Westpac Banking : 2016 Westpac Group Annual Report

 Proudly Supporting Australia‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌ 2016 Westpac Group

Annual Report

Herb Smith. Founder of Dreamtime Tuka and Westpac customer.‌‌‌‌‌

Proudly Supporting Australia For almost 200 years, Westpac has supported Australia and New Zealand. As Australia's oldest company, we've been a constant thread, through the ups and downs of economic cycles as a partner in the country's development. Our story is one of innovation, growth, resilience, and adaptation. It's why we've been in business for 200 years. As we approach our third century we're continuing to transform. The community wants more from banks. And Westpac is responding: we've strengthened our balance sheet; we're digitally transforming our operations and we're reviewing our policies, processes and incentives to further drive our service culture. In doing so, customers can trust we have their interests at heart and if we make a mistake we will set things right. It's this attitude that will help us support customers, shareholders, employees and the community into the next 200 years.

The Westpac Group Annual Report, Annual Review & Sustainability Report, and Sustainability Performance Report represent Westpac's extended reporting framework.

This report to shareholders, which will be lodged with the Australian Securities Exchange and the Australian Securities and Investments Commission, is also available on our website www.westpac.com.au/investorcentre.

For more information about Westpac refer to Section 1 and the inside back cover, or visit www.westpac.com.au/investorcentre.

Proudly Supporting Australia

Proudly Supporting Australia

Proudly Supporting Australia

2016 Annual Report

2016 Westpac Group

Annual Report

Herb Smith. Founder of Dreamtime Tuka and Westpac customer.

2016 Westpac Group Annual Review & Sustainability Report

Bob Mac Smith. Fifth generation farmer and Westpac customer.

2016 Annual Review

& Sustainability Report

2016 Sustainability Performance Report

2016 Westpac Group Sustainability Performance Report

Westpac employee Kate Holloway and her son Carter.

ON THE COVER

Herb Smith, founder of Dreamtime Tuka and Westpac customer. Read Herb's story online at 2016annualreport. westpacgroup.com.au

THIS PAGE

Herb Smith's hometown of Wellington, NSW

www.westpac.com.au/ investorcentre

Visit Westpac's Investor Centre for the

complete suite of full year reporting material.

Westpac Banking Corporation ABN 33 007 457 141

Table of contents
Annual Report
Performance highlights	2
Section 1	3
Chairman's report	4
Chief Executive Officer's report	8
Information on Westpac	14
Business strategy	14
Outlook	16
Significant developments	18
Directors' report	25
Remuneration Report	39
Section 2	67
Five year summary	68
Reading this report	69
Review of Group operations	71
Income statement review	73
Balance sheet review	78
Capital resources	82
Divisional performance	84
Consumer Bank	87
Business Bank	88
BT Financial Group (Australia)	89
Westpac Institutional Bank	91
Westpac New Zealand	92
Group Businesses	93
Risk and risk management	94
Risk factors	94
Risk management	100
Credit risk	101
Liquidity risk	101
Market risk	102
Operational risk and compliance risk	103
Other risks	104
Westpac's approach to sustainability	107
Sustainability performance	107
Five year non-financial summary	112
Other Westpac business information	114
In this Annual Report a reference to 'Westpac', 'Group', 'Westpac Group', 'we', 'us' and 'our' is to Westpac Banking	Section 3	117
Corporation ABN 33 007 457 141 and its subsidiaries unless it	Financial statements	118
clearly means just Westpac Banking Corporation.	Notes to the financial statements	124
For certain information about the basis of preparing the financial	Statutory statements	237

1

2

3

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

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

Section 4 249 4

Shareholding information 250

Additional information 261

Information for shareholders 265

Glossary of abbreviations and defined terms 268

Contact us inside back cover

2016 Westpac Group Annual Report 1

Performance highlights

3,859

6,346

6,991

5,936

6,751

7,561

8,012

7,445

131

142

116

139

156

166

174

20

182

187

188

Net profit after tax $7,445 million, down 7% Dividends $1.88 up 1%2

Net profit after tax1 ($m)

07 08 09 10 11 12 13 14 15 16

Dividends per ordinary share (cents) Special dividends

07 08 09 10 11 12 13 14 15 16

3,451

3,446

5,879

6,301

6,564

7,063

7,628

7,820

7,822

23.8

22.3

16.1

16.0

15.4

15.9

16.4

15.8

Cash earnings $7,822 million, flat Returns 14.0%, down 185bps

Cash earnings3,4,5 ($m)

07 08 09 10 11 12 13 14 15 16

Cash earnings to average ordinary equity3,4,5 (%)

07 08 09 10 11 12 13 14 15 16

Cash earnings per ordinary share3,4,5,7 (cents)

07 08 09 10 11 12 13 14 15 16

Cash earnings per ordinary share, down 5%

3,507

189.4

5,047

198.3

163.7

4,675

197.8

209.3

214.8

227.8

245.4

248.2

235.5

14.0

14.0

% change 20 16 20 15 2 0 16 / 20 15

R e porte d e a rn ings	7,445	8,012	(7%)
Net profit after tax1($m)
Earnings per share (c ents)	224.6	255.0	(12%)
Dividends per share (c ents)	188	187	1%
Return on equity6 (%)	13.3	16.2	291bps
Expense to inc ome ratio (%)	43.9	43.8	15bps
Common Equity Tier 1c apital ratio (%)	9.5	9.5	(2bps)
C a sh e a rnings ba sis 3	7,822	7,820	-
Cash earnings ($m)
Cash earnings per share (c ents)	235.5	248.2	(5%)
Cash earnings return on equity6 (%)	14.0	15.8	(185bps)
Ec onomic profit8 ($m)	3,774	4,418	(15%)

1 Net profit attributable to ordinary equity holders.

2 Excluding special dividends but including dividends determined in 2016.

3 The adjustments to our reported results to derive cash earnings are described in Note 2 of our 2016 financial statements.

4 Figures for 2009 (and for cash earnings in 2008 only) are presented on a 'pro forma' basis, that is, as if the merger between Westpac and St.George Bank Limited was completed on 1 October 2007. The basis of presentation of the pro forma results is explained in more detail in Section 2.1 of Westpac's Full Year 2009 Results (incorporating the requirements of Appendix 4E) lodged with the ASX on 4 November 2009 and that section of the ASX Announcement is incorporated by reference into this Annual Report.

5 Cash earnings for 2009 has been restated to exclude the impact of fair value adjustments related to the St.George merger. For further information refer to Note 32 to the financial statements in Westpac's 2010 Annual Report.

6 Return on average ordinary equity.

7 2015 cash earnings per ordinary share have been restated for consistency with 2016. Periods prior to 2015 have not been restated for the bonus element of the 2015 share entitlement offer.

8 Economic profit represents the excess of adjusted cash earnings over a minimum required rate of return on equity invested. For this purpose, adjusted cash earnings is defined as cash earnings plus the estimated value of franking credits paid to shareholders. The calculation of economic profit is described in more detail in Section 5 of Westpac's Full Year 2016 Results (incorporating the requirements of Appendix 4E) lodged with the ASX on 7 November 2016 (the

'ASX Announcement').

2 2016 Westpac Group Annual Report