Westpac Banking : Pillar 3 Report (June 2017)

Table of contents

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.

Westpac's common equity Tier 1 (CET1) capital ratio was 10% at 30 June 2017. The CET1 ratio is in line with 31 March 2017 as the determination of the 2017 interim dividend (78 basis points decrease) was offset by the dividend reinvestment plan which saw 35.6% participation (28 basis points increase), the sale of shares in BT Investment Management Limited (11 basis points increase) and organic capital generation.

Total risk weighted assets (RWA) increased $2.2 billion or 0.5% this quarter:

• Credit risk RWA was little changed. Over the period, the increase in RWA from portfolio growth was largely offset by a reduction in RWA from improved credit quality and lower mark-to-market related credit risk; and

• Non-credit RWA increased $2.2 billion or 4.2% mostly due to increased RWA for market risk from higher interest rate risk exposure in the trading book.

Over the quarter, exposure at default (EAD) increased $20.0 billion (up 2.0%), primarily due to growth in residential mortgage exposures of $10.1 billion and sovereign exposures associated with liquid assets of

$7.4 billion.

The leverage ratio represents the amount of Tier 1 capital relative to exposure1. At 30 June 2017, Westpac's leverage ratio was 5.2%. APRA has yet to prescribe any minimum leverage ratio requirements.

On 19 July 2017, APRA released its information paper on 'Strengthening banking system resilience - establishing unquestionably strong capital ratios'. In its release APRA advised that, under the current capital adequacy framework, the four major Australian banks would require a CET1 capital ratio of at least 10.5% to meet APRA's unquestionably strong benchmark. APRA also announced that these banks are expected to achieve this ratio by 1 January 2020 at the latest.

APRA also announced its intention to release a discussion paper on proposed revisions to the capital framework later in 2017, with draft prudential standards to be issued from 2018, leading to a release of final prudential standards in 2020. The new prudential standards are anticipated to become effective in early 2021.

1 As defined under Attachment D of APS110: Capital Adequacy

Westpac Banking Corporation is an Authorised Deposit-taking Institution (ADI) subject to regulation by the Australian Prudential Regulation Authority (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.

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

• Capital instruments under Attachment B of APS330; and

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

  Capital instruments disclosures are required to be updated when:

• A new capital instrument is issued that will form part of regulatory capital; or

• A capital instrument is redeemed, converted into CET1 capital, written off, or its terms and conditions are changed.

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