations. The Remuneration Committee therefore adopted a multi-lens approach to consider the variable reward pool that should be allocated. It looked at a number of additional measures including cash earnings(3), earnings per share, dividends, and total shareholder return (TSR).

It concluded that an appropriate outcome for employees earning variable reward payments would be an aggregate reduction of 15% to the variable reward pool for 2009 compared to the aggregate paid for 2008. The variable reward pool is the pool out of which cash, deferred share bonuses and long term incentive awards are paid for all employees up to and including Senior Executives.

Equity vesting

In light of the global financial crisis and the changing regulatory environment the Remuneration Committee has reviewed and continues to review the Group’s approach to remuneration.

Although the regulatory environment is not settled, the initial view of the Remuneration Committee is that the Group’s remuneration approach will broadly comply with this evolving environment and is fundamentally sound. However, the Remuneration Committee recognises that change may be required.

One immediate change has been that for all future equity awards, accelerated vesting(4) will cease to be the default position where an executive terminates in cases such as retirement or retrenchment. Instead, the vesting period will continue to the normal vesting date of the equity.

The detailed review and implementation of changes will continue over the course of 2010.

The next part of this section gives an overview of remuneration as it applies to three groups: the CEO and Senior Executives; employees below Senior Executive level and Non-executive Directors.

(1)Senior Executives are set out in Section 1.5 in this Remuneration report.

(2)Economic profit represents the excess of adjusted cash earnings over a minimum required rate of return on equity invested. For this purpose, adjusted cash earnings is defined as cash earnings plus the estimated value of franking credits paid to shareholders.

(3)Cash earnings is net profit attributable to equity holders adjusted for the impact of Treasury shares, fair value changes on economic hedges of hybrid instruments, and one-off significant items not part of ongoing business operations.

(4)Vesting is when the restriction period and any performance hurdles have been satisfied, and the holder can sell the shares, or exercise the options or share rights (as the case may be).

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1.2 CEO and Senior Executives

Remuneration principles and strategy

Our remuneration strategy is designed around six overarching principles, all of which are aimed at getting the best result for shareholders:

·most talented employees;

·pay for performance;

·competitive and fair;

·aligned with shareholders’ interests;

·risk adjusted remuneration; and

·simple, flexible and transparent.

Our strategy, based on these principles, is to attract and retain talented employees, by rewarding them for achieving high performance and delivering superior long term results for our customers and our shareholders, while adhering to sound risk management and governance principles. This strategy informs our executive remuneration framework.

Executive remuneration framework

A summary of the executive remuneration framework, as it applies to the CEO and Senior Executives is set out below.

Fixed remuneration

We provide fixed remuneration that takes into account the size and complexity of the role, individual responsibilities, experience and skills, and is market competitive. Fixed remuneration includes fixed package, comprising cash salary and salary sacrifice(1) items, and superannuation.

Short term incentive (STI)

The CEO and Senior Executives are eligible to receive a STI payment, partly in cash and partly in deferred shares. Outcomes each year are based on individual, divisional, and Group performance measured against risk-adjusted financial and non-financial targets that support the Group’s short and long term strategy.

Long term incentive (LTI)

The CEO and Senior Executives are eligible to receive a LTI award. During the year, LTI awards were made in the form of performance share rights and performance options, which vest over a two to five-year period if the required performance is achieved. The level of the award takes into account market benchmarks, individual performance over time, succession potential and key skills.

1.3 Remuneration for employees below Senior Executive level

We adopt a remuneration strategy for employees below the level of Senior Executive which is consistent with the strategy and principles underlying our executive remuneration framework described above. This is summarised as follows:

·fixed remuneration is market aligned, and reviewed annually;

·we provide superannuation plans for our employees in Australia, New Zealand and certain other countries in which we operate. Plan members are entitled to benefits on retirement, resignation, permanent disability or death;

·employees have the opportunity to participate in a STI scheme designed to support the objectives (which include risk management) of their division and the Group, with a portion deferred in some cases; and

·key employees may also receive a LTI award.

Eligible employees may receive an annual award of up to $1,000 of Westpac ordinary shares under the Employee Share Plan (ESP) provided the Group meets set hurdles based on share price increase and customer satisfaction.

1.4 Non-executive Directors

The Board’s focus is on strategic direction, long term corporate performance and the creation of shareholder value. Our remuneration strategy for Non-executive Directors is to remunerate Board members appropriately for their time, expertise and insight into strategic and governance issues, and to attract and retain experienced and qualified Board members. Non-executive Directors receive a base fee, fees for participating in Board Committees either as the chairman or as a member of the Committee, and superannuation. Non-executive Directors who serve on subsidiary Boards also receive fees in respect of these additional services, which are paid by the relevant subsidiary company. Following the merger with St.George, the Board established the role of Deputy Chairman and the new Technology Committee, and associated fees were determined. Base fees and fees for Committee membership did not increase during 2009.

Fee pool

At the 2008 Annual General Meeting shareholders approved an increased fee pool of $4.5 million per annum for Non-executive Directors. This increased pool provided for three new Group Non-executive Directors following the merger with St.George. For the 2009 year, $3.4 million (76%) of the fee pool was utilised.

(1) Salary sacrifice means using fixed remuneration on a pre-tax basis to receive certain benefits such as car parking and child care, or to make additional superannuation contributions.

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1.5 CEO, Senior Executives and Non-executive Directors disclosed in this report

CEO and Senior Executives

Name	Position
Gail Kelly	CEO and Managing Director
Senior Executives
John Arthur	Group Executive, Counsel & Secretariat (from 1 December 2008)
Ilana Atlas	Group Executive, People
Greg Bartlett	Chief Executive, St.George Bank (from 1 December 2008)
Peter Clare	Group Executive, Product & Operations
Philip Coffey	Chief Financial Officer
Rob Coombe	Chief Executive Officer, BT Financial Group
Brad Cooper	Group Chief Transformation Officer
George Frazis	Chief Executive, Westpac New Zealand Limited (from 5 March 2009)
Peter Hanlon	Group Executive, Westpac Retail & Business Banking
Bob McKinnon	Group Executive, Technology
Greg Targett	Chief Risk Officer (from 2 July 2009)
Rob Whitfield	Group Executive (from 1 October 2008 to 30 November 2008), Group Executive, Risk Management (from 1 December 2008 to 1 July 2009), Group Executive, Westpac Institutional Bank (from 2 July 2009)
Curt Zuber	Group Treasurer
Former Senior Executives
Philip Chronican	Group Executive, Westpac Institutional Bank (until 2 July 2009)

Non-executive Directors

Name
Ted Evans	Chairman
John Curtis	Deputy Chairman (from 1 December 2008)
Elizabeth Bryan
Gordon Cairns
Peter Hawkins	(from 1 December 2008)
Carolyn Hewson
Lindsay Maxsted
Graham Reaney	(from 1 December 2008)
Peter Wilson

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2.Governance and risk management

This section provides detail of the Group’s approach to governance and risk management in relation to remuneration.

2.1 Governance

The Group strives to maintain remuneration policies and practices that fairly and responsibly reward employees for performance, while maintaining high standards of governance.

The Remuneration Committee is responsible for developing the remuneration strategy and framework. It monitors remuneration practices, market expectations and regulatory requirements in Australia and internationally, seeking to ensure the Group remains at the forefront of remuneration practice.

The Remuneration Committee:

·reviews and approves the executive remuneration framework and remuneration packages for each of the Senior Executives included in this report;

·recommends the remuneration of the CEO and Non-executive Directors to the Board;

·recommends to the Board objectives against which the CEO’s performance is assessed and which are used as the basis for determining the CEO’s STI;

·oversees succession planning for Senior Executives;

·oversees general remuneration practices and reward expenditure across the Group;

·oversees the Group’s equity based plans, and makes recommendations to the Board relating to new plans and changes to existing plans;

·reviews and approves the level of performance-based remuneration, and monitors performance against set hurdles under our LTI plans; and

·monitors and assesses the extent to which the executive remuneration framework is delivering outcomes that are consistent with the Group’s stated remuneration strategy.

The Remuneration Committee’s decisions on executive remuneration are based on business objectives, legal obligations and high standards of corporate governance.

The Remuneration Committee engages remuneration consultants, who are independent of management, to provide specialist advice to assist them in their role. The Board maintains a funding pool, which is overseen by the Chairman, to pay for this advice independent of management.

During 2009 the Remuneration Committee engaged Towers Perrin to provide independent advice in relation to its review of the executive remuneration framework. The Group also obtained external advice from Ernst & Young in relation to the executive remuneration framework and other Group remuneration matters. Hay Group provide external market data to the Group. Any market data requests from the Board or Remuneration Committee are requested and provided directly, independent of management.

Members of the Remuneration Committee during 2009

All members of the Remuneration Committee are independent Non-Executive Directors. During 2009 members included:

·Gordon Cairns (Chairman)

·John Curtis (from 1 December 2008)

·Ted Evans (from 1 October 2008 to 1 December 2008)

·Carolyn Hewson

Board Remuneration Committee Charter

The role and responsibilities of the Remuneration Committee are set out in the Remuneration Committee charter, which is available on the Group’s website www.westpac.com.au/corporateresponsibility.

The Remuneration Committee charter is reviewed annually, along with other Committee charters. No material changes were made to the charter following the 2009 review. In the light of recent regulatory developments, the Board expects to review and, if appropriate, amend the Board Remuneration Committee charter to ensure our practices are consistent with evolving best practice in corporate governance. Further information about the Remuneration Committee is provided in the Corporate Governance Statement in this Annual Report.

The Remuneration Committee’s role and responsibilities are represented in the diagram below.

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2.2 Risk management

The Group’s remuneration strategy, executive remuneration framework, policies and practices are established to reflect sound risk management.

Sound risk management is fundamental to the way we operate the Group. The performance of each division within the Group is reviewed and measured on the basis of how risk is managed, and this flows through to remuneration outcomes.

The executive remuneration framework includes features that reflect a balanced risk management approach. The framework is composed of an appropriate mix of fixed pay and variable reward, a portion of which is deferred. During the year, Senior Executives received deferred compensation in two forms: deferred shares as part of the STI awarded, and a LTI award of performance share rights and/or performance options which only deliver value if the Group meets or exceeds set long term performance hurdles of up to five years. Both of these align the interests of the CEO and Senior Executives with those of shareholders over the longer term.

The amount of the variable reward pool is capped. This year the cap was determined by the Remuneration Committee based on a number of financial indicators including Economic Profit, cash earnings, earnings per share, dividends and TSR. The measurement of performance for calculating STI outcomes is based on both financial and non-financial measures, including risk management and adherence to the Group’s corporate values and behaviours. The key financial measure used is Economic Profit, which accounted for 50% of the CEO’s and Senior Executives’ scoreboards during the year. In addition the CEO and each Senior Executive is assessed on specific risk measures that are a key factor in the discretionary adjustment to the scoreboard outcome.

To enhance alignment with shareholders, the CEO and Senior Executives (who are Group Executives) are expected to build and maintain a substantial Group shareholding within five years. For the CEO the expected minimum is five times her annual fixed package. For Group Executives the expected minimum is $1.2 million. The Remuneration Committee monitors compliance with these requirements.

Under the Group’s hedging policy, participants are strictly forbidden from entering into hedging arrangements in relation to their unvested deferred STI and LTI equity awards, whether directly or indirectly. Hedging refers to using financial products to protect against or limit the risk associated with equity instruments, such as shares or securities employees receive as part of their performance-based remuneration. If a participant attempts to hedge unvested shares or securities those instruments are liable to forfeiture. Access to unvested shares and securities on the share register is restricted until after they have vested.

As set out in Section 2.1 of this Remuneration report, we adhere to high standards of corporate governance in relation to remuneration, with the Remuneration Committee overseeing both executive remuneration and general remuneration practices across the Group. The Chairman of the Board Risk Management Committee is also a member of the Remuneration Committee and the Chief Risk Officer attends all Remuneration Committee meetings. In carrying out its duties, the Remuneration Committee has access to risk and financial control personnel and engages external advisors that are independent of management.

We also follow a strict process of ‘two-up’ approval for all remuneration decisions:

·performance and remuneration outcomes for the CEO are approved by the Board, on the recommendation of the Remuneration Committee;

·performance and remuneration outcomes for Group Executives are approved by the Remuneration Committee, on the recommendation of the CEO; and

·performance and remuneration outcomes for all General Managers (who report to Group Executives) are approved by the CEO, on the recommendation of the Group Executives to whom they report.

Significant remuneration arrangements outside of general policy guidelines are referred to the Remuneration Committee for review and approval.

We actively focus on our corporate values and seek to ensure a culture of risk management is embedded throughout our organisation. Each year we test this through our Staff Perspective Survey. This year, for the first time, we also asked employees what they value, and what they consider the current values of the organisation to be. Included in the top 10 current values of the Group were: ‘compliance’, ‘accountability’ and ‘doing the right thing’. Additionally, our Staff Perspective Survey indicates that 90% of our people fully support the values for which the Group stands.

3.The structure of remuneration and assessment of performance achieved

3.1 Fixed remuneration

Fixed remuneration includes fixed package, comprising cash salary and salary sacrifice items, and superannuation.

The Group provides superannuation contributions for the CEO and Senior Executives of up to 9% of their fixed package, which can be received by one of the Group’s staff superannuation funds or an eligible fund of their choice. During the year, three Senior Executives were members of legacy defined benefit superannuation funds (which are closed to new members).

3.2 STI

Performance objectives and performance achieved

The Remuneration Committee strives to set individual performance objectives for the CEO and Senior Executives that provide a robust link between remuneration outcomes and the key drivers of long term shareholder value creation. The STI performance objectives are set out in the form of a scoreboard which includes financial and non-financial objectives in the following categories and weightings:

Category	Weighting for 2009
Shareholders	65	%
Customers	20	%
Employees	10	%
Corporate responsibility	5	%

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A description of the objectives, and the results, are set out in turn below:

Shareholders and Customers

The Shareholder category includes financial measures for the year. The key financial measure used to assess achievement in this category is Economic Profit, which is a risk-adjusted financial measure. Senior Executives are assessed on Economic Profit, both for the Group and, where appropriate, for the part of the Group they manage. The Board believes that Economic Profit best reflects the factors that drive long term shareholder value, and so this measure commands substantial weighting in assessing the overall performance outcome for the CEO and each Senior Executive. An assessment of Economic Profit and other key financial performance indicators, is set out below:

We have achieved a strong financial performance in light of external operating conditions

· Economic profit reduced, but still strong In the context of volatile external operating conditions as a result of the global financial crisis, the Group delivered Economic Profit that was lower than 2008, and was impacted by three key items. First, lower cash earnings, as impairments charges increased significantly this year. Second, higher levels of capital, as we chose to increase our Tier 1 capital in the face of significant uncertainty early in the year. Finally the impact of merger accounting, which required recognition of goodwill in relation to the St.George merger. This significantly increased the capital charge when compared to 2008. The return on goodwill is expected in future periods as synergies and other benefits driven by the merger increase. For the purposes of assessing performance we have made allowance for this last point, this approach is consistent with the approach we have used in determining our dividend for 2009. We continue to maintain a strong capital position, retaining our ‘AA’ rating, which positions the Group well to keep supporting our customers and take advantage of any improvement to economic conditions and future growth opportunities.

The second objective under the Shareholder category relates to the success of the merger of St.George with Westpac, measured by customer retention and cost synergies. This complements the Customer category which includes measures with a focus on delivering superior customer experience including improvements in transaction processing and service delivery.

We have completed our merger with St.George and made excellent progress on integration

·	Post merger implementation well on track	Following the execution of the merger with St.George, we continue to make strong progress on integration, exceeding our planned cost and revenue synergies and using the opportunity to leverage on the strengths of Westpac and St.George. We have achieved excellent customer retention and have maintained a strong position for the St.George brand.
·	Cost and revenue synergies exceeded
·	Leveraged strengths of St.George and Westpac

We are keeping our existing customers and winning new ones

·	Focusing on our customers	We have maintained our focus on ensuring the customer is at the centre of everything we do, driving changes to the way we are organised and the way we do business. Our approach has ensured that we achieved excellent customer retention rates following the merger with St.George, achieving customer growth in key segments. Across all the divisions we have performed strongly on key customer metrics, both in absolute terms and relative to the competition, demonstrating improved customer advocacy and deeper relationships with our customers.
·	Customer-centric culture
·	Excellent customer retention rates
·	Customer growth in key segments
·	Increased customer advocacy

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Employees

The Employee category focuses on increasing employee engagement and employee advocacy for the Group’s products and services.

Our employees are more engaged than ever, and focused on delivering for our customers

· Best ever employee engagement results In a year of significant change for our people, our annual Staff Perspectives Survey confirmed our best ever, and very high, employee engagement levels consistent with the levels for global high performing companies.

Corporate Responsibility

This category focuses on maintaining a market leading position in both corporate responsibility and sustainability.

We continue to be world-leaders in corporate responsibility and sustainability

·	Our highest ever score in the Dow Jones Sustainability Index	Our strong performance in this area is again demonstrated by the Group’s result in the Dow Jones Sustainability Index. We achieved our highest ever
		score, and we were highest-rated in areas including corporate governance and
·	Corporate governance	risk and crisis management.
		In 2009 we have maintained a proactive, strong risk management approach to
·	Risk and crisis management	conducting business in the current economic environment. We continue to support our customers in times of hardship through Westpac Assist and St.George Assist, and providing proactive assistance to deal with unexpected events such as the Victorian bushfires. Our sustainable approach to conducting business and our impact on the environment was a strong focus in 2009 with the Group achieving a 5% reduction in our carbon footprint(1).

Application of discretion

The Remuneration Committee recognises that the scoreboard approach, whilst embracing a number of complementary performance objectives, will never entirely reflect performance as a whole. When determining individual STI outcomes for the CEO and Senior Executives, the Board and Remuneration Committee may make discretionary adjustments of ±100% for the CEO, and ±50% for Senior Executives, to take account of:

·individual performance results not explicitly covered in the objectives; and

·negative adjustments considered appropriate to address adverse performance outcomes from previous years.

At the end of the year, the Remuneration Committee reviews all performance outcomes against the objectives set at the beginning of the year and applies any discretionary adjustments it considers are appropriate. Based on the performance outcomes against individual scoreboards, the Remuneration Committee:

·recommends the CEO’s STI outcome to the Board for approval; and

·confirms STI outcomes for each Senior Executive.

STI outcomes are determined within a range of 0% to 200% of the STI target amount. Individual STI outcomes are set out in Section 6 of this Remuneration Report.

STI target opportunities

CEO

The CEO’s STI target is set out in her employment agreement, and was $3.5 million for 2009. This target has not been increased for 2010.

Senior Executives

Senior Executives’ STI targets are set by the Remuneration Committee at the beginning of each year, based on market competitiveness and the nature of each individual’s role. Consistent with the suspension of fixed pay increases there will be no increases to STI targets for 2010.

STI awards for Senior Executives are managed within a Group-wide variable reward pool set each year by the Remuneration Committee.

(1)This balance is not prepared in accordance with A-IFRS and has not been subject to audit.

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STI Structure — a mix of cash and deferred shares

For 2009, the CEO is required to defer 40% of her STI, half for one year and half for two years.  Senior Executives are generally required to defer 25% of their STI for two years, with the exception of the Chief Risk Officer who is required to defer 40% of his STI, half for two and half for three years, the Group Executive, Westpac Institutional Bank, who is required to defer 40% of his STI, one third for each of one, two and three years, and the Group Treasurer who is required to defer 33% of his 2009 STI for two years.

Deferred STI awards granted to the CEO are made under the CEO Restricted Share Plan. For Senior Executives based in Australia the deferred portion is received as Westpac ordinary shares under the Group’s general Restricted Share Plan. Restricted Share Plan shares rank equally with Westpac ordinary shares for dividends and voting rights from the date of grant, and may currently be held in the Restricted Share Plan for a maximum of 10 years from the commencement of the vesting period. For Senior Executives outside Australia, the deferred component of the STI payment may instead be received as share rights under the Westpac Performance Plan (which entitle the holder to Westpac ordinary shares upon vesting). The Remuneration Committee has recently determined that for future awards, shares will be released on the date they vest to align to changes in the proposed taxation of employee share plans.

Deferred STI is generally forfeited if the holder resigns or is dismissed prior to the end of the restriction period. This supports retention and alignment with shareholder interests during the restriction period. Any changes in the business that are reflected in the share price flow through to the value of the deferred STI. The Board will review the amount of STI deferral in 2010 as part of its ongoing review of the executive remuneration framework.

3.3 Long term incentive (LTI)

Performance objectives and performance achieved

LTI awards made in the year may vest over a three to five-year period, but only if the Group’s relative TSR exceeds that of a number of its peers. The Group uses LTI is as a key driver of sustained long term value for shareholders. We provide LTI awards to the CEO and Senior Executives. LTI arrangements for Bob McKinnon are different due to the duration of his contract. His LTI arrangements are described below.

The CEO and Senior Executives only receive value from their LTI awards under the CEO Performance Plan and Westpac Reward Plan if the Group’s TSR is equal to or better than the 50th percentile against our peers. TSR is based upon share price movement and dividends paid, as well as allowing for any cash distribution under a return of capital to shareholders of any entity in the TSR ranking group. Under the CEO Performance Plan and Westpac Reward Plan, TSR is measured over three to five year periods from the beginning of the performance period (with the base and measurement prices both assessed over three months to smooth the impact of short term share price fluctuations).

The following table demonstrates the Group’s TSR, dividend, share price and cash earnings per share performance each year from 2005 to 2009.

TSR to 30 September	2009			2008			2007			2006			2005(1)
Three year	20.0		%	29.5		%	85.7		%	60.6		%	48.8		%
Five year	76.7		%	75.0		%	123.0		%	107.0		%	102.8		%
Dividends per Westpac share	116 cents			142 cents			131 cents			116 cents			100 cents
Cash earnings per Westpac share(2)	$	1.62		$	1.98		$	1.89		$	1.67		$	1.52
Share price - high	$	26.74		$	31.32		$	28.69		$	25.35		$	21.40
Share price - low	$	14.40		$	18.36		$	22.53		$	20.14		$	17.52
Share price - close	$	26.25		$	21.48		$	28.50		$	22.71		$	21.10

(1)The closing Westpac ordinary share price for the 2004 year (30th September 2004) was $17.73.

(2)The cash earnings balances are not prepared in accordance with A-IFRS and have not been subject to audit. 2009 cash earnings per share are on a pro forma basis, that is, prepared as if the merger with St.George was completed on 1 October 2008.

Example

The Group’s 5-year TSR to 30 September 2009 was 76.7%. For example, a $100 investment in Westpac shares five years ago would have returned $176.70 to the shareholder.

During the year, several LTI awards granted in previous years under the Westpac Performance Plan were tested against the applicable performance hurdles. Sixteen awards of securities under the Westpac Performance Plan reached a performance test date. Performance for all these awards was above the 50th percentile, with the Group’s relative TSR ranking results ranging from the 56th percentile to the 90th percentile. Where securities reached their first or second test dates and performance was above the 50th percentile, most employees chose not to extend the performance period. No awards under the CEO Performance Plan and Westpac Reward Plan reached a scheduled test date during the reporting period.

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LTI structure

·The CEO receives an annual LTI award of performance options and performance share rights under the CEO Performance Plan.

·Senior Executives receive annual LTI awards of performance options under the Westpac Reward Plan.

·From time to time Senior Executives may receive one-off LTI awards under the Restricted Share Plan or the Westpac Performance Plan.

The following table sets out the key features of LTI awards to the CEO under the CEO Performance Plan, and to Senior Executives under the Westpac Reward Plan and Westpac Performance Plan.

	CEO Performance Plan	Westpac Reward Plan	Westpac Performance Plan
Instrument	Performance options and performance share rights	Performance options	Performance share rights
Determining the number of securities	The number of performance share rights and/or performance options each individual receives is determined by dividing the dollar value of the LTI award by the value of the performance share rights and performance options as at the beginning of the performance period. The value of performance share rights and performance options is determined using a Binomial/Monte Carlo simulation pricing model. These values are calculated independently of the Group.
The performance hurdle is Relative TSR	The CEO and Senior Executives only receive value from their LTI awards if the Group’s TSR ranks higher than the 50th percentile of a defined group of comparator companies (the ‘ranking group’) over a set performance period. Relative TSR is used as the performance measure because it ensures a link to the creation of value for shareholders, and is considered to be an appropriate measure over the long term (consistent with the performance periods of up to five years). Lists of companies in the most recently determined ranking groups for the CEO Performance Plan, the Westpac Reward Plan and the Westpac Performance Plan are provided in Section 6 of this Remuneration report.
Vesting framework focuses on longer-term performance.	Initial TSR performance is tested at the third anniversary of the start of the performance period, and subsequent performance testing is possible at the fourth and fifth anniversaries. Securities only vest if the Group’s TSR ranking is at or above the 50th percentile of the ranking group at a performance test date. Vesting increases at subsequent test dates only if the TSR ranking over the entire performance period is above the 50th percentile and has improved from the previous test date relative to the ranking group. Vesting scales up to full vesting if the TSR ranking is at or above the 75th percentile.		TSR is tested over a period of two to four years. Vesting can only occur if the Group’s TSR ranking is at or above the 50th percentile of the ranking group, scaling up to full vesting if the TSR ranking is at or above the 75th percentile. At each performance test date the employee may elect to take the vested component of the award, or resubmit the full award to be retested at a subsequent test date. If an employee elects to vest any of the securities at a test date, any securities that do not vest at that time are forgone.
External consultants calculate TSR	TSR results are calculated by an external consultant and provided to the Board or its delegate to review and determine vesting outcomes. No adjustment to the TSR calculations resulted from the merger with St.George.
Early vesting is possible in limited cases	For awards prior to 1 July 2009, a portion of unvested securities may vest prior to reaching a test date where the employee leaves the Group due to their death, disability, retirement or retrenchment or in the event of a change in control of the Group. In general, any such vesting is subject to performance hurdles being met, except in the case of death and disability. The approach to early vesting has been reviewed and changed following changes to the regulatory environment as described in Section 1 of this Remuneration report.
Expiry	Vested options and vested share rights can be exercised up to a maximum of 10 years from the start of their performance period.
Lapsing of securities	Securities lapse where the CEO or Senior Executive leaves the Group due to resignation or dismissal before vesting occurs, unless the Board determines otherwise. Unexercised performance options and performance share rights (whether vested or unvested) will lapse, unless the Board determines otherwise, where the holder acts fraudulently or dishonestly or is in material breach of their obligations under the CEO Performance Plan, the Westpac Reward Plan and/or the Westpac Performance Plan (as applicable) or to the Group. In the case of the CEO Performance Plan and the Westpac Reward Plan, any securities remaining unvested at the final test date lapse immediately.

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LTI award opportunities

CEO

The CEO received a LTI award of $2,500,000 in December 2008. The award was received in the form of performance options and performance share rights under arrangements approved by shareholders at the 2007 Annual General Meeting.

The CEO will receive an equity-based LTI award in December 2009, subject to shareholder approval at the 2009 Annual General Meeting. There is no increase to the proposed award from the December 2008 level.

Senior Executives excluding Bob McKinnon

Senior Executives receive annual LTI awards of performance options under the Westpac Reward Plan. At the beginning of each year, the Remuneration Committee sets the LTI award target for each Senior Executive based on market competitiveness and the nature of each individual’s role.

Bob McKinnon

Due to the duration of his contract, Bob McKinnon received an award of cash-settled performance share rights which vest over the period of his contact provided he meets performance hurdles set by the Board. The performance hurdles are directly related to his individual long-term performance objectives.

As noted in Section 1 of this Remuneration report, there will be no increases to LTI award opportunities for the CEO or Senior Executives for 2010.

The actual LTI award amounts granted for each Senior Executive is determined by the Remuneration Committee at the end of the year and is subject to Board discretion based on their performance during the year. The level of the award takes into account market benchmarks, individual performance over time, succession potential and key skills.

Merger with St.George

Immediately following the merger with St.George, outstanding equity awards held by Senior Executives of St.George were replaced with the Group’s equity awards under the Restricted Share Plan. The original vesting dates were maintained, and these awards continue to run their course. Vesting of these awards is subject only to service conditions because the original St.George-related hurdles are no longer relevant. A small number of key St.George executives were also awarded performance share rights under the Westpac Performance Plan.

3.4 Other long term awards

In addition to the vehicle for deferred STI awards described above, the Restricted Share Plan and Westpac Performance Plan are also used from time to time for other types of awards, including one-off joining and retention awards. This would typically be for the purposes of attracting Senior Executives to join the Group or for retention in specific circumstances. In regard to awards made on joining, these are made in situations where an incoming Senior Executive would be forfeiting real value in the organisation the Senior Executive is leaving to join the Group. Such Senior Executives would be unlikely to join the Group if they were required to forfeit value. LTI awards to key employees below senior management level are also made under the Restricted Share Plan and Westpac Performance Plan.

Under these arrangements, employees receive awards of Westpac ordinary shares or share rights, which are restricted for a set period. This restriction period is determined by the Board, and allows flexibility to tailor the restriction period to the circumstances of the award.

3.5 Target remuneration mix of elements

A target remuneration mix is determined for each management level, with performance-based rewards increasing with the level of responsibility and the criticality of the person’s role.

The following diagram illustrates the proportions for target reward for the CEO and the average for the Senior Executive group.

			LTI award of performance options ·3-5 year performance period ·value only received if Westpac outperforms the median of its peers
			Deferred STI of restricted shares
			·   restricted for up to 3 years subject to service conditions
			STI paid as cash in December 2009
			Fixed remuneration including cash, salary sacrifice items and employer superannuation
CEO	Senior Executives

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4.Remuneration outcomes for the CEO and Senior Executives in 2009

The table below provides the value the CEO and Senior Executive received from the various components of their remuneration during 2009. This table has been provided in addition to the statutory accounting remuneration tables which are provided in Section 6 of this Remuneration report, and is provided for the benefit of understanding director and executive remuneration. The valuation for equity based awards that vested during the year is calculated based on the methodology defined below, and is not prepared in accordance with A-IFRS.

The table also provides a comparison of the value the CEO received in 2009 to the value the CEO would have received in 2008 had her employment commenced on 1 October 2007. Gail Kelly did not serve a full year at the Group having commenced on 1 February 2008, therefore the comparison below is prepared on a pro forma basis. It is provided in order that shareholders can make a more informed year on year comparison.

		Short term payments				Value of equity-based
		Fixed remuneration and superannuation	Other payments and benefits	STI received as cash	Total short term payments	awards that vested during the year
	Period	$’000	$’000(1)	$’000(2)	$’000	$’000(3)
CEO
Gail Kelly
2009 Actual	Full Year	2,700	1	2,625	5,326	3,158
2008 Annualised for comparison purposes only(4)		2,696	—	3,465	6,161	—
Senior Executives	2009
Ilana Atlas	Full Year	757	1	860	1,618	342
Peter Clare	Full Year	950	1	863	1,814	—
Philip Coffey	Full Year	1,071	1	1,688	2,760	502
Rob Coombe	Full Year	937	1	975	1,913	454
Brad Cooper	Full Year	972	1,435	1,013	3,420	—
Peter Hanlon	Full Year	1,075	1	975	2,051	185
Bob McKinnon	Full Year	800	1	900	1,701	—
Rob Whitfield	Full Year	1,635	2,249	732	4,616	415
Curt Zuber	Full Year	577	1	3,395	3,973	216
John Arthur	Part Year	644	—	555	1,199	—
Greg Bartlett	Part Year	715	16	713	1,444	311
George Frazis	Part Year	597	121	630	1,348	—
Greg Targett	Part Year	666	1	288	955	116
Former executives
Philip Chronican	Part Year	1,200	1,395	737	3,332	1,826

(1)Includes annual health checks, relocation at the Group’s instigation, living away from home expenses, allowances, one-off awards and termination payments.

(2)The CEO and Senior Executives receive part of their annual STI as cash and part is required to be deferred for up to two years (Rob Whitfield and Greg Targett for up to three years). The figure in this column represents the value of the 2009 STI they actually received as cash.

(3)The value in this column is calculated as the number of securities that vested, multiplied by the Group’s share price at the time they vested, less any exercise price payable. For example, the $3,158,000 shown for the CEO reflects the value of the first tranche of 194,347 shares granted under the CEO Restricted Share Plan as part of her sign-on grant of restricted shares that vested on 6th February 2009. This award was approved by shareholders at the 2007 Annual General Meeting. None of the CEO’s equity vested in 2008.

(4)The 2008 annualised comparative information is calculated on a pro-forma time basis assuming the CEO commenced employment on 1 October 2007. For example, the $2,696,000 calculated for Fixed Remuneration & Superannuation is derived from the 2008 actual amount paid of $1,789,655 divided by 243 days multiplied by 366 days.

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5.Remuneration of Non-executive Directors

Remuneration policy and fee pool

Non-executive Director fees are not directly related to the Group’s short term results and Non-executive Directors do not receive performance-based remuneration. However, the Board undertakes ongoing self-assessment and an external review of its performance and of the performance of the Chairman, individual Directors and Board Committees as detailed in the Corporate Governance Statement in this Annual Report.

Fee framework

The Board periodically reviews the Non-executive Director fee framework. At each review the Board considers the performance of the Group and seeks the advice of independent remuneration consultants to ensure market alignment. A full review of the fee framework was completed in 2007 which set the current fee framework. In 2009 the Board determined that base fees and committee fee rates would remain at current levels.

Under the current fee framework all Non-executive Directors receive a single base fee. Non-executive Directors, other than the Chairman, receive further fees for membership or chairmanship of a Board Committee (except the Nominations Committee).

Following the merger with St.George, the Board established the role of Deputy Chairman and the new Technology Committee, and fees were established in relation to each.

The following table details fees payable:

	Annual rate
Base fee
Chairman	$	700,000
Deputy Chairman	$	250,000
Non-executive Directors	$	200,000
Committee Chairman Fees
Audit Committee	$	50,000
Risk Management Committee	$	50,000
Remuneration Committee	$	45,000
Sustainability Committee	$	40,000
Technology Committee	$	40,000
Committee Membership Fees
Audit Committee	$	25,000
Risk Management Committee	$	25,000
Remuneration Committee	$	20,000
Sustainability Committee	$	20,000
Technology Committee	$	20,000

In addition to their Directors’ fees, Ted Evans and Carolyn Hewson have frozen retiring allowances that accrued prior to 2005 and are indexed in line with average weekly earnings, with the indexed amount payable on retirement. The retiring allowances are set out in Section 6.7 of this Remuneration report.

Throughout the reporting period, additional fees for seven Non-executive Directors were payable for membership on boards or advisory boards of subsidiaries, which vary according to the position held, the size, level and nature of divisions activity and the time commitment required.

Superannuation

The Group pays superannuation contributions to Non-executive Directors of up to 9% of their fees. These superannuation contributions are capped at the maximum superannuation contributions base prescribed under Superannuation Guarantee legislation. Employer superannuation contributions may be received in one of our staff superannuation funds or an eligible superannuation fund of their choice.

Equity participation

Non-executive Directors have voluntarily resolved to build and maintain their individual holdings of Westpac ordinary shares to demonstrate their alignment with the long term interests of shareholders. Prior to July 2009, Non-executive Directors were able to participate in the Deferral Share Plan and receive a portion of their fees as Westpac ordinary shares. The Deferral Share Plan was suspended following the Federal Government’s changes to the taxation treatment of employee equity awards.

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This table shows the amount actually received by each Non-Executive Director during the year. The statutory accounting remuneration table is provided in Section 6.7 of this Remuneration report.

		Main Board and committee fees received	Subsidiary Board fees received	Superannuation	Total
Name	Period served	$’000	$’000	$’000	$’000
Ted Evans AC (Chairman)	Full year	700	—	14	714
Elizabeth Bryan	Full year	286	49	14	349
Gordon Cairns	Full year	295	—	14	309
Carolyn Hewson	Full year	295	110	24	429
Lindsay Maxsted	Full year	275	49	18	342
Peter Wilson	Full year	290	97	14	401
John Curtis (from 1 December 2008)	Part year	262	64	17	343
Graham Reaney (from 1 December 2008)	Part year	221	11	13	245
Peter Hawkins (from 1 December 2008)	Part year	221	49	16	286

6.Remuneration details - Key management personnel and other executives

6.1 STI Outcomes for the CEO and Senior Executives

Details of the 2009 STI outcomes for the CEO and the Senior Executives are set out in the following table. For those Senior Executives who received STI awards for the 2009 financial year, these awards represented between 50-125% of the STI targets set at the beginning of the financial year. STI awards for John Arthur and George Frazis were pro-rated for the period of the performance year served. No pro-rating applied for Greg Bartlett or Greg Targett who were employed by St.George for the portion of the year they were not employees of the Group.

							Portion paid total value(3)	Total value awarded(4)
	Portion paid(1)		Portion forfeited		Portion deferred(2)		$’000	$’000
Gail Kelly	60	%	—		40	%	2,625	4,375
John Arthur	75	%	—		25	%	555	740
Ilana Atlas(5)	100	%	—		—		860	860
Greg Bartlett	75	%	—		25	%	713	950
Peter Clare	75	%	—		25	%	863	1,150
Philip Coffey	75	%	—		25	%	1,688	2,250
Rob Coombe	75	%	—		25	%	975	1,300
Brad Cooper	75	%	—		25	%	1,013	1,350
George Frazis	75	%	—		25	%	630	840
Peter Hanlon	75	%	—		25	%	975	1,300
Bob McKinnon	75	%	—		25	%	900	1,200
Greg Targett	60	%	—		40	%	288	480
Robert Whitfield	60	%	—		40	%	732	1,220
Curt Zuber(6)	67	%	—		33	%	3,395	5,069
Former executives
Philip Chronican(7)	38	%	62	%	—		737	737

(1)This is the portion of STI award that will be paid in December 2009 and is not required to be deferred (for Philip Chronican this portion was paid at the time he left the Group).

(2)This is the portion of the STI award that is required to be deferred. STI deferral terms are explained in Section 3.2 of this Remuneration report.

(3)This is the value of the portion of the STI award to be paid in December 2009.

(4)This is the full value of the 2009 STI award, including both the portion of the STI paid, and the portion of the STI deferred. The eventual maximum value of the deferred STI component cannot be reliably estimated, as it is dependant on the share price at the time of vesting.

(5)Ilana Atlas will retire from the Group during the 2010 financial year and is not required to defer a portion of her 2009 STI.

(6)Curt Zuber’s STI is determined on performance outcomes directly related to his role as Group Treasurer, and is not set with regard to a target.  He is required to defer 33% of his 2009 STI outcome for two years.

(7)Philip Chronican left the Group prior to the end of the 2009 performance year and received a pro-rated portion of his 2009 STI award.

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6.2 CEO and Senior Executive remuneration details for the 2009 year

This section sets out details of the CEO and Senior Executives’ 2009 remuneration, calculated in accordance with statutory accounting requirements.

		Short term benefits				Post employment	Share-based payment
		Fixed remuneration(2)	STI (cash)(3)	Non- monetary benefits(4)	Other short term benefits	Superannuation benefits	Restricted shares(5)	Options(6)	Share Rights(6)	Total(7)
Name	Description(1)	$	$	$	$	$	$	$	$	$
Gail KellyGail Kelly’s 2008 remuneration relates to the part year. Her Restricted Shares relate in large part to her sign on award.
2009	Annual	2,686,255	2,625,000	985	—	14,021	891,678	777,035	783,895	7,778,869
	Other	—	—	—	—	—	2,846,043	—	—	2,846,043
2008	Annual (part year)	1,780,797	2,300,533	—	—	8,858	—	308,656	285,534	4,684,378
	Other	—	—	—	—	—	3,855,215	—	—	3,855,215
John ArthurJohn Arthur started with the Group on 1 December 2008. His fixed remuneration and STI relate to the part year.
2009	Annual (part year)	590,840	555,000	275	—	53,103	—	—	—	1,199,218
Ilana Atlas
2009	Annual	694,285	860,000	1,012	—	62,486	309,061	258,834	30,269	2,215,947
2008	Annual	635,179	900,000	985	—	57,166	129,062	309,270	190,236	2,221,898
Greg BartlettGreg Bartlett started with the Group on 1 December 2008 following the merger with St.George. His fixed remuneration reflects the part year.
2009	Annual (part year)(8)	624,444	712,500	15,843	—	90,138	—	—	67,302	1,510,227
	Other	—	—	—	—	—	534,103	—	—	534,103
Peter ClarePeter Clare’s 2008 remuneration relates to the part year.
2009	Annual	901,871	862,500	1,012	—	48,244	84,871	63,258	—	1,961,756
2008	Annual (part year)	430,011	525,000	787	—	32,058	—	—	—	987,856
Philip Coffey
2009	Annual	998,714	1,687,500	836	—	72,290	518,336	391,111	45,407	3,714,194
2008	Annual	828,683	1,875,000	787	—	74,581	169,825	452,133	281,508	3,682,517
Rob Coombe
2009	Annual	889,332	975,000	1,012	—	47,440	469,313	373,561	40,444	2,796,102
2008	Annual	749,229	975,000	—	—	47,622	245,943	371,155	237,583	2,626,532
Brad Cooper
2009	Annual	892,070	1,012,500	1,012	—	80,286	511,948	197,113	173,776	2,868,705
	Other(9)	—	—	634,198	800,000	—	—	—	—	1,434,198
2008	Annual	820,380	1,200,000	—	—	74,200	—	99,814	—	2,194,394
	Other	—	—	299,071	400,000	—	—	—	174,252	873,323
George FrazisGeorge Frazis started with the Group on 2 March 2009. His fixed remuneration and STI relate to the part year.
2009	Annual (part year)	588,635	630,000	121,679	—	8,384	—	—	—	1,348,698
	Other	—	—	—	—	—	—	234,306	1,043,149	1,277,455
Peter Hanlon
2009	Annual(8)	858,818	975,000	1,012	—	215,938	282,586	211,905	16,772	2,562,031
2008	Annual(8)	712,292	975,000	836	—	149,224	98,608	226,576	112,454	2,274,990
Bob McKinnonBob McKinnon’s 2008 remuneration reflects part year.
2009	Annual	738,641	900,000	1,012	—	61,358	—	—	388,595	2,089,606
2008	Annual (part year)	89,986	—	—	—	8,099	—	—	—	98,085
Greg TargettGreg Targett started with the Group on 1 December 2008 following the merger with St.George. His fixed remuneration reflects the part year.
2009	Annual (part year)	614,474	288,000	1,012	—	51,703	—	—	—	955,189
	Other	—	—	—	—	—	239,581	—	23,553	263,134
Rob Whitfield
2009	Annual	1,500,228	732,000	1,012	—	135,021	260,064	294,649	37,218	2,960,192
	Other(9)	—	—	247,772	2,000,000	—	602,586	—	—	2,850,358
2008	Annual	614,781	600,000	787	—	55,330	128,670	323,574	219,176	1,942,318
	Other	—	2,000,000	—	—	—	—	—	—	2,000,000
Curt Zuber
2009	Annual(8)	476,907	3,395,000	1,012	—	99,919	1,024,751	228,098	19,850	5,245,537
2008	Annual(8)	458,153	5,520,800	1,789	—	79,573	357,328	214,033	116,891	6,748,567

55

		Short term benefits				Post employment	Share-based payment
		Fixed remuneration(2)	STI (cash)(3)	Non- monetary benefits(4)	Other short term benefits	Superannuation benefits	Restricted shares(5)	Options(6)	Share Rights(6)	Total(7)
Name	Description(1)	$	$	$	$	$	$	$	$	$
Former executives
Philip Chronican
2009	Annual (part year)(9)	1,195,085	737,414	836	—	5,030	912,393	493,028	71,560	3,415,346
	Other	—	—	—	1,394,350	—	—	—	—	1,394,350
2008	Annual(8)	1,104,215	1,500,000	836	—	615,240	247,020	760,983	452,189	4,680,483
	Other	—	1,000,000	—	—	—	—	—	—	1,000,000

(1)Annual refers to fixed remuneration, cash STI and amortised equity in relation to normal remuneration arrangements. ‘Other’ refers to sign on awards, St.George equity awards converted on the merger, termination payments and other components outside normal remuneration arrangements. Gail Kelly’s equity-based sign-on award was approved by shareholders at the 2007 Annual General Meeting and granted in February 2008. This amount shown is the amortisation relating to the 2009 reporting year (and 2008 as comparison). As noted at the time, the sign-on award was part of the consideration for Mrs Kelly agreeing to take up the role of CEO (and in recognition of the entitlements foregone by her as a result). In accordance with the terms of the grant, 194,347 ordinary shares became unrestricted on 7 February 2009 and a further 83,292 ordinary shares will become unrestricted if Mrs Kelly remains employed on 1 December 2009.

(2)Fixed remuneration is the total cost of salary and salary sacrificed benefits (including motor vehicles, parking, etc. and any associated fringe benefits tax).

(3)2009 STI figures reflect annual cash performance awards accrued but not yet paid in respect of the year ended 30 September 2009.

(4)Non-monetary benefits are determined on the basis of the cost to the Group (including associated fringe benefits tax, where applicable) and include annual health checks, relocation at the Group’s instigation, living away from home expenses & allowances. The figure for Greg Bartlett includes a benefit relating to an interest free loan.

(5)The value of restricted shares are amortised over the applicable vesting period, and the amount shown is the amortisation relating to the 2009 reporting year (and 2008 year as comparison).

(6)Equity-settled remuneration is based on the amortisation over the vesting period (normally two or three years) of the ‘fair value’ at grant date of hurdled and unhurdled options and share rights that were granted during the four years ended 30 September 2009. Assumptions used in valuing those securities that were granted in 2009 are summarised in the notes to the table in Section 6.3 of this Remuneration report. Details of prior years grants have been disclosed in prior years’ Annual Reports. For Philip Chronican the remaining adjusted unamortised portion is shown. The amount shown for Bob McKinnon’s cash-settled performance share rights is based on the amortisation over the vesting period of the ‘fair value’ at 30 September 2009. Assumptions included in the valuation of cash-settled performance share rights include risk free interest rates of 4.55% - 4.94%, a dividend yield on Westpac ordinary shares of 5% and volatility in the Westpac share price of 30%.

(7)The percentage of the CEO and each Senior Executive’s 2009 remuneration delivered in the form of options or share rights was: Current executives: Gail Kelly 15%, John Arthur 0%, Ilana Atlas 13%, Greg Bartlett 3%, Peter Clare 3%, Philip Coffey 12%, Rob Coombe 15%, Brad Cooper 9%, George Frazis 49%, Peter Hanlon 9%, Bob McKinnon 19%, Greg Targett 2%, Rob Whitfield 6%, Curt Zuber 5%, and (former executive) Philip Chronican 12%.

(8)Superannuation benefits have been calculated consistent with AASB 119. Under the terms of Greg Bartlett’s defined benefit superannuation arrangements, 17.25% of his Fixed Remuneration is required to be contributed to his Plan account, which includes employer contributions.

(9)The amounts under ‘Other short term benefits’ for Brad Cooper relates to his sign-on arrangements, for Rob Whitfield relates to the merger with St.George, and for Philip Chronican relates to payments made on termination of employment, including accrued annual leave and long service leave.

(10)Andrew Carriline and Bruce McLachlan were reported as key management personnel in the 2008 reporting year, however they have not been considered key management personnel for the 2009 financial year. Former key management personnel who separated during the 2008 reporting year, including David Morgan, Diane Sias and Michael Pratt, have not been included in this table.

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6.3 Summary of LTI grants made during the year

The table below provides a summary of the LTI awards made to the CEO and Senior Executives during 2009. The LTI grants only vest on satisfaction of performance and/or service conditions tested in future financial years.

Equity instrument	Granted to	Grant Date	Commencement date(1)	First possible vesting date	Exercise price		Expiry	Fair value(2) per instrument
CEO Performance Plan performance option	Gail Kelly	1 December 2008	1 December 2008	1 December 2011	$	16.80	1 December 2018	$	3.17
CEO Performance Plan performance share right	Gail Kelly	1 December 2008	1 December 2008	1 December 2011	—		1 December 2018	$	10.68
Westpac Reward Plan performance option	All Senior Executives(3) except:	19 December 2008	1 October 2008	1 October 2011	$	24.30	1 October 2018	$	2.32
	- George Frazis;
	- John Arthur;
	- Bob McKinnon;
	- Greg Bartlett; and
	- Greg Targett.
Westpac Performance Plan performance share right	Greg Bartlett & Greg Targett	6 January 2009	1 December 2008	1 December 2010	—		1 December 2018	$	8.21
Westpac Reward Plan performance option	George Frazis	1 April 2009	1 March 2009	1 March 2012	$	16.49	1 March 2019	$	4.60
Westpac Performance Plan unhurdled share right	George Frazis	1 April 2009	1 March 2009	1 March 2010	—		1 March 2019	$	18.38
Westpac Performance Plan unhurdled share right	George Frazis	1 April 2009	1 March 2009	1 March 2011	—		1 March 2019	$	17.31
Performance share right — cash settled(4)	Bob McKinnon	18 August 2008	1 October 2008	30 September 2011	—		30 September 2012	$	17.94
Performance share right — cash settled	Bob McKinnon	11 September 2009	11 September 2009	30 September 2012	—		30 September 2012	$	21.05

(1)The Commencement Date is the start of the performance period in the case of performance options and performance share rights, or the start of the restriction period in the case of unhurdled share rights. Awards to the CEO were approved by shareholders at the Annual General Meeting on 13 December 2007.

(2)The fair value of options and share rights included in the tables above have been independently calculated at grant date using Binomial/Monte Carlo simulation pricing models. The assumptions included in the valuation of the 1 December 2008 awards to Gail Kelly include a risk free interest rate of 3.98% (for Options) and 3.49% (for Share Rights), a dividend yield on Westpac ordinary shares of 6% and a volatility in the Westpac ordinary share price of 30%. The assumptions included in the valuation of awards under the Westpac Reward Plan include risk free interest rates of 4.14%-4.24%, a dividend yield on Westpac ordinary shares of 6% and volatility in the Westpac share price of 30%. The assumptions included in the valuation of awards under the Westpac Performance Plan include risk free interest rates of 2.67%-3.61%, a dividend yield on Westpac ordinary shares of 6% and volatility in the Westpac share price of 30%. The assumptions included in the valuation of cash-settled performance share rights include risk free interest rates of 4.55% -4.94%, a dividend yield on Westpac ordinary shares of 5% and volatility in the Westpac share price of 30%. Other assumptions include volatilities of, and correlation factors between, share price movements of the ranking group members and Westpac, which are used to assess the impact of performance hurdles. Performance options have been valued assuming an expected life after the vesting date of up to 1.7 years.

(3)Performance options granted to Philip Chronican under the Westpac Reward Plan with a commencement date of 1 October 2008 were tested for performance and pro-rated for the portion of the performance period served.

(4)Due to the duration of his contract, Bob McKinnon received awards of cash-settled (rather than equity-settled) performance share rights. These awards may vest after a performance period of at least three years subject to meeting individual performance hurdles set by the Board.

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6.4 Movement in equity-settled instruments during the year (number)

	Type of equity instrument	Number granted	Number vested(1)	Number exercised(2)
Gail Kelly	CEO Performance options	356,125	—	—
	CEO Performance share rights	119,731	—	—
	Shares under the CEO Restricted Share Plan	92,226	194,347	n/a
Ilana Atlas	Performance options	65,184	139,652	—
	Performance share rights	—	20,240	—
	Shares under Restricted Share Plan	18,485	—	n/a
Greg Bartlett(3)	Performance share rights	19,685	—	—
	Shares under Restricted Share Plan	41,700	11,834	n/a
Peter Clare	Performance options	81,799	—	—
	Shares under Restricted Share Plan	10,783	—	n/a
Philip Coffey	Performance options	104,805	197,535	—
	Performance share rights	—	30,262	158,342
	Shares under Restricted Share Plan	38,510	—	n/a
Rob Coombe	Performance options	110,224	134,467	—
	Performance share rights	—	27,043	100,339
	Shares under Restricted Share Plan	20,025	—	n/a
Brad Cooper	Performance options	92,024	—	—
	Shares under Restricted Share Plan	54,971	—	n/a
George Frazis(3)	Performance options	260,869	—	—
	Unhurdled share rights	140,200	—	—
Peter Hanlon	Performance options	78,220	99,513	—
	Performance share rights	—	11,214	—
	Shares under Restricted Share Plan	20,025	—	n/a
Bob McKinnon	Performance share rights	67,500	—	—
Greg Targett(3)	Performance share rights	6,899	—	—
	Shares under Restricted Share Plan	19,632	4,404	n/a
Rob Whitfield	Performance options	61,349	125,436	—
	Performance share rights	—	24,886	—
	Shares under Restricted Share Plan	71,888	—	n/a
Curt Zuber	Performance options	61,349	66,899	—
	Performance share rights	—	13,273	13,273
	Shares under Restricted Share Plan	72,659	—	n/a
Former executives
Philip Chronican	Performance options	123,210	674,573	—
	Performance share rights	—	47,849	47,849
	Shares under Restricted Share Plan	30,808	52,830	n/a

(1)For performance options and performance share rights granted from December 2005 to December 2006 that vested during 2009, 50% of the award was assessed against a TSR ranking group of the top 10 of the largest 13 Australian banking and financial sector companies by market capitalisation at the time of grant (excluding Westpac). The other 50% was assessed against a TSR ranking group of the 50 largest companies on the ASX by market capitalisation at the time of grant (excluding Westpac, specified resource companies and the financial sector ranking group). Performance options granted after November 2006 that vested during 2009 were assessed against a TSR ranking group of the top 10 of the largest 13 Australian banking and financial sector companies by market capitalisation at the time of grant (excluding Westpac).

(2)Vested options and vested share rights can be exercised up to a maximum of 10 years from their commencement date. No options were exercised during the year. For each share right exercised during the year, the relevant executive received one fully paid Westpac ordinary share. The exercise price for share rights is nil.

(3)George Frazis received a sign-on award of performance options, where vesting is subject to Westpac’s relative TSR performance over a three to five year period, and unhurdled share rights, where 43% of the award vests after one year of service and the remainder 57% vests after two years. Following the merger with St.George, Greg Targett and Greg Bartlett received LTI awards of performance share rights, where vesting is subject to Westpac’s relative TSR performance over a two to four year period. Details of the awards are included in Section 6.3, and a summary of each plan is included in Section 3 of this Remuneration report.

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6.5Movement in equity instruments during the year (value)

		Value granted(1)	Value exercised(2)	Value forfeited or lapsed(2)
	Type of equity instrument	$	$	$
Current executives
Gail Kelly	CEO Performance options	1,128,916	—	—
	CEO Performance share rights	1,278,727	—	—
	Shares under the CEO Restricted Share Plan	1,481,057	n/a	—
Ilana Atlas	Performance options	151,227	—	—
	Performance share rights	—	—	18,579
	Shares under Restricted Share Plan	422,018	n/a	—
Greg Bartlett	Performance share rights	161,614	—	—
	Shares under Restricted Share Plan	716,746	n/a	—
Peter Clare	Performance options	189,774	—	—
	Shares under Restricted Share Plan	246,179	n/a	—
Philip Coffey	Performance options	243,148	—	—
	Performance share rights	—	2,832,545	27,275
	Shares under Restricted Share Plan	879,195	n/a	—
Rob Coombe	Performance options	255,720	—	—
	Performance share rights	—	2,051,178	24,667
	Shares under Restricted Share Plan	457,177	n/a	—
Brad Cooper	Performance options	213,496	—	—
	Shares under Restricted Share Plan	1,064,251	n/a	—
George Frazis	Performance options	1,199,997	—	—
	Unhurdled share rights	2,489,111	—	—
Peter Hanlon	Performance options	181,470	—	—
	Performance share rights	—	—	10,083
	Shares under Restricted Share Plan	457,177	n/a	—
Bob McKinnon	Performance share rights	1,263,699	—	—
Greg Targett	Performance options	—	—	—
	Performance share rights	56,559	—	—
	Shares under Restricted Share Plan	337,438	n/a	—
Rob Whitfield	Performance options	142,330	—	—
	Performance share rights	—	—	22,582
	Shares under Restricted Share Plan	1,285,008	n/a	—
Curt Zuber	Performance options	142,330	—	—
	Performance share rights	—	215,662	11,716
	Shares under Restricted Share Plan	1,658,828	n/a	—
Former executives
Philip Chronican	Performance options	285,847	—	—
	Performance share rights	—	790,854	42,995
	Shares under Restricted Share Plan	703,356	52,830	—

(1)

For options and share rights, the Value Granted represents the number of securities granted multiplied by the fair value per instrument set out in the table in Section 6.3 above. For restricted shares, the Value Granted represents the number of ordinary shares granted multiplied by the weighted average price of a Westpac ordinary share on the date the shares were granted. These values, which represent the full value of the equity-based awards made to disclosed executives in 2009, do not reconcile with the amount shown in the table in Section 6.2 of this Remuneration report, which shows amortised totals of LTI awards over their vesting period.

(2)

The value of each option or share right exercised or lapsed is calculated based on the weighted average price of Westpac ordinary shares on ASX on the date of exercise, less the relevant exercise price (if any). Where the exercise price is greater than the weighted average price of Westpac ordinary shares, the value has been calculated as nil. The value of each restricted share forfeited is calculated as the number of shares forfeited multiplied by the weighted average price of a Westpac ordinary share on the date the shares were forfeited.

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6.6 Employment agreements

The remuneration and other terms of employment for the CEO and Senior Executives are formalised in their employment agreements. Each of these employment agreements provide for the payment of fixed and performance-based remuneration, superannuation and other benefits such as death and disablement insurance cover.

The material terms of the employment agreements for the CEO and Senior Executives are summarised below.

Term	Who	Conditions
Duration of Contract	·CEO and Senior Executives	·On-going until notice given by either party
	·Bob McKinnon	·4 year fixed term contract
Notice to be provided by the executive or the Group to terminate the employment agreement	·CEO, Ilana Atlas, Philip Coffey, Rob Coombe, Brad Cooper, George Frazis, Peter Hanlon, Rob Whitfield, John Arthur, and Greg Targett	·12 months
	·Peter Clare and Greg Bartlett	·6 months if Senior Executive gives notice, 12 months if the Group gives notice
	·Bob McKinnon and Curt Zuber	·6 months
Termination payments to be made on termination without cause	·Ilana Atlas and Rob Coombe	·In the event of termination of employment without cause up to 6 months after change of control of the Group, payment in lieu of notice is based on 1.5 times fixed remuneration package
	·CEO and all Senior Executives	·Deferred STI and LTI awards vest according to the applicable equity plan rules
Termination for cause	·CEO, John Arthur, Greg Bartlett, Greg Targett, Rob Whitfield	·Immediately for misconduct ·3 months notice for poor performance
	·All other Senior Executives	·Immediately for misconduct, standard contractual notice period for poor performance
Post-employment restraints	·CEO, John Arthur, Ilana Atlas, Greg Bartlett, Peter Clare, Philip Coffey, Brad Cooper, George Frazis, Peter Hanlon and Greg Targett	·12 month non-solicitation restraint
	·Rob Coombe, Bob McKinnon and Curt Zuber	·6 month non-solicitation restraint

Certain individuals have provisions in their contracts for different terms due to grandfathered contractual benefits or individual circumstances:

·Gail Kelly — Part year STI is payable on termination except in cases of misconduct. For equity awards prior to 30 September 2009, unvested restricted shares vest on termination in all circumstances except for poor performance or misconduct. Unvested LTI may vest on termination, except for reasons of poor performance or misconduct. The amount to vest is subject to meeting the performance hurdle and Board discretion except in the case of death, sickness, disability or in certain circumstances following a change of control;

·Brad Cooper — Provisions relating to relocation from Auckland to Sydney, including accommodation and housing payments, relocation payments, motor vehicle, car parking, additional travel between Australia and New Zealand, and taxation services;

·George Frazis — Provisions relating to relocation from Sydney to Auckland including relocation payments, accommodation payments and travel between Australia and New Zealand;

·Bob McKinnon — Cash settled LTI based on role-specific four year objectives; and

·John Arthur and Greg Bartlett — part year STI is payable for termination without cause.

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6.7 Details of Non-executive Director remuneration for 2009

Details of the nature and amount of each element of the remuneration of Non-executive Directors for the year ended 30 September 2009 are as follows:

			Short term employment benefits	Post employment
			Fees	Superannuation guarantee	Retiring allowance accrued during the year(2)	Total	Total retiring allowance accrued
Name	The Board the Non-executive served on(1)	Notes	$	$	$	$	$
2009
Ted Evans	Chairman
	Westpac Banking Corporation	3	700,000	13,899	23,878	737,777	444,876
John Curtis	Deputy Chairman
	Westpac Banking Corporation		262,376	11,477	—	273,853	—
	St.George Bank Limited		63,490	5,714	—	69,204	—
	Total	4	325,866	17,191	—	343,057	—
Elizabeth Bryan
	Westpac Banking Corporation		286,259	13,899	—	300,158	—
	Westpac New Zealand Limited		48,708	—	—	48,708	—
	Total	4	334,967	13,899	—	348,866	—
Gordon Cairns
	Westpac Banking Corporation	4	295,000	13,899	—	308,899	—
Peter Hawkins
	Westpac Banking Corporation		221,111	11,476	—	232,587	—
	St.George Bank Limited		48,744	4,387	—	53,131	—
	Total	4	269,855	15,863	—	285,718	—
Carolyn Hewson
	Westpac Banking Corporation		295,000	13,899	17,463	326,362	309,279
	BT Investment Management Limited		110,000	9,900	—	119,900	—
	Total	3,4	405,000	23,799	17,463	446,262	309,279
Lindsay Maxsted
	Westpac Banking Corporation		275,000	13,899	—	288,899	—
	St.George Bank Limited		48,744	4,387	—	53,131	—
	Total	4	323,744	18,286	—	342,030	—
Graham Reaney
	Westpac Banking Corporation	4	221,111	11,477	—	232,588	—
	St.George Bank Limited	5	11,274	1,015	—	12,289	—
	Total		232,385	12,492	—	244,877	—
Peter Wilson
	Westpac Banking Corporation		290,000	13,899	—	303,899	—
	Westpac New Zealand Limited		97,415	—	—	97,415	—
	Total	4	387,415	13,899	—	401,314	—
Total 2009			3,274,232	143,227	41,341	3,458,800	754,155

(1)Fees paid by St.George Bank Limited and BankSA relate only to the period following the merger with Westpac.

(2)Retiring allowances are not included in calculations for the Non-executive Director fee pool. Retiring allowances were frozen for individual Non-executive Directors between December 2005 and February 2006. Accruals shown for 2008 and 2009 include indexation in line with average weekly earnings following the freezing of the retiring allowances.

(3)Entitled to retiring allowance.

(4)Includes fees paid to Chairpersons and members of Board Committees.

(5)Fees paid for services to the BankSA advisory board.

61

			Short term employment benefits	Post employment
			Fees	Superannuation guarantee	Retiring allowance accrued during the year(2)	Total	Total retiring allowance accrued
Name	The Board the Non-executive served on(1)	Notes	$	$	$	$	$
2008
Ted Evans	Chairman
	Westpac Banking Corporation	3	700,000	13,244	16,259	729,503	420,998
Elizabeth Bryan
	Westpac Banking Corporation		270,000	13,244	—	283,244	—
	Westpac New Zealand Limited		51,066	—	—	51,066	—
	Total	4	321,066	13,244	—	334,310	—
Gordon Cairns
	Westpac Banking Corporation	4	295,000	13,244	—	308,244	—
Carolyn Hewson
	Westpac Banking Corporation		295,000	13,244	11,268	319,512	291,816
	BT Investment Management		113,807	10,242	—	124,049	—
	Total	3, 4	408,807	23,486	11,268	443,561	291,816
Lindsay Maxsted
	Westpac Banking Corporation	4	157,596	7,711	—	165,307	—
Peter Wilson
	Westpac Banking Corporation		290,000	13,244	—	303,244	—
	Westpac New Zealand Limited		88,309	—	—	88,309	—
	Total	4	378,309	13,244	—	391,553	—
Total 2008			2,260,778	84,173	27,527	2,372,478	712,814

(1)Fees paid by St.George Bank Limited and BankSA relate only to the period following the merger with Westpac.

(2)Retiring allowances are not included in calculations for the Non-executive Director fee pool. Retiring allowances were frozen for individual Non-executive Directors between December 2005 and February 2006. Accruals shown for 2008 and 2009 include indexation in line with average weekly earnings following the freezing of the retiring allowances.

(3)Entitled to retiring allowance.

(4)Includes fees paid to Chairpersons and members of Board Committees.

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6.8 Further information about our equity plans

Our broad-based and specialised employee equity plans

Deferral Share Plan

The Deferral Share Plan was suspended during 2009 following the Federal Government’s announcement of changes to the taxation treatment of employee equity awards. No new awards were made after 30 June 2009. Prior to the suspension employees could elect to receive any prospective cash STI as Westpac ordinary shares under the Deferral Share Plan. Australian-based Non-executive Directors could also elect to receive a percentage of their fees in Westpac ordinary shares under the Deferral Share Plan.

Employee Share Plan

Under the Employee Share Plan, employees in Australia can receive up to $1,000 of Westpac ordinary shares at the end of each financial year. This award recognises their contribution to our performance. For 2008, the size of the award was dependent on the performance of our share price over the financial year. For 2009, the size of the award is dependent on both the share price measure and net promoter score which measures customer advocacy.

The CEO, Directors and any employees who received a LTI award during the year are ineligible to receive an Employee Share Plan award that year.

Other plans

We also provide reward plans for small, specialised parts of the business. The payments under these plans are directly linked to growth of the relevant part of the business and are each capped at an appropriate proportion of the value and/or profitability of the relevant part of the business. These plans are designed to provide market-competitive remuneration for the relevant employees. Westpac also has ‘grandfathered’ plans, under which no further awards are made, and performance or vesting periods have passed. These vested securities continue to run their course.

Comparator companies used in our LTI performance hurdles

CEO Performance Plan (Gail Kelly)

The CEO Performance Plan ranking group is comprised of the top 10 of the 13 largest retail banks and other financial services companies listed on the Australian Securities Exchange (ASX) with which Westpac competes for customers. As at 30 September 2009 the most recently determined ranking group consisted of: AMP Limited, ASX Limited, Australia and New Zealand Banking Group Limited, AXA Asia Pacific Holdings Limited, Bendigo Bank Limited, Commonwealth Bank of Australia, Insurance Australia Group Limited, Macquarie Group Limited, National Australia Bank Limited, and Suncorp-Metway Limited.

Westpac Reward Plan

The Westpac Reward Plan ranking group is comprised of the top 10 of 13 selected Australian banking and financial sector companies. As at 30 September 2009 the most recently determined peer group under the Westpac Reward Plan consisted of: AMP Limited, AXA Asia Pacific Holdings Limited, Australia and New Zealand Banking Group Limited, ASX Limited, Commonwealth Bank of Australia, Insurance Australia Group Limited, Lend Lease Corporation Limited, Macquarie Group Limited, National Australia Bank Limited, and Suncorp-Metway Limited.

Westpac Performance Plan

Financial ranking group - The top 10 of 13 selected Australian banking and financial sector companies, by market capitalisation, at the time of grant. As at 30 September 2009, the most recently determined ranking group consisted of: AMP Limited, AXA Asia Pacific Holdings Limited, Australia and New Zealand Banking Group Limited, ASX Limited, Commonwealth Bank of Australia, Insurance Australia Group Limited, Lend Lease Corporation Limited, Macquarie Group Limited, National Australia Bank Limited, and Suncorp-Metway Limited.

General ranking group - The largest 50 Australian listed companies at time of grant, excluding property trusts, specified resources companies and those in the financial peer group. As at 30 September 2009, the most recently determined ranking group consisted of: AGL Energy Limited, Amcor Limited, Ansell Limited, Aristocrat Leisure Limited, APN News & Media Limited, ASX Limited, Babcock & Brown Infrastructure Group, Billabong International, Boral Limited, Brambles Industries Limited, Challenger Financial Services Group Limited, Coca-Cola Amatil Limited, Cochlear Limited, Computershare Limited, Connecteast Group, CSL Limited, CSR Limited, David Jones Limited, Downer EDI Limited, Fairfax (John) Holdings Limited, Foster’s Group Limited, Goodman Fielder Limited, Harvey Norman Holdings Limited, Incitec Pivot Limited, James Hardie Industries NV, Leighton Holdings Limited, Lend Lease Corporation Limited, Lion Nathan Limited, Macquarie Airports, Macquarie Infrastructure Group, Metcash Limited, Orica Limited, Paperlinx Limited, Perpetual Limited, Qantas Airways Limited, QBE Insurance Group Limited, Resmed Inc, Sigma Pharmaceuticals Ltd, Sonic Healthcare Limited, SP Ausnet, Tatts Group Limited, Tabcorp Holdings Limited, Telecom Corporation of New Zealand Limited, Telstra Corporation Limited, Toll Holdings Limited, Transurban Group, Wesfarmers Limited, West Australian Newspapers Holdings Limited, Woolworths Limited and United Group Limited.

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10. Auditor

a)Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001(Cth) is below.

Auditor’s Independence Declaration As lead auditor for the audit of Westpac Banking Corporation for the year ended 30 September 2009 I declare that to the best of my knowledge and belief, there have been: a.no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b.no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Westpac Banking Corporation and the entities it controlled during the year. PricewaterhouseCoopers ABN 52 780 433 757 Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY  NSW  1171 DX 77 Sydney Australia Telephone +61 2 8266 0000 Facsimile  +61 2 8266 9999 www.pwc.com/au

Ian Hammond Partner PricewaterhouseCoopers	Sydney 4 November 2009

b)Non-audit services

We may decide to engage PricewaterhouseCoopers on assignments additional to their statutory audit duties where their expertise or experience with Westpac or a controlled entity is important.

Details of the non-audit service amounts paid or payable to PricewaterhouseCoopers for non-audit services provided during the 2008 and 2009 financial years are set out in Note 34 to our financial statements.

Our external auditor, PricewaterhouseCoopers, also provides audit and non-audit services to non-consolidated entities including non-consolidated securitisation vehicles sponsored by the Group, non-consolidated trusts of which a Group entity is trustee, manager or responsible entity and non-consolidated superannuation funds or pension funds. The fees in respect of these services were approximately $6.3 million in total (2008 $6.6 million). PricewaterhouseCoopers may also provide audit and non-audit services to other entities in which we hold a minority interest and which are not consolidated. We are not aware of the amount of any fees paid by those entities.

We have a policy on engaging PricewaterhouseCoopers, details of which are set out in the ‘Corporate governance’ section, including the subsection entitled ‘Engagement of the external auditor’, which forms part of this report.

The Board has considered the position and, in accordance with the advice received from the Audit Committee, is satisfied that the provision of the non-audit services during 2009 by PricewaterhouseCoopers is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by PricewaterhouseCoopers, as set out above, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

·all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the auditor; and

·none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accounts.

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Signed in accordance with a resolution of the Board.

Ted Evans AC Chairman 4 November 2009	Gail Kelly Managing Director and Chief Executive Officer 4 November 2009

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66

Section 2

Five year summary

Reading this report

Review of Group operations

Divisional performance

Risk and risk management

Other Westpac business information

Additional financial information

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FIVE YEAR SUMMARY(1)

(in $millions unless otherwise indicated)	2009		2008		2007		2006		2005
Income statement year ended 30 September(2)
Net interest income	11,646		7,222		6,313		5,642		5,259
Non-interest income	4,859		4,383		4,006		3,693		3,554
Net operating income before operating expenses and impairment charges	16,505		11,605		10,319		9,335		8,813
Operating expenses	(7,171	)	(5,455	)	(4,689	)	(4,413	)	(4,259	)
Impairment charges	(3,238	)	(931	)	(482	)	(375	)	(382	)
Profit from ordinary activities before income tax expense	6,096		5,219		5,148		4,547		4,172
Income tax expense	(2,579	)	(1,287	)	(1,630	)	(1,422	)	(1,223	)
Net profit attributable to minority interests	(71	)	(73	)	(67	)	(54	)	(251	)
Net profit attributable to equity holders	3,446		3,859		3,451		3,071		2,698
Balance sheet at 30 September(2)
Loans	463,459		313,545		275,377		236,380		204,566
Other assets	126,128		126,131		102,243		65,081		63,098
Total assets	589,587		439,676		377,620		301,461		267,664
Deposits	329,456		233,730		202,054		169,637		150,668
Debt issues and acceptances	133,024		100,369		87,126		66,080		48,754
Loan capital	11,138		8,718		7,704		5,957		4,214
Other liabilities	79,398		77,388		62,828		43,661		47,101
Total liabilities	553,016		420,205		359,712		285,335		250,737
Shareholders’ equity and minority interest	36,571		19,471		17,908		16,126		16,927
Key financial ratios
Shareholder value
Dividends per ordinary share (cents)	116		142		131		116		100
Dividend payout ratio (%)	92.6		68.9		70.1		69.4		67.2
Return on average ordinary equity (%)	10.8		23.1		23.5		23.0		21.7
Basic earnings per share (cents)	125.3		206.0		186.9		167.2		148.9
Net tangible assets per ordinary share ($)(3)	7.89		7.71		7.00		6.14		5.71
Share price ($):
High	26.74		31.32		28.69		25.35		21.40
Low	14.40		18.36		22.53		21.31		17.52
Close	26.25		21.48		28.50		22.71		21.10
Business performance
Operating expenses to operating income ratio (%)	43.4		47.0		45.4		47.3		48.3
Net interest margin	2.38		2.07		2.19		2.29		2.45
Productivity ratio(4)	4.47		4.16		4.07		4.06		4.05
Capital adequacy
Total equity to total assets (%)	6.2		4.4		4.7		5.3		6.3
Total equity to total average assets (%)	6.3		4.8		5.4		5.7		6.6
Tier 1 ratio (%)(5)	8.1		7.8		6.5		6.9		7.2
Total capital ratio (%)(5)	10.8		10.8		9.5		9.6		9.7
Credit quality
Net impaired assets to equity and collectively assessed provisions (%)	5.7		3.0		1.4		1.5		1.9
Total provisions(6) to gross loans and acceptances (basis points)	101.2		69.0		61.6		63.0		84.0
Other information
Points of bank representation (number at financial year end)	1,491		1,089		1,073		1,068		1,060
Core full time equivalent staff (number at financial year end)(7)	34,188		26,717		25,903		25,363		25,583

(1)	This five year summary is prepared in accordance with A-IFRS. Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been restated and may differ from results previously reported.
(2)	The above income statement extracts for 2009, 2008 and 2007 and balance sheet extracts for 2009 and 2008 are derived from the consolidated financial statements included in this Annual Report and prior years are derived from financial statements previously published.
(3)	Shareholders’ equity and minority interests, after deducting minority interests, preference equity and goodwill and other intangible assets divided by the number of ordinary shares outstanding, less treasury shares held.
(4)	Net operating income before operating expenses and impairment charges/salaries and other staff expenses (net of restructuring expenses).
(5)	For details on the calculation of this ratio, please refer to ‘Capital management strategy’ under ‘Capital resources’ in this section.
(6)	Includes the APRA required capital deduction of nil (pre-tax) above A-IFRS provisioning levels at 30 September 2009 (2008 $14 million, 2007 $128 million), which forms part of the APRA-termed General Reserve for Credit Losses.
(7)	Core full-time equivalent staff includes overtime and pro-rata part time staff. It excludes staff on unpaid absences (e.g. unpaid maternity leave), temporary and contract staff.

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READING THIS REPORT

Disclosure regarding forward-looking statements

This Annual 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 Annual Report and include statements regarding our intent, belief or current expectations with respect to our business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions and financial support to certain borrowers. We use words such as ‘will’, ‘may’, ‘expect’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘probability’, ‘risk’, or other similar words to identify forward-looking statements. These forward-looking statements reflect our current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond our control, and have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations or that the effect of future developments on us will be those anticipated. Actual results could differ materially from those which we expect, depending on the outcome of various factors, including, but not limited to:

· impacts of the global financial crisis, including adverse conditions in funding, equity and asset markets;

· our ability to successfully complete the integration of St.George into our operations, including our ability to realise anticipated synergies and the costs of achieving those synergies;

· changes to our credit ratings;

· inflation, interest rate, exchange rate, market and monetary fluctuations;

· market liquidity and investor confidence;

· the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government policy, particularly changes to liquidity and capital requirements arising from the global financial crisis;

· changes in consumer spending, saving and borrowing habits in Australia, New Zealand and in other countries in which Westpac conducts its operations;

· the effects of competition in the geographic and business areas in which Westpac conducts its operations;

· the ability to maintain or to increase market share and control expenses;

· the timely development of and acceptance of new products and services and the perceived overall value of these products and services by users;

· technological changes;

· demographic changes and changes in political, social or economic conditions in any of the major markets in which Westpac operates;

· stability of Australian and international financial systems and disruptions to financial markets and any losses Westpac may experience as a result;

· our ability to complete, integrate or process acquisitions and dispositions; 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 us, refer to ‘Risk factors’ under the section ‘Risk and risk management’ in this Annual Report. When relying on forward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other uncertainties and events.

We are under no obligation, and do not intend, to update any forward-looking statements contained in this Annual Report, whether as a result of new information, future events or otherwise, after the date of this Annual Report.

Financial information

The financial statements and other financial information included elsewhere in this Annual Report, unless otherwise indicated, have been prepared and presented in accordance with the requirements of the Australian Equivalents to International Financial Reporting Standards (A-IFRS) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Significant developments

For a discussion of significant developments impacting the Group, refer to ‘Significant developments’ under ‘Information on Westpac’ in Section 1 of this Annual Report.

Currency of presentation, exchange rates and certain definitions

‘Financial statements’ means our audited consolidated balance sheet as at 30 September 2009 and 30 September 2008 and consolidated income statement, cash flows and recognised income and expense for each of the years ended 30 September 2009, 2008 and 2007 together with accompanying notes which are included in this Annual Report.

We publish our consolidated financial statements in Australian dollars. In this Annual Report, unless otherwise stated or the context otherwise requires, references to ‘dollar amounts’, ‘$’, ‘AUD’ or ‘A$’ are to Australian dollars, references to ‘US$’, ‘USD’ or ‘US dollars’ are to United States dollars and references to ‘NZ$’, ‘NZD’ or ‘NZ dollars’ are to New Zealand dollars. Solely for the convenience of the reader, certain Australian dollar amounts have been translated into US dollars at specified rates. These translations should not be construed as representations that the Australian dollar amounts actually represent such US dollar amounts or have been or could be converted into US dollars at the rate indicated. Unless otherwise stated, the translations of Australian dollars into US dollars have been made at the rate of A$1.00 = US$0.8824 (2008 US$0.7904), the noon buying rate in New York City for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve Bank of New York (the ‘noon buying rate’) as of

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30 September 2009. Unless otherwise stated, the translation of Australian dollars into NZ dollars has been made at the rate of A$1.00 = NZ$1.2196 (2008 NZ$1.1935), being the closing spot exchange rate on 30 September 2009 used in the financial statements. Refer to ‘Exchange rates’ in Section 4 for information regarding the rates of exchange between the Australian dollar and the US dollar for the financial years ended 30 September 2005 to 30 September 2009.

Our financial year ends on 30 September. As used throughout this Annual Report, the financial year ended 30 September 2009 is referred to as 2009 and other financial years are referred to in a corresponding manner.

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

Additional financial information

In a separate section of this Annual Report under the heading ‘Additional financial information’, we have included selected consolidated financial and operating data on loans and provisions for impairment charges by industry classifications for the financial years ended 30 September 2007, 2006 and 2005 on the basis of presentation used in the Annual Report for the year ended 30 September 2007. We have presented this information separately because it is not directly comparable to the presentation of Notes 11 and 12 to the financial statements for the year ended 30 September 2009 included in Section 3 of this Annual Report. With effect from the financial year ended 30 September 2008, we have modified the presentation of loans and provisions for impairment charges by industry to align external reporting with the basis of presentation for internal reporting. We restated the presentation for the year ended 30 September 2007, but it was impractical to restate the disclosure for the financial years ended 30 September 2006 and 2005.

St.George Bank Limited merger

For accounting purposes the merger with St.George Bank Limited took effect from close of business on 17 November 2008 and our financial results for the 2009 financial year are therefore not directly comparable to our results for the 2008 financial year. For the purpose of analysis throughout this Annual Report we refer to the financial performance of Westpac ‘excluding the impact of St.George’, by which we mean the financial performance of the Westpac Group for 2009 less the contribution from St.George Bank Limited and its subsidiaries from 18 November 2008 to 30 September 2009 (including the impact of the acquisition accounting entries related to the merger). References to ‘excludes the impact of St.George’ have an equivalent meaning.

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REVIEW OF GROUP OPERATIONS

Selected consolidated financial and operating data

We have derived the following selected financial information as of, and for the financial years ended, 30 September 2009, 2008, 2007, 2006 and 2005 from our audited consolidated financial statements and related notes.

This information should be read together with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report.

Accounting standards

The financial statements included in this report have been prepared in accordance with the accounting policies described in Note 1 to the financial statements, being in accordance with A-IFRS and they also comply with IFRS as issued by the IASB.

Recent accounting developments — Australia

For a discussion of recent accounting developments in Australia, refer to Note 1 to the financial statements.

Critical accounting estimates

Our reported results are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of the income statement and the balance sheet. Our principal accounting policies are disclosed in Note 1 to the financial statements. Note 1 also includes a description of our critical accounting assumptions and estimates. We have discussed the development and selection of the critical accounting estimates with our Board Audit Committee. The following is a summary of the areas we consider involve our most critical accounting estimates (for more detail refer to Note 1 to the financial statements):

Fair value of financial instruments

Financial instruments classified as held-for-trading, designated at fair value through profit or loss and financial assets classified as available-for-sale are recognised in the financial statements at fair value. All derivatives are measured and recognised at fair value. As far as possible, financial instruments are valued with reference to quoted, observable market prices or by using models which employ observable valuation parameters. Where valuation models rely on parameters for which inputs are not observable, judgments and estimation may be required.

As at 30 September 2009, the fair value of trading securities, financial assets designated at fair value through profit and loss, available-for-sale securities and life insurance assets was $51,856 million. The fair value of trading liabilities, financial liabilities designated at fair value through profit and loss, deposits at fair value and debt issues at fair value was $103,747 million. The fair value of outstanding derivatives was $3,291 million net liability (2008 $9,840 million net asset). The fair value of life insurance assets of $12,384 million was substantially based on quoted market prices. The fair value of financial assets determined by valuation models that did not use observable market prices was $798 million. The fair value of other financial assets and financial liabilities, including derivatives, is largely determined by valuation models using observable market prices and rates. Where observable market inputs are not available, day one profits or losses are not recognised.

We believe that the judgments and estimates used are reasonable in the current market, however, a change in these judgments and estimates would lead to different results as future market conditions can vary from those expected.

Provisions for impairment charges

Provisions for loan impairment charges represent management’s best estimate of the losses incurred in the loan portfolios as at the balance date. There are two components of our loan impairment provisions, individually assessed provisions and collectively assessed provisions.

In determining individually assessed provisions relevant considerations that have a bearing on the expected future cash flows are taken into account, for example, the business prospects of the customer, the realisable value of collateral, our position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out process. These judgments and estimates can change with time as new information becomes available or as work-out strategies evolve, resulting in revisions to the impairment provision as individual decisions are made.

The collectively assessed provisions are established on a portfolio basis taking into account the level of arrears, collateral and security, past loss experience and expected defaults based on portfolio trends. The most significant factors in establishing these provisions are estimated loss rates and related emergence periods. The future credit quality of these portfolios is subject to uncertainties that could cause actual credit losses to differ from reported loan impairment provisions. These uncertainties include the economic environment, notably interest rates, unemployment levels, payment behaviour and bankruptcy rates.

As at 30 September 2009, gross loans to customers were $467,843 million and the provision for impairment on loans was $4,384 million.

Goodwill and intangible assets

Goodwill represents the excess of purchase consideration over the fair value of the identifiable net assets of acquired businesses. The determination of the fair value of the assets and liabilities of acquired businesses requires the exercise of management judgment. Different fair values would result in changes to the goodwill and to the post-acquisition performance of the acquisitions.

The increase in the goodwill balance of $6,172 million is primarily attributable to the merger with St.George. Computer software, brand names, core deposit intangibles and other intangible assets increased by $83 million, $636 million, $1,494 million and $280 million respectively as a result of the merger with St.George.

Goodwill is tested for impairment annually by determining if the carrying value of the cash generating unit (CGU) that it has been allocated to is recoverable. The recoverable amount is the higher of the CGU’s fair value and its value in use. Determination of appropriate cash flows and discount rates for the calculation of the value in use is subjective. As at 30 September 2009, the carrying value of goodwill was $8,597 million.

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Superannuation obligations

The actuarial valuation of our defined benefit plan obligations are dependant upon a series of assumptions, the key ones being price inflation, earnings growth, mortality, morbidity and investment returns assumptions. Different assumptions could significantly alter the amount of the difference between plan assets and defined benefit obligations and the amount recognised directly in retail earnings.

The superannuation deficit across all our plans as at 30 September 2009 was $388 million (2008 deficit of $473 million).

Provisions (other than loan impairment charges)

Provisions are held in respect of a range of obligations such as employee entitlements, restructuring costs, non-lending losses, impairment charges on credit commitments, and surplus lease space. Some of the provisions involve significant judgment about the likely outcome of various events and estimated future cash flows. Provisions for taxation held in respect of uncertain tax positions represents the tax benefits at risk associated with specific transactions. The assessment of the amount of tax benefits at risk involves the exercise of management judgments about the ultimate outcomes of the transactions. Payments which are expected to be incurred later than one year are discounted at a rate which reflects both current interest rates and the risks specific to that provision.

Income taxes

The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period where such determination is made.

St.George Bank Limited merger

The merger with St.George Bank Limited has been accounted for using the purchase method of accounting. All the identifiable assets and liabilities of St.George Bank Limited are required to be initially recognised by the Group at their fair value on the date of the merger. This involves additional critical accounting assumptions, judgments and estimates that may have a material impact on the Group’s financial statements.

Key areas of judgment include:

·intangible assets

Identifiable intangible assets are required to be identified and measured at their fair value in accounting for a business combination. This involves the use of judgments, estimates and assumptions about how customers will act and products will perform in the future, based largely on past experience and future contractual arrangements.

·financial assets and liabilities

Management judgment is required in determining the fair value of all St.George’s financial assets and liabilities at the merger date. Many of these assets and liabilities are not actively traded so fair value is derived from models and assumptions.

·tax consolidation

In order to account for the impact of St.George joining the Westpac tax consolidated group, management is required to make critical assumptions, judgments and estimates to determine the fair value of St.George and its identifiable assets and liabilities as at 31 March 2009.

The assets and liabilities recognised by the Group following the merger with St.George Bank Limited are set out in Note 44 to the financial statements.

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Income statement review

Consolidated income statement(1)

	Year Ended 30 September
	2009		2009		2008		2007		2006		2005
(in $millions unless otherwise indicated)	US$(2)		A$		A$		A$		A$		A$
Amounts in accordance with A-IFRS
Interest income	26,866		30,446		29,081		22,075		18,091		15,544
Interest expense	(16,589	)	(18,800	)	(21,859	)	(15,762	)	(12,449	)	(10,285	)
Net interest income	10,276		11,646		7,222		6,313		5,642		5,259
Non-interest income	4,288		4,859		4,383		4,006		3,693		3,554
Net operating income before operating expenses and impairment charges	14,564		16,505		11,605		10,319		9,335		8,813
Operating expenses	(6,328	)	(7,171	)	(5,455	)	(4,689	)	(4,413	)	(4,259	)
Impairment charges	(2,857	)	(3,238	)	(931	)	(482	)	(375	)	(382	)
Profit before income tax	5,379		6,096		5,219		5,148		4,547		4,172
Income tax expense	(2,276	)	(2,579	)	(1,287	)	(1,630	)	(1,422	)	(1,223	)
Net profit for the year	3,103		3,517		3,932		3,518		3,125		2,949
Net profit attributable to minority interests	(63	)	(71	)	(73	)	(67	)	(54	)	(251	)
Net profit attributable to equity holders of Westpac	3,041		3,446		3,859		3,451		3,071		2,698
Weighted average number of ordinary shares (millions)	2,747		2,747		1,871		1,846		1,837		1,845
Basic earnings per ordinary share (cents)(3)	110.6		125.3		206.0		186.9		167.2		148.9
Diluted earnings per share (cents)(4)	108.7		123.2		200.1		185.3		165.7		147.2
Dividends per ordinary share (cents)	102		116		142		131		116		100
Dividend payout ratio (%)(5)	92.6		92.6		68.9		70.1		69.4		67.2

(1)	Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been restated and may differ from results previously reported.
(2)	Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.8824, the noon buying rate in New York on 30 September 2009. Amounts or ratios are in accordance with this conversion rate.
(3)	Based on the weighted average number of fully paid ordinary shares outstanding, including nil New Zealand Class shares in 2009 (2008 nil, 2007 nil, 2006 nil, 2005 41 million).
(4)	Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive potential ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
(5)	Calculated by dividing the dividends per ordinary share by the basic earnings per ordinary share.

Overview of performance - 2009 v 2008

Our financial performance for the 2009 financial year was significantly impacted by the global financial crisis, and the merger with St.George Bank Limited. The merger with St.George Bank Limited was completed on 1 December 2008, substantially increasing the size of the Group. For accounting purposes, St.George is consolidated in our financial statements from 18 November 2008, which makes it difficult to compare the results for 2009 with our results for prior periods. Accordingly, the following discussion and review of Group operations, and the discussion of business division performance, focuses primarily on the key factors affecting performance in 2009 compared to 2008, excluding the impact of St.George.

Net profit attributable to equity holders of Westpac was $3,446 million in 2009, a decrease of $413 million or 11% compared to 2008. Net profit attributable to equity holders of Westpac excluding the impact of St.George was $2,475 million in 2009, a decrease of $1,384 million or 36% compared to 2008.

The decrease was primarily due to significant increases in impairment charges and income tax expense. Impairment charges excluding the impact of St.George increased by $1,622 million reflecting significant deterioration in asset quality due to the impact of the global financial crisis and subsequent economic slowdown. Income tax expense included an additional $703 million tax charge related to the New Zealand High Court ruling on amended tax assessments issued by the New Zealand Inland Revenue Department (NZIRD), in relation to Structured Finance transactions entered into between 1998 and 2002. Expense growth excluding the impact of St.George was 4%. These factors were partially offset by strong net operating income growth of $1,315 million.

Divisional results excluding the impact of St.George were mixed. WRBB net profit increased by $156 million, while net profit for each of WIB, New Zealand Banking, BTFG and Other divisions decreased $446 million, $201 million, $55 million and $838 million respectively. The additional tax charge referred to above was incurred within Other divisions.

Net interest income was $11,646 million in 2009, an increase of $4,424 million or 61% compared to 2008. Net interest income excluding the impact of St.George was $8,822 million in 2009, an increase of $1,600 million or 22% compared to

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2008. The 22% growth reflects volume growth in consumer and business loans and deposits in Australia and New Zealand, with a 7% increase in loans and a 13% increase in deposits, and a 26 basis point expansion in net interest margin.

Non-interest income was $4,859 million in 2009, an increase of $476 million or 11% compared to 2008. Non-interest income excluding the impact of St.George was $4,098 million in 2009, a decrease of $285 million or 7% compared to 2008. The 7% decrease reflected a $600 million decrease in other income, partially offset by increases in trading income, wealth management and insurance income, and fees and commissions of $188 million, $82 million and $45 million respectively. Other income was also lower as 2008 included large one-off items of $436 million in relation to the partial IPO of BT Investment Management Limited (BTIM) and the sale of Visa Inc. shares. 2009 included $155 million in asset write-downs relating to foundation investments in property and other transactions in the Specialised Capital Group (SCG).

Operating expenses were $7,171 million in 2009, an increase of $1,716 million or 31% compared to 2008. Operating expenses excluding the impact of St.George were $5,664 million in 2009, an increase of $209 million or 4% compared to 2008. This was largely driven by a 3% increase in salaries and other staff expenses and increased equipment and occupancy expenses. Expense savings as a result of the merger with St.George totalled $143 million for 2009.

Impairment charges were $3,238 million in 2009, an increase of $2,307 million or 248% compared to 2008. Impairment charges excluding the impact of St.George were $2,553 million in 2009, an increase of $1,622 million or 174% compared to 2008. This increase was primarily due to the impact of the global financial crisis and the associated decline in economic activity in Australia and New Zealand. This particularly impacted the business sectors in Australia and New Zealand. These dynamics increased individually assessed provisions by $1,243 million and collectively assessed provisions by $391 million, partially offset by $12 million in writebacks and recoveries.

St.George and its consolidated subsidiaries (including the impact of the acquisition accounting entries related to the merger) contributed a net profit of $971 million for the period from 18 November 2008 to 30 September 2009. Revenue from increased balance sheet growth was partially offset by the costs associated with reinvestment in the business coupled with impairment charges arising from the deteriorating economic conditions.

Income statement review - 2009 v 2008

Net interest income - 2009 v 2008

	2009		2008		2007
	$m		$m		$m
Interest income	30,446		29,081		22,075
Interest expense	(18,800	)	(21,859	)	(15,762	)
Net interest income	11,646		7,222		6,313
Increase/(decrease) in net interest income
Due to change in volume	2,621		812		380
Due to change in rate	1,803		97		291
Change in net interest income	4,424		909		671

Net interest income was $11,646 million in 2009, an increase of $4,424 million or 61% compared to 2008. Net interest income excluding the impact of St.George was $8,822 million in 2009, an increase of $1,600 million or 22% compared to 2008. The commentary below relates to this 22% movement, which excludes the impact of St.George.

The key drivers of the 22% growth were an 8% increase in average interest earning assets and a 26 basis point increase in interest margins as compared to the prior year.

Growth in net loans over the year was 7%. In Australia, net loan growth was $22 billion or 8% over the prior year. In New Zealand, net loan growth was flat in NZ$ terms and decreased by 3% in A$ terms.

Loan growth arose due to the following specific components:

·Australian housing lending increased $27.5 billion or 19% as historically low interest rates and the Australian Government’s first homebuyer grant provided stimulus to the mortgage market. The increase was also assisted by the inclusion of a full year of operation of the RAMS franchise distribution business which was purchased in January 2008;

·Australian business and corporate lending decreased $5.6 billion or 5%. The decrease was driven by reduced demand from large customers who utilised equity raisings to reduce gearing. Lending to small and medium size business showed only a small decrease in line with the slower economy; and

·New Zealand housing lending increased NZ$1.2 billion or 4%. Weaker demand reflected lower property prices and slower economic activity.

Total deposits including treasury deposits increased $30 billion or 13% since 30 September 2008. Excluding treasury deposits, deposits increased $35.1 billion or 21%. In Australia, strong growth in consumer and business customer deposits of $35.2 billion or 26%, was partially offset by a decline in treasury deposits, mostly certificates of deposit. The key driver of deposit growth was a change in customer preferences. Customers moved investments into bank deposits and out of the other forms of cash investments and asset classes (such as equities and mortgage trusts).

In New Zealand, at call and term deposits increased 2% (NZ$ terms), with growth occurring in term deposits.

74

Interest spread and margin - 2009 v 2008

	2009		2008		2007
	$m		$m		$m
Group
Net interest income	11,646		7,222		6,313
Tax equivalent gross up(1)	45		72		101
Net interest income (including gross up)	11,691		7,294		6,414
Average interest earning assets	490,669		351,657		292,417
Average interest bearing liabilities	465,842		334,865		274,955
Average net non-interest bearing liabilities and equity	24,827		16,792		17,462
Interest spread(2)	2.18	%	1.76	%	1.85	%
Benefit of net non-interest bearing liabilities and equity(3)	0.20	%	0.31	%	0.34	%
Net interest margin(4)	2.38	%	2.07	%	2.19	%

(1)	We have entered into various tax effective financing transactions that derive income that is subject to a reduced rate of income tax. The impact of this is reflected in lower income tax expense and interest income. In order to provide improved comparability, this income is presented on a tax equivalent basis using the applicable tax rate of the geography in which the transaction is booked.
(2)	Interest spread is the difference between the average yield (including tax equivalent gross up) on all interest earning assets and the average rate paid on all interest bearing liabilities.
(3)	The benefit of net non-interest bearing liabilities and equity is determined by applying the average rate of interest paid on all interest bearing liabilities to the average level of net non-interest bearing funds as a percentage of average interest earning assets.
(4)	Net interest margin is calculated by dividing net interest income (including tax equivalent gross up) by average interest earning assets.

Net interest margin including St.George was 2.38% for 2009, an increase of 31 basis points compared to 2008. Net interest margin excluding the impact of St.George was 2.33% for 2009, an increase of 26 basis points compared to the equivalent margin for 2008. Key drivers of the margin increase, excluding the impact of St.George, were:

·an increase of 4 basis points from consumer and business customers in Australia and New Zealand. This represented the repricing of loans for higher risk premiums and higher funding costs. The increase also partially reflects the timing effect of higher funding costs in 2008 being passed through to customers in 2009;

·an increase of 13 basis points reflecting strong Group Treasury revenues; and

·an increase of 9 basis points from Institutional lending, Markets and Other due to:

·improved Institutional spreads as loans were progressively re-priced over the period and changes in Markets income recorded as interest income; and

·returns on capital falling as interest rates reduced, which was more than offset by mix benefits, as relatively higher spread consumer and business assets grew faster than Institutional assets.

Non-interest income - 2009 v 2008

	2009		2008	2007
	$m		$m	$m
Total fees and commissions	2,637		2,060	1,931
Trading income	901		732	660
Wealth management and insurance income	1,368		1,042	1,306
Other income	(47	)	549	109
Total non-interest income	4,859		4,383	4,006

Non-interest income was $4,859 million in 2009, an increase of $476 million or 11% compared to 2008. Non-interest income excluding the impact of St.George was $4,098 million in 2009, a decrease of $285 million or 7% compared to 2008. The commentary below relates to this 7% movement, which excludes the impact of St.George.

The key driver of the 7% decrease was a $600 million reduction in Other income, partially offset by increases in trading income, wealth management and insurance income and fees and commissions.

Other income decreased as 2008 included $436 million of one-off favourable items that were not repeated in 2009. 2009 included asset write-downs of $155 million in relation to foundation investments in property and other transactions in SCG.

75

The 2008 result included:

·a net gain of $141 million received from the partial sale of BTIM; and

·a gain of $172 million from the redemption of 56% of Westpac’s equity interest in Visa Inc. as part of an Initial Public Offering (IPO) in 2008. In addition, an unrealised gain of $123 million was recognised to reflect Westpac’s initial measurement of the residual value of the Visa Inc. holding.

Trading income was $920 million in 2009, an increase of $188 million or 26% compared to 2008. This was primarily driven by increases in foreign exchange income, with the Foreign Exchange (FX) and Debt Markets business taking advantage of increased customer activity and market volatility during the year.

Wealth management and insurance income was $1,124 million in 2009, an increase of $82 million or 8% compared to 2008. This was driven by the gross up of income (and tax expense) on earnings applicable to holders of our life policies (policyholder tax recoveries), partially offset by adverse equity market movements that reduced Funds Under Management (FUM)/Funds Under Administration (FUA), especially in the first six months, which in turn contributed to lower wealth management revenue for 2009.

Fees and commissions were $2,105 million in 2009, an increase of $45 million or 2% compared to 2008, with growth resulting from increased credit line fees on corporate and business facilities and higher arrangement fees within WIB. This was partially offset by lower transaction fees, with foreign automatic teller machine (ATM) fees lower as a result of ATM reforms in Australia this year, combined with lower interchange fees, higher scheme costs and the impact of providing customers fee-free access to both Westpac and St.George Bank ATM networks. Fees were also lower in New Zealand as a result of customers switching to fee-free accounts and reduced merchant activity.

Operating expenses - 2009 v 2008

	2009		2008		2007
	$m		$m		$m
Salaries and other staff expenses	3,806		2,915		2,557
Equipment and occupancy expenses	926		895		628
Other expenses	2,439		1,645		1,504
Total operating expenses	7,171		5,455		4,689
Productivity ratio(1)	4.47		4.16		4.07
Total operating expenses to net operating income ratio	43.4	%	47.0	%	45.4	%

(1)Net operating income before operating expense and impairment charges/salaries and other staff expenses (net of restructuring expenses).

Operating expenses were $7,171 million in 2009, an increase of $1,716 million or 31% compared to 2008. Operating expenses excluding the impact of St.George were $5,664 million in 2009, an increase of $209 million or 4% compared to 2008.

The expense to income ratio decreased 360 basis points to 43.4%. The expense to income ratio excluding the impact of St.George was 43.8%, a decrease of 320 basis points.

The following commentary relates to the 4% increase, excluding the impact of St.George.

Salaries and other staff expenses were $3,004 million in 2009, an increase of $89 million or 3% compared to 2008, due to:

·general fixed salary increases and other market related compensation increases;

·the Group’s increased superannuation costs, increased BTIM share based payments and the impact of the reversal of long service leave provisions in 2008, which was not repeated in 2009; and

·additional customer facing employees in WRBB.

The above increases were partially offset by merger synergies, predominantly in support and head office functions and lower employee performance bonus accruals given reductions in year on year profitability.

Equipment and occupancy expenses were $714 million in 2009, a decrease of $181 million or 20% compared to 2008, primarily due to lower software amortisation and write-downs. A $157 million write-down in software assets occurred during 2008 following a comprehensive review across the business, which was not repeated in 2009.

Other expenses were $1,946 million in 2009, an increase of $301 million or 18% compared to 2008, due to:

·a provision raised with respect to long standing legal proceedings where a judgment was received during 2009 ($121 million);

·additional expenditure on technology platforms to improve reliability, capacity and customer service; and

·increased costs associated with a spike in credit card reward redemptions ($25 million).

76

Impairment charges - 2009 v 2008

	2009	2008	2007
	$m	$m	$m
Impairment charges	3,238	931	482
Impairment charges to average gross loans (basis points)	75	32	19

Impairment charges were $3,238 million in 2009, an increase of $2,307 million or 248% compared to 2008. Impairment charges represented 75 basis points of average gross loans in 2009, an increase of 43 basis points compared to 2008. Impairment charges excluding the impact of St.George were $2,553 million in 2009, an increase of $1,622 million or 174% compared to 2008. Impairment charges excluding the impact of St.George represented 78 basis points of average gross loans in 2009, an increase of 46 basis points compared to 2008. The following commentary relates to this 174% movement, excluding the impact of St.George.

Impairment charges increased significantly over the 2009 financial year driven by the impacts of the global financial crisis and the associated decline in economic activity. The most significant effect of the global financial crisis on impairment charges was a small number of large corporate exposures ($408 million) and a small number of concentrated Margin Lending portfolios ($183 million), mainly in the first half of the year.

More generally, the increase in impairment charges was due to the broad slowing in economic activity that has led to increased customer financial stress, and lower security values. Most of this impact has been felt in the commercial business segment (customers with facilities generally in the range of $10 million to $100 million) although later in the year small businesses began to be impacted. The commercial property sector (mostly development properties) has been particularly impacted by these trends with other sectors showing stress including pubs and clubs, manufacturing, wholesale trade and retail. These trends have seen an increase in both individually assessed and collectively assessed provisions.

In New Zealand, the economy has been in a more prolonged recession and this saw the sources of stress more broadly spread across businesses and consumers. In business, commercial property was the sector most impacted, particularly property developments with no established income streams. In the consumer segment, higher delinquencies can be primarily traced back to customers relying on business income or where gearing has been higher. At the same time, the predominance of fixed rate lending has meant that consumers have only gradually benefited from lower interest rates. In addition, given the deteriorating operating environment, the Group felt it prudent to further increase its economic overlay in the first half of the year.

Key movements in impairment charges were:

·new individually assessed provisions increased by $1,243 million, principally due to:

·WIB ($828 million increase) predominantly from three large corporate exposures ($490 million), increases in stress in the Premium Business Group ($186 million) and higher Margin Lending provisions ($115 million);

·New Zealand ($283 million increase) predominantly business related ($258 million) including IAPs for two large exposures ($174 million); and

·WRBB ($127 million increase) as slowing business and retail growth has affected smaller businesses.

·new collectively assessed provisions increased by $391 million, principally due to:

·write-offs increased by $97 million compared to 2008. Most of the write-offs were in the Australian cards and personal loan portfolios. Some of the increase reflected lower prices available for the sale of consumer debt to third parties;

·Australian divisions saw an increase in new collectively assessed provisions of $221 million, as a result of increased stress in the commercial business sector, which was reflected in WIB and the small and medium sized business customers within WRBB. Despite this, Australian consumer losses remained relatively low; and

·New Zealand where collectively assessed provisions increased by $24 million compared to 2008, as the depressed economy impacted both businesses and consumers.

·writebacks and recoveries contributed $12 million (credit) to impairment charges.

St.George Bank Limited and its consolidated subsidiaries (including the impact of the acquisition accounting entries related to the merger) incurred impairment charges of $685 million for the period from 18 November 2008 to 30 September 2009. The majority of the impairment charges were due to the broad slowing in economic activity that led to increased customer financial stress and lower security values. Most of this impact was felt in the commercial business segment although later in 2009 some small businesses were also impacted. The commercial property sector (mostly development properties) was particularly impacted by these trends with other sectors including pubs and accommodation also showing some stress. Australian consumer losses remained relatively low during 2009.

77

Income tax expense - 2009 v 2008

	2009		2008		2007
	$m		$m		$m
Income tax expense	2,579		1,287		1,630
Tax as a percentage of profit from ordinary activities before tax (effective tax rate)	42.3	%	24.7	%	31.7	%

Income tax expense was $2,579 million in 2009, an increase of $1,292 million or 100% compared to 2008. Income tax expense excluding the impact of St.George was $2,157 million in 2009, an increase of $870 million or 68% compared to 2008. The $870 million movement was primarily driven by a $703 million tax charge related to the New Zealand High Court ruling on amended tax assessments issued by the NZIRD, in relation to Structured Finance transactions entered into between 1998 and 2002.

The effective tax rate was 42.3% in 2009, an increase of 17.6% compared to 2008. Excluding the impact of St.George, the effective tax rate was 45.9% in 2009, an increase of 21.2% compared to 2008. Excluding the $703 million one-off tax expenses mentioned above, the effective tax rate excluding the impact of St.George was 30.9% in 2009, an increase of 6.2% compared to 2008. This variance was driven by two primary items that lowered the effective tax rate in 2008. The 2008 tax expense included, firstly, a $198 million recovery for policy holder tax recoveries (due to weaker market performance of investments in Property Trusts, Australian Equities and Overseas Equities), and secondly, a non-taxable net gain of $141 million from the partial sale of BTIM.

Overview of performance - 2008 v 2007

Net profit attributable to equity holders was $3,859 million in 2008, an increase of $408 million or 12% compared to 2007. The result was driven by growth in net operating income before operating expenses and impairment charges of 12%. Expense growth was 16%. WRBB contributed $155 million of the increase in net profit and Other business divisions (including Product and Operations, Technology, Group Treasury, Pacific Banking and Core Support functions) contributed $317 million. The favourable results were partially offset by decreased contributions of $13 million by WIB, $8 million by New Zealand Banking and $43 million by BTFG.

Net interest income was $7,222 million in 2008, an increase of $909 million or 14% compared to 2007 resulting from consumer and business volume growth in both Australia and New Zealand, with a 14% increase in loans and a 16% increase in deposits, partly offset by a 12 basis point decline in net interest margin.

Non-interest income was $4,383 million in 2008, an increase of $377 million or 9% compared to 2007 resulting from a 7% increase in fees and commissions, an 11% increase in trading income and a $440 million increase in other income, including gains from the partial sale of BTIM and gains from the sale of a portion of our interest in Visa Inc. as a result of its initial public offering. These increases were partially offset by a $264 million decrease in wealth management and insurance income.

Operating expenses were $5,455 million in 2008, an increase of $766 million or 16% compared to 2007. This was largely driven by a 14% increase in staff expenses, increased property expenses and an increase of $36 million in expenses from the operation of the RAMS franchise distribution business acquired in January 2008. The full year expense position also includes one-off expenses and restructuring costs of $323 million(1), and $13 million of costs relating to the merger with St.George.

Impairment charges were $931 million in 2008, an increase of $449 million or 93% compared to 2007. This was primarily due to the impact of both the larger loan portfolio and deteriorating credit environment which saw higher interest rates and slowing economies in Australia and New Zealand in 2008. Institutional impairment charges increased due to a small number of single name exposures, and impaired loans increased in the small and medium business sectors in Australia and New Zealand. These dynamics drove individually assessed provisions $317 million higher and collectively assessed provisions $162 million higher. In addition to this the provisions included a $76 million addition to the Group economic overlay provision in recognition of the deteriorating operating conditions for financial institutions during 2008.

(1) Westpac incurred one-off expenses of $323 million in 2008 in relation to efficiency initiatives and capitalised expense reviews.

78

Income statement review - 2008 v 2007

Net Interest income - 2008 v 2007

Net interest income was $7,222 million in 2008, an increase of $909 million or 14% compared to 2007.

The key driver for this growth was the 20% increase in average interest earning assets partially offset by a 12 basis point decrease in interest margins. Of the 20% increase in average interest earning assets, 7% was due to the full period impact of increased liquid asset holdings.

Growth in net loans over the year was 14% compared to growth of 20% in average interest earning assets. In Australia, net loan growth was $36.7 billion or 16% over the prior year. In New Zealand, net loans increased by 9% in NZ$ terms and by 7% in A$ terms.

Key drivers of the growth in net loans in 2008 were:

·consumer lending up 13%, or $17.8 billion, predominately in housing;

·business lending up 17%, or $9.3 billion driven by relatively strong growth in the Western Australia, Queensland and Victoria regions;

·corporate lending up 17%, or $7.9 billion, with market developments driving strong demand for bank finance in the first half, whilst lower demand from corporates from May 2008 led to nominal growth in the second half; and

·New Zealand lending up 9% or NZ$3.8 billion, with particularly strong business lending growth.

Total deposits, including treasury deposits, increased 16%, or $31.7 billion, since 30 September 2007. Excluding treasury deposits, deposits increased 14% or $20.1 billion. In Australia, growth in deposits was driven by growth in term deposits (up $11.9 billion) from both consumer and business customers, and growth in on-line savings balances. In New Zealand, deposits were up 9% (NZ$ terms), resulting from growth in term deposits.

Treasury deposits increased $11.6 billion (19%), supporting the strong customer loan growth and increased holdings of liquid assets.

Net interest margin for 2008 was 2.07%, 12 basis points lower than the equivalent margin for 2007. The major drivers of this decline include the difference between increases in wholesale funding costs net of any re-pricing of lending facilities and the full year impact of the increased holdings in liquid assets.

The components of the margin decline of 12 basis points were:

·a decrease in asset spread/mix of 6 basis points, driven by:

·4 basis point decrease in asset spreads as a result of higher wholesale funding costs. While loans were re-priced through the period, the magnitude of these increases were insufficient to fully cover the increase in the wholesale funding costs; and

·2 basis point decrease due to mix impacts from a higher proportion of relatively lower margin fixed rate mortgage loans in Australia and New Zealand and lower growth in the credit card portfolio.

·an increase in liability spread/mix of 2 basis points driven by:

·4 basis point increase in deposit spreads; and

·2 basis point decrease due to mix changes driven by the migration to higher interest deposit accounts in Australia and New Zealand.

·reduced margins in Treasury from the full period impact of increases in liquid asset holdings. Holding more liquid assets increases average interest earning assets but has minimal impact on net interest income. These higher balances more than offset the higher interest income from Treasury risk management activities.

This was partially offset by:

·a 1 basis point positive impact on margins due to the higher proportion of WIB Markets income being recognised in net interest income; and

·higher earnings on the Group’s Capital generating a positive impact of 1 basis point.

Non-interest income - 2008 v 2007

Non-interest income was $4,383 million in 2008, an increase of $377 million or 9% compared to 2007. The increase was driven by an increase in income from fees and commissions, trading and other income, partially offset by a reduction in wealth management income.

Fees and commissions were $2,060 million in 2008, an increase of $129 million or 7% compared to 2007. This result was led by an increase in origination volume growth in business customers within WRBB and the Institutional Bank and by growth in card fee income driven by increased customer spending, particularly foreign currency spending, and the mix in spending shifting to products with stronger interchange margins. This was offset by the effect of customers continuing to switch to lower fee transactional products which reduced fees across our New Zealand and WRBB businesses.

79

Wealth management and insurance income was $1,042 million in 2008, a decrease of $264 million or 20% compared to 2007. This result was driven by the adverse investment markets which reduced total Funds under Management (FUM) and Funds under Administration (FUA) by 18% from 30 September 2007. Net flows for FUM were marginally negative compared to 2007. This was due to net outflows in retail products, partially offset by higher institutional inflows. Net inflows for FUA were $3.6 billion representing an 8% increase in FUA predominantly in the Wrap business where margins increased 5 basis points as a result of migration of customers to higher margin products. Insurance net income decreased by $3 million largely due to higher General Insurance claims increasing $16 million, which were partially offset by growth in Life Insurance in-force premiums, which increased by 8%, and General Insurance gross written premiums which increased by 3%.

Trading income was $732 million in 2008, an increase of $72 million or 11% compared to 2007. This result was mainly driven by increases in foreign exchange income as Group Treasury and the Institutional Bank were both well positioned to take advantage of market volatility. Markets income was up $35 million.

Other income was $549 million in 2008, an increase of $440 million or 404% compared to 2007. The increase was primarily driven from:

·a net gain of $141 million received from the partial sale of BTIM; and

·a gain of $172 million on the redemption of 56% of an equity interest in Visa Inc. as part of an IPO during the year. An unrealised gain of $123 million was recognised to reflect Westpac’s initial measurement of its residual investment in Visa Inc.

Operating expenses - 2008 v 2007

Operating expenses were $5,455 million in 2008, an increase of $766 million or 16% compared to 2007. The increase in 2008 was primarily the result of higher personnel costs. The expense to income ratio increased 160 basis points to 47.0%.

Salaries and other staff expenses were $2,915 million in 2008, an increase of $358 million or 14% compared to 2007. This was driven by an increase of 284 FTE across the Group, primarily in higher cost customer serving employees in WRBB and the Institutional Bank, additional $11 million from the acquisition of the RAMS franchise distribution business in January 2008, and fixed salary increases of 4% and other market related increases. Also included was $160 million of non recurring expenses relating to gains associated with the initial public offerings, transaction and integration costs associated with the St.George merger and one-off restructuring expenses.

Equipment and occupancy expenses were $895 million in 2008, an increase of $267 million or 43% compared to 2007. This was driven by an increase in operating lease rentals due to market related rent increases from the renewal of existing leases, as well as rentals on 29 additional retail branches and business banking centres, increases in software write-down of $157 million, and an increase in property fitout charges relating to the refurbishments and relocation of existing retail and business banking sites.

Other expenses were $1,645 million in 2008, an increase of $141 million or 9% compared to 2007. This increase was driven by an increase in outsourcing expenses, higher advertising costs associated with campaigns focused on the promotion of Super for Life and products of the recently acquired RAMS franchise distribution business, higher license and maintenance fees and increased professional services expenses.

Impairment charges - 2008 v 2007

Impairment charges were $931 million in 2008, an increase of $449 million or 93% compared to 2007. Impairment charges in 2008 represented 32 basis points of average gross loans, up 13 basis points compared to 2007.

Impairment charges increased sharply in 2008. The dislocation in capital markets initially impacted corporates and institutions that were highly leveraged, financially complex and had near term financing requirements. The second half reflected the impact of the market dislocation spreading into the broader economy with the growth slowing. Stress levels in WRBB (business customers) and New Zealand portfolios increased throughout the second half as economic conditions deteriorated.

These dynamics drove up individually assessed provisions (IAPs) by $317 million across principally:

·institutional customers ($160 million) from a small number of single name exposures;

·business customers ($92 million) predominantly driven by two large provisions. Impaired assets have generally increased over a wide range of industries; and

·New Zealand customers ($51 million) across both the business and consumer sectors.

80

Collectively assessed provisions were up $162 million due to:

·write-offs increasing by $76 million predominantly in the cards portfolio;

·an increase of $48 million in the financial institutions portfolio provision. An additional $76 million was added to this provision in the year ended 30 September 2008 compared with $28 million in the prior year. This brings the financial institutions portfolio provision to $104 million; and

·higher provisions of $38 million due to the increase in stressed exposures, predominantly in the Institutional Bank, WRBB and New Zealand.

Stressed exposures as a percentage of total commitments increased by 42 basis points from 30 September 2007 to 130 basis points at 30 September 2008. The increases have been in the Institutional Bank, business customers in both Australia and New Zealand and the New Zealand housing sector. The Margin Lending portfolio experienced one significant impairment during 2008.

Total impaired asset provisions as a percentage of total impaired assets decreased from 49% to 45% from 30 September 2007 to 30 September 2008. In response to the conditions during 2008, Westpac carried out a number of initiatives to further strengthen the portfolio and to ensure a better alignment between risk and reward, including specific and general portfolio reviews and additional stress testing of the consumer and business portfolios.

Income tax expense - 2008 v 2007

Income tax expense was $1,287 million in 2008, a decrease of $343 million or 21% compared to 2007. The effective tax rate decreased by 700 basis points from 31.7% in 2007 to 24.7% in 2008. The key items impacting the movement in the income tax result were:

·a decrease of $290 million in the policyholder tax recoveries from our life insurance business, which generated a $198 million recovery in 2008. The decrease was due to weaker market performance of investments in Property Trusts, Australian Equities and Overseas Equities; and

·a non-taxable net gain of $141 million received from the partial sale of BTIM.

81

Balance sheet review

Selected consolidated balance sheet data(1)

The detailed components of the balance sheet are set out in the notes to the financial statements.

	Year Ended 30 September
	2009	2009	2008	2007	2006	2005
	US$m(2)	A$m	A$m	A$m	A$m	A$m
Amounts in accordance with A-IFRSYear end balances
Cash and balances with central banks	2,887	3,272	4,809	2,243	3,132	2,853
Due from other financial institutions	16,156	18,309	21,345	28,379	12,211	14,355
Derivative financial instruments	29,284	33,187	34,810	24,308	10,311	9,944
Trading securities, other financial assets and available-for-sale (2005: Investment securities)	34,830	39,472	43,694	24,505	17,811	14,464
Loans	408,956	463,459	313,545	275,377	236,380	199,702
Acceptances of customers(3)						4,864
Life insurance assets	10,928	12,384	12,547	15,456	14,281	13,595
All other assets	17,210	19,504	8,926	7,352	7,335	7,887
Total assets	520,252	589,587	439,676	377,620	301,461	267,664
Due to other financial institutions	8,149	9,235	15,861	9,133	12,051	10,654
Deposits	290,712	329,456	233,730	202,054	169,637	150,668
Derivative financial instruments	32,188	36,478	24,970	25,192	9,342	10,514
Trading liabilities and other financial liabilities designated atfair value	9,572	10,848	16,689	8,223	2,893	3,154
Debt issues and acceptances	117,380	133,024	100,369	87,126	66,080	48,754
Life insurance liabilities	10,357	11,737	11,953	14,392	13,476	11,717
All other liabilities	9,795	11,100	7,915	5,888	5,899	11,062
Total liabilities excluding loan capital	478,153	541,878	411,487	352,008	279,378	246,523
Total loan capital(4)	9,828	11,138	8,718	7,704	5,957	4,214
Total liabilities	487,981	553,016	420,205	359,712	285,335	250,737
Net assets	32,270	36,571	19,471	17,908	16,126	16,927
Total equity attributable to equity holders of Westpac(5),(6)	30,564	34,637	17,547	15,996	14,214	13,595
Minority interests	1,707	1,934	1,924	1,912	1,912	3,332
Total shareholders’ equity and minority interest	32,270	36,571	19,471	17,908	16,126	16,927
Average balances
Total assets	509,878	577,831	401,468	332,512	283,663	257,999
Loans and other receivables	376,648	426,845	294,672	257,896	220,407	194,771
Acceptances of customers(3)						5,235
Shareholders’ equity(5),(6)	28,243	32,008	16,699	14,708	13,369	12,651
Minority interests	1,690	1,915	1,918	1,911	1,473	3,507

(1)	Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been restated and may differ from results previously reported.
(2)	Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.8824, the Noon Buying Rate in New York on 30 September 2009. Amounts or ratios are in accordance with this conversion rate.
(3)	Acceptances of customers are included in loans in 2009, 2008, 2007 and 2006.
(4)	This includes Westpac Stapled Preferred Securities (SPS), Westpac Stapled Preferred Securities II (SPS II) and 2004 Trust Preferred Securities (2004 TPS) in 2009, Westpac SPS and 2004 TPS in 2008, 2004 TPS and Fixed Interest Resettable Securities (FIRsTS) in 2007 and 2006. In 2005 the instruments on issue were classified as minority interests.
(5)	Includes New Zealand Class shares in 2005. Excludes minority interests.
(6)	New Zealand Class shares were on issue until 11 July 2005, when they were fully exchanged for ordinary shares.

82

Summary of consolidated ratios

	Year Ended 30 September
	2009	2009	2008	2007	2006	2005
(in $millions unless otherwise indicated)	US$(1)	A$	A$	A$	A$	A$
Ratios in accordance with A-IFRS
Profitability ratios (%)
Net interest margin(2)	2.38	2.38	2.07	2.19	2.29	2.45
Return on average assets(3)	0.60	0.60	0.96	1.04	1.08	1.05
Return on average ordinary equity(4)	10.8	10.8	23.1	23.5	23.0	21.7
Return on average total equity(5)	10.2	10.2	20.7	20.8	20.7	16.7
Capital ratio (%)
Average total equity to average total assets	5.9	5.9	4.6	5.0	5.2	6.3
Tier 1 ratio (%)(6)	8.1	8.1	7.8	6.5	6.9	7.2
Total capital ratio(6)	10.8	10.8	10.8	9.5	9.6	9.7
Earnings ratios
Basic earnings per ordinary share (cents)(7)	110.6	125.3	206.0	186.9	167.2	148.9
Diluted earnings per ordinary share (cents)(8)	108.7	123.2	200.1	185.3	165.7	147.2
Dividends per ordinary share (cents)	102	116	142	131	116	100
Dividend payout ratio (%)(9)	92.6	92.6	68.9	70.1	69.4	67.2
Credit quality ratios
Impairment charges written off (net of recoveries)	1,654	1,874	439	349	270	331
Impairment charges written off (net of recoveries) to average loans (%)	0.43	0.43	0.15	0.14	0.12	0.16

(1)	Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.8824, the noon buying rate in New York on 30 September 2009. Amounts or ratios are in accordance with this conversion rate.
(2)	Calculated by dividing net interest income (including tax equivalent gross up) by average interest earning assets.
(3)	Calculated by dividing net profit attributable to our equity holders by average total assets.
(4)	Calculated by dividing net profit attributable to our equity holders adjusted for distributions on New Zealand Class shares by average ordinary equity.
(5)	Calculated by dividing net profit attributable to our equity holders by average ordinary equity and minority interests.
(6)	For details on the calculations of this ratio please refer to ‘Capital management strategy’ under the section ‘Capital resources’ in this Annual Report.
(7)	Based on the weighted average number of fully paid ordinary shares outstanding, including nil New Zealand Class shares in 2009 (2008 nil, 2007 nil, 2006 nil, 2005 41 million).
(8)	Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive potential ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
(9)	Calculated by dividing the dividends per ordinary share by the basic earnings per ordinary share.

Balance sheet review

Assets – 2009 v 2008

The merger with St.George Bank Limited resulted in the assets and liabilities of St.George being consolidated from 18 November 2008. Excluding the impact of St.George, total assets as at 30 September 2009 were $496.0 billion, which was an increase of $56.3 billion or 13% from $439.7 billion at 30 September 2008.

The key drivers of the 13% growth were:

·loans increasing by $22.0 billion or 7.0%, driven by a $27.6 billion increase in housing loans in Australia partially offset by a reduction of $4.8 billion in non-housing loans, while New Zealand and overseas loans remained relatively flat;

·trading securities, other financial assets and available-for-sale securities decreasing by $5.9 billion as Westpac held lower levels of outright trading securities; and

·derivative financial instruments (assets) decreasing by $3.6 billion or 10.2% in 2009. The decrease in derivative financial instruments was primarily due to changes in exchange rates impacting the value of derivative contracts and reductions in interest rates.

Liabilities and equity – 2009 v 2008

Excluding the impact of St.George, total liabilities as at 30 September 2009 were $460.4 billion which was an increase of $40.2 billion or 10% compared to 30 September 2008. The key movements in liabilities are outlined below.

Deposits in 2009 increased by $30.0 billion or 12.8% compared with 2008. The increase was due to growth in customer and business deposits, particularly in term deposits and on line savings accounts.

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Derivative financial instruments (liabilities) increased by $8.6 billion or 34.2%. Compared to 2008, the growth in derivative financial instruments reflected the impact of movements in the A$ (primarily against the US$) impacting the value of cross-currency swaps that hedge offshore borrowings. This impact offsets a reduction in gross customer derivatives outstandings.

Other trading liabilities reduced by $5.9 billion as lower levels of repurchase transactions were undertaken.

Debt issues increased by $12.5 billion or 12.4%. This reflected a focus on raising long term wholesale funding to fund asset growth.

Equity was $34.6 billion at 30 September 2009, an increase of $17.1 billion or 97.4% compared to 30 September 2008. The movement in equity was primarily attributable to:

·the issue of Westpac ordinary shares of $12.1 billion to facilitate the merger with St.George;

·an ordinary share placement and share purchase plan of $2.5 billion and $0.4 billion respectively;

·ordinary shares issued under the Dividend Reinvestment Plan (DRP) and underwriting of the DRP in respect of the 2008 full year dividend of $1.9 billion; and

·retained profits (net of dividends), which increased by $0.5 billion.

Assets – 2008 v 2007

During the financial year ended 30 September 2008, total assets increased by $62.1 billion or 16.4% from $377.6 billion in 2007. The key drivers of this growth were:

Loans increased by $38.2 billion an increase of 13.9%, from $275.4 billion in 2007. The key factors impacting growth were:

·housing loans in Australia grew by $17.6 billion or 13.4% in 2008;

·non-housing loans in Australia decreased by $12.8 billion or 22.7% in 2008 particularly relating to business and corporate lending.

Trading securities, other financial assets and available-for-sale securities increased by $19.2 billion driven by increases in liquid assets. In addition, due from other financial institutions decreased by $7.0 billion in 2008. The decrease in these balances was primarily due to increased use of repurchase agreements for other bank Certificates of Deposit which resulted in the reclassification of assets from Due from other financial institutions to Trading assets.

Derivative financial instruments (assets) increased by $10.5 billion in 2008. This growth was driven by higher notional volumes from increased customer demand for risk management products and hedging of our foreign currency denominated wholesale funding and interest rate risk in addition, movements in interest and exchange rates increased the fair value of these instruments.

Liabilities and equity – 2008 v 2007

Total liabilities as at 30 September 2008 were $420 billion, an increase of $60.5 billion from 2007. The key movements in liabilities are outlined below.

Deposits in 2008 increased by $31.7 billion or 15.7% compared with 2007. The increase was principally due to term deposits in Australia which increased by $13.7 billion from both consumer and business customers as well as growth in on-line savings balances and domestic corporate deposits.

Derivative financial instruments (liabilities) have decreased by $0.2 billion or 0.8%. The marginal decline was driven by the run-off of deals that contributed to the high value of derivative financial instruments in the prior period which resulted from the strength of the Australian dollar during that period.

Debt issues through our debt programmes increased by $13.2 billion or 15.2%. The growth in debt issues reflected our focus to maintain longer-term funding to fund asset growth. A large component of the movement in 2008 driven by the revaluation of foreign denominated debt issues as a result of foreign exchange movements.

Equity increased by $1.6 billion or 8.7% during 2008 to $19.5 billion. Major movements in equity included the following:

·retained profits (net of dividends and other equity distributions) increased by $1.3 billion in 2008; and

·increase of $0.7 billion in shares issued via the DRP

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Asset quality

	2009		2008		2007
As at 30 September	$m		$m		$m
Impaired assets
Non-accrual assets(1):
Gross	3,526		1,059		423
Impairment provisions	(1,308	)	(438	)	(159	)
Net	2,218		621		264
Restructured loans:
Gross	71		6		4
Impairment provisions	(26	)	—		—
Net	45		6		4
Overdrafts and revolving credit greater than 90 days:
Gross	173		112		113
Impairment provisions	(148	)	(97	)	(107	)
Net	25		15		6
Net impaired assets	2,288		642		274
Provisions for impairment charges
Individually assessed provisions	1,228		413		148
Collectively assessed provisions	3,506		1,761		1,410
Total provisions for impairment charges	4,734		2,174		1,558
Asset quality
Total impairment provisions to total impaired assets	39.3	%	45.4	%	49.2	%
Total impaired assets to total loans(2)	0.81	%	0.37	%	0.20	%
Total provisions to gross loans(3)	1.01	%	0.69	%	0.61	%
Total provisions to total impaired assets	125.6	%	184.8	%	288.5	%
Collectively assessed provisions to non-housing performing loans(3)	1.8	%	1.1	%	1.1	%

(1)	Loans with individually assessed impairment provisions held against them, excluding restructured loans are classed as non-accrual for US Securities and Exchange Commission Reporting purposes. Under A-IFRS interest income is recognised at the effective interest rate on the net balance.
(2)	Loans are stated before related provisions for impairment of loans.
(3)	Includes the APRA required capital deduction (above A-IFRS provisioning levels) of $128 million (pre-tax) at 30 September 2007, $14 million (pre-tax) at 30 September 2008 and nil at 30 September 2009, which form part of the APRA termed General Reserve for Credit Losses.

The quality of our loan portfolio as at 30 September 2009 remained relatively stable, with 72% of our exposure to either investment grade or secured consumer mortgages (2008 75%, 2007 73%) and 99% of our exposure was in our core markets of Australia and New Zealand and Pacific Banking (2008 98%, 2007 98%).

Potential problem loans(2) as at 30 September 2009 amounted to $3,130 million. Excluding the impact of St.George, potential problem loans as at 30 September 2009 amounted to $2,083 million, up from $858 million at 30 September 2008. This increase was predominantly driven by downgrades in WIB. Loans are considered to be potentially problematic where facilities are fully current as to interest and principal obligations, however the customer demonstrates significant weakness in debt service or security coverage that jeopardises repayment of the debt within its current contractual terms. In the event these weaknesses are not rectified, possible loss of principal or interest could occur.

At 30 September 2009, total impaired assets as a percentage of total gross loans was 0.81%. Excluding the impact of St.George, total impaired assets as a percentage of total gross loans increased 0.75% as at 30 September 2009, up from 0.37% at 30 September 2008 (2007 0.20%).

At 30 September 2009, we had 14 impaired counterparties with exposure greater than $50 million, collectively accounting for 28% of total impaired assets. This is up from three impaired counterparties with exposure larger than $50 million in 2008 accounting for 28% of total impaired assets. There were a further 56 impaired exposures at 30 September 2009 that were less than $50 million and greater than $10 million (2008 12 impaired exposures). In 2009, the impact was dispersed across sectors, although the commercial property sector was most significantly impacted, accounting for $1,581 million (42%) of impaired loans in 2009.

We believe that Westpac remains appropriately provisioned with total impaired asset provisions to total impaired assets coverage at 39.3%. Excluding the impact of St.George, total provisions represented 132% of impaired assets as at

(1) Potential problem loans: facilities that are performing and no loss is expected, but the customer demonstrates significant weakness in debt servicing or security cover that could jeopardise repayment of debt on current terms if not rectified.

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30 September 2009, down from 185% at 30 September 2008 (2007 289%). The decrease was driven by higher impaired assets and partial write-offs. Total provisions to gross loans were 1.01% at 30 September 2009. Excluding the impact of St.George, total provisions to gross loans were 0.99% at 30 September 2009, up from 0.69% at 30 September 2008 (2007 0.61%).

Consumer mortgage loans 90 days past due at 30 September 2009 were 0.37% of outstandings. Excluding the impact of St.George, consumer mortgage loans 90 days past due at 30 September 2009 increased one basis point to 0.40% of outstandings (2008 0.39%, 2007 0.31%) but still remain below external benchmark indices.

Other consumer loan delinquencies (including credit card and personal loan products) were 1.04% of outstandings as at 30 September 2009. Excluding the impact of St.George, other consumer loan delinquencies (including credit card and personal loan products) were 1.04% of outstandings, a increase of four basis points from 1.00% of outstandings as at 30 September 2008 (2007 1.02%).

	2009	2008	2007
As at 30 September	$m	$m	$m
Total gross loans(1)	467,843	315,490	276,746
Average loans
Australia	381,858	243,797	209,671
New Zealand	45,832	44,383	41,178
Other overseas	6,529	5,227	4,010
Total average loans	434,219	293,407	254,859

(1)Gross loans are stated before related provisions for impairment.

Total gross loans represented 79% of the total assets of the Group as at 30 September 2009. Excluding the impact of St.George, total gross loans represented 68% of the total assets of the Group compared to 72% in 2008 and 73% in 2007.

Gross loans were $467.8 billion in 2009. Excluding the impact of St.George, gross loans increased by $22.0 billion or 7% to $337.5 billion in 2009 from $315.5 billion in 2008. This increase was due to strong growth in mortgage, business and corporate lending portfolios. Gross loans were $276.7 billion in 2007.

Approximately 25% of the loans at 30 September 2009 mature within one year and 22% mature between one year and five years. Retail lending comprises the bulk of the loan portfolio maturing after five years.

Our lending is focused on our core geographic markets in Australia and New Zealand. Australia and New Zealand average loans were $427.7 billion in 2009. Excluding the impact of St.George, Australia and New Zealand average loans increased by $30.7 billion or 11% to $318.9 billion in 2009 from $288.2 billion in 2008. This increase was predominantly due to the growth in mortgage lending. Average loans in 2007 were $250.9 billion. Australia and New Zealand average loans accounted for 98% of the total average gross loans in 2009. Excluding the impact of St.George, Australia and New Zealand average loans accounted for 98% of the total average gross loans in 2009, which was a decrease of 0.2% compared to 2008.

Other overseas average loans were $6.5 billion in 2009. Other overseas average loans increased by $1.3 billion or 25% to $6.5 billion in 2009, from $5.2 billion in 2008 and $4.0 billion in 2007.

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Capital resources

Capital management strategy

Westpac’s approach seeks to balance the fact that capital is an expensive form of funding with the need to be adequately capitalised as an ADI. Westpac considers the need to balance efficiency, flexibility and adequacy when determining sufficiency of capital and when developing capital management plans.

Westpac details these considerations through an Internal Capital Adequacy Assessment Process (ICAAP), the key features of which include:

·consideration of both economic (calibrated to Westpac’s AA debt rating) and regulatory capital driven requirements;

·a process which challenges the capital measures, coverage and requirements which incorporates a comparison of economic and regulatory requirements and the use of the Quantitative Scenario Analysis (stress testing) framework that considers among others, the impact of adverse economic scenarios that threaten the achievement of planned outcomes;

·consideration of the perspectives of external stakeholders such as regulators, rating agencies and equity investors; and

·the development of a capital management strategy including target capital ratios, capital buffers and contingency plans which guide the development of specific capital plans.

Our target ratios are summarised in the table below:

Capital measure	Target ratio
Group Tier 1 ratio	6.75 - 7.75%
Group total regulatory capital ratio	9.75 - 10.75%

As at 30 September 2009, the Group Tier 1 ratio was 8.1% and the Group total regulatory capital ratio 10.8%.

The Group’s capital ratios are in compliance with APRA minimum capital adequacy requirements.

Current market conditions and the uncertainty around responses to the global financial crisis see us operating above our target range.

Basel capital accord

The regulatory limits applied to our capital ratios are consistent with the International Convergence of Capital Measurement and Capital Standards: A Revised Framework, also known as Basel II, issued by the Bank of International Settlements. This framework reflects the advanced risk management practices that underpin the calculation of regulatory capital through a broad array of risk classes and advanced measurement processes.

In Australia, APRA has completed the release of Australian Prudential Standards based on Basel II. As provided for in the Basel II accord, APRA has exercised a number of discretions to make the framework more relevant in the Australian market, and in particular have required that Australian banks using the most sophisticated models for credit and operational risk will also be required to hold regulatory capital for the interest rate risk taken in the banking book. The models used to quantify this risk are similar to the models used for traded market risk. In addition APRA has applied discretion in the calculation of the components of regulatory capital.

Westpac is accredited by APRA to use the AIRB approach for credit risk, the AMA for operational risk and the internal model approach for Interest Rate Risk in the Banking Book (IRRBB). Accreditation to use AIRB and AMA was effective from 1 January 2008, and IRRBB from 1 July 2008. We believe that using the advanced approaches for risk monitoring and measurement is in the interests of all our stakeholders. Effective risk management is regarded as a key activity performed at all levels of the Group. Achieving advanced accreditation from APRA has resulted in a broad array of changes to risk management practices that have been implemented across all risk classes. We recognise that embedding these principles and practices into day-to-day activities of the divisions to achieve the full benefits of these changes is an ongoing facet of risk management.

St.George has been accredited by APRA to apply the Standardised approach(1) to the measurement of its regulatory capital requirements for credit and operational risk. St.George’s market risk and equity risk regulatory capital are measured on the same basis as the rest of the Group and there is no requirement to hold regulatory capital for St.George’s Interest Rate Risk in the Banking Book.

APRA have applied transitional floors in the calculation of regulatory capital minimums, limiting initial regulatory capital relief to a maximum of 10% of the capital requirements under the Basel I approach. It is unclear how long these transitional arrangements will be maintained by APRA.

(1)The Standardised approach applies regulator-determined risk-weights to asset classes credit risks (and business income (operational risk).

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Purchases of equity securities

	Total Number of Ordinary Shares Purchased	Average Price Paid per Ordinary Share $	Total Number of Ordinary Shares Purchased as Part of a Publicly Announced Program	Maximum Number(or Approximate $ Value) of Ordinary Shares that may yet be Purchased Under the Plans or Programs
Month
October (2008)	193,053	20.86	—	n/a
November (2008)	1,018,871	16.51	—	n/a
December (2008)	1,353,720	16.78	—	n/a
January (2009)	7,964	16.92	—	n/a
February (2009)	14,827	16.65	—	n/a
March (2009)	146,594	15.84	—	n/a
April (2009)	8,158	19.56	—	n/a
May (2009)	3,224	18.84	—	n/a
June (2009)	84,062	20.01	—	n/a
July (2009)	146,768	18.46	—	n/a
August (2009)	—	—	—	n/a
September (2009)	8,862	24.42	—	n/a
Total	2,986,103	17.11	—	—

Purchases of ordinary shares during the year were made on market and relate to the following:

·to deliver to employees upon the exercise of options and performance share rights: 379,224 ordinary shares;

·under our Deferral Share Plan (DSP), which enables employees to elect to receive part of their annual bonus in ordinary shares and Non-executive Directors to elect to receive a percentage of their fees in ordinary shares: 20,266 ordinary shares;

·treasury shares held by statutory life funds and managed investment schemes and ordinary shares held by Westpac in respect of equity derivatives sold to customers: 2,091,544 ordinary shares; and

·to allocate to eligible employees under the Restricted Share Plan: 495,069 ordinary shares.

Refer to the description of the DSP in Note 26 and the discussion regarding share purchases and treasury shares in Note 24 to the financial statements.

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Commitments

Contractual obligations and commitments

In connection with our operating activities we enter into certain contractual obligations and commitments. The following table shows our significant contractual cash obligations as at 30 September 2009:

	Less Than1 Year	Between 1and 3 Years	Between 3and 5 Years	Over5 Years	Total
	$m	$m	$m	$m	$m
On balance sheet long term debt	15,453	41,370	26,344	12,679	95,846
Operating leases(1)	380	586	397	589	1,952
Other commitments(1)	740	511	72	60	1,383
Total contractual cash obligations	16,573	42,467	26,813	13,328	99,181

(1)Refer to Note 35 to the financial statements for details of expenditure commitments.

The above table excludes deposits and other liabilities taken in the normal course of banking business and short term and undated liabilities.

Commercial commitments(1)

The following table shows our significant commercial commitments as at 30 September 2009:

	Less Than1 Year	Between 1and 3 Years	Between 3and 5 Years	Over5 Years	Total
	$m	$m	$m	$m	$m
Standby letters of credit and financial guarantees	791	2,051	164	1,974	4,980
Trade letters of credit	80	820	—	155	1,055
Non-financial guarantees	1,197	3,945	89	1,557	6,788
Undrawn loan commitments	52,788	32,857	4,939	36,711	127,295
Other commitments	1,015	4	2	1,349	2,370
Total commercial commitments	55,871	39,677	5,194	41,746	142,488

(1)The numbers in this table are notional amounts (refer to Note 37 to the financial statements).

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DIVISIONAL PERFORMANCE

Divisional performance – 2009 v 2008

Our operations comprise five primary customer-facing business divisions:

·Westpac Retail and Business Banking, which we refer to as WRBB;

·St.George Bank;

·BT Financial Group (Australia), which we refer to as BTFG;

·Westpac Institutional Bank, which we refer to as WIB; and

·New Zealand Banking.

Our Other divisions comprise Product and Operations, Technology, Group Treasury, Pacific Banking and Core Support.

Net profit and assets by division

The following tables present, for each of the key areas of our business the net profit attributable to equity holders for, and total assets at the end of, the financial years ended 30 September 2009, 2008 and 2007. Refer to Note 33 to the financial statements for detailed financial disclosure of our geographic and business segments.

Net profit by business division attributable to our equity holders

	2009		2008	2007
Years ended 30 September	$m		$m	$m
Westpac Retail and Business Banking	1,908		1,752	1,597
St.George Bank	817		—	—
BT Financial Group Australia	469		399	442
Westpac Institutional Bank	339		796	809
New Zealand Banking	194		395	403
Other divisions(1)	(281	)	517	200
Net profit attributable to equity holders of Westpac	3,446		3,859	3,451

(1)Other divisions include the results of Product and Operations, Technology, Group Treasury, Pacific Banking and Core Support.

Total assets by business division

	2009	2008	2007
As at 30 September	$bn	$bn	$bn
Westpac Retail and Business Banking	220	194	169
St.George Bank	128	—	—
BT Financial Group Australia	26	23	23
Westpac Institutional Bank	115	119	98
New Zealand Banking	40	40	38
Other divisions(1)	61	64	50
Total assets	590	440	378

(1)Other divisions includes the results of Product and Operations, Technology, Group Treasury, Pacific Banking and Core Support.

Divisional results are presented on a management reporting basis. Internal charges and transfer pricing adjustments are included in the performance of each business reflecting our management structure rather than a legal one (these results cannot be compared to results for individual legal entities). Where management reporting structures or accounting classifications have changed, comparatives have been restated and may differ from results previously reported.

Our internal transfer-pricing framework attributes value between divisions. Its primary attributes are:

·Treasury funding: product balances are transfer-priced at inter-bank rates according to the tenor of the underlying transactions; and

·all overhead costs are allocated to revenue generating businesses, and capital charges are allocated to business groups based upon designated risk factors.

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Westpac Retail and Business Banking

Westpac Retail and Business Banking (WRBB) is responsible for sales, marketing and customer service for all consumer and small-to-medium enterprise customers within Australia under the Westpac and RAMS(1) brands. WRBB offers a broad range of financial products, including savings and transaction accounts, demand and term deposits, credit cards, personal and housing loans, and business specific working capital, transactional, cash flow and trade finance facilities.

Consumer activities are conducted through our nationwide network of branches (including in-store branches), RAMS franchise outlets, home finance managers (HFMs), specialised consumer relationship managers, call centres, ATMs and internet and telephone channels.

For business customers, these activities are conducted by specialised business relationship managers, with the support of Cash Flow, Financial Markets and Wealth specialists, via the branch network, business banking centres and internet and telephone channels.

WRBB also includes the management of our third party consumer and business relationships, and the operation of the RAMS franchise distribution business.

WRBB results no longer include the Premium Business Group (PBG), which was transferred to WIB during 2009. Comparative periods have been restated to reflect this transfer.

Performance of WRBB

	2009		2008		2007
	$m		$m		$m
Net interest income	4,943		4,287		3,880
Non-interest income	1,274		1,356		1,282
Net operating income before operating expenses and impairment charges	6,217		5,643		5,162
Operating expenses	(2,943	)	(2,787	)	(2,609	)
Profit before impairment charges and income tax expense	3,274		2,856		2,553
Impairment charges	(551	)	(352	)	(276	)
Profit before income tax	2,723		2,504		2,277
Income tax expense	(815	)	(752	)	(680	)
Net profit attributable to equity holders of Westpac	1,908		1,752		1,597
	$bn		$bn		$bn
Deposits	103.8		86.9		77.0
Loans	215.6		189.0		165.9
Total assets	219.6		193.9		168.8
Total operating expenses to net operating income ratio	47.3	%	49.4	%	50.5	%

2009 v 2008

Net profit was $1,908 million in 2009, an increase of $156 million or 9% compared to 2008.

Net interest income was $4,943 million in 2009, an increase of $656 million or 15% compared to 2008. The increase in net interest income was due to the combined impact of growth in lending of 14% and deposits of 19% and a 9 basis point improvement in margins. The primary driver of the improvement in margin was the repricing of loans for higher risk premiums, partially offset by increased funding costs.

Non-interest income was $1,274 million in 2009, a decrease of $82 million or 6% compared to 2008, due to lower fees on credit cards, the impact of changes to exception fees in prior periods and ATM fees following financial system reforms introduced over the year. These declines were partially offset by higher income from our cards reward program (Altitude), from a one-off increase in points redeemed into the Qantas frequent flyer program (with a related offset in expenses).

Operating expenses were $2,943 million in 2009, an increase of $156 million or 6% compared to 2008. This was largely driven by:

·an increase in average FTE employees by 355;

·general pay rises processed over the year of 4%;

·a $20 million increase in expenses associated with the opening of eight new branches and four new business banking centres along with the refurbishment of 113 branches, including lease costs and fitout expenses; and

·higher costs associated with an increase in credit card loyalty points redeemed over the year (see comment in non-interest income above).

(1)       RAMS Home Loans is a home loan franchise distribution business.

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Impairment charges were $551 million in 2009, an increase of $199 million or 57% compared to 2008. Most of the rise was associated with increased impairments in small and medium sized business customers. Australian consumer losses have remained relatively low.

New individually assessed provisions increased by $127 million in 2009, with most of the increase due to higher impaired assets in the business portfolio. The increase in impaired assets was evenly spread across industries and sectors. Writebacks and recoveries were $5 million higher than 2008.

Business impaired assets to total committed exposure increased from 0.31% at 30 September 2008 to 0.79% as at 30 September 2009.

Collectively assessed provisions increased by $77 million over the year, with most of the change due to business products with higher direct write-offs and some downgrades in the portfolio.

Consumer 90 day delinquencies increased in the first half of the 2009 but eased in the second half of 2009. As a result, compared to 2008, 90 day delinquencies in the mortgage portfolio decreased 7 basis points to 0.31% at 30 September 2009 while 90 day delinquencies in other consumer products increased 8 basis points to 0.99%. The moderation in mortgage delinquencies through the year reflects the health of the consumer segment along with increased collection efforts and customers paying down debt where they have capacity to do so. Actual losses on the mortgage portfolio were $22 million.

Income tax expense was $815 million in 2009, an increase of $63 million or 8% compared to 2008. This equates to an effective tax rate of 29.9% in 2009 compared to 30.0% in 2008.

For a discussion of the results of this division for 2008 v 2007, refer to ‘Divisional performance — 2008 v 2007’ in this Annual Report.

St.George Bank

St.George Bank is responsible for sales for our consumer, business and corporate customers in Australia under the St.George and BankSA brands.

Consumer activities are conducted through a network of branches, third party distributors, call centres, ATMs, EFTPOS terminals and internet banking services. Business and corporate customers (businesses with facilities typically up to $150 million) are provided with a wide range of banking and financial products and services, including specialist advice for Cash Flow Finance, Trade Finance, Automotive and Equipment Finance, Property Finance, Transaction Banking and Treasury Services. Sales and service activities for business and corporate customers are conducted by relationship managers via business banking centres, internet and telephone banking channels.

Given the merger between Westpac and St.George Bank Limited, the results of St.George Bank are included in the Group’s 2009 consolidated results only for the period from 18 November 2008 to 30 September 2009 for accounting purposes.

Performance of St.George

	2009
	$m
Net interest income	2,313
Non-interest income	589
Net operating income before operating expenses and impairment charges	2,902
Operating expenses	(1,188	)
Profit before impairment charges and income tax expense	1,714
Impairment charges	(547	)
Profit before income tax	1,167
Income tax expense	(350	)
Net profit attributable to equity holders of Westpac	817
	$bn
Deposits	61.1
Loans	121.2
Total assets	127.6
Total operating expenses to net operating income ratio	40.9	%

St.George Bank contributed a net profit of $817 million for 2009. Revenue from increased balance sheet growth was partially offset by the costs associated with reinvestment in the business coupled with impairment charges resulting from the deteriorating economic conditions.

Net interest income of $2,313 million for 2009 reflects the combined impact of both lending and deposit growth and improvement in net interest margin. Deposit growth was primarily driven by term deposits, particularly from consumers.

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This effectively offset the impact of higher funding costs and decreased retail deposit spreads due to strong competition for term deposits.

Non-interest income of $589 million for 2009 primarily consisted of deposit and lending fees.

Operating expenses of $1,188 million for 2009 represented the costs of maintaining the St.George and BankSA distribution channels and brands, together with their associated technology, operations and administrative costs.

Impairment charges of $547 million for 2009 primarily related to individually assessed provisions in the business portfolio. Commercial facilities including commercial property account for most of the charge. Much of the stress in this portfolio has been in property development projects, typically outside major central business districts in Australia. These properties have limited income to service debt, and easing property prices has reduced the collateral on these loans.

Other stresses in the commercial sector were evenly spread across industries. Australian consumer losses have remained relatively low.

BT Financial Group (Australia)

BT Financial Group (Australia) (BTFG) is the wealth management arm of the Group, which, following the merger with St.George Bank Limited, also includes the wealth division of St.George.

Funds Management operations include:

·the manufacturing and distribution of investment, superannuation and retirement products;

·investment platforms such as Wrap and Master Trusts; and

·private banking and financial planning.

Insurance solutions cover the manufacturing and distribution of life, general, lenders mortgage and deposit bonds insurance.

BTFG’s brands include Advance Asset Management, Asgard, BT, BT Investment Management (60% owned by the Group and consolidated in BTFG’s Funds Management business), Licensee Select, Magnitude, Securitor, and the advice, private banking and insurance operations of BankSA, St.George and Westpac.

BTFG results include the results of the St.George wealth businesses from 18 November 2008.

Performance of BTFG

	2009		2008		2007
	$m		$m		$m
Net interest income	263		111		122
Non-interest income	1,285		1,096		1,113
Net operating income before operating expenses and impairment charges	1,548		1,207		1,235
Operating expenses	(850	)	(645	)	(615	)
Profit before impairment charges and income tax expense	698		562		620
Impairment charges	(17	)	(4	)	(3	)
Profit before income tax	681		558		617
Income tax expense	(208	)	(155	)	(176	)
Minority interests	(4	)	(4	)	1
Net profit attributable to equity holders of Westpac	469		399		442
	$bn		$bn		$bn
Deposits	13.2		10.6		8.9
Loans	9.5		7.8		6.7
Total assets	26.1		22.7		23.3
Funds under management	33.9		32.3		38.7
Funds under administration	76.7		41.6		46.2
Total operating expenses to net operating income ratio	54.9	%	53.4	%	49.8	%

2009 v 2008

Net profit was $469 million in 2009, an increase of $70 million or 18% compared to 2008. Net profit excluding the impact of St.George was $344 million in 2009, a decrease of $55 million or 14% compared to 2008. The 14% decrease was driven by weaker global investment markets and lower average FUM and FUA throughout the year.

FUM was $33.9 billion as at 30 September 2009, an increase of $1.6 billion or 5% compared to 30 September 2008. This result reflects the impact of St.George adding $2.2 billion of funds, partially offset by a small decrease due to lower investment markets during 2009.

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FUA was $76.7 billion as at 30 September 2009, an increase of $35.1 billion or 84% compared to 30 September 2008. This result reflects the impact of St.George adding $31.4 billion of FUA, in addition to $4.4 billion positive net flows and positive other movements, including the re-invested distributions of $0.3 billion, partially offset by a $1.0 billion decrease due to lower investment markets during 2009.

Net operating income before operating expenses and impairment charges was $1,548 million in 2009, an increase of $341 million or 28% compared to 2008. Net operating income before operating expenses and impairment charges, excluding the impact of St.George, was $1,195 million in 2009, a decrease of $12 million or 1% compared to 2008. This 1% decrease was driven by the impact of lower FUM and FUA related revenues, partially offset by volume growth within the Private Bank business and better FUM and FUA margins, driven by lower average balances.

Operating expenses were $850 million in 2009, an increase of $205 million or 32% compared to 2008. Operating expenses excluding the impact of St.George were $680 million in 2009, an increase of $35 million or 5% compared to 2008. The 5% increase was driven by a one-off payment to AIA Australia to terminate a contract to distribute certain insurance products, and an additional expense relating to BTIM share based payments, offset by lower volume-based expenses.

Impairment charges were $17 million in 2009, an increase of $13 million or 325% compared to 2008. Impairment charges excluding the impact of St.George were $14 million in 2009, an increase of $10 million or 250%, as a result of the global financial crisis.

Income tax expense was $208 million in 2009, an increase of $53 million or 34% compared to 2008. Income tax expense excluding the impact of St.George was $153 million in 2009, a decrease of $2 million or 1%. This equates to an effective tax rate of 30.5% for 2009, compared to 27.8% in 2008.

For a discussion of the results of this division for 2008 v 2007, refer to ‘Divisional performance – 2008 v 2007’ in this Annual Report.

Westpac Institutional Bank

Westpac Institutional Bank (WIB) delivers a broad range of financial services to commercial, corporate, institutional and government customers either based in or with interests in Australia and New Zealand.

WIB operates through dedicated sales industry teams, supported by specialist knowledge in financial and debt capital markets, transactional banking, margin lending, broking and alternative investment solutions. It also includes the Premium Business Group (PBG), which was transferred from WRBB during 2009. Comparatives have been restated to reflect this transfer.

Customers are supported through Westpac branches and subsidiaries located in Australia, New Zealand, New York, London and Asia.

WIB’s results include the results of the St.George institutional businesses from 18 November 2008.

Performance of WIB

	2009		2008		2007
	$m		$m		$m
Net interest income	1,761		1,248		999
Non-interest income	1,248		1,110		1,061
Net operating income before operating expenses and impairment charges	3,009		2,358		2,060
Operating expenses	(1,011	)	(902	)	(820	)
Profit before impairment charges and income tax expense	1,998		1,456		1,240
Impairment charges	(1,516	)	(341	)	(93	)
Profit before income tax	482		1,115		1,147
Income tax expense	(143	)	(319	)	(338	)
Net profit attributable to equity holders of Westpac	339		796		809
	$bn		$bn		$bn
Deposits	51.0		36.9		30.2
Loans	75.3		75.9		65.0
Total assets	114.6		119.0		98.0
Total operating expenses to net operating income ratio	33.6	%	38.3	%	39.8	%

2009 v 2008

Net profit was $339 million in 2009, a decrease of $457 million or 57% compared to 2008. Net profit excluding the impact of St.George amounted to $350 million in 2009, a decrease of $446 million or 56% compared to 2008, primarily due to a substantial increase in impairment charges.

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Net interest income was $1,761 million in 2009, an increase of $513 million or 41% compared to 2008. Net interest income excluding the impact of St.George was $1,547 million in 2009, an increase of $299 million or 24% compared to 2008. This increase, excluding the impact of St.George, was largely driven by the Debt Markets business as a result of higher margins as the portfolio has been progressively repriced for the higher cost of funds together with strong deposit growth and increased interest rate product volumes in the markets business. This was partly offset by a lower contribution from our Equities business, mainly due to a decline in margin loan balances. Net Financing loans declined 13% compared to 2008.

Non-interest income was $1,248 million in 2009, an increase of $138 million or 12% compared to 2008. Non interest income excluding the impact of St.George was $1,299 million in 2009, an increase of $189 million or 17% compared to 2008. This increase, excluding the impact of St.George, was primarily driven by increased fee income from our Financing and Originations businesses combined with an improved markets performance which benefited from higher sales, mark-to-market gains on the credit trading portfolio and effective risk management in a volatile interest rate market.

SCG revenue decreased $184 million following the write down in the value of assets and investments held of $155 million. The residual value of assets written down was $438 million and includes assets held for ultimate placement into funds, direct equity investments and strategic holdings in the funds.

Operating expenses were $1,011 million in 2009, an increase of $109 million or 12% compared to 2008. Operating expenses excluding the impact of St.George were $960 million in 2009, an increase of $58 million or 6% compared to 2008. This was mainly due to higher personnel costs, restructuring costs and higher offshore expenses given the average A$ exchange rate was lower than the prior year.

Impairment charges were $1,516 million in 2009, an increase of $1,175 million or 345% compared to 2008. Impairment charges excluding the impact of St.George were $1,386 million in 2009, an increase of $1,045 million or 306% compared to 2008. Impairment charges were impacted by three large corporate exposures that were directly impacted by the global financial crisis. Together, these facilities contributed just over $400 million to impairment charges for the year. Impairment charges were also impacted by a deterioration in commercial facilities (typically those with a facility in the $10 million to $100 million range).

Within the Equities business, impairment charges increased mainly due to three Margin Lending portfolio exposures and additional collectively assessed provisions. While the majority of the Margin Lending portfolio involves diversified portfolios of liquid stocks, the three troubled facilities were in concentrated portfolios supported by single stocks or managed funds that were illiquid or where redemptions were frozen. As a result, when markets declined sharply an orderly exit of these portfolios was not achieved.

Income tax expense was $143 million in 2009, a decrease of $176 million or 55% compared to 2008. Income tax expense excluding the impact of St.George was $150 million, a decrease of $169 million or 53% compared to 2008. This equates to an effective tax rate of 30.0% in 2009, compared to 28.6% in 2008.

For a discussion of the results of this division for 2008 v 2007, refer to ‘Divisional performance – 2008 v 2007’ in this Annual Report.

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New Zealand Banking

The Group conducts its New Zealand banking business through two banks in New Zealand: Westpac New Zealand Limited (WNZL), which is incorporated in New Zealand; and Westpac Banking Corporation (NZ Division), a branch of Westpac Banking Corporation, which is incorporated in Australia and forms part of WIB.

New Zealand Banking is responsible for sales and service of banking, wealth and insurance products for consumers and small to medium business customers in New Zealand. The division operates via an extensive network of branches and ATMs across both the North and South Islands. Banking products are provided under the Westpac brand while wealth and insurance products are provided by Westpac Life New Zealand and BT New Zealand. Institutional customers are supported by the NZ Division, included in WIB. All figures are in Australian dollars (A$).

Performance of New Zealand Banking

	2009		2008		2007
	A$m		A$m		A$m
Net interest income	1,007		970		903
Non-interest income	332		355		364
Net operating income before operating expenses and impairment charges	1,339		1,325		1,267
Operating expenses	(604	)	(599	)	(601	)
Profit before impairment charges and income tax expense	735		726		666
Impairment charges	(466	)	(143	)	(71	)
Profit before income tax	269		583		595
Income tax expense	(73	)	(185	)	(189	)
Minority interests	(2	)	(3	)	(3	)
Net profit attributable to equity holders of Westpac	194		395		403

	A$bn		A$bn		A$bn
Deposits	23.6		22.8		21.4
Loans	39.1		39.0		36.6
Total assets	40.1		39.9		37.6
Funds under management	1.7		1.7		1.6
Total operating expenses to net operating income ratio	45.1	%	45.3	%	47.4	%

2009 v 2008

Net profit was $194 million in 2009, a decrease of $201 million or 51% compared to 2008. Exchange rate movements had a $4 million negative impact on earnings.

Net interest income was $1,007 million in 2009, an increase of $37 million or 4% compared to 2008. The increase in net interest income was the result of a 3% increase in lending in NZ$ terms and a 6% increase in deposits in NZ$ terms. Lending spreads improved by 36 basis points due to the repricing of business facilities to reflect higher risk premiums and mix benefits from a shift to floating rate mortgages from fixed rate. This was offset by a 55 basis point reduction in deposit spreads due to the migration to lower spread products (mostly term deposits) and intense competition for deposits. Exchange rate movements had a $27 million negative impact on net interest income.

Non-interest income was $332 million in 2009, a decrease of $23 million or 6% compared to 2008. This was primarily due to lower transaction and activity fees given reduced customer and merchant activity. Non-interest income from mortgage funds was also lower, primarily reflecting unusually high levels in 2008. Exchange rate movements had a $9 million negative impact on non-interest income.

Operating expenses were $604 million in 2009, an increase of $5 million or 1% compared to 2008. Employee expenses rose 2% with general wage rises partially offset by a fall in temporary employees. Other contributors to expense growth over the year were higher lease costs from the transition into a new head office and continued expenditure on online and self-service customer solutions. Exchange rate movements had a $17 million positive impact on operating expenses.

Impairment charges were $466 million in 2009, an increase of $323 million or 226% compared to 2008. The large rise in impairments reflect two large impaired assets and a general deterioration in asset quality in both the business and consumer portfolios. The two large names accounted for $162 million in impairment charges.

Other impairment charges in the business portfolio increased by $127 million compared to 2008. Most of the increase relates to the stressed commercial property market, particularly apartment development properties where falling asset prices have placed pressure on pre-sale contracts and softer asset prices have impacted developers’ cash flows.

Business impaired assets to total committed exposure increased from 0.15% at 30 September 2008 to 0.42% as at 30 September 2009.

In the consumer portfolio impairment charges increased by $38 million compared to 2008. The major movements were:

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·$10 million increase in other consumer lending impairment charges; and

·$27 million increase in mortgage impairment charges, driven mainly by customers that rely on business earnings to service their mortgage.

Delinquencies greater than 90 days rose by 28 basis points for mortgages and 3 basis points for other consumer lending compared to 30 September 2008. Most of the rise in delinquencies emerged during the first half of the year. This is consistent with the unemployment profile in New Zealand where the unemployment rate increased to 6%, but has not materially deteriorated in recent months.

Income tax expense was $73 million in 2009, a decrease of $112 million or 61% compared to 2008. This equates to an effective tax rate of 27.1% in 2009 compared with 31.7% in 2008, due to a change in corporate tax rate from 33% to 30% in October 2008.

For a discussion of the results of this division for 2008 v 2007, refer to ‘Divisional performance - 2008 v 2007’ in this Annual Report.

Other divisions

Other divisions comprise:

Product and Operations

Product and Operations is responsible for Australian consumer and business banking product development, management and operations.

Pacific Banking

Pacific Banking provides banking services for retail and business customers throughout near South Pacific Island Nations. Branches, ATMs, telephone banking and Internet banking channels are used to deliver our core business activities in Fiji, Papua New Guinea, Vanuatu, Cook Islands, Tonga, Solomon Islands and Samoa. Pacific Banking’s financial products include home, personal and business lending and savings and investment accounts. The General Manager for Pacific Banking reports through to the Group Executive, WIB.

Group Treasury

Group Treasury is primarily focused on the management of the Group’s interest rate risk and funding requirements by managing the mismatch between the Group’s assets and liabilities. Group Treasury’s earnings are primarily impacted by the hedging decisions taken on behalf of the Group to manage net interest income outcomes and assist net interest income growth. It also includes Structured Finance, which originates and executes large principal transactions on behalf of Westpac, which are typically multi-jurisdictional. Structured Finance transactions can be high yielding asset transactions or liability transactions, which raise low cost funds on the Group’s behalf.

Technology

Technology is responsible for developing and maintaining reliable and flexible technology capabilities and technology strategies. It provides functional infrastructure support and software systems enhancement services to front line businesses.

Core Support

Core Support comprises those functions performed centrally including finance, risk, legal and human resources, with expenses incurred charged back to divisions.

Performance of Other divisions

	2009		2008		2007
	$m		$m		$m
Net interest income	1,359		606		409
Non-interest income	131		466		186
Net operating income before operating expenses and impairment charges	1,490		1,072		595
Operating expenses	(575	)	(522	)	(44	)
Profit before impairment charges and income tax expense	915		550		551
Impairment charges	(141	)	(91	)	(39	)
Profit before income tax	774		459		512
Income tax expense	(990	)	124		(247	)
Minority interests	(65	)	(66	)	(65	)
Net profit attributable to equity holders of Westpac	(281	)	517		200

2009 v 2008

Net loss was $281 million in 2009, a decrease of $798 million or 154% compared to 2008. Net loss excluding the impact of St.George was $321 million in 2009, a decrease of $838 million or 162% compared to 2008.

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Net interest income was $1,359 million in 2009, an increase of $753 million or 124% compared to 2008. Net interest income excluding the impact of St.George was $1,168 million in 2009, an increase of $562 million or 93% compared to 2008. This was mainly driven by an uplift in Group Treasury’s net interest income as a result of exceptional gains in three areas. Firstly, gains emerged from the revaluation of liquid securities driven by credit spreads narrowing as credit market confidence improved. Secondly, gains from the management of basis risks including the bills/libor spread, with this spread also reverting to long run levels in 2009 following a significant widening in 2008 in response to the global financial crisis uncertainties. Finally, early repayment fees from customers exiting fixed rate loans were also significantly higher this year. Offsetting this was lower earnings from Structured Finance.

Non-interest income was $131 million in 2009, a decrease of $335 million or 72% compared to 2008. Non-interest income excluding the impact of St.George was $155 million in 2009, a decrease of $311 million or 67% compared to 2008. This was due to the large one-off items in 2008, including the Visa Inc. and BTIM IPOs.

Operating expenses were $575 million in 2009, an increase of $53 million or 10% compared to 2008. Operating expenses excluding the impact of St.George were $477 million in 2009, a decrease of $45 million or 9% compared to 2008. The $477 million 2009 expense included $334 million of merger transformation and integration expenses and a $121 million expense provision relating to a long-standing legal proceeding, where a judgment was received during the first half of 2009. In 2008, this line included $323 million of one-off expenses resulting from efficiency initiatives and capitalised expenditure reviews.

Impairment charges were $141 million in 2009, an increase of $50 million or 55% compared to 2008. Impairment charges excluding the impact of St.George were $136 million in 2009, an increase of $45 million or 49% compared to 2008. This was due to increased impairment charges within Pacific Banking due to portfolio growth and credit downgrades, and the impact of additional collective provisions, which reflects the assessed impact of continuing market dislocation.

Income tax expense was $990 million in 2009, an increase of $1,114 million or 898% compared to 2008. Income tax expense excluding the impact of St.George was $966 million in 2009, an increase of $1,090 million or 879% compared to 2008. The 2009 income tax result was materially impacted by a $703 million tax provision relating to amended tax assessments for structured finance transactions undertaken in New Zealand between 1998 and 2002. In addition, the movement in tax expense was impacted by the effect of policyholder tax recoveries, tax exempt gains on the partial sale of BTIM and from gains on the Visa Inc. IPO in 2008, which were not repeated in 2009.

Minority interests were $65 million in 2009, a decrease of $1 million or 2% compared to 2008. Excluding the impact of St.George, minority interests were $65 million in 2009, a decrease of $1 million or 2% compared to 2008. The minority interests represent distributions of our hybrid equity instruments TPS 2003 and TPS 2006, as well as other minority interests.

For a discussion of the results of this division for 2008 v 2007, refer to ‘Divisional performance - 2008 v 2007’ in this Annual Report.

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Divisional performance – 2008 v 2007

Westpac Retail and Business Banking

2008 v 2007

Net profit was $1,752 million in 2008, an increase of $155 million or 10% compared to 2007.

Net interest income was $4,287 million in 2008, an increase of $407 million or 10% compared with 2007. The increase in net interest income was due to the combined impact of growth in lending of 14% and deposits of 13%, which was partially offset by a contraction of net interest margin from 2.31% in 2007 to 2.24%, primarily due to increased wholesale funding costs. Credit card net interest income remained consistent with 2007, due primarily to increased repayments from customers within the interest free period offsetting underlying book growth.

Non-interest income for 2008 was $1,356 million, an increase of $74 million or 6% compared with 2007, driven by deposit fee growth and an increase in lending account numbers, combined with an increase in working capital service fees. Further to this, card fee income growth resulting from higher customer spend, the mix in spend shifting to products with stronger interchange margins and increased foreign currency spend.

Operating expenses were $2,787 million, an increase of $178 million or 7% compared with 2007. This was largely driven by:

·an additional 292 additional customer serving employees;

·incremental costs associated with RAMS franchise distribution business which was acquired on 4 January 2008;

·market driven salary increases; and

·higher property costs relating to 29 new and 2 refurbished business banking centres and Westpac branches.

Impairment charges for the consumer and business lending portfolios in 2008 were $352 million, an increase of $76 million or 28% compared to 2007. The increase in impairment charges was principally in business lending, with four names accounting for 65% of the increase in impaired balances.

In consumer lending, mortgage delinquencies greater than 90 days increased 5 basis points while other personal lending improved by 8 basis points, driven by the strategic decision to limit growth in the proprietary cards channel.

The WRBB income tax expense for 2008 was $752 million, an increase of $72 million or 11% compared to 2007. This equated to an effective tax rate of 30.0% in 2008 compared with 29.9% in 2007.

BT Financial Group Australia

2008 v 2007

Net profit was $399 million in 2008, a decrease of $43 million or 10% compared to 2007.

Net interest income was $111 million in 2008, a decrease of $11 million or 9% compared to 2007. This was a result of increased funding charges in 2008 compared to 2007.

Non-interest income was $1,096 million in 2008, a decrease of $17 million compared to 2007. This result was impacted by adverse investment markets which reduced total FUM and FUA by 18% since 30 September 2007.

·FUA was 10% lower over the year with positive net flows more than offset by negative market movements. Excluding market movements, FUA increased by 9% compared to 2007. Net inflows for FUA were $3.6 billion representing an 8% increase in FUA predominantly in the Wrap business where margins increased by 5 basis points as a result of the migration of customers to higher margin products;

·FUM decreased by 17% over the year reflecting adverse market movements. Excluding market movements, FUM was higher than 30 September 2007 with institutional net inflows of $1.8 billion and positive other movements, including re-invested distributions of $1.1 million, offset by net outflows of $2.3 billion in retail and wholesale. FUM margins remained consistent with 2007;

·Private Bank revenue increased due to increases from both savings and investment products as well as income from mortgages;

·revenue in the Advice channel remained consistent with the prior year reflecting the impact of challenging market conditions;

·life insurance revenues increased by 14% to $164 million driven by strong sales and in-force premium growth of 8%; and

·general insurance income grew by 1% compared to 2007 to $131 million driven by volume growth in Home and Contents Insurance, partially offset by an increase in severe weather event claims of $13 million and an increase in Lenders Mortgage Insurance claims to $10 million, up from $7 million in 2007.

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Operating expenses were $645 million in 2008, an increase of $30 million or 5% compared to 2007. This was largely driven by additional costs from fixed salary increases and volume related expense growth in call centres, operations and processing, following the changes to superannuation legislation last year. In addition, lower expense recoveries from funds due to lower FUM balances and increased customer activity related to the continued volatility in the markets also contributed to the increase. Expense growth was partially offset by reduced costs associated with a number of initiatives to reposition the business for the lower growth environment and weaker markets.

Westpac Institutional Bank

2008 v 2007

Net profit was $796 million, in 2008, a decrease of $13 million or 2% compared to 2007.

Net interest income was $1,248 million in 2008, an increase of $249 million or 25% compared to 2007. This was driven by the Debt Markets business as a result of higher loan volumes asset growth. Overall growth in net loans was 17% over the year resulting in a balance of $75.9 billion as at 30 September 2008. The net interest margin in the Financing business remained consistent with 2007 as changes to loan pricing progressively acted to offset increased funding costs.

Non-interest income was $1,110 million in 2008, an increase of $49 million or 5% compared to 2007. This was primarily driven by increased origination fees in the Debt Markets business and fees in SCG, combined with improved customer sales and a strong trading performance in the Foreign Exchange (FX) business which was well positioned to capture increased customer flows and to take advantage of volatility in global currency markets. This was offset by the dislocation in global equity markets, which contributed to a decline in income from the Equities business, particularly within Structured Products and across the Broking and Margin Lending businesses.

Operating expenses were $902 million, an increase of $82 million or 10% compared to 2007. Operating expenses were impacted by increased personnel costs, which includes an increase in customer serving employees primarily across the Foreign Exchange and Global Transactional Banking businesses. Increased professional and technology service costs relating to ongoing investment in the business to enhance efficiency and expansion initiatives also contributed to the increase.

Impairment charges were $341 million in 2008, an increase of $248 million or 267% compared to 2007. The impairment charges were due to a small number of individual name exposures which were downgraded in the period. There was also one significant recovery against a long standing exposure.

New Zealand Banking

2008 v 2007

Net profit was $395 million in 2008, a decrease of $8 million or 2% compared to 2007. Exchange rate movements had a $22 million negative impact on earnings.

Net interest income was $970 million in 2008, an increase of $67 million or 7% compared to 2007. The increase in net interest income in 2008 was the result of a 7% increase in consumer lending, a 15% increase in business lending and a 9% increase in deposit volumes (all in NZ$ terms). Margins improved by 16 basis points in consumer lending which was offset by a 25 basis point reduction in deposit spreads due to the migration to lower margin term deposits and on-line products. Exchange rate movements had a $51 million negative impact on net interest income.

Non-interest income was $355 million in 2008, a decrease of $9 million or 2% compared to 2007. Higher fee income received from mortgage funds, the restructure of the Hotpoints credit card loyalty scheme and increased insurance commissions were partially offset by lower transaction fees. Exchange rate movements had a $19 million negative impact on non-interest income.

Operating expenses were $599 million in 2008, a decrease of $2 million compared to 2007. Increases in personnel costs were offset by benefits from supplier renegotiations in technology, printing costs savings and call centre process improvements. Exchange rate movements had a $32 million positive impact on operating expenses.

Impairment charges were $143 million in 2008, an increase of $72 million or 101% compared to 2007. This was primarily due to an increase in business individually assessed provisions, largely a result of two individual name exposures which had been downgraded in the period, and an increase in housing individually assessed provisions. Delinquency rates increased with greater than 90 day delinquencies increasing from 20 basis points to 47 basis points. The increase was associated with the rapid slow down in the housing market with slowing national sales (down 24%) and declining property prices. Impaired assets represent 0.52% of total committed exposures, up 27 basis points on the year ended 30 September 2007.

Income tax expense was $185 million in 2008, which was consistent with the tax expense in 2007. This equates to an effective tax rate of 31.7% in 2008 compared with 31.8% in 2007.

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Other divisions

2008 v 2007

Net profit was $517 million in 2008, an increase of $317 million or 159% compared to 2007.

Net interest income was $606 million in 2008, an increase of $197 million or 48% compared to 2007. This was primarily driven by an increase in Group Treasury’s net interest income, up $106 million from 2007, and asset growth of 33% in Papua New Guinea generated from the resource sector.

Non-interest income was $466 million in 2008, an increase of $280 million or 151% compared to 2007. The factors contributing to this result were:

·a net gain of $141 million received from the partial sale of BTIM;

·a gain of $172 million on the redemption of 56% of an equity interest in Visa Inc. as part of an IPO in the year. An unrealised gain of $123 million was also recognised to reflect Westpac’s initial measurement of the residual investment in Visa Inc.;

·Group Treasury non-interest income was up $39 million due to increased foreign exchange income; and

·a negative movement of $290 million in the policyholder tax recoveries from the life insurance business, which was a $198 million credit in 2008. The decrease was due to weaker market performance of investments in Property Trusts, Australian Equities and Overseas Equities.

Operating expenses were $522 million in 2008, an increase of $478 million or 1,086% compared to 2007. This was primarily due to one-off expenses of $323 million in relation to efficiency initiatives and capitalised expense reviews and $13 million of costs relating to the merger with St.George. Increases also resulted from additional employee expenses in Group Treasury as well as incremental spend on projects and technology. Expenses in Pacific Banking increased by $5 million from increased investment in risk and compliance initiatives.

Impairment charges were $91 million in 2008, an increase of $52 million or 133% compared to 2007. This was due to increased impairment charges of $16 million in Pacific Banking due to portfolio growth and credit downgrades, and the impact of additional collective provisions raised in the Group Head Office of $76 million which reflected the assessed impact of continuing market dislocation.

Income tax expense was a $124 million credit in 2008, a decrease of $371 million or 150% compared to 2007. The 2008 income tax result was impacted by the tax effect of movements in policyholder tax recoveries, and a non-taxable net gain on the partial sale of BTIM and gains from the Visa Inc. IPO.

Minority interests were $66 million in 2008, an increase of $1 million or 2% compared to 2007. The minority interests represent distributions of the hybrid equity instruments TPS 2003 and TPS 2006, as well as other minority interests.

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RISK AND RISK MANAGEMENT

Risk factors

Our business is subject to risks that can adversely impact our business, future performance and financial condition. If any of the following risks occur, our business, results of operations or financial condition could be materially adversely affected, with the result that the trading price of our securities could decline and you could lose all, or part, of your investment. You should carefully consider the risks and the other information in this Annual Report before investing in our securities. The risks and uncertainties described below are not the only ones we may face. Additional risks and uncertainties that we are unaware of, or that we currently deem to be immaterial, may also become important factors that affect us.

Risks relating to our business

Adverse credit and capital market conditions may significantly affect our ability to meet liquidity needs, adversely affect our access to domestic and international capital markets and increase our cost of funding

Global credit and capital markets have experienced extreme volatility, disruption and decreased liquidity for more than 2 years. The timing of a sustained recovery of global financial markets remains uncertain. We rely on credit and capital markets to fund our business. As of 30 September 2009, we obtained approximately 38%(1) of our total net funding from domestic and international wholesale markets. As a result of the recent adverse global capital market conditions our funding costs have increased.

A shift in investment preferences of businesses and consumers away from bank deposits toward other asset or investment classes would increase our need for funding from wholesale markets and would increase our funding costs, as deposits are generally less costly than funding from the wholesale markets. Since December 2008, we have utilised the guarantee of the Commonwealth of Australia under the Australian government guarantee scheme to obtain a significant portion of our wholesale funding in the global capital markets. As at 30 September 2009, our wholesale funding balance was approximately $165 billion(1). Of this, approximately $24 billion is guaranteed by the Commonwealth of Australia.

In the second half of the 2009 financial year wholesale markets began to be accessible without the Australian government guarantee. However, continued access to the unguaranteed market is dependent on investor appetite. The effect of terminating the Australian government guarantee scheme is uncertain and may materially adversely affect our ability to fund ourselves in the future and our cost of funding. Should conditions remain uncertain for a prolonged period, or deteriorate further, our funding costs may increase further and may limit our ability to replace, in a timely manner, maturing liabilities, which could adversely affect our ability to fund and grow our business or otherwise have a material adverse impact on us.

If our current sources of funding prove to be insufficient, we may be forced to seek alternative financing. The availability of such alternative financing, and the terms on which it may be available, will depend on a variety of factors, including prevailing market conditions, the availability of credit, our credit ratings and the sovereign credit ratings in Australia and New Zealand, and credit capacity. Even if available, the cost of these alternatives may be more expensive or on unfavourable terms, which could adversely affect our results of operations, liquidity, capital resources and financial condition. There is no assurance that we will be able to obtain funding at acceptable prices.

If Westpac is unable to source appropriate funding, we may be forced to reduce our lending or begin to sell liquid securities. Such actions would adversely impact our business, results of operations, liquidity, capital resources and financial condition.

For a more detailed description of liquidity risk, refer to ‘Liquidity risk’ in this section and Note 28 to the financial statements.

Failure to maintain credit ratings could adversely affect our cost of funds, liquidity, competitive position and access to capital markets

The credit ratings assigned to us by rating agencies are based on an evaluation of a number of factors, including our financial strength. In light of the recent difficulties in the banking sector and financial markets, the rating agencies have indicated they are watching global developments closely and if conditions deteriorate further, they may adjust the ratings of some or all of the major Australian banks. Moodys has all the major Australian banks, including Westpac, on a negative outlook. A credit rating downgrade could also be driven by the occurrence of one or more of the other risks identified in this section or by other events.

If we fail to maintain our current credit ratings, this would adversely affect our cost of funds and related margins, liquidity, competitive position and our access to capital markets. In addition, any downgrade in thesovereign credit ratings of Australia and New Zealand may adversely affect Westpac’s ability to raise funds that have the benefit of a government guarantee, or the cost of those funds. If Australia’s sovereign debt is not AAA rated, there is likely to be less interest in Westpac sovereign guaranteed debt, and it will also be more expensive. In turn, this could adversely affect our earnings, liquidity, access to capital markets and financial condition.

(1)   Comprised of wholesale funding net of excess liquid assets.

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A systemic shock in relation to the Australian, New Zealand or global financial systems could have adverse consequences for Westpac that would be difficult to predict and respond to

In the current uncertain global economic environment, there is a risk that another major systemic shock could occur that causes a further adverse impact on the Australian, New Zealand or global financial systems. Such an event could have a material adverse effect on financial institutions such as Westpac, including the undermining of confidence in the financial systems, reducing liquidity and impairing access to funding. The nature and consequences of any such event are difficult to predict and there can be no guarantee that we could respond effectively to any such event.

Further declines in asset markets could adversely affect our operations or profitability

Declines in global asset markets, including equity, property and other asset markets have adversely affected and could continue to impact our operations and profitability.

Declining asset prices impact our wealth management business and other asset holdings. Earnings in our wealth management business are, in part, dependent on asset values, such as the value of securities held or managed. A further decline in asset prices could further negatively impact the earnings of the division.

Declining asset prices could also impact customers and the value of security we hold against loans which may impact our ability to recover amounts owing to us if customers were to default.

Our business is substantially dependent on the Australian and New Zealand economies and we can give no assurance as to the likely future state of such economies

Our revenues and earnings are dependent on economic activity and the level of financial services our customers require. In particular, lending is dependent on customer confidence, economic activity, the state of the home lending market and prevailing market interest rates in the countries in which we operate.

We currently conduct the majority of our business in Australia and New Zealand and, consequently, our performance is influenced by the level and cyclical nature of business and home lending in these countries. These factors are in turn impacted by both domestic and international economic and political events. The dislocation in global credit and capital markets has impacted global economic activity which has, in turn, impacted the Australian and New Zealand economies. This has led to a slowdown in credit growth and an increase in impaired assets. If the downturn continues for an extended period or becomes more severe, or there are declines in consumer and business confidence, our results of operations, liquidity, capital resources and financial condition would be further adversely affected. The economic conditions of other regions in which we conduct operations can also affect our future performance and have shown signs of deterioration.

An increase in defaults under our loan portfolio could adversely affect our results of operations, liquidity, capital resources and financial condition

Credit risk is a significant risk and arises primarily from our lending activities. The risk arises from the likelihood that some customers will be unable to honour their obligations to us, including the repayment of loans and interest. Credit exposures also include our dealings with, and holdings of, debt securities issued by other banks and financial institutions whose conditions may be impacted to varying degrees by recent turmoil in the global financial markets.

We hold collective and individually assessed provisions for impaired assets. As a result of the recent market and economic conditions, we have increased our impairment provisions and if economic conditions deteriorate further, some customers could experience higher levels of financial stress and we may experience a significant increase in defaults and write-offs, and be required to further increase our provisioning. Such actions would diminish available capital and would adversely affect our results of operations, liquidity, capital resources and financial condition.

For a discussion on our risk management procedures, including the management of credit risk, refer to ‘Risk management’ in this section and Note 28 to the financial statements.

There can be no assurance that actions of the Australian, New Zealand, United States and other foreign governments and other governmental and regulatory bodies to stabilise financial markets will continue or not be modified

In response to the global financial crisis affecting the banking system and financial markets generally and deteriorating global financial conditions, stabilising actions have been taken by governments and regulatory bodies in Australia, New Zealand, the United States, United Kingdom, Europe and other jurisdictions. We expect to continue to make selected use of the Australian and New Zealand government guarantee schemes to access the wholesale funding markets in the short to medium term.

The Australian and New Zealand government guarantee schemes may be changed or discontinued at any time. There can be no assurance that any changes to the Australian or New Zealand wholesale funding guarantee schemes will not have a materially adverse effect on our ability to obtain wholesale term funding in the future in reliance on these schemes. The ongoing effect of the stabilisation packages implemented by governments and regulators in other jurisdictions are equally uncertain. There can be no assurance as to what effect such regulatory actions will have on financial markets, consumer and investor confidence, or the levels of volatility in financial markets. Further declines in consumer and investor confidence and continued uncertainty and volatility could materially adversely affect our business, financial condition and results of operations.

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Our businesses are highly regulated and we could be adversely affected by changes in regulations and regulatory policy

Compliance risk arises from the regulatory standards that apply to us as a financial institution. All of our businesses are highly regulated in the jurisdictions in which we do business. We are responsible for ensuring that we comply with all applicable legal and regulatory requirements (including accounting standards) and industry codes of practice, as well as meeting our ethical standards. The nature and impact of future changes in such policies are not predictable and are beyond our control.

It is likely that the recent global financial crisis will lead to changes in regulation in most markets in which we operate, particularly for financial institutions. These changes may include, for example, changes in capital adequacy or other prudential requirements, accounting and reporting requirements, liquidity regulation, regulation relating to remuneration, consumer protection legislation, or changes in the oversight approach of regulators. In the current economic conditions, it is also possible that governments in jurisdictions in which we do business or obtain funding might revise their application of existing regulatory policies that apply to, or impact, Westpac’s business, including for reasons relating to national and systemic stability.

We anticipate that the current uncertain economic environment may also result in increased litigation, which creates the potential for legal decisions that result in unanticipated changes in law and may result in regulators making material changes to existing regulatory policies to address or enforce such changes in law.

Changes in law, regulations or regulatory policy could adversely affect one or more of our businesses, including limiting our ability to do business, and could require us to incur substantial costs to comply or impact our capital and liquidity requirements. The failure to comply with applicable regulations could result in fines and penalties or limitations on our ability to do business. These costs, expenses and limitations could have a material adverse effect on our business, financial performance or financial condition.

For further information regarding accounting standards refer ‘Adoption of new and revised accounting policies,’ ‘Critical accounting assumptions and estimates’ and ‘Future accounting developments’ in Note 1 to the financial statements.

We face intense competition in all aspects of our business

We compete, both domestically and internationally, with asset managers, retail and commercial banks, investment banking firms, brokerage firms, and other investment service firms. In addition, the trend toward consolidation in the global financial services industry is creating competitors with broader ranges of product and service offerings, increased access to capital, and greater efficiency and pricing power.

If we are unable to compete effectively in our various businesses and markets, our business, results of operations and financial condition would be adversely affected.

For more detail on how we address competitive pressures refer to ‘Competition’ in Section 1.

We could suffer losses due to market volatility

We are exposed to market risk as a consequence of our trading activities in financial markets and through the asset and liability management of our financial position. In our financial markets trading business, we are exposed to losses arising from adverse movements in levels and volatility of interest rates, foreign exchange rates, commodity prices, credit prices and equity prices. The recent levels of market volatility increased our estimated earnings at risk as measured by value at risk (VaR)(1). If we were to suffer substantial losses due to any market volatility, including the volatility brought about by the current global credit crisis, it would adversely affect our results of operations, liquidity, capital resources and financial condition.

For a discussion of our risk management procedures, including the management of market risk, refer to ‘Risk management’ in this section.

We could suffer losses due to operational risks or environmental factors

As a financial services organisation we are exposed to a variety of other risks including those resulting from process error, fraud, information technology instability and failure, system failure, security and physical protection, customer services, staff competence, external events (including fire, flood or pandemic) that cause material damage, impact on our operations or adversely affect demand for our products and services, and product development and maintenance. Operational risks can directly impact our reputation and result in financial losses which would adversely affect our financial performance or financial condition.

For a discussion of our risk management procedures, including the management of operational risk, refer to ‘Risk management’ in this section.

Reputational damage could harm our business and prospects

Various issues may give rise to reputational risk and cause harm to our business and our prospects. These issues include appropriately dealing with potential conflicts of interest, legal and regulatory requirements, ethical issues, money

(1)   VaR is the potential loss in earnings from adverse market movements, calculated by Westpac using a 99% confidence level with a minimum of one year of historical rate data and a one-day time horizon.

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laundering laws, trade sanctions legislation, privacy laws, information security policies, sales and trading practices and conduct by companies in which we hold strategic investments. Failure to address these issues appropriately could also give rise to additional legal risk, subject us to regulatory enforcement actions, fines and penalties, or harm our reputation among our customers and our investors in the marketplace.

We could suffer losses if we fail to syndicate or sell down underwritten equity securities

As a financial intermediary we underwrite listed and unlisted equity securities. Equity underwriting activities include the development of solutions for corporate and institutional customers who need equity capital and investor customers who have an appetite for equity-based investment products. We may guarantee the pricing and placement of these facilities. We could suffer losses if we fail to syndicate or sell down our risk to other market participants.

Other risks

Other risks that can adversely impact our performance and our financial position include insurance risk, model risk, business risk and contagion risk. Refer to ‘Corporate governance’ in Section 1 for more information on these risks.

Risks relating to the integration of St.George

We may fail to realise the business growth opportunities, cost savings and other benefits anticipated from, or may incur unanticipated costs associated with, the merger and our results of operations, financial condition and the price of our securities may suffer

As a result of the merger with St.George, we expect to increase our revenue and reduce operating expense growth of the combined business. There is no assurance that we will be able to achieve the business growth opportunities, cost savings and other benefits we anticipate from the merger with St.George. This may be because the assumptions upon which we assessed the merger, including the anticipated benefits and the factors we used to determine the merger consideration, may prove to be incorrect.

Unanticipated delays in the integration of our operations may impact our assumptions regarding the benefits we expect to derive from the merger and may delay such benefits.

In addition, we may incur greater costs than we have estimated in connection with the integration.

If we fail to achieve the business growth opportunities, cost savings and other benefits we anticipate from the merger, or we incur greater integration costs than we have estimated, our results of operations, financial condition and the price of our securities may be adversely affected.

The integration of our operations and those of St.George presents significant challenges that could delay or diminish the anticipated benefits of the merger

There are risks associated with the integration of two organisations of the size of Westpac and St.George. Particular areas of risk include: difficulties or unexpected costs relating to the integration of technology platforms, financial and accounting systems, and risk and other management systems of two organisations; difficulties or unexpected costs in realising synergies from the consolidation of head office and back office functions; higher than expected levels of customer attrition or market share loss arising as a result of the merger; unexpected losses of key personnel during or following the integration of the two businesses; possible conflict in the culture of the two organisations and decrease in employee morale, senior management time requirements and distraction from the day to day business; and potential damage to the reputation of brands due to actions from competitors, media and lobby groups in relation to the merger.

If any of these risks should occur, or if there are unexpected delays in the integration process, the anticipated benefits of the merger may be delayed, achieved only in part, or not at all or at greater cost, which could have an adverse affect on our results of operations or financial condition.

The merger has resulted in additional concentration risk in the lending books of the combined business

The lending books of each of Westpac and St.George have exposures to a range of clients, assets, industries and geographies which, now that they are combined, has resulted in additional concentration risk, in particular in the property book.

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Risk management

Our vision is to be the leading financial services company in Australia and New Zealand. Effective risk management is key to us achieving this goal. It influences our performance, reputation and future success. We regard managing risk as a fundamental activity, performed at all levels of the Group.

Effective risk management is all about achieving a balanced approach to risk and reward. Risk management enables us to both increase financial growth opportunities and mitigate potential loss or damage. It is important to note that both optimisation and mitigation strategies are equally important aspects of risk management.

Our risk management strategy is approved by our Board and implemented through the CEO and the executive management team.

The BRMC has been delegated responsibility for approving and maintaining an effective risk management framework. For further information regarding the role and responsibilities of the BRMC and other Board committees in managing risk, refer to the ‘Corporate governance’ section.

The CEO and executive management team are responsible for implementing the risk management frameworks approved by the BRMC and developing policies, controls, processes and procedures for identifying and managing risk arising from our activities.

Our Group Risk function plays a key role in our risk management framework. It is independent from the divisions and reports to the CRO. Our risk function is also responsible for coordinating our response to key regulatory developments and issues affecting risk management.

Independent risk management units operate within each division, reporting to the group executive for that unit and the CRO. The divisional head of risk is responsible for identifying and quantifying the risks arising from their business and for implementing appropriate policies, procedures and controls to manage those risks. They also ensure alignment with the Group Risk function.

An independent review of internal controls over risk management is undertaken by our Group Assurance function. The function contains our portfolio risk review unit, which is responsible for reviewing credit quality and assessing credit management process, credit policy appropriateness and compliance, and adequacy of provisions. Internal audit is responsible for independently evaluating the adequacy and effectiveness of management’s control of operational risk.

The key risks we are subject to are specific banking risks and risks arising from the general business environment. Our risk management framework encompasses credit, liquidity, market and other risks.

For a comprehensive discussion of the risks to which Westpac is exposed, and its policies to manage these risks, refer to Note 28 to the financial statements.

Credit risk

Refer to Note 28 to the financial statements for details of our credit risk management policies.

Provisions for impairment charges

For information on the basis for determining the provision for impairment charges refer to ‘Critical accounting assumptions and estimates’ in Note 1 to the financial statements.

Credit risk concentrations

We monitor our credit portfolio to manage risk concentrations. At 30 September 2009, our exposure to consumers comprised 64% (2008 59%, 2007 61%) of our on-balance sheet loans and 54% (2008 46%, 2007 48%) of total credit commitments. Almost 89% (2008 86%, 2007 83%) of our exposure to consumers was supported by residential real estate mortgages. This category also includes investment property loans to individuals, credit cards, personal loans, overdrafts and lines of credit. Our consumer credit risks are highly diversified, with substantial consumer market share in every state and territory in Australia, New Zealand and the Pacific region. Moreover, these customers service their debts with incomes derived from a wide range of occupations, in city as well as country areas.

Exposures to businesses, government and other financial institutions are classified into a number of industry clusters based on groupings of related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and monitored against industry exposure boundaries. The level of industry risk is measured and monitored on a dynamic basis. Exposures are actively managed from a portfolio perspective, with risk mitigation techniques used to regularly re-balance the portfolio. The table below shows the assessed credit quality of our current exposures relating to these customers. The risk grades shown are internally assigned to customers but for convenience are aligned to the Standard & Poor’s credit rating system. Based on these ratings, the percentage of our exposure to business, government and other financial institution customers that are rated investment grade as at 30 September 2009 decreased by 12% to 53% (2008 65%, 2007 64%).

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Assessed credit quality of exposures to businesses, governments and other financial institutions at 30 September:

	2009	2008	2007
	%	%	%
AAA, AA	21	29	29
A	14	15	13
BBB	18	21	22
BB, B+	41	33	35
Lower than B+	6	2	1
Total	100	100	100

Counterparty credit quality

The table below shows the credit quality of our credit exposure primarily associated with wholesale foreign exchange and derivative activities. The risk grades shown below are based on Standard & Poor’s (S&P) credit rating system. Based on these ratings, our exposure to investment grade counterparties is 95% as at 30 September 2009 (2008 98%).

Total assessed credit risk as at 30 September:

	2009	2008
	%	%
AAA, AA	35	52
A	46	34
BBB	14	12
BB and below	5	2
Total	100	100

Counterparty credit risk by industry sector and country of ultimate risk

The table below shows our current credit risk exposure (not including potential future credit risk) of our foreign exchange and derivative instruments by industry sector and by country of ultimate risk as at 30 September 2009(1):

	Government	Banks	Non-bank Financial Institutions	Others	Total
	$bn	$bn	$bn	$bn	$bn
Australia	0.7	0.1	1.2	0.8	2.8
New Zealand	0.9	—	—	1.0	1.9
Europe	—	0.2	0.5	0.3	1.0
United States	—	0.1	0.4	0.1	0.6
Japan	—	—	—	—	—
Other	—	0.1	—	0.4	0.5
Total	1.6	0.5	2.1	2.6	6.8

(1) Netting has been applied to counterparties with appropriate netting agreements in legally enforceable jurisdictions, as permitted under the requirements stipulated by APRA.

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Counterparty credit risk maturity profile and settlement risk

The table below shows the maturity profile of our foreign exchange and derivative credit risk exposure in gross replacement cost terms (i.e. not including potential future credit risk). The gross replacement cost overstates our credit risk exposure at 30 September 2009 as it ignores the netting benefit of $26.5 billion.

	Less Than3 Months	Between 3Monthsand 1 Year	Between1 and 2 Years	Between2 and 5 Years	Over 5 Years	Total
	$bn	$bn	$bn	$bn	$bn	$bn
Interest rate
Swaps	0.4	1.6	3.1	5.0	3.4	13.5
Options	—	—	—	0.2	—	0.2
Forwards and futures	—	—	—	—	—	—
Foreign exchange
Forwards	5.0	2.7	0.2	0.2	—	8.1
Swaps	0.4	1.2	1.4	5.3	1.6	9.9
Purchased options	0.1	0.1	—	—	—	0.2
Commodities	—	0.3	0.4	—	—	0.7
Equities and credit	—	—	—	0.4	0.2	0.6
Total derivatives	5.9	5.9	5.1	11.1	5.2	33.2

Settlement risk occurs when we pay out funds before we receive payment from the counterparty to the transaction. We manage our settlement risk exposures through specific customer limits. We use Continuous Linked Settlement (CLS) to reduce our foreign exchange settlement risk to other CLS participants. CLS enables members to settle foreign exchange transactions between themselves through the simultaneous payment of the currency legs of transactions.

Cross-border outstandings

Cross-border outstandings are loans, placements with banks, interest earning investments and monetary assets denominated in currencies other than the borrower’s local currency. They are grouped on the basis of the country of domicile of the borrower or the ultimate guarantor of the risk. The table below excludes irrevocable letters of credit, amounts of which are immaterial. The relevant foreign denominated currencies have been converted at the closing spot exchange rate used in the financial statements.

Our cross-border outstandings to countries that individually represented in excess of 0.75% of Group total assets as at 30 September in each of the past three years, were as follows.

(in $millions unless otherwise indicated)	Governments and OfficialInstitutions	Banks andOtherFinancialInstitutions	Other(PrimarilyCommercialand Industrial)	Total	%of TotalAssets
2009
United States	—	2,030	2,637	4,667	0.8	%
Australia	1	1,613	4,866	6,480	1.1	%
United Kingdom	—	4,092	590	4,682	0.8	%
2008
United States	—	3,702	1,501	5,203	1.2	%
Australia	1	3,795	3,871	7,667	1.7	%
United Kingdom	2	7,144	395	7,541	1.7	%
Netherlands	—	3,758	171	3,929	0.9	%
2007
United States	—	2,104	1,332	3,436	0.9	%
Australia	10	1,040	2,763	3,813	1.0	%
United Kingdom	—	4,519	434	4,953	1.3	%
Netherlands	—	5,873	76	5,949	1.6	%

Impaired assets among the cross-border outstandings were $6 million as at 30 September 2009 (2008 $6 million, 2007 $28 million).

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Liquidity risk

Liquidity risk is the potential inability to meet our payment obligations, as they become due, without incurring unacceptable losses, which could potentially arise as a result of mismatched cash flows generated by our business. This risk is managed through our BRMC-approved liquidity framework.

Responsibility for liquidity management is delegated to Group Treasury, under oversight of MARCO. Group Treasury manage liquidity on a daily basis and submit monthly reports to MARCO and quarterly reports to the BRMC. Monthly reports are provided to the APRA. Group Treasury is also responsible for monitoring our funding base and ensuring that it is prudently maintained and adequately diversified.

Our liquidity risk management framework models our ability to fund under both normal conditions and during a crisis situation (with models run globally and for specific geographical regions – Australia, New Zealand and offshore). This approach is designed so that our funding framework is sufficiently flexible to ensure liquidity under a wide range of market conditions. The global liquidity management framework is reviewed annually to ensure it is appropriate for our current and planned activities. The annual review encompasses the funding scenarios modelled, the modelling approach, wholesale funding capacity, limit determination and minimum holdings of liquid assets. The liquidity framework is reviewed by MARCO and the GRRC prior to approval by the BRMC.

Group Treasury also undertakes an annual funding review that outlines the current funding strategy for the coming year. This review encompasses trends in global debt markets, peer analysis, wholesale funding capacity, estimation of our upcoming funding requirements, and a funding risk analysis. The annual funding strategy is reviewed by MARCO and the GRRC, prior to approval by the BRMC.

We maintain a contingency funding plan that details the broad actions to be taken in response to severe disruptions in our ability to fund some or all of our activities in a timely manner and at a reasonable cost. This document is reviewed annually and defines a committee of senior executives to manage a crisis and allocates responsibility to individuals for key tasks. A media relations strategy, and detailed contact lists are also incorporated into this document.

Sources of liquidity

Sources of liquidity are regularly renewed to maintain a wide diversification by currency, geography, product and term. Sources include, but are not limited to:

·deposits;

·debt issues;

·proceeds from sale of marketable securities;

·repurchase agreements with central banks;

·principal repayments on loans;

·interest income;

·fee income; and

·interbank deposit agreement (IDA).

The Group does not rely on committed funding lines as a source of liquidity.

In management’s opinion, liquidity is sufficient to meet our present requirements.

Wholesale funding

The wholesale funding base is diversified with respect to term, investor base, currency and funding instrument. Facilitating this issuance is an extensive funding infrastructure, covering short and long term debt issuance programmes in a range of key jurisdictions including the US market, Euro market, UK market, Japanese market and the Australian and New Zealand domestic markets. As a result of the global financial crisis and the introduction of sovereign guarantees for bank issuance in offshore jurisdictions, such as Ireland and the UK, the Australian Government introduced the Commonwealth of Australia guarantee scheme for wholesale funding. This scheme is designed to support Australian financial institutions’ access to global funding markets.

We have continued to experience good funding access across our wholesale funding markets over the last year. While conditions over the year were challenging due to the global financial crisis, demand for our debt issuance in guaranteed and non-guaranteed form continued to be strong albeit at more expensive funding spreads.

At 30 September 2009, approximately 62% of the Group’s total net funding was provided by customer deposits and 38% was provided by wholesale sources.

To further strengthen the management of the Group’s funding base, a new measure, the Stable Funding Ratio (SFR), was adopted during the year which focuses on the composition of overall funding base. Stable funding consists of customer deposits and wholesale term funding with residual maturity greater than 12 months (including securitisation). At 30 September 2009, the stable funding ratio was 84% (2008 70%).

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Westpac debt programs and issuing shelves

Access in a timely and flexible manner to a diverse range of debt markets and investors is provided by the following programs and issuing shelves as at 30 September 2009:

Program Limit	Issuer(s)	Program/Issuing Shelf Type
Australia
No limit	WBC	Debt Issuance Programme(1)
No limit	SGB	Issuance Program for Senior Notes, Subordinated Notes and Transferable Deposits(2)
Euro Market
USD 2.5 billion	WBC	Euro Transferable Certificate of Deposit Programme
USD 20 billion	WBC/WSNZL(3)	Euro Commercial Paper and Certificate of Deposit Programme
USD 30 billion	WBC	Programme for the Issuance of Debt Instruments(1)
USD 7.5 billion	WSNZL(3)	Programme for the Issuance of Debt Instruments(1)
EUR 15 billion	SGB	Euro Note Programme(2)
Japan
JPY 750 billion	WBC	Samurai shelf(1)
JPY 750 billion	WBC	Uridashi shelf(1)
United States
USD 35 billion	WBC	Section 4(2) US Commercial Paper Program
USD 7.5 billion	WSNZL(3)	Section 4(2) US Commercial Paper Program
USD 15 billion	WBC	US MTN Program(1)
USD 15 billion	WBC	Medium Term Deposit Notes
USD 6 billion	WBC	US Securities and Exchange Commission registered shelf(4)
New Zealand
No limit	WNZL	Medium Term Note(1) and Registered Certificate of Deposit Programme

(1)	Program currently set up for optional government guaranteed issuance.
(2)	While instruments remain outstanding under this program, St.George does not intend to issue any further securities under it.
(3)	Notes issued under this programme by Westpac Securities NZ Limited are guaranteed by Westpac New Zealand Limited, its parent company.
(4)	Replaced previous USD 2 billion registered shelf.

More detailed analysis of our borrowings and outstandings from existing debt programs and issuing shelves can be found in other notes to the financial statements including Note 17, Note 18, Note 22 and Note 23.

Credit ratings

As at 30 September 2009 the Group’s credit ratings were:

	2009			2008
	Short Term	Long Term	Outlook	Short Term	Long Term	Outlook
Standard & Poor’s	A-1+	AA	Stable	A-1+	AA	Stable
Moody’s Investors Services	P-1	Aa1	Rating watch negative	P-1	Aa1	Stable
Fitch Ratings	F1+	AA-	Stable	F1+	AA-	Rating watch positive

A credit rating is not a recommendation to buy, sell or hold our securities. Such ratings are subject to revision or withdrawal at any time by the assigning rating agency. Investors are cautioned to evaluate each rating independently of any other rating.

Liquid assets

Group Treasury holds a portfolio of high quality liquid assets ($74 billion including internal securitisation) as a buffer against unforeseen funding requirements. These assets are 100% eligible for repurchase agreements with a central bank and are held in cash, government, semi-government and highly rated investment grade paper. The level of liquid asset holdings is reviewed at least annually and more frequently if required and is consistent with both the requirements of the balance sheet and market conditions.

WIB also has holdings of trading securities which arise from its daily business operations. These assets are typically high quality investment grade names, and stock is generally very liquid. While these assets are excluded from the Group’s prudential liquidity portfolio, we do consider them as a source of funds in our crisis scenario analysis.

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Market risk

Market risk is the potential for loss arising from adverse movements in the level and volatility of market factors such as foreign exchange rates, interest rates, commodity prices and equity prices.

Traded market risk

Westpac’s exposure to market risk arises out of its Financial Markets and Group Treasury trading activities. These activities are controlled by a Board-approved market risk framework that incorporates a Board-approved Value at Risk (VaR) limit. VaR is the primary mechanism for measuring and controlling market risk and is supported with structural risk limits (including volume limits and basis point value limits), scenario analysis and stress testing.

VaR is the potential loss in earnings from adverse market movements calculated using a 99% confidence level, with a minimum of one year of historical rate data and a one-day time horizon. VaR takes account of all material market variables that may cause a change in the value of the trading portfolio. Daily backtesting of VaR results is performed to support model integrity. A review of both the potential profit and loss outcomes is also undertaken to monitor any skew created by the historical data.

Market risk limits are allocated to business management based upon business strategies and experience, while taking into consideration market liquidity and concentration risk. All trades are marked to market daily, using independently sourced or reviewed rates. Rates that have limited independent sources are reviewed at least on a monthly basis.

Financial Market’s trading book activity represents dealings that encompass book running and distribution activity. The types of market risk arising from trading activity include interest rate, foreign exchange, commodity, equity, credit spread and volatility risks.

Group Treasury’s trading activity represents dealings that include the management of interest rate, foreign exchange and credit spread risks associated with the wholesale funding task, liquid asset portfolios, foreign exchange repatriations and the traded risk portion of interest rate risk derived from the Westpac balance sheet.

A separate independent Market Risk Management (MRM) unit is responsible for the daily measurement and monitoring of market risk exposures. This unit performs daily stress and scenario tests on the trading portfolios to quantify the impact of extreme or unexpected movements in market factors beyond the 99% confidence interval.

The table below provides a summary of VaR, by risk type, for the six months ended 30 September 2009, 31 March 2009 and 30 September 2008:

	30 September 2009				31 March 2009				30 September 2008
	High	Low	Average		High	Low	Average		High	Low	Average
Six months ended	$m	$m	$m		$m	$m	$m		$m	$m	$m
Interest rate risk	59.9	24.2	37.7		52.4	17.3	31.3		29.3	8.2	20.4
Foreign exchange risk	10.8	1.2	5.4		16.0	2.6	7.9		20.1	1.9	9.4
Equity risk	2.0	1.0	1.4		4.5	1.0	2.3		4.5	1.6	2.9
Commodity risk(1)	6.4	1.0	3.6		6.1	1.0	2.8		4.1	1.2	2.5
Other market risks(2)	26.0	17.7	21.4		48.2	17.3	28.2		30.2	7.8	17.8
Diversification effect	n/a	n/a	(29.7	)	n/a	n/a	(31.3	)	n/a	n/a	(26.9	)
Net market risk	54.5	23.7	39.8		56.5	28.2	41.2		38.3	19.1	26.0

(1)Includes Electricity risk.

(2)Includes prepayment risk and credit spread risk (exposure to movements is generic credit rating bands).

VaR numbers include St.George trading positions from 18 November 2008 on an additive basis. The impact of this inclusion on the overall VaR is small, with St.George risk typically being less than 5% of the total.

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The graph below compares the actual profit and loss from trading activities on a daily basis to VaR over the reporting period:

Each point on the graph represents one day’s profit and loss from trading activities. The 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. Therefore any point below the line represents a back-test exception (i.e. where the loss is greater than VaR).

Commodity, Carbon and Energy trading

Commodity, Carbon and Energy trading (CCE) activity is part of our Financial Markets business. All trades are marked-to-market daily, using independently sourced or reviewed rates. Rates are compared to Australian Financial Market Association (AFMA) published prices, brokers’ quotes, and futures prices as appropriate. Rates that have limited independent sources are reviewed on a regular basis by the Westpac Institutional Bank Revaluation Committee. These businesses are managed within market risk structural and VaR limits. Credit risk is controlled by pre-settlement risk limits by counterparty.

CCE trading activities include electricity, gas, oil, emission, agricultural products, base metals and precious metals. These activities involve dealings in swaps, options, swaptions, Asian options and futures. Energy trading also includes Settlement Residue Auctions (SRAs) and Renewable Energy Certificates (RECs). Trading on the European and US Markets is limited to the futures markets.

The total fair value of commodity and energy contracts outstanding as at 30 September 2009 were a net asset of $27 million; at 30 September 2008 the outstanding contracts were a net asset of $1 million.

Non-trading risk

Non-traded market risk (interest rate risk in the banking book)

Non traded market risk is the risk to interest income generated by a mismatch in the duration of the assets and liabilities that arises in the normal course of activities in the banking book.

Group Treasury is responsible for managing market risk arising from Westpac’s banking book activity.

The table below depicts the aggregate VaR for non-traded market rate risk for the six months ended 30 September 2009, 31 March 2009, and 30 September 2008:

				Consolidated
	30 September 2009			31 March 2009			30 September 2008
	High	Low	Average	High	Low	Average	High	Low	Average
	$m	$m	$m	$m	$m	$m	$m	$m	$m
Half year ended	20.8	1.9	10.3	16.9	2.3	7.1	9.8	1.1	3.8

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Other risks

Equity underwriting and warehousing risk

As a financial intermediary, we have the ability to underwrite the issue of equity instruments and to acquire assets in anticipation of refinancing through a combination of debt and external equity. Where we warehouse an asset, we remain the principal owner until such time as the required equity component is sold down. We have policies and processes in place to manage the risks associated with these activities, including potential conflicts of interest.

Special purpose entities

We are associated with a number of special purpose entities (also known as special purpose vehicles or SPVs) in the ordinary course of business, primarily to provide funding and financial services products to our customers.

SPVs are typically set up for a single, pre-defined purpose, have a limited life and generally are not operating entities nor do they have employees. The most common form of SPV structure involves the acquisition of financial assets by the SPV that are funded by the issuance of securities to external investors (securitisation). Repayment of the securities is determined by the performance of the assets acquired by the SPV.

Under A-IFRS, an SPV is consolidated and reported as part of the Westpac Group if it is controlled by the parent entity in line with AASB 127 or deemed to be controlled in applying UIG Interpretation 112 Consolidation - Special Purpose Entities. The definition of control is based on the substance rather than the legal form. Refer to Note 1 to the financial statements for a description of how we apply the requirements to evaluate whether to consolidate SPVs and to Note 32 to the financial statements for further details of consolidated SPVs.

In the ordinary course of business, we have established or sponsored the establishment of SPVs in relation to securitisation, as detailed below. Capital is held, as appropriate, against all SPV-related transactions and exposures.

Asset securitisation

Through our loan securitisation programmes we package equitable interests in loans (principally housing mortgage loans) as securities which are sold to investors. We provide arm’s length interest rate swaps and liquidity facilities to the programmes in accordance with relevant prudential guidelines. We have no obligation to repurchase any securitisation securities, other than in certain circumstances (excluding loan impairment) where there is a breach of representation or warranty within 120 days of the initial sale (except in respect of our programme in New Zealand which imposes no such time limitation). We may remove interests in loans where they cease to conform with the terms and conditions of the securitisation programmes or through a programme’s clean-up features.

As at 30 September 2009, own assets securitised through a combination of internally, privately or publicly placed issues to Australian, New Zealand, European and United States investors was $14.3 billion (2008 $4.7 billion).

Under A-IFRS the majority of the SPVs involved in our loan securitisation programmes are consolidated by the Group.

Customer funding conduits

We arrange financing for certain customer transactions through a commercial paper conduit that provides customers with access to the commercial paper market. As at 30 September 2009, we administered one significant conduit (2008 one), that was created prior to 1 February 2003, with commercial paper outstanding of $2.4 billion (2008 $4.1 billion). We provide a letter of credit facility as credit support to the commercial paper issued by the conduit. This facility is a variable interest in the conduit that we administer and represents a maximum exposure to loss of $244 million as at 30 September 2009 (2008 $415 million). The conduit is consolidated by the Group.

Refer to Note 32 to the financial statements for further details.

Structured finance transactions

We are involved with numerous SPVs to provide financing to customers or to provide financing to the Group. Any financing arrangements to customers are entered into under normal lending criteria and are subject to our normal credit approval processes. The assets arising from these financing activities are generally included in due from other financial institutions or available-for-sale securities. The liabilities arising from these financing activities are generally included in due to other financial institutions, debt issues or financial liabilities designated at fair value. Exposures in the form of guarantees or undrawn credit lines are included within contingent liabilities and credit-related commitments.

Off-balance sheet arrangements

Wealth management activity

Refer to Note 38 to the financial statements for details of our wealth management activities.

Other off-balance sheet arrangements

Refer to Note 36 to the financial statements for details of our superannuation plans.

Operational risk

Operational risk arises from inadequate or failed internal processes, people and systems or from external events. Operational risk has the potential to positively or negatively impact our customers, our financial performance and our reputation in the community.

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Each business area is responsible for the identification, measurement, management, monitoring and reporting of operational risk using a defined operational risk framework. The framework also defines principles, processes, controls and roles and responsibilities for meeting our obligations under the law based on the letter and spirit of the regulatory standards governing Westpac as a financial services group.

The implementation of the Operational Risk Management Framework is based on a behaviour and performance culture of individual accountability and responsibility for operational risk management as part of day-to-day activities.

On a periodic basis, management in each of our business areas formally report on the effectiveness of their management of operational risk. The results are reported quarterly to Business Unit and Group Operational Risk and Compliance Committees and the BRMC, and annually by way of certification to APRA.

Some of the key management and control techniques include system access controls, segregation of duties, clear delegation of authority, sound project management, detective capabilities and business continuity planning. Where appropriate, this is supported by risk transfer mechanisms such as insurance. Our control environment is enhanced by a focus on staff competency and supervision.

Our internal audit function independently appraises the adequacy and effectiveness of the internal control environment and reports its results separately to our CEO and our BRMC.

Compliance risk

Compliance risk is the risk of failing to comply with all applicable legal and regulatory requirements and industry codes of practice and to meet our ethical standards.

Our compliance program forms part of a broader integrated risk management framework and is driven by high standards of principle and practice that apply to all management and staff. A key principle is that compliance is about not only complying with the letter of the law, but also embracing the spirit of the regulatory standards that apply.

At Westpac, we assess the impact of changes in the regulatory environment on a continuous basis. We implement compliance requirements in the way our staff conduct themselves and the way in which our systems and processes are designed and operate.

The key components of the compliance framework are:

·the governance environment (including oversight, culture and accountabilities);

·identification of risks and controls through monitoring and communicating regulatory and business developments;

·documenting requirements in compliance plans, policies and procedures;

·internal monitoring and reporting activities (such as breach escalation, management and remediation processes); and

·compliance controls (policies, procedures, training and documentation).

Primary responsibility for the implementation of compliance requirements resides with line management, who are required to demonstrate that they have effective processes in place. Further, each staff member owns compliance within their sphere of influence and activity.

Within each major business area there is a dedicated operational risk and compliance function designed to guide compliance within that business. Group management oversight is provided by the Group Operational Risk and Compliance Committee, which establishes the compliance framework and policies, and oversees compliance effectiveness across the Group. Group Operational Risk and Compliance is responsible for the administration of that framework. Within Group Operational Risk and Compliance a regulatory affairs function exists which manages relationships with regulators as well as the framework for the businesses’ response to new regulatory developments. The Federal Government has embarked on a program of regulatory reform which will affect Westpac. This includes credit law reform, the introduction of an unfair contracts regime in relation to contracts with consumers, margin lending reform, superannuation changes, and the introduction of a new regulatory framework for personal property securities.

Reputation risk

Reputation risk is the risk to earnings or capital arising from negative public opinion resulting from the loss of reputation or public trust and standing. This risk encompasses social, ethical and environmental risks arising out of areas such as people management, climate change governance, and supply chain management.

Contagion risk

Contagion risk is the risk that problems arising in other Westpac Group members compromise the financial and operational position of the ADIs in the Westpac Group.

US Sarbanes-Oxley Act

The US Congress passed the Public Company Accounting Reform and Investor Protection Act in July 2002, which is commonly known as the Sarbanes Oxley Act 2002 (SOX). SOX is a wide ranging piece of US legislation concerned largely with financial reporting and corporate governance. We are obligated to comply with SOX by virtue of being a foreign

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registrant with the SEC and we have established procedures designed to ensure compliance with all applicable requirements of SOX.

Disclosure controls and procedures

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the US Securities Exchange Act of 1934) as of 30 September 2009.

Based upon this evaluation, our CEO and CFO have concluded that the design and operation of our disclosure controls and procedures were effective as of 30 September 2009.

Internal control over financial reporting

Rule 13a-15(a) under the US Securities Exchange Act of 1934 requires us to maintain an effective system of internal control over financial reporting. Please refer to the sections headed ‘Management’s report on internal control over financial reporting’ and ‘Report of independent registered public accounting firm’ for those reports.

Changes in our internal control over financial reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the US Securities Exchange Act of 1934) for the year ended 30 September 2009 that has been identified that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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OTHER WESTPAC BUSINESS INFORMATION

Employees

The number of employees in each area of business as at 30 September(1):

	2009	2008	2007
WRBB	11,803	11,365	10,747
St.George Bank	5,236	—	—
BTFG	3,949	2,872	3,138
WIB	3,061	2,878	2,708
New Zealand Banking	4,540	4,674	4,538
Other	8,443	6,513	6,887
Total employees	37,032	28,302	28,018

(1)The number of employees includes core and implied full time equivalent (FTE) staff (including FTE working on merger integration projects). Core FTE includes overtime and pro-rata part time staff. Implied FTE includes temporary and contract staff.

2009 v 2008

Total FTE increased by 8,730 compared to 30 September 2008. This was primarily as a result of the merger with St.George and associated merger integration projects.

Specifically, the movement comprised:

·an additional 438 FTE in WRBB, associated with the investment in distribution including the increase in specialist relationship bankers and customer serving employees;

·an additional 183 FTE in WIB. FTE increased by 215 as a result of the merger with St.George and 49 additional FTE related to integration projects, with the residual decrease of 81 FTE the result of merger efficiencies;

·an additional 1,077 FTE in BTFG. FTE increased by 982 as a result of the merger with St.George and 193 additional FTE related to integration projects, with the residual decrease of 98 FTE driven by efficiency and merger initiatives;

·an additional 5,236 FTE in St.George Bank following the merger with St.George;

·an additional 1,930 FTE in Core Support. FTE increased by 1,777 as a result of the merger with St.George and 552 additional FTE related to integration projects. The residual decrease of 399 FTE was as a result of FTEs reductions through merger synergies, partially offset by an increase in Westpac Assist and collections FTE to accommodate higher activity in these areas; and

·a reduction of 134 FTE in New Zealand as a result of lower business activity.

2008 v 2007

Group FTE increased by 284 compared to 30 September 2007. This was driven by an increase of 353 customer serving employees in WIB and WRBB, offset by reductions in BTFG and various support functions across the Group. Specific changes included:

·an additional 618 FTE in WRBB with increases of 38 across the branch network and 132 from the RAMS franchise distribution business acquisition as well as an increase of 219 business customer serving employees, reflecting the increase in specialist relationship bankers;

·an additional 170 FTE in WIB, primarily customer serving employees; and

·an additional 136 FTE in New Zealand, including 57 customer serving employees in the consumer and business banking segments and call centres and non-customer serving employees associated with the increased focus on credit management and the planning and coordination of the new Auckland head office.

Partially offset by:

·a reduction of 266 FTE in BTFG as the business responded to lower revenue growth due to the change in market conditions; and

·a reduction of 374 FTE in Core Support, driven by productivity initiatives during the year.

Westpac operates under a number of enterprise agreements which were certified by the Australian Industrial Relations Commission (AIRC) in 2002. Whilst these agreements have passed their nominal expiry, they remain in force until they are replaced or terminated by Fair Work Australia (which replaced the AIRC). Improvement in employees’ terms and conditions has continued to occur through policy. The majority of employees employed by St.George continue to be covered by an enterprise agreement which has a nominal expiry dated of October 2010. In October 2009, Westpac commenced formal discussions with the Finance Sector Union over the terms of new enterprise agreements to cover employees within Westpac and these discussions are expected to continue for some months.

In New Zealand, there are Individual Employment Agreements (IEAs) with employees who are not union members and also a Collective Employment Agreement (CEA) with the Finance and Insurance Sector Union (Finsec). The current CEA was ratified with a vote of more than 90% in favour and came into effect on 1 August 2009 with expiry on 31 July 2010. The current CEA covers approximately 50% of our employees within the Retail and Customer & Technology Services business units.

There was no industrial action in our businesses in Australia and New Zealand in the financial year ended 30 September 2009. We continue to have a business-like and professional relationship with the Finance Sector Union in Australia and Finsec in New Zealand.

Property

We occupy premises primarily in Australia, New Zealand and the Pacific Islands including 1,491 branches, (2008 1,089) as at 30 September 2009. As at 30 September 2009, we owned approximately 4% of the premises we occupied in Australia, none in New Zealand and 28% in the Pacific Islands. The remainder of premises are held under commercial lease with the terms generally averaging five years. As at 30 September 2009, the carrying value of our directly owned premises and sites was approximately $307 million.

Westpac Place in Sydney CBD is the Group’s head office and has a 6,032 seat capacity. In 2006 we signed a 12 year lease, which commenced in November 2006 and contains three six-year options to extend. Westpac Place is one of a portfolio of properties owned by the Westpac

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Office Trust. This trust and its securities are listed on the ASX and Westpac Funds Management Limited, a wholly owned subsidiary of Westpac, is the responsible entity of the trust.

In connection with the merger with St.George Bank Limited, we have retained a corporate presence in Kogarah, in the Sydney Metro area, which is a key corporate office of St.George. The St.George head office has a 2,300 seat capacity. A lease commitment at this site extends to 2021 with five five-year options to extend.

Westpac New Zealand Head Office

Construction of WNZL’s new Head Office premises is well underway. On 4 October 2006 we executed Agreements to Build and Lease with members of the Britomart Group of Companies in respect of approximately 21,000m(2) of office space across two buildings to be developed at the Eastern end of Britomart Precinct near Customs Street in Auckland, New Zealand. The project involves the fitout of the building and relocation of approximately 1,500 staff to the new site, which has been named ‘Westpac on Takutai Square’.

The first stage (8,300m2) was completed in late 2008, and by March 2009 650 personnel from five different locations around the greater Auckland area had been moved into the building.

The second stage (East 1) commenced in July 2008 and is scheduled for completion late 2010, with migration of staff commencing March 2011. Building fitout works for the second stage have been completely integrated into the base build as part of Westpac’s focus on cost effectiveness and environmental sustainability. Construction is on budget and forecast to meet or exceed timelines at overall completion.

Outsourcing contracts

Westpac’s significant long-term contracts are summarised in Note 35 to the financial statements.

Related party disclosures

Details of our related party disclosures are set out in Note 41 to the financial statements and details of Directors’ interests in securities are set out in Note 42 to the financial statements. The related party disclosures relate principally to transactions with our Directors and Director-related parties as we do not have individually significant shareholders and our transactions with other related parties are not significant.

Other than as disclosed in Note 41 and Note 42 to the financial statements, if applicable, loans made to parties related to Directors and other key management personnel of Westpac are made in the ordinary course of business on normal terms and conditions (including interest rates and collateral). Loans are made on the same terms and conditions (including interest rates and collateral) as apply to other employees and certain customers in accordance with established policy. These loans do not involve more than the normal risk of collectability or present any other unfavourable features.

Auditor’s remuneration

Auditor’s remuneration, including goods and services tax, to the external auditor for the years ended 30 September 2009 and 2008 is provided in Note 34 to the financial statements.

Audit related services

Westpac Group Secretariat continually monitors the application of the pre-approval process in respect of audit, audit-related and non-audit services provided by PricewaterhouseCoopers and promptly brings to the attention of the Board Audit Committee any exceptions that need to be approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. Westpac Group Secretariat ensures the pre-approval guidelines are communicated to Westpac’s divisions through publication on the Westpac intranet.

During the year ended 30 September 2009, there were no fees paid by Westpac to PricewaterhouseCoopers (PwC) that required approval by the Board Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

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ADDITIONAL FINANCIAL INFORMATION

Selected consolidated financial and operating data

Under applicable US disclosure requirements, we are required to include in this Annual Report certain financial and operating data covering a period of five years. In our 2008 Annual Report we modified the presentation of loans and provisions for impairment charges by industry to align external reporting with the basis of presentation for internal reporting. We restated the presentation for the year ended 30 September 2007, but it was impractical to restate the disclosures for the financial years ended 30 September 2006 and 2005.

The operating data set forth below is derived from our audited financial statements (and accompanying notes) as of and for the financial years ended 30 September 2007, 2006 and 2005. In our 2008 Annual Report, loan products that have both a mortgage and deposit facility were presented on a gross basis in the balance sheet. This represented a change in presentation from that adopted in previous years and resulted in an increase in Australian real estate mortgage loans by $2.8 billion at 30 September 2007, $1.9 billion at 30 September 2006 and $4.6 billion at 30 September 2005. To review all five years of historical data on a consistent basis, refer to the 2007 Annual Report on our website at www.westpac.com.au or on the web site maintained by the SEC at www.sec.gov.

Loans

	Consolidated
	2007		2006		2005
	$m		$m		$m
Loans by type of customer
Australia
Government and other public authorities	415		278		190
Agriculture, forestry and fishing	3,775		2,954		2,394
Commercial and financial	80,009		65,244		49,828
Real estate – construction	2,458		2,734		2,159
Real estate – mortgage	113,396		98,352		86,751
Instalment loans and other personal lending	24,633		23,777		22,428
	224,686		193,339		163,750
Lease financing	4,345		4,216		4,201
Total loans - Australia	229,031		197,555		167,951
Overseas
Government and other public authorities	535		387		446
Agriculture, forestry and fishing	4,037		3,449		2,908
Commercial and financial	14,522		11,567		10,770
Real estate – construction	427		445		457
Real estate – mortgage	25,522		22,013		19,967
Instalment loans and other personal lending	2,645		2,145		2,053
	47,688		40,006		36,601
Lease financing	27		19		14
Total overseas	47,715		40,025		36,615
Total loans	276,746		237,580		204,566
Provisions on loans	(1,369	)	(1,200	)	(1,729	)
Total net loans	275,377		236,380		202,837

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Provisions for impairment charges

	Consolidated
	2007		2006		2005
	$m	%	$m	%	$m	%
Individually assessed provision by type of customer
Australia
Agriculture, forestry and fishing	3	0.2	5	0.4	2	0.1
Commercial and financial	82	5.3	109	8.0	134	7.7
Real estate – construction	1	0.1	1	0.1	1	0.1
Real estate – mortgage	3	0.2	6	0.4	5	0.3
Instalment loans and personal lending	1	0.1	2	0.1	16	0.9
Total Australia	90	5.9	123	9.0	158	9.1
New Zealand
Agriculture, forestry and fishing	1	0.1	—	—	1	0.1
Commercial and financial	12	0.8	9	0.7	8	0.5
Real estate – mortgage	3	0.2	2	0.1	5	0.3
Instalment loans and other personal lending	6	0.4	3	0.2	4	0.2
Total New Zealand	22	1.5	14	1.0	18	1.1
Other overseas
Agriculture, forestry and fishing	—	—	—	—	—	—
Commercial and financial	36	2.3	21	1.5	22	1.2
Instalment loans and personal lending	—	—	6	0.4	1	0.1
Total other overseas	36	2.3	27	1.9	23	1.3
Total overseas	58	3.8	41	2.9	41	2.4
Total individually assessed provisions	148	9.7	164	11.9	199	11.5
Total collectively assessed provisions	1,410	90.3	1,194	88.1	1,530	88.5
Total provisions for impairment charges and credit commitments	1,558	100.0	1,358	100.0	1,729	100.0

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	Consolidated
	2007		2006		2005
	$m		$m		$m
Balance of provisions for impairment charges
(Individually and collectively assessed) as at beginning of the year	1,358		1,184		1,724
Write-offs	(371	)	(295	)	(417	)
Recoveries	22		25		86
Charge to income statement	482		375		382
Discount unwind	115		94		—
Exchange rate and other adjustments	(48	)	(25	)	(46	)
Balance of provisions for impairment charges as at end of the year	1,558		1,358		1,729
Write-offs and recoveries
Write-offs
Australia
Agriculture, forestry and fishing	(5	)	(7	)	(4	)
Commercial and financial(1)	(84	)	(82	)	(113	)
Real estate – construction	(2	)	(1	)	(4	)
Real estate – mortgage	(12	)	(6	)	(3	)
Instalment loans and other personal lending	(252	)	(192	)	(251	)
Total Australia	(355	)	(288	)	(375	)
New Zealand
Commercial and financial(1)	(3	)	(4	)	—
Real estate – construction	—		—		(2	)
Instalment loans and other personal lending	(3	)	(2	)	(30	)
Total New Zealand	(6	)	(6	)	(32	)
Total other overseas	(10	)	(1	)	(10	)
Total write-offs	(371	)	(295	)	(417	)
Recoveries
Australia
Commercial and financial(1)	6		10		11
Instalment loans and other personal lending	16		11		59
Australia	22		21		70
New Zealand	—		3		14
Other overseas	—		1		2
Total recoveries	22		25		86
Net write-offs and recoveries	(349	)	(270	)	(331	)

(1)Lease finance write-offs and recoveries, which are not significant, were included in the ‘Commercial and financial’ category.

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Section 3

Financial report for the year ended 30 September 2009

Contents
Financial statements
Income statements
Balance sheets
Statements of recognised income and expense
Cash flow statements
Notes to the financial statements
Note 1	Summary of significant accounting policies
Note 2	Net interest income
Note 3	Non-interest income
Note 4	Operating expenses
Note 5	Income tax
Note 6	Dividends
Note 7	Earnings per share
Note 8	Due from other financial institutions
Note 9	Trading securities and other financial assets designated at fair value
Note 10	Available-for-sale securities
Note 11	Loans
Note 12	Provisions for impairment charges
Note 13	Goodwill and other intangible assets
Note 14	Property, plant and equipment
Note 15	Deferred tax assets and deferred tax liabilities
Note 16	Other assets
Note 17	Due to other financial institutions
Note 18	Deposits
Note 19	Trading liabilities and other financial liabilities designated at fair value
Note 20	Provisions
Note 21	Other liabilities
Note 22	Debt issues
Note 23	Loan capital
Note 24	Shareholder equity and minority interests
Note 25	Detail of changes in shareholders’ equity
Note 26	Share-based payments
Note 27	Average balances and related interest
Note 28	Financial risk
Note 28.1  Approach to risk management
Note 28.2  Credit risk management
Note 28.3  Funding and liquidity risk management
Note 28.4  Market risk
Note 29	Fair values of financial assets and liabilities
Note 30	Derivative financial instruments
Note 31	Capital adequacy
Note 32	Securitisation
Note 33	Group segment information
Note 34	Auditor’s remuneration
Note 35	Expenditure commitments
Note 36	Superannuation commitments
Note 37	Contingent liabilities, contingent assets and credit commitments
Note 38	Fund management activities
Note 39	Group entities
Note 40	Other group investments
Note 41	Related party disclosures
Note 42	Director and other key management personnel disclosures
Note 43	Notes to the cash flow statements
Note 44	Merger with St.George Bank Limited
Note 45	Subsequent events
Statutory statements
Directors’ declaration
Management’s report on internal control over financial reporting
Independent Auditor’s report
Report of independent registered public accounting firm

121

FINANCIAL STATEMENTS

Income statements for the years ended 30 September

Westpac Banking Corporation

		Consolidated						Parent Entity
		2009		2008		2007		2009		2008
	Note	$m		$m		$m		$m		$m
Interest income	2	30,446		29,081		22,075		22,009		25,743
Interest expense	2	(18,800	)	(21,859	)	(15,762	)	(14,460	)	(19,679	)
Net interest income		11,646		7,222		6,313		7,549		6,064
Non-interest income	3	4,859		4,383		4,006		2,734		3,837
Net operating income before operating expenses and impairment charges		16,505		11,605		10,319		10,283		9,901
Operating expenses	4	(7,171	)	(5,455	)	(4,689	)	(4,524	)	(4,324	)
Impairment charges	12	(3,238	)	(931	)	(482	)	(2,018	)	(775	)
Profit before income tax		6,096		5,219		5,148		3,741		4,802
Income tax expense	5	(2,579	)	(1,287	)	(1,630	)	(1,704	)	(1,158	)
Net profit for the year		3,517		3,932		3,518		2,037		3,644
Profit attributable to minority interests		(71	)	(73	)	(67	)	—		—
Net profit attributable to equity holders of Westpac Banking Corporation		3,446		3,859		3,451		2,037		3,644
Earnings (in cents) per share
Basic	7	125.3		206.0		186.9
Diluted	7	123.2		200.1		185.3

The above income statements should be read in conjunction with the accompanying notes.

122

Balance sheets as at 30 September

Westpac Banking Corporation

		Consolidated				Parent Entity
		2009		2008		2009		2008
	Note	$m		$m		$m		$m
Assets
Cash and balances with central banks	43	3,272		4,809		2,578		4,502
Due from other financial institutions	8	18,309		21,345		12,366		16,319
Derivative financial instruments	30	33,187		34,810		30,852		34,654
Trading securities	9	34,779		39,534		29,906		36,338
Other financial assets designated at fair value	9	3,063		2,547		1,411		1,480
Available-for-sale securities	10	1,630		1,613		462		540
Loans for consumer purposes	11	300,249		187,245		181,091		159,080
Loans for business purposes	11	163,210		126,300		112,600		113,717
Life insurance assets		12,384		12,547		—		—
Regulatory deposits with central banks overseas		766		927		737		885
Due from subsidiaries		—		—		83,228		22,789
Current tax assets		—		77		—		161
Deferred tax assets	15	1,985		756		1,700		432
Investments in subsidiaries		—		—		18,751		4,258
Goodwill and other intangible assets	13	11,541		2,989		1,213		1,117
Property, plant and equipment	14	888		505		464		396
Other assets	16	4,324		3,672		2,413		2,916
Total assets		589,587		439,676		479,772		399,584
Liabilities
Due to other financial institutions	17	9,235		15,861		8,368		14,880
Deposits at fair value	18	58,491		60,011		55,632		56,523
Deposits at amortised cost	18	270,965		173,719		180,581		149,069
Derivative financial instruments	30	36,478		24,970		33,354		24,980
Trading liabilities and other financial liabilities designated at fair value	19	10,848		16,689		9,082		16,628
Debt issues	22	131,353		96,398		96,770		77,747
Acceptances		1,671		3,971		1,392		3,971
Current tax liabilities		1,932		—		1,878		—
Deferred tax liabilities	15	35		—		26		—
Life insurance liabilities		11,737		11,953		—		—
Due to subsidiaries		—		—		45,224		24,255
Provisions	20	1,628		1,106		1,120		956
Other liabilities	21	7,505		6,809		5,091		5,066
Total liabilities excluding loan capital		541,878		411,487		438,518		374,075
Loan capital
Subordinated bonds, notes and debentures	23	8,127		6,545		6,468		7,211
Subordinated perpetual notes	23	443		486		443		486
Trust Preferred Securities	23	647		666		—		—
Stapled Preferred Securities	23	1,921		1,021		1,921		1,021
Total loan capital		11,138		8,718		8,832		8,718
Total liabilities		553,016		420,205		447,350		382,793
Net assets		36,571		19,471		32,422		16,791
Shareholders’ equity
Share capital:
Ordinary share capital	24	23,684		6,744		23,684		6,744
Treasury shares and RSP treasury shares	24	(188	)	(151	)	(117	)	(99	)
Reserves	25	(56	)	256		(110	)	194
Retained profits	25	11,197		10,698		7,073		8,060
Convertible debentures	24	—		—		1,892		1,892
Total equity attributable to equity holders of Westpac Banking Corporation		34,637		17,547		32,422		16,791
Minority interests	24	1,934		1,924		—		—
Total shareholders’ equity and minority interest		36,571		19,471		32,422		16,791
Contingent liabilities, contingent assets and credit commitments	37

The above balance sheets should be read in conjunction with the accompanying notes.

123

Statements of recognised income and expense for the years ended 30 September

Westpac Banking Corporation

		Consolidated						Parent Entity
		2009		2008		2007		2009		2008
	Note	$m		$m		$m		$m		$m
Gains/(losses) on available-for-sale securities:
Recognised in equity	25	33		33		(6	)	(5	)	29
Transferred to income statements	25	18		3		(20	)	13		(1	)
Gains/(losses) on cash flow hedging instruments:		—						—
Recognised in equity	25	(435	)	(220	)	124		(348	)	(44	)
Transferred to income statements	25	(11	)	(5	)	12		(4	)	2
Defined benefit obligation actuarial gains/(losses) recognised in equity	25	59		(539	)	69		49		(509	)
Exchange differences on translation of foreign operations	25	(121	)	86		(179	)	(152	)	68
Income tax on items taken directly to or transferred directly from equity:
Available-for-sale securities reserve	25	(15	)	(21	)	9		(4	)	(21	)
Cash flow hedging reserve	25	136		67		(37	)	105		12
Defined benefit obligation	25	(18	)	161		(20	)	(15	)	153
Foreign currency translation reserve	25	7		17		48		30		(17	)
Net income recognised directly in equity		(347	)	(418	)	—		(331	)	(328	)
Net profit for the year		3,517		3,932		3,518		2,037		3,644
Total net income recognised for the year		3,170		3,514		3,518		1,706		3,316
Attributable to:
Members of the parent		3,099		3,441		3,451		1,706		3,316
Minority interests		71		73		67		—		—
Total net income recognised for the year		3,170		3,514		3,518		1,706		3,316

The above statements of recognised income and expense should be read in conjunction with the accompanying notes.

124

Cash flow statements for the years ended 30 September

Westpac Banking Corporation

	Consolidated						Parent Entity
	2009		2008		2007		2009		2008
	$m		$m		$m		$m		$m
Cash flows from operating activities
Interest received	30,762		28,765		21,862		22,259		25,496
Interest paid	(19,149	)	(21,389	)	(15,493	)	(14,827	)	(19,153	)
Dividends received excluding life business	21		15		14		46		613
Other non-interest income received	3,575		3,139		2,885		1,929		2,474
Operating expenses paid	(5,250	)	(4,244	)	(3,674	)	(3,641	)	(3,362	)
Net decrease/(increase) in trading and fair value assets	9,852		(17,997	)	(5,735	)	6,511		(17,825	)
Net (decrease)/increase in trading and fair value liabilities	(13,104	)	8,470		5,562		(8,266	)	8,394
Net decrease/(increase) in derivative financial instruments	15,000		(6,214	)	(5,591	)	10,162		(5,377	)
Income tax paid excluding life business	(1,346	)	(1,574	)	(1,485	)	(840	)	(1,495	)
Life business:
Receipts from policyholders and customers	2,679		2,646		3,236		—		—
Interest and other items of similar nature	29		36		39		—		—
Dividends received	489		848		1,104		—		—
Payments to policyholders and suppliers	(2,732	)	(3,148	)	(3,914	)	—		—
Income tax paid	(65	)	(80	)	(85	)	—		—
Net cash provided by/(used in) operating activities	20,761		(10,727	)	(1,275	)	13,333		(10,235	)
Cash flows from investing activities
Proceeds from sale of available-for-sale securities	5,417		4,514		2,431		679		811
Purchase of available-for-sale securities	(3,271	)	(4,875	)	(4,009	)	(647	)	(685	)
Net (increase)/decrease in:
Due from other financial institutions	5,152		7,376		(16,603	)	2,601		5,773
Loans	(35,345	)	(39,198	)	(41,284	)	(23,852	)	(35,211	)
Life insurance assets	(33	)	467		(261	)	—		—
Regulatory deposits with central banks overseas	30		(81	)	(358	)	22		(69	)
Other assets	(3,747	)	3,308		(528	)	(2,425	)	2,727
Due from controlled entities	—		—		—		(48,308	)	(21,566	)
Investments in controlled entities	—		—		—		(14,493	)	(186	)
Purchase of intangible assets	(295	)	(313	)	(251	)	(224	)	(233	)
Purchase of property, plant and equipment	(285	)	(195	)	(147	)	(186	)	(163	)
Proceeds from disposal of property, plant and equipment	19		64		6		9		32
Controlled entities and businesses disposed, net of cash held and transaction costs	—		70		—		—		—
Partial disposal of controlled entities	—		229		—		—		—
Controlled entities and businesses acquired, net of cash held	—		(137	)	—		—		—
Merger with St.George, net of transaction costs	374		—		—		—		—
Net cash used in investing activities	(31,984	)	(28,771	)	(61,004	)	(86,824	)	(48,770	)
Cash flows from financing activities
Issue of loan capital (net of issue costs)	897		476		2,223		897		475
Redemption of loan capital	(1,869	)	—		—		(850	)	—
Proceeds from share placement and share purchase plan	2,890		—		—		2,890		—
Purchase from exercise of employee options	10		29		37		10		29
Purchase of shares on exercise of employee options and rights	(10	)	(132	)	(73	)	(10	)	(132	)
Net increase/(decrease) in:
Due to other financial institutions	(12,562	)	5,762		(2,493	)	(7,147	)	6,160
Deposits	20,427		30,344		35,278		32,438		28,013
Debt issues	3,327		6,817		28,943		23,457		11,876
Other liabilities	(1,468	)	710		(673	)	77		635
Due to controlled entities	—		—		—		20,969		15,802
Purchase of treasury shares	(41	)	(57	)	(91	)	(18	)	(57	)
Sale of treasury shares	7		20		28		—		—
Payment of dividends - Westpac shareholders	(1,973	)	(1,872	)	(1,630	)	(2,043	)	(1,945	)
DRP underwritten	887		—		—		887		—
Payment of dividends - former St.George shareholders	(708	)	—		—		—		—
Payment of dividends to minority interests	(71	)	(73	)	(67	)	—		—
Net cash (used in)/provided by financing activities	9,743		42,024		61,482		71,557		60,856
Net (decrease)/increase in cash and cash equivalents	(1,480	)	2,526		(797	)	(1,934	)	1,851
Effect of exchange rate changes on cash and cash equivalents	(57	)	40		(92	)	10		22
Cash and cash equivalents as at the beginning of the period	4,809		2,243		3,132		4,502		2,629
Cash and cash equivalents as at the end of the period	3,272		4,809		2,243		2,578		4,502

The above cash flow statements should be read in conjunction with the accompanying notes.

125

NOTES TO THE FINANCIAL STATEMENTS

Note 1. Summary of significant accounting policies

a.Basis of accounting

(i)General

This general purpose financial report has been prepared in accordance with the requirements for an authorised deposit-taking institution under the Banking Act 1959 (as amended), A-IFRS, other authoritative pronouncements of the Australian Accounting Standards Board (AASB), Urgent Issues Group Interpretations and the Corporations Act 2001.

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

This financial report also complies with International Financial Reporting Standards (IFRS) as issued by the IASB.

Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

This financial report also includes additional disclosures required by the United States Securities and Exchange Commission in respect of foreign registrants. References to standards and interpretations under A-IFRS in this financial report have similar references in the standards and interpretations of IFRS as issued by the IASB.

This financial report of Westpac Banking Corporation (the Parent Entity), together with its controlled entities (the Group or Westpac), for the year ended 30 September 2009 was authorised for issue by the Board of Directors on 4 November 2009.

(ii)Adoption of new and revised accounting policies

Interpretation 13 Customer Loyalty Programmes was adopted in the year ended 30 September 2009. Interpretation 13 addresses how companies that grant their customers loyalty award credits when buying goods and services should account for the obligation. The change in accounting policy has been applied retrospectively in accordance with the transitional provisions of the interpretation.

In the year ended 30 September 2009, the Group changed its accounting policy for actuarial gains and losses on its employee defined benefit superannuation plans. The revised policy brings to account all actuarial gains/losses outside of the profit and loss directly in the statement of recognised income and expense. The Group has adopted this change in accounting policy so that the full surplus or deficit as calculated in accordance with AASB 119, is recognised on the balance sheet. Previously the Group applied the corridor approach.

The new policies have been applied retrospectively for the Group and the Parent Entity. The comparative information in relation to the 2008 and 2007 financial years has been restated for the Group and the comparative information in relation to the 2008 financial year has been restated for the Parent. The opening balance sheet was restated from 1 October 2006 for the Group and 1 October 2007 for the Parent.

Comparative information in relation to the 2008 financial year has also been restated accordingly for the Parent Entity and the below adjustments were made as at 30 September 2008 and 1 October 2007.

	Consolidated												Parent Entity
	2008 Previously Reported		Profit Increase/ (Decrease)		2008 Restated		2007 Previously Reported		Profit Increase/ (Decrease)		2007 Restated		2008 Previously Reported		Profit Increase/ (Decrease)		2008 Restated
	$m		$m		$m		$m		$m		$m		$m		$m		$m
Income statement (extract)
Net-interest income	7,222		—		7,222		6,313		—		6,313		6,064		—		6,064
Non-interest income	4,198		185		4,383		3,860		146		4,006		3,652		185		3,837
Total operating expenses and impairment charges	(6,201	)	(185	)	(6,386	)	(5,025	)	(146	)	(5,171	)	(4,914	)	(185	)	(5,099	)
Profit before income tax	5,219		—		5,219		5,148		—		5,148		4,802		—		4,802
Income tax expenses	(1,287	)	—		(1,287	)	(1,630	)	—		(1,630	)	(1,158	)	—		(1,158	)
Profit	3,932		—		3,932		3,518		—		3,518		3,644		—		3,644
Profit is attributable to:
Equity holders of Westpac Banking Corporation	3,859		—		3,859		3,451		—		3,451		3,644		—		3,644
Minority interests	73		—		73		67		—		67		—		—		—
	3,932		—		3,932		3,518		—		3,518		3,644		—		3,644

126

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

	Consolidated
	2008 Previously Reported	Increase/ (Decrease)		2008 Restated	2007 Previously Reported	Increase/ (Decrease)		2007 Restated	2006 Previously Reported	Increase/ (Decrease)		2006 Restated
	$m	$m		$m	$m	$m		$m	$m	$m		$m
Balance sheet (extract)
Deferred tax asset	628	128		756	516	(33	)	483	653	(13	)	640
Other liabilities	6,380	429		6,809	4,785	(110	)	4,675	4,771	(41	)	4,730
Net assets	19,772	(301	)	19,471	17,831	77		17,908	16,098	28		16,126
Retained earnings	10,999	(301	)	10,698	9,716	77		9,793	8,532	28		8,560
Minority interest	1,924	—		1,924	1,912	—		1,912	1,912	—		1,912
Total equity	19,772	(301	)	19,471	17,831	77		17,908	16,098	28		16,126
					Parent Entity
					2008 Previously Reported	Increase/ (Decrease)		2008 Restated	2007 Previously Reported	Increase/ (Decrease)		2007 Restated
					$m	$m		$m	$m	$m		$m
Balance sheet (extract)
Deferred tax asset					309	123		432	568	(30	)	538
Other liabilities					4,656	410		5,066	3,149	(99	)	3,050
Net assets					17,078	(287	)	16,791	15,421	69		15,490
Retained earnings					8,347	(287	)	8,060	7,361	69		7,430
Total equity					17,078	(287	)	16,791	15,421	69		15,490

The impact of the adoption of Interpretation 13 on the Group’s and Parent’s income statement was to increase non-interest income and decrease other expenses by $185 million in 2008 (2007 $146 million). The impact on the Group’s balance sheet was an increase in other liabilities of $48 million (2007 $48 million, 2006 $48 million) and an increase in deferred tax asset of $14 million (2007 $14 million, 2006 $14 million). The impact on the Parent’s balance sheet was an increase in other liabilities of $48 million (2007 $48 million) and an increase in deferred tax asset of $14 million (2007 $14 million).

The impact of the change in accounting policy for actuarial gains and losses had no impact on the Group’s or Parent’s income statement. The impact on the Group’s balance sheet was an increase in other liabilities of $381 million (2007 $158 million decrease, 2006 $89 million decrease) and an increase in deferred tax asset of $114 million (2007 $47 million decrease, 2006 $27 million decrease). The impact on the Parent’s balance sheet was an increase in other liabilities of $362 million (2007 $147 million decrease) and an increase in deferred tax asset of $109 million (2007 $44 million decrease).

An amendment to AASB 139 and consequential amendments to AASB Interpretation 9 and AASB 7 were made which permit reclassification of certain financial instruments in certain limited circumstances and require additional disclosures regarding such reclassifications respectively. Westpac has not made use of these amendments.

AASB Interpretation 16 provides guidance on accounting for the hedge of a net investment in a foreign operation in an entity’s consolidated financial statements. It clarifies that the presentation currency does not create an exposure to which an entity may apply hedge accounting; that the hedging instrument(s) may be held by any entity or entities within the group; and that while the AASB must be applied to determine the amount that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, AASB 121 must be applied in respect of the hedged item. It is applicable to annual reporting periods beginning on or after 1 October 2008. This has not had an impact on the financial report.

Other standards, interpretations and amendments that have been applied by the Group during the financial year commencing 1 October 2008 but which have not had a material impact on the financial results or position of the Group are:

· AASB Interpretation 4 Determining Whether an Arrangement contains a Lease, which is applicable to annual reporting periods beginning on or after 1 January 2008; and

· AASB Interpretation 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction is applicable to annual reporting periods beginning on or after 1 January 2008.

127

Note 1. Summary of significant accounting policies (continued)

(iii)Historical cost convention

The financial report has been prepared under the historical cost convention, as modified by applying fair value accounting to available-for-sale financial assets and financial assets and liabilities (including derivative instruments) at fair value through profit or loss.

(iv)Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries (including special purpose entities) controlled by the Parent Entity and the results of all subsidiaries. The effects of all transactions between entities in the Group are eliminated. Control exists when the parent entity has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The definition of control is based on the substance rather than the legal form. In assessing control, potential voting rights that are presently exercisable or convertible are taken into account.

Subsidiaries are fully consolidated from the date on which control commences and they are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to Note 1(e)).

The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of identifiable net assets of the subsidiary.

The interest of minority shareholders is stated at the minority’s proportion of the net profit and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly, by Westpac. Any losses applicable to the minority interest in excess of the minority interest are allocated against the interests of Westpac.

(v)Foreign currency translation

a.Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in Australian dollars. All amounts are expressed in Australian dollars except where otherwise indicated.

b.Group companies

Assets and liabilities of overseas branches and subsidiaries that have a functional currency other than the Australian dollar are translated at exchange rates prevailing on the balance date. Income and expenses are translated at average exchange rates prevailing during the period. Other equity balances are translated at historical exchange rates. Exchange differences that have arisen since 1 October 2004, the date of transition to A-IFRS, are recognised as a separate component of equity in the foreign currency translation reserve.

On consolidation, exchange differences arising from the translation of borrowings and other currency instruments designated as hedges of the net investment in overseas branches and subsidiaries are reflected in the foreign currency translation reserve. When all or part of a foreign operation is sold or borrowings that are part of the net investments are repaid, a proportionate share of such exchange differences are recognised in the income statement as part of the gain or loss on sale or repayment of borrowing.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate.

b.Revenue recognition

(i)Interest income

Interest income for all interest earning financial assets including those at fair value is recognised in the income statement using the effective interest rate method.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, cash flows are estimated based upon all contractual terms of the financial instrument (for example, prepayment options) but do not consider future credit losses. The calculation includes all fees and other amounts paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Interest relating to impaired loans is recognised using the loan’s original effective interest rate. This rate is also used to discount the future cash flows for the purpose of measuring impairment charges.

128

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

(ii)Dividends on redeemable preference share finance

Dividend income on redeemable preference share finance is included as part of interest income and is recorded in the income statement on an effective interest basis.

(iii)Leasing

Finance leases are accounted for under the net investment method whereby income recognition is based on a pattern reflecting a constant periodic rate of return on the net investment in the finance lease and is included as part of interest income.

(iv)Fee income

Fees and commissions are generally recognised on an accrual basis over the period during which the service is performed. All fees relating to the successful origination or settlement of a loan (together with the related direct costs) are deferred and recognised as an adjustment to the effective interest rate on the loan. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time proportionate basis. Asset management fees related to investment funds are recognised over the period the service is provided. The same principle is applied for wealth management, financial planning and custody services that are continuously provided over an extended period of time.

(v)Net trading income

Realised gains and losses, and unrealised gains and losses arising from changes in the fair value of the trading assets and liabilities are recognised as trading income or expense in the income statement in the period in which they arise except for recognition of day one profits and losses which are deferred where certain inputs are unobservable. Dividend income on the trading portfolio is also recorded as part of non-interest income. Interest income and expense on the trading portfolio is recognised as part of net-interest income.

(vi)Other dividend income

Dividends on quoted shares are recognised on the ex-dividend date. Dividends on unquoted shares are recognised when the company’s right to receive payment is established.

(vii)Gain or loss on sale of property, plant and equipment

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset, and is recognised as non-interest income.

c.Expense recognition

(i)Interest expense

Interest expense, including premiums or discounts and associated issue expenses incurred on the issue of financial liabilities, is recognised in the income statement using the effective interest method (refer to Note 1(b)(i)).

(ii)Impairment on loans and receivables carried at amortised cost

The charge recognised in the income statement for impairment on loans and receivables carried at amortised cost reflects the net movement in the provisions for individually assessed and collectively assessed loans, write-offs and recoveries of impairments previously written-off.

(iii)Leasing

Operating lease payments are recognised in the income statement as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the benefit received. Incentives received on entering into operating leases are recorded as liabilities and amortised as a reduction of rental expense over the lease term on a straight-line basis.

(iv)Commissions and other fees

External commissions and other costs paid to acquire loans are capitalised and amortised using the effective interest method (refer to Note 1(b)(i)). All other fees and commissions are recognised in the income statement over the period which the related service is received.

(v)Wealth management acquisition costs

Acquisition costs are the variable costs of acquiring new business principally in relation to the Group’s life insurance and retail funds management business.

Managed investment acquisition costs

Deferred acquisition costs associated with the retail funds management business are costs that are directly incremental to the acquisition of new business. These costs are recorded as an asset and are amortised in the income statement on the same basis as the recognition of related revenue.

Life insurance acquisition costs

Deferred acquisition costs associated with life insurance business are costs that are incremental to the acquisition of new business. These costs are recorded as an asset and are amortised in the income statement on the same basis as the recognition of related revenue.

129

Note 1. Summary of significant accounting policies (continued)

(vi)Share-based payment

Certain employees are entitled to participate in option and share ownership schemes.

Options and performance share rights

The fair value of options and performance share rights provided to employees as share-based payment is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and is recognised over the period the services are received which is the expected vesting period during which the employees would become entitled to exercise the option or performance share right.

The fair value of options and performance share rights is estimated at grant date using a Binomial/Monte Carlo simulation pricing model incorporating the vesting and performance hurdle features of the grants. The fair value of the options and performance share rights excludes the impact of any non-market vesting conditions such as participants’ continued employment by the Group. The non-market vesting conditions are included in assumptions used when determining the number of options and performance share rights expected to become exercisable for which an expense is recognised. At each reporting date these assumptions are revised and the expense recognised each year takes into account the most recent estimates.

Employee share plan

The value of shares expected to be issued to employees for no consideration under the ESP is recognised as an expense over the financial year. The fair value of any ordinary shares issued to satisfy the obligation to employees is recognised within equity, or if purchased on market, the obligation to employees is satisfied by delivering shares that have been purchased on market.

Restricted share plan

The fair value of shares allocated to employees for no consideration under the restricted share plan (RSP) is recognised as an expense over the vesting period. The fair value of ordinary shares issued to satisfy the obligation to employees is measured at grant date and is recognised as a separate component of equity.

Westpac has formed a trust to hold any shares forfeited by employees until they are reallocated in subsequent grants to employees in the Group’s restricted share plan. Shares allocated to employees under the RSP, which have not yet vested, are treated as treasury shares and deducted from shareholders’ equity.

d.Income tax

Income tax expense on the profit for the year comprises current tax and the movement in deferred tax balances.

Current tax is the expected tax payable on the taxable income for the financial year using tax rates that have been enacted or substantively enacted for each jurisdiction at the balance date, and any adjustment to tax payable in respect of previous years.

Deferred tax is accounted for using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding amounts used for taxation purposes. Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or other intangible assets with indefinite expected life, the initial recognition of assets and liabilities that affect neither accounting nor taxable profit (other than in a business combination), or differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates that have been enacted or substantively enacted for each jurisdiction at the balance date that are expected to apply when the liability is settled or the asset is realised.

Current and deferred tax attributable to amounts recognised directly in equity are also recognised directly in equity.

Except as noted above, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. For presentation purposes deferred tax assets and deferred tax liabilities have been offset where they relate to income taxes levied by the same taxation authority on the same taxable entity or group of entities in the Group.

For members of Westpac’s Australian tax consolidated group tax expense/income, deferred tax liabilities and assets arising from temporary differences are recognised in the separate financial statements of the members of the tax-consolidated group using a ‘group allocation basis’ that removes the tax impact of certain transactions between members of the tax-consolidated group. Deferred tax liabilities and assets are recognised by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated group are recognised by Westpac Parent Entity (as head entity in the tax-consolidated group).

130

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

e.Acquisitions of assets

(i)External acquisitions

The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange. Transaction costs arising on the issue of equity instruments are recognised directly in equity.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the Group’s incremental borrowing rate.

(ii)Common control transactions

The predecessor method of accounting is used to account for business combinations between entities in the Group.

Assets acquired and liabilities assumed in a business combination are measured initially at the acquisition date at the carrying value from the Group’s perspective. The excess of the cost of acquisition over the initial carrying values of the Entity’s share of the net assets acquired is recorded as part of a common control reserve.

f.Assets

(i)Financial assets

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale securities. Management determines the classification of its financial assets at initial recognition.

·	Financial assets at fair value through profit or loss
	This category has two sub-categories: firstly financial assets held for trading and secondly those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling it in the near term, if it is part of a portfolio of financial instruments that are managed together and for which there is evidence of a recent pattern of short-term profit taking, if it is a derivative that is not a designated hedging instrument, or if so designated on acquisition by management, in accordance with conditions set out in Note 1 f(i)(e).
·	Loans and receivables
	Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
·	Held-to-maturity investments
	Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group’s management has the positive intention and ability to hold to maturity.
·	Available-for-sale securities
	Available-for-sale securities are those non-derivative financial assets that are designated as available-for-sale or that are not classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments.
·	Other investments
	Other investments, which comprise of unlisted securities that do not have a quoted price in an active market and where fair value cannot be estimated within a reasonable range of probable outcomes, are carried at cost.

Recognition of financial assets

Purchases and sales of financial assets at fair value through profit or loss, held-to-maturity and available-for-sale are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Loans are recognised when cash is advanced to the borrowers. Financial assets at fair value through profit or loss are recognised initially at fair value. All other financial assets are recognised initially at fair value plus directly attributable transaction costs. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all the risks and rewards of ownership.

131

Note 1. Summary of significant accounting policies (continued)

Available-for-sale financial assets and financial assets recognised at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are subsequently carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of financial assets at fair value through profit or loss are included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in equity, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in equity is recognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement when the right to receive payment is established. Foreign exchange gains and losses and interest calculated using the effective interest method on debt instruments are also recognised in the income statement.

The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active, the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.

a.Cash and balances with central banks

Cash and balances with central banks includes cash at branches, Reserve Bank settlement account balances and nostro balances. They are brought to account at the face value or the gross value of the outstanding balance, where appropriate. These balances have a maturity of less than three months.

b.Due from other financial institutions

Receivables from other financial institutions include placements, loans to other banks and certificates of deposit. Placements and loans to other banks are accounted for as loans and receivables and subsequently measured at amortised cost using the effective interest rate method, while certificates of deposit are accounted for at fair value through profit or loss.

c.Derivative financial instruments

Derivative financial instruments including forwards, futures, swaps and options are recognised in the balance sheet at fair value. Fair values are obtained from quoted market prices, independent dealer price quotations, discounted cash flow models and option pricing models, which incorporate current market and contractual prices for the underlying instrument, time to expiry, yield curves and volatility of the underlying. Also included in the determination of the fair value of derivatives is a credit counterparty valuation adjustment. Where the derivative has a positive fair value, this credit adjustment is to reflect the credit worthiness of the counterparty. Where the derivative has a negative fair value, this credit adjustment reflects the Group’s own credit risk. These credit adjustments are taken into account after considering any relevant collateral or master netting agreements. All derivatives are carried as assets where fair value is positive and as liabilities when fair value is negative.

d.Trading securities

Trading securities include debt and equity instruments which are actively traded and securities purchased under agreement to resell. They are accounted for as financial assets at fair value through profit or loss.

e.Other financial assets designated at fair value

Certain non-trading bonds, notes and commercial bills are designated at fair value through profit or loss. This designation is only made if the financial asset contains an embedded derivative or it is managed on a fair value basis in accordance with a documented strategy or if designating it at fair value reduces an accounting mismatch.

f.Available-for-sale securities

Available-for-sale securities are public and other debt and equity securities that are not classified as at fair value through profit or loss, loans and receivables or as held-to-maturity investments. The accounting policy for available-for-sale securities is set out above.

g.Loans

Loans includes advances, overdrafts, home loans, credit card and other personal lending, term loans, leasing receivables, bill financing, redeemable preference share financing and acceptances. The accounting policy for loans and receivables is set out above.

Security is obtained if, based on an evaluation of the customer’s credit counterparty worthiness, it is considered necessary for the customer’s overall borrowing facility. Security would normally consist of assets such as cash deposits, receivables, inventory, plant and equipment, real estate or investments.

Loan products that have both a mortgage and deposit facility are presented on a gross basis in the balance sheet, segregating the loan and deposit component into the respective balance sheet line items. Interest earned on this product is presented on a net basis in the income statement as this reflects how the customer is charged.

132

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

h.Regulatory deposits with central banks overseas

In several countries in which the Group operates, the law requires that regulatory deposits be lodged with the local central bank at a rate of interest generally below that prevailing in the market. The amount of the deposit and the interest rate receivable is determined in accordance with the requirements of the local central bank. They are measured at amortised cost using the effective interest rate method.

i.Life insurance assets

Assets held by the life insurance companies, including investments in funds managed by the Group, are designated at fair value through profit or loss as required by AASB 1038. Changes in fair value are included in the income statement. Most assets are held in the life insurance statutory funds and can only be used within the restrictions imposed under the Life Insurance Act 1995. The main restrictions are that the assets in a fund can only be used to meet the liabilities and expenses of that fund, to acquire investments to further the business of the fund or as distribution when solvency and capital adequacy requirements are met. Therefore they are not as liquid as other financial assets.

j.Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

· the rights to receive cash flows from the asset have expired; or

· the entity has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flow in full without material delay to a third party under a ‘pass-through’ arrangement and cannot sell or repledge the asset other than to the transferee; and

· either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

A situation may arise where the Group transfers its rights to receive cashflows from an asset or has entered into a pass-through arrangement. In some cases the Group would neither have transferred nor retained substantially all the risks and rewards of the asset nor transferred control of these assets. Should this occur to the extent that the Group has continuing involvement in the asset, the asset continues to be recognised on the balance sheet.

Impairment of financial assets

Assets carried at amortised cost

The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment charges are recognised if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Group about the following loss events:

(i)	significant financial difficulty of the issuer or obligor;
(ii)	a breach of contract, such as a default or delinquency in interest or principal payments;
(iii)	the Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a concession that the Group would not otherwise consider;
(iv)	it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
(v)	the disappearance of an active market for that financial asset because of financial difficulties; or
(vi)	observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the Group, including:
	·	adverse changes in the payment status of borrowers in the Group; or
	·	national or local economic conditions that correlate with defaults on the assets in the Group.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment is, or continues to be, recognised are not included in a collective assessment of impairment.

133

Note 1. Summary of significant accounting policies (continued)

If there is objective evidence that an impairment on loans and receivables or held-to-maturity investments has been incurred, the amount of the charge is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of a provision account and the amount of the loss is recognised in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment is the current effective interest rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Group’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows for a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Group and historical loss experience for assets with credit risk characteristics similar to those in the Group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.

Estimates of changes in future cash flows for groups of assets reflect, and are directionally consistent with, changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectable, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the charge for loan impairment in the income statement. If, in a subsequent period, the amount of the impairment charge decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment charge is reversed by adjusting the provision account. The amount of the reversal is recognised in the income statement.

Assets carried at fair value

The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. For equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment charge on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment charge was recognised in the income statement, the impairment charge is reversed through the income statement. Subsequent reversal of impairment charges on equity instruments are not recognised in the income statement.

(ii)Non-financial assets

a.Property, plant and equipment

Property, plant and equipment is carried at cost less accumulated depreciation and impairment. Cost is the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred. Impairment is recognised as a part of operating expenses in the income statement.

Computer software is capitalised at cost and classified as Property, Plant and Equipment where it is integral to the operation of associated hardware.

Depreciation is calculated using the straight-line method to allocate the cost of assets less any residual value over their estimated useful lives, as follows:

·	Premises and sites	Up to 67 years
·	Leasehold improvements	Up to 10 years
·	Furniture and equipment	3-15 years

Gains and losses on the disposal of property, plant and equipment are determined by reference to their carrying value and are included in the income statement.

134

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

b.Intangible assets

Goodwill

Goodwill represents amounts arising on the acquisition of businesses. Goodwill represents the excess of purchase consideration, including directly attributable expenses associated with the acquisition, over the fair value of the Group’s share of the identifiable net assets of the acquired business.

All goodwill is considered to have an indefinite life.

Goodwill is tested for impairment annually and whenever there is an indication that it may be impaired, and is carried at cost or deemed cost less accumulated impairment. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing.

Goodwill was tested for impairment at 30 September 2009.

·Brands

Brand intangible assets are recognised on the acquisition of businesses. Brand intangible assets represent the value attributed to the brand names associated with businesses acquired. The useful life of the brands recognised is estimated to be indefinite as there is no foreseeable limit to the period over which the brand name is expected to generate net cash flows. Brands are not amortised but tested for impairment annually or more frequently when indicators of impairment are identified.

·Core deposit intangibles

Core deposit intangibles were recognised following the merger with St.George and represent the value, or avoided cost, of having a deposit base from consumer and business transaction accounts, savings accounts, term deposits and other money market and cash management accounts providing a cheaper source of funding than alternative sources of funding such as in the wholesale and securitisation markets.

Core deposit intangibles are amortised using the straight-line method over a period of nine years and are stated at cost less accumulated amortisation and impairment. Core deposit intangibles are assessed for any indication of impairment at each reporting date.

Other Intangibles

Other intangibles are stated at cost less accumulated amortisation where relevant and impairment. Other intangibles consist of distribution relationships, customer relationships, computer software, value of in-force business and service contracts. For significant other intangibles, the accounting policies are as follows:

·Financial Planner distribution relationships

The distribution relationship intangibles were recognised following the merger with St.George and represent the value attributable to financial planner relationships. These assets are amortised using the straight-line method to allocate the cost of the asset over the estimated useful lives of eight years.

·Credit card customer relationships

The credit card customer relationship intangibles were recognised following the merger with St.George and represent the value attributable to the future fee and interest revenue from credit card relationships. These assets are amortised using the straight-line method to allocate the cost of the asset over the estimated useful lives of five years.

·Computer software

Internal and external costs directly incurred in the purchase or development of computer software, including subsequent upgrades and enhancements are recognised as intangible assets when it is probable that they will generate future economic benefits attributable to the Group. These assets are amortised using the straight-line method to allocate the cost of the asset less any residual value over the estimated useful lives of between three and five years.

(iii)Investments in controlled entities

Investments in controlled entities are initially recorded by Westpac at cost. Investments in controlled entities are subsequently held at lower of cost and recoverable amount.

135

Note 1. Summary of significant accounting policies (continued)

(iv)Impairment of non-financial assets

The carrying amount of the Group’s non-financial assets, other than deferred tax assets and assets arising from employee benefits, are reviewed at each balance date to determine whether there is any indication of impairment. If such an indication exists, the asset’s recoverable amount is estimated. An impairment charge is recognised whenever the carrying amount of an asset or the cash-generating unit to which it is allocated exceeds its recoverable amount. With the exception of goodwill for which impairment charges are not reversed, where an impairment charge subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment charge been recognised for the asset (or cash-generating unit) in prior years. Impairment charges and reversals of impairment charges are recognised in the income statement.

As detailed above, goodwill is tested for impairment annually, and whenever there is an indication that it may be impaired.

The recoverable amount of an asset is the greater of its net selling price and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

g.Liabilities

(i)Financial liabilities

Financial liabilities are initially recognised at fair value less transaction costs except where they are designated at fair value, in which case transaction costs are expensed as incurred. They are subsequently measured at amortised cost except for derivatives and liabilities at fair value, which are held at fair value through profit or loss. Financial liabilities are recognised when an obligation arises and derecognised when it is discharged.

a.Due to other financial institutions

Due to other financial institutions includes deposits, vostro balances and settlement account balances due to other financial institutions. They are measured at amortised cost.

b.Deposits at fair value

Deposits at fair value include certificates of deposit and interest bearing deposits. They are classified at fair value through profit or loss as they are managed as part of a trading portfolio.

c.Deposits at amortised cost

Deposits at amortised cost include non-interest bearing deposits repayable at call, certificates of deposit and interest bearing deposits. They are measured at amortised cost.

d.Derivative financial instruments

Derivative financial instruments including forwards, futures, swaps and options are recognised in the balance sheet at fair value. Fair values are obtained from quoted market prices, independent dealer price quotations, discounted cash flow models and option pricing models, which incorporate current market and contractual prices for the underlying instrument, time to expiry, yield curves and volatility of the underlying. Also included in the determination of the fair value of derivatives is a credit valuation adjustment. Where the derivative has a positive fair value, this credit adjustment is to reflect the credit worthiness of the counterparty. Where the derivative has a negative fair value, this credit adjustment reflects the Group’s own credit risk. These credit adjustments are taken into account after considering any relevant collateral or master netting agreements. All derivatives are carried as assets where fair value is positive and as liabilities when fair value is negative.

e.Trading liabilities and other financial liabilities designated at fair value

Securities sold under repurchase agreements and securities sold short are classified as trading liabilities. They are accounted for as financial liabilities at fair value through profit or loss.

f.Debt issues

These are bonds, notes, commercial paper and debentures that have been issued by Westpac. Debt issues are measured either at fair value through profit or loss or at amortised cost using the effective interest method. Debt issues are measured at fair value through profit or loss to reduce an accounting mismatch, which arises from derivatives executed for risk management purposes.

g.Acceptances

These are bills of exchange initially accepted and discounted by Westpac that have been subsequently rediscounted into the market. They are measured at amortised cost. Bill financing provided to customers by the acceptance and discount of bills of exchange is reported as part of loans. In the current year acceptances have been reported separately from debt issues, on the face of the balance sheet, as these are predominately rediscounted to retail investors.

136

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

h.Loan capital

Loan capital includes TPS 2004 and Westpac SPS and SPS II that qualify as Tier 1 capital and subordinated bonds, notes and debentures that qualify as Tier 2 capital as defined by APRA for capital adequacy purposes. Loan capital is measured at amortised cost using the effective interest method.

i.Financial guarantees

Financial guarantee contracts are recognised as financial liabilities at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 and the amount initially recognised less cumulative amortisation, where appropriate.

The fair value of a financial guarantee contract is determined at the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where guarantees in relation to loans or other payables of subsidiaries or associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.

j.Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

(ii)Life insurance liabilities

Life insurance liabilities consist of life insurance contract liabilities, life investment contract liabilities and external liabilities of managed investment schemes controlled by statutory life funds.

Life insurance contract liabilities

The value of life insurance contract liabilities is calculated by using the margin on services methodology. The methodology takes into account the risks and uncertainties of the particular classes of the life insurance business written. Deferred policy acquisition costs are included in the measurement basis of life insurance contract liabilities and are therefore equally sensitive to the factors that are considered in the liabilities measurement. This methodology is in accordance with Actuarial Standard 1.04 ‘Valuation of Policy liabilities’ issued by the Life Insurance Actuarial Standard Board (LIASB) under the Life Insurance Act 1995.

Under this methodology, planned profit margins and an estimate of future liabilities are calculated separately for each related product group using applied assumptions at each reporting date. Profit margins are released over each reporting period in line with the service that has been provided. The balance of the planned profit is deferred by including them in the value of policy liabilities.

The key factors that affect the estimation of these liabilities and related assets are:

· the cost of providing benefits and administrating the contracts;

· mortality and morbidity experience, including enhancements to policyholder benefits;

· discontinuance experience, which affects the Group’s ability to recover the cost of acquiring new business over the life of the contracts; and

· the rate at which projected future cash flows are discounted.

In addition, factors such as regulation, competition, interest rates, taxes, securities market conditions and general economic conditions affect the level of these liabilities. In some contracts, the Group shares experience on investment results with its customers, which can offset the impacts of these factors on the profitability of these products.

Life investment contract liabilities

Life investment contract liabilities are designated at fair value through profit or loss. Fair value is based on the higher of the valuation of linked assets, or the minimum current surrender value.

External liabilities of managed investment schemes controlled by statutory life funds

External liabilities of managed investment schemes controlled by statutory life funds are designated at fair value through profit or loss.

137

Note 1. Summary of significant accounting policies (continued)

(iii)Provisions

a.Employee entitlements

Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the balance date are recognised in provisions in respect of employees’ services up to the balance date and are measured at the amounts expected to be paid when the liabilities are settled.

No provision is made for non-vesting sick leave as the pattern of sick leave taken indicates that no additional liability will arise for non-vesting sick leave.

Long service leave

Liabilities for long service leave expected to be settled within 12 months of the balance date are recognised in the provision for long service leave and are measured at the amounts expected to be paid when the liabilities are settled.

Liabilities for long service leave and other deferred employee benefits expected to be settled more than 12 months from the balance date are recognised in the provision for long service leave and are measured at the present value of future payments expected to be made in respect of services provided by employees up to the balance date. Consideration is given to expected future wage and salary levels, experience of employee departure and periods of service. Expected future payments are discounted to their net present value using market yields at the balance date on government bonds with terms that match as closely as possible the estimated timing of future cash flows.

Employee benefit on-costs

A liability is also carried for on-costs, including payroll tax, in respect of provisions for certain employee benefits which attract such costs.

Termination benefits

Liabilities for termination benefits are recognised when a detailed plan for the terminations has been developed and a valid expectation has been raised in those employees affected that the terminations will be carried out. Liabilities for termination benefits are recognised within other liabilities unless the timing or amount is uncertain, in which case they are recognised as provisions.

Liabilities for termination benefits expected to be settled within 12 months are measured at amounts expected to be paid when they are settled. Amounts expected to be settled more than 12 months from the balance date are measured at the estimated cash outflows, discounted using market yields at the balance date on government bonds with terms to maturity and currency that match, as closely as possible, the estimated future payments, where the effect of discounting is material.

b.Provision for leasehold premises

The provision for leasehold premises covers net outgoings on certain unoccupied leased premises or sub-let premises where projected rental income falls short of rental expense. The liability is determined on the basis of the present value of net future cash flows.

c.Provision for restructuring

A provision for restructuring is recognised where there is a demonstrable commitment and a detailed plan such that there is little or no discretion to avoid payments to other parties and the amount can be reliably estimated.

d.Provision for dividends

A liability for dividends is recognised when dividends are declared, determined or publicly recommended by the Directors but not distributed as at the balance date.

h.Equity

(i)Ordinary shares

Ordinary shares are recognised at the amount paid up per ordinary share net of directly attributable issue costs.

(ii)Treasury shares

Where the parent entity or other members of the consolidated Group purchases shares in the Parent Entity, the consideration paid is deducted from total shareholders’ equity and the shares are treated as treasury shares until they are subsequently sold, reissued or cancelled. Where such shares are sold or reissued, any consideration received is included in shareholders’ equity.

(iii)Minority interests

Minority interests represents the share in the net assets of subsidiaries attributable to equity interests that are not owned directly or indirectly by the Parent Entity. The Group also has on issue the following hybrid instruments; Trust Preferred Securities 2003 (TPS 2003) and Trust Preferred Securities 2006 (TPS 2006) that are classified as minority interests.

138

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

(iv)Reserves

Foreign currency translation reserve: as noted in Note 1(a)(v), exchange differences arising on translation of the assets and liabilities of overseas branches and subsidiaries are reflected in the foreign currency translation reserve. Any offsetting gains or losses on hedging these balances, together with any tax effect are also reflected in this reserve, which may be either a debit or credit balance. Any credit balance in this reserve would not normally be regarded as being available for payment of dividends until such gains are realised.

Available-for-sale securities reserve: comprises the changes in the fair value of available-for-sale financial securities, net of tax. These changes are transferred to the income statement in non interest income when the asset is either derecognised or impaired.

Cash flow hedging reserve: comprises the fair value gains and losses associated with the effective portion of designated cash flow hedging instruments.

Share-based payment reserve: comprises the fair value of share-based payments recognised as an expense.

i.Other accounting principles and policies

(i)Hedging

The Group uses derivative instruments as part of its asset and liability management activities to manage exposures to interest rates and foreign currency, including exposures arising from forecast transactions. The method of recognising the fair value gain or loss of derivatives depends on the nature of the hedging relationship. Hedging relationships are of three types:

· fair value hedge: a hedge of the change in fair value of recognised assets or liabilities or unrecognised firm commitments;

· cash flow hedge: a hedge of variability in highly probable future cash flows attributable to a recognised asset or liability, or a forecasted transaction; and

· hedge of a net investment in a foreign operation: a hedge of the amount of the Group’s interest in the net assets of a foreign operation.

The Group uses hedge accounting for derivatives designated in this way when certain criteria are met. At the time a financial instrument is designated as a hedge, the Group formally documents the relationship between the hedging instrument and hedged item, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging derivatives have been ‘highly effective’ in offsetting changes in the fair value or cash flows of the hedged items.

A hedge is regarded as highly effective if, at inception and throughout its life, the Group can expect changes in the fair value or cash flows of the hedged item to be almost fully offset by the changes in the fair value or cash flows of the hedging instrument, and actual results of the hedge are within a range of 80% to 125% of these changes.  ‘Hedge ineffectiveness’ represents the amount by which the changes in the fair value of the hedging derivative differ from changes in the fair value of the hedged item or the amount by which changes in the cash flow of the hedging derivative differ from changes (or expected changes) in the present value of the cash flows of the hedged item.

a.Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributed to the hedged risk.

If the hedge no longer meets the criteria for hedge accounting, any previous adjustment to the carrying amount of a hedged item recognised at amortised cost, is amortised to the income statement over the period to maturity.

b.Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to any ineffective portion is recognised immediately in the income statement.

Amounts accumulated in equity are transferred to the income statement in the periods in which the hedged item affects profit or loss.

When a hedging instrument expires or is sold, terminated or exercised or when the hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the period in which the hedge item affects profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

139

Note 1. Summary of significant accounting policies (continued)

c.Hedge of a net investment in a foreign operation

Hedges of net investments in overseas branches and subsidiaries are accounted in a manner similar to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in the foreign currency translation reserve in equity and the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the overseas branch or subsidiary is disposed.

(ii)Embedded derivatives

In certain instances a derivative may be embedded in a ‘host contract’. If the host contract is not carried at fair value through profit or loss, the embedded derivative is separated from the host contract and accounted for as a stand-alone derivative instrument at fair value where the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract.

(iii)Recognition of deferred day one profit or loss

The best evidence of fair value at initial recognition is the transaction price, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets.

Westpac has entered into transactions where fair value is determined using valuation models for which not all inputs are market observable prices or rates. Such a financial instrument is initially recognised at the transaction price which is the best indicator of fair value, although the value obtained from the relevant valuation model may differ. The difference between the transaction price and the model value, commonly referred to as ‘day one profit or loss’, is not recognised immediately in profit or loss.

The timing of recognition of deferred day one profit or loss is determined individually. It is either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable inputs, or realised through settlement. The financial instrument is subsequently measured at fair value, adjusted for the deferred day one profit or loss. Subsequent changes in fair value are recognised immediately in the income statement without reversal of deferred day one profits or losses.

(iv)Loan securitisation

The Group, through its loan securitisation programs, packages and sells loans (principally housing mortgage loans) as securities to investors. The program includes the securitisation of the Group’s own assets as well as assets from customer funding conduits. In such transactions, the Group provides an equitable interest in the loans to investors who provide funding to the Group. Securitised loans that do not qualify for derecognition and associated funding are included in loans and debt issues respectively.

(v)Funds management activities

Certain controlled entities within the Group conduct investment management and other fiduciary activities as responsible entity or manager on behalf of individuals, trusts, retirement benefit plans and other institutions. These activities involve the management of assets in investment schemes and superannuation funds, and the holding or placing of assets on behalf of third parties.

Where controlled entities, as responsible entities, incur liabilities in respect of these activities, a right of indemnity exists against the assets of the applicable trusts. These assets are sufficient to cover liabilities, and it is not probable that the controlled entities will be required to settle them, the liabilities are not included in the consolidated financial statements.

The Group also manages life insurance statutory fund assets that are included in the consolidated financial statements (refer to Note 1(f)(iii)).

At 30 September 2009, the total value of assets under discretionary management by the Group that have not been included in the consolidated financial statements was approximately $44.5 billion (30 September 2008 $41.5 billion).

(vi)Offsetting

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

140

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

(vii)Securities borrowed or lent and repurchase or reverse repurchase agreements

As part of its trading activities, Westpac lends and borrows securities on a collateralised basis. The securities subject to the borrowing or lending are ordinarily not derecognised from the balance sheet, as the risks and rewards of ownership remain with the initial holder. Where cash is provided as collateral, the cash paid to third parties on securities borrowed is recorded as a receivable, while cash received from third parties on securities lent is recorded as a borrowing. Repurchase transactions, where Westpac sells securities under an agreement to repurchase, and reverse repurchase transactions, where Westpac purchases securities under an agreement to resell, are also conducted on a collateralised basis. Certificates of deposit sold, but subject to repurchase agreements that are due from financial institutions are disclosed as part of trading securities and other financial assets designated at fair value. Fees and interest relating to stock borrowing or lending and repurchase or reverse repurchase agreements are recognised in the income statement, using the effective interest rate method, over the expected life of the agreements. Westpac continually reviews the fair value of the underlying securities and, where appropriate, requests or provides additional collateral to support the transactions.

(viii)Superannuation obligations

Obligations for contributions to the defined contribution superannuation plan are recognised as an expense in the income statement as incurred.

The asset or liability recognised in the balance sheet in respect of the defined benefit superannuation plan is the present value of the defined benefit obligation as at the reporting date less the fair value of the plan’s assets. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of government bonds that have terms to maturity approximating to the terms of the related superannuation liability. The calculation is performed annually by an independent qualified actuary using the projected unit credit method.

The actuarial valuation of plan obligations is dependent upon a series of assumptions, the key ones being price inflation, earnings growth, mortality, morbidity and investment returns assumptions. Different assumptions could significantly alter the amount of difference between plan assets and obligations, and the superannuation cost charged to the income statement.

Actuarial gains and losses related to the defined benefit superannuation plan are recorded directly in retained earnings. The net surplus or deficit that arises within the plan is recognised and disclosed separately in ‘Other assets’ and ‘Other liabilities’ respectively.

(ix)Earnings per share

Basic earnings per share is determined by dividing net profit after tax attributable to equity holders of Westpac, excluding costs of servicing other equity instruments, by the weighted average number of ordinary shares outstanding during the financial year.

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. The number of ordinary shares assumed to be issued for no consideration represents the difference between the number that would have been issued at the exercise price and the number that would have been issued at the average market price over the reporting period.

(x)Leases

Leases are classified as either finance leases or operating leases. Under a finance lease, substantially all the risks and rewards incidental to legal ownership are transferred to the lessee. In contrast, an operating lease exists where the leased assets are allocated to the lessor.

In its capacity as a lessor, the Group primarily offers finance leases. The Group recognises the assets held under finance lease in the balance sheet as loans at an amount equal to the net investment in the lease. The recognition of finance income is based on a pattern reflecting a constant periodic return on the Group’s net investment in the finance lease. Finance lease income is included within interest income in the income statement refer to Note 1(b)(iii).

In its capacity as a lessee, the Group mainly uses property and equipment under operating leases. Payments due to the lessor under operating leases are charged to equipment and occupancy expense on a straight-line basis over the term of the lease (refer to Note 1(c)(iii)).

(xi)Segment Reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), that is subject to risks and returns that are different from those of other business or geographical segments.

(xii)Rounding of amounts

In accordance with ASIC Class Order 98/100, all amounts have been rounded to the nearest million dollars unless otherwise stated.

141

Note 1. Summary of significant accounting policies (continued)

j.Critical accounting assumptions and estimates

(i)Critical accounting estimates

The application of the Group’s accounting policies necessarily requires the use of judgment, estimates and assumptions. Should different assumptions or estimates be applied, the resulting values would change, impacting the net assets and income of the Group.

Management has discussed the accounting policies which are sensitive to the use of judgment, estimates and assumptions with the Board Audit Committee.

The nature of assumptions and estimates used and the value of the resulting asset and liability balances are included in the policy below.

(ii)Fair value of financial instruments

Financial instruments classified as held-for-trading or designated at fair value through profit or loss and financial assets classified as available-for-sale are recognised in the financial statements at fair value. All derivatives are measured and recognised at fair value.

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

Financial instruments are either priced with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using financial market pricing models, the methodology used is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to the present value. These models use as their basis independently sourced market parameters including, for example, interest rate yield curves, equities and commodities prices, option volatilities and currency rates. Most market parameters are either directly observable or are implied from instrument prices. However, profits or losses are recognised upon initial recognition only when such profits can be measured solely by reference to observable current market transactions or valuation techniques based solely on observable market inputs.

The calculation of fair value for any financial instrument may also require adjustment of the quoted price or model value to reflect the cost of credit risk (where not embedded in underlying models or prices used). The process of calculating fair value on illiquid instruments or from a valuation model may require estimation of certain pricing parameters, assumptions or model characteristics.

These estimates are calibrated against industry standards, economic models and observed transaction prices.

The fair value of financial instruments is provided in Note 29 as well as the mechanism by which Fair Value has been derived.

The majority of the Group’s derivatives are valued using appropriate valuation techniques, using observable market inputs. The fair value of substantially all securities positions carried at fair value is determined directly from quoted prices or from market observable inputs applied in valuation models. The Group has financial assets measured at fair value of $84,688 million (2008 $90,547 million).  $798 million of this is measured at fair value based on significant non-observable market inputs (2008 $442 million). The Group has financial liabilities measured at fair value of $140,225 million (2008 $140,363 million). $210 million of these is measured at fair value based on significant non-observable market inputs (2008 $272 million). Sensitivities to reasonably possible changes in non-market observable valuation assumptions would not have a material impact on the Group or the Parent Entity’s reported results.

(iii)Provisions for impairment charges

The Group’s loan impairment provisions are established to recognise incurred impairment in its portfolio of loans. A loan is impaired when there is objective evidence that events occurring since the loan was recognised have affected expected cash flows from the loan. The impairment charge is the difference between the carrying value of the loan and the present value of estimated future cash flows calculated at the loan’s original effective interest rate for fixed rate loans and the loan’s current effective interest rate for variable rate loans. Provisions for loan impairment represent management’s estimate of the impairment charges incurred in the loan portfolios as at the balance date. Changes to the provisions for loan impairment and changes to the provisions for undrawn contractually committed facilities and guarantees provided are reported in the consolidated income statement as part of impairment charges on loans.

At 30 September 2009, gross loans to customers totalled $467,843 million (2008 $315,490 million) and the provision for loan impairment was $4,384 million (2008 $1,945 million). There are two components to the Group’s loan impairment provisions, individual and collective.

142

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

Individual component

All impaired loans that exceed specified thresholds are individually assessed for impairment. Individually assessed loans principally comprise the Group’s portfolio of commercial loans to medium and large businesses. Impairment is recognised as the difference between the carrying value of the loan and the discounted value of management’s best estimate of future cash repayments and proceeds from any security held (discounted at the loan’s original effective interest rate for fixed rate loans and the loan’s current effective interest rate for variable rate loans). All relevant considerations that have a bearing on the expected future cash flows are taken into account, including the business prospects for the customer, the realisable value of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out process. Subjective judgments are made in this process. Furthermore, judgments can change with time as new information becomes available or as work-out strategies evolve, resulting in revisions to the impairment provision as individual decisions are taken.

Collective component

This is made up of two elements: loan impairment provisions for impaired loans that are below individual assessment thresholds (collective impaired loan provisions) and for loan impairments that have been incurred but have not been separately identified at the balance sheet date (incurred but not reported provisions). These are established on a portfolio basis taking into account the level of arrears, collateral, past loss experience and defaults based on portfolio trends. The most significant factors in establishing these provisions are the estimated loss rates and the related emergence periods. The emergence period for each loan product type is determined through detailed studies of loss emergence patterns. Loan files where losses have emerged are reviewed to identify the average time period between observable loss indicator events and the loss becoming identifiable. These portfolios include credit card receivables and other personal advances including mortgages. The future credit quality of these portfolios is subject to uncertainties that could cause actual credit losses to differ materially from reported loan impairment provisions. These uncertainties include the economic environment, notably interest rates and their effect on customer spending, unemployment levels, payment behaviour and bankruptcy rates.

The impairment charge reflected in the income statement is $3,238 million and the provision balance at 30 September 2009 of $4,384 million represents 0.94% of loans.

Provisions for credit commitments are calculated using the same methodology as described above. The provision for credit commitments was $350 million (2008 $229 million) and was disclosed as part of Note 20.

(iv)Goodwill

As stated in Note 1(f)(ii)(b), goodwill represents the excess of purchase consideration, including incidental expenses, over the fair value of the Group’s share of the identified net assets of acquired businesses. Goodwill is tested for impairment at least annually. The carrying value of goodwill as at 30 September 2009 was $8,597 million.

The determination of the fair value of assets and liabilities of the acquired businesses requires the exercise of management judgment. Different fair values would result in changes to the goodwill balance and to the post-acquisition performance of the acquisition.

To determine if goodwill is impaired the carrying value of the identified cash-generating unit (CGU) to which the goodwill is allocated, including the allocated goodwill, is compared to its recoverable amount. Recoverable amount is the higher of the CGU’s fair value less costs to sell and its value in use. Value in use is the present value of expected future cash flows from the CGU. Determination of appropriate cash flows and discount rates for the calculation of value in use is subjective. Fair value is the amount obtainable for the sale of the CGU in an arm’s length transaction between knowledgeable, willing parties. The assumptions applied to determine if any impairment exists are outlined in Note 13.

Goodwill impairment testing resulted in an impairment of goodwill of $2 million (2008 $18 million).

(v)Superannuation obligations

The Group operates a number of defined benefit plans as described in Note 36. For each of these plans, actuarial valuations of the plan’s obligations and the fair value measurements of the plan’s assets are performed at least annually in accordance with the requirements of AASB 119.

The actuarial valuation of plan obligations is dependent upon a series of assumptions, the key ones being price inflation, earnings growth, mortality, morbidity and investment returns assumptions. Different assumptions could significantly alter the amount of the difference between plan assets and obligations, and the superannuation cost charged to the income statement.

Refer to Note 36 for details of the group’s defined benefit deficit balances.

143

Note 1. Summary of significant accounting policies (continued)

(vi)Provisions (other than loan impairment)

Provisions are held in respect of a range of future obligations such as employee entitlements, restructuring costs, non-lending losses and onerous contracts (for example leases with surplus space). Provisions carried for long service leave are supported by an independent actuarial report. Some of the provisions involve significant judgment about the likely outcome of various events and estimated future cash flows. Provisions for taxation held in respect of uncertain tax positions represents the unrecovered tax benefits associated with specific transactions. The deferral of these benefits involves the exercise of management judgments about the ultimate outcomes of the transactions. Payments which are expected to be incurred later than one year are discounted at a rate which reflects both current interest rates and the risks specific to that provision.

(vii)Income taxes

The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period where such determination is made.

(viii)St.George Bank Limited merger

The merger with St.George has been accounted for using the purchase method of accounting. All the identifiable assets and liabilities of St.George are required to be initially recognised by the Group at their fair value on the date of the merger. This involves additional critical accounting assumptions, judgments and estimates that may have a material impact on the Group’s financial statements. The assets and liabilities recognised by the Group following the merger with St.George are set out in Note 44.

Intangible assets

Identifiable intangible assets that are not normally recognised are required to be identified and measured at their fair value as a result of the purchase price accounting requirements of AASB 3. This involves the use of judgments, estimates and assumptions about how customers will act and products perform in the future, based largely on past experience and future contractual arrangements.

The following material identifiable intangible assets have been recognised:

· core deposit intangibles;

· brand names;

· financial planner distribution relationships; and

· credit card customer relationships.

Financial assets and liabilities

The fair value of all of St.George’s financial assets and financial liabilities has been determined at the merger date. Many of these assets and liabilities are not normally traded in active markets. The global credit and capital market conditions that have included extreme volatility, disruption and decreased liquidity has increased the level of management judgment required in determining the fair value of St.George’s financial assets and financial liabilities.

Tax consolidation

Following the redemption of St.George’s hybrid instruments, namely the St.George CPS, St.George CPS II and St.George SPS, on 31 March 2009, St.George and all its wholly owned Australian subsidiaries joined the Westpac tax consolidated group. This will result in the resetting of the tax bases of certain St.George assets as of that date.

In order to determine the impact of St.George joining the Westpac tax consolidated group, the fair value of St.George and the fair value of its identifiable assets and liabilities needs to be determined as at 31 March 2009. This requires management to make similar critical assumptions, judgments and estimates that were involved in determining the fair value of identifiable assets and liabilities on the date of the acquisition.

No adjustments have been made to reset the tax bases of St.George’s assets for the purposes of preparing these financial statements, as the work to determine the financial effect of joining the Westpac tax consolidated group has not been finalised. When the reset tax bases are finalised, they may result in material adjustments to certain deferred tax balances recognised by the Group with corresponding adjustments to the reported results of the Group.

Refer to Note 15 for details of the Group’s deferred tax balances.

144

Notes to the financial statements

Note 1. Summary of significant accounting policies (continued)

k.Future accounting developments

The following new standards and interpretations have been issued, but are not yet effective and have not been early adopted by the Group:

A revised AASB 3, amended AASB 127 and AASB 2008-3 were issued by the AASB in March 2008. The revisions to the standards apply prospectively to business combinations and will be effective for the 30 September 2010 financial year end. The main changes under the standards are that:

· acquisition related costs are recognised as an expense in the income statement in the period they are incurred;

· earn-outs and contingent considerations will be measured at fair value at the acquisition date, however remeasurement in the future will be recognised in the income statement;

· step acquisitions, impacting equity interests held prior to control being obtained, are remeasured to fair value, with gains and losses being recognised in the income statement. Similarly where control is lost, any difference between the fair value of the residual holding and its carrying value is recognised in the income statement; and

· while control is retained, transactions with minority interests would be treated as equity transactions.

AASB 101 is a revised standard applicable to the Group in the 2010 financial year as is AASB 2007-8 and AASB 2007-10. The amendments affect the presentation of owner changes in equity and of comprehensive income. They do not change the recognition, measurement or disclosure of specific transactions and events required by other standards.

Amendments to AASB 132, AASB 101 and AASB 2008-2 were issued in February 2008 and will require some puttable financial instruments and some financial instruments, which impose on the entity an obligation to deliver to another party a pro rata share of the net assets on liquidation, to be classified as equity. The amendment is applicable to the Group in the 2010 financial year and is not expected to have a material impact.

AASB 8 and AASB 2007-3 were issued in February 2007. The standard applies to the Group for the 2010 financial year. The standard replaces AASB 114 and will further align external operating segment reporting with internal reporting to key management personnel.

A revised AASB 123 and AASB 2007-6 were issued by the AASB in June 2007 and remove the option to expense borrowing costs for qualifying assets. The revisions will be applicable to the Group in the 2010 financial year and are not expected to have a material impact.

AASB 2008-1 was issued in February 2008 and is applicable to the Group in the 2010 financial year. It clarifies for share-based payments that vesting conditions include only service conditions and performance conditions. It also amends the definition of performance conditions to require the completion of a service period in addition to specified performance targets and to specify that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment.

Due to the nature of the Group’s share-based payments, the initial application of the Standard is not expected to have a material impact.

AASB 2008-5 and AASB 2008-6 were issued in July 2008 relating to the Annual Improvements Project and have led to a number of changes, some of which are terminology only and some of which are substantive but are not expected to have a material impact. These changes will be applicable to the Group in the 2010 financial year.

AASB 2008-7 was issued in July 2008 and is applicable to the Group in the 2010 financial year but is not expected to have a material impact. It removes the definition of the cost method from AASB 127 and replaces it with a requirement to present dividends as income in the separate financial statements of the investor as well as requiring a new parent entity established in a group reorganisation to measure the cost of its investment at the carrying amount of equity of the original parent. It also amends AASB 136 to include recognising a dividend together with other evidence as an indication of impairment.

AASB 2008-8 was issued in August 2008 and is applicable to the Group in the 2010 financial year. It provides clarification on the application of hedge accounting in certain circumstances and is not expected to have a material impact.

AASB 2009-2 was issued in April 2009 and requires enhanced disclosures for financial instruments regarding fair value measurement and liquidity risk. This will impact the related disclosures in the financial statements but have no other material impact. This is applicable to the Group in the 2010 financial year.

AASB 2009-4 was issued in May 2009 and is applicable to the Group in the 2010 financial year. It relates to the Annual Improvements Project and makes consequential amendments to AASB 2, AASB 138 and AASB Interpretation 9 arising from revised AASB 3. It also amends the restriction on the entity that can hold hedging instruments in AASB Interpretation 16. It is not expected to have a material impact.

AASB 2009-5 was issued in May 2009 and is applicable to the Group in the 2011 financial year. It relates to the Annual Improvements Project and makes a number of changes some of which are terminology only and some of which are substantive but are not expected to have a material impact.

145

Note 1. Summary of significant accounting policies (continued)

AASB 2009-6 was issued in June 2009 and makes additional amendments relating to the revised AASB 101. It is not expected to have a material impact. It will be applicable to the Group for the 2010 financial year

AASB 2009-7 was issued in June 2009 and corrects errors in AASB 2008-12, AASB 2008-13 and Interpretation 17 and is not expected to have a material impact. It will be applicable to the Group for the 2010 financial year.

AASB 2009-8 was issued in July 2009 and is applicable to the Group in the 2011 financial year. It clarifies the scope of AASB 2 by requiring an entity that receives goods or services in a share-based payment arrangement to account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash. It is not expected to have a material impact on the Group.

AASB Interpretation 1 was issued in June 2007 and is applicable to the Group in the 2010 financial year. It provides guidance on how to account for the effect of changes in the measurement of existing decommissioning, restoration and similar liabilities. It is not expected to have a material impact on the Group.

AASB Interpretation 12 was issued in June 2007 and provides guidance on the accounting by operators for public-to-private service concession arrangements. This will be applicable to the Group in the 2010 financial year but is not expected to have a material impact on the Group.

AASB Interpretation 15 was issued in August 2008 and is applicable to the Group in the 2010 financial year. It applies to the accounting for revenue and associated expenses by entities that enter into agreements for the construction of real estate directly or through subcontractors. It is not expected to have a material impact on the Group.

AASB Interpretation 17 was issued in December 2008 and is applicable to the Group in the 2010 financial year. It provides guidance on how an entity should measure distributions of assets other than cash when it pays dividends to its owners, except for common control transactions. AASB 2008-13 was also issued in December 2008 and is applicable to the Group in the 2010 financial year. It makes consequential amendments to AASB 5 and AASB 110. The amendments are in respect of the classification, presentation and measurement of non-current assets held for distribution to owners in their capacity as owners and the disclosure requirements for dividends that are declared after the reporting period but before the financial statements are authorised for issue, respectively. They are not expected to have a material impact on the Group.

146

Notes to the financial statements

Note 2. Net interest income

	Consolidated						Parent Entity
	2009		2008		2007		2009		2008
	$m		$m		$m		$m		$m
Interest income
Loans	27,772		24,998		19,483		17,602		21,290
Due from other financial institutions	780		1,782		969		462		1,336
Available-for-sale securities	118		114		101		9		33
Regulatory deposits with central banks overseas	17		31		17		17		30
Subsidiaries	—		—		—		2,321		1,021
Trading securities	1,642		1,754		1,003		1,506		1,643
Net ineffectiveness on qualifying hedges	(9	)	1		14		(3	)	1
Other financial assets designated at fair value	43		92		119		38		91
Other	83		309		369		57		298
Total interest income(1)	30,446		29,081		22,075		22,009		25,743
Interest expense
Current and term deposits	(9,293	)	(9,075	)	(7,046	)	(6,118	)	(7,476	)
Due to other financial institutions	(365	)	(449	)	(593	)	(272	)	(388	)
Debt issues	(3,712	)	(4,480	)	(3,440	)	(2,368	)	(3,272	)
Loan capital	(582	)	(484	)	(409	)	(368	)	(439	)
Subsidiaries	—		—		—		(1,464	)	(1,294	)
Trading liabilities	(725	)	(1,911	)	(964	)	(227	)	(1,929	)
Deposits at fair value	(2,089	)	(4,286	)	(2,500	)	(2,106	)	(3,986	)
Other	(2,034	)	(1,174	)	(810	)	(1,537	)	(895	)
Total interest expense(2)	(18,800	)	(21,859	)	(15,762	)	(14,460	)	(19,679	)
Net interest income	11,646		7,222		6,313		7,549		6,064
Impairment charges	(3,238	)	(931	)	(482	)	(2,018	)	(775	)
Net interest income after impairment charges	8,408		6,291		5,831		5,531		5,289

(1)	Total interest income for financial assets that are not at fair value through profit and loss is $28,377 million (2008 $26,131 million) for the Group and $20,075 million (2008 $22,905 million) for the parent entity.
(2)	Total interest expense for financial liabilities that are not at fair value through profit and loss is $15,986 million (2008 $15,662 million) for the Group and $12,127 million (2008 $13,764 million) for the parent entity.

147

Note 3. Non-interest income

	Consolidated						Parent Entity
	2009		2008		2007		2009		2008
	$m		$m		$m		$m		$m
Fees and commissions
Banking and credit related fees	804		553		519		562		472
Transaction fees and commissions received	1,625		1,318		1,295		1,054		1,122
Service and management fees	5		5		1		2		5
Other non-risk fee income	203		184		116		324		294
Total fees and commissions	2,637		2,060		1,931		1,942		1,893
Wealth management and insurance income
Life insurance and funds management net operating income	1,188		932		1,193		—		—
General insurance premiums less claims incurred	180		110		113		—		—
Total wealth management and insurance income	1,368		1,042		1,306		—		—
Trading income
Foreign exchange income	707		514		409		618		456
Other trading securities	194		218		251		154		291
Total trading income	901		732		660		772		747
Other income
Dividends received from subsidiaries	—		—		—		27		597
Dividends received from other entities	21		15		14		19		16
Rental income	5		1		2		—		1
Gain/(loss) on disposal of assets:
Net gain/(loss) from available-for-sale securities	(2	)	(3	)	20		1		1
Other net gain/(loss) on disposal of assets	(6	)	460		2		—		237
Net gain/(loss) on ineffective hedges	3		3		(2	)	3		3
Hedging overseas operations	20		(57	)	(16	)	87		—
Net gain/(loss) on derivatives held for risk management purposes	54		86		(11	)	52		86
Net gain/(loss) on financial instruments designated at fair value	—		(1	)	3		19		223
Other	(142	)	45		97		(188	)	33
Total other income	(47	)	549		109		20		1,197
Total non-interest income	4,859		4,383		4,006		2,734		3,837
Wealth management and insurance income comprised
Funds management income	716		630		585		—		—
Life insurance premium income	442		390		355		—		—
Life insurance investment income/(expense) and other income/(expense)	432		(1,864	)	2,015		—		—
Life insurance claims and change in life insurance liabilities	(402	)	1,776		(1,762	)	—		—
General insurance premiums earned	333		218		204		—		—
General insurance commissions, investment and other income	(8	)	2		2		—		—
General insurance claims incurred, underwriting and commission expenses	(145	)	(110	)	(93	)	—		—
Total wealth management and insurance income	1,368		1,042		1,306		—		—

148

Notes to the financial statements

Note 4. Operating expenses

	Consolidated			Parent Entity
	2009	2008	2007	2009	2008
	$m	$m	$m	$m	$m
Salaries and other staff expenses
Salaries and wages	2,937	2,207	2,030	1,716	1,626
Employee entitlements	245	162	170	171	133
Payroll tax	169	148	116	110	125
Fringe benefits tax	21	24	23	12	21
Superannuation costs:
Defined contribution plans	171	133	116	125	117
Defined benefit plans (Note 36)	37	6	3	34	6
Equity based compensation	104	92	53	71	64
Restructuring costs	116	124	19	53	103
Other	6	19	27	27	4
Total salaries and other staff expenses	3,806	2,915	2,557	2,319	2,199
Equipment and occupancy expenses
Operating lease rentals	389	298	262	208	218
Depreciation, amortisation and impairment:
Premises	18	1	2	1	1
Leasehold improvements	52	43	32	42	34
Furniture and equipment	62	37	38	36	30
Technology	63	90	59	33	78
Software	206	351	187	118	291
Equipment repairs and maintenance	69	39	38	39	33
Electricity, water and rates	11	7	9	6	5
Land tax	5	2	—	2	2
Other	51	27	1	33	10
Total equipment and occupancy expenses	926	895	628	518	702
Other expenses
Amortisation of deferred expenditure	12	4	3	24	31
Amortisation of intangible assets	182	—	—	—	—
Impairment charges – goodwill	2	18	—	—	—
Non-lending losses	182	53	48	172	48
Purchased services:
Technology and information services	249	158	144	138	99
Legal	41	27	25	21	19
Other professional services	409	298	271	316	274
Credit card loyalty programmes	210	185	146	210	185
Stationery	80	51	54	33	32
Postage and freight	123	103	96	78	77
Outsourcing costs	514	486	467	416	399
Insurance	19	11	10	10	8
Advertising	155	99	90	62	54
Training	22	17	19	9	10
Travel	63	59	60	41	46
Other expenses	176	76	71	157	141
Total other expenses	2,439	1,645	1,504	1,687	1,423
Operating expenses	7,171	5,455	4,689	4,524	4,324

149

Note 5. Income tax

	Consolidated						Parent Entity
	2009		2008		2007		2009		2008
	$m		$m		$m		$m		$m
The income tax expense for the year is reconciled to the profit before income tax as follows
Profit before income tax expense	6,096		5,219		5,148		3,741		4,802
Prima facie income tax based on the Australian company tax rate of 30%	1,829		1,566		1,544		1,122		1,440
The effect of amounts which are not deductible (assessable) in calculating taxable income
Change in tax rate	—		4		5		—		—
Rebateable and exempt dividends	(19	)	(33	)	(43	)	(24	)	(193	)
Tax losses not previously recognised now brought to account	(5	)	(5	)	3		(2	)	(12	)
Life insurance:
Tax adjustment on policy holders’ earnings(1)	5		(138	)	64		—		—
Adjustment for life business tax rates	(1	)	(12	)	(5	)	—		—
Other non-assessable items	(24	)	(79	)	(30	)	(7	)	(52	)
Other non-deductible items	68		54		94		78		33
Adjustment for overseas tax rates	(16	)	6		21		(14	)	(12	)
Income tax under/(over) provided in prior years	19		(26	)	(11	)	20		(15	)
Other items(2)	723		(50	)	(12	)	531		(31	)
Total income tax expense in the income statement	2,579		1,287		1,630		1,704		1,158
Income tax analysis
Income tax expense attributable to profit from ordinary activities comprised:
Current income tax:
Australia	2,741		1,108		1,272		2,096		828
Overseas	1,038		255		268		743		95
	3,779		1,363		1,540		2,839		923
Deferred income tax:
Australia	(1,187	)	(38	)	84		(1,178	)	246
Overseas	(32	)	(12	)	17		23		4
	(1,219	)	(50	)	101		(1,155	)	250
Under/(over) provision in prior years:
Australia	21		(15	)	(13	)	15		(7	)
Overseas	(2	)	(11	)	2		5		(8	)
	19		(26	)	(11	)	20		(15	)
Total Australia	1,575		1,055		1,343		933		1,067
Total overseas	1,004		232		287		771		91
Total income tax expense attributable to profit from ordinary activities	2,579		1,287		1,630		1,704		1,158

(1)	In accordance with the requirements of AASB 1038, tax expense for 2009 includes a $7 million tax charge on policyholders’ investment earnings (2008 $198 million tax credit, 2007 $92 million tax charge) of which $2 million is prima facie a tax expense (2008 $60 million tax benefit, 2007 $28 million tax expense) and the balance of $5 million (2008 $138 million, 2007 $64 million) is shown here.
(2)	This includes the provision raised in relation to Structured Finance transactions. For further detail refer to Note 37.

The Parent Entity and its wholly-owned Australian controlled entities implemented the tax consolidation legislation as of 1 October 2002. Following the redemption of the St.George CPS, St.George CPS II and St.George SPS on 31 March 2009, St.George and all its wholly owned Australian subsidiaries became part of the Westpac tax consolidated group. All entities in the tax consolidated group have entered into a tax sharing agreement which, in the opinion of the directors, limits the joint and several liabilities of the wholly-owned entities in the case of a default by the head entity, Westpac.

150

Notes to the financial statements

Note 5. Income tax (continued)

The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate the Parent Entity for any current tax payable assumed and are compensated by the Parent Entity for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to the Parent Entity under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.

The amounts receivable/payable under the tax funding agreement are settled on a quarterly basis in line with the Parent Entity’s obligations to pay tax instalments. Any unpaid amounts at balance date are recognised as current intercompany receivables or payables.

Note 6. Dividends

	Consolidated			Parent Entity
	2009	2008	2007	2009	2008
	$m	$m	$m	$m	$m
Recognised amounts
Ordinary dividends
2008 final dividend paid 72 cents per share (2007 68 cents per share, 2006 60 cents per share) all fully franked at 30%	1,362	1,265	1,101	1,364	1,268
2009 interim dividend paid 56 cents per share (2008 70 cents per share, 2007 63 cents per share) all fully franked at 30%	1,626	1,311	1,164	1,630	1,315
Total ordinary dividends	2,988	2,576	2,265	2,994	2,583
Distributions on other equity instruments
Convertible debentures	—	—	—	64	73
Total distributions on other equity instruments	—	—	—	64	73
Dividends not recognised at year end
Since year end the Directors have recommended the payment of the following final ordinary dividend:
Ordinary shares 60 cents per share (2008 72 cents per share, 2007 68 cents per share) all fully franked at 30%	1,761	1,362	1,265	1,765	1,364

The amount disclosed as ‘recognised’ for ordinary dividends is the final dividend paid in respect of the prior financial year and the interim dividend paid in respect of the current financial year.

The Board has determined to satisfy the DRP for the 2009 final dividend by issuing Westpac ordinary shares. The price at which shares will be issued under the DRP will include a discount of 2.5%.

	Parent Entity
	2009		2008		2007
	$m		$m		$m
Franking account balance
Franking account balance as at year end	1,265		923		897
Franking credits that will arise from payment of current income tax	1,412		(214	)	(71	)
Adjusted franking account balance after payment of current income tax	2,677		709		826
Franking credits to be utilised for payment of unrecognised final dividend	(763	)	(597	)	(552	)
Adjusted franking account balance	1,914		112		274

151

Note 7. Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to equity holders of Westpac by the weighted averaged number of ordinary shares on issue during the year, excluding the number of ordinary shares purchased by the Group and held as Treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

	Consolidated
	2009				2008				2007
	Basic		Diluted		Basic		Diluted		Basic		Diluted
Reconciliation of earnings used in the calculation of earnings per ordinary share ($m)
Net profit	3,517		3,517		3,932		3,932		3,518		3,518
Net profit attributable to minority interest	(71	)	(71	)	(73	)	(73	)	(67	)	(67	)
Distribution on RSP treasury shares(1)	(5	)	—		(4	)	—		(1	)	—
FIRsTS distributions	—		—		—		7		—		44
2004 TPS distributions	—		22		—		23		—		31
2007 convertible notes	—		30		—		39		—		22
Westpac SPS	—		34		—		8
Westpac SPS II	—		16
Earnings	3,441		3,548		3,855		3,936		3,450		3,548
Weighted average number of ordinary shares (millions)
Weighted average number of ordinary shares	2,758		2,758		1,879		1,879		1,852		1,852
Effect of own shares held	(11	)	(11	)	(8	)	(8	)	(6	)	(6	)
Potential dilutive adjustment:
Exercise of options and share rights and vesting of restricted shares	—		7		—		10		—		7
Conversion of 2004 TPS	—		24		—		28		—		22
Conversion of FIRsTS	—		—		—		7		—		24
2007 convertible notes	—		41		—		43		—		16
Westpac SPS	—		42		—		8
Westpac SPS II	—		18
Total weighted average number of ordinary shares	2,747		2,879		1,871		1,967		1,846		1,915
Earnings per ordinary share (cents)	125.3		123.2		206.0		200.1		186.9		185.3

(1) While the equity granted to employees remains unvested, Restricted Share Plan (RSP) treasury shares are deducted from ordinary shares on issue in arriving at the weighted average number of ordinary shares outstanding. Despite the shares being unvested, employees are entitled to dividends and to voting rights on the shares. Consequently, a portion of the profit for the period is allocated to RSP treasury shares to arrive at earnings attributed to ordinary shareholders.

Information concerning the classification of securities

Options and share rights

During the year 2,324,314 (2008  5,429,056, 2007  2,853,969) options and performance share rights were converted to ordinary shares. The diluted earnings per share calculation includes that portion of these options assumed to be issued for nil consideration, weighted with reference to the date of conversion.

The exercise prices of all options are included in Note 26. In determining diluted earnings per share, options with an exercise price (including grant date fair value that will be expensed in future periods) greater than the average Westpac share price over the year have not been included, as these are not considered dilutive. Performance options and performance share rights are only included in determining diluted earnings per share to the extent that they are dilutive and market related performance hurdles are met at year end.

Subsequent to 30 September 2009:

· Nil share rights were granted to employees (2008 2,399 share rights) under the Westpac Performance Plan;

· 279,069 ordinary shares were issued to employees due to the exercise of options (2008 20,000); and

· 57,400 ordinary shares were issued to employees due to the exercise of performance share rights (2008 36,169).

152

Notes to the financial statements

Note 7. Earnings per share (continued)

Options and share rights granted to employees prior to 30 September 2009 under the Westpac Performance Plan, Chief Executive Share Option Agreement, Chief Executive Securities Agreement, General Management Share Option Plan and Senior Officers’ Share Purchase Scheme are considered to be potentially ordinary shares and have been included in the determination of diluted earnings per share. The options and share rights have not been included in the determination of basic earnings per share. Details relating to options and share rights are set out in Note 26.

Restricted Share Plan (RSP)

Under the RSP, Westpac ordinary shares are allocated to eligible employees for nil consideration. Full entitlement to these shares does not vest until a service period has been completed. RSP shares have not been included in determining basic earnings per share. For further details, refer to Note 26.

2004 TPS

As 2004 TPS can be exchanged for ordinary shares in certain circumstances, any dilutive impact must be considered. For the 2009 financial year, 2004 TPS were dilutive (2008 dilutive, 2007 dilutive) and have been included in the determination of diluted earnings per share. 2004 TPS have not been included in the determination of basic earnings per share.

2007 convertible notes

The 2007 convertible notes are unsecured, unsubordinated, redeemable, convertible notes that were issued by Westpac in a private placement on 19 April 2007. As they can be exchanged into ordinary shares at the discretion of Westpac upon certain conditions being satisfied, any dilutive impact must be considered. For the year ended 30 September 2009, the 2007 convertible notes were dilutive (2008 dilutive, 2007 dilutive) and have been included in the determination of diluted earnings per share. The computation of the number of ordinary shares that may arise from conversion was weighted for the proportion of the year that instruments were on issue in 2007.

Westpac Stapled Preferred Securities (Westpac SPS and Westpac SPS II)

Westpac SPS are securities, each consisting of a perpetual, unsecured, non-cumulative subordinated note issued by Westpac’s New York branch, stapled to a preference share issued by Westpac. Westpac SPS were issued on 30 July 2008 and Westpac SPS II were issued on 31 March 2009. As the SPS’s can be exchanged for ordinary shares in certain circumstances, any dilutive impact must be considered. For the year ended 30 September 2009, the Westpac SPS and Westpac SPS II were dilutive (2008 SPS dilutive) and have been included in the determination of diluted earnings per share. The computation of the number of ordinary shares for Westpac SPS II in 2009, which may arise from conversion, has been weighted for the proportion of the year that the instruments were on issue.

The terms and conditions associated with 2004 TPS, 2007 convertible notes and Westpac SPS and Westpac SPS II are discussed in more detail in Note 23.

Note 8. Due from other financial institutions

	Consolidated		Parent Entity
	2009	2008	2009	2008
	$m	$m	$m	$m
Placements	5,955	3,050	5,925	3,015
Loans to other banks	4,019	7,384	943	2,393
Certificates of deposit(1)	8,335	10,911	5,498	10,911
Total due from other financial institutions	18,309	21,345	12,366	16,319

(1) Certificates of deposit are measured at fair value through profit or loss. At 30 September 2009, certificates of deposit due from other financial institutions of $2.8 billion were disclosed as part of trading securities in Note 9 (2008 $9.7 billion, 2007 $2.9 billion).

Amounts due from other financial institutions based on location and nature are outlined below:

	Consolidated		Parent Entity
	2009	2008	2009	2008
	$m	$m	$m	$m
Australia
Interest earning	11,500	16,147	5,687	12,090
Non-interest earning	32	4	—	4
Total Australia	11,532	16,151	5,687	12,094
Overseas
Interest earning	6,495	5,192	6,399	4,225
Non-interest earning	282	2	280	—
Total overseas	6,777	5,194	6,679	4,225
Total due from other financial institutions	18,309	21,345	12,366	16,319

153

Note 9. Trading securities and other financial assets designated at fair value

	Consolidated			Parent Entity
	2009	2008	2007	2009	2008
	$m	$m	$m	$m	$m
Securities	31,969	35,982	17,138	27,096	32,786
Securities purchased under agreement to resell	2,810	3,552	5,099	2,810	3,552
Total trading securities	34,779	39,534	22,237	29,906	36,338
Other financial assets designated at fair value	3,063	2,547	1,179	1,411	1,480
Total trading securities and other financial assets designated at fair value	37,842	42,081	23,416	31,317	37,818

Trading securities includes the following:

	Consolidated			Parent Entity
	2009	2008	2007	2009	2008
	$m	$m	$m	$m	$m
Australian public securities:
Commonwealth securities	653	290	221	653	290
Semi-government securities	5,164	5,064	2,932	4,167	5,064
Australian equity securities	67	203	71	55	203
Australian debt securities	21,493	27,289	9,233	19,574	25,449
Overseas public securities	2,238	130	298	295	130
Overseas debt securities	2,343	3,006	4,383	2,341	1,650
Other securities	11	—	—	11	—
Total securities	31,969	35,982	17,138	27,096	32,786
Securities purchased under agreement to resell	2,810	3,552	5,099	2,810	3,552
Total trading securities	34,779	39,534	22,237	29,906	36,338

The Group has total holdings of debt securities from three Australian financial institutions, the aggregate book and market value of each of which exceeded 10% of the total shareholders’ equity of the Group at 30 September 2009.

The Group holds $266 million of US Government bonds at 30 September 2009 (2008 nil, 2007 $129 million).

Other financial assets designated at fair value include:

	Consolidated			Parent Entity
	2009	2008	2007	2009	2008
	$m	$m	$m	$m	$m
Australian debt securities	2,558	1,672	1,179	988	645
Overseas debt securities	505	875	—	423	835
Total other financial assets designated at fair value	3,063	2,547	1,179	1,411	1,480

154

Notes to the financial statements

Note 10. Available-for-sale securities

	Consolidated			Parent Entity
	2009	2008	2007	2009	2008
	$m	$m	$m	$m	$m
Available-for-sale securities — at fair value
Australian debt securities	725	291	544	138	233
Overseas public securities	76	404	45	76	239
Overseas debt securities	129	203	193	13	31
Australian equity securities	84	10	9	52	6
Overseas equity securities	261	201	—	168	—
	1,275	1,109	791	447	509
Available-for-sale securities — at cost(1)
Unlisted securities	355	504	298	15	31
Total available-for-sale securities	1,630	1,613	1,089	462	540

(1)Investments in certain unlisted securities are measured at cost because the fair value cannot be reliably measured. These investments represent government securities held that have been issued by countries where markets are highly illiquid or minority interests in companies for which active markets do not exist and quoted prices are not available. Unlisted securities carried at cost at 30 September 2008 of $494 million (2007 $288 million) have been reclassified from overseas public securities to unlisted securities at cost to align with the presentation applied at 30 September 2009. Similarly for the Parent Entity at 30 September 2008 $30 million has been reclassified from overseas public securities to unlisted securities at cost.

The movement in available-for-sale securities may be summarised as follows:

	Consolidated				Parent Entity
	2009		2008		2009		2008
	$m		$m		$m		$m
Balance at the beginning of the year	1,613		1,089		540		607
Additions through merger	2,250		—		—		—
Other additions	3,271		4,875		647		688
Disposals (sale and redemption)	(5,417	)	(4,514	)	(679	)	(811	)
Impairment charges	(27	)	(1	)	(19	)	—
Exchange differences on monetary assets	(93	)	131		(22	)	27
Gains/(losses) from changes in fair value	33		33		(5	)	29
Balance at the end of the year	1,630		1,613		462		540

Available-for-sale securities re-valued to fair value resulted in a gain of $35 million (2008 $48 million) and the Parent Entity a loss of $5 million (2008 $48 million gain) being recognised directly in equity (refer to Note 25).

The following table shows the maturities of the Group’s available-for-sale securities and the weighted-average carrying yield for available-for-sale securities as at 30 September 2009. There are no tax-exempt securities.

155

Note 10. Available-for-sale securities

Within				No Specific	Weighted
1 Year	1 to 5 Years	5 to 10 Years	<