Westpac Banking : 3Q17 Capital, Funding and Asset Quality Update

Well placed to meet APRA's CET1 unquestionably strong benchmark

• Common equity Tier 1 (CET1) capital ratio 10% at 30 June 2017. Ratio unchanged over the quarter with 3Q17 earnings, sale of BTIM shares and higher DRP participation, largely offset by the determination of the 1H17 dividend

• Modest risk weighted asset (RWA) increase $2.2bn (+0.5%); credit RWA flat, non-credit RWA up $2.2bn

• Internationally comparable1 CET1 capital ratio 15.3% at 30 June 2017 - top quartile of banks globally

Asset quality remains sound

• Reduction in impaired assets contributed to stressed assets to TCE2 falling 4bps to 1.10%

• Australian mortgage delinquencies increased 2bps to 0.69%, mostly from increased hardship associated with Cyclone Debbie

• Australian unsecured delinquencies increased 12bps to 1.75% mostly due to APRA hardship reporting changes

Sound funding/liquidity position

• Net stable funding ratio (NSFR) 108%, liquidity coverage ratio (LCR) 128% - both little changed over quarter

• Well progressed on FY17 term funding, $29bn raised year to date to 30 June 2017

Managing mortgage growth within macro-prudential boundaries

• Reduced flow of interest-only lending to 44% in 3Q17, with applications 36% of flow (down from 52% and 47% in 2Q17). On track to have flow of interest-only lending below 30% in September quarter 2017 (4Q17)

• Investor lending growth using APRA definition 5.9% - comfortably below 10% cap

APRA released details of its CET1 unquestionably strong benchmark

• On 19 July 2017, APRA released an information paper "Strengthening banking system resilience - establishing unquestionably strong capital ratios"

• The paper indicated that on average, the 4 major Australian banks require a CET1 capital ratio of at least 10.5% to meet the APRA unquestionably strong benchmark3. Banks have until 1 January 2020 to achieve this ratio

• APRA further commented that "It expects that any changes to the capital framework that may eventuate from the finalisation of international reforms will be able to be accommodated within the calibration set out in this paper, and will not necessitate further increases to requirements at a later date."

• Further guidance on Westpac's preferred capital range (currently 8.75% - 9.25%) will be provided once APRA finalises its review of the capital adequacy framework

Common equity Tier 1 (CET1) capital ratio (%) Key capital ratios (%)

Jun-14

Dec-14

Jun-15

Dec-15

Jun-16

Dec-16

Jun-17

Dec-16

Mar-17

Jun-17

CET1 capital ratio

9.3

10.0

10.0

Additional Tier 1 capital

1.6

1.7

1.7

Tier 2 capital

2.5

2.3

2.3

Total regulatory capital ratio

13.4

14.0

14.0

Risk weighted assets (RWA) ($bn)

411

404

407

Leverage ratio

5.0

5.3

5.2

Internationally comparable ratios2

Leverage ratio (internationally comparable)

5.7

6.0

5.9

CET1 ratio (internationally comparable)

14.5

15.3

15.3