Westpac Banking : 2016 Full Year Financial Results Announcement

Left to right:

Antonio Tricoli, Westpac Scholar; Westpac Rescue Helicopter; and Bob Mac Smith, fifth generation farmer and Westpac customer.

Incorporating the requirements of Appendix 4E

WESTPAC BANKING CORPORATION

ABN 33 007 457 141

Results for announcement to the market1

Report for the full year ended 30 September 20162

1 This document comprises the Westpac Group 2016 Full Year Financial Results and is provided to the Australian Securities Exchange under Listing Rule 4.3A.

2 This report should be read in conjunction with the Westpac Group 2016 Annual Report and any public announcements made in the period by the Westpac Group in accordance with the continuous disclosure requirements of the Corporations Act 2001 and ASX Listing Rules.

3 Comprises reported interest income, interest expense and non-interest income.

4 All comparisons are with the reported results for the twelve months ended 30 September 2015.

Media release and outlook

Media Release

7 November 2016

Westpac Group today announced a Full Year 2016 statutory net profit of $7,445 million, down 7% compared to the prior corresponding period.

Key features of the result compared to the prior corresponding period (pcp) include1:

• Cash earnings of $7,822 million, in line with the prior year;

• Cash earnings per share of 235.5 cents, down 5%;

• Cash return on equity (ROE) of 14.0%, down 185 basis points;

• Unchanged final, fully franked dividend of 94 cents per share (cps), taking total dividends paid for the year to 188 cps;

• Common equity Tier 1 capital ratio of 9.5%, down 2 basis points;

• Lending and customer deposit growth of 6% and 9%, respectively; and

• Expense to income ratio at 42%, down 7 basis points.

Westpac Chief Executive Officer, Mr Brian Hartzer, said Westpac has delivered a solid result in a challenging environment.

"We are continuing to deliver our service-led strategy, increasing customer numbers, delivering world-leading digital services, and supporting more customer needs.

"At the same time we have strengthened our balance sheet, carefully managed margins, and achieved

$263 million in productivity savings, while increasing our investment in digital and other service initiatives.

"The result demonstrates our consistent approach to managing our core franchise over many years, including the discipline we apply to balancing growth and returns," Mr Hartzer said.

"The Consumer and Business divisions performed strongly.

"The Consumer Bank continued to be the driver of the Group's growth. It expanded its customer base by 3% and had strong home loan and deposit growth of 8% and 7% respectively. Expenses and margins were well managed in a very competitive environment.

"The Business Bank delivered solid growth in core earnings, with a 5% rise in lending and a 9% increase in deposits. It expanded its digital capabilities this year, benefiting both customers and bankers. For example, its online loan origination platform is now being used in two out of three eligible deals, which reduces the time for customers to access new funds.

"WIB and BTFG delivered improvements in their customer franchises, despite challenging conditions. WIB is operating in an environment of lower institutional activity, while absorbing an increase in credit impairments in the first half from a small number of names. BTFG's result reflects the partial sale of BTIM and higher regulatory and compliance costs, offsetting solid growth in funds under management, funds under administration, and insurance premiums."

1 Reported on a cash earnings basis unless otherwise stated. For an explanation of cash earnings and reconciliation to reported results refer to pages 5, 6 and 120-123 of the Group's 2016 Full Year Financial Results Announcement.

Westpac Group 2016 Full Year Results Announcement | iii

Mr Hartzer said a key feature of the year had been further significant strengthening of the Group's balance sheet with higher capital, as well as improved funding and liquidity. The Group's Common equity Tier 1 capital ratio sits comfortably in the top quartile globally.

"The improvements we've made further reinforce that Westpac's balance sheet remains unquestionably strong. However, the additional shares issued at the start of the year have lowered the Group's earnings per share and reduced our return on equity.

"Given the current operating environment, including the expectation that low interest rates will continue for some time, the evolving regulations for capital and liquidity, and higher regulatory and compliance costs, the current 15% ROE target for the Group as a whole is no longer realistic. Westpac believes in maintaining strong return disciplines and will be seeking to achieve a ROE in the range of 13% to 14% in the medium term."

Mr Hartzer said Australia needs strong banks to support the economic aspirations of Australian households and businesses.

"A strong and profitable banking system benefits the broader economy and community. In addition to increasing loans to Australian individuals and businesses last year by $33 billion, Westpac will distribute $6.3 billion in dividends to shareholders in 2016, pay over $3 billion in corporate income taxes, provide employment to almost 40,000 people, and directly purchase goods and services from over 9,000 domestic suppliers."

See info.westpac.com.au/supportingaustralia for more information about Westpac's contribution to Australia.

Key financial aspects of the full year 2016 result include1,2:

• Total revenue up 3%, with good growth in net interest income to $15,348 million, up 8%;

• Total lending rose 6%, with growth in Australian mortgages of 8% and Australian business lending rising 3%, with a skew to SME lending. New Zealand lending increased 9% in NZ$. Loan growth was fully funded by customer deposits which increased by $39 billion, or 9%, with the deposit to loan ratio improving 2 percentage points to 70.5%;

• Non-interest income of $5,855 million was down 7%. This reflects a range of infrequent and volatile items including lower revenue from BTIM following the partial sell down in the second half of 2015. Excluding infrequent and volatile items, most of the decline was due to lower markets activity - impacting fees in WIB - and lower cards-related income in the Consumer Bank;

• The net interest margin was up 5 basis points to 2.13%. Excluding Treasury and Markets, net interest margin was up 3 basis points. During the second half, the 3 basis point fall in the margin reflects the impact of higher funding costs and lower interest rates; and

• The expense to income ratio was 42%, with expenses up 3% in line with revenue growth. Regulatory and compliance costs added 1% to expense growth for the year.

Mr Hartzer said the 2016 financial year was significant for the Group's capital position, having raised around

$3.5 billion in capital through the Entitlement Offer in November 2015.

On an internationally comparable basis, Westpac's CET1 capital ratio was 14.4% and comfortably in the top quartile of banks globally. On an APRA basis, the CET1 capital ratio was lower over Second Half 2016 at 9.5%, as the Group implemented recent APRA requirements that increased RWA by $43 billion for Australian residential mortgages.

"Our healthy capital level positions the Group well for any further regulatory changes, while ensuring we can continue to support both customers and economic growth in Australia," Mr Hartzer said.

The Westpac Group Board has determined a final, fully franked dividend of 94 cps, unchanged from the interim dividend and the 2015 final dividend. The full year dividend is 188 cps up 1 cent compared to 2015. The Group will issue shares to satisfy the Dividend Reinvestment Plan (DRP) for the final dividend, with no discount applied.

The dividend will be paid on 21 December 2016, to shareholders registered at 15 November 2016.

1 Cash earnings basis.

2 All comparisons in the commentary are to the prior corresponding period unless otherwise stated.