Westpac Banking Corporation

Good morning everyone and welcome to Westpac's first half 26 results briefing. I'm Justin McCarthy, Head of Investor Relations. Before we commence today, I acknowledge the traditional custodians of the land in which we meet. For us here 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. Pleased today to be joined by our CEO Anthony Miller and CFO Nathan Goonan and after the presentation we'll have time for Q&A. With that, over to you Anthony.

Thanks Justin and good morning everyone. I'm pleased with our progress this half and we're starting to see operating momentum build across the bank. This was reflected across a range of metrics. Lending and deposits grew, operating expenses were lower while asset quality improved. In consumer and business, we deliver double-digit growth in transaction account sales. Better service quality and productivity have helped to shift more new lending toward proprietary channels. In institutional, we've continued to build deeper relationships with clients and support their growth. We maintained our robust balance sheet and capital position, providing stability to help support our customers, our people and the broader economy. This strength gives us the flexibility to navigate uncertainty and keep investing to execute our strategy. With a clear strategy, we're working to accelerate the speed at which we deliver. We are simplifying the bank, improving productivity and reducing complexity. While momentum this half is encouraging, consistency in service and performance is critical to achieve our goals. Conflict in the Middle East is having a broad economic impact that will test the resilience of economies, businesses and households. We are now experiencing a more pronounced slowdown in the Australian economy this year as energy supply pressures flow through to higher and more persistent inflation. Fuel supply constraints have begun to drive higher input costs for businesses and weigh on real household disposable income. This will create a more challenging environment for some customers which is reflected in our base case provision scenario and a new portfolio overlay for energy-intensive sectors. In times like this, customers look to their banks for confidence. Supporting our 13 million customers through the cycle is a responsibility we take seriously and we're ready to provide practical solutions to suit their needs. As a strong and stable bank, we are well-placed to support the economy as conditions evolve. Recent events have shown that while we cannot control global shocks, we can influence how sharply they land here at home. Australia is an attractive destination for capital and talent, but there's more we can do to improve competitiveness and living standards. Addressing domestic challenges and unlocking productivity requires bold, coordinated action across government, regulators and the private sector. Areas we believe require greater emphasis and investment are energy security and the climate transition, housing affordability and regional prosperity. We are ready to direct capital to sectors and projects that strengthen the country's global competitiveness and protect national interests. Turning to customers' financial position, last year we saw economic growth strengthening as inflation returned to target range and interest rates began to ease. Household disposable incomes were higher, supported by tax cuts, moderating inflation and lower interest rates. Corporates were also in a position of strength. with leverage close to two-decade lows. Overall, our data highlights the resilience of our customers, and this is reflected across our book. The proportion of customers ahead on mortgage repayments has risen to 85%, including offsets, while in business we've seen materially stronger cash flow conditions, with balance sheet buffers approximately 20% above pre-COVID levels. Looking at the current environment, we've seen only a modest decline in operating conditions, Since the start of the conflict, the average income-to-expense ratio for business customers has edged lower and overdraft utilisation is up just two percentage points. Conversations with customers indicate an ability for businesses to pass on higher input costs. For example, I was speaking to a major fuel distribution customer who has adapted by adjusting pricing and other conditions in their customer contracts to manage cost pressures and keep supply moving. The consequence to this is that more of the burden, at least initially, looks set to be borne by households. Our card data shows consumers brought forward spending amid supply concerns. An additional 200,000 cardholders purchased fuel in March who had not done so in February. Not surprisingly, overall consumer spending has slowed since the conflict began, reflecting pressure from higher interest rates and the expiry of electricity rebates. This is still a reasonable rate of growth by historical standards. We've had a more pronounced slowing in home lending, our most interest rate-sensitive portfolio. Mortgage applications have eased in April following a strong start to the year. Hardship applications and personal loan inquiries have increased modestly. This was anticipated following earlier rate rises and remains consistent with seasonal patterns. Voice Analytics, using AI, show customer mentions of interest rates and geopolitical events remain limited for now and are concentrated in regional and outer growth corridors with high commuting needs. We will continue to monitor these developments closely and provide help to customers who need support. Our success is closely linked to the prosperity of our customers, our communities and the broader economy. During the half, we provided an additional $68 billion in home lending, helping more Australians into their homes banks play an important role in strengthening financial inclusion. We're directing investment towards initiatives that will have a lasting impact. Across regional Australia, we are increasing access to banking services while investing in agricultural scholarships and technology to support innovation, resilience and prosperity. We're backing more female entrepreneurs to start and grow their businesses, with $974 million in lending since mid-2023, closing in on our $1 billion commitment. Education is now the central focus of the charitable Westpac Foundation, particularly to strengthen national literacy and numeracy. This builds on our $100 million commitment to education through the Westpac Scholars Trust. And we're pleased with the reach and impact of our sponsorships promoting participation in sport from grassroots through to the elite. Together, these actions create more resilient communities. First-half performance compared to the prior corresponding period reflected our strategy of balancing growth with return while making investments in people, innovation and transformation. Net profit, excluding notable items, increased 1% to $3.5 billion. Our key financial measure, return on tangible equity, was steady at 11%. Pre-provision profit growth of 3% was driven by slightly higher revenue than expense growth. Consequently, cost income edged lower to 51.7%. Momentum in the key operating metrics of deposits and loans were solid, with both growing by 7%. This reinforces the need to stay focused on outcomes that drive a sustainable improvement in ROTI and CTI. A steady financial performance and strong capital position saw the board declare a first-half shareholder dividend of 77 cents fully franked. This equates to a payout ratio of 75.6% of profit after tax, excluding notable items. Improving service is central to building trust and deeper relationships. Customer measures, such as NPS, suggest we are heading in the right direction, although there is a lot more for us to do. We want to be the primary bank for our customers by providing consistent service excellence when and how our customers want to be served, whether that's on the app, phone and in person we are making practical changes while also integrating data and ai to anticipate customer needs and deliver safer more personalized service our award-winning app remains our customers preferred banking channel with 6.8 million daily logins and significant improvements in digital sales in both consumer and business protecting customers remains a priority as fraud and financial crime continue to look for ways to evade detection. We've strengthened our defences using AI to detect unusual activity, helping to prevent $181 million in potential customer scam losses. For customers new to Westpac, we've halved the average time to open a new Choice account. We also introduced digital ID verification for customers emigrating from New Zealand, India and China, streamlining onboarding for priority migrant segments and improving account conversion. For business overdrafts, time to cash is significantly reduced, enabling some decisions to be made within hours. For large clients operating across markets, we have new digital solutions that make foreign exchange and international payments faster and more transparent. This is just a snapshot of our progress. We aim to be Australia's best workplace with the right culture, capabilities and environment to help our people perform at their best. In the past year, we've been building a stronger employee value proposition to attract and retain great people while supporting their development, health and wellbeing. We've also expanded career development opportunities, including recently rolling out LinkedIn Learning with access to 20,000 courses. Uptake has been strong, with more than 12,000 people already using the platform to build skills for career progression, with AI courses the most popular. We're tracking progress through employee engagement, which is an indicator of productivity, customer outcomes and retention. Our score continues to sit in the top quartile globally, with the survey providing timely insights and practical actions. Deposit growth was solid across all three segments. Consumer was up 8% and business grew by 5%. In institutional, growth in accounts from the superannuation and resources sectors provided additional tailwinds. Transaction accounts represent almost half of total balances. They also anchor the relationship, providing richer insights and opportunities to bring more of the bank to the customer. Business transaction account sales were particularly strong, growing 34% while balances grew 8%. Enhancements to our digital propositions and onboarding capability supported targeted growth in consumer. The depth of our customer relationships and improved service are reflected in market share gains across both business and institutional. In business banking, lending grew 13%. Target sectors such as agriculture, health and professional services all performed well, delivering double-digit growth. We're also improving the mix with business proprietary lending accounting for almost 60% of new originations this half. These outcomes reflect focused execution and deeper engagement with our customers. Meanwhile, businesses at the larger end of town are investing for the future and we are backing them to pursue growth opportunities. Balance sheet growth across institutional was 23% across a well-diversified portfolio. We have seen particularly strong activity amongst customers involved in the energy transition, infrastructure, critical minerals and data centres. remain the country's biggest lender to renewables, with balances increasing 16%. We have been disciplined in the growth they have pursued, with around 70% of new lending to existing customers. In mortgages, we saw a clear improvement in performance through the year. Balances grew 7%, excluding rams, tracking around system on average. Importantly, we returned Westpac first-party lending to growth. This reflects deliberate work to get the first-party proposition right The improvement has been driven by addressing the basics which have made it easier for our people to serve our customers well. For example, Booker Banker has been rolled out nationally, which allows customers to make a home loan appointment online with the banker of their choice. We have invested in productivity and capacity, onboarding more than 60 new lenders. We've made targeted policy enhancements for investors and the self-employed. We have focused on improving customer advocacy, while maintaining a time-to-decision of under four days. Together, our strategic priorities are shaping the company we want to be. They keep us aligned on what matters and move us closer to our ambition to be Australia's number one bank and our customers' partner through life. We're making progress and determined to keep lifting standards through a relentless focus on execution day in, day out. Service quality and net promoter scores continue to improve. we've simplified and strengthened the franchise. This management is more deeply embedded and we're well into the delivery of our multi-year transformation agenda. While we have the right people and capability, performance has been constrained by complexity and legacy systems. To sustain improved performance, we need a simpler operating environment that delivers greater efficiency and consistency in service. We are building on the foundations established for the delivery of Unite by adopting a more disciplined approach to implementing change in the bank. We are moving to a new end-to-end operating model we refer to as Catalyst. This is aligned to our priorities, shifting from hundreds of annual projects to 20 delivery units that bring teams closer to customers with clear accountability for multi-year outcomes. The benefit of this model is persistent funding and capacity, giving teams the certainty and confidence to deliver. It will also reduce hand-offs and bring our people and expertise together. This, combined with simpler governance, will help improve speed to market and to better serve our customers. This will support strong risk management and a lower cost-to-income ratio in time. United is the cornerstone of our transformation agenda, helping to deliver one best way to serve customers and run the bank. We continue to make progress with the most initiatives on track and rated green. At the annual Unite market update in March, we reaffirmed the program's overall scope, timeline and budget. We also shared two recent major milestones. The migration of customers to one world platform on BT Panorama. I'm pleased to report we've had no disruptions on the subsequent round of monthly reporting. We also announced the creation of one commercial bank to give more businesses access to Westpac digital capabilities and a broader range of products and services. Customer feedback has been positive and will begin migrating customers alongside their bankers prior to the originally planned start date in July. Our strategic investment in our new business lending origination platform has dramatically improved how we lend to businesses. BizEdge has processed more than $10 billion in new lending, with time for decision improving by 49%. Recent releases have added automated pathway selection so deals flow through the best decisioning pathway. We've also increased TCA thresholds from $10 to $20 million. The platform is reducing rework so our bankers can spend more time with our customers. Westpac One will be a clear point of differentiation in our support for corporate, large commercial and institutional clients. This platform will bring together real-time treasury management, FX, trade and lending with richer data insights. The first customer pilot is already underway, with advanced transaction banking capabilities to be introduced progressively over coming periods, including corporate liquidity management and multi-currency cross-border functionality. Once complete, the platform will provide end-to-end liquidity and cash management, helping clients run and fund their businesses more efficiently. Technology, data and AI are vital to how we deliver outcomes across the bank. Our approach has evolved in recent months where we have moved beyond standalone experimentation to scaling and embedding AI as an enterprise-wide capability. We're focused on practical use cases that accelerate delivery, drive efficiency and improve customer outcomes. Deploying AI responsibly is critical. We have embedded a company-wide responsible AI and risk management framework with clear governance and safety guardrails that are built into how AI is designed, tested and used. For customers and frontline teams, AI agents help our people find the right information more quickly. Other agents are helping to verify payslips for loan applications and support mortgage and consumer finance processing. We're also using call, complaints and social media analytics to identify emerging issues earlier and reduce customer friction. Underpinning all this is the Westpac Intelligence Lab, which brings together data and AI across the bank to support faster, safer and more proactive decision making. It is too early to extrapolate all the financial benefits of AI, but as our approach matures, we intend to capture measurable and sustainable benefits from our investment. Nathan will now take us through performance in more detail.

Thanks Anthony and good morning everyone. Starting with the financial performance for the half. My remarks will refer to the results excluding notable items which relate to hedging and costs associated with the sale of rams. Net profit was down 1% with lower operating income and higher credit impairment charges more than offsetting lower expenses. The 2% decline in revenue includes previously announced market volatility related impacts. Excluding these impacts, revenue rose 1%. Operating expenses were 6% lower or 2% lower excluding the second half 2025 restructuring charge. These revenue and expense outcomes resulted in a 4% increase in pre-provision profit or a 1% decline excluding the prior period restructuring charge. Credit impairment charges increased to 10 basis points of average gross loans compared to 4 basis points in the prior period. Sustained growth in customer deposits underpins our ambition to be our customer's main financial institution. The growth of 3% in the half highlights the inherent strength and diversity of our franchise, with all four segments growing. Transaction balances grew strongly across business and wealth and institutional, while household savings and mortgage offset balance growth continued in consumer. Deposits grew 3% in New Zealand, slightly ahead of system across both transaction and term deposits. Our economic team continues to expect strong deposit growth for the remainder of 2026. The higher interest rate environment is likely to result in a mix shift towards higher yielding products. Lending momentum has continued with growth of 4%. Australian mortgages grew slightly above system at 4%. This reflected progress in executing our mortgage strategy and a strong spring campaign with an increase in the proportion of proprietary flow. We continue to target consistent performance broadly in line with system. Australian business lending continues to show good momentum, growing at 4%. The larger commercial segment generated most of the growth. while SME performed well relative to system, albeit off a considerably smaller base. Propriety flow across commercial and SME continued to improve. Institutional lending grew by 12% and was well diversified. Growth moderated in the second quarter after a very strong first quarter. Lending grew 3% in New Zealand, where demand for credit improved, notwithstanding a challenging economic environment. Strategically, we continue to focus on doing more with SME and small business customers. However, we expect business credit growth to remain skewed to larger businesses. This will suit our existing books mix and we plan to maintain our growth posture and support our existing customers. Operating income declined 2%, including the impact of pre-release volatile items. Excluding these items, revenue grew 1% as strong balance sheet growth more than offset core NIM decline of $105 million. The pre-release volatile items covered movements in treasury and markets, timing differences associated with the RBA rate changes and the depreciation of the New Zealand dollar. These items subtracted $271 million from net interest income. Non-interest income decreased 3% for the half after rising 10% in the prior period. Fee income was down 23 million, reflecting lower card fees and decreases in under-online fees in institutional. Markets and other income decreased 23 million, with tightening funding spreads impacting DVA to 31 March. This was partially offset by an increase in wealth income with higher funds under administration. It's important that I review the components of net interest margin in detail. Core net interest margin decreased four basis points to 178. Timing differences following RBA rate changes detracted two basis points and a transient in nature. This reflects both the larger proportion of loans relative to deposits in the consumer bank and the associated revenue mismatch as mortgage customers paid their new rates after 14 days while deposit holders received their new rates after 10 days. The timing impact was larger this period given it covered four RBA rate changes, the non-repeat of the benefit from two rate cuts in the second half of 25 and the drag of two rate rises in the first half of 26. Excluding this impact, core net interest margin decreased two basis points in the half and was flat in the second quarter. Lending margin shows trends consistent with expectations and were lower as competitive pressures persisted. The rate of compression was stable in mortgage and business and was more pronounced in institutional this period. Deposits were stable as the benefit of replicating portfolio was offset by a number of customers qualifying for the bonus rate. Other impacts including mix, pricing and the impact to the lower rate environment during the half were all modest and netted to zero. Liquid assets contributed two basis points reflecting mixed benefits as liquid assets rose by less than the average lending assets. Capital and other detracted one basis point reflecting lower capital balances and a remediation provision. The Treasury and markets contribution of 11 basis points was down from 13 basis points. An elevated 15 basis points in the first quarter was followed by a weak and unusual second quarter of seven basis points. The second quarter reflected less income from balance sheet positioning through a challenging rates environment. Fewer realised gains as we de-risked the liquids portfolio and the timing of accruals that will unwind over time. Looking ahead to the second half, the timing differences related to the two first half 26 rate rises will unwind and be a one basis point benefit. The replicating portfolio is expected to be a net benefit of two basis points at current swap rates. Liquid assets are expected to continue to provide a similar mixed benefit as they rise by less than the average lending assets. Customer lending and deposit margins will be shaped by the competitive environment. We expect overall lending margins to continue to edge lower. Deposit spreads will benefit from the averaging impact of prior rate rises and stabilisation in the qualification for the bonus rates. but will be adversely impacted by expected growth in higher rate products and mixed impacts following strong TD growth at the end of first half 26. We have also provided sensitivities to help understand the potential impact of future rate rises. The recent alignment of pass-through for mortgage and deposit customers will approximately halve the negative timing impact. A 25 basis point rate hike leads to an approximate one basis point expansion over the first 12 months, reflecting the impact on unhedged deposits and capital. Operating expenses, excluding the second half 25 restructuring charge, declined 2% to $5.8 billion. Employee costs increased $103 million, reflecting annual wage increases and more bankers across business, WIB and consumer. This was partially offset by higher leave utilisation. The increase in technology costs was modest. Fewer contract renewals and supplier rebates masked ongoing cost increases. Volume and other rose 31 million. Drivers include higher operations related expenses to support customers. This was lower than anticipated, with the teams able to absorb higher volumes and achieve sizeable unit cost savings. We generated $258 million of structural productivity savings. This includes the benefit of a simpler operating model, more automation, reductions in branch space and the initial benefits of Unite. Investments declined marginally with the lower cash spend largely offset by lower capitalisation rates. Lower capitalisation was a result of a higher proportion of Unite investment and a number of smaller projects that were fully expensed as they did not meet the threshold to be capitalised under our policy. There was a modest increase in amortisation and no software impairments. Overall, we are managing costs well. The underlying cost trajectory is improving and we are pleased with the execution against our full year plans. This will set us up well for subsequent periods. Looking to the second half, costs are seasonally higher and there are several items to consider. The extra day count will impact most categories. Staff costs will rise as leave utilisation decrease, the average impact of higher wages flows through and we continue to invest in bankers. Technology expenses are expected to be a headwind as vendor inflation persists and activity continues to rise. Volume and other is expected to be a headwind as branded marketing spend increases, property costs rise and we expect customer activity to increase in a rate rising environment. Investment cash spend will be higher and lower capitalisation rates are expected to persist. Amortisation expense will also be a modest headwind as the capitalised software balance continues to decrease. We've revised up our FY26 structural productivity estimate by $50 million to at least $550 million. Productivity and efficiency are key strategic focus areas for the management team as we reposition the business to compete more effectively. Moving to investments, we spent approximately $900 million in the half with United County for 44% of spend. As foreshadowed, the proportion of non-Unite investment reduced. The proportion of investment spend that was expensed increased to 69%, with Unite, the main driver, expensed at 75%. Our FY26 guidance still holds. Total investment spend is expected to be approximately $2 billion and we have narrowed our guidance range for Unite. Overall, credit quality metrics remain sound, with consumer and business portfolios improving. Stressed exposures to total committed exposures decreased 12 basis points. We have seen continued improvement in 90 day plus mortgage arrears. These have reduced to 57 basis points. In New Zealand, mortgage arrears increased by 4 basis points to 50 basis points, reflecting cost of living pressures and some seasonality. Business customers are managing conditions well, with stress rates reduced across most sectors. We are cautious in the ongoing Middle East conflict. The energy intensive sectors of transport and storage, construction and agriculture are being monitored closely. Notwithstanding improved credit quality in the half, credit provisions are up $212 million to almost $5.2 billion. As a result, overall collective provisions to credit risk weighted asset coverage increased by four basis points, with total provisions now $1.9 billion above our base case. Provisions to gross loans were flat at 58 basis points. The increase in collective provision was a combination of modelled outcomes and management judgement, both a result of the anticipated impacts of conflict in the Middle East. The moving parts include updated economic forecasts in the base case scenario, incorporating higher interest rates and unemployment and a lower GDP, and new overlays of approximately $100 million largely related to energy intensive sectors, although net overlays were up by just under half this amount. These increases were partially offset by improvements in underlying credit metrics. Individual provisions increased $71 million and collective provisions rose $141 million. New and increased impaired assets were $495 million. The uptick was idiosyncratic and largely confined to single names in transport and utilities prior to the impact of the conflict. A strong balance sheet is a critical enabler of our strategy and an ongoing feature of this bank. Our liquidity and funding structure has us well placed. Most long-term funding was undertaken early in the half when spreads were more attractive. A total of $24 billion provides flexibility on the timing of issuance in the second half. We were more active in short-term markets and institutional term deposits increased. Both form part of our strategy to provide additional liquidity in response to the increase in geopolitical uncertainty and flexibility ahead of the expected $16 billion reduction in mortgages post the settlement of the Rams portfolio sale. The stronger lending and deposit growth resulted in a modest widening of our funding gap, with the deposit to loan ratio down one percentage point to 84%. Our liquidity and funding metrics are above our normal operating ranges, which we believe is appropriate given the market backdrop. Our capital position provides us with flexibility and opportunities over the medium term. The set one capital ratio ended the half at 12.4%. Net profit added 74 basis points while the payment of the full year dividend reduced capital by 57 basis points. Risk weighted assets detracted 21 basis points with higher lending balances more than offsetting data requirements and improvements in delinquencies. IRRRB detracted 27 basis points with higher embedded losses and an increase in hedge deposits more than offsetting the benefits of standard changes. Its increase means the capital floor is not currently binding. The removal of the operational risk overlay added 17 basis points. Looking to the second half of 26, there are several considerations. We are anticipating a 22 basis point benefit from the completion of RAMS. The completion of the shared buyback would subtract 22 basis points. The material IRRBB risk weighted asset increases are unlikely to repeat. The 31 March position reflects the forward interest rate curve which included 60 basis points of anticipated rate rises. Slide 79 of the IDP has been provided to assist with scenario analysis. Risk weighted assets are $1.8 billion above the standardised floor. Standardised risk weighted optimisation initiatives and regulatory changes are expected to provide benefits over the medium term. However, movements in the IRRRB will also impact whether the floor becomes binding. To provide a sense of the potential asset quality impacts that could arise, the sensitivity to a one-notch downgrade to exposures in energy-intensive sectors is an increase in risk-weighted assets of approximately $4 billion, which is equivalent to 11 basis point impact in the SET1 ratio. We have not changed any of our capital management settings this half. We've summarised the capital management principles that have been agreed with our board to provide insight into capital management decisions. Our priority is to maintain a strong balance sheet which allows us to support customers through ongoing uncertainty and cushion against potential macroeconomic shocks. Alongside this, we will invest to grow the business profitably. Paying fully frank dividends sustainably is an important anchor to our approach. This approach of cascading priorities balances our strong financial position and capital position and maintains flexibility. When considering capital returns we will weigh up both market conditions and our strong bank cranking balance of $3.7 billion alongside value creation for all shareholders. In this context we have approximately $2.7 billion of capital above the set one target adjusted for the declared dividend of $0.77 per share. The payout ratio excluding notable items was 75.6%, which is slightly above the top of our target range of 65% to 75%. We have $1 billion of the previously announced buyback outstanding. We see value in the flexibility provided by this form of capital management. With that, I'll hand back to Anthony.