Exhibit 1

 

Pillar 3 report

Table of contents

Structure of Pillar 3 report
Executive summary	3
Introduction	5
Risk appetite and risk types	6
Controlling and managing risk	7
Group structure	13
Capital overview	15
Leverage ratio	20
Credit risk management	22
Credit risk exposures	32
Credit risk mitigation	56
Counterparty credit risk	58
Securitisation	61
Market risk	71
Interest rate risk in the banking book	75
Operational risk	77
Equity risk	79
Funding and liquidity risk management	81
Liquidity coverage ratio	82
Net stable funding ratio	83
Remuneration	85
Appendices
Appendix I – Regulatory capital reconciliation	92
Appendix II – Entities included in regulatory consolidation	98
Appendix III – Level 3 entities’ assets and liabilities	101
Appendix IV – Regulatory expected loss	102
Appendix V – APS330 quantitative requirements	103
Glossary	106
Disclosure regarding forward-looking statements	111

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

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

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

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

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

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Pillar 3 report

Executive summary

Key capital ratios

	30 September 2020	31 March 2020	30 September 2019
Level 2 Regulatory capital structure
Common equity Tier 1 capital after deductions $m	48,733	47,982	45,752
Risk weighted assets (RWA) $m	437,905	443,905	428,794
Common equity Tier 1 capital ratio %	11.13	10.81	10.67
Additional Tier 1 capital ratio %	2.10	2.13	2.17
Tier 1 capital ratio %	13.23	12.94	12.84
Tier 2 capital %	3.15	3.35	2.79
Total regulatory capital ratio %	16.38	16.29	15.63
APRA leverage ratio %	5.78	5.66	5.68
Level 1 Regulatory capital structure
Common equity Tier 1 capital after deductions ($m)	49,453	48,482	46,380
Risk weighted assets (RWA) ($m)	433,727	437,137	422,475
Level 1 Common equity Tier 1 capital ratio %	11.40	11.09	10.98

CET1 capital ratio movement for Second Half 2020

Westpac’s CET1 capital ratio was 11.13% at 30 September 2020, 32 basis higher than 31 March 2020. This reflects cash earnings for the half taking into account notable items¹, a slight decline in RWAs and higher capital deductions.

CET1 movement – Second Half 2020

 

Key movements in the CET1 capital ratio over the half were:

l	Second Half 2020 cash earnings (37 basis point increase), which includes the impact of notable items;
l	Capital deductions and other capital movements (11 basis point decrease). This mainly reflects movements in fair value on economic hedges recognised in net profit (13 basis point decrease), a higher deduction for deferred tax assets (8 basis point decrease) and a net increase in capital held in non-consolidated subsidiaries (3 basis point decrease). These were largely offset by a lower deduction for goodwill (12 basis point increase) and other movements (1 basis point increase);
l	A decline in RWA (1 basis point increase), mainly driven by decreases in credit risk RWA which were partially offset by an increase in non-credit risk RWA; and
l	Foreign currency impacts from the appreciation of the A$ against the NZ$ and US$ (5 basis point increase)2.

1	Notable items impacting cash earnings for the Second Half 2020 includes estimated customer refunds and payments, costs associated with estimated customer refunds and payments and litigation, AUSTRAC and related matters, intangible write-down and asset sales/revaluation.
2	Reflecting the net impact of movements in the foreign currency translation reserve and RWA.

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Pillar 3 report

Executive summary

Risk Weighted Assets (RWA)

$m	30 September 2020	31 March 2020	30 September 2019
Risk weighted assets at Level 2
Credit risk	359,389	369,142	367,864
Market risk	8,761	8,396	9,350
Operational risk	54,090	54,093	47,680
Interest rate risk in the banking book (IRRBB)	9,124	5,305	530
Other	6,541	6,969	3,370
Total RWA	437,905	443,905	428,794
Total Exposure at Default	1,062,238	1,089,104	1,054,178

Total RWA decreased $6.0 billion or 1.4% this half mainly driven by a reduction in credit risk RWA.

The $9.8 billion decline in credit risk RWA included:

l $3.1 billion from lower lending in corporate from reduced Trade Finance activity in Asia and a decrease in personal lending across credit cards and other retail;

l Foreign currency translation impacts which decreased RWA by $5.6 billion from the appreciation of the A$ against the NZ$ and US$;

l Modelling and methodology changes, which reduced RWA by $2.6 billion; and

l A decrease in credit RWA associated with derivative exposures (counterparty credit risk and mark-to-market related credit risk) of $3.9 billion mainly relating to currency and interest rate movements.

Partially offset by:

l A $5.4 billion increase from credit quality deterioration comprising:

o Downgrades mainly across corporate, business and specialised lending which increased RWA by $3.4 billion; and

o An overlay to the probability of default for corporate, business lending and specialised lending which led to a $2.0 billion increase in RWA and an associated increase in regulatory expected loss of $89 million. This overlay will be reviewed regularly as individual customers continue to be assessed and re-gradings are finalised.

Non-credit risk RWA increased by $3.8 billion from higher IRRBB (up $3.8 billion), an increase in market risk RWA (up $0.4 billion), partially offset by Other RWA down $0.4 billion.

During the half APRA approved a new IRRBB model and the revised model has been implemented at 30 September 2020. Westpac had included an IRRBB capital overlay of $500 million, which has now been released with minimal net overall impact. The key driver for the increase this half is primarily credit spread risk from the higher liquids portfolio.

Exposure at Default

Exposure at default (EAD) decreased $26.9 billion (or 2.5%) over the half, primarily due to lower lending, foreign exchange movements and a reduction in derivative exposures.

Leverage Ratio

The leverage ratio represents the amount of Tier 1 capital relative to exposure¹. At 30 September 2020, Westpac’s leverage ratio was 5.78%, up 12 basis points since 31 March 2020.

Liquidity Coverage Ratio (LCR)

Westpac’s average LCR for the quarter ending 30 September 2020 was 151% (30 June 2020: 146%).

Net Stable Funding Ratio (NSFR)

Westpac had an NSFR of 121.7%² as at 30 September 2020 (30 June 2020: 116.1%).

1	As defined under Attachment D of APS110: Capital Adequacy.
2	Calculated as total available stable funding divided by total required stable funding as at end of the quarter.

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Pillar 3 report

Introduction

Westpac Banking Corporation is an Authorised Deposit-taking Institution (ADI) subject to regulation by APRA. APRA has accredited Westpac to apply advanced models permitted by the Basel III global capital adequacy regime to the measurement of its regulatory capital requirements. Westpac uses the Advanced Internal Ratings-Based approach (Advanced IRB) for credit risk and the Advanced Measurement Approach (AMA) for operational risk.

In accordance with APS330 Public Disclosure, financial institutions that have received this accreditation, such as Westpac, are required to disclose prudential information about their risk management practices on a semi-annual basis. A subset of this information must be disclosed quarterly.

This report describes Westpac’s risk management practices and presents the prudential assessment of Westpac’s capital adequacy as at 30 September 2020.

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

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

Capital instruments disclosures are updated when:

l	A new capital instrument is issued that will form part of regulatory capital; or
l	A capital instrument is redeemed, converted into CET1 capital, written off, or its terms and conditions are changed.

¹ http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/

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Pillar 3 Report

Risk appetite and risk types

Westpac’s appetite for risk is informed by our strategic objectives and business plans, regulatory rules and ratios, and the potential for adverse outcomes that result in material impacts on our customers, our staff, our reputation, our regulatory relationships and/or our financial position including the potential for capital and liquidity ratios to fall below target levels in stressed scenarios.

Refer to the Strategic Review section of the Westpac 2020 Annual Report for a discussion on the current risk management issues facing Westpac.

Westpac distinguishes between different types of risk and takes an integrated approach toward identifying, assessing and managing risks. The annual review of Westpac’s Risk Management Framework, which includes the Risk Management Strategy and Risk Appetite Statement, together with the establishment and monitoring of key controls through supporting frameworks and policies all play vital roles.

Overview of key risk types

l risk culture – the risk that our culture does not promote and reinforce behavioural expectations or structures to identify, understand, discuss and act on risks. This leads to ineffective risk management, poor risk awareness, risk-taking outside of risk appetite that is tolerated and a culture where key learnings are not integrated into Group-wide and customer outcomes, impeding continuous improvement;

l strategic risk – the risk that Westpac makes incomplete strategic choices, does not implement its strategies successfully, or does not respond effectively to changes in the operating environment;

l capital adequacy risk – the risk that Westpac has an inadequate level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions;

l funding and liquidity risk – the risk that Westpac cannot meet its payment obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets;

l credit risk – the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac;

l market risk – the risk of an adverse impact on earnings resulting from changes in the value of Westpac’s positions as a result of a change in financial market factors, such as foreign exchange rates, interest rates, commodity prices and equity prices. This includes interest rate risk in the banking book - the risk to interest income from a mismatch between the duration of assets and liabilities that arises in the normal course of business activities;

l operational risk – the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition excludes strategic risk. While legal risk and regulatory risk arise through inadequate or failed processes, people and systems or from external events, these are reflected primarily in conduct and compliance risk;

l cyber risk – the risk that Westpac or its third parties’ data or technology are inappropriately accessed, manipulated or damaged from cybersecurity threats or vulnerabilities;

l conduct and compliance risk – the risk of failing to abide by compliance obligations required of us or otherwise failing to have behaviours and practices that deliver suitable, fair and clear outcomes for our customers and that support market integrity;

l reputational and sustainability risk − the risk that an action, inaction, transaction, investment or event will reduce trust in Westpac’s integrity and competence by clients, counterparties, investors regulators, employees or the public; and

l financial crime risk – the risk that Westpac fails to prevent financial crime and comply with applicable global financial crime regulatory obligations.

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Pillar 3 report

Controlling and managing risk

We have adopted and continue to embed a Three Lines of Defence model to aid in end-to-end management of risk, within which all employees play an active role. We have put in place a risk management framework that seeks to:

l deliver suitable, fair and clear outcomes for our customers that support market integrity;

l protect Westpac’s depositors, policyholders and investors by maintaining a balance sheet with sound credit quality and buffers over regulatory minimums; and

l meet our regulatory and statutory obligations.

The Board is responsible for approving Westpac’s overall Risk Management Framework for managing financial and non-financial risk, including the Westpac Group Risk Management Strategy and the Westpac Group Risk Appetite Statement and for monitoring the effectiveness of risk management by Westpac.

The Board has delegated to the Board Risk Committee responsibility to: establish a view of the Group’s current and future risk position relative to its risk appetite and capital strength; review and approve frameworks and policies for managing risk; and review and, where appropriate, approve risks beyond the approval discretion provided to management.

In June 2020, the Board Legal, Regulatory  & Compliance Committee was established as a sub-committee of the Board Risk Committee to assist with overseeing financial crime risk, material litigation and regulatory investigations, customer remediation activities and customer complaints, compliance and conduct risk and material legal and regulatory change relevant to the Group.

Risk management governance structure as at 30 September 2020

Board	l	approves our overall risk management framework – the Westpac Group Risk Management Framework, the Westpac Group Risk Management Strategy and the Westpac Group Risk Appetite Statement and monitors the effectiveness of risk management by Westpac; and
	l	makes an annual declaration to APRA on risk management in accordance with regulatory requirements.
Board Risk Committee (BRiskC)	l	assists the Board to consider and approve Westpac’s overall risk framework for managing financial and non-financial risks;
	l	reviews and oversees the risk culture across Westpac;
	l	reviews and recommends the Westpac Group Risk Management Framework, the Westpac Group Risk Management Strategy and the Westpac Group Risk Appetite Statement to the Board for approval on an annual basis;
	l	reviews and monitors Westpac’s risk profile and controls for consistency with the Westpac Group Risk Appetite Statement and assists the Board to set the risk appetite for material risks;
	l	reviews and approves material frameworks, policies and processes for managing risk;
	l	reviews and approves the limits and conditions that apply to credit risk approval authority delegated to the CEO, CFO, CRO and any other officers of Westpac to whom the Board has delegated credit approval authority;
	l	monitors changes anticipated for the economic and business environment including consideration of emerging risks, and other factors considered relevant to our risk profile and risk appetite;
	l	assists the Board to make its annual declaration to APRA on risk management under APRA prudential standard CPS220 Risk Management;
	l	reviews and where appropriate approves risks beyond the approval discretion provided to management; and
	l	assists the Board to oversee compliance management within Westpac.
	From the perspective of specific types of risk, the Board Risk Committee’s role includes:
	l	credit risk – approving material policies and limits supporting the Westpac Group Credit Risk Management Framework, approving credit provisioning, and monitoring the risk profile, performance and management of our credit portfolio;

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Controlling and managing risk

Risk management governance structure (continued)

	l	liquidity risk – approving key policies and limits supporting the Westpac Group Liquidity Risk Management Framework, including our annual funding strategy, recovery and resolution plans, liquidity targets and limits and monitoring the liquidity position and requirements;
	l	market risk – approving key policies and limits supporting the Westpac Group Market Risk Management Framework and reviewing and monitoring the market risk performance, exposures and risk positions;
	l	operational risk – approving key policies supporting the Westpac Group Operational Risk Management Framework, and monitoring the performance of operational risk management and controls;
	l	reputation and sustainability risk – reviewing and approving the Westpac Group Reputation Risk and Sustainability Risk Management Frameworks, and monitoring the associated management of these risks; and
	The Board Risk Committee also:
	l	oversees and approves the Internal Capital Adequacy Assessment Process and in doing so reviews and recommends the target capital ranges for regulatory capital and reviews and monitors capital levels for consistency with Westpac’s risk appetite;
	l	oversees and approves Westpac’s stress testing, including review and approval of the material scenarios adopted and monitors material stress testing results and management responses;
	l	provides relevant periodic assurances and reports (as appropriate) to the Board Audit Committee;
	l	reviews and approves other risk management frameworks and/or the monitoring of performance under those frameworks (as appropriate);
	l	forms a view on Westpac’s risk culture and the extent to which it supports the ability of Westpac to operate consistently within the Westpac Group’s Risk Management Framework and the Westpac Group Risk Appetite Statement and oversees the identification of, and steps taken to address, any desirable changes to risk culture and periodically reports to the Board;
	l	refers or recommends to the Board and any other Board Committees (as appropriate) any matters that have come to the attention of the Board Risk Committee that are relevant for the Board or the respective Board Committee; and
	l	in its capacity as the Westpac Group’s US Risk Committee, oversees the key risks, risk management framework and policies of Westpac’s US operations.
Board Legal, Regulatory and Compliance Committee (BLRCC)	Assist the Board Risk Committee as it oversees:
	l	material legal and regulatory change relevant to Westpac;
	l	Westpac’s management of:
		o   material litigation (including class actions) and regulatory investigations;
		o   compliance;
		o   conduct risk;
		o   financial crime risk;
		o   customer remediation activities and customer complaints; and
		o  such other operational risk activities as are delegated to the Board Legal, Regulatory & Compliance Committee by the Board Risk Committee.

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Controlling and managing risk

Risk management governance structure (continued)

	From the perspective of specific types of risk, the BLRCC role includes:
	l	financial crime risk – reviewing and approving the Financial Crime Risk Management Framework and key supporting policies and standards, including receiving information regarding material breaches of Westpac’s Anti-Bribery and Corruption (ABC) Policy and monitoring Westpac’s financial crime risk performance and controls; and
	l	compliance and conduct risk - reviewing and approving Westpac’s Compliance and Conduct Risk Management Framework and key supporting policies and standards, and reviewing and monitoring Westpac's risk performance and controls.
Board Committees with a Risk Focus	Board Audit Committee (BAC)
	l	oversees the integrity of the financial statements, financial reporting systems, and the Group’s corporate reporting including the Group’s financial reporting, and compliance with prudential regulatory reporting and professional accounting requirements and matters relating to taxation risks.
	Board Remuneration Committee (BRC)
	l	oversees remuneration policies and practices of Westpac, in the context that these policies and practices reflect Westpac’s risk management framework, including making recommendations to the Board for the reduction or lapsing of incentive-based equity grants to employees as a result of risk or compliance failures.
	Board Technology Committee (BTC)
	l	oversees the implementation of Westpac’s technology and data strategy and oversees the implementation of programs within the Enterprise Change Portfolio including monitoring the delivery of the major technology related transformation programs.
Executive Team	Westpac Executive Team (ET)
	l	executes the Board-approved strategy;
	l	delivers Westpac’s various strategic and performance goals within the approved risk appetite;
	l	approves position statements that guide Westpac’s response to sustainability issues; and
	l	monitors key risks within each business unit, capital adequacy and Westpac’s reputation.
Executive risk committees	Westpac Group Executive Risk Committee (RISKCO)
	l	leads the management and oversight of material risks across Westpac within the context of the risk appetite approved by the Board;
	l	oversees the effectiveness of the Risk Management Framework and the execution of the Risk Management Strategy;
	l	monitors and reviews Westpac’s risk profile for all identified material risks;
	l	shapes and promotes a strong risk culture; and
	l	oversees emerging risks and allocates responsibility for assessing impacts and implementing appropriate actions to address these.
	Westpac Group Executive Technical Risk Committee
	l	reviews, supports, approves and monitors risk class risk management frameworks and key supporting policies;
	l	monitors the review of risk models, model risk and capital measurements and methodologies; and
	l	monitors and reviews stress testing and scenario analysis and capital.

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Controlling and managing risk

Risk management governance structure (continued)

Westpac Group Asset & Liability Committee (ALCO)
l	leads the optimisation of funding and liquidity risk-reward across Westpac;
l	reviews the level and quality of capital to ensure that it is commensurate with Westpac’s risk profile, business strategy and risk appetite;
l	oversees the Liquidity Risk Management Framework and key policies;
l	oversees the funding and liquidity risk profile and balance sheet risk profile; and
l	identifies emerging funding and liquidity risks and appropriate actions to address these.
Westpac Group Credit Risk Committee (CREDCO)
l	reviews and oversees the Credit Risk Management Framework and key supporting policies;
l	oversees Westpac’s credit risk profile; and
l	identifies emerging credit risks, allocates responsibility for assessing impacts, and responds as appropriate.
Westpac Group Market Risk Committee (MARCO)
l	reviews and oversees the Market Risk Management Framework and key market risk management policies;
l	reviews policies and limits for managing traded and non-traded market risk; and
l	reviews and oversees the market risk, equity risk and insurance risk profile.
Westpac Group Operational and Compliance Risk Committee (OPCO)
l	reviews and oversees the Operational Risk Management Framework and the Compliance and Conduct Risk Management Framework, and key supporting policies;
l	oversees Westpac’s operational risk and conduct and compliance risk profiles; and
l	identifies emerging operational, conduct and compliance risks and appropriate actions to address these.
Westpac Group Remuneration Oversight Committee (ROC)
l	supporting the CEO, BRC and the Board by reviewing and approving remuneration frameworks, guidelines and short term variable reward plans underpinning the Board-approved Westpac Group Remuneration Policy from a Human Resources, Risk (including Compliance), Finance and Legal perspective and in line with external requirements;
l	assisting the BRC and the Board in fulfilling its responsibility to oversee remuneration policies and practices of Westpac in the context that these policies and practices fairly and responsibly reward individuals having regard to customer and shareholder interests, long term financial soundness and prudent risk management;
l	recommending to the CEO for recommendation to the BRC remuneration arrangements including remuneration review and remuneration adjustment outcomes for Responsible Persons, risk and financial control employees, Material Risk Takers and other individuals whose activities may impact the financial soundness of Westpac below the Group Executive level; and
l	recommending to the CEO for recommendation to the BRC the criteria and rationale for determining the total quantum of Westpac’s variable reward pool.

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Controlling and managing risk

Risk management governance structure (continued)

	Prudential Reporting and Compliance Committee
	l	oversees from a Group-wide perspective, Westpac’s compliance with prudential requirements and regulatory reporting;
	l	oversees the effective management of prudential compliance breaches, incidents and issues including remediation actions; and
	l	monitors and reviews ongoing prudential governance activities, including changes to prudential standards.
	Reputation Risk Committee
	l	reviews issues with material reputation risk that arise in the operations of Westpac’s business to mitigate reputation risk and detrimental customer impacts.
	Westpac Group Financial Crime Risk and Compliance Committee
	l	oversees Anti-Money Laundering and Counter-Terrorism Financing, Anti-Bribery and Corruption, Sanctions and Tax Transparency within the context of the risk appetite approved by the Board;
	l	reviews and oversees the Financial Crime Risk Management Framework, key supporting policies, programs and standards;
	l	monitors and oversees Westpac’s financial crime risk profile; and
	l	identifies emerging financial crime risks, and appropriate actions to address these.
Risk function	Risk Function
	l	promotes a strong risk culture;
	l	owns the design and content of the Risk Management Framework;
	l	defines the structure and coverage of risk appetite;
	l	defines the annual risk strategy to execute the Risk Management Framework ensuring that the management of risks is in alignment with risk appetite and business strategy;
	l	establishes risk policies, procedures and limits;
	l	measures and reports on risk levels; and
	l	provides oversight of and direction on the management of risks.
Independent internal review	Group Audit
	l	reviews the adequacy and effectiveness of management controls over risk.
Divisional business units and Functions	Business Units and Functions
	l	responsible for identifying, evaluating and managing the risks that they originate within approved risk appetite and policies; and
	l	establish and maintain appropriate risk management and compliance controls, resources and self-assessment processes.

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Controlling and managing risk

Roles and responsibilities

Our Three Lines of Defence approach is designed on a functional basis and covers all employees within Westpac.

The 1^st Line of Defence – Business: manages the risks they originate

The 1^st Line proactively identifies, evaluates, owns and manages the risks in their business/domain. It also seeks to ensure that business activities are within approved risk appetite and policies. This accountability cannot be abrogated. The 1^st Line of defence is accountable for ‘self-certification’.

In managing its risk, the 1^st Line is required to establish and maintain appropriate governance structures, controls, resources and self-assessment processes, including issue identification, recording and escalation procedures.

The 2^nd Line of Defence – Risk: provides oversight, insight and control of 1^st Line activities

The 2^nd Line sets frameworks, controls (including policies and limits), and standards for use across the Group. The 2^nd Line can require remediation or cessation of activity where these are not adhered to. Their approach is intended to be risk-based and proportionate to 1^st Line activities.

The 2^nd Lines role is to review and challenge 1^st Line activities and decisions that may materially affect Westpac’s risk position, and independently evaluates the effectiveness of the 1^st Line’s controls, monitoring, compliance, and monitors progress towards mitigating risks. In addition, the 2^nd Line’s role is to provide insight to the 1^st Line, assisting in developing, maintaining and enhancing the business’ approach to risk management.

The 2^nd Line considers and reports the aggregated risk profile of the Group to facilitate end-to-end oversight of risk.

The 3^rd Line of Defence – Audit: provides independent audit

Group Audit is an independent assurance function. Its role is to evaluate and opine on the adequacy and effectiveness of both 1^st and 2^nd Line risk management approaches and track remediation progress, with the aim of providing the Board, and Senior Executives, with information about whether the Group’s governance, risk management and internal controls are operating effectively.

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Group Structure

APRA applies a tiered approach to measuring Westpac’s capital adequacy¹ by assessing financial strength at three levels:

l Level 1, comprising Westpac Banking Corporation and its subsidiary entities that have been approved by APRA as being part of a single 'Extended Licensed Entity' (ELE) for the purposes of measuring capital adequacy;

l Level 2, the consolidation of Westpac Banking Corporation and all its subsidiary entities except those entities specifically excluded by APRA regulations. The head of the Level 2 group is Westpac Banking Corporation; and

l Level 3, the consolidation of Westpac Banking Corporation and all its subsidiary entities.

Unless otherwise specified, all quantitative disclosures in this report refer to the prudential assessment of Westpac’s financial strength on a Level 2 basis².

The Westpac Group

The following diagram shows the Level 3 conglomerate group and illustrates the different tiers of regulatory consolidation.

 

Accounting consolidation³

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries (including structured entities) controlled by Westpac. Westpac and its subsidiaries are referred to collectively as the ‘Group’. The effects of all transactions between entities in the Group are eliminated on consolidation. Control exists when the parent entity is exposed to, or has rights to, variable returns from its involvement with an entity, and has the ability to affect those returns through its power over that entity. Subsidiaries are fully consolidated from the date on which control commences and they are no longer consolidated from the date that control ceases.

Group entities excluded from the regulatory consolidation at Level 2

Regulatory consolidation at Level 2 covers the global operations of Westpac and its subsidiary entities, including other controlled banking, securities and financial entities, except for those entities involved in the following business activities:

l insurance;

l acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds management;

l non-financial (commercial) operations; or

l special purpose entities to which assets have been transferred in accordance with the requirements of APS120 Securitisation.

Retained earnings and equity investments in subsidiary entities excluded from the consolidation at Level 2 are deducted from capital, with the exception of securitisation special purpose entities.

¹ APS110 Capital Adequacy outlines the overall framework adopted by APRA for the purpose of assessing the capital adequacy of an ADI.

² Impaired assets and provisions held in Level 3 entities are excluded from the tables in this report.

³ Refer to Note 31 of Westpac’s 2020 Annual Report for further details.

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Group structure

Subsidiary banking entities

Westpac New Zealand Limited (WNZL), a wholly owned subsidiary entity, is a registered bank incorporated in New Zealand and regulated by the Reserve Bank of New Zealand (RBNZ). WNZL uses the Advanced IRB approach for credit risk and the AMA for operational risk. Other subsidiary banking entities in the Group include Westpac Bank-PNG-Limited and Westpac Europe Limited. For the purposes of determining Westpac’s capital adequacy subsidiary banking entities are consolidated at Level 2.

Restrictions and major impediments on the transfer of funds or regulatory capital within the Group

Minimum capital (‘thin capitalisation’) rules

Tax legislation in most jurisdictions in which the Group operates prescribes minimum levels of capital that must be retained in that jurisdiction to avoid a portion of the interest costs incurred in the jurisdiction ceasing to be tax deductible. Capital for these purposes includes both contributed capital and non-distributed retained earnings. Westpac seeks to maintain sufficient capital/retained earnings to comply with these rules.

Tax costs associated with repatriation

Repatriation of retained earnings (and capital) may result in tax being payable in either the jurisdiction from which the repatriation occurs or Australia on receipt of the relevant amounts. This cost would reduce the amount actually repatriated.

Intra-group exposure limits

Exposures to related entities are managed within the prudential limits prescribed by APRA in APS222 Associations with Related Entities¹. Westpac has an internal limit structure and approval process governing credit exposures to related entities. This limit structure and approval process, combined with APRA’s prudential limits, is designed to reduce the potential for unacceptable contagion risk.

Prudential regulation of subsidiary entities

Certain subsidiary banking, insurance and trustee entities are subject to local prudential regulation in their own right, including capital adequacy requirements and investment or intra-group exposure limits. Westpac seeks to ensure that its subsidiary entities are adequately capitalised and adhere to regulatory requirements at all times. There are no capital deficiencies in subsidiary entities excluded from the regulatory consolidation at Level 2.

On 4 November 2019, the RBNZ advised it would change WNZL’s conditions of registration to remove the 2% overlay applying to its minimum capital requirements from 31 December 2019. This overlay had been in place since 31 December 2017 following the RBNZ’s review of WNZL’s compliance with the RBNZ’s ‘Capital Adequacy Framework’ (Internal Models Based Approach) (BS2B).

On 2 April 2020, a decision was made by the RBNZ to freeze the distribution of dividends on ordinary shares by all banks in New Zealand during the period of economic uncertainty caused by COVID-19.

¹ For the purposes of APS222, subsidiaries controlled by Westpac, other than subsidiaries that form part of the ELE, represent ‘related entities’. Prudential and internal limits apply to intra-group exposures between the ELE and related entities, both on an individual and aggregate basis.

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Capital overview

Capital Structure

This table shows Westpac’s capital resources under APS111 Capital Adequacy: Measurement of Capital.

	30 September	31 March	30 September
$m	2020	2020	2019
Common equity Tier 1 capital
Paid up ordinary capital	40,509	40,503	37,508
Treasury shares	(620)	(619)	(575)
Equity based remuneration	1,661	1,645	1,548
Foreign currency translation reserve	(309)	59	(199)
Accumulated other comprehensive income	126	(190)	(68)
Non-controlling interests - other	57	61	58
Retained earnings	26,533	25,985	27,188
Less retained earnings in life and general insurance, funds management and securitisation entities	(1,132)	(1,326)	(1,407)
Deferred fees	214	229	267
Total common equity Tier 1 capital	67,039	66,347	64,320
Deductions from common equity Tier 1 capital
Goodwill (excluding funds management entities)	(8,532)	(8,673)	(8,648)
Deferred tax assets	(2,963)	(2,610)	(2,034)
Goodwill in life and general insurance, funds management and securitisation entities	(535)	(935)	(940)
Capitalised expenditure	(1,576)	(1,656)	(1,719)
Capitalised software	(2,137)	(2,029)	(2,019)
Investments in subsidiaries not consolidated for regulatory purposes	(1,941)	(1,633)	(1,540)
Regulatory expected loss in excess of eligible provisions1	(40)	-	(1,106)
Defined benefit superannuation fund surplus	(71)	(80)	(73)
Equity investments	(492)	(327)	(425)
Regulatory adjustments to fair value positions	(18)	(407)	(63)
Other Tier 1 deductions	(1)	(15)	(1)
Total deductions from common equity Tier 1 capital	(18,306)	(18,365)	(18,568)
Total common equity Tier 1 capital after deductions	48,733	47,982	45,752
Additional Tier 1 capital
Basel III complying instruments	9,206	9,473	9,299
Total Additional Tier 1 capital	9,206	9,473	9,299
Net Tier 1 regulatory capital	57,939	57,455	55,051
Tier 2 capital
Basel III complying instruments	13,161	14,455	11,645
Basel III transitional instruments	494	567	519
Eligible general reserve for credit loss	397	79	62
Total Tier 2 capital	14,052	15,101	12,226
Deductions from Tier 2 capital
Investments in subsidiaries not consolidated for regulatory purposes	(140)	(140)	(140)
Holdings of own and other financial institutions Tier 2 capital instruments	(121)	(102)	(115)
Total deductions from Tier 2 capital	(261)	(242)	(255)
Net Tier 2 regulatory capital	13,791	14,859	11,971
Total regulatory capital	71,730	72,314	67,022

¹ An explanation of the relationship between this deduction, regulatory expected loss and provisions for impairment charges is contained in Appendix IV.

  Westpac Group September 2020 Pillar 3 report | 15 

Pillar 3 report

Capital overview

Capital management strategy

Westpac’s approach to capital management seeks to ensure that it is adequately capitalised as an ADI. Westpac evaluates its approach to capital management through an Internal Capital Adequacy Assessment Process (ICAAP), the key features of which include:

l the development of a capital management strategy, including consideration of regulatory minimums, capital buffers and contingency plans;

l consideration of both regulatory and economic capital requirements;

l a stress testing framework that challenges the capital measures, coverage and requirements including the impact of adverse economic scenarios; and

l consideration of the perspectives of external stakeholders including rating agencies as well as equity and debt investors.

During the period of disruption caused by COVID-19, Westpac is operating with the following principles in relation to capital:

l prioritise maintaining capital strength;

l retain capital to absorb further downside on credit quality and acknowledge a high degree of uncertainty regarding the length and depth of this stress;

l allow for capital flexibility to support lending to customers; and

l in line with APRA guidance, Westpac will seek to maintain a buffer above the regulatory minimum (currently at least 8% for D-SIBs including Westpac) and may utilise some of the “unquestionably strong” buffer¹. At 30 September 2020 the CET1 buffer above the regulatory minimum of 8% is $13.7 billion.

These principles take into consideration:

l current regulatory capital minimums and the capital conservation buffer (CCB), which together are the Total CET1 Requirement. In line with the above, the Total CET1 Requirement for Westpac is at least 8.0%, based upon an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to D-SIBs^2,3;

l stress testing to calibrate an appropriate buffer against a downturn; and

l quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.

Westpac will revise its target capital levels once the medium to longer term impacts of COVID-19 are clearer and APRA’s review of the capital adequacy framework is finalised.

APRA announcements on capital

On 29 July 2020, APRA released further capital management guidance for ADIs⁴. This guidance included APRA’s expectation that for 2020, ADIs will retain at least half of their earnings, actively use dividend reinvestment plans (DRPs) and/or other capital management initiatives to at least partially offset the diminution in capital from distributions and conduct regular stress testing to inform decision-making and demonstrate ongoing lending capacity. APRA also committed to ensuring that any rebuild of capital buffers, if required, will be conducted in a gradual manner. APRA noted that the implementation of the Basel III capital reforms, which will embed the ‘unquestionably strong’ level of capital in the framework, have been postponed to 1 January 2023.

1	APRA has set an “unquestionably strong” benchmark of a CET1 capital ratio of 10.5%.
2	Noting that APRA may apply higher CET1 requirements for an individual ADI.
3	If an ADI’s CET1 ratio falls below the Total CET1 Requirement (at least 8%), they face restrictions on the distribution of earnings, such as dividends, distribution payments on AT1 capital instruments and discretionary staff bonuses.
4	Letter to Authorised Deposit Taking institutions – Capital Management, 29 July 2020.

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Capital overview

Westpac’s capital adequacy ratios

%	30 September 2020	31 March 2020	30 September 2019
The Westpac Group at Level 2
Common equity Tier 1 capital ratio	11.1	10.8	10.7
Additional Tier 1 capital	2.1	2.1	2.2
Tier 1 capital ratio	13.2	12.9	12.8
Tier 2 capital	3.1	3.4	2.8
Total regulatory capital ratio	16.4	16.3	15.6
The Westpac Group at Level 1
Common equity Tier 1 capital ratio	11.4	11.1	11.0
Additional Tier 1 capital	2.1	2.2	2.2
Tier 1 capital ratio	13.5	13.3	13.2
Tier 2 capital	3.2	3.4	2.9
Total regulatory capital ratio	16.7	16.7	16.1

Westpac New Zealand Limited’s capital adequacy ratios

%	30 September 2020	31 March 2020	30 September 2019
Westpac New Zealand Limited
Common equity Tier 1 capital ratio	12.3	11.4	11.3
Additional Tier 1  capital	2.7	2.7	2.6
Tier 1 capital ratio	15.0	14.1	13.9
Tier 2 capital	2.1	1.8	2.0
Total regulatory capital ratio	17.1	15.9	15.9

  Westpac Group September 2020 Pillar 3 report | 17

Pillar 3 report

Capital overview

Capital requirements

This table shows risk weighted assets and associated capital requirements¹ for each risk type included in the regulatory assessment of Westpac’s capital adequacy. Westpac’s approach to managing these risks, and more detailed disclosures on the prudential assessment of capital requirements, are presented in the following sections of this report.

30 September 2020	IRB	Standardised	Total Risk	Total Capital
$m	Approach	Approach2	Weighted Assets	Required1
Credit risk
Corporate	73,666	976	74,642	5,971
Business lending	36,777	880	37,657	3,013
Sovereign	2,376	1,216	3,592	287
Bank	5,640	144	5,784	463
Residential mortgages	130,787	4,431	135,218	10,818
Australian credit cards	4,405	-	4,405	352
Other retail	10,174	774	10,948	876
Small business	16,977	-	16,977	1,358
Specialised lending	57,019	432	57,451	4,596
Securitisation	5,413	-	5,413	433
Mark-to-market related credit risk3	-	7,302	7,302	584
Total	343,234	16,155	359,389	28,751
Market risk			8,761	701
Operational risk			54,090	4,327
Interest rate risk in the banking book			9,124	730
Other assets4			6,541	523
Total			437,905	35,032
31 March 2020	IRB	Standardised	Total Risk	Total Capital
$m	Approach	Approach2	Weighted Assets	Required1
Credit risk
Corporate	78,288	1,087	79,375	6,350
Business lending	34,493	993	35,486	2,839
Sovereign	2,192	1,354	3,546	284
Bank	6,956	51	7,007	561
Residential mortgages	131,424	4,714	136,138	10,891
Australian credit cards	4,837	-	4,837	387
Other retail	11,594	805	12,399	992
Small business	16,812	-	16,812	1,345
Specialised lending	56,004	503	56,507	4,521
Securitisation	5,747	-	5,747	460
Mark-to-market related credit risk3	-	11,289	11,289	903
Total	348,347	20,795	369,142	29,533
Market risk			8,396	672
Operational risk			54,093	4,327
Interest rate risk in the banking book			5,305	424
Other assets4			6,969	558
Total			443,905	35,514

¹ Total capital required is calculated as 8% of total risk weighted assets.

² Westpac’s standardised risk weighted assets are categorised based on their equivalent IRB categories.

³ Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk.

⁴ Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets.

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Capital overview

30 September 2019	IRB	Standardised	Total Risk	Total Capital
$m	Approach	Approach2	Weighted Assets	Required1
Credit risk
Corporate	74,807	1,166	75,973	6,078
Business lending	35,470	950	36,420	2,914
Sovereign	2,068	1,069	3,137	251
Bank	8,339	46	8,385	671
Residential mortgages	131,629	5,010	136,639	10,931
Australian credit cards	5,089	-	5,089	407
Other retail	12,395	894	13,289	1,063
Small business	16,090	-	16,090	1,287
Specialised lending	55,262	518	55,780	4,462
Securitisation	5,749	-	5,749	460
Mark-to-market related credit risk3	-	11,313	11,313	905
Total	346,898	20,966	367,864	29,429
Market risk			9,350	748
Operational risk			47,680	3,814
Interest rate risk in the banking book			530	42
Other assets4			3,370	270
Total			428,794	34,303

¹ Total capital required is calculated as 8% of total risk weighted assets.

² Westpac’s standardised risk weighted assets are categorised based on their equivalent IRB categories.

³ Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk.

⁴ Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets.

  Westpac Group September 2020 Pillar 3 report | 19 

Pillar 3 report

Leverage ratio

Leverage ratio

The following table summarises Westpac’s leverage ratio. This has been determined using APRA’s definition of the leverage ratio as specified in APS110 Capital Adequacy.

$ billion	30 September 2020	30 June 2020	31 March 2020	31 December 2019
Tier 1 Capital	57.9	57.9	57.5	56.8
Total Exposures	1,001.8	985.6	1,014.2	948.7
Leverage ratio	5.8%	5.9%	5.7%	6.0%

Leverage ratio disclosure

$m		30 September 2020
On-balance sheet exposures
1	On-balance sheet items (excluding derivatives and securities financing transactions (SFTs), but including collateral)	865,400
2	(Asset amounts deducted in determining Tier 1 capital)	(18,306)
3	Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of rows 1 and 2)	847,094
Derivative exposures
4	Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin)	7,749
5	Add-on amounts for potential future credit exposure (PFCE) associated with all derivatives transactions	14,415
6	Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the Australian Accounting Standards	5,429
		-
7	(Deductions of receivables assets for cash variation margin provided in derivatives transactions)	(9,306)
8	(Exempted central counterparty (CCP) leg of client-cleared trade exposures)	-
9	Adjusted effective notional amount of written credit derivatives	4,071
10	(Adjusted effective notional offsets and add-on deductions for written credit derivatives)	(4,050)
11	Total derivative exposures (sum of rows 4 to 10)	18,307
SFT exposures
12	Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions	48,164
13	(Netted amounts of cash payables and cash receivables of gross SFT assets)	-
14	Counterparty credit risk exposure for SFT assets	10,570
15	Agent transaction exposures	-
16	Total SFT exposures (sum of rows 12 to 15)	58,734
Other off-balance sheet exposures
17	Off-balance sheet exposure at gross notional amount	204,658
18	(Adjustments for conversion to credit equivalent amounts)	(126,976)
19	Other off-balance sheet exposures (sum of rows 17 and 18)	77,682
Capital and total exposures
20	Tier 1 Capital	57,939
21	Total exposures (sum of rows 3, 11, 16 and 19)	1,001,817
Leverage ratio %
22	Leverage ratio	5.8%

20 | Westpac Group September 2020 Pillar 3 report

Pillar 3 report

Leverage ratio

Summary comparison of accounting assets versus leverage ratio exposure measure

$m		30 September 2020
1	Total consolidated assets as per published financial statements	911,946
2	Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation	(2,778)
3	Adjustment for assets held on the balance sheet in a fiduciary capacity pursuant to the Australian Accounting Standards but excluded from the leverage ratio exposure measure	-
4	Adjustments for derivative financial instruments	(5,060)
5	Adjustment for SFTs (i.e. repos and similar secured lending)	38,333
6	Adjustment for off-balance sheet exposures (i.e. conversion to credit equivalent amounts of off-balance sheet exposures)	77,682
7	Other adjustments	(18,306)
8	Leverage ratio exposure	1,001,817

  Westpac Group September 2020 Pillar 3 report | 21 

Pillar 3 report

Credit risk management

Credit risk is the potential for financial loss where a customer or counterparty fails to meet their financial obligations to Westpac. Westpac maintains a credit risk management framework and a number of supporting policies, processes and controls governing the assessment, approval and management of customer and counterparty credit risk. These incorporate the assignment of risk grades, the quantification of loss estimates in the event of default, and the segmentation of credit exposures.

Structure and organisation

The Chief Risk Officer (CRO) is responsible for the effectiveness of overall risk management throughout Westpac, including credit risk. The Group Chief Credit Officer is responsible for the effectiveness of credit risk management, including credit approval decisioning beyond business authority level and appointing our most senior authorised credit officers. Authorised credit officers have delegated authority to approve credit risk exposures, including customer risk grades, other credit parameters and their ongoing review. Our largest exposures are approved by our most experienced authorised credit officers. Line business management is responsible for managing credit risks originated in their business and for managing risk adjusted returns from their business credit portfolios, within the approved risk appetite, risk management framework and policies.

Credit risk management framework and policies

Westpac maintains a credit risk management framework and supporting policies that are designed to clearly define roles and responsibilities, acceptable practices, limits and key controls.

The Credit Risk Management Framework describes the principles, methodologies, systems, roles and responsibilities, reports and controls that exist for managing credit risk in Westpac. The Credit Risk Rating System policy describes the credit risk rating system philosophy, design, key features and uses of rating outcomes.

Concentration risk policies cover individual counterparties, specific industries (e.g. property) and individual countries. In addition, we have policies covering risk appetite statements, environmental, social and governance (ESG) risk, credit risks and the delegation of credit approval authorities.

At the divisional level, credit manuals embed the Group’s framework requirements for application in line businesses. These manuals include policies covering the origination, evaluation, approval, documentation, settlement and on-going management of credit risks, and sector policies to guide the extension of credit where industry-specific guidelines are considered necessary.

Credit approval limits govern the extension of credit and represent the formal delegation of credit approval authority to responsible individuals throughout the organisation.

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Pillar 3 report

Credit risk management

Approach

Westpac adopts two approaches to managing credit risk depending upon the nature of the customer and the product.

Transaction-managed approach

For larger customers, Westpac evaluates credit requests by undertaking detailed individual customer and transaction risk analysis (the ‘transaction-managed’ approach). Such customers are assigned a customer risk grade (CRG) representing Westpac’s estimate of their probability of default (PD). Each facility is assigned a loss given default (LGD). The Westpac credit risk rating system has 20 risk grades for non-defaulted customers and 10 risk grades for defaulted customers. Non-defaulted CRGs down to the level of normally acceptable risk (i.e. D grade – see table below) are mapped to Moody’s and Standard & Poor’s (S&P) external senior ranking unsecured ratings. This mapping allows Westpac to integrate the rating agencies’ default history with internal historical data when calculating PDs.

The final assignment of CRGs and LGDs is approved by authorised credit approvers with appropriate delegated approval authority. All material credit exposures are approved by authorised Credit Officers who are part of the risk management stream and operate independently of the areas originating the credit risk proposals. Authorised Credit Officer decisions are subject to reviews to ensure consistent quality and confirm compliance with approval authority. Separate teams are responsible for maintaining accurate and timely recording of all credit risk approvals and changes to customer and facility data. These teams also operate independently of both the areas originating the credit risk proposals and the credit risk approvers. Appropriate segregation of functions is one of the key requirements of our credit risk management framework.

Mapping of Westpac risk grades

The table below shows the current alignment between Westpac’s internal CRGs and the corresponding external rating. Note that only high-level CRG groupings are shown.

Westpac customer risk grade	Standard & Poor’s rating	Moody’s rating
A	AAA to AA–	Aaa to Aa3
B	A+ to A–	A1 to A3
C	BBB+ to BBB–	Baa1 to Baa3
D	BB+ to B+	Ba1 to B1
	Westpac Rating
E	Watchlist
F	Special mention
G	Substandard/default
H	Default

For Specialised Lending Westpac maps exposures to the appropriate supervisory slot based on an assessment that takes into account borrower strength and security quality, as required by APS 113.

Program-managed approach

High-volume retail customer credit portfolios with homogenous credit risk characteristics are managed on a statistical basis according to pre-determined objective criteria (the ‘program-managed’ approach). Program-managed exposure to a consumer customer may exceed $1 million. Business customer exposures may be program managed for exposure up to $3 million. Quantitative scorecards are used to assign application and behavioural scores to enable risk-based decision making within these portfolios. The scorecard outcomes and decisions are regularly monitored and validated against subsequent customer performance and scorecards are recalibrated or rebuilt when required. For capital estimation and other purposes, risk-based customer segments are created based upon modelled expected PD, Exposure At Default (EAD) and LGD. Accounts are then assigned to respective segments based on customer and account characteristics. Each segment is assigned a quantified measure of its PD, LGD and EAD.

For both transaction-managed and program-managed approaches, CRGs, PDs and LGDs are reviewed at least annually.

Westpac Group September 2020 Pillar 3 report | 23

Pillar 3 report

Credit risk management

Mapping of Basel categories to Westpac portfolios

APS113 Capital Adequacy: Internal Ratings-Based Approach to Credit Risk, states that under the Advanced IRB approach to credit risk, an ADI must categorise banking book exposures into six broad IRB asset classes and apply the prescribed treatment for those classes to each credit exposure within them for the purposes of deriving its regulatory capital requirement. Standardised and Securitised portfolios are subject to treatment under APS112 Capital Adequacy: Standardised Approach to Credit Risk and APS120 Securitisation respectively.

APS Asset Class	Sub-asset class	Westpac category	Segmentation criteria
Corporate	Corporate	Corporate	All transaction-managed customers not elsewhere classified where annual turnover exceeds $50 million1.
	SME Corporate	Business Lending	All transaction-managed customers not elsewhere classified where annual turnover is $50 million or less.
	Project Finance (including Object Finance)	Specialised Lending- Project Finance	Applied to transaction-managed customers where the primary source of debt service, security and repayment is derived from the revenue generated by a completed project (e.g. infrastructure such as toll roads or railways).
	Income-producing Real Estate	Specialised Lending- Property Finance	Applied to transaction-managed customers where the primary source of debt service, security and repayment is derived from either the sale of a property development or income produced by one or more investment properties2.
Sovereign		Sovereign	Applied to transaction-managed exposures backed by governments.
Bank		Bank	Applied to transaction-managed exposures to deposit-taking institutions and foreign equivalents.
Residential Mortgages		Residential Mortgages	Exposures secured by residential mortgages not elsewhere classified.
Qualifying Revolving Retail		Australian Credit Cards	Program-managed credit cards with low volatility in loss rates. The New Zealand cards portfolio is not eligible for Qualifying Revolving Retail treatment and is classified in Other Retail.
Other Retail		Small Business	Program-managed business lending exposures under $1 million where complex products are not utilised by the customer.
		Other Retail	All other program-managed lending to retail customers, including New Zealand credit cards.

1	Includes all NZ agribusiness loans, regardless of turnover.
2	Excludes large diversified property groups and property trusts, which appear in the Corporate asset class.

24 | Westpac Group September 2020 Pillar 3 report

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Credit risk management

Mapping of Credit risk approach to Basel categories and exposure types

Approach	APS asset class	Types of exposures
Transaction-Managed Portfolios	Corporate Sovereign Bank	Direct lending Contingent lending Derivative counterparty Asset warehousing Underwriting Secondary market trading Foreign exchange settlement Other intra-day settlement obligations
Program-Managed Portfolios	Residential mortgage	Mortgages Equity access loans
	Qualifying revolving retail	Australian credit cards
	Other retail	Personal loans Overdrafts New Zealand credit cards Auto and equipment finance Business development loans Business overdrafts Other term products

Internal ratings process for transaction-managed portfolios

The process for assigning and approving individual customer PDs and facility LGDs involves:

l	Business unit representatives recommend the CRG and facility LGDs under the guidance of criteria set out in established credit policies. Each CRG is associated with an estimated PD;
l	Authorised credit officers evaluate the recommendations and approve the final CRG and facility LGDs. Authorised credit officers may override line business unit recommendations;
l	An expert judgement decisioning process is employed to evaluate CRG and the outputs of various risk grading models are used as one of several inputs into that process; and
l	Authorised credit officers’ decisions are subject to reviews to ensure consistent quality and confirm compliance with approval authority.

For on-going exposures to transaction-managed customers, risk grades and facility LGDs are required to be reviewed at least annually, but also whenever material changes occur.

No material deviations from the reference definition of default are permitted.

Internal ratings process for program-managed portfolios

The process for assigning PDs, LGDs and EADs to the program-managed portfolio involves dividing the portfolio into a number of pools per product. These pools are created by analysing risk characteristics that have historically predicted that an account is likely to go into default or loss.

No material deviations from the reference definition of default are permitted.

Internal credit risk ratings system

In addition to using the credit risk estimates as the basis for regulatory capital purposes, they are also used for the purposes described below:

Economic capital - Economic capital includes both credit and non-credit components. Economic credit capital is calculated using a framework that considers estimates of PD, LGD, EAD, total committed exposure and loan tenor, as well as measures of portfolio composition not reflected in regulatory capital formulae.

Provisioning - Credit provisions are held by Westpac to cover expected credit losses in the loan portfolio. Provisioning includes both individual and collective components. Individual provisions are calculated on impaired loans taking into account management’s best estimate of the present value of future cashflows.

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Pillar 3 report

Credit risk management

Collective provisions are established on a portfolio basis using a framework that considers PD, LGD, EAD, total committed exposure, level of arrears, recent past experience and forward looking macro-economic forecasts.

Risk-adjusted performance measurement - Business performance is measured using allocated capital, which incorporates charges for economic capital and regulatory capital, including credit capital and capital for other risk types.

Pricing - Westpac prices loans to produce an acceptable return on the capital allocated to the loan. Returns include interest income and fees after expected credit losses and other costs.

Credit approval - For transaction-managed facilities, approval authorities are tiered based on the CRG, with lower limits applicable for customers with a higher PD. Program-managed facilities are approved on the basis of application scorecard outcomes and product based approval authorities.

Control mechanisms for the credit risk rating system include:

l	Westpac’s credit risk rating system is reviewed annually to confirm that the rating criteria and procedures are appropriate given the current portfolio and external conditions;
l	All models materially impacting the risk rating process are periodically reviewed in accordance with Westpac’s model risk policy;
l	Specific credit risk estimates (including PD, LGD and EAD levels) are overseen, reviewed annually and supported by the Credit Risk Estimates Committee (a sub-committee of CREDCO) for approval by General Manager, Operational Risk;
l	Credit Risk Assurance undertake an independent annual end-to-end technical and operational review of the overall process; and
l	CREDCO, RISKCO and BRiskC monitor the risk profile, performance and management of Westpac’s credit portfolio and the development and review of key credit risk policies.

Risk reporting

A comprehensive report on Westpac's credit risk portfolio is provided to CREDCO, RISKCO and BRiskC quarterly. It details the current level of impairment losses, stressed exposures, delinquency trends, provisions, impaired assets and key performance metrics. It also reports on portfolio concentrations and large exposures.

Credit risk and asset quality are also reported to the Board each month, including details of impairment losses, stressed exposures, delinquency trends and key performance metrics.

Response to COVID-19

Westpac remains focused on supporting customers. In response to the COVID-19 pandemic Westpac has introduced a range of support packages such as lowering interest rates on certain products, waiving certain fees and providing impacted customers with an option to defer their repayments. In accordance with guidance from APRA outlined below, customers approved for these deferrals will not be recorded in traditional stress metrics while part of these packages but will be closely monitored, particularly once the deferral period changes.

APRA has revised prudential standard APS 220 Credit Quality to provide temporary capital relief where an eligible borrower's ability to repay according to loan terms has been, or is likely to be, affected by the COVID-19 pandemic; and the loan was not 90-days past due or impaired at the time the deferral was provided.

The temporary capital treatment is available until the earlier of either a maximum period of ten months from when the initial repayment deferral was granted, or 31 March 2021. Where a deferral is provided a bank need not treat the period of the repayment holiday as a period of arrears, or regard the loan as restructured or impaired. Westpac applies this treatment.

However, APRA requires that where a deferral is provided to an eligible borrower, the bank must be satisfied that the borrower has a reasonable prospect of being able to repay the loan on appropriate terms at the end of the deferral period. If this is not the case, the loan should be regarded as impaired if not fully secured, and should also be considered as restructured.

In addition, if a loan impacted by COVID-19 is restructured before 1 April 2021, it will not be treated as impaired and can be treated as 'current' immediately subject to meeting a number of key criteria.

26 | Westpac Group September 2020 Pillar 3 report  

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Credit risk management

Summary credit risk disclosure

				Regulatory
				Expected		Specific	Actual
		Risk	Regulatory	Loss for		Provisions	Losses for
30 September 2020	Exposure	Weighted	Expected	non-defaulted	Impaired	for Impaired	the 12 months
$m	at Default	Assets	Loss1	exposures	Loans	Loans	ended
Corporate	129,988	73,666	758	514	558	244	95
Business lending	54,542	36,777	809	534	392	208	71
Sovereign	131,857	2,376	1	1	-	-	-
Bank	23,244	5,640	7	7	-	-	-
Residential mortgages	550,133	130,787	1,966	1,033	345	93	125
Australian credit cards	16,944	4,405	214	166	83	48	332
Other retail	13,471	10,174	522	341	326	187	275
Small business	32,758	16,977	685	350	933	328	74
Specialised Lending	65,491	57,019	837	659	86	25	3
Securitisation	26,817	5,413	-	-	-	-	-
Standardised2	16,993	16,155	-	-	56	19	2
Total	1,062,238	359,389	5,799	3,605	2,779	1,152	977
				Regulatory
				Expected		Specific	Actual
		Risk	Regulatory	Loss for		Provisions	Losses for
31 March 2020	Exposure	Weighted	Expected	non-defaulted	Impaired	for Impaired	the 6 months
$m	at Default	Assets	Loss1	exposures	Loans	Loans	ended
Corporate	146,529	78,288	787	547	363	232	(4)
Business lending	54,428	34,493	669	413	347	195	35
Sovereign	127,064	2,192	2	2	-	-	-
Bank	26,633	6,956	9	9	-	-	-
Residential mortgages	553,866	131,424	1,788	1,229	404	114	67
Australian credit cards	18,601	4,837	314	238	123	92	164
Other retail	15,223	11,594	601	419	312	218	135
Small business	33,181	16,812	557	378	501	183	39
Specialised Lending	65,866	56,004	813	583	52	26	1
Securitisation	28,097	5,747	-	-	-	-	-
Standardised2	19,616	20,795	-	-	52	19	-
Total	1,089,104	369,142	5,540	3,818	2,154	1,079	437
				Regulatory
				Expected		Specific	Actual
		Risk	Regulatory	Loss for		Provisions	Losses for
30 September 2019	Exposure	Weighted	Expected	non-defaulted	Impaired	for Impaired	the 12 months
$m	at Default	Assets	Loss1	exposures	Loans	Loans	ended
Corporate	139,173	74,807	523	473	135	50	30
Business lending	54,570	35,470	635	431	316	168	54
Sovereign	90,960	2,068	2	2	-	-	-
Bank	28,761	8,339	10	10	-	-	-
Residential mortgages	559,018	131,629	1,642	1,088	414	127	111
Australian credit cards	17,541	5,089	328	248	121	80	340
Other retail	15,951	12,395	582	417	283	165	354
Small business	33,365	16,090	512	351	367	152	78
Specialised Lending	65,553	55,262	748	557	69	29	13
Securitisation	26,774	5,749	-	-	-	-	-
Standardised2	22,512	20,966	-	-	58	21	2
Total	1,054,178	367,864	4,982	3,577	1,763	792	982

1	Includes regulatory expected losses for defaulted and non-defaulted exposures.
2	Includes mark-to-market related credit risk.

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Loan impairment provisions

Expected credit losses (ECL) are estimates of the cashflow shortfalls expected to result from defaults over the relevant timeframe. They are determined by evaluating a range of possible outcomes and taking into account the time value of money, past events, current conditions and forecasts of future economic conditions. Westpac calculates provisions for ECL based on a three-stage approach:

l	Stage 1: 12 months ECL (performing) - For financial assets where there has been no significant increase in credit risk since origination, a provision for 12-month ECL is recognised.
l	Stage 2: Lifetime ECL (performing) - For financial assets where there has been a significant increase in credit risk since origination and where the asset is still performing, a provision for lifetime ECL is recognised.

Determining when a financial asset has experienced a significant increase in credit risk is primarily based on changes in internal risk grades since origination of the financial asset. An internal risk grade assessed using both quantitative and qualitative factors. The number of notches (changes) in the internal risk grade that Westpac uses to represent a significant increase in credit risk is determined on a sliding scale where the number of notches will generally be greater for a financial asset with a lower credit risk compared to a financial asset with a higher credit risk.

l Stage 3: Lifetime ECL (non-performing) - For financial assets that are non-performing a provision for lifetime ECL is recognised. Indicators include a breach of contract with Westpac such as a default on interest or principal payments, a borrower experiencing significant financial difficulties.

Collective and individual assessment - Financial assets that are in stages 1 and 2 are assessed on a collective basis as are financial assets in stage 3 below specified exposure thresholds. Those financial assets in stage 3 above the specified exposure thresholds are assessed on an individual basis.

Expected life - Lifetime ECL represents the expected credit losses that result from default events over the expected life of a financial instrument. In considering lifetime ECL, the remaining contractual life is used for non-retail portfolios. For retail portfolios lifetime ECL is calibrated to historically observed portfolio behaviour.

Forward looking information - The measurement of ECL for each stage and the assessment of significant increase in credit risk considers information about past events and current conditions as well as reasonable and supportable projections of future events and economic conditions. In order to capture the asymmetry of the losses expected over the range of plausible future events and economic conditions, Westpac considers three future macroeconomic scenarios i.e. base, upside and downside scenarios.

The macroeconomic variables used in these scenarios, include (but are not limited to) employment to population ratio, real gross domestic product growth rates and residential and commercial property price indices.

The ECL is a weighted average of the credit losses expected under these three scenarios. The scenario weights are based on Westpac’s assessment of upside and downside risks taking into account current trends, forward looking conditions and the degree of uncertainty attached to these projections.

Regulatory classification of loan impairment provisions

APS220 Credit Quality requires that Westpac report specific provisions and a General Reserve for Credit Loss (GRCL). All IAPs raised under Australian Accounting Standards (AAS) are classified as specific provisions. All Collectively Assessed Provisions (CAPs) raised under AAS are either classified into specific provisions or a GRCL.

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Credit risk management

Expected credit loss provision

30 September 2020	A-IFRS Provisions		Total Regulatory
$m	IAPs	CAPs	Provisions
Specific Provisions
for impaired loans	611	541	1,152
for defaulted but not impaired loans	NA	1,021	1,021
For Stage 2	NA	2,199	2,199
Total Specific Provision1	611	3,761	4,372
General Reserve for Credit Loss1	NA	1,791	1,791
Total provisions for ECL	611	5,552	6,163
31 March 2020	A-IFRS Provisions		Total Regulatory
$m	IAPs	CAPs	Provisions
Specific Provisions
for impaired loans	606	473	1,079
for defaulted but not impaired loans	NA	628	628
For Stage 2	NA	2,184	2,184
Total Specific Provision1	606	3,285	3,891
General Reserve for Credit Loss1	NA	1,900	1,900
Total provisions for ECL	606	5,185	5,791
30 September 2019	A-IFRS Provisions		Total Regulatory
$m	IAPs	CAPs	Provisions
Specific Provisions
for impaired loans	412	380	792
for defaulted but not impaired loans	NA	554	554
For Stage 2	NA	1,234	1,234
Total Specific Provision1	412	2,168	2,580
General Reserve for Credit Loss1	NA	1,344	1,344
Total provisions for ECL	412	3,512	3,924

¹ Provisions classified according to APRA’s letter dated 4 July 2017 “Provisions for regulatory purposes and AASB 9 financial instruments”.

  Westpac Group September 2020 Pillar 3 report | 29

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Credit risk management

Movement in provisions for impairment 

For the 12 months ended 30 September 2020	Performing		Non- performing	Collectively assessed	Individually assessed
$m	Stage 1	Stage 2	Stage 3	provisions	provisions	Total
Balance as at 30 September 2019 for Loans and Credit Commitments	884	1,674	1,355	-	-	3,913
Transfers to Stage 1	1,577	(1,528)	(49)	-	-	-
Transfers to Stage 2	(344)	1,161	(817	-	-	-
Transfers to Stage 3	(8)	(955)	963	-	-	-
Business activity during the period	212	60	(77)	-	-	195
Net remeasurement of provision for ECL	(1,232)	2,475	1,914	-	-	3,157
Write-offs	-	-	(1,170)	-	-	(1,170)
Exchange rate and other adjustments	(5)	(12)	54	-	-	38
Balance as at 30 September 2020 for Loans and Credit Commitments	1,084	2,875	2,173	-	-	6,132
Balance as at 30 September 2019 for debt securities	11	-	-			11
Provision for ECL on debt securities at amortised cost	(9)	27	-			18
Provision for ECL on debt securities at FVOCI1	2	-	-			2
Total provision for ECL as at 30 September 2020	4	27	-	-	-	31
Total provision for ECL as at 30 September 2020	1,088	2,902	2,173	-	-	6,163

For the 6 months ended 31 March 2020	Performing		Non- performing	Collectively assessed	Individually assessed
$m	Stage 1	Stage 2	Stage 3	provisions	provisions	Total
Balance as at 30 September 2019  for Loans and Credit Commitments	884	1,674	1,355	-	-	3,913
Transfers to Stage 1	600	(583)	(17)	-	-	-
Transfers to Stage 2	(131)	466	(335	-	-	-
Transfers to Stage 3	(2)	(334)	336	-	-	-
Business activity during the period	120	114	(50)	-	-	184
Net remeasurement of provision for ECL	(297)	1,527	911	-	-	2,141
Write-offs	-	-	(537)	-	-	(537)
Exchange rate and other adjustments	7	14	44	-	-	65
Balance as at 31 March 2020 for Loans and Credit Commitments	1,181	2,878	1,707	-	-	5,766
Balance as at 30 September 2019 for debt securities	11	-	-			11
Provision for ECL on debt securities at amortised cost	10	3	-			13
Provision for ECL on debt securities at FVOCI1	1	-	-			1
Total provision for ECL as at 31 March 2020	22	3	-	-	-	25
Total provision for ECL as at 31 March 2020	1,203	2,881	1,707	-	-	5,791

¹ Impairment of debt securities at Fair Value through Other Comprehensive Income (FVOCI) is recognised in the income statement with a corresponding amount in other comprehensive income. There is no reduction of the carrying value of the debt securities which remain at fair value.

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Credit risk management

For the 12 months ended 30 September 2019	Performing				Non- performing		Collectively assessed		individually assessed
$m	Stage 1		Stage 2		Stage 3		provisions		provisions		Total
Provision for impairment charges as at 30 September 2018	-		-		-		2,631		422		3,053
Restatement for adoption of AASB 9	877		1,884		1,272		(2,631	)	(422	)	980
Restated provision for ECL as at 1 October 2018	877		1,884		1,272		-		-		4,033
Transfers in/(out) of Stage 1	1,458		(1,404	)	(54	)					-
Transfers in/(out) of Stage 2	(242	)	956		(714	)					-
Transfers in/(out) of Stage 3	(5	)	(621	)	626						-
Business activity during the year	179		(19	)	(330	)					(170	)
Net remeasurement of provision for ECL	(1,385	)	874		1,647						1,136
Write-offs	-		-		(1,154	)					(1,154	)
Exchange rate and other adjustments	2		4		62						68
Total provision for ECL on loans and credit	884		1,674		1,355		-		-		3,913
commitments as at 30 September 2019
Presented as:
Provision for ECL loans	763		1,496		1,349						3,608
Provision for ECL credit commitments	121		178		6						305
Total provision for ECL on loans and credit	884		1,674		1,355		-		-		3,913
commitments as at 30 September 2019
Of which:
Individually assessed provisions					412						412
Collectively assessed provisions	884		1,674		943						3,501
Total provision for ECL on loans and credit
commitments as at 30 September 2019	884		1,674		1,355		-		-		3,913
Provision for ECL on debt securities at amortised cost	9		-		-						9
Provision for ECL on debt securities at FVOCI1	2		-		-						2
Total provision for ECL as at 30 September 2019	895		1,674		1,355		-		-		3,924

¹ Impairment of debt securities at Fair Value through Other Comprehensive Income (FVOCI) is recognised in the income statement with a corresponding amount in other comprehensive income. There is no reduction of the carrying value of the debt securities which remain at fair value.

  Westpac Group September 2020 Pillar 3 report | 31

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Credit risk exposures

The following tables segment the portfolio by characteristics that provide an insight into the assessment of credit risk concentration.

Exposure at Default by major type 

30 September 2020	On balance	Off-balance sheet		Total Exposure	Average
$m	sheet	Non-market related	Market related	at Default	12 months ended1
Corporate	57,485	60,099	12,404	129,988	137,385
Business lending	40,989	13,553	-	54,542	54,578
Sovereign	106,524	1,604	23,729	131,857	111,274
Bank	13,161	1,873	8,210	23,244	25,935
Residential mortgages	481,096	69,037	-	550,133	553,586
Australian credit cards	6,652	10,292	-	16,944	17,979
Other retail	10,210	3,261	-	13,471	14,880
Small business	25,463	7,295	-	32,758	33,158
Specialised lending	52,803	10,629	2,059	65,491	65,530
Securitisation2	20,542	6,138	137	26,817	27,152
Standardised	12,911	1,178	2,904	16,993	19,255
Total	827,836	184,959	49,443	1,062,238	1,060,712
31 March 2020	On balance	Off-balance sheet		Total Exposure	Average
$m	sheet	Non-market related	Market related	at Default	6 months ended3
Corporate	69,038	57,950	19,541	146,529	140,586
Business lending	42,083	12,345	-	54,428	54,546
Sovereign	119,847	1,857	5,360	127,064	102,570
Bank	14,899	2,415	9,319	26,633	27,505
Residential mortgages	486,270	67,596	-	553,866	555,459
Australian credit cards	8,218	10,383	-	18,601	18,434
Other retail	11,881	3,342	-	15,223	15,607
Small business	26,181	7,000	-	33,181	33,311
Specialised lending	54,066	9,750	2,050	65,866	65,739
Securitisation2	22,690	5,276	131	28,097	27,269
Standardised	13,476	1,162	4,978	19,616	19,992
Total	868,649	179,076	41,379	1,089,104	1,061,018
30 September 2019	On balance	Off-balance sheet		Total Exposure	Average
$m	sheet	Non-market related	Market related	at Default	12 months ended4
Corporate	63,994	58,903	16,276	139,173	134,619
Business lending	42,385	12,185	-	54,570	54,532
Sovereign	80,891	1,711	8,358	90,960	81,034
Bank	16,291	2,026	10,444	28,761	25,672
Residential mortgages	485,049	73,969	-	559,018	557,762
Australian credit cards	8,720	8,821	-	17,541	18,847
Other retail	12,415	3,536	-	15,951	16,628
Small business	26,520	6,845	-	33,365	33,326
Specialised lending	52,745	10,761	2,047	65,553	65,495
Securitisation2	22,559	4,037	178	26,774	26,683
Standardised	13,459	1,131	7,922	22,512	18,657
Total	825,028	183,925	45,225	1,054,178	1,033,255

1	Average is based on exposures as at 30 September 2020, 30 June 2020, 31 March 2020, 31 December 2019, and 30 September 2019.
2	EAD associated with securitisations is for the banking book only.
3	Average is based on exposures as at 31 March 2020, 31 December 2019, and 30 September 2019.
4	Average is based on exposures as at 30 September 2019, 30 June 2019, 31 March 2019, 31 December 2018, and 30 September 2018.

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Credit risk exposures

Exposure at Default by measurement method

30 September 2020	IRB	Standardised	Total Exposure
$m	Approach	Approach	at Default
Corporate	129,988	6,131	136,119
Business lending	54,542	866	55,408
Sovereign	131,857	1,216	133,073
Bank	23,244	152	23,396
Residential mortgages	550,133	6,471	556,604
Australian credit cards	16,944	-	16,944
Other retail	13,471	1,735	15,206
Small business	32,758	-	32,758
Specialised lending	65,491	422	65,913
Securitisation	26,817	-	26,817
Total	1,045,245	16,993	1,062,238
31 March 2020	IRB	Standardised	Total Exposure
$m	Approach	Approach	at Default
Corporate	146,529	8,133	154,662
Business lending	54,428	975	55,403
Sovereign	127,064	1,354	128,418
Bank	26,633	60	26,693
Residential mortgages	553,866	6,844	560,710
Australian credit cards	18,601	-	18,601
Other retail	15,223	1,758	16,981
Small business	33,181	-	33,181
Specialised lending	65,866	492	66,358
Securitisation	28,097	-	28,097
Total	1,069,488	19,616	1,089,104
30 September 2019	IRB	Standardised	Total Exposure
$m	Approach	Approach	at Default
Corporate	139,173	10,580	149,753
Business lending	54,570	931	55,501
Sovereign	90,960	1,069	92,029
Bank	28,761	53	28,814
Residential mortgages	559,018	7,298	566,316
Australian credit cards	17,541	-	17,541
Other retail	15,951	2,074	18,025
Small business	33,365	-	33,365
Specialised lending	65,553	507	66,060
Securitisation	26,774	-	26,774
Total	1,031,666	22,512	1,054,178

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Exposure at Default by industry classification

30 September 2020 $m	Accommodation, cafes & restaurants	Agriculture, forestry & fishing	Construction	Finance & insurance	Government administration & defence	Manufacturing	Mining	Property	Property services & business services	Services1	Trade2	Transport & storage	Utilities3	Retail lending	Other	Total Exposure at Default
Corporate	2,517	11,148	2,977	12,292	625	18,833	7,101	6,607	11,678	11,808	19,896	10,383	13,260	-	863	129,988
Business lending	5,894	9,456	4,488	2,225	24	4,757	556	1,021	6,704	6,010	8,685	2,343	508	-	1,871	54,542
Sovereign	-	1	-	46,537	84,464	7	69	602	9	151	-	4	13	-	-	131,857
Bank	-	-	-	23,194	-	-	-	-	50	-	-	-	-	-	-	23,244
Residential mortgages	-	-	-	-	-	-	-	-	-	-	-	-	-	550,133	-	550,133
Australian credit cards	-	-	-	-	-	-	-	-	-	-	-	-	-	16,944	-	16,944
Other retail	-	-	-	-	-	-	-	-	-	-	-	-	-	13,471	-	13,471
Small business	966	2,297	4,065	1,698	748	1,786	574	2,138	5,163	3,812	3,296	1,804	364	-	4,047	32,758
Specialised lending	393	18	34	17	-	4	1,004	55,681	59	1,747	16	3,649	2,326	-	543	65,491
Securitisation	-	-	-	25,777	-	-	-	-	827	-	213	-	-	-	-	26,817
Standardised	121	12	161	5,504	1,216	222	58	425	121	46	625	215	12	8,206	49	16,993
Total	9,891	22,932	11,725	117,244	87,077	25,609	9,362	66,474	24,611	23,574	32,731	18,398	16,483	588,754	7,373	1,062,238

1	Includes education, health & community services, cultural & recreational services and personal & other services.
2	Includes wholesale trade and retail trade.
3	Includes electricity, gas & water, and communication services.

34 | Westpac Group September 2020 Pillar 3 report

Pillar 3 report

Credit risk exposures

31 March 2020 $m	Accommodation, cafes & restaurants	Agriculture, forestry & fishing	Construction	Finance & insurance	Government administration & defence	Manufacturing	Mining	Property	Property services & business services	Services1	Trade2	Transport & storage	Utilities3	Retail lending	Other	Total Exposure at Default
Corporate	2,458	11,349	3,320	17,822	1,170	23,828	8,341	7,092	10,550	11,845	21,970	13,018	12,866	-	900	146,529
Business lending	5,853	8,759	4,280	2,437	19	4,842	544	1,230	6,794	5,914	8,929	2,435	505	-	1,887	54,428
Sovereign	-	1	-	47,479	79,069	8	95	146	6	187	-	60	13	-	-	127,064
Bank	-	-	-	26,582	-	-	-	-	50	-	-	1	-	-	-	26,633
Residential mortgages	-	-	-	-	-	-	-	-	-	-	-	-	-	553,866	-	553,866
Australian credit cards	-	-	-	-	-	-	-	-	-	-	-	-	-	18,601	-	18,601
Other retail	-	-	-	-	-	-	-	-	-	-	-	-	-	15,223	-	15,223
Small business	973	2,378	4,111	1,779	699	1,776	568	2,176	5,242	3,650	3,354	1,840	363	-	4,272	33,181
Specialised lending	489	19	32	22	-	4	823	56,845	26	1,272	17	3,340	2,426	-	551	65,866
Securitisation	-	-	-	26,432	-	162	-	-	1,236	-	267	-	-	-	-	28,097
Standardised	132	27	176	7,358	1,354	240	62	494	142	60	694	198	23	8,601	55	19,616
Total	9,905	22,533	11,919	129,911	82,311	30,860	10,433	67,983	24,046	22,928	35,231	20,892	16,196	596,291	7,665	1,089,104

1	Includes education, health & community services, cultural & recreational services and personal  & other services.
2	Includes wholesale trade and retail trade.
3	Includes electricity, gas & water, and communication services.

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Pillar 3 report

Credit risk exposures

30 September 2019 $m	Accommodation, cafes & restaurants	Agriculture, forestry & fishing	Construction	Finance & insurance	Government administration & defence	Manufacturing	Mining	Property	Property services & business services	Services1	Trade2	Transport & storage	Utilities3	Retail lending	Other	Total Exposure at Default
Corporate	2,450	10,290	3,192	15,986	164	24,250	7,963	6,274	11,692	10,719	22,345	10,815	12,068	-	965	139,173
Business lending	5,691	8,277	4,272	2,541	14	4,709	629	1,331	6,710	5,969	9,022	2,647	434	-	2,324	54,570
Sovereign	-	1	-	21,720	68,586	126	95	139	6	168	-	57	62	-	-	90,960
Bank	-	-	-	28,557	20	-	-	-	138	-	-	46	-	-	-	28,761
Residential mortgages	-	-	-	-	-	-	-	-	-	-	-	-	-	559,018	-	559,018
Australian credit cards	-	-	-	-	-	-	-	-	-	-	-	-	-	17,541	-	17,541
Other retail	-	-	-	-	-	-	-	-	-	-	-	-	-	15,951	-	15,951
Small business	991	2,401	4,153	1,847	649	1,771	555	2,221	5,271	3,522	3,404	1,860	366	-	4,354	33,365
Specialised lending	479	18	38	23	-	7	955	55,984	27	1,296	15	3,424	2,696	-	591	65,553
Securitisation	-	-	-	25,115	-	148	-	-	1,238	-	250	-	-	-	23	26,774
Standardised	114	22	170	9,778	1,069	245	12	511	142	56	721	199	11	9,373	89	22,512
Total	9,725	21,009	11,825	105,567	70,502	31,256	10,209	66,460	25,224	21,730	35,757	19,048	15,637	601,883	8,346	1,054,178

1	Includes education, health & community services, cultural & recreational services and personal  & other services.
2	Includes wholesale trade and retail trade.
3	Includes electricity, gas & water, and communication services.

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Credit risk exposures

Exposure at Default by geography¹

30 September 2020													Total Exposure
$m	Australia		New Zealand		Americas		Asia		Europe		Pacific		at Default
Corporate		83,682		23,058		7,662		10,111		5,475		-		129,988
Business lending		49,557		4,985		-		-		-		-		54,542
Sovereign		107,694		11,611		11,060		1,064		428		-		131,857
Bank		20,834		793		130		1,462		25		-		23,244
Residential mortgages		491,418		58,497		-		218		-		-		550,133
Australian credit cards		16,944		-		-		-		-		-		16,944
Other retail		10,409		3,062		-		-		-		-		13,471
Small business		30,364		2,393		-		1		-		-		32,758
Specialised lending		57,388		8,103		-		-		-		-		65,491
Securitisation		22,522		4,295		-		-		-		-		26,817
Standardised		13,872		-		-		19		-		3,102		16,993
Total		904,684		116,797		18,852		12,875		5,928		3,102		1,062,238
31 March 2020														Total Exposure
$m		Australia		New Zealand		Americas		Asia		Europe		Pacific		at Default
Corporate		86,984		24,577		10,991		16,829		7,148		-		146,529
Business lending		49,307		5,121		-		-		-		-		54,428
Sovereign		97,932		10,359		16,633		1,655		485		-		127,064
Bank		20,388		2,408		139		3,646		52		-		26,633
Residential mortgages		494,238		59,404		-		224		-		-		553,866
Australian credit cards		18,601		-		-		-		-		-		18,601
Other retail		11,784		3,439		-		-		-		-		15,223
Small business		30,646		2,534		-		1		-		-		33,181
Specialised lending		57,147		8,673		46		-		-		-		65,866
Securitisation		23,627		4,106		-		364		-		-		28,097
Standardised		16,207		-		-		42		-		3,367		19,616
Total		906,861		120,621		27,809		22,761		7,685		3,367		1,089,104
30 September 2019														Total Exposure
$m		Australia		New Zealand		Americas		Asia		Europe		Pacific		at Default
Corporate		83,966		22,251		8,849		17,077		7,030		-		139,173
Business lending		49,891		4,679		-		-		-		-		54,570
Sovereign		73,168		7,634		8,054		2,079		25		-		90,960
Bank		24,033		1,171		132		3,379		46		-		28,761
Residential mortgages		504,152		54,633		-		233		-		-		559,018
Australian credit cards		17,541		-		-		-		-		-		17,541
Other retail		12,297		3,654		-		-		-		-		15,951
Small business		30,958		2,406		-		1		-		-		33,365
Specialised lending		57,128		8,396		29		-		-		-		65,553
Securitisation		23,009		3,604		-		161		-		-		26,774
Standardised		19,284		-		-		192		-		3,036		22,512
Total		895,427		108,428		17,064		23,122		7,101		3,036		1,054,178

¹ Geographic segmentation of exposures is based on the location of the office in which these items were booked.

  Westpac Group September 2020 Pillar 3 report | 37

Pillar 3 report

Credit risk exposures

Exposure at Default by residual contractual maturity

30 September 2020											Total Exposure
$m	On demand		< 12 months		1  to < 3 years		3  to < 5 years		> 5 years		at Default
Corporate		14,419		27,059		64,555		19,980		3,975		129,988
Business lending		3,102		13,635		24,154		5,699		7,952		54,542
Sovereign		1,452		29,198		32,192		25,851		43,164		131,857
Bank		3,697		4,102		14,328		1,106		11		23,244
Residential mortgages		29,233		4,315		12,766		2,734		501,085		550,133
Australian credit cards		16,944		-		-		-		-		16,944
Other retail		2,899		351		4,718		3,570		1,933		13,471
Small business		4,481		2,949		8,923		8,044		8,361		32,758
Specialised lending		377		20,479		31,409		9,017		4,209		65,491
Securitisation		-		7,074		7,217		1,625		10,901		26,817
Standardised		1,522		472		7,900		281		6,818		16,993
Total		78,126		109,634		208,162		77,907		588,409		1,062,238
31 March 2020												Total Exposure
$m		On demand		< 12 months		1  to < 3 years		3  to < 5 years		> 5 years		at Default
Corporate		18,087		27,376		71,404		23,057		6,605		146,529
Business lending		3,081		13,297		23,945		5,912		8,193		54,428
Sovereign		1,899		44,635		18,625		22,685		39,220		127,064
Bank		5,188		4,025		15,961		1,390		69		26,633
Residential mortgages		28,723		4,658		13,725		2,760		504,000		553,866
Australian credit cards		18,601		-		-		-		-		18,601
Other retail		3,218		388		5,206		4,267		2,144		15,223
Small business		4,658		2,786		9,028		8,224		8,485		33,181
Specialised lending		408		19,699		32,119		9,198		4,442		65,866
Securitisation		-		1,706		12,585		2,075		11,731		28,097
Standardised		1,574		398		10,150		252		7,242		19,616
Total		85,437		118,968		212,748		79,820		592,131		1,089,104
30 September 2019												Total Exposure
$m		On demand		< 12 months		1  to < 3 years		3  to < 5 years		> 5 years		at Default
Corporate		18,487		25,871		68,603		21,668		4,544		139,173
Business lending		3,051		13,550		23,455		6,386		8,128		54,570
Sovereign		1,774		21,634		19,742		18,643		29,167		90,960
Bank		3,971		3,599		18,880		2,214		97		28,761
Residential mortgages		36,004		4,501		15,235		2,731		500,547		559,018
Australian credit cards		17,541		-		-		-		-		17,541
Other retail		3,392		367		5,407		4,484		2,301		15,951
Small business		4,671		2,679		9,105		8,252		8,658		33,365
Specialised lending		451		21,120		30,001		8,438		5,543		65,553
Securitisation		-		6,991		6,331		2,024		11,428		26,774
Standardised		1,860		1,025		11,821		244		7,562		22,512
Total		91,202		101,337		208,580		75,084		577,975		1,054,178

38 | Westpac Group September 2020 Pillar 3 report  

Pillar 3 report

Credit risk exposures

Impaired and past due loans

The following tables disclose the crystallisation of credit risk as impairment and loss. Analysis of exposures defaulted not impaired, impaired loans, related provisions and actual losses are broken down by concentrations reflecting Westpac’s asset categories, industry and geography.

Impaired and past due loans by portfolio

					Specific		Specific	Actual
30 September 2020	Defaulted		Impaired		Provisions for		Provisions  to	Losses for the
$m	not impaired1		Loans		Impaired Loans		Impaired Loans	12 months ended
Corporate		127		558		244	44%	95
Business lending		598		392		208	53%	71
Sovereign		-		-		-	-	-
Bank		-		-		-	-	-
Residential mortgages		7,042		345		93	27%	125
Australian credit cards		-		83		48	58%	332
Other retail		-		326		187	57%	275
Small business		440		933		328	35%	74
Specialised lending		229		86		25	29%	3
Securitisation		-		-		-	-	-
Standardised		96		56		19	34%	2
Total		8,532		2,779		1,152	41%	977
						Specific	Specific	Actual
31 March 2020		Defaulted		Impaired		Provisions for	Provisions  to	Losses for the
$m		not impaired1		Loans		Impaired Loans	Impaired Loans	6 months ended
Corporate		91		363		232	64%	(4)
Business lending		474		347		195	56%	35
Sovereign		-		-		-	-	-
Bank		-		-		-	-	-
Residential mortgages		4,050		404		114	28%	67
Australian credit cards		-		123		92	75%	164
Other retail		-		312		218	70%	135
Small business		359		501		183	37%	39
Specialised lending		357		52		26	50%	1
Securitisation		-		-		-	-	-
Standardised		78		52		19	37%	-
Total		5,409		2,154		1,079	50%	437
						Specific	Specific	Actual
30 September 2019		Defaulted		Impaired		Provisions for	Provisions  to	Losses for the
$m		not impaired1		Loans		Impaired Loans	Impaired Loans	12 months ended
Corporate		98		135		50	37%	30
Business lending		455		316		168	53%	54
Sovereign		-		-		-	-	-
Bank		-		-		-	-	-
Residential mortgages		3,839		414		127	31%	111
Australian credit cards		-		121		80	66%	340
Other retail		-		283		165	58%	354
Small business		345		367		152	41%	78
Specialised lending		279		69		29	42%	13
Securitisation		-		-		-	-	-
Standardised		72		58		21	36%	2
Total		5,088		1,763		792	45%	982

¹ Includes items past 90 days not impaired.

  Westpac Group September 2020 Pillar 3 report | 39

Pillar 3 report

Credit risk exposures

Impaired and past due loans by industry classification

					Specific		Specific		Actual
30 September 2020	Defaulted		Impaired		Provisions for		Provisions  to		Losses for the
$m	not impaired1		Loans		Impaired Loans		Impaired Loans		12 months ended
Accommodation, cafes & restaurants		132		71		34		48%		5
Agriculture, forestry & fishing		242		95		38		40%		13
Construction		69		188		71		38%		12
Finance & insurance		39		68		43		63%		-
Government administration & defence		-		-		-		-		-
Manufacturing		92		302		188		62%		61
Mining		5		44		14		32%		2
Property		335		103		29		28%		49
Property services & business services		113		452		120		27%		14
Services2		129		145		67		46%		5
Trade3		148		274		112		41%		56
Transport & storage		30		143		52		36%		17
Utilities4		2		12		3		25%		4
Retail lending		7,122		770		336		44%		735
Other		74		112		45		41%		4
Total		8,532		2,779		1,152		41%		977

					Specific		Specific		Actual
31 March 2020	Defaulted		Impaired		Provisions for		Provisions  to		Losses for the
$m	not impaired1		Loans		Impaired Loans		Impaired Loans		6 months ended
Accommodation, cafes & restaurants		109		37		18		49%		7
Agriculture, forestry & fishing		233		90		34		38%		3
Construction		50		107		45		42%		9
Finance & insurance		29		62		44		71%		5
Government administration & defence		-		-		-		-		-
Manufacturing		81		221		149		67%		7
Mining		6		17		6		35%		(1)
Property		284		77		39		51%		10
Property services & business services		83		130		67		52%		9
Services2		243		72		38		53%		4
Trade3		124		327		152		46%		6
Transport & storage		27		72		25		35%		9
Utilities4		2		7		2		29%		-
Retail lending		4,097		851		431		51%		366
Other		41		84		29		35%		3
Total		5,409		2,154		1,079		50%		437
						Specific		Specific		Actual
30 September 2019		Defaulted		Impaired		Provisions for		Provisions  to		Losses for the
$m		not impaired1		Loans	Impaired Loans		Impaired Loans		12 months ended
Accommodation, cafes & restaurants		84		28		14		50%		12
Agriculture, forestry & fishing		233		60		25		42%		6
Construction		55		98		41		42%		12
Finance & insurance		27		30		19		63%		4
Government administration & defence		-		-		-		-		-
Manufacturing		35		54		29		54%		11
Mining		9		17		7		41%		(1)
Property		212		101		47		47%		23
Property services & business services		76		103		53		51%		23
Services2		285		66		37		56%		5
Trade3		118		265		87		33%		63
Transport & storage		18		68		25		37%		13
Utilities4		3		5		1		20%		1
Retail lending		3,887		830		378		46%		805
Other		46		38		29		76%		5
Total		5,088		1,763		792		45%		982

¹ Includes items past 90 days not impaired.

² Includes education, health & community services, cultural & recreational services and personal  & other services.

³ Includes wholesale trade and retail trade.

⁴ Includes electricity, gas & water, and communication services.

40 | Westpac Group September 2020 Pillar 3 report

Pillar 3 report

Credit risk exposures

Impaired and past due loans by geography¹

			Specific	Specific	Actual
30 September 2020	Defaulted	Impaired	Provisions for	Provisions  to	Losses for the
$m	not impaired2	Loans	Impaired Loans	Impaired Loans	12 months ended
Australia	7,989	2,253	903	40%	859
New Zealand	502	193	96	50%	21
Americas	-	-	-	-	-
Asia	1	280	134	48%	95
Europe	-	-	-	-	-
Pacific	40	53	19	36%	2
Total	8,532	2,779	1,152	41%	977
			Specific	Specific	Actual
31 March 2020	Defaulted	Impaired	Provisions for	Provisions  to	Losses for the
$m	not impaired2	Loans	Impaired Loans	Impaired Loans	6 months ended
Australia	4,964	1,681	818	49%	423
New Zealand	390	208	99	48%	13
Americas	-	-	-	-	-
Asia	2	216	145	67%	-
Europe	-	-	-	-	-
Pacific	53	49	17	35%	1
Total	5,409	2,154	1,079	50%	437
			Specific	Specific	Actual
30 September 2019	Defaulted	Impaired	Provisions for	Provisions  to	Losses for the
$m	not impaired2	Loans	Impaired Loans	Impaired Loans	12 months ended
Australia	4,684	1,615	730	45%	944
New Zealand	340	94	44	47%	36
Americas	-	-	-	-	-
Asia	18	-	-	-	-
Europe	-	-	-	-	-
Pacific	46	54	18	33%	2
Total	5,088	1,763	792	45%	982

1	Geographic segmentation of exposures is based on the location of the office in which these items were booked.
2	Includes items past 90 days not impaired.

Westpac Group September 2020 Pillar 3 report | 41

Pillar 3 report

Credit risk exposures

Portfolios subject to the standardised approach

This table presents exposures subject to the standardised approach for the calculation of risk weighted assets.

As at 30 September 2020, exposures subject to the standardised approach and categorised by risk weight are primarily Westpac Pacific, Asian retail exposures, the margin lending portfolio, self-managed superannuation fund exposures and some other small portfolios. Mark-to-market related credit risk and qualifying central clearing counterparties exposure¹ is also included in the standardised approach.

30 September 2020	Total Exposure	Risk Weighted
Risk Weight %	at Default $m	Assets $m
0%	1,780	-
2%	3,406	68
20%	1,200	240
35%	415	145
50%	1,328	664
75%	4,451	3,338
100%	4,239	4,239
150%	54	81
Default fund contributions1	120	78
Mark-to-market related credit risk	-	7,302
Total	16,993	16,155
31 March 2020	Total Exposure	Risk Weighted
Risk Weight %	at Default $m	Assets $m
0%	1,650	-
2%	5,481	110
20%	1,190	238
35%	478	167
50%	1,340	670
75%	4,631	3,473
100%	4,651	4,651
150%	67	100
Default fund contributions1	128	98
Mark-to-market related credit risk	-	11,289
Total	19,616	20,795
30 September 2019	Total Exposure	Risk Weighted
Risk Weight %	at Default $m	Assets $m
0%	1,442	-
2%	8,136	163
20%	1,472	294
35%	614	215
50%	1,352	676
75%	4,884	3,663
100%	4,435	4,435
150%	66	99
Default fund contributions1	111	108
Mark-to-market related credit risk	-	11,313
Total	22,512	20,966

¹ Portfolios subject to the standardised approach include exposures to qualifying central clearing counterparties used to clear derivative transactions. Derivative counterparty exposure and initial margin are risk weighted at 2%. Default fund contributions to qualifying central clearing counterparties are shown separately and are subject to higher risk weights.

42 | Westpac Group September 2020 Pillar 3 report

Pillar 3 report

Credit risk exposures

Portfolios subject to supervisory risk-weights in the IRB approach

Exposures subject to supervisory risk-weights in the IRB approach include assets categorised as specialised lending, where a regulatory capital ‘slotting’ approach applies.

Westpac has property finance and project finance credit risk exposures categorised as specialised lending. The ‘Credit Risk Management’ section of this report describes the mapping of Westpac risk grades to both external rating equivalents and regulatory capital ‘slots’.

Property finance

30 September 2020		Exposure at	Regulatory	Risk Weighted
$m	Risk Weight	Default	Expected Loss	Assets
Strong	70%	23,604	94	16,523
Good1	90%	26,218	251	24,359
Satisfactory	115%	5,224	146	6,008
Weak	250%	1,344	107	3,359
Default	NA	339	170	-
Total		56,729	768	50,249
31 March 2020		Exposure at	Regulatory	Risk Weighted
$m	Risk Weight	Default	Expected Loss	Assets
Strong	70%	23,013	92	16,110
Good	90%	29,436	236	26,491
Satisfactory	115%	4,479	125	5,151
Weak	250%	795	64	1,988
Default	NA	297	148	-
Total		58,020	665	49,740
30 September 2019		Exposure at	Regulatory	Risk Weighted
$m	Risk Weight	Default	Expected Loss	Assets
Strong	70%	23,270	92	16,289
Good	90%	28,607	229	25,746
Satisfactory	115%	4,383	123	5,041
Weak	250%	729	58	1,823
Default	NA	215	108	-
Total		57,204	610	48,899

¹ Includes $0.8 billion RWA overlay to reflect potential deterioration in credit quality due to COVID-19.

Westpac Group September 2020 Pillar 3 report | 43

Pillar 3 report

Credit risk exposures

Project and object finance

30 September 2020		Exposure at	Regulatory	Risk Weighted
$m	Risk Weight	Default	Expected Loss	Assets
Strong	70%	6,769	27	4,738
Good	90%	1,183	9	1,065
Satisfactory	115%	751	21	864
Weak	250%	41	3	103
Default	NA	18	9	-
Total		8,762	69	6,770
31 March 2020		Exposure at	Regulatory	Risk Weighted
$m	Risk Weight	Default	Expected Loss	Assets
Strong	70%	5,803	23	4,063
Good	90%	1,064	9	957
Satisfactory	115%	589	16	677
Weak	250%	227	18	567
Default	NA	163	82	-
Total		7,846	148	6,264
30 September 2019		Exposure at	Regulatory	Risk Weighted
$m	Risk Weight	Default	Expected Loss	Assets
Strong	70%	6,526	26	4,568
Good	90%	1,236	10	1,112
Satisfactory	115%	276	8	317
Weak	250%	146	12	366
Default	NA	165	82	-
Total		8,349	138	6,363

44 | Westpac Group September 2020 Pillar 3 report

Pillar 3 report

Credit risk exposures

Portfolios subject to IRB approaches

In the table below Westpac’s transaction-managed exposures are classified by the external credit rating. Each external credit rating aligns to one or more internally assigned credit risk grades, as outlined in the ‘Credit Risk Management’ section of this report. Westpac’s internal rating scale has more risk grades than does the external rating scale, and as a result, average PD can vary from portfolio to portfolio for the same external grade. Westpac’s program-managed exposures are classified by PD band and the average PD within a band can, likewise, vary from portfolio to portfolio.

For both non-defaulted and defaulted exposures, regulatory expected loss is defined at facility level. For non-defaulted exposures, regulatory expected loss is the product of PD, LGD and EAD while for defaulted exposures, this is the best estimates of loss. Total regulatory expected loss as shown in the table below is the sum of both non-defaulted and defaulted regulatory expected loss and given the difference in methodology, regulatory expected loss reported is not equal to the product of the corresponding reported average PD, average LGD and aggregate EAD.

Corporate portfolio by external credit rating

							Risk	Average
30 September 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA	189	-	189	0.01%	50%	-	20	11%
AA	2,424	2,461	4,884	0.03%	52%	1	883	18%
A	15,987	12,099	28,039	0.07%	52%	10	7,463	27%
BBB3	29,416	25,139	54,099	0.22%	49%	57	26,466	49%
BB	26,213	11,255	37,328	1.14%	38%	167	28,739	77%
B	1,305	209	1,515	4.78%	41%	30	2,067	136%
Other	2,396	658	3,054	21.07%	39%	249	6,160	202%
Subtotal	77,930	51,821	129,108	0.99%	46%	514	71,798	56%
Default	699	182	880	NA	42%	244	1,868	212%
Total	78,629	52,003	129,988	1.66%	46%	758	73,666	57%
							Risk	Average
31 March 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA	101	-	101	0.01%	50%	-	28	28%
AA	7,126	2,490	9,611	0.03%	50%	1	1,487	15%
A	19,424	13,330	32,702	0.07%	52%	12	8,898	27%
BBB	39,261	22,664	61,632	0.22%	49%	64	29,637	48%
BB	28,062	8,919	36,876	1.13%	37%	152	27,522	75%
B	1,554	209	1,719	4.78%	44%	36	2,671	155%
Other	2,765	616	3,382	21.23%	41%	282	7,083	209%
Subtotal	98,293	48,228	146,023	0.94%	46%	547	77,326	53%
Default	365	142	506	NA	65%	240	962	190%
Total	98,658	48,370	146,529	1.29%	47%	787	78,288	53%
							Risk	Average
30 September 2019		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA	109	23	109	0.01%	49%	-	27	25%
AA	4,223	2,292	6,001	0.03%	52%	1	843	14%
A	18,806	18,557	31,996	0.07%	54%	11	8,560	27%
BBB	37,160	24,807	61,361	0.22%	49%	65	30,119	49%
BB	28,121	8,705	35,566	1.21%	38%	160	27,679	78%
B	1,342	92	1,428	4.27%	44%	28	2,269	159%
Other	1,842	603	2,447	21.59%	39%	208	4,901	200%
Subtotal	91,603	55,079	138,908	0.85%	47%	473	74,398	54%
Default	246	17	265	NA	30%	50	409	154%
Total	91,849	55,096	139,173	1.04%	47%	523	74,807	54%

1	Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.
2	Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.
3	Includes $0.3 billion RWA overlay to reflect potential deterioration in credit quality due to COVID-19.

  Westpac Group September 2020 Pillar 3 report | 45

Pillar 3 report

Credit risk exposures

Business lending portfolio by external credit rating 

								Risk	Average
30 September 2020			Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1		Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA	-		-	-	-	-	-	-	-
AA	-		-	-	-	-	-	-	-
A		188	74	261	0.08%	42%	-	53	20%
BBB		1,224	625	1,845	0.21%	26%	1	383	21%
BB3		36,088	10,955	46,914	1.59%	30%	261	28,799	61%
B		1,384	226	1,612	4.78%	32%	25	1,369	85%
Other		2,569	354	2,924	22.12%	37%	247	4,929	169%
Subtotal		41,453	12,234	53,556	2.75%	30%	534	35,533	66%
Default		952	32	986	NA	34%	275	1,244	126%
Total		42,405	12,266	54,542	4.51%	30%	809	36,777	67%
								Risk	Average
31 March 2020			Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m		Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA		-	-	-	-	-	-	-	-
AA		-	-	-	-	-	-	-	-
A		218	65	282	0.08%	42%	-	60	21%
BBB		1,469	502	1,969	0.21%	26%	1	430	22%
BB		38,131	10,024	48,015	1.56%	30%	221	28,438	59%
B		1,063	142	1,206	4.78%	33%	19	1,036	86%
Other		1,833	266	2,099	21.74%	37%	172	3,516	168%
Subtotal		42,714	10,999	53,571	2.37%	30%	413	33,480	62%
Default		828	26	857	NA	35%	256	1,013	118%
Total		43,542	11,025	54,428	3.90%	30%	669	34,493	63%
								Risk	Average
30 September 2019			Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m		Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA		-	-	-	-	-	-	-	-
AA		-	-	-	-	-	-	-	-
A		175	22	196	0.09%	48%	-	39	20%
BBB		1,475	491	1,964	0.22%	26%	1	433	22%
BB		38,439	9,938	48,228	1.57%	30%	228	29,031	60%
B		1,166	124	1,290	4.62%	32%	19	1,074	83%
Other		1,870	206	2,075	22.66%	38%	183	3,646	176%
Subtotal		43,125	10,781	53,753	2.40%	30%	431	34,223	64%
Default		788	29	817	NA	32%	204	1,247	153%
Total		43,913	10,810	54,570	3.86%	30%	635	35,470	65%

1	Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.
2	Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.
3	Includes $0.9 billion RWA overlay to reflect potential deterioration in credit quality due to COVID-19.

46 | Westpac Group September 2020 Pillar 3 report  

Pillar 3 report

Credit risk exposures

Sovereign portfolio by external credit rating 

							Risk	Average
30 September 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA	71,383	157	77,107	0.01%	6%	-	1,135	1%
AA	49,201	984	54,057	0.02%	8%	1	1,121	2%
A	352	117	479	0.05%	27%	-	50	10%
BBB	191	7	198	0.20%	33%	-	57	29%
BB	5	11	16	2.23%	33%	-	13	81%
B	-	-	-	-	-	-	-	-
Other	-	-	-	-	-	-	-	-
Subtotal	121,132	1,276	131,857	0.01%	7%	1	2,376	2%
Default	-	-	-	NA	-	-	-	-
Total	121,132	1,276	131,857	0.01%	7%	1	2,376	2%
							Risk	Average
31 March 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA	56,238	150	60,998	0.01%	6%	-	718	1%
AA	59,725	1,160	64,805	0.02%	7%	2	1,220	2%
A	594	233	828	0.05%	27%	-	84	10%
BBB	407	7	414	0.21%	33%	-	154	37%
BB	8	11	19	2.07%	36%	-	16	84%
B	-	-	-	-	-	-	-	-
Other	-	-	-	-	-	-	-	-
Subtotal	116,972	1,561	127,064	0.02%	7%	2	2,192	2%
Default	-	-	-	NA	-	-	-	-
Total	116,972	1,561	127,064	0.02%	7%	2	2,192	2%
							Risk	Average
30 September 2019		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA	40,003	143	43,383	0.01%	7%	-	820	2%
AA	42,333	997	46,146	0.02%	7%	2	947	2%
A	650	245	898	0.05%	28%	-	91	10%
BBB	496	16	512	0.24%	33%	-	189	37%
BB	10	10	21	1.96%	43%	-	21	100%
B	-	-	-	-	0%	-	-	-
Other	-	-	-	-	-	-	-	-
Subtotal	83,492	1,411	90,960	0.02%	7%	2	2,068	2%
Default	-	-	-	NA	0%	-	-	-
Total	83,492	1,411	90,960	0.02%	7%	2	2,068	2%

1	Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.
2	Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.

  Westpac Group September 2020 Pillar 3 report | 47

Pillar 3 report

Credit risk exposures

Bank portfolio by external credit rating

							Risk	Average
30 September 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA	2,324	-	2,351	0.01%	10%	-	90	4%
AA	7,917	152	8,078	0.03%	59%	1	1,543	19%
A	10,391	490	10,731	0.05%	58%	4	2,708	25%
BBB	1,884	243	2,048	0.19%	59%	2	1,263	62%
BB	17	17	34	0.74%	53%	-	29	85%
B	-	-	-	-	-	-	-	-
Other	2	-	2	18.77%	60%	-	7	350%
Subtotal	22,535	902	23,244	0.05%	54%	7	5,640	24%
Default	-	-	-	NA	-	-	-	-
Total	22,535	902	23,244	0.05%	54%	7	5,640	24%
							Risk	Average
31 March 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA	625	55	680	0.01%	11%	-	24	4%
AA	8,861	173	9,015	0.03%	58%	2	1,762	20%
A	14,412	473	14,800	0.05%	54%	4	4,057	27%
BBB	1,984	173	2,110	0.19%	54%	3	1,091	52%
BB	15	12	27	0.60%	48%	-	19	70%
B	-	-	-	-	-	-	-	-
Other	1	-	1	12.11%	60%	-	3	300%
Subtotal	25,898	886	26,633	0.05%	54%	9	6,956	26%
Default	-	-	-	NA	-	-	-	-
Total	25,898	886	26,633	0.05%	54%	9	6,956	26%
							Risk	Average
30 September 2019		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
AAA	515	-	516	0.01%	14%	-	14	3%
AA	11,111	312	11,488	0.03%	58%	2	2,686	23%
A	14,278	303	14,583	0.05%	56%	5	4,328	30%
BBB	1,837	161	2,001	0.19%	55%	2	1,082	54%
BB	125	47	172	1.58%	54%	1	225	131%
B	-	-	-	-	-	-	-	-
Other	1	-	1	12.11%	60%	-	4	400%
Subtotal	27,867	823	28,761	0.06%	56%	10	8,339	29%
Default	-	-	-	NA	-	-	-	-
Total	27,867	823	28,761	0.06%	56%	10	8,339	29%

¹ Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.

² Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.

48 | Westpac Group September 2020 Pillar 3 report  

Pillar 3 report

Credit risk exposures

Residential mortgages portfolio by PD band

							Risk	Average
30 September 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
0.0 to 0.10	143,626	42,300	184,084	0.06%	20%	23	10,339	6%
0.10 to 0.25	72,665	11,777	83,738	0.22%	20%	36	11,936	14%
0.25 to 1.0	192,438	19,166	207,435	0.57%	20%	235	51,848	25%
1.0 to 2.5	37,467	3,583	39,993	1.43%	21%	120	18,368	46%
2.5 to 10.0	15,125	668	15,470	4.52%	20%	143	13,657	88%
10.0 to 99.99	11,794	232	11,968	19.93%	20%	476	16,328	136%
Subtotal	473,115	77,726	542,688	0.95%	20%	1,033	122,476	23%
Default	7,430	30	7,445	NA	20%	933	8,311	112%
Total	480,545	77,756	550,133	2.29%	20%	1,966	130,787	24%
							Risk	Average
31 March 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
0.0 to 0.10	145,843	40,976	185,030	0.06%	20%	23	10,384	6%
0.10 to 0.25	75,031	11,716	86,067	0.22%	20%	37	12,272	14%
0.25 to 1.0	194,476	19,051	209,423	0.57%	20%	237	52,333	25%
1.0 to 2.5	36,418	3,655	38,978	1.44%	21%	118	17,782	46%
2.5 to 10.0	15,317	669	15,657	4.69%	21%	150	14,043	90%
10.0 to 99.99	14,062	200	14,215	23.35%	20%	664	19,141	135%
Subtotal	481,147	76,267	549,370	1.11%	20%	1,229	125,955	23%
Default	4,486	30	4,496	NA	20%	559	5,469	122%
Total	485,633	76,297	553,866	1.91%	20%	1,788	131,424	24%
							Risk	Average
30 September 2019		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
0.0 to 0.10	148,591	38,041	186,899	0.06%	20%	23	10,472	6%
0.10 to 0.25	75,806	11,352	86,873	0.21%	20%	37	12,165	14%
0.25 to 1.0	182,589	22,417	204,268	0.54%	20%	223	52,592	26%
1.0 to 2.5	43,736	3,657	46,813	1.41%	20%	133	19,616	42%
2.5 to 10.0	17,377	423	17,761	4.72%	20%	171	15,277	86%
10.0 to 99.99	12,079	80	12,177	20.54%	20%	501	16,630	137%
Subtotal	480,178	75,970	554,791	0.97%	20%	1,088	126,752	23%
Default	4,216	21	4,227	NA	20%	554	4,877	115%
Total	484,394	75,991	559,018	1.72%	20%	1,642	131,629	24%

¹ Outstandings are balances that were drawn down as at the reporting date.

² Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.

  Westpac Group September 2020 Pillar 3 report | 49

Pillar 3 report

Credit risk exposures

Australian credit cards portfolio by PD band

							Risk	Average
30 September 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
0.0 to 0.10	1,596	9,952	7,755	0.05%	70%	3	181	2%
0.10 to 0.25	987	4,388	3,400	0.16%	73%	4	233	7%
0.25 to 1.0	1,024	1,367	1,871	0.45%	73%	7	307	16%
1.0 to 2.5	1,826	1,103	2,529	1.67%	74%	31	1,099	43%
2.5 to 10.0	725	211	850	6.18%	73%	38	895	105%
10.0 to 99.993	424	99	446	26.52%	70%	83	1,401	314%
Subtotal	6,582	17,120	16,851	1.37%	72%	166	4,116	24%
Default	93	16	93	NA	71%	48	289	311%
Total	6,675	17,136	16,944	1.91%	72%	214	4,405	26%
							Risk	Average
31 March 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
0.0 to 0.10	1,704	9,799	7,793	0.05%	70%	3	181	2%
0.10 to 0.25	1,146	4,397	3,603	0.16%	73%	4	247	7%
0.25 to 1.0	1,260	1,335	2,109	0.46%	73%	7	346	16%
1.0 to 2.5	2,350	1,146	3,124	1.70%	74%	39	1,373	44%
2.5 to 10.0	1,060	245	1,222	6.22%	73%	55	1,295	106%
10.0 to 99.99	608	95	629	29.22%	70%	130	1,186	189%
Subtotal	8,128	17,017	18,480	1.80%	72%	238	4,628	25%
Default	121	17	121	NA	72%	76	209	173%
Total	8,249	17,034	18,601	2.44%	72%	314	4,837	26%
							Risk	Average
30 September 2019		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
0.0 to 0.10	1,808	9,814	6,254	0.05%	70%	2	146	2%
0.10 to 0.25	1,206	4,662	3,529	0.16%	73%	4	242	7%
0.25 to 1.0	1,315	1,463	2,173	0.46%	73%	8	358	16%
1.0 to 2.5	2,525	1,294	3,418	1.71%	74%	43	1,511	44%
2.5 to 10.0	1,176	289	1,405	6.20%	73%	63	1,488	106%
10.0 to 99.99	606	99	649	27.81%	70%	128	1,213	187%
Subtotal	8,636	17,621	17,428	1.98%	72%	248	4,958	28%
Default	113	15	113	NA	72%	80	131	116%
Total	8,749	17,636	17,541	2.61%	72%	328	5,089	29%

¹ Outstandings are balances that were drawn down as at the reporting date.

² Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.

³ Includes a $0.6 billion RWA judgement-based overlay for Australian Credit Cards to maintain the average risk weight at 26%.

50 | Westpac Group September 2020 Pillar 3 report  

Pillar 3 report

Credit risk exposures

Other retail portfolio by PD band

							Risk	Average
30 September 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
0.0 to 0.10	217	878	750	0.05%	47%	-	57	8%
0.10 to 0.25	339	1,263	1,177	0.20%	60%	3	306	26%
0.25 to 1.0	3,301	1,080	4,210	0.66%	59%	16	2,121	50%
1.0 to 2.5	2,690	904	3,386	1.63%	66%	39	2,854	84%
2.5 to 10.0	2,329	320	2,603	4.78%	69%	92	2,822	108%
10.0 to 99.99	968	52	1,032	27.02%	67%	191	1,582	153%
Subtotal	9,844	4,497	13,158	3.72%	63%	341	9,742	74%
Default	310	10	313	NA	66%	181	432	138%
Total	10,154	4,507	13,471	5.95%	63%	522	10,174	76%
							Risk	Average
31 March 2020		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
0.0 to 0.10	215	940	786	0.05%	48%	-	59	8%
0.10 to 0.25	365	1,376	1,307	0.19%	60%	2	329	25%
0.25 to 1.0	3,469	961	4,252	0.67%	56%	16	2,068	49%
1.0 to 2.5	3,114	919	3,837	1.66%	66%	45	3,232	84%
2.5 to 10.0	3,197	340	3,486	4.90%	67%	121	3,630	104%
10.0 to 99.99	1,185	46	1,254	27.19%	66%	235	1,854	148%
Subtotal	11,545	4,582	14,922	4.07%	62%	419	11,172	75%
Default	298	11	301	NA	67%	182	422	140%
Total	11,843	4,593	15,223	5.96%	62%	601	11,594	76%
							Risk	Average
30 September 2019		Committed	Exposure	Probability	Loss Given	Regulatory	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Expected Loss	Assets	Weight
0.0 to 0.10	23	20	36	0.07%	65%	-	5	14%
0.10 to 0.25	326	811	965	0.18%	57%	1	226	23%
0.25 to 1.0	3,870	2,136	5,362	0.61%	58%	19	2,514	47%
1.0 to 2.5	3,645	1,221	4,745	1.78%	64%	58	3,990	84%
2.5 to 10.0	2,989	251	3,236	4.77%	67%	110	3,386	105%
10.0 to 99.99	1,255	64	1,333	25.71%	64%	229	1,914	144%
Subtotal	12,108	4,503	15,677	3.93%	62%	417	12,035	77%
Default	271	10	274	NA	65%	165	360	131%
Total	12,379	4,513	15,951	5.58%	62%	582	12,395	78%

1	Outstandings are balances that were drawn down as at the reporting date.
2	Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.

Westpac Group September 2020 Pillar 3 report | 51

Pillar 3 report

Credit risk exposures

Small business portfolio by PD band

						Regulatory	Risk	Average
30 September 2020		Committed	Exposure	Probability	Loss Given	Expected	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Loss	Assets	Weight
0.0 to 0.10	222	395	431	0.07%	51%	-	46	11%
0.10 to 0.25	125	192	310	0.19%	21%	-	27	9%
0.25 to 1.0	6,041	3,723	9,667	0.47%	29%	13	2,024	21%
1.0 to 2.5	14,216	1,976	16,145	1.63%	39%	100	8,195	51%
2.5 to 10.0	2,936	332	3,270	5.09%	35%	61	2,198	67%
10.0 to 99.99	1,573	78	1,652	28.10%	38%	176	1,864	113%
Subtotal	25,113	6,696	31,475	2.99%	35%	350	14,354	46%
Default	1,273	29	1,283	NA	39%	335	2,623	204%
Total	26,386	6,725	32,758	6.79%	36%	685	16,977	52%
						Regulatory	Risk	Average
31 March 2020		Committed	Exposure	Probability	Loss Given	Expected	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Loss	Assets	Weight
0.0 to 0.10	241	361	435	0.07%	50%	-	46	11%
0.10 to 0.25	131	191	314	0.19%	21%	-	27	9%
0.25 to 1.0	6,267	3,602	9,770	0.47%	28%	13	2,039	21%
1.0 to 2.5	14,668	1,805	16,447	1.64%	39%	104	8,476	52%
2.5 to 10.0	3,331	309	3,643	5.25%	36%	71	2,534	70%
10.0 to 99.99	1,762	66	1,831	27.83%	38%	190	2,039	111%
Subtotal	26,400	6,334	32,440	3.14%	35%	378	15,161	47%
Default	731	19	741	NA	37%	179	1,651	223%
Total	27,131	6,353	33,181	5.30%	35%	557	16,812	51%
						Regulatory	Risk	Average
30 September 2019		Committed	Exposure	Probability	Loss Given	Expected	Weighted	Risk
$m	Outstandings1	Undrawn2	at Default	of Default	Default	Loss	Assets	Weight
0.0 to 0.10	295	537	601	0.06%	57%	-	60	10%
0.10 to 0.25	98	114	213	0.23%	20%	-	20	9%
0.25 to 1.0	5,454	3,187	8,666	0.45%	28%	10	1,725	20%
1.0 to 2.5	15,940	1,945	17,809	1.66%	38%	110	8,800	49%
2.5 to 10.0	3,485	316	3,806	5.27%	35%	73	2,448	64%
10.0 to 99.99	1,569	58	1,631	26.19%	37%	158	1,729	106%
Subtotal	26,841	6,157	32,726	2.94%	35%	351	14,782	45%
Default	630	14	639	NA	36%	161	1,308	205%
Total	27,471	6,171	33,365	4.80%	35%	512	16,090	48%

1	Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.
2	Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.

52 | Westpac Group September 2020 Pillar 3 report

Pillar 3 report

Credit risk exposures

Credit Quality

The portfolio began the 2020 Financial Year performing well with stress in retail, business, and Institutional rising modestly from the low base experienced in recent years.

Through Second Half 2020, there was a deterioration in economic activity and the rise in unemployment, with more businesses being downgraded and more consumers defaulting on payments. Stress was increasingly reflected in the portfolio during this period as customers were reviewed.

Actual losses

30 September 2020	Write-offs	Legal and	Write-offs from		Actual Losses for the
$m	direct	recovery costs	provisions1	Recoveries	12 months ended
Corporate	-	-	101	(6)	95
Business lending	44	2	34	(9)	71
Sovereign	-	-	-	-	-
Bank	-	-	-	-	-
Residential mortgages	18	-	108	(1)	125
Australian credit cards	392	-	-	(60)	332
Other retail	373	10	-	(108)	275
Small business	27	2	48	(3)	74
Specialised lending	1	4	4	(6)	3
Securitisation	-	-	-	-	-
Standardised	2	-	-	-	2
Total	857	18	295	(193)	977
31 March 2020	Write-offs	Legal and	Write-offs from		Actual Losses for the
$m	direct	recovery costs	provisions1	Recoveries	6 months ended
Corporate	1	-	1	(6)	(4)
Business lending	21	-	19	(5)	35
Sovereign	-	-	-	-	-
Bank	-	-	-	-	-
Residential mortgages	8	-	59	-	67
Australian credit cards	197	-	-	(33)	164
Other retail	181	7	1	(54)	135
Small business	20	-	19	-	39
Specialised lending	1	2	-	(2)	1
Securitisation	-	-	-	-	-
Standardised	-	-	-	-	-
Total	429	9	99	(100)	437
30 September 2019	Write-offs	Legal and	Write-offs from		Actual Losses for the
$m	direct	recovery costs	provisions1	Recoveries	12 months ended
Corporate	2	-	35	(7)	30
Business lending	40	2	21	(9)	54
Sovereign	-	-	-	-	-
Bank	-	-	-	-	-
Residential mortgages	14	-	98	(1)	111
Australian credit cards	383	-	-	(43)	340
Other retail	438	17	6	(107)	354
Small business	44	2	32	-	78
Specialised lending	3	6	9	(5)	13
Securitisation	-	-	-	-	-
Standardised	2	-	-	-	2
Total	926	27	201	(172)	982

¹ Write-offs from individually assessed provisions.

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Pillar 3 report

Credit risk exposures

Regulatory loss estimates and actual losses

The table below compares regulatory credit risk estimates used in the calculation of risk weighted assets to the average of actual outcomes observed since the time of Advanced IRB accreditation for each portfolio.

Predicted parameters represent average internally predicted long-run probabilities of default for non-defaulted obligors at the start of each year, as well as downturn estimates of loss (or the regulatory minimum where required). They are averaged using data from the financial years beginning at the time of Advanced IRB accreditation (2008 for most portfolios) and compared to observed outcomes over the same period¹.

Predicted parameters are reviewed annually utilising observed outcomes from prior periods as a key input.

Default rates

At the start of each year, a predicted default probability is assigned to all non-defaulted obligors. This is averaged over the portfolio for the period since IRB accreditation and reported as the predicted default rate. The actual default rate reflects the fraction of obligors who start the year not in default but default during the one year period. The observed annual default rates are averaged over the period since IRB accreditation.

Loss Given Default (LGD)

The LGD analysis excludes recent defaults in order to allow sufficient time for the full workout of the facility and hence an accurate LGD to be determined. The workout period varies by portfolio: a two year workout period is assumed for transaction-managed and residential mortgage lending; and a one year period for other program-managed portfolios.

Exposure at Default (EAD)

The EAD variance compares the observed EAD to the predicted EAD up to one year prior to default. For transaction-managed portfolios, predicted EAD is currently mandated to be 100% of committed exposures. The observed EAD is averaged for all obligors that defaulted over the observation period.

						Observed EAD
30 September 2020.	Regulatory	Default rate		Loss Given Default		variance to
$m	Expected Loss2	Predicted	Observed	Predicted	Observed	Predicted3
Corporate	758	2.25%	0.92%	47%	35%	(23%)
Business lending	809	2.24%	1.54%	35%	17%	(13%)
Sovereign	1	0.23%	-	-	-	-
Bank	7	0.43%	0.13%	-	-	-
Residential mortgages	1,966	0.68%	0.54%	20%	1%	(1%)
Australian credit cards	214	1.70%	1.63%	75%	59%	(2%)
Other retail	522	4.79%	3.71%	69%	44%	(7%)
Small business	685	3.55%	2.52%	38%	11%	(9%)
Specialised lending	837	NA	1.90%	NA	20%	(9%)
Securitisation	-	NA	NA	NA	NA	NA
Standardised	-	NA	NA	NA	NA	NA
Total	5,799

1	Predicted parameters are not available for specialised lending, securitisation or standardised exposures because risk weights for these portfolios do not rely on credit estimates and are shown as NA in the tables above.
2	Includes regulatory expected losses for defaulted and non-defaulted exposures.
3	A negative outcome indicates observed EAD was lower than predicted EAD, which can happen because exposures were managed down prior to default or off-balance sheet items or undrawn limits were not fully drawn prior to default.

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Credit risk exposures

						Observed EAD
31 March 2020	Regulatory	Default rate		Loss Given Default		variance to
$m	Expected Loss1	Predicted	Observed	Predicted	Observed	Predicted2
Corporate	787	2.25%	0.93%	47%	36%	(23%)
Business lending	669	2.24%	1.56%	34%	17%	(13%)
Sovereign	2	0.23%	-	-	-	-
Bank	9	0.43%	0.13%	-	-	-
Residential mortgages	1,788	0.66%	0.53%	20%	1%	(1%)
Australian credit cards	314	1.68%	1.63%	75%	59%	(2%)
Other retail	601	4.83%	3.80%	69%	45%	(8%)
Small business	557	3.28%	2.21%	39%	12%	(9%)
Specialised lending	813	NA	1.93%	NA	22%	(9%)
Securitisation	-	NA	NA	NA	NA	NA
Standardised	-	NA	NA	NA	NA	NA
Total	5,540
						Observed EAD
30 September 2019	Regulatory	Default rate		Loss Given Default		variance to
$m	Expected Loss1	Predicted	Observed	Predicted	Observed	Predicted2
Corporate	523	2.24%	0.93%	47%	36%	(23%)
Business lending	635	2.24%	1.52%	34%	17%	(13%)
Sovereign	2	0.23%	-	-	-	-
Bank	10	0.44%	0.14%	-	-	-
Residential mortgages	1,642	0.64%	0.51%	20%	2%	(1%)
Australian credit cards	328	1.68%	1.64%	75%	59%	(2%)
Other retail	582	4.82%	3.79%	69%	46%	(8%)
Small business	512	3.19%	2.11%	39%	13%	(9%)
Specialised lending	748	NA	1.90%	NA	22%	(9%)
Securitisation	-	NA	NA	NA	NA	NA
Standardised	-	NA	NA	NA	NA	NA
Total	4,982

¹ Includes regulatory expected losses for defaulted and non-defaulted exposures

² A negative outcome indicates observed EAD was lower than predicted EAD, which can happen because exposures were managed down prior to default or off-balance sheet items or undrawn limits were not fully drawn prior to default.

Westpac Group September 2020 Pillar 3 report | 55

Pillar 3 report

Credit risk mitigation

This section describes the way in which Westpac reduces its credit risk by using financial collateral, guarantees or credit derivatives for the Corporate, Sovereign and Bank asset classes.

Approach

Westpac recognises credit risk mitigation only when formal legal documentation is held that establishes Westpac’s direct, irrevocable and unconditional recourse to the collateral or to an unrelated credit risk mitigation provider. Minimum standards for recognising credit risk mitigation are set out in Westpac's credit rules and policies. All proposals for recognising risk mitigation require approval by an authorised credit officer. Authorised credit officer approval is also required for existing risk mitigation to be discontinued or withdrawn.

The amount of credit risk mitigation recognised is the face value of the mitigation instrument, adjusted by the application of discounts for any maturity and/or currency mismatch with the underlying obligation, so that a discounted amount is recognised when calculating the residual exposure after mitigation.

For regulatory capital purposes:

l exposures secured by eligible financial collateral, either cash or certain government or semi-government securities, or where protection is bought via credit linked notes, provided proceeds are invested in eligible financial collateral, are included at the gross value, with risk weighted assets for the portion thus secured calculated by applying a 5% LGD¹;

l exposures mitigated by eligible guarantees, standby letters of credit or similar instruments, where Westpac has direct recourse to an unrelated third party, or credit protection bought via credit default swaps where Westpac is entitled to recover either full principal or credit losses on occurrence of defined credit events, are treated under double default rules where the protection provider is rated A-/A3 or better. The GCCO has the authority to approve exceptions to the A-/A3 minimum; and

l exposures mitigated by guarantees, letters of credit, credit default swaps or similar instruments, which are not eligible for double default treatment are treated under the substitution approach.

When Westpac uses credit risk mitigation techniques to reduce counterparty exposure, limits are applied to both gross (i.e. pre-mitigation) and net exposure. Furthermore, exposure is recorded against the provider of any credit risk mitigation and a limit framework prevents excessive concentration to such counterparties.

Netting

Risk reduction by way of current account set-offs is recognised for exposures to creditworthy customers domiciled in Australia and New Zealand only. Customers are required to enter into formal agreements giving Westpac the unfettered right to set-off gross credit and debit balances in their nominated accounts to determine Westpac’s net exposure within each of these two jurisdictions. Cross-border set-offs are not permitted.

Close-out netting is undertaken for off-balance sheet financial market transactions with counterparties with whom Westpac has entered into master netting agreements which allow such netting in specified jurisdictions. Close-out netting effectively aggregates pre-settlement risk exposure at time of default, thus reducing overall exposure.

Collateral valuation and management

Westpac revalues financial markets and associated collateral positions on a daily basis to monitor the net risk position, and has formal processes in place so that calls for collateral top-up or exposure reduction are made promptly. An independent operational unit has responsibility for monitoring these positions. The collateralisation arrangements are documented via the Credit Support Annex of the International Swaps and Derivatives Association (ISDA) master agreement for derivatives transactions and Global Master Repurchase Agreement (GMRA) for repurchase transactions and Clearing Agreements for cleared trades.

¹ Excludes collateralised derivative transactions.

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Credit risk mitigation

Total exposure covered by collateral, credit derivatives and guarantees

		Impact		Total exposure for	Credit Risk Mitigants
30 September 2020	Total before	of credit	Total after	which some credit	Eligible Financial	Covered by	Covered by
$m	mitigation	mitigation1	mitigation	risk is mitigated	Collateral	Guarantees	Credit Derivatives
Corporate	130,473	(485)	129,988	4,357	1,879	295	-
Sovereign	132,020	(163)	131,857	757	164	79	-
Bank	24,458	(1,214)	23,244	7,981	1,214	-	-
Standardised	16,993	-	16,993	2,797	-	-	-
Total	303,944	(1,862)	302,082	15,892	3,257	374	-
		Impact		Total exposure for	Credit Risk Mitigants
31 March 2020	Total before	of credit	Total after	which some credit	Eligible Financial	Covered by	Covered by
$m	mitigation	mitigation1	mitigation	risk is mitigated	Collateral	Guarantees	Credit Derivatives
Corporate	150,294	(3,765)	146,529	8,562	5,617	305	-
Sovereign	127,690	(626)	127,064	1,422	626	103	-
Bank	34,129	(7,496)	26,633	15,088	7,496	-	-
Standardised	19,616	-	19,616	4,932	-	-	-
Total	331,729	(11,887)	319,842	30,004	13,739	408	-
		Impact		Total exposure for	Credit Risk Mitigants
30 September 2019	Total before	of credit	Total after	which some credit	Eligible Financial	Covered by	Covered by
$m	mitigation	mitigation1	mitigation	risk is mitigated	Collateral	Guarantees	Credit Derivatives
Corporate	139,598	(425)	139,173	3,351	2,028	258	-
Sovereign	91,284	(324)	90,960	905	324	221	-
Bank	30,496	(1,735)	28,761	4,639	1,735	-	-
Standardised	22,512	-	22,512	-	-	-	-
Total	283,890	(2,484)	281,406	8,895	4,087	479	-

¹ Impact of credit mitigation under the substitution approach.

Westpac Group September 2020 Pillar 3 report | 57

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Counterparty credit risk

This section describes Westpac’s exposure to credit risk arising from derivative and treasury products.

Approach

Westpac actively assesses and manages the derivative and treasury credit risk (known collectively as counterparty credit risk) arising from its derivatives business. Westpac’s process for managing counterparty credit risk is based on its assessment of the potential future credit risk Westpac is exposed to when dealing in derivatives products and securities financing transactions. Westpac quantifies this risk through a daily simulation of future market price and rate shocks and converts the effect of these shocks on the mark-to-market value of Westpac’s positions to a credit exposure using Westpac’s Derivative Risk Equivalent (DRE) methodology. Exposures are loaded into Westpac’s credit limit management system where they are checked against pre-settlement risk limits that are set at the counterparty level. Limit excesses are reported to credit managers and actioned within strict timeframes.

Structure and organisation

The Financial Markets Credit management team is charged with managing the counterparty credit exposure arising from derivatives and treasury products.

Market related credit risk

There are two components to the regulatory capital requirements for credit risk arising from derivative products:

l capital to absorb losses arising from the default of derivative counterparties; and

l capital to absorb losses arising from mark-to-market valuation movements resulting from changes in the credit quality of derivative counterparties. These valuation movements are referred to as credit valuation adjustments (CVA) and this risk is sometimes labelled as CVA risk. Westpac refers to this requirement as mark-to-market related credit risk.

Risk mitigation

Mitigation is achieved in a number of ways:

l the limit system monitors for excesses of the pre-defined limits, with any excesses being notified to authorised credit officers;

l Westpac has netting agreements with counterparties to allow the exposure across a portfolio of trades with the same counterparty to be netted;

l Westpac has collateral agreements with its largest counterparties. The market value of the counterparty’s portfolio is used to recalculate the credit position at each end of day, with collateral being called for when certain pre-set limits are met or exceeded. Westpac exchanges Initial Margin with eligible counterparties for eligible products as protection against potential future exposure to changes in market value;

l Westpac has initial margin agreements with qualifying counterparties subject to relevant international regulations. The exchange of initial margin for eligible products covers the potential future exposure that could arise from changes in the market value of derivative transactions over the close-out period in the event of a counterparty default;

l credit derivatives are used to mitigate credit exposure against certain counterparties; and

l regular marking to market and settling of the foreign exchange components of foreign exchange reset contracts.

Counterparty derivative exposures and limits

The risk management methodology for counterparty derivatives exposures is similar to the credit methodology for transaction-managed loans. The main difference is in the estimation of the exposure for derivatives which is based on the DRE methodology. DRE is a credit exposure measure for derivative trades which is calibrated to a ‘loan-equivalent’ exposure.

Counterparty credit limits are approved on an uncommitted and unadvised basis by authorised credit officers. This follows an evaluation of each counterparty’s credit worthiness and establishing an agreed credit risk appetite for the nature and extent of prospective business.

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Counterparty credit risk

Wrong-way risk exposures

Westpac defines wrong-way risk as exposure to a counterparty which is adversely correlated with the credit quality of that counterparty. With respect to credit derivatives, wrong-way risk refers to credit protection purchased from a counterparty highly correlated to the reference obligation.

Wrong-way risk exposures using credit derivatives are controlled by only buying protection from highly rated counterparties. These transactions are assessed by an authorised credit officer who has the right to decline any transaction where they feel there is an unacceptably high correlation between the ability to perform under the trade and the performance of the underlying counterparty.

Consequences of a downgrade in Westpac’s credit rating

A downgrade in Westpac’s credit rating can have an impact on Westpac’s collateral agreements. Where an outright threshold and minimum transfer amount are agreed, there will not be any impact on the amount of collateral posted by Westpac in the event of a credit rating downgrade. Where the threshold and minimum transfer amount are tiered according to credit rating, the impact of Westpac being downgraded below its current credit rating would be: for a one notch downgrade, postings of $61 million; while for a two notch downgrade, postings would be $71 million¹.

Counterparty credit risk summary

	30 September			31 March			30 September
$m	2020			2020			2019
Gross positive fair value of contracts		85,137			92,175			89,963
Netting benefits		(31,331	)		(32,468	)		(41,834	)
Netted current credit exposure		53,806			59,707			48,129
Collateral held		(1,862	)		(11,887	)		(2,798	)
Mark-to-market credit related risk reduction		(219	)		(263	)		(159	)
Net derivatives credit exposure		51,724			47,557			45,172
Exposure at default
Gross credit exposure amount of credit derivative hedges		-			-			-
Credit exposure		-			-			-
Interest rate contracts		13,215			17,070			19,587
Foreign exchange contracts		13,782			20,403			18,251
Equity contracts		5			5			6
Credit derivatives		8			141			155
Commodity contracts		664			1,201			1,186
Other		24,049			8,737			5,987
Total		51,724			47,557			45,172

Credit derivative transactions that create exposures to counterparty credit risk

30 September 2020	Westpac Portfolio				Intermediation activities
Credit derivatives products used ($m)	Bought		Sold		Bought		Sold
Credit Default Swaps		-		8		-		-
Total Return Swaps		-		-		-		-
Credit options		-		-		-		-
Credit linked notes		-		-		-		-
Collateralised Loan Obligations		-		-		-		-
Other		-		-		-		-
Total		-		8		-		-
31 March 2020		Westpac Portfolio				Intermediation activities
Credit derivatives products used ($m)		Bought		Sold		Bought		Sold
Credit Default Swaps		69		72		-		-
Total Return Swaps		-		-		-		-
Credit options		-		-		-		-
Credit linked notes		-		-		-		-
Collateralised Loan Obligations		-		-		-		-
Other		-		-		-		-
Total		69		72		-		-

¹ Credit rating downgrade postings are cumulative.

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Counterparty credit risk

30 September 2019	Westpac Portfolio				Intermediation activities
Credit derivatives products used ($m)	Bought		Sold		Bought		Sold
Credit Default Swaps		29		126		1		5
Total Return Swaps		-		-		-		-
Credit options		-		-		-		-
Credit linked notes		-		-		-		-
Collateralised Loan Obligations		-		-		-		-
Other		-		-		-		-
Total		29		126		1		5

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Securitisation

A securitisation is a financial structure where the cash flow from a pool of assets is used to service obligations to at least two different tranches or classes of creditors (typically holders of debt securities), with each class or tranche reflecting a different degree of credit risk (i.e. one class of creditors is entitled to receive payments from the pool before another class of creditors).

Securitisation transactions are generally grouped into two broad categories:

l traditional or true sale securitisations, which involve the transfer of ownership of the underlying asset pool to a third party; and

l synthetic transactions, where the ownership of the pool remains with the originator and only the credit risk of the pool is transferred to a third party, using credit derivatives or guarantees.

Covered bond transactions, in which bonds issued by Westpac are guaranteed by assets held in a special purpose vehicle, are not considered to be securitisation transactions.

Approach

Westpac’s involvement in securitisation activities ranges from a seller of its own assets to an investor in third-party transactions and includes the arranging of transactions, the provision of securitisation services and the provision of funding for clients, including clients requiring access to capital markets.

Securitisation of Westpac originated assets - Securitisation is a funding, liquidity and capital management tool. It allows Westpac the ability to liquefy a pool of assets and increase Westpac’s wholesale funding capacity. Westpac may provide arm’s length facilities to the securitisation vehicles. The facilities entered into typically include the provision of liquidity, funding, underwriting and derivative contracts.

Westpac has entered into on balance sheet securitisation transactions whereby loans originated by Westpac are transformed into stocks of saleable mortgage backed securities and held in the originating bank’s liquid asset portfolio. These ‘self securitisations’ do not change risk weighted assets¹. No securitisation transactions for Westpac originated assets are classified as a resecuritisation.

Securitisation in the management of Westpac’s credit portfolio - Westpac uses securitisation, including portfolio credit default swaps, to manage its corporate and institutional loan and counterparty credit risk portfolios. Single name credit default swaps are not treated as securitisations but as credit risk mitigation facilities. Transactions are entered into to manage counterparty credit risk or concentration risks.

Provision of securitisation services, including funding and management of conduit vehicles - Westpac provides services to clients wishing to access asset-backed financing through securitisation. Those services include access to the Asset Backed Commercial Paper market through the Waratah conduit, which is the Westpac-sponsored securitisation conduit; the provision of warehouse and term funding of securitised assets on Westpac’s balance sheet; and arranging asset backed bond issues. Westpac provides facilities to the Waratah securitisation conduit including liquidity, funding, underwriting, credit enhancement and derivative contracts.

Securitisation facilities provided by Westpac include resecuritisation exposures which are securitisation exposures in which the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is itself a securitisation exposure. Westpac also buys and sells securitisation exposures in the secondary market to facilitate portfolio management activity by its institutional customers who hold asset backed bonds.

Westpac’s role in the securitisation process

Securitisation activity	Role played by Westpac
Securitisation of Westpac originated assets	l   Arranger l   Asset originator l   Bond distributor l   Facility provider	l    Note holder l    Trust manager l    Swap provider l    Servicer
Securitisation in the management of Westpac’s credit portfolio	l   Hedger - protection purchaser l   Investor - protection seller l   Investor - purchaser of securitisation exposures

¹ The credit exposures of the underlying loans are measured in accordance with APS113.

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Securitisation

Provision of securitisation services including funding and management of conduit vehicle l   Arranger l   Bond distributor l   Credit enhancement provider l   Funder l    Liquidity facility provider l    Swap counterparty servicer l    Market maker and broker for distributed bonds

Key Objectives

Securitisation of Westpac originated assets - The securitisation of Westpac's own assets provides funding diversity, and is a core tool of liquidity management.

Securitisation in the management of Westpac’s credit portfolio - Westpac acts as principal in transactions and will buy and sell protection in order to meet its portfolio management objectives. Westpac also purchases securitisation exposures in order to earn income. All securitisation activity must follow Westpac’s credit policies and approval processes.

Provision of securitisation services including funding and management of conduit vehicles - Westpac receives market-based fees in return for its services as servicer, swap counterparty, arranger and facility provider and program fees, interest margins and bond distribution fees on warehouse and term funding facilities. Westpac facilitates portfolio management activity by its institutional customers by buying and selling securitisation exposures in the secondary market and is compensated through an interest margin and bid-offer spread on the transactions.

Structure and organisation

Securitisation of Westpac originated assets - Westpac’s Treasury operations are responsible for all Westpac originated securitisation activity including funding, liquidity and capital management.

Securitisation in the management of Westpac’s credit portfolio - Westpac’s exposure arising from securitisation, including portfolio hedging, is managed by Westpac Institutional Bank (WIB) and integrated within Westpac’s standard risk reporting and management systems.

Provision of securitisation services including funding and management of conduit vehicles - These services are provided by WIB and include the provision of liquidity, credit enhancement, funding and derivative facilities, servicer and arranger services, and market-making and broking of asset-backed bonds.

Risk reporting

Credit exposure - Funding, liquidity, credit enhancement and redraw facilities, swap arrangements and counterparty exposures are captured and monitored in key source systems along with other facilities/derivatives entered into by Westpac.

Operational risk exposure - The operational risk review process for Westpac includes the identification of risks, controls and key performance indicators in relation to all securitisation activity and services provided by Westpac or any of its subsidiaries.

Market risk exposure - Exposures arising from transactions with the securitisation conduit and other counterparties are captured as part of Westpac’s traded and non-traded market risk reporting and limit management framework.

Liquidity risk exposure - Exposure to, and the impact of, securitisation transactions are managed under the Liquidity Risk Management Framework and are integrated into routine reporting for capital and liquidity positions, net interest margin analysis, balance sheet forecasting and funding scenario testing. The annual funding plan incorporates consideration of overall liquidity risk limits and the securitisation of Westpac originated assets.

Risk mitigation

Securitisation of Westpac originated assets - The interest rate and basis risks generated by Westpac’s hedging arrangements to each securitisation trust are captured and managed within Westpac’s asset and liability management framework. The liquidity risk generated by Westpac’s liquidity and redraw facilities to each securitisation trust is captured and managed in accordance with Westpac’s liquidity management policies along with all other contingent liquidity facilities.

Securitisation in the management of Westpac’s credit portfolio - Transactions are approved in accordance with Westpac’s credit risk mitigation approach (see pages 56 and 57).

Provision of securitisation services including funding and management of conduit vehicles - All securitisation transactions are approved within the context of a securitisation credit policy that sets detailed

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Securitisation

transaction-specific guidelines that regulate servicer counterparty risk appetite, transaction tenor, asset class, third party credit support and portfolio quality. This policy is applied in conjunction with other credit and market risk policies that governs the provision of derivative and other services that support securitisation transactions. In particular, credit hedging transactions are subject to Westpac’s credit risk mitigation approach (see pages 56 and 57). Any interest rate or currency hedging is subject to counterparty credit risk management (see pages 58 and 59) and market risk management (see pages 71 and 72) policies and processes.

Regulatory capital approaches

The regulatory capital treatment of all securitisation exposures is measured in accordance with APS120. APS120 specifies that securitisation exposures held in the trading book are subject to the requirements of Prudential Standard APS 116 Capital Adequacy: Market Risk.

Under APS120 the approaches employed include the External Rating Based Approach (ERBA) and the Supervisory Formula Approach (SFA). Under the ERBA, APRA provides risk-weights that are matched to external credit ratings and takes into account tranche maturity and tranche thickness. The SFA applicable to unrated exposures dynamically looks at the type and performance of underlying asset pools funded by the securitisation exposure as well as the structural features of the transaction to determine capital requirements. The Internal Assessment Approach (IAA) is not permitted under APS120.

Securitisation of Westpac originated assets - The assets sold by Westpac to a securitisation trust are excluded from Westpac’s calculation of credit risk weighted assets if capital relief is sought and the requirements of APS120 are satisfied¹. Westpac cannot rely on external rating when risk weighting its exposure to these trusts and must use the SFA instead.

In instances where insufficient risk transfer is achieved by the transaction for regulatory purposes, the capital calculation is performed on the underlying asset pool while the facilities provided to such securitisation vehicles do not attract regulatory capital charges.

Securitisation in the management of Westpac’s credit portfolio - Securitisation exposures are assessed using either the ERBA or SFA approaches.

Provision of securitisation services including funding - Westpac uses the ERBA and the SFA methodology when determining regulatory capital requirements for warehouse and term funding facilities related to securitised assets on Westpac’s balance sheet.

The External Credit Assessment Institutions that can be used by Westpac for securitisations are Standard & Poor’s, Moody’s and Fitch.

Westpac’s accounting policies for securitisation activities

Securitisation of Westpac originated assets - The assets sold by Westpac to a securitisation trust remain on Westpac’s balance sheet for accounting purposes.

Securitisation in the management of Westpac’s credit portfolio - For risk mitigation using synthetic securitisation, the underlying assets remain on Westpac's balance sheet for accounting purposes. The accounting treatment of the assets will depend on their nature. They could include loans and receivables, available for sale securities or derivatives. The most common form of synthetic securitisation is via a credit default swap, which is treated as a derivative and recognised in the profit and loss statement at fair value.

For investment in securitisation exposures, if the instrument has been designated on initial recognition at fair value (including instruments containing a credit default swap), the exposure will be measured at fair value through the Income Statement. All other investments in securitisation exposures will be classified as available-for-sale (AFS) and measured at fair value through Other Comprehensive Income (within the AFS securities reserve).

Provision of securitisation services including funding and management of conduit vehicles - Fee income from these services is recognised on an accrual basis. Liquidity and funding facilities are treated as commitments to provide finance, with fee and margin income recognised on an accrual basis. Warehouse and term funding facilities are treated as loans.

¹ Including the requirements to achieve capital relief.

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Securitisation

Banking book summary of assets securitised by Westpac

This table shows outstanding banking book securitisation assets and assets intended to be securitised¹ for Westpac originated assets by underlying asset type. It includes the amount of impaired and past due assets, along with any losses recognised by Westpac during the current period.

Securitised assets are held in securitisation trusts. Trusts which meet requirements to achieve capital relief do not form part of the Level 2 consolidated group. Self securitisation trusts remain consolidated at Level 2 and the assets transferred to these trusts are risk weighted in accordance with APS113.

	Total outstanding securitised by ADI					Assets						Westpac
30 September 2020	Traditional			Synthetic		intended to be		Impaired		Past due		recognised
$m	Securitisation		2	Securitisation		securitised		loans		assets		losses
Residential mortgages		145,384			-		-		56		1,407		-
Credit cards		-			-		-		-		-		-
Auto and equipment finance		1,735			-		-		53		-		-
Business lending		-			-		-		-		-		-
Investments in ABS		-			-		-		-		-		-
Other		-			-		-		-		-		-
Total		147,119			-		-		109		1,407		-
		Total outstanding securitised by ADI					Assets						Westpac
31 March 2020		Traditional			Synthetic		intended to be		Impaired		Past due		recognised
$m		Securitisation	2		Securitisation		securitised		loans		assets		losses
Residential mortgages		106,523			-		-		68		838		-
Credit cards		-			-		-		-		-		-
Auto and equipment finance		2,306			-		-		38		-		-
Business lending		-			-		-		-		-		-
Investments in ABS		-			-		-		-		-		-
Other		-			-		-		-		-		-
Total		108,829			-		-		106		838		-
		Total outstanding securitised by ADI					Assets						Westpac
30 September 2019		Traditional			Synthetic		intended to be		Impaired		Past due		recognised
$m		Securitisation	2		Securitisation		securitised		loans		assets		losses
Residential mortgages		96,725			-		-		70		781		-
Credit cards		-			-		-		-		-		-
Auto and equipment finance		2,710			-		-		36		-		-
Business lending		-			-		-		-		-		-
Investments in ABS		-			-		-		-		-		-
Other		-			-		-		-		-		-
Total		99,435			-		-		106		781		-

Banking book summary of total Westpac sponsored third party assets securitised

This table represents banking book third party assets where Westpac acts as a sponsor.

$m	30 September 2020		31 March 2020		30 September 2019
Residential mortgages		113		122		310
Credit cards		-		-		-
Auto and equipment finance		-		-		-
Business lending		-		-		-
Investments in ABS		-		-		-
Other		-		-		-
Total		113		122		310

1	Represents securitisation activity from the end of the reporting period to the disclosure date of this report.
2	Includes self-securitisation assets of $138,333 million as at 30 September 2020 ($98,212 million as at 31 March 2020 and $90,184 million as at 30 September 2019).

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Securitisation

Banking book summary of securitisation activity by asset type

This table shows assets transferred into securitisation schemes by underlying asset type (ADI originated) for the relevant period.

For the 12 months ended
30 September 2020	Amount		Recognised gain or
$m	securitised		loss on sale
Residential mortgages		76,353		-
Credit cards		-		-
Auto and equipment finance		506		-
Business lending		-		-
Investments in ABS		-		-
Other		-		-
Total		76,859		-
For the 6 months ended
31 March 2020		Amount		Recognised gain or
$m		securitised		loss on sale
Residential mortgages		19,547		-
Credit cards		-		-
Auto and equipment finance		318		-
Business lending		-		-
Investments in ABS		-		-
Other		-		-
Total		19,865		-
For the 12 months ended
30 September 2019		Amount		Recognised gain or
$m		securitised		loss on sale
Residential mortgages		30,899		-
Credit cards		-		-
Auto and equipment finance		600		-
Business lending		-		-
Investments in ABS		-		-
Other		-		-
Total		31,499		-

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Banking book summary of on and off-balance sheet securitisation by exposure type

30 September 2020	On balance sheet				Off-balance		Total Exposure
$m	Securitisation retained		Securitisation purchased		sheet		at Default
Securities		-		7,650		19		7,669
Liquidity facilities		-		-		308		308
Funding facilities		2,167		-		1,589		3,756
Underwriting facilities		-		-		-		-
Lending facilities		551		-		404		956
Warehouse facilities		10,173		-		3,955		14,128
Total		12,892		7,650		6,275		26,817
31 March 2020		On balance sheet				Off-balance		Total Exposure
$m		Securitisation retained		Securitisation purchased		sheet		at Default
Securities		-		8,583		39		8,622
Liquidity facilities		-		-		306		306
Funding facilities		3,163		-		783		3,946
Underwriting facilities		-		-		-		-
Lending facilities		536		-		299		835
Warehouse facilities		10,408		-		3,980		14,388
Total		14,107		8,583		5,407		28,097
30 September 2019		On balance sheet				Off-balance		Total Exposure
$m		Securitisation retained		Securitisation purchased		sheet		at Default
Securities		-		8,685		37		8,722
Liquidity facilities		147		-		384		531
Funding facilities		2,989		-		1,054		4,043
Underwriting facilities		-		-		-		-
Lending facilities		428		-		169		597
Warehouse facilities		10,310		-		2,571		12,881
Total		13,874		8,685		4,215		26,774

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Securitisation

Banking book securitisation exposure at default by risk weight band

30 September 2020	Exposure				Total Exposure		Risk Weighted Assets				Total Risk
$m	Securitisation		Resecuritisation		at Default		Securitisation		Resecuritisation		Weighted Assets
Less than or equal to 10%		7		-		7		-		-		-
Greater than 10 - 20%		22,686		-		22,686		3,892		-		3,892
Greater than 20 - 30%		1,804		-		1,804		451		-		451
Greater than 30 - 50%		1,639		-		1,639		659		-		659
Greater than 50 - 75%		599		-		599		329		-		329
Greater than 75 - 100%		54		-		54		54		-		54
Greater than 100 - 250%		26		-		26		29		-		29
Greater than 250 - 425%		-		-		-		-		-		-
Greater than 425 - 650%		-		-		-		-		-		-
Other		-		-		-		-		-		-
Deductions		-		-		-		-		-		-
Total		26,817		-		26,817		5,413		-		5,413
31 March 2020		Exposure				Total Exposure		Risk Weighted Assets				Total Risk
$m		Securitisation		Resecuritisation		at Default		Securitisation		Resecuritisation		Weighted Assets
Less than or equal to 10%		5		-		5		-		-		-
Greater than 10 - 20%		22,579		-		22,579		3,887		-		3,887
Greater than 20 - 30%		2,787		-		2,787		680		-		680
Greater than 30 - 50%		2,109		-		2,109		814		-		814
Greater than 50 - 75%		554		-		554		306		-		306
Greater than 75 - 100%		2		-		2		2		-		2
Greater than 100 - 250%		48		-		48		57		-		57
Greater than 250 - 425%		-		-		-		-		-		-
Greater than 425 - 650%		-		-		-		-		-		-
Other		-		-		-		-		-		-
Deductions		14		-		14		-		-		-
Total		28,097		-		28,097		5,747		-		5,747
30 September 2019		Exposure				Total Exposure		Risk Weighted Assets				Total Risk
$m		Securitisation		Resecuritisation		at Default		Securitisation		Resecuritisation		Weighted Assets
Less than or equal to 10%		-		-		-		-		-		-
Greater than 10 - 20%		21,676		-		21,676		3,743		-		3,743
Greater than 20 - 30%		2,007		-		2,007		498		-		498
Greater than 30 - 50%		2,225		-		2,225		859		-		859
Greater than 50 - 75%		464		-		464		266		-		266
Greater than 75 - 100%		373		-		373		350		-		350
Greater than 100 - 250%		30		-		30		33		-		33
Greater than 250 - 425%		-		-		-		-		-		-
Greater than 425 - 650%		-		-		-		-		-		-
Other		-		-		-		-		-		-
Deductions		-		-		-		-		-		-
Total		26,774		-		26,774		5,749		-		5,749

Banking book securitisation exposure deducted from capital

$m	30 September 2020		31 March 2020		30 September 2019
Securities		-		-		-
Liquidity facilities		-		-		-
Funding facilities		-		14		-
Underwriting facilities		-		-		-
Credit enhancements		-		-		-
Derivative transactions		-		-		-
Total		-		14		-

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Pillar 3 report

Securitisation

Banking book securitisation subject to early amortisation treatment

There is no securitisation exposure in the banking book that is subject to early amortisation treatment as at 30 September 2020 (nil as at 31 March 2020).

Banking book resecuritisation exposure subject to credit risk mitigation (CRM)

As at 30 September 2020 resecuritisation exposures subject to CRM was nil (nil at 31 March 2020).

Banking book resecuritisation exposure to guarantors

Westpac has no third party guarantors providing guarantees for securitised assets, principal or interest repayments as at 30 September 2020 (nil as at 31 March 2020).

Trading book summary of assets securitised by Westpac

As at 30 September 2020 there was nil in outstanding securitisation exposures for Westpac originated assets held in the trading book (nil as at 31 March 2020).

Trading book summary of total Westpac sponsored third party assets securitised

There are no third party assets held in the trading book where Westpac is responsible for the establishment of the securitisation program and subsequent management as at 30 September 2020 (nil as at 31 March 2020).

Trading book summary of securitisation activity by asset type

There is no originated securitisation activity in the trading book for the 12 months to 30 September 2020 (nil for the 6 months to 31 March 2020).

Trading book aggregated amount of exposure securitised by Westpac and subject to APS116 Capital Adequacy: Market Risk

As at 30 September 2020 there is no Westpac originated outstanding securitisation exposure held in the trading book subject to APS116 Capital Adequacy: Market Risk (nil as at 31 March 2020).

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Securitisation

Trading book summary of on and off-balance sheet securitisation by exposure type¹

30 September 2020	On balance sheet		Off-balance	Total Exposure
$m	Securitisation retained	Securitisation purchased	sheet	at Default
Securities	-	30	-	30
Liquidity facilities	-	-	-	-
Funding facilities	-	-	-	-
Underwriting facilities	-	-	-	-
Lending facilities	-	-	-	-
Warehouse facilities	-	-	-	-
Credit enhancements	-	-	-	-
Basis swaps	-	-	103	103
Other derivatives	-	-	17	17
Total	-	30	120	150
31 March 2020	On balance sheet		Off-balance	Total Exposure
$m	Securitisation retained	Securitisation purchased	sheet	at Default
Securities	-	92	-	92
Liquidity facilities	-	-	-	-
Funding facilities	-	-	-	-
Underwriting facilities	-	-	-	-
Lending facilities	-	-	-	-
Warehouse facilities	-	-	-	-
Credit enhancements	-	-	-	-
Basis swaps	-	-	116	116
Other derivatives	-	-	16	16
Total	-	92	132	224
30 September 2019	On balance sheet		Off-balance	Total Exposure
$m	Securitisation retained	Securitisation purchased	sheet	at Default
Securities	-	44	-	44
Liquidity facilities	-	-	-	-
Funding facilities	-	-	-	-
Underwriting facilities	-	-	-	-
Lending facilities	-	-	-	-
Warehouse facilities	-	-	-	-
Credit enhancements	-	-	-	-
Basis swaps	-	-	59	59
Other derivatives	-	-	13	13
Total	-	44	72	116

Trading book securitisation exposure subject to specific risk

There is no trading book securitisation exposure subject to specific risk for 30 September 2020 (nil for 31 March 2020).

Trading book securitisation exposure subject to APS120 Securitisation specific risk by risk weight band

There is no trading book securitisation exposure subject to APS120 specific risk for 30 September 2020 (nil for 31 March 2020).

Trading book capital requirements for securitisation exposures subject to internal models approach (IMA) by risk classification

There is no trading book capital requirement for securitisation subject to IMA for 30 September 2020 (nil for 31 March 2020).

Trading book capital requirements for securitisation regulatory capital approaches by risk weight band

There is no trading book capital requirement for securitisation subject to regulatory capital approaches for 30 September 2020 (nil for 31 March 2020).

¹ EAD associated with trading book securitisation is not included in the EAD by Major Type on page 32. Trading book securitisation exposure is captured and risk weighted under APS116.

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Securitisation

Trading book securitisation exposure deducted from capital

There is no trading book capital deduction for 30 September 2020 (nil for 31 March 2020).

Trading book securitisation subject to early amortisation treatment

There is no securitisation exposure in the trading book that is subject to early amortisation treatment for 30 September 2020 (nil for 31 March 2020).

Trading book resecuritisation exposure subject to CRM

Westpac has no resecuritisation exposure subject to CRM at 30 September 2020 (nil for 31 March 2020).

Trading book resecuritisation by guarantor creditworthiness

Westpac has no third party guarantors providing guarantees for securitised assets, principal or interest repayments for 30 September 2020 (nil for 31 March 2020).

70 | Westpac Group September 2020 Pillar 3 report

Pillar 3 report

Market risk

Westpac’s exposure to market risk arises out of its Financial Markets and Treasury trading activities. This is quantified for regulatory capital purposes using both the standard method and the internal model approach, details of which are provided below.

Approach

Financial Markets’ trading activity includes dealings that encompass book running and distribution activity. The types of market risk arising from these activities include interest rate, foreign exchange, commodity, equity price, credit spread and volatility risk.

Treasury’s trading activity includes the management of interest rate, foreign exchange and credit spread risks associated with the wholesale funding book, liquid asset portfolios and foreign exchange repatriations. Treasury also manages banking book risk which is discussed in the Interest Rate Risk in the Banking Book section.

Trading activities are managed within a BRiskC approved market risk framework that incorporates BRiskC approved value at risk (VaR) and stressed value at risk (SVaR) limits. VaR and SVaR are the primary mechanisms for measuring and managing market risk. Market risk is managed using VaR, SVaR and structural risk limits (including volume limits and basis point value limits) in conjunction with scenario analysis and stress testing. Market risk limits are allocated to business management based upon Westpac’s risk appetite and business strategies, in addition to the consideration of market liquidity and concentration risk.

Trades are fair valued daily using rates that have been captured from an independent market data source that has been approved by the Revaluation Committee (RC). Where there is no source of independent rates, data will either be derived using a methodology approved by the RC or sourced from dealer contributions. Rates that are dealer-sourced or have limited independent sources are reviewed at least on a monthly basis. The RC will meet monthly to review the results of independent price verification performed by the Finance valuation function. In addition, valuation adjustments may be made as deductions from Common Equity Tier 1 Capital for exposures which are not be captured through the fair valuation framework.

VaR and SVaR limits

Market risk arising from trading book activities is primarily measured using VaR based on an historical simulation methodology. Westpac estimates VaR as the potential loss in earnings from adverse market movements and is calculated to a 99% confidence level using the most recent 12 months of historical market data. SVaR is an additional VaR measure which uses 12 months of historical market data that includes a period of significant financial stress. VaR and SVaR take account of all material market variables that may cause a change in the value of the trading portfolio, including interest rates, foreign exchange rates, price changes, volatility, and the correlation between these variables.

The BRiskC approved market risk VaR and SVaR limits for trading activities include separate VaR and SVaR sub-limits for the trading activities of Financial Markets and Treasury.

Backtesting

Daily backtesting of VaR results is performed to ensure that model integrity is maintained. A review of both the actual and potential profit and loss outcomes is also undertaken to monitor any skew created by the historical data.

Stress testing

Daily stress testing against pre-determined scenarios is carried out to analyse potential losses beyond the 99% confidence level. An escalation framework around selective stress tests is approved by the Head of Market Risk.

Profit and loss notification framework

The BRiskC has approved a profit and loss notification framework. Included in this framework are levels of escalation in accordance with the size of the profit or loss. Triggers are applied to both a 1-day and a rolling 20-day cumulative total.

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Market risk

Risk reporting

Daily monitoring of current exposure and limit utilisation is conducted independently by risk managers in the Market Risk and Treasury Risk teams, who monitor market risk exposures against VaR, SVaR and structural limits. Daily VaR and SVaR position reports are produced by risk type, by product lines and by geographic region. These are supplemented by structural risk reporting, advice of profit and loss trigger levels and stress test escalation trigger points. Model accreditation has been granted by APRA for the use of an internal model for the determination of regulatory capital for the key classes of interest rate (general market), foreign exchange, commodity and equity risks (including equity specific risk). Under the model, regulatory capital is derived from both the current VaR window (based upon the most recent 12 months of historical market data) and a SVaR window (12 months of market data that includes a period of significant financial stress), where these VaR measures are calculated over a 10-day time horizon to a 99th percentile, one-tailed confidence interval. Specific risk refers to the variations in individual security prices that cannot be explained by general market movements, and event and default risk. Interest rate specific risk capital (specific issuer risk) is calculated using the Standard method and is added to the VaR regulatory capital measure.

Risk mitigation

Market risk positions are managed by the trading desks consistent with delegated trading and product authorities. Risks are consolidated into portfolios based on product and risk type. Risk management is carried out by qualified personnel with varying levels of seniority commensurate with the nature and scale of market risks under management.

The following controls allow monitoring by management:

l trading authorities and responsibilities are clearly delineated at all levels;

l a structured system of limits and reporting of risk exposures, including stress testing;

l surveillance of dealing room conduct;

l all new products and significant product variations undergo a rigorous approval process to identify business risks prior to launch;

l models that are used to determine risk or profit and loss for Westpac’s accounts are independently reviewed;

l duties are segregated so that employees involved in the origination, processing and valuation of transactions operate under separate reporting lines, minimising the opportunity for collusion; and

l legal personnel review documentation for compliance with relevant laws and regulations.

In addition, Group Audit independently reviews compliance with policies, procedures and limits.

Market risk regulatory capital and risk weighted assets

The Internal model approach uses VaR and Stressed VaR, while the Standard approach is used for interest rate specific risk.

$m	30 September 2020	31 March 2020	30 September 2019
Internal model approach	630	571	652
Standard approach	71	101	96
Total capital required	701	672	748
Risk weighted assets	8,761	8,396	9,350

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Pillar 3 report

Market risk

VaR by risk type

30 September 2020	For the 6 months ended
$m	High		Low		Average			Period end
Interest rate risk		25.5		14.2		19.2			16.6
Foreign exchange risk		11.7		0.8		4.0			2.4
Equity risk		0.7		0.1		0.3			0.3
Commodity risk		3.4		0.6		1.6			0.9
Other market risks		28.2		14.7		22.7			20.0
Diversification benefit		NA		NA		(18.5	)		(14.9	)
Net market risk1		42.0		20.5		29.3			25.2
31 March 2020				For the 6 months ended
$m		High		Low		Average			Period end
Interest rate risk		21.7		7.0		9.9			15.4
Foreign exchange risk		11.2		0.5		3.9			1.5
Equity risk		0.4		0.0		0.1			0.4
Commodity risk		3.4		1.2		2.2			2.7
Other market risks		32.9		2.4		6.5			28.1
Diversification benefit		NA		NA		(10.9	)		(25.1	)
Net market risk1		31.8		7.1		11.6			23.0
30 September 2019				For the 6 months ended
$m		High		Low		Average			Period end
Interest rate risk		14.3		6.6		10.1			8.2
Foreign exchange risk		7.0		0.8		3.6			3.0
Equity risk		0.2		0.0		0.1			0.0
Commodity risk		42.0		1.7		8.2			2.6
Other market risks		4.6		2.8		3.7			4.0
Diversification benefit		NA		NA		(11.5	)		(8.8	)
Net market risk1		45.3		7.9		14.1			9.2

Stressed VaR by risk type

30 September 2020	For the 6 months ended
$m	High		Low		Average			Period end
Interest rate risk		76.0		41.0		58.7			42.5
Foreign exchange risk		17.4		1.5		6.3			2.5
Equity risk		0.9		0.1		0.2			0.2
Commodity risk		5.1		0.8		2.4			1.1
Other market risks		19.2		12.2		14.9			12.9
Diversification benefit		NA		NA		(72.5	)		(10.3	)
Net market risk1		94.0		40.9		68.6			49.0
31 March 2020				For the 6 months ended
$m		High		Low		Average			Period end
Interest rate risk		85.7		39.5		58.0			55.5
Foreign exchange risk		34.3		0.9		10.8			2.4
Equity risk		0.3		0.0		0.1			0.2
Commodity risk		13.1		2.2		5.0			5.9
Other market risks		23.3		16.2		18.8			19.0
Diversification benefit		NA		NA		(66.6	)		(22.5	)
Net market risk1		89.4		34.0		56.0			60.6

¹ VaR and SVaR measures shown here use a 1 day time horizon. The net market risk measure reflects the aggregate diversified risk position for the period. Therefore, individual risk factors will not sum to this total.

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Market risk

30 September 2019	For the 6 months ended
$m	High		Low		Average			Period end
Interest rate risk		93.6		38.4		57.9			48.0
Foreign exchange risk		26.2		1.4		11.4			9.3
Equity risk		0.3		0.0		0.1			0.1
Commodity risk		105.4		4.0		14.1			5.6
Other market risks		19.6		12.4		16.7			19.0
Diversification benefit		NA		NA		(89.5	)		(28.0	)
Net market risk1		106.2		37.9		56.4			54.0

Back-testing results

The following graph gives a comparison of actual profit and loss to VaR over the 6 months ended 30 September 2020.

 

Each point on the graph represents 1 day’s trading profit or loss. This result is placed on the graph relative to the associated VaR utilisation. The downward sloping line represents the point where a loss is equal to VaR utilisation.

¹ The net market risk measure reflects the aggregate diversified risk position for the period. Therefore, individual risk factors will not sum to this total.

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Pillar 3 report

Interest Rate Risk in the Banking Book (IRRBB)

Interest Rate Risk in the Banking Book (IRRBB) is the risk to interest income arising from a mismatch between the duration of assets and liabilities that arises in the normal course of banking activities.

Approach

The banking book activities that give rise to market risk include lending activities, balance sheet funding and capital management. Interest rate risk, basis risk, currency risk and funding and liquidity risk are inherent in these activities. Treasury’s Asset & Liability Management (ALM) unit is responsible for managing market risk arising from Westpac’s banking book activity.

All material regions, business lines and legal entities are included in Westpac’s IRRBB framework.

Model accreditation has been granted by APRA for the use of an internal model for the determination of IRRBB regulatory capital. Under the model, regulatory capital is primarily derived from a VaR measure using 6 years of historical data with a scaled 1 year, 99th percentile, one-tailed confidence interval. A standardised calculation of credit spread risk is added to the VaR regulatory capital measure.

Asset and liability management

The ALM unit manages the structural interest rate mismatch associated with the transfer priced balance sheet, including the investment of Westpac’s capital to its agreed benchmark duration. A key risk management objective is to achieve reasonable stability of Net Interest Income (NII) over time. These activities are performed under the oversight of ALCO and the Treasury Risk team.

Net Interest Income sensitivity

NII sensitivity is managed in terms of the net interest income-at-risk (NaR) modelled over a set time horizon using defined scenarios for movements in wholesale market interest rates. The NII measurement framework combines the underlying statement of financial position data with assumptions about runoff and new business, expected repricing behaviour and changes in wholesale market interest rates. The interest rate scenarios modelled include those projected using 100 and 200 basis point shifts up and down from current market yield curves.

A comparison between the NII outcomes from these modelled scenarios indicates the sensitivity to interest rate changes. On and off-balance sheet instruments are then used to manage this interest rate risk.

NaR limit

The BRiskC has approved a NaR limit. This limit is managed by the Group Treasurer and is expressed as a defined basis point shock over a one year risk horizon. This limit is monitored by the Treasury Risk team.

VaR limit

The BRiskC has also approved an interest rate VaR limit for ALM activities. This limit is managed by the Group Treasurer and monitored by the Treasury Risk team. Additionally, the BRiskC and the Treasury Risk team set structural risk limits to prevent undue concentration of risk

Structural foreign exchange rate risk

Structural foreign exchange rate risk results from the generation of foreign currency denominated earnings and from Westpac's capital deployed in offshore branches and subsidiaries, where it is denominated in currencies other than Australian dollars. The Australian dollar equivalent of offshore earnings and capital is subject to change as exchange rates fluctuate, which could introduce significant variability to Westpac's reported financial results. ALCO provides oversight of the appropriateness of foreign exchange hedges on earnings and capital.

Risk reporting

Interest rate risk in the banking book risk measurement systems include front office product systems, which capture all treasury funding and derivative transactions; the transfer pricing system, which captures all retail and other business transactions; and non-traded Interest Rate Risk systems, which calculate amongst other things, ALM VaR and NaR.

Daily monitoring of market risk exposure against VaR and structural risk limits is conducted independently by the Treasury Risk team, with NaR monitored on a monthly basis. Management reports detailing structural positions and VaR are produced and distributed daily for use by dealers and management across all stakeholder groups. Quarterly reports are produced for the senior management market risk forums of RISKCO and BRiskC to provide transparency of material market risks and issues.

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Interest Rate Risk in the Banking Book (IRRBB)

Risk mitigation

Market risk arising in the banking book stems from the ordinary course of banking activities, including structural interest rate risk (the mismatch between the duration of assets and liabilities) and capital management. Hedging Westpac’s exposure to interest rate risk is undertaken using derivatives. The hedge accounting strategy adopted utilises a combination of the cash flow, fair value and net investment hedge approaches. Some derivatives held for economic hedging purposes do not meet the criteria for hedge accounting as defined under AASB 139 Financial Instruments: Recognition and Measurement and therefore are accounted for in the same way as derivatives held for trading.

The same controls used to monitor traded market risk allow for continuous monitoring by management.

Change in economic value of a sudden upward and downward movement in interest rates

30 September 2020	200bp parallel			200bp parallel
$m	increase			decrease
AUD		(290.1	)		237.4
NZD		(10.0	)		12.3
USD		45.8			(54.9	)
Total		(254.3	)		194.8
31 March 2020		200bp parallel			200bp parallel
$m		increase			decrease
AUD		7.7			5.6
NZD		10.2			10.6
USD		71.1			(38.9	)
Total		89.0			(22.7	)
30 September 2019		200bp parallel			200bp parallel
$m		increase			decrease
AUD		67.9			(24.0	)
NZD		2.2			14.6
USD		70.7			(73.0	)
Total		140.8			(82.4	)

VaR results for non-traded interest rate risk¹

	For the	For the	For the
	6 months ended	6 months ended	6 months ended
	30 September	31 March	30 September
$m	2020	2020	2019
High	219.7	169.2	37.3
Low	166.9	31.0	25.2
Average	207.0	45.7	32.4
Period end	202.4	169.2	34.1

Interest rate risk in the banking book regulatory capital and risk weighted assets

	30 September	31 March	30 September
$m	2020	2020	2019
Total capital required	730	424	42
Risk weighted assets	9,124	5,305	530

¹ IRRBB VaR includes interest rate risk, credit spread risk in liquid assets and other basis risks as used for internal management reporting purposes.

76 | Westpac Group September 2020 Pillar 3 report  

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Operational risk

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal and regulatory risk but excludes strategic risk. Westpac’s operational risk definition is aligned to APS115 Capital Adequacy: Advanced Measurement Approaches to Operational Risk (AMA).

Approach

Westpac has been accredited to use the AMA in accordance with APS115. Westpac’s operational risk is measured and managed in accordance with the policies and processes defined in its Operational Risk Management Framework.

Westpac’s Operational Risk Management Framework

The Operational Risk Management Framework outlines our approach to the:

l identification, measurement and management of operational risks that may impede Westpac’s ability to achieve its strategic objectives and vision;

l identification and escalation of operational risk incidents in order to mitigate potential financial loss, regulatory impacts and reputational damage that may impact shareholders, the community, and employees; and

l calculation of operational risk capital.

The key components of Westpac’s operational risk management framework are listed below:

Governance - The governance structure provides clearly defined roles and responsibilities for overseeing and reviewing operational risk exposure and its management.

The Board and BRiskC are supported by committees, including RISKCO, that monitor the Group’s operational risk profile and the effectiveness of operational risk management practices, including operational risk capital.

Risk and Control Management (RCM) - The RCM process provides a structured approach both at a Divisional and Business Unit level for the identification, assessment and management of operational risks that could prevent Westpac from meeting its strategic and business objectives.

Issue and Action Management - The Issue and Action Management process encompasses the identification and management of issues, which relate to control deficiencies or gaps, to ensure that they are effectively addressed through action plans.

Key Indicators (KIs) - The framework defines requirements and processes for KIs, which are objective measures used by management to monitor the risk and control environment.

Incident Management - Incident management involves identifying operational risk events, capturing them in the Group’s operational risk system and escalating them to appropriate levels of management. Early identification supports the ability to mitigate any immediate impacts, address the primary cause, and devise management actions to strengthen the control environment.

Data - The framework includes principles and processes to ensure the integrity of operational risk data used to support management decision-making and calculate and allocate capital. The principles apply to the governance, input and capture, reconciliation and validation, reporting and storage of operational risk data. Operational risk data is subject to independent validation on a regular basis.

Scenario Analysis - Scenario analysis is used to assess the impacts of severe but plausible loss events and is an input to the calculation of operational risk capital.

Reporting - Regular reporting of operational risk information to governance bodies and senior management is used to support timely and proactive management of operational risk and enable transparent and formal oversight of the risk and control environment.  

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Operational risk

AMA capital model overview

Operational risk regulatory capital is calculated on a quarterly basis. Westpac’s operational risk capital is based on three data sources:

l Internal Loss Data – operational risk losses experienced by Westpac;

l External Loss Data – operational risk losses experienced by other financial institutions; and

l Scenario Data – potential losses from severe but plausible events relevant to Westpac.

These data sources together represent the internal and external operational risk profile, across the spectrum of operational risk losses, from both historical and forward-looking perspectives. The model combines these data sources to produce a loss distribution.

Expected loss offsets and risk mitigation

No adjustments or deductions are currently made to Westpac’s measurement of operational risk regulatory capital for the mitigating impacts of insurance or expected operational risk losses.

Operational Risk regulatory capital and risk weighted assets

$m	30 September 2020	31 March 2020	30 September 2019
Advanced measurement approach	2,562	2,562	2,549
Standardised approach overlay	765	765	765
Culture, Governance & Accountability Review overlay	500	500	500
AUSTRAC related overlay	500	500	-
Total capital required	4,327	4,327	3,814
Risk weighted assets	54,090	54,093	47,680

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Equity risk

Equity risk is defined as the potential for financial loss arising from movements in equity values. The disclosures in this section exclude investments in equities made by Westpac subsidiaries outside the regulatory Level 2 group.

Structure and organisation

Portfolio and transactional limits for Westpac’s direct equity investments are governed by various supporting policies and delegated approval limits. Where appropriate, the BRiskC (under delegation from the Westpac Board) will consider and approve risks beyond management’s approval authority.

Approach

Westpac has established a comprehensive set of policies defining the management of equity risk. These policies are reviewed and approved periodically (in most cases annually).

Risk mitigation

Westpac does not use financial instruments to mitigate its exposure to equities in the banking book.

Banking book positions

Hybrid equity underwriting and equity warehousing risk - As a financial intermediary Westpac underwrites listed and unlisted hybrid equity securities.

Investment securities - Westpac undertakes, as part of the ordinary course of business, certain investments in strategic equity holdings and over time the nature of underlying investments will vary.

Measurement of equity securities - Equity securities are generally carried at their fair value. Fair value for equities that have a quoted market price (in an active market) is determined based upon current bid prices. If a market for a financial asset is not active, fair value is determined based upon a valuation technique. This includes the use of recent arms-length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants to price similar instruments. In the event that the fair value of an unlisted security cannot be measured reliably, these investments are measured at cost.

Where the investment is held for long term strategic purposes, these investments are accounted for either at fair value through other comprehensive income (OCI), fair values through profit and loss, or equity accounted for and recognised as a share in associates.

Other related matters

l Fair value should not differ to the listed stock price. Should a listed stock price not be available, fair value is estimated using the valuation techniques referred to above. The book value of certain unlisted investments for which active markets do not exist are measured at cost because cost is considered to be a reasonable approximation of fair value.

l The equity method of accounting is used for investments in Associates. Associates are entities in which the Group has significant influence, but not control, over the operating and financial policies.

Risk reporting

Westpac manages equity risk in two ways, VaR limits and investment limits:

l A VaR limit (in conjunction with structural limits) is used to manage traded equity. This limit is a sub-limit of the overall VaR limit for Financial Markets trading activities. Equity trading activity is overseen by the independent Market Risk function applying the same controls used for monitoring other trading book activities in Financial Markets and Treasury; and

l Investment exposures are reported annually to MARCO.

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Equity risk

Book value of equity exposures

	30 Sep	31 March	30 September
$m	2020	2020	2019
Listed equity exposures (publicly traded)	365	199	328
Unlisted equity exposures (privately traded)	127	128	97
Total book value of equity exposures	492	327	425

Gains/losses 

	30 September	31 March	30 September
$m	2020	2020	2019
Cumulative realised gains (losses)	47	-	(2)
Total unrealised gains (losses) through profit & loss	303	(91)	(72)
Total unrealised gains (losses) through equity	-	-	-
Total latent revaluation gains (losses)	-	-	-

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Funding and liquidity risk management

Funding and liquidity risk is the risk that Westpac cannot meet its payment obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets.

Approach

Funding and liquidity risk is measured and managed in accordance with the policies and processes defined in the Board-approved Liquidity Risk Management Framework which is part of the Westpac Board-approved Risk Management Strategy.

Responsibility for managing Westpac’s liquidity and funding positions in accordance with the Liquidity Risk Management Framework is delegated to Treasury, under the oversight of Group ALCO and Treasury Risk.

Liquidity Risk Management Framework

The Liquidity Risk Management Framework sets out Westpac’s funding and liquidity risk appetite, roles and responsibilities of key people managing funding and liquidity risk within Westpac, risk reporting and control processes and limits and targets used to manage Westpac’s balance sheet. Key components of Westpac’s approach to liquidity risk management are listed below.

Funding strategy

Treasury undertakes an annual funding review that outlines Westpac’s balance sheet funding strategy over a three year period. This review encompasses trends in global markets, peer analysis, wholesale funding capacity, expected funding requirements and a funding risk analysis. This strategy is continuously reviewed to take account of changing market conditions, investor sentiment and estimations of asset and liability growth rates.

Westpac monitors the composition and stability of its funding so that it remains within its funding risk appetite. This includes compliance with both the LCR and Net Stable Funding Ratio (NSFR).

Liquid asset holdings

Westpac holds a portfolio of liquid assets for several purposes, including as a buffer against unforeseen funding requirements. The level of liquid assets held takes into account the liquidity requirements of Westpac’s balance sheet under normal and stress conditions.

Liquidity modelling

In managing liquidity for Westpac, Treasury utilises balance sheet forecasts and the maturity profile of Westpac’s wholesale funding portfolio to project liquidity outcomes. Local liquidity limits are also used by Westpac in applicable jurisdictions to ensure liquidity is managed efficiently and prudently.

In addition, Westpac conducts regular stress testing to assess its ability to meet cash flow obligations under a range of market conditions and scenarios. These scenarios inform liquidity limits and strategic planning.

Liquidity transfer pricing

Westpac has a liquidity transfer pricing framework which allocates liquidity costs across Westpac.

Contingency planning

Treasury maintains a contingent funding plan that outlines the steps that should be taken by Westpac in the event of an emerging ‘funding crisis’. The plan is aligned with Westpac’s broader Liquidity Crisis Management Policy which is approved annually by the Board.

Liquidity reporting

Daily liquidity risk reports are reviewed by the Group’s Treasury and Treasury Risk teams. Liquidity reports are presented to ALCO monthly and to the Board quarterly.

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Liquidity coverage ratio

  

Liquidity Coverage Ratio

Westpac’s LCR as at 30 September 2020 was 150%¹ (30 June 2020: 140%) and the average LCR for the quarter was 151%² (30 June 2020: 146%).

Liquid assets included in the LCR comprise High Quality Liquid Assets (HQLA), the Committed Liquidity Facility (CLF) offered by the Reserve Bank of Australia and additional qualifying Reserve Bank of New Zealand securities. LCR liquid assets also includes Westpac’s Additional Allowance of the Term Funding Facility (TFF).

Westpac’s portfolio of HQLA averaged $116.7 billion over the quarter².

Funding is sourced from retail, small business, corporate and institutional customer deposits and wholesale funding. Westpac seeks to minimise the outflows associated with this funding by targeting customer deposits with lower LCR outflow rates and actively manages the maturity profile of its wholesale funding portfolio. Westpac maintains a buffer over the regulatory minimum of 100%.

		30 September 2020		30 June 2020
$m		Total unweighted value (average)2	Total weighted value (average)2	Total unweighted value (average)2	Total weighted value (average)2
Liquid assets, of which:
1	High-quality liquid assets (HQLA)		116,687		112,215
2	Alternative liquid assets (ALA)		56,804		64,641
3	Reserve Bank of New Zealand (RBNZ) securities		8,283		8,524
Cash Outflows
4	Retail deposits and deposits from small business customers, of which:	270,996	23,802	260,515	23,415
5	Stable deposits	135,453	6,773	127,633	6,382
6	Less stable deposits	135,543	17,029	132,882	17,033
7	Unsecured wholesale funding, of which:	158,397	74,305	163,325	78,824
8	Operational deposits (all counterparties) and deposits in networks for cooperative banks	71,549	17,809	65,410	16,277
9	Non-operational deposits (all counterparties)	76,666	46,314	86,445	51,077
10	Unsecured debt	10,182	10,182	11,470	11,470
11	Secured wholesale funding		-		-
12	Additional requirements, of which:	196,312	26,567	197,854	30,143
13	Outflows related to derivatives exposures and other collateral requirements	11,275	11,275	15,071	15,071
14	Outflows related to loss of funding on debt products	516	516	546	546
15	Credit and liquidity facilities	184,521	14,776	182,237	14,526
16	Other contractual funding obligations	185	185	324	324
17	Other contingent funding obligations	39,767	3,379	38,670	3,331
18	Total cash outflows		128,238		136,037
Cash inflows
19	Secured lending (e.g. reverse repos)	9,270	-	5,906	-
20	Inflows from fully performing exposures	8,831	5,304	10,458	6,216
21	Other cash inflows	2,604	2,604	2,791	2,791
22	Total cash inflows	20,705	7,908	19,155	9,007
23	Total liquid assets		181,774		185,380
24	Total net cash outflows		120,330		127,030
25	Liquidity Coverage Ratio (%)		151%		146%
	Number of data points used		66		63

1	Calculated as total liquid assets divided by total net cash outflows.
2	Calculated as a simple average of the daily observations over the quarter.

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Net stable funding ratio

Net Stable Funding Ratio (NSFR) disclosure

The NSFR is a structural measure which requires that a bank has sufficient Available Stable Funding (ASF) to cover its Required Stable Funding (RSF) over a one year horizon. Westpac’s NSFR as at 30 September 2020 was 121.7%¹ (30 June 2020 116.1%). Westpac maintains a buffer over the regulatory minimum of 100%.

		Unweighted value by residual maturity				Weighted value
30 September 2020 $m		No maturity	< 6 months	6 months to < 1yr	> 1 year
Available Stable Funding (ASF) Item
1	Capital	66,967	1,324	-	19,991	88,282
2	Regulatory capital	66,967	1,324	-	19,991	88,282
3	Other capital instruments	-	-	-	-	-
4	Retail deposits and deposits from small business customers	261,705	85,738	331	171	321,178
5	Stable deposits	134,311	25,886	9	13	152,209
6	Less stable deposits	127,394	59,851	322	158	168,969
7	Wholesale funding	129,787	144,610	25,227	123,583	213,714
8	Operational deposits	73,063	-	-	-	36,532
9	Other wholesale funding	56,724	144,610	25,227	123,583	177,183
10	Liabilities with matching interdependent assets	-	-	-	-	-
11	Other liabilities	-	27,825	370	737	922
12	NSFR derivative liabilities		4,529
13	All other liabilities and equity not included in the above categories	-	23,296	370	737	922
14	Total ASF					624,097
Required Stable Funding (RSF) Item
15a)	Total NSFR (High quality liquid assets - HQLA)					4,291
15b)	Alternate Liquid Assets (ALA)					7,166
15c)	Reserve Bank of New Zealand (RBNZ) securities					193
16	Deposits held at other financial institutions for operational purposes	-	-	-	-	-
17	Performing loans and securities	801	63,818	44,174	546,313	451,519
18	Performing loans to financial institutions secured by Level 1 HQLA	500	19,902	-	-	2,490
19	Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions	301	3,827	5,528	10,462	14,101
20	Performing loans to nonfinancial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and public sector entities (PSEs), of which:	-	31,673	29,873	125,208	136,981
21	With a risk weight of less than or equal to 35% under APS 112	-	38	29	1,095	745
22	Performing residential mortgages, of which:	-	7,810	8,173	407,247	294,483
23	With a risk weight equal to 35% under APS 112	-	7,183	7,514	360,838	253,645
24	Securities that are not in default and do not qualify as HQLA, including exchange-traded equities	-	607	600	3,397	3,464
25	Assets with matching interdependent liabilities	-	-	-	-	-
26	Other assets:	11,520	21,306	729	20,400	39,663
27	Physical traded commodities, including gold	-				-
28	Assets posted as initial margin for derivative contracts and contributions to default funds of central counterparties (CCPs)		2,323			1,975
29	NSFR derivative assets		6,863			2,334
30	NSFR derivative liabilities before deduction of variation margin posted		8,822			1,764
31	All other assets not included in the above categories	11,520	3,299	729	20,400	33,590
32	Off-balance sheet items		189,536			9,824
33	Total RSF					512,656
34	Net Stable Funding Ratio (%)					121.7%

¹ Calculated as total available stable funding divided by total required stable funding as at end of the quarter.

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Net stable funding ratio

		Unweighted value by residual maturity				Weighted value
30 June 2020 $m		No maturity	< 6 months	6 months to < 1yr	> 1 year
Available Stable Funding (ASF) Item
1	Capital	66,884	-	1,324	20,736	88,945
2	Regulatory capital	66,884	-	1,324	20,736	88,945
3	Other capital instruments	-	-	-	-	-
4	Retail deposits and deposits from small business customers	245,151	90,031	309	215	309,700
5	Stable deposits	124,060	26,806	9	15	143,346
6	Less stable deposits	121,091	63,224	300	200	166,354
7	Wholesale funding	127,448	155,220	28,172	117,685	209,110
8	Operational deposits	72,010	-	-	-	36,005
9	Other wholesale funding	55,438	155,220	28,172	117,685	173,105
10	Liabilities with matching interdependent assets	-	-	-	-	-
11	Other liabilities	-	28,733	700	484	834
12	NSFR derivative liabilities		5,986
13	All other liabilities and equity not included in the above categories	-	22,747	700	484	834
14	Total ASF					608,589
Required Stable Funding (RSF) Item
15a)	Total NSFR (High quality liquid assets - HQLA)					4,495
15b)	Alternate Liquid Assets (ALA)					7,310
15c)	Reserve Bank of New Zealand (RBNZ) securities					224
16	Deposits held at other financial institutions for operational purposes	-	-	-	-	-
17	Performing loans and securities	1,103	49,608	40,685	560,496	462,089
18	Performing loans to financial institutions secured by Level 1 HQLA	911	4,574	-	-	1,368
19	Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions	192	3,875	5,160	11,799	15,153
20	Performing loans to nonfinancial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and public sector entities (PSEs), of which:	-	32,596	26,822	132,784	142,383
21	With a risk weight of less than or equal to 35% under APS 112	-	170	293	962	857
22	Performing residential mortgages, of which:	-	7,777	8,128	412,001	299,203
23	With a risk weight equal to 35% under APS 112	-	7,158	7,469	364,486	257,329
24	Securities that are not in default and do not qualify as HQLA, including exchange-traded equities	-	786	575	3,912	3,982
25	Assets with matching interdependent liabilities	-	-	-	-	-
26	Other assets:	11,417	30,082	557	20,427	39,755
27	Physical traded commodities, including gold	-				-
28	Assets posted as initial margin for derivative contracts and contributions to default funds of central counterparties (CCPs)		2,137			1,816
29	NSFR derivative assets		7,076			1,089
30	NSFR derivative liabilities before deduction of variation margin posted		17,592			3,518
31	All other assets not included in the above categories	11,417	3,277	557	20,427	33,331
32	Off-balance sheet items		186,240			10,461
33	Total RSF					524,334
34	Net Stable Funding Ratio (%)					116.1%

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Remuneration

Employees subject to the remuneration disclosure requirements under APS 330 Attachment G are:

l Senior managers¹: There are 32 employees identified by the Westpac Group Fit & Proper Policy as responsible persons. These employees include the most senior executives of Westpac and other senior employees with particular management responsibilities as set out under paragraph 25 of APRA Prudential Standard CPS 520 Fit and Proper; and

l Material risk takers: In addition to the senior managers, there are 7 employees who have been assessed as having the ability to affect the financial soundness of Westpac as an Authorised Deposit-taking Institution. These are employees with senior accountability and authority who can influence Westpac’s capital and/or liquidity, take operational risk, influence compliance risk, influence financial crime risk, influence insurance risk, take market risk positions, and/or approve large credit exposures or programs.

Qualitative disclosures

Westpac Group Remuneration Policy

The Group Remuneration Policy sets out the mandatory requirements to be reflected in the design and management of remuneration arrangements across Westpac. Westpac’s purpose is to help Australians and New Zealanders succeed. The policy supports Westpac’s purpose by requiring the design and management of remuneration to align with stakeholder interests, support long-term financial soundness and encourage prudent risk management.

The policy applies to all legal entities, business units and employees of Westpac and its related bodies corporate² (except temporary and casual employees).

The policy is reviewed by the Board Remuneration Committee (BRC) on a regular basis. The policy was last approved by the Westpac Board in May 2018. The policy was updated and reviewed by the BRC in September 2019 to include amendments in relation to Westpac’s approach to remuneration adjustments, amendments to the arrangements for front line staff (including the addition of a requirement for an annual review of the design and implementation of remuneration systems) and other minor administrative updates.

Reward strategy and 2020 framework

Westpac’s remuneration strategy is designed to attract and retain talented employees by rewarding them for achieving high performance and delivering superior long-term results for our customers and shareholders, while adhering to sound risk management and governance principles.

Senior managers and material risk takers are rewarded based on a total reward framework which is designed to:

l align remuneration with customer and shareholder interests;

l support an appropriate risk culture and employee conduct;

l differentiate pay for behaviour and performance in line with our purpose and strategy;

l provide market competitive and fair remuneration;

l enable recruitment and retention of talented employees;

l provide the ability to risk-adjust remuneration; and

l be simple, flexible and transparent.

For senior managers and material risk takers at or above the General Manager level, the total reward framework has three components: fixed remuneration, Short Term Variable Reward (STVR) and Long Term Variable Reward (LTVR), as outlined in the table below. The total reward framework is benchmarked against other financial services companies both in Australia and internationally, as relevant.

1	The senior manager definition utilised in these disclosures reflects the APRA reference to “responsible person” under paragraph 57(a) of Prudential Standard CPS 510 Governance. The Westpac equivalent is the CEO, Group Executives and certain General Managers designated as responsible persons in the Authorised Deposit-taking Institution.
2	This policy does not extend to any related bodies corporate which are separately listed on the Australian Securities Exchange.

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Remuneration

	Fixed remuneration	Variable reward
		STVR	LTVR
Purpose	Attract and retain high quality employees.	Ensure a portion of remuneration is variable, at-risk and linked to the delivery of agreed plan targets for financial and non-financial measures that support Westpac’s strategic priorities.	Align accountability and remuneration with the long-term interests of shareholders.
Delivery	Fixed remuneration comprises cash salary, salary sacrificed items, and employer superannuation contributions.	STVR is awarded in cash and restricted shares1 based on an assessment of performance over the preceding year. Performance is assessed against a balanced scorecard comprising: l     financial and non-financial measures linked to the Group’s strategic priorities; and l     a modifier to support adjustment of the outcome, upwards or downwards (including to zero), for behaviour, risk and reputation matters, people management matters and any other matters as determined by the Board. Restricted shares vest in portions reflecting the scope and nature of an individual’s role and responsibility, subject to continued service and adjustment. The maximum STVR opportunity for these employees is capped.	LTVR comprises: l    for Group Executives, performance share rights which vest after four years subject to the achievement of a relative Total Shareholder Return (TSR) performance hurdle, continued service and adjustment; and l   for General Managers, restricted shares or share rights without performance hurdles, subject to continued service and adjustment.

Eligible employees may receive an annual award of Westpac ordinary shares up to the value of $1,000 under the Employee Share Plan. Employees who received an equity award during the year, for example, as deferred STVR or LTVR, are not eligible to receive an Employee Share Plan award for that year.

The target mix of fixed and variable reward varies across employees and groups of employees. Factors that can influence the mix include the role type, regulatory requirement of the role, level of responsibility of the individual, market benchmarks and performance.

Fixed remuneration

Fixed remuneration is aligned to the market and reviewed annually. It takes into account the size, responsibilities and complexity of the role, as well as the skills and experience of the employee.

Fixed remuneration comprises:

l cash salary;

l salary sacrificed items; and

l superannuation or superannuation equivalent contributions for employees in Australia, New Zealand and some other countries in which we operate.

Variable reward

Variable reward is designed to:

l encourage employee conduct aligned to customer interests;

l support Westpac’s long term financial soundness and risk management framework;

l align remuneration with prudent risk-taking and allow for adjustments to reflect the outcomes of business activities, the risks related to business activities (taking account of the cost of the associated capital, where relevant) and the time necessary for outcomes to be reliably measured;

l allow for an adjustment by an amount that is proportionate to the failure of an Accountable Person² to comply with their accountability obligations under the Banking Executive Accountability Regime; and

l reflect Australian and international regulatory requirements.

1	Deferred STVR is awarded in unhurdled share rights to some employees outside Australia.
2	As defined in the Banking Act 1959 excluding Non-executive Directors.

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There are two forms of variable reward:

Short Term Variable Reward

l Performance is measured against risk-adjusted financial and non-financial measures that support the Group's strategy to determine the size of the award.

l STVR is awarded in cash and, if STVR is above the deferral thresholds, a portion of the STVR is allocated as restricted shares or unhurdled share rights. Information on the deferral framework is set out in the table below.

Long Term Variable Reward

l The CEO and Group Executives receive annual LTVR awards in the form of performance share rights which vest after four years subject to the achievement of one or more performance hurdles, continued service and adjustment.

l The CEO and Group Executives only receive value from their LTVR awards where vesting occurs. The performance hurdle for the grants of performance share rights allocated in December 2019 is relative TSR.

l A performance share right is not a Westpac share and does not attract the payment of dividends.

l Senior managers and material risk takers at the General Manager level receive annual LTVR awards in the form of restricted shares under the Restricted Share Plan or unhurdled share rights under the Westpac Performance Plan.

The size of the award is set with reference to market benchmarks, individual performance over time, succession potential and key skills.

Employees are required to comply with risk management and compliance requirements as they apply to their particular role and business. Failure to meet these requirements will impact remuneration, including eligibility for a fixed pay adjustment and variable reward participation.

Deferral

All employees who receive an STVR award above a certain threshold have a portion of the award deferred. Deferral arrangements depend on the value of the award and the level and type of role. The table below sets out the variable reward deferral arrangements for senior managers and material risk takers.

Role Type	Deferral Arrangement1
CEO and Group Executives	l    50% of any STVR is deferred equally over two years
General Managers	l    40% of any STVR is deferred equally over two years
General Managers in Westpac Institutional Bank and Treasury	l    40% of any STVR is deferred for four years l    50% deferral for portion of allocation above $500,000, vesting in full after four years
Westpac Institutional Bank and Treasury employees	l    25% deferral where STVR allocation is $150,000 or greater, vesting equally over three years l    50% deferral for portion of allocation above $500,000, vesting equally over three years l    70% deferral for portion of allocation above $2,000,000, vesting equally over three years
Other employees	l    25% deferral where STVR allocation is $150,000 or greater, vesting equally over two years l    50% deferral for portion of allocation above $500,000, vesting equally over two years l    70% deferral for portion of allocation above $2,000,000, vesting equally over two years

STVR deferral periods are set within the context of the market and the overall Group risk profile. The STVR deferral period for employees in Westpac Institutional Bank and Treasury is longer than the rest of the Group.

STVR is deferred into equity in the form of restricted Westpac ordinary shares (for Australian based employees) or Westpac share rights (for employees outside Australia).

By deferring a portion of the STVR as restricted equity, STVR awards are better aligned with the interests of shareholders as the ultimate value of the deferred portion is tied to the share price at the end of the restriction period.

The deferral framework provides the ability to reduce unvested STVR, including to zero, if:

l having regard to circumstances or information which has come to light after the grant of the award, all or part of the initial award was not justified;

l necessary to protect the financial soundness of Westpac or to respond to significant unexpected or unintended consequences that were not foreseen; and/or

l an accountable person has failed to comply with their accountability obligations under the Banking Executive Accountability Regime (BEAR).

¹ Thresholds shown in dollars apply to Australia and New Zealand.

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Remuneration governance

The Group Remuneration Policy is supported by an established governance structure, plans and frameworks that are designed to support remuneration decision-making across the Group.

Board
The Board provides strategic guidance for the Group and has oversight of management’s implementation of Westpac’s strategic initiatives. The Board has overall accountability for reviewing and approving remuneration for select groups of employees. Without limiting its role, the Board approves (following recommendation from the Board Remuneration Committee, where applicable) corporate goals and objectives relevant to the remuneration of the CEO, the size of variable reward pools, adjustments to variable remuneration (including forfeiture and clawback) in accordance with the Group Remuneration Policy, remuneration (including variable reward targets and performance outcomes) for the CEO, Group Executives, other executives who report directly to the CEO, any other accountable persons under the BEAR, other persons whose activities in the Board’s opinion affect the financial soundness of the Group, any other person specified by the Australian Prudential Regulation Authority and any other person the Board determines. The Board has the discretion to defer, adjust or withdraw aggregate and individual variable reward.   Further detail is contained in the Board and Committee Charters which are available on Westpac’s website.
Board Remuneration Committee
The Board Remuneration Committee assists the Board to discharge its responsibility by overseeing remuneration policies and practices of Westpac and its related bodies corporate in the context that these policies and practices fairly and responsibly reward individuals having regard to performance, and reflect Westpac’s risk management framework, the law and the highest standard of governance.   The Board Remuneration Committee reviews and makes recommendations to the Board in relation to the Westpac Group Remuneration Policy, the individual remuneration levels of the individuals outlined above, the remuneration structures for each category of persons covered by the Group Remuneration Policy, STVR and LTVR plans and outcomes and adjustments (including forfeiture and clawback) for the Group Executives, any other accountable persons under the BEAR and any other person the Board determines, as well as corporate goals and objectives relevant to the remuneration of the CEO and approving any and all equity based plans and overseeing general remuneration practices across Westpac. In carrying out its duties, the Board Remuneration Committee accesses risk and financial control personnel and engages external advisers who are independent of management. Members of the Board Remuneration Committee are independent Non-executive Directors. Further detail is contained in the Board Remuneration Committee Charter which is available on Westpac’s website. There were six Board Remuneration Committee meetings held during the financial year ended 30 September 2020 (FY20). The FY20 Board Remuneration Committee Chairman fee was $63,800 and the FY20 base fee for Board Remuneration Committee members was $29,000.
Interaction with other Board Committees	Management remuneration oversight committees
Members of the Board Remuneration Committee are all members of either the Board Risk Committee or the Board Legal, Regulatory & Compliance Committee. The cross membership of those Committees supports alignment between risk and reward. The Board Remuneration Committee seeks feedback from and considers matters raised by the Board Risk Committee, the Board Legal, Regulatory & Compliance Committee and the Board Audit Committee with respect to remuneration outcomes, adjustments to remuneration in light of relevant matters and alignment of remuneration with the risk management framework.	Divisional and functional remuneration oversight committees consider areas of risk and consider potential implications for remuneration. These committees report to the Group Remuneration Oversight Committee which in turn considers consistency of remuneration across the Group and provides information to the Board Remuneration Committee and Board for review and decision-making as appropriate. During the financial year, remuneration governance arrangements were reviewed and minor changes were made to enhance the Terms of Reference for the Group Remuneration Oversight Committee.
Remuneration consultants
In 2020, the Board retained Guerdon Associates to provide specialist information on executive remuneration and other remuneration matters. The services were provided directly to the Board Remuneration Committee independent of management. The Chairman of the Board Remuneration Committee oversees the engagement and associated costs. Work undertaken by Guerdon Associates during 2020 included the provision of information relating to the benchmarking of Non-executive Director, CEO and Group Executive remuneration as well as modelling and analysis of alternative remuneration structures for the CEO and Group Executives.  In 2020, no remuneration recommendations, as prescribed under the Corporations Act 2001 (Cth) (Corporations Act), were made by Board advisors.

Independence of risk and financial control employees 

The Group follows a process of ‘two-up’ approval for all remuneration decisions. This means that remuneration is approved by the next most senior person above the employee’s manager.  

This concept is also reflected in our requirement for the Board, based on recommendations from the Board Remuneration Committee, to approve performance outcomes and remuneration for specified groups including the CEO and Group Executives and other persons whose activities in the Board’s opinion may affect the financial soundness of the Group and any other person specified by APRA. 

To supplement the ‘two-up’ approval requirement, variable reward and scorecards for risk and financial control employees at the General Manager level must be reviewed by the respective Group Executive, i.e. the Chief Risk Officer, or the Chief Financial Officer to ensure independence is not compromised.

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Variable reward for risk and financial control employees below General Manager level must also be reviewed by the respective Risk/Compliance/Finance function General Managers to ensure they are rewarded independently of the businesses they oversee.  

Remuneration and risk  

Westpac’s remuneration strategy, total reward framework, policies and practices reflect the sound risk management that is fundamental to the way the Group operates. Westpac integrates risk management into remuneration by designing and managing arrangements in a manner that encourages behaviour that supports our long term financial soundness and risk management framework.

The performance of the Group and each division is reviewed and measured with reference to how risk is managed in line with Westpac’s Risk Appetite Statement and the results influence remuneration outcomes. The key risks that are considered include capital, credit, market, equity, liquidity, insurance, risk culture, financial crime, reputation and sustainability, conduct, operational and compliance risk. In addition, STVR outcomes are influenced by relevant risk-related matters through the Board’s application of the scorecard modifier, which is informed by risk and compliance input independent of the business or functional area.

The deferral framework provides consistency across the Group and enhances our remuneration framework from a risk management perspective. The deferral framework provides the Board with the ability to adjust all forms of unvested deferred variable reward downwards, including to zero, if having regard to circumstances or information which has come to light after the grant of the deferred equity or cash, all or part of the initial award was not justified.

In addition, failure to meet mandatory risk management and compliance requirements impacts eligibility for a fixed pay adjustment and variable reward participation, and may result in disciplinary action and/or termination of employment.

Remuneration adjustments for prior period matters 

The Board may adjust all forms of unvested deferred variable reward downward, including to zero, for matters arising from a prior period if circumstances or information come to light which mean that in the Board’s view all or part of the award was not appropriate. Having decided that a downward adjustment is appropriate and determined the amount of any adjustment, typically the Board will first apply that adjustment against the STVR for the current performance period. In instances where an adjustment to current year STVR is insufficient or unavailable, the Board may apply the adjustment to unvested deferred variable reward.

Clawback provides an additional mechanism to recover vested deferred variable reward in certain limited circumstances for awards made in respect of performance periods commencing on or after 1 October 2019. It is the Board’s current intention that clawback will only be considered for relevant conduct that occurred on or after 1 October 2019.

Variable reward pool 

The Board determines the size of the variable reward pool each year. This is based on the Group’s performance for the year and an assessment of how profit should be shared between shareholders and employees while retaining sufficient capital for growth.

The pool reflects financial performance. A broad range of financial and non-financial risk measures and customer outcomes may also be taken into account when allocating the pool.

Scorecards 

STVR awards are determined with reference to an assessment of performance.

For FY20, the CEO, Group Executives and General Managers performance was assessed against a scorecard split into two sections.

l Focus areas: Consideration of financial and non-financial measures aligned to Westpac’s key strategic priorities to support an initial scorecard result. In assessing outcomes for each focus area, a number of factors are taken into account. For example:

o matters not known or not relevant at the beginning of the performance period which are relevant to the under or over performance of the employee over the performance period;

o the degree of difficulty associated with achieving the targets that had been set in the scorecard (and the context of those targets);

o whether the budgetary assumptions that were present when performance targets were set remain correct (and the current financial environment compared with those assumptions); and

o comparisons with the performance of Westpac’s main competitors having regard to major shareholder and customer benchmarks as well as the composition and/or consistency of financial result performance.

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l Modifier: Consideration of significant matters not fully reflected in the focus areas, including behaviour, risk and reputation measures, and people management matters, and any other matters as determined by the Board, to support the adjustment of the overall scorecard result, upwards or downwards (including to zero).

 The table below sets out the focus areas of the Group scorecard for FY20 which forms part of the CEO scorecard. 

Category	Weighting	Examples of measures1
Group financial performance	40%	l   Group cash ROE l   Group core earnings growth (cash earnings basis) l   Group cash earnings growth
Balance sheet risk management	10%	l   Performance relative to Group Risk Appetite Statement including as measured by capital, funding and liquidity management
Risk management	20%	l   Culture, Governance and Accountability programme delivery l   Remediation programme delivery l   Risk management capability and culture, and financial crime capability
Customer franchise	10%	l   Net promoter score l   Improvements in addressing root causes of customer pain points
Digital transformation	10%	l   Customer Service Hub programme delivery l   Improvements in digital bank offering
Operating model	10%	l   Lines of Business programme delivery l   Culture roadmap programme delivery l   Digital partnership delivery

Westpac’s strategic priorities are cascaded from the CEO’s scorecard to the scorecards of senior managers and material risk takers in combination with other divisional or functional measures which support the Group’s strategic short and long term goals. Weightings and measures reflect individual roles. 

The FY20 CEO scorecard was updated to place greater weighting on risk management and to align with Westpac’s strategic priorities including supporting delivery of initiatives focused on risk, culture, accountability, remediation and reputation as well as enhancing focus on delivering non-financial risk outcomes. Non-financial risk was moved into the modifier given the significant impact that can arise. The impact of these changes on remuneration was informed by Group and individual performance in these areas. 

Scorecard focus areas for senior managers and material risk takers are consistent with that of the CEO’s: 

l Performance measures such as Westpac Group and divisional cash earnings, Return on Tangible Equity, core earnings growth, expense to income and expense management accounted for up to 40% of senior managers’ scorecards.

l The CEO and each senior manager are assessed on specific risk measures that may influence any discretionary adjustment to the scorecard.

l Scorecards for material risk takers at the General Manager level also include risk measures related to financial risk and balance sheet management with non financial risk included in the modifier section of the scorecard. Metrics include the common equity tier 1 ratio, the net stable funding ratio and the liquidity coverage ratio.

l Senior Managers and material risk takers below the General Manager level have similar measures however there are no standardised percentage weightings for specific goals.

¹ Individual measures will differ for each senior manager.

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Quantitative Disclosures

For FY20, three senior managers received payments totaling $533,180, $224,000 and $100,000 respectively reflecting annual incentives foregone from their previous employers on appointment to Westpac. Three other senior managers received termination payments of $824,437, $116,636 and $235,414 on their termination from Westpac. No senior manager or material risk taker received a guaranteed bonus in FY20.

Deferred remuneration

	30 September 2020				30 September 2019
$000	Total amount oustanding1	Paid out in financial year	Explicit reductions2	Implicit reductions3	Total amount oustanding1	Paid out in financial year	Explicit reductions2	Implicit reductions3
Senior managers	54,255	10,639	(40,047)	(40,295)	124,084	10,301	(16,583)	-
Material risk takers	9,343	7,498	(1,089)	(6,939)	21,130	5,943	(1,033)	-

Total value of remuneration awards for the current financial year for senior managers and material risk takers⁴

	30 September 2020				30 September 2019
	Senior managers		Material risk takers		Senior managers		Material risk takers
$000	Unrestricted	Deferred	Unrestricted	Deferred	Unrestricted	Deferred	Unrestricted	Deferred
Fixed remuneration
- Cash based5	26,204	-	4,861	-	22,191	-	6,140	-
- Shares and share-linked instruments	-	-	-	-	-	-	-	-
- Other6	1,458	-	369	-	1,084	-	363	-
Variable remuneration7
- Cash based8	354	-	4,315	-	5,017	-	6,225	-
- Shares and share-linked instruments9	-	6,885	-	5,426	-	25,504	-	9,297
- Other	-	-	-	-	-	-	-	-

1	Value of unvested holdings at 30 September. All outstanding deferred remuneration is subject to either explicit or implicit adjustments.
2	The FY20 explicit adjustment reflects testing of the EPS and TSR hurdles on 1 October 2019. Explicit adjustments may also include malus, clawback or similar reversals or downward revaluations of awards.
3	Implicit adjustments include fluctuations in the value of shares or performance units during the year
4	Prepared in accordance with APS330 Table 22A and accounting standard AASB 2, consistent with the process for the Annual Report.
5	Cash based fixed remuneration is the total cost of salary, salary sacrificed benefits (including motor vehicles, parking, etc. and any associated fringe benefits tax) and an accrual for annual leave entitlements.
6	Other fixed remuneration relates to post-employment benefits. Senior managers and material risk takers are provided with insurance cover under the Westpac Group Plan at no cost. Superannuation benefits have been calculated consistent with AASB 119.
7	3 of 32 senior managers and 6 of 7 material risk takers received variable reward in respect of FY20. 29 of 29 senior managers and all 10 material risk takers received variable reward in respect of FY19.
8	Cash based variable reward reflects annual cash performance awards accrued but not yet paid in respect of the year ended 30 September.
9	Shares and share-linked instruments are amortised over the vesting period and the amount shown is the amortisation relating to the reporting year, consistent with the relevant Annual Report.

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Appendix I | Regulatory capital reconciliation

Balance Sheet Reconciliation

30 September 2020 $m	Group Balance Sheet	Adjustment	Level 2 Regulatory Balance Sheet	Reconciliation Table Capital Disclosure Template
Assets
Cash and balances with central banks	30,129	(151)	29,978
Collateral paid	4,778	-	4,778
Due from subsidiaries	-	441	441
Trading securities and financial assets measured at fair value through income statement (FVIS)	40,667	(370)	40,297
Derivative financial instruments	23,367	-	23,367
Available-for-sale securities	-	-	-
Investment securities	91,539	(77)	91,462
Loans	693,059	-	693,059
Other financial assets	5,474	(227)	5,247
Current tax assets	-	-	-
Life insurance assets	3,593	(3,593)	-
Investments in associates	61	-	61
Property and equipment	3,910	(4)	3,906
Deferred tax assets	3,064	(101)	2,963	Table a
Intangible assets	11,497	(293)	11,204	Table b
Investments in life & general insurance, funds management & securitisation entities	-	1,941	1,941	Table c
Other assets	808	(350)	458
Total assets	911,946	(2,784)	909,162
Liabilities
Collateral received	2,250	-	2,250
Due to subsidiaries	-	1,285	1,285
Deposits and other borrowings	591,131	-	591,131
Other financial liabilities	40,925	(411)	40,514
Derivative financial instruments	23,054	-	23,054
Debt issues	150,325	-	150,325
Current tax liabilities	70	(9)	61
Life insurance liabilities	1,396	(1,396)	-
Provisions	5,287	(66)	5,221
Deferred tax liabilities	126	(47)	79
Loan capital	23,949	-	23,949	Table d and e
Other liabilities	5,359	(965)	4,394
Total liabilities	843,872	(1,609)	842,263
Equity
Ordinary share capital	40,509	-	40,509	Row 1
Treasury shares and RSP treasury shares	(563)	-	(563)	Table f
Reserves	1,544	(49)	1,495	Table g
Retained Profits	26,533	(1,132)	25,401	Row 2
Non-controlling interests	51	6	57
Total equity	68,074	(1,175)	66,899

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Appendix I | Regulatory capital reconciliation

$m	30 September 2020	Capital Disclosure Template Reference
Table a
Deferred Tax Assets
Total Deferred Tax Assets per level 2 Regulatory Balance Sheet	2,963
Deferred tax asset adjustment before applying prescribed thresholds	2,963	Row 26e
Less: Amounts below prescribed threshold - risk weighted	(2,963)	Row 75
Total per Capital Disclosure Template - Deferred Tax Asset	-	Row 21 / 25
$m	30 September 2020	Capital Disclosure Template Reference
Table b
Goodwill and other intangible assets
Total Goodwill and Intangibles Assets per level 2 Regulatory Balance Sheet	11,204
Less: Capitalised Software Disclosed Under Intangibles	(2,137)	Row 9
Total per Capital Disclosure Template - Goodwill	9,067	Row 8
$m	30 September 2020	Capital Disclosure Template Reference
Table c
Equity Investments
Significant Investment in financial entities	369
Equity Investments in non-consolidated subsidiaries	1,941
Total Significant Investment in financial entities	2,310	Row 73
Non-significant Investment in financial entities	55	Row 72
Total Investments in financial institutions	2,365	Row 26d
Investment in commercial entities	68	Row 26g
Total Equity Investments before applying prescribed threshold	2,433
Less: Amounts below prescribed threshold	(2,433)
Total per Capital Disclosure Template - Equity Investments	-	Row 18/ 19/ 23
$m	30 September 2020	Capital Disclosure Template Reference
Table d
Additional Tier 1 Capital
Total Loan Capital per Level 2 Regulatory Balance Sheet	23,949
Less: Tier 2 Capital Instruments Reported Below	(14,585)
Add: Capitalised Issue Costs for Additional Tier 1 Capital Instruments1	52
Less: Fair Value Adjustment2	(210)
Total per Capital Disclosure Template - Tier 1 Capital	9,206	Row 36
Additional Tier 1 Capital included in Regulatory Capital
Westpac Capital Notes 2	1,311
Westpac Capital Notes 3	1,324
Westpac Capital Notes 4	1,702
Westpac Capital Notes 5	1,690
Westpac Capital Notes 6	1,423
SEC Registered Capital Securities	1,756
Total Basel III complying instruments	9,206	Row 30
Total Basel III non complying instruments	-	Row 33
Total per Capital Disclosure Template - Additional Tier 1 Capital Instruments	9,206	Row 36

1	Unamortised issue costs relating to capital instruments are netted off against each instrument in the Balance Sheet. For regulatory capital purposes, these capital instruments are shown gross of unamortised issue costs. The unamortised issue costs are deducted from CET1 as part of capitalised expenses in Row 26f in the capital disclosure template.
2	For regulatory capital purposes, APRA requires these instruments to be included as if they were unhedged.

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Appendix I | Regulatory capital reconciliation

$m	30 September 2020	Capital Disclosure Template Reference
Table e
Tier 2 Capital
Total Tier 2 Capital per Level 2 Regulatory Balance Sheet	14,585
Add: Capitalised Issue Costs for Tier 2 Capital Instruments1	-
Less: Fair Value Adjustment2	(930)
Less: Cumulative amortisation of Tier 2 Capital Instruments	-
Less: Basel III transitional adjustment	-	Row 56c
Provisions	397	Row 50 / 76
Total per Capital Disclosure Template - Tier 2	14,052	Row 51
Tier 2 Capital included in Regulatory Capital
AUD350 million Westpac Subordinated Notes	350
SDG325 million Westpac Subordinated Notes	333
USD100 million Westpac Subordinated Notes	140
AUD700 million Westpac Subordinated Notes	700
JPY20,000 million Westpac Subordinated Notes	267
JPY10,200 million Westpac Subordinated Notes	136
JPY10,000 million Westpac Subordinated Notes	133
AUD175 million Westpac Subordinated Notes	175
NZD400 million Westpac Subordinated Notes	371
USD1,500 million Westpac Subordinated Notes	2,104
JPY8,000 million Westpac Subordinated Notes	107
JPY13,500 million Westpac Subordinated Notes	180
JPY12,000 million Westpac Subordinated Notes	160
HKD 600 million Westpac Subordinated Notes	109
AUD350 million Westpac Subordinated Notes	350
AUD185 million Westpac Subordinated Notes	185
AUD250 million Westpac Subordinated Notes	250
AUD130 million Westpac Subordinated Notes	130
AUD725 million Westpac Subordinated Notes II	725
USD1,000 million Westpac Subordinated Notes	1,399
USD1,250 million Westpac Subordinated Notes	1,753
AUD1,000 million Westpac Subordinated Notes	1,000
USD1,500 million Westpac Subordinated Notes	2,104
Total Basel III complying instruments	13,161	Row 46
USD352 million Perpetual Floating Rate Notes	494
Total Basel III non complying instruments	494
Less: Basel III transitional adjustment	-	Row 85
Total Basel III non complying instruments after transitional adjustment	494	Row 47
Provisions	397	Row 50 / 76
Total per Capital Disclosure Template - Tier 2 Capital Instruments	14,052	Row 51
$m	30 September 2020	Capital Disclosure Template Reference
Table f
Treasury Shares and RSP Treasury Shares
Total treasury shares per Level 2 Regulatory Balance Sheet	(563)
Less: Treasury Shares not included for Level 2 Regulatory Capital	(57)
Total per Capital Disclosure Template - Treasury Shares	(620)	Row 26a
$m	30 September 2020	Capital Disclosure Template Reference
Table g
Accumulated Other Comprehensive Income
Total reserves per Level 2 Regulatory Balance Sheet	1,495
Less: Share Based Payment Reserve not included within capital	(59)
Total per Capital Disclosure Template - Accumulated Other Comprehensive Income	1,436	Row 3

¹ For regulatory capital purposes, APRA requires these instruments to be included as if they were unhedged

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Appendix I | Regulatory capital reconciliation

The capital disclosure template below represents the post 1 January 2018 Basel III template.

$m		30 September 2020	Table Reference
	Common Equity Tier 1 capital: instruments and reserves
1	Directly issued qualifying ordinary shares (and equivalent for mutually-owned entities) capital	40,509
2	Retained earnings	25,401
3	Accumulated other comprehensive income (and other reserves)	1,436	Table g
4	Directly issued capital subject to phase out from CET1 (only applicable to mutually-owned companies)	-
5	Ordinary share capital issued by subsidiaries and held by third parties (amount allowed in group CET1)	57
6	Common Equity Tier 1 capital before regulatory adjustments	67,403
	Common Equity Tier 1 capital : regulatory adjustments
7	Prudential valuation adjustments	-
8	Goodwill (net of related tax liability)	(9,067)	Table b
9	Other intangibles other than mortgage servicing rights (net of related tax liability)	(2,137)	Table b
10	Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability)	-
11	Cash-flow hedge reserve	42
12	Shortfall of provisions to expected losses	(40)
13	Securitisation gain on sale (as set out in paragraph 562 of Basel II framework)	-
14	Gains and losses due to changes in own credit risk on fair valued liabilities	(18)
15	Defined benefit superannuation fund net assets	(71)
16	Investments in own shares (if not already netted off paid-in capital on reported balance sheet)	-
17	Reciprocal cross-holdings in common equity	-
18	Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10% of the issued share capital (amount above 10% threshold)	-	Table c
19	Significant investments in the ordinary shares of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold)	-	Table c
20	Mortgage service rights (amount above 10% threshold)	-
21	Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability)	-	Table a
22	Amount exceeding the 15% threshold	-
23	of which: significant investments in the ordinary shares of financial entities	-	Table c
24	of which: mortgage servicing rights	-
25	of which: deferred tax assets arising from temporary differences	-	Table a
26	National specific regulatory adjustments (sum of rows 26a, 26b, 26c, 26d, 26e, 26f, 26g, 26h, 26i and 26j)	(7,379)
26a	of which: treasury shares	(620)	Table f
26b	of which: offset to dividends declared under a dividend reinvestment plan (DRP), to the extent that the dividends are used to purchase new ordinary shares issued by the ADI	-
26c	of which: deferred fee income	214
26d	of which: equity investments in financial institutions not reported in rows 18, 19 and 23	(2,365)	Table c
26e	of which: deferred tax assets not reported in rows 10, 21 and 25	(2,963)	Table a
26f	of which: capitalised expenses	(1,576)
26g	of which: investments in commercial (non-financial) entities that are deducted under APRA prudential requirements	(68)	Table c
26h	of which: covered bonds in excess of asset cover in pools	-
26i	of which: undercapitalisation of a non-consolidated subsidiary	-
26j	of which: other national specific regulatory adjustments not reported in rows 26a to 26i	(1)
27	Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions	-
28	Total regulatory adjustments to Common Equity Tier 1	(18,670)
29	Common Equity Tier 1 Capital (CET1)	48,733

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Appendix I | Regulatory capital reconciliation

$m		30 September 2020	Table Reference
	Additional Tier 1 Capital: instruments
30	Directly issued qualifying Additional Tier 1 instruments	9,206	Table d
31	of which: classified as equity under applicable accounting standards	-
32	of which: classified as liabilities under applicable accounting standards	9,206	Table d
33	Directly issued capital instruments subject to phase out from Additional Tier 1	9,206	Table d
34	Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties (amount allowed in group AT1)	-
35	of which: instruments issued by subsidiaries subject to phase out	-
36	Additional Tier 1 Capital before regulatory adjustments	9,206	Table d
	Additional Tier 1 Capital: regulatory adjustments
37	Investments in own Additional Tier 1 instruments	-
38	Reciprocal cross-holdings in Additional Tier 1 instruments	-
39	Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10% of the issued share capital (amount above 10% threshold)	-
40	Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions)	-
41	National specific regulatory adjustments (sum of rows 41a, 41b and 41c)	-
41a	of which: holdings of capital instruments in group members by other group members on behalf of third parties	-
41b	of which: investments in the capital of financial institutions that are outside the scope of regulatory consolidations not reported in rows 39 and 40	-
41c	of which: other national specific regulatory adjustments not reported in rows 41a and 41b	-
42	Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions	-
43	Total regulatory adjustments to Additional Tier 1 capital	-
44	Additional Tier 1 capital (AT1)	9,206	Table d
45	Tier 1 Capital (T1=CET1+AT1)	57,939
	Tier 2 Capital: instruments and provisions
46	Directly issued qualifying Tier 2 instruments	13,161	Table e
47	Directly issued capital instruments subject to phase out from Tier 2	494	Table e
48	Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties (amount allowed in group T2)	-
49	of which: instruments issued by subsidiaries subject to phase out	-
50	Provisions	397	Table e
51	Tier 2 Capital before regulatory adjustments	14,052	Table e
	Tier 2 Capital: regulatory adjustments
52	Investments in own Tier 2 instruments	(50)
53	Reciprocal cross-holdings in Tier 2 instruments	-
54	Investments in the Tier 2 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10% of the issued share capital (amount above 10% threshold)	-
55	Significant investments in the Tier 2 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions	(140)
56	National specific regulatory adjustments (sum of rows 56a, 56b and 56c)	(71)
56a	of which: holdings of capital instruments in group members by other group members on behalf of third parties	-
56b	of which: investments in the capital of financial institutions that are outside the scope of regulatory consolidation not reported in rows 54 and 55	(71)
56c	of which: other national specific regulatory adjustments not reported in rows 56a and 56b	-
57	Total regulatory adjustments to Tier 2 capital	(261)
58	Tier 2 capital (T2)	13,791
59	Total capital (TC=T1+T2)	71,730
60	Total risk-weighted assets based on APRA standards	437,905

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Appendix I | Regulatory capital reconciliation

$m		30 September 2020	Table Reference
	Capital ratios and buffers
61	Common Equity Tier 1 (as a percentage of risk-weighted assets)	11.1%
62	Tier 1 (as a percentage of risk-weighted assets)	13.2%
63	Total capital (as a percentage of risk-weighted assets)	16.4%
64	Buffer requirement (minimum CET1 requirement of 4.5% plus capital conservation buffer of 2.5% plus any countercyclical buffer requirements expressed as a percentage of risk-weighted assets)1	8.0%
65	of which: capital conservation buffer requirement1	3.5%
66	of which: ADI-specific countercyclical buffer requirements	0.0%
67	of which: G-SIB buffer requirement (not applicable)	NA
68	Common Equity Tier 1 available to meet buffers (as a percentage of risk-weighted assets)	11.1%
	National minima (if different from Basel III)
69	National Common Equity Tier 1 minimum ratio (if different from Basel III minimum)	4.5%
70	National Tier 1 minimum ratio (if different from Basel III minimum)	6.0%
71	National total capital minimum ratio (if different from Basel III minimum)	8.0%
	Amount below thresholds for deductions (not risk-weighted)
72	Non-significant investments in the capital of other financial entities	55	Table c
73	Significant investments in the ordinary shares of financial entities	2,310	Table c
74	Mortgage servicing rights (net of related tax liability)	-
75	Deferred tax assets arising from temporary differences (net of related tax liability)	2,963	Table a
	Applicable caps on the inclusion of provisions in Tier 2
76	Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach (prior to application of cap)	397	Table e
77	Cap on inclusion of provisions in Tier 2 under standardised approach	202
78	Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap)	-
79	Cap for inclusion of provisions in Tier 2 under internal ratings-based approach	2,025
	Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2018 and 1 Jan 2022)
80	Current cap on CET1 instruments subject to phase out arrangements	NA
81	Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities	NA
82	Current cap on AT1 instruments subject to phase out arrangements	1,115
83	Amount excluded from AT1 instruments due to cap (excess over cap after redemptions and maturities)	-
84	Current cap on T2 instruments subject to phase out arrangements	1,137
85	Amount excluded from T2 due to cap (excess over cap after redemptions and maturities)	-	Table e

Countercyclical buffer

The table below details Westpac’s countercyclical buffer requirement.

	Exposure at default	Risk Weighted Assets2	Jurisdictional buffer	ADI-specific buffer
Hong Kong	2,668	1,403	1.000%	0.00384%
Luxembourg	264	101	0.250%	0.00007%
Norway	1	1	1.000%	0.00000%
Other	1,059,305	363,810	0.000%	0.00000%
Total	1,062,238	365,315		0.00391%
Total Risk Weighted Assets				437,905
Countercyclical capital buffer				17

¹ Includes 1% Domestic Systemically Important Bank (D-SIB) requirement      

² Represents total private sector (excludes Banks and Sovereigns) credit and specific market risk weighted assets. 

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Appendix II | Entities included in regulatory consolidation

This appendix lists all subsidiaries controlled by Westpac according to their level of regulatory consolidation.

Level 1 Entities

The following controlled entities have been approved by APRA for inclusion in the Westpac ADI’s ‘Extended Licensed Entity’ (ELE) for the purposes of measuring capital adequacy at Level 1:

Westpac Banking Corporation	Westpac Capital-NZ-Limited
1925 (Commercial) Pty Limited	Westpac Debt Securities Pty Limited
1925 (Industrial) Pty Limited	Westpac Direct Equity Investments Pty Limited
Belliston Pty Limited	Westpac Equity Investments NZ Limited
Bill Acceptance Corporation Pty Limited	Westpac Finance (HK) Limited
Capital Finance Australia Limited	Westpac Financial Holdings Pty Limited
CBA Limited	Westpac Group Investment-NZ-Limited
Challenge Limited	Westpac Holdings-NZ-Limited
Mortgage Management Pty Limited	Westpac Investment Capital Corporation
Partnership Pacific Pty Limited	Westpac Investment Vehicle No.2 Pty Limited
Partnership Pacific Securities Pty Limited	Westpac Investment Vehicle Pty Limited
Pashley Investments Pty Limited	Westpac Leasing Nominees-Vic.-Pty Limited
Sallmoor Pty Limited	Westpac New Zealand Group Limited
Sixty Martin Place (Holdings) Pty Limited	Westpac Overseas Holdings No. 2 Pty Limited
St.George Business Finance Pty Limited	Westpac Overseas Holdings Pty Limited
St.George Equity Finance Limited	Westpac Properties Limited
St.George Finance Holdings Limited	Westpac Securitisation Holdings Pty Limited
St.George Security Holdings Pty Limited	Westpac Structured Products Limited
Value Nominees Pty Limited	Westpac TPS Trust
Westpac Administration 2 Pty Limited	Westpac Unit Trust
Westpac Administration Pty Limited	Westpac USA Inc.
Westpac Americas Inc.

Level 2 Entities

The following controlled entities are included in the Level 2 consolidation (along with the ELE entities) for the purposes of measuring capital adequacy:

1925 Advances Pty Limited	Capital Finance New Zealand Limited
Altitude Administration Pty Limited	Capital Fleetlease Pty Limited
Altitude Rewards Pty Limited	Capital Motor Finance Pty Limited
Aotearoa Financial Services Limited	Capital Rent Group Pty Limited
BT (Queensland) Pty Limited	Crusade ABS Series 2017-1 Trust
BT Australia Pty Limited	Crusade ABS Series 2017-1P Trust
BT Financial Group (NZ) Limited	Crusade ABS Series 2018-1P Trust
BT Financial Group Pty Limited	Crusade Trust No.2P of 2008
BT Securities Limited	Danaby Pty Limited
Capital Corporate Finance Limited	General Credits Pty Limited
Capital Finance (NZ) Pty Limited	Hastings Management Pty Limited

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Appendix II | Entities included in regulatory consolidation

Level 2 Entities (Continued)

Net Nominees Limited	Westpac Asian Lending Pty Limited
Number 120 Limited	Westpac Bank-PNG-Limited
Oniston Pty Limited	Westpac Capital Markets Holding Corp.
Platin 1925. GmbH	Westpac Capital Markets LLC
Qvalent Pty Limited	Westpac Cash PIE Fund
RAMS Financial Group Pty Limited	Westpac Covered Bond Trust
RMS Warehouse Trust 2007-1	Westpac Digital Partnerships Pty Ltd
Series 2008-1M WST Trust	Westpac Equity Holdings Pty Limited
Series 2011-3 WST Trust	Westpac Europe Limited
Series 2012-1 WST Trust	Westpac Financial Consultants Pty Limited
Series 2013-1 WST Trust	Westpac Financial Services Group Limited
Series 2013-2 WST Trust	Westpac Financial Services Group-NZ-Limited
Series 2014-1 WST Trust	Westpac Global Capital Markets Pty Limited
Series 2014-2 WST Trust	Westpac Investment Vehicle No.3 Pty Limited
Series 2015-1 WST Trust	Westpac New Zealand Limited
Series 2019-1 WST Trust	Westpac Notice Saver PIE Fund
Series 2020-1 WST Trust	Westpac NZ Covered Bond Holdings Limited
SIE-LEASE (Australia) Pty Limited	Westpac NZ Covered Bond Limited
SIE-LEASE (New Zealand) Pty Limited	Westpac NZ Operations Limited
St.George Commercial Credit Corporation Pty Limited	Westpac NZ Securitisation Holdings Limited
St.George Finance Limited	Westpac NZ Securitisation Limited
St.George Motor Finance Limited	Westpac NZ Securitisation No.2 Limited
The Home Mortgage Company Limited	Westpac Securities Limited
W2 Investments Pty Limited	Westpac Securities NZ Limited
Westpac (NZ) Investments Limited	Westpac Securitisation Management Pty Limited
Westpac Administration 3 Pty Limited	Westpac Singapore Limited
Westpac Administration 4 Pty Limited	Westpac Syndications Management Pty Limited
Westpac Altitude Rewards Trust	Westpac Term PIE Fund

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Appendix II | Entities included in regulatory consolidation

Level 3 Entities

The following controlled entities are excluded from the Level 2 consolidation but form part of the conglomerate group at Level 3:

Advance Asset Management Limited	Reinventure Special Purpose Investment Unit Trust
Asgard Capital Management Limited	Securitor Financial Group Limited
Asgard Wealth Solutions Limited	Sydney Capital Corporation Inc.
BT Funds Management (NZ) Limited	Waratah Receivables Corporation Pty Limited
BT Funds Management Limited	Waratah Securities Australia Limited
BT Funds Management No.2 Limited	Westpac Custodian Nominees Pty Limited
BT Portfolio Services Limited	Westpac Financial Services Limited
eQR Securities Pty. Limited	Westpac General Insurance Limited
GIS Private Nominees Pty Limited	Westpac General Insurance Services Limited
Hastings Funds Management Pty Limited	Westpac Lenders Mortgage Insurance Limited
Magnitude Group Pty Limited	Westpac Life Insurance Services Limited
Pendal Long Term Income Fund	Westpac Life-NZ-Limited
Pendal Short Term Income Fund	Westpac New Zealand Staff Superannuation Scheme Trustee Limited
Planwise AU Pty Ltd	Westpac Nominees-NZ-Limited
Red Bird Ventures Limited	Westpac RE Limited
Reinventure Fund II I.L.P	Westpac Securities Administration Limited
Reinventure Fund III I.L.P	Westpac Superannuation Nominees-NZ-Limited
Reinventure Fund, I.L.P.

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Appendix III | Level 3 entities’ assets and liabilities

The following legal entities are excluded from the regulatory scope of consolidation.

The total assets and liabilities should not be aggregated because some of the entities are holding companies for other entities in the table shown below.

30 September 2020		Liabilities (excluding
$m	Total Assets	equity)
a) Securitisation
Sydney Capital Corporation Inc.	-	-
Waratah Receivables Corporation Pty Limited	1	1
Waratah Securities Australia Limited	-	-
b) Insurance, funds management and other
Advance Asset Management Limited	55	26
Asgard Capital Management Limited	43	16
Asgard Wealth Solutions Limited	51	5
BT Funds Management (NZ) Limited	69	15
BT Funds Management Limited	358	315
BT Funds Management No.2 Limited	10	1
BT Portfolio Services Limited	132	85
eQR Securities Pty. Limited	-	-
GIS Private Nominees Pty Limited	7	2
Hastings Funds Management Pty Limited	-	-
Magnitude Group Pty Limited	4	-
Pendal Long Term Income Fund	454	454
Pendal Short Term Income Fund	387	387
Planwise AU Pty Ltd	6	4
Red Bird Ventures Limited	-	-
Reinventure Fund II I.L.P	33	-
Reinventure Fund III I.L.P	17	-
Reinventure Fund, I.L.P.	98	1
Reinventure Special Purpose Investment Unit Trust	17	-
Securitor Financial Group Limited	4	-
Westpac Custodian Nominees Pty Limited	-	-
Westpac Financial Services Limited	26	15
Westpac General Insurance Limited	825	680
Westpac General Insurance Services Limited	63	6
Westpac Lenders Mortgage Insurance Limited	1,069	783
Westpac Life Insurance Services Limited	3,318	1,534
Westpac Life-NZ-Limited	221	(50)
Westpac New Zealand Staff Superannuation Scheme Trustee Limited	-	-
Westpac Nominees-NZ-Limited	4	-
Westpac RE Limited	7	1
Westpac Securities Administration Limited	8	1
Westpac Superannuation Nominees-NZ-Limited	-	-

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Appendix IV | Regulatory expected loss

Capital deduction for regulatory expected loss

For capital adequacy purposes APRA requires the amount of regulatory expected credit losses in excess of eligible provisions to be deducted from capital. The following table shows how the deduction is calculated.

	30 September			31 March			30 September
$m	2020			2020			2019
Provisions associated with eligible portfolios
Total provisions for impairment charges		6,163			5,791			3,924
plus general reserve for credit losses adjustment		-			-			-
plus provisions associated with partial write-offs		26			41			41
less ineligible provisions1		(118	)		(129	)		(89	)
Total eligible provisions		6,071			5,703			3,876
Regulatory expected downturn loss		5,801			5,540			4,982
Excess/(shortfall) in eligible provisions compared to regulatory expected downturn loss		270			163			(1,106	)
Common equity Tier 1 capital deduction for regulatory expected
downturn loss in excess of eligible provisions2		(40	)		-			(1,106	)

¹ Provisions associated with portfolios subject to the Basel standardised approach to credit risk are not eligible.

² Regulatory expected loss is calculated for portfolios subject to the Basel advanced IRB approach to credit risk. The comparison between regulatory expected loss and eligible provisions is performed separately for defaulted and non-defaulted exposures. As at 30 September 2020, there was $40 million excess of eligible provisions compared to regulatory expected loss for defaulted exposures (31 March 2020: nil).

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Appendix V | APS330 quantitative requirements

The following table cross-references the quantitative disclosure requirements given by Attachments A, C, D and E of APS330 to the quantitative disclosures made in this report. The continuous reporting requirements for capital instruments under Attachment B are satisfied separately and can be found on the regulatory disclosures section on the Westpac website

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

l Capital instruments under Attachment B of APS330; and

l The identification of potential Global-Systemically Important Banks (G-SIB) under Attachment H of APS330 (disclosed annually).

APS330 reference		Westpac disclosure	Page
General Requirements
Paragraph 12	(a) (c) to (d)	Balance Sheet Reconciliation	92
Paragraph 13		Level 3 entities’ assets and liabilities	101
Paragraph 49		Summary leverage ratio	20
Attachment A:
Table 1: Capital disclosure template		Capital disclosure template	95
Attachment C:
Table 3: Capital adequacy	(a) to (e)	Capital requirements	18
	(f)	Westpac’s capital adequacy ratios	17
		Capital adequacy ratios of major subsidiary banks	17
Table 4: Credit risk	(a)	Exposure at Default by major type	32
	(b)	Impaired and past due loans by portfolio	39
	(c)	General reserve for credit losses	31
Table 5: Securitisation exposures	(a)	Banking book summary of securitisation activity by asset type	65
	(b)	Banking book summary of on and off-balance sheet securitisation by exposure type	66
		Trading book summary of on and off-balance sheet securitisation by exposure type	71
Attachment D:
Table 6: Capital adequacy	(b) to (f)	Capital requirements	18
	(g)	Westpac’s capital adequacy ratios	17
		Capital adequacy ratios of major subsidiary banks	17
Table 7: Credit risk - general disclosures	(b)	Exposure at Default by major type	32
	(c)	Exposure at Default by geography	37
	(d)	Exposure at Default by industry classification	34
	(e)	Exposure at Default by residual contractual maturity	38
	(f)	Impaired and past due loans by industry classification	40
	(g)	Impaired and past due loans by geography	41
	(h)	Movement in provisions for impairment charges	30
	(h)	Loan impairment provisions	29
	(i)	Exposure at Default by measurement method	33
	(j)	General reserve for credit losses	29
Table 8: Credit risk - disclosures for portfolios subject to the standardised approach and supervisory risk-weights in the IRB approaches (formerly Table 5)	(b)	Portfolios subject to the standardised approach	42
		Property finance	43
		Project finance	44

¹ http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/

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Appendix V | APS330 quantitative requirements

APS330 reference		Westpac disclosure	Page
Table 9: Credit risk - disclosures for portfolios subject to IRB approaches	(d)	Corporate portfolio by external credit rating	45
		Business lending portfolio by external credit rating	46
		Sovereign portfolio by external credit rating	47
		Bank portfolio by external credit rating	48
		Residential mortgages portfolio by PD band	49
		Australian credit cards portfolio by PD band	50
		Other retail portfolio by PD band	51
		Small business portfolio by PD band	52
	(e)	Actual losses	53
	(f)	Comparison of regulatory expected and actual loss rates	54
Table 10: Credit risk mitigation disclosures	(b) to (c)	Total exposure covered by collateral, credit derivatives and guarantees	57
Table 11: General disclosure for exposures related to counterparty credit risk	(b)	Counterparty credit risk summary	59
	(c)	Credit derivative transactions that create exposures to counterparty credit risk	59
Table 12: Securitisation exposures		Banking Book
	(g) part i and (h) to (i)	Summary of assets securitised by Westpac	64
	(g) part ii	Summary of total Westpac sponsored third party assets securitised	64
	(j)	Summary of securitisation activity by asset type	65
	(k)	Summary of on and off-balance sheet securitisation by exposure type	66
	(l) part i	Securitisation exposure by risk weight band	67
	(l) part ii	Securitisation exposures deducted from capital	67
	(m)	Securitisation subject to early amortisation treatment	68
	(n) part i	Resecuritisation exposure subject to credit risk mitigation	68
	(n) part ii	Resecuritisation exposure to guarantors	68
		Trading Book
	(o) part i and (p)	Summary of assets securitised by Westpac	68
	(o) part ii	Summary of total Westpac sponsored third party assets securitised	68
	(q)	Summary of securitisation activity by asset type	68
	(r)	Aggregate amount of exposures securitised by Westpac and subject to APS116 Capital Adequacy: Market Risk	68
	(s)	Summary of on and off-balance sheet securitisation by exposure type	69
	(t) part i	Securitisation exposure retained or purchase subject to specific risk	69
	(t) part ii	Securitisation exposure subject to APS120 for Specific risk by risk weight band	69
	(u) part i	Capital requirements for securitisation exposure subject to internal models approach (IMA) by risk classification	69
	(u) part ii	Capital requirements for securitisation regulatory capital approaches by risk weight band	69
	(u) part iii	Securitisation exposures deducted from capital	70
	(v)	Securitisation subject to early amortisation treatment	70
	(w) part i	Aggregate resecuritisation exposures retain or purchased subject to credit risk mitigation	70
	(w) part ii	Resecuritisation exposure to guarantors credit worthiness	70

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Appendix V | APS330 quantitative requirements

APS330 reference		Westpac disclosure	Page
Table 13: Market risk - disclosures for ADIs using the standard method	(b)	Market Risk regulatory capital and risk weighted assets	72
Table 14: Market risk - disclosures for ADIs using the IMA for trading portfolios	(d)	VaR and Stressed VaR by risk type	73
Table 16: Equities - disclosures for banking book positions	(b) to (c)	Book value of listed equity exposures by industry classification / Book value of unlisted equity exposures by industry classification	80
	(d) to (e)	Gains/losses	80
	(f)	Capital requirement1	NA
Table 17: Interest rate risk in the banking book	(b)	Change in economic value of sudden upward and downward movement in interest rates	76
	(b)	Capital requirement	76
Attachment E
Table 18: Leverage ratio disclosure template		Leverage ratio disclosure	20
Table 19: Summary comparison of accounting assets vs leverage ratio exposure measure		Summary comparison of accounting assets vs leverage ratio exposure measure	21
Attachment F
Table 20: Liquidity Coverage Ratio disclosure template		Liquidity Coverage Ratio disclosure	82
Table 21: Net Stable Funding Ratio template		Net Stable Funding Ratio disclosure	83
Attachment G2
Table 21: Remuneration disclosure requirements	(g)	Governance structure	88
	(h)	Quantitative Disclosures	91
	(i)	Deferred remuneration	91
	(j) to (k)	Total value of remuneration awards for the current financial year for senior managers and material risk takers	91

¹ Equity exposures are not risk weighted at Level 2.

² Remuneration disclosure is an annual reporting requirement under APS330. 

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Glossary

Term	Description
Actual losses	Represent direct write-offs and write-offs from provisions after adjusting for recoveries.
Additional Tier 1 capital	Comprises high quality components of capital that provide a permanent and unrestricted commitment of funds that are freely available to absorb losses but rank behind claims of depositors and other more senior creditors. They also provide for fully discretionary capital distributions.
Alternate Liquid Assets (ALA)	Assets that qualify for inclusion in the numerator of the LCR in jurisdictions where there is insufficient supply of HQLA.
Advanced measurement approach (AMA)	The capital requirement using the AMA is based on a bank’s internal operational risk systems, which must both measure and manage operational risk.
Assets intended to be securitised	Represents securitisation activity from the end of the reporting period to the disclosure date of this report.
Australian accounting standards (AAS)	A set of Australian reporting standards and interpretations issued by the Australian Accounting Standards Board.
Australian and New Zealand standard industrial classification (ANZSIC)	A code used by the Australian Bureau of Statistics and Statistics New Zealand for classifying businesses.
Authorised deposit-taking institution (ADI)	ADIs are corporations that are authorised under the Banking Act 1959 to carry on banking business in Australia.
Banking book	The banking book includes all securities that are not actively traded by Westpac.
Cash EPS compound annual growth rate (CAGR)	An internal measure used to assess performance by measuring growth in cash earnings per share over a three year performance period.
Committed Liquidity Facility (CLF)	Facility established with the RBA to cover the shortfall in Australian dollars between the ADI’s holding of HQLA and net cash outflows. The CLF is an ALA for the Group’s LCR calculation.
Common equity Tier 1 (CET1) capital	The highest form of capital. The key components of common equity are shares, retained earnings and undistributed current year earnings.
Credit valuation adjustment (CVA) risk	Refer to mark-to-market related credit risk.
Default	A customer default is deemed to have occurred when Westpac considers that either or both of the following events have taken place: lthe customer is unlikely to pay its credit obligations to its financiers in full, without recourse by any of them to actions such as realising security (where held); and lthe customer is past due 90 or more calendar days on any material credit obligation to its financiers. Overdrafts will be considered past due once the customer has breached an advised limit, or been advised of a limit smaller than the current outstandings.

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Glossary

Term	Description
Defaulted not impaired	Includes facilities where: l   contractual payments of interest and/or principal are 90 or more calendar days overdue, including overdrafts or other revolving facilities that remain continuously outside approved limits by material amounts for 90 or more calendar days (including accounts for customers who have been granted hardship assistance); or l   an order has been sought for the customer’s bankruptcy or similar legal action has been instituted, which may avoid or delay repayment of its credit obligations; and l   the estimated net realisable value of assets/security to which Westpac has recourse is sufficient to cover repayment of all principal and interest, or where there are otherwise reasonable grounds to expect payment in full and interest is being taken to profit on an accrual basis. These facilities, while in default, are not treated as impaired for accounting purposes.
Double default rules	Double default applies to exposures where a particular obligor’s exposure has been hedged by the purchase of credit protection from a counterparty and loss will only occur if both obligor and counterparty default. In this instance, capital can be reduced.
Exposure at default (EAD)	EAD is calculated at facility level and includes outstandings as well as the proportion of committed undrawn that is expected to be drawn in the event of a future default.
Extended licensed entity (ELE)	An extended licensed entity (ELE) comprises an ADI and any subsidiaries of the ADI that have been approved by APRA as being part of a single ‘stand-alone’ entity.
External credit assessment institution (ECAI)	ECAI is an external institution recognised by APRA (directly or indirectly) to provide credit assessment in determining the risk-weights on financial institutions’ rated credit exposures (including securitisation exposures).
Geography	Geographic segmentation of exposures is based on the location of the office in which these items were booked.
High-quality liquid assets (HQLA)	Assets which meet APRA’s criteria for inclusion as HQLA in the numerator of the LCR.
Impaired exposures	Includes exposures that have deteriorated to the point where full collection of interest and principal is in doubt, based on an assessment of the customer’s outlook, cashflow, and the net realisation of value of assets to which recourse is held: lfacilities 90 days or more past due, and full recovery is in doubt: exposures where contractual payments are 90 or more days in arrears and the net realisable value of assets to which recourse is held may not be sufficient to allow full collection of interest and principal, including overdrafts or other revolving facilities that remain continuously outside approved limits by material amounts for 90 or more calendar days; lnon-accrual facilities: exposures with individually assessed impairment provisions held against them, excluding restructured loans; lrestructured facilities: exposures where the original contractual terms have been formally modified to provide for concessions of interest or principal for reasons related to the financial difficulties of the customer; lother assets acquired through security enforcement (includes other real estate owned): includes the value of any other assets acquired as full or partial settlement of outstanding obligations through the enforcement of security arrangements; and l any other facilities where the full collection of interest and principal is in doubt.

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Glossary

Term	Description
Industry	Exposures to businesses, government and other financial institutions are classified into industry clusters based upon groups of related ANZSIC codes. Companies that operate in multiple industries are classified according to their primary industry. Consumer customers as classified as “retail” and not further broken down.
Interest rate risk in the banking book (IRRBB)	The risk to current and future year interest income arising from a mismatch between the duration of assets and liabilities that arises in the normal course of banking activities.
Internal ratings-based approach (IRB & Advanced IRB)	These approaches allow banks to use internal estimates of the risks of their loans as inputs into the determination of the amount of credit risk capital needed to support the organisation. In the Advanced IRB approach, banks must supply their own estimates for all three credit parameters – Probability of Default, Loss Given Default and Exposure at Default.
Leverage ratio	The leverage ratio is defined by APRA as Tier 1 capital divided by the “Exposure measure” and is expressed as a percentage. “Exposure measure” includes on-balance sheet exposures, derivatives exposures, securities financing transaction (SFT) exposures, and other off-balance sheet exposures.
Liquidity coverage ratio (LCR)	An APRA requirement to maintain an adequate level of unencumbered high quality liquid assets, to meet liquidity needs for a 30 calendar day period under an APRA-defined severe stress scenario. Absent a situation of financial stress, the value of the LCR must not be less than 100%. LCR is calculated as the percentage ratio of stock of HQLA, CLF and qualifying Reserve Bank of New Zealand securities over the total net cash out flows in a modelled 30 day defined stressed scenario.
Loss given default (LGD)	The LGD represents an estimate of the expected severity of a loss to Westpac should a customer default occur during a severe economic downturn. Westpac assigns LGD to each credit facility, assuming an event of default has occurred and taking into account a conservative estimate of the net realisable value of assets to which Westpac has recourse and over which it has security. LGDs also reflect the seniority of exposure in the customer’s capital and debt structure.
Maturity	The maturity date used is drawn from the contractual maturity date of the customer loans.
Mark-to-market related credit risk	The risk of mark-to-market losses related to deterioration in the credit quality of a derivative counterparty also referred to as credit valuation adjustment (CVA) risk.
Monte Carlo simulation	A method of random sampling to achieve numerical solutions to mathematical problems.
Net cash outflows	Total expected cash outflows minus total expected cash inflows in the specified LCR stress scenario calculated in accordance with APRA’s liquidity standard.
Net interest income at risk (NaR)	BRiskC-approved limit expressed as a deviation from the benchmark hedge level over a 1-year time frame, at a 99% confidence level.
Net Stable Funding Ratio (NSFR)	The NSFR is defined as the ratio of the amount of available stable funding (ASF) to the amount of required stable funding (RSF) defined by APRA. The amount of ASF is the portion of an ADI’s capital and liabilities expected to be a reliable source of funds over a one year time horizon. The amount of RSF is a function of the liquidity characteristics and residual maturities of an ADI’s assets and off-balance sheet activities. ADI’s must maintain an NSFR of at least 100%.
Off-balance sheet exposure	Credit exposures arising from facilities that are not recorded on Westpac's balance sheet (under accounting methodology). Undrawn commitments and the expected future exposure calculated for Westpac's derivative products are included in off-balance sheet exposure.

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Glossary

Term	Description
On balance sheet exposure	Credit exposures arising from facilities that are recorded on Westpac's balance sheet (under accounting methodology).
Potential future credit exposure (PFCE)	The PFCE for each transaction is calculated by multiplying the effective notional principal amount by a credit conversion factor specified in APS112.
Probability of default (PD)	Probability of default is a through-the-cycle assessment of the likelihood of a customer defaulting on its financial obligations within one year.
Resecuritisation	A resecuritisation exposure is a securitisation exposure in which the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is a securitisation exposure. In addition, an exposure to one or more resecuritisation exposures is a resecuritisation exposure;
Risk weighted assets (RWA)	Assets (both on and off-balance sheet) are risk weighted according to each asset's inherent potential for default and what the likely losses would be in case of default. In the case of non-asset backed risks (i.e. market and operational risk), RWA is determined by multiplying the capital requirements for those risks by 12.5.
Securitisation purchased	The purchase of third party securitisation exposure, for example residential mortgage backed securities.
Securitisation retained	Securitisation exposures arising through Westpac originated assets or generated by Westpac third party securitisation activity.
Securities financing transactions (SFT)	APRA defines SFTs as “transactions such as repurchase agreements, reverse repurchase agreements, and security lending and borrowing, and margin lending transactions, where the value of the transactions depends on the market valuation of securities and the transactions are typically subject to margin agreements.”
Sponsor	An ADI would generally be considered a sponsor if it, in fact or substance, manages or advises the securitisation program, places securities into the market, or provide liquidity and/or credit enhancements.
Standard model	The standard model for Market risk applies supervisory risk weights to trading positions.
Stressed VaR (SVaR)	Stressed VaR uses the approved VaR model but applies a period of significant market stress. Market risk capital is estimated by adding Stressed VaR to regular VaR.
Substitution approach	Substitutions refers to the rules governing the circumstances when capital can be reduced because an obligor’s exposure has been hedged by the purchase of credit protection from a counterparty and the counterparty’s PD is used in place of the obligors’ PD.
Supervisory Formula Approach (SFA)	The SFA applicable to unrated exposures dynamically looks at the type and performance of underlying asset pools funded by the securitisation exposure as well as the structural features of the transaction to determine capital requirements
Tier 2 capital	Includes other capital elements, which, to varying degrees, fall short of the quality of Tier 1 capital but still contribute to the overall strength of an entity as a gone concern capital.

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Glossary

Term	Description
Trading book	Trading book activity represents dealings that encompass book running and distribution activity. The types of market risk arising from trading activity include interest rate risk, foreign exchange risk, commodity risk, equity price risk, credit spread risk and volatility risk. Financial Markets and Treasury are responsible for managing market risk arising from Westpac’s trading activity.
Value at risk (VaR)	VaR is the potential loss in earnings from adverse market movements and is calculated over a one-day time horizon at a 99% confidence level using a minimum of one year of historical rate data. VaR takes account of all material market variables that may cause a change in the value of the trading portfolio and the banking book including interest rates, foreign exchange rates, price changes, volatility, and the correlation among these variables.

Exchange rates

The following exchange rates were used in the Westpac Pillar 3 report, and reflect spot rates for the period end.

$	30 September 2020	31 March 2020	30 September 2019
USD	0.7108	0.6191	0.6755
GBP	0.5540	0.5017	0.5493
NZD	1.0802	1.0264	1.0791
EUR	0.6060	0.5620	0.6176

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Disclosure regarding forward-looking statements

This report contains statements that constitute ‘forward-looking statements’ within the meaning of Section 21E of the US Securities Exchange Act of 1934.

Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements appear in a number of places in this report and include statements regarding Westpac’s intent, belief or current expectations with respect to its business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions and financial support to certain borrowers. Words such as ‘will’, ‘may’, ‘expect’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘probability’, ‘risk’, ‘aim’, ‘outlook’ or other similar words are used to identify forward-looking statements. These forward-looking statements reflect Westpac’s current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond Westpac’s control, and have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon Westpac. There can be no assurance that future developments will be in accordance with Westpac’s expectations or that the effect of future developments on Westpac will be those anticipated. Actual results could differ materially from those expected, depending on the outcome of various factors, including, but not limited to:

l the effect of the global COVID-19 pandemic, which has had, and is expected to continue to have, a negative impact on our business and global economic conditions, adversely affected a wide-range of Westpac's key suppliers, third-party contractors and customers, created increased volatility in financial markets and may result in increased impairments, defaults and write-offs;

l the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government policy, particularly changes to liquidity, leverage and capital requirements;

l regulatory investigations, reviews, and other actions, inquiries, litigation, fines, penalties, restrictions or other regulator imposed conditions, including as a result of our actual or alleged failure to comply with laws (such as financial crime laws), regulations or regulatory policy;

l the failure to comply with financial crime obligations, which has had, and could further have, adverse effects on our business and reputation;

l internal and external events which may adversely impact Westpac's reputation;

l litigation and other legal proceedings and regulator investigations and enforcement actions;

l information security breaches, including cyberattacks;

l reliability and security of Westpac's technology and risks associated with changes to technology systems;

l the stability of Australian and international financial systems and disruptions to financial markets and any losses or business impacts Westpac or its customers or counterparties may experience as a result;

l market volatility, including uncertain conditions in funding, equity and asset markets;

l an increase in defaults in credit exposures because of a deterioration in economic conditions;

l adverse asset, credit or capital market conditions;

l the incidence of inadequate capital levels under stressed conditions;

l the risk that governments will default on their debt obligations or will be unable to refinance their debts as they fall due;

l changes to Westpac's credit ratings or to the methodology used by credit rating agencies;

l levels of inflation, interest rates (including low or negative rates), exchange rates and market and monetary fluctuations and volatility;

l an increase in defaults, write-offs and provisions for credit impairment;

l changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and other countries (including as a result of tariffs and protectionist trade measures) in which Westpac or its customers or counterparties conduct their operations and Westpac’s ability to maintain or to increase market share, margins and fees, and control expenses;

l the effects of competition, including from established providers of financial services and from non-financial service entities, in the geographic and business areas in which Westpac conducts its operations;

l poor data quality or poor data retention;

l the effectiveness of Westpac's risk management policies, including internal processes, systems and employees, and operational risks resulting from ineffective processes and controls, as well as breakdowns in processes and procedures requiring remediation activity;

l the incidence or severity of Westpac-insured events;

l the occurrence of environmental change (including as a result of climate change) or external events in countries in which Westpac or its customers or counterparties conduct their operations;

l changes to Westpac’s critical accounting estimates and judgments and changes to the value of Westpac's intangible assets;

l changes in political, social or economic conditions in any of the major markets in which Westpac or its customers or counterparties operate;

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l the inability to syndicate or sell down underwritten securities, particularly during times of heightened market volatility;

l the success of strategic decisions involving diversification or innovation, in addition to business expansion activity, business acquisitions and the integration of new businesses; and

l various other factors beyond Westpac's control.

The above list is not exhaustive. For certain other factors that may impact on forward-looking statements made by Westpac refer to ‘Risk factors’ in Westpac’s 2020 Annual report. When relying on forward-looking statements to make decisions with respect to Westpac, investors and others should carefully consider the foregoing factors and other uncertainties and events.

Westpac is under no obligation to update any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise, after the date of this report.

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