Westpac Banking Corporation

Good morning and welcome to Westpac's Q1 FY26 update. I'm Justin McCarthy, GM Investor Relations. Joining me today is Nathan Goonan, our CFO. Before we commence, I acknowledge the traditional custodians of the land on which we meet. For us in Barangaroo, that's the Gadigal people of the Eora Nation. I pay my respects to Elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people. This is an inaugural quarterly call designed to enhance transparency and disclosure. We hope this refinement is helpful and welcome your feedback. Nathan will provide a brief overview of our quarterly performance and then take questions. In the interest of time, we'll take one question per person. With that, Nathan.

Thanks, Justin, and good morning, everyone. Thank you for joining. As we start the financial year, we're continuing to drive operational momentum across the group and our quarterly performance reflects a disciplined execution of our five strategic priorities. Net profit excluding notable items increased 5% compared to the second half 25 average. Revenue was up 1% comprising a 2% increase in net interest income driven by an increase in average interest earning assets and a stronger treasury performance and a 4% decrease in non-interest income driven by lower markets revenue due to unfavourable DVA. Operating expenses x the second half 25 restructuring charge were stable. Including the restructuring charge, expenses were 5% lower. These revenue and expense outcomes resulted in an increase in pre-provision profit of 6% or 2% x restructuring. Sustainably growing customer deposits underpins our ambition to be our customer's main financial institution. The growth of $12 billion in the quarter highlights the inherent strength of our franchise, with household deposit growth of 3% and business transactional deposits up 4%. We expect deposit growth to remain strong through FY26. Loans increased $22 billion with growth across all customer segments. Institutional lending grew by 7% and was well diversified. We continue to see good opportunities in this part of the market, although we expect the rate of growth to moderate over the remainder of FY26. Australian mortgages, excluding rams, grew by 3%. This reflected progress in executing our mortgage strategy with the proportion of proprietary flow rising to 35% in the quarter. This positioned us above system for the quarter. We're targeting consistent performance broadly in line with the system from here. Australian business lending maintained momentum, growing at 3%. More bankers on the ground is improving proprietary flow. The stronger lending than deposit growth resulted in a modest widening of our funding gap, with the deposit to loan ratio down one percentage point to 84%. We remain on track to settle the RAMS transaction by mid-year and have intentionally positioned the balance sheet to accommodate the expected $16 billion reduction in mortgages. Funding markets have been supported and we have issued $18 billion in long-term wholesale funding since October 25. Net interest margin decreased one basis point to 1.94%. Consistent with expectations set out of the FY25 results, core NIM of 1.79% declined by three basis points compared to second half 25, with the decline moderating to one basis point on a quarterly basis. Lending margins edged lower as competitive pressures persisted. The rate of compression was stable in mortgages, has moderated in business and was more pronounced in institutional this quarter. The non-repeat benefit related to interest rate reductions in prior period was a net drag in the quarter, with the lending reduction more than offsetting a deposit benefit. Prior period rate lag impacts have now flowed through our numbers. Overall, deposits were stable. Compositionally, growth in higher rate savings balance continues to be a drag, while liquid assets provided a slight benefit. The Treasury and markets contribution of 15 basis points was up from 13 basis points, reflecting favourable interest rate positioning by Treasury in a more volatile market environment. To provide further earning stability through the cycle, the deposit hedge was increased by $15 billion to $92 billion, $7 billion of which was flagged at the full year results. This had no material impact on NIM in the quarter. In terms of considerations for the first half, we continue to expect the net replicating portfolio benefit to be approximately one basis point. And our sensitivity to a 25 basis point rate rise is a benefit of approximately one basis point over a 12 month period. However, the recent RBA rate rise will be a slight headwind in the second quarter due to the timing of passing through the rate rise to customers. Operating expenses, excluding the second half restructuring charge, were stable at $3 billion. We report to the nearest $100 million with expenses rounded up in the quarter. We remain confident our FY26 expense growth will be largely offset by productivity savings, which include ongoing benefits from the restructuring charge taken in the second half of 25. Considerations provided at the full year results in relation to investment spend and operating expenses more broadly remain current. Credit quality metrics improved over the quarter. Stressed exposures to total committed exposures decreased 11 basis points. This reflects a decline in Australian mortgage arrears and reduced stress rates across most industry sectors. Our portfolio remains well diversified across sectors and geographies. Total credit provisions rose marginally and at $5 billion were $2.1 billion above our base case. Coverage was stable at 125 basis points. While modelled collective assessed provisions were stable, reductions from improvements in underlying credit metrics were offset by model adjustments related to the severity of the downside scenario. Credit impairment charges remained low at six basis points of average gross loans. The SET1 capital ratio remained strong at 12.3%. The reduction in SET1 reflects a payment of the full year 2025 dividend, which more than offset earnings for the quarter. There were also several items that moved in both directions and summed to a reduction of five basis points. These movements, many of which are one-off in nature, include a benefit from the removal of the operational risk overlay, higher lending balances, which were partly offset by credit quality improvements and data refinements. IRRRB was a modest drag with embedded losses and an increase in hedge deposits, more than offsetting the benefit of standard changes, and the capital floor drove a marginal reduction. In second half 26, we expect a 22 basis point benefit from the completion of the sale of our Rams portfolio. To conclude, the performance for this quarter demonstrates solid progress against our plans. Discipline execution is driving our momentum. We're deepening customer relationships and investing in our business. We're optimistic on the outlook for the economy and expect demand for both business and household credit to remain resilient. With that, I'll hand back to Justin for questions.

Thanks, Nathan. And as a reminder, in the interest of time, if you can just limit it to one question. Now, first question comes from Matthew Wilson from Jardin. Matthew.