Westpac Banking Corporation

Good morning and welcome to Westpac's third quarter FY26 update. I'm Justin McCarthy, General Manager of Investor Relations. Joining me today is Nathan Goonan, our CFO. Before we commence, I acknowledge the traditional custodians of the land in 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. 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. Nathan.

Thanks Justin and good morning everyone. The third quarter reflected continued operational and balance sheet momentum underpinned by disciplined execution of our strategy. While the external environment remains uncertain, we are well positioned, with a strong balance sheet, disciplined risk settings and a clear strategic agenda. That agenda is centred on improving service and deepening customer relationships, with an emphasis on the proprietary channel in both consumer and business. We are focused on simplifying our business and increasing productivity. Unite is progressing well and we are implementing a revised operating model catalyst to further improve our execution. Net profit excluding notable items increased 2% compared to the first half 26 average. Revenue was up 1% with growth of between 2 and 4% in our Australian divisions. This was partially offset by a 7% decline in New Zealand or 3% in constant currency terms. Net interest income increased 2%, which more than offset a 3% decline in non-interest income due to timing and one-off items. Volatile items related to geopolitical uncertainty and the associated increase in market volatility were only a slight drag, following a $271 million reduction in the first half. Operating expenses were up 1%. These revenue and expense outcomes resulted in pre-provision profit growth of 1%. Sustainably growing customer deposits underpins our ambition to improve returns. The growth of 2% in the quarter highlights this priority. Consistent with seasonal patterns, transaction balances grew strongly. Business and wealth and institutional increased by 4% and 10% respectively, while household transaction balances were stable. The notable mixed shift in the deposit portfolio was a slowing in consumer saving balances and an increase in term deposits, with advertised term deposit rates above the saving rates for the first time since December 2023. We expect system deposit growth to remain solid during the fourth quarter, supported by seasonal increase in household balances and a likely reduction in institutional deposits. Loans increased 2%, with growth across all customer segments. Australian mortgages, excluding rams, grew by 2%, slightly above system. The proportion of proprietary flow rose to 36%, reflecting progress in executing our mortgage strategy. We expect mortgage system growth to moderate in the fourth quarter, in response to a higher rate environment and the recent Federal Government policy changes. In the near term, our growth is likely to be below system, given our initial cautious response to heightened competition. Compared with the second quarter, mortgage applications declined 11% in the third quarter and have declined 20% since the budget. Based on our analysis of credit checks, system-wide applications have fallen by slightly less than these amounts. These trends remain broadly consistent with our economics team housing credit growth forecasts of 6.8% in FY26 and 4.7% in FY27. Institutional lending and Australian business lending grew by 3% and 4% respectively, as we continued to increase market share. The RAMS transaction settled on 1 August, resulting in a $15.4 billion reduction in mortgages. Net interest margin was stable at $1.89. Core NIM of 178 was flat compared with the first half 26, although was up one basis point in the quarter. As foreshadowed, the non-repeated timing differences following the RBA rate changes in the first half added one basis point. Lending margins were lower, the rate of compression moderated in institutional and business lending, while mortgage margin compression in Australia and New Zealand was more pronounced. The contraction in Australia reflected a modest increase in both new fixed rate lending and switching and the runoff in higher margin accounts, while competition intensified in New Zealand as fixed rate lending increased. Deposit margins improved, reflecting benefits from the replicating portfolio and the higher interest rates on unhedged deposits. More customers qualifying for the bonus rate and a mixed shift to higher yielding products partially offset these benefits. Liquid assets provided a modest benefit reflecting favourable mix as liquid assets rose by less than average lending assets. The impact was slightly lower than previously expected reflecting stronger than anticipated institutional deposit growth. The Treasury and markets contribution of 11 basis points was stable. For the second half we continue to expect a replicating portfolio tailwind of two basis points. While immaterial to revenue, the impact of liquids is now expected to be neutral or a slight drag, reflecting ongoing deposit growth. Lending margins are likely to contract given heightened mortgage competition in both Australia and New Zealand, and the benefit of higher rates on deposit margins is expected to be offset by a combination of both rate and mixed impacts, including higher qualifying on savings balances. Expenses were well managed, with the 1% increase reflecting the averaging impact from higher salary and wages and our continued investment in our business. We remain on track for structural productivity savings of more than $550 million in FY26. Total investment spend is expected to be approximately $2 billion. Within that there has been a slight acceleration in Unite which is now expected to be modestly above the top end of the previously guided range of $850 to $900 million. We now expect amortisation to decline in the second half reflecting timing of the completion of non-Unite projects. Consistent with trends we outlined at the first half, businesses continue to show resilience and while consumer spend has slowed marginally, it remains at reasonable rate of growth by historical standards. Credit quality metrics remain sound. Stressed exposures to total committed exposures increase three basis points. This reflects a modest increase in watch list and substandard exposures in property, utility and manufacturing sectors. Our non-retail portfolio continues to be well diversified across sectors and geographies. Households have been resilient in the face of higher interest rates and cost of living pressures. Mortgage delinquencies edged up 1 basis point to 58 basis points and hardship balances rose 5 basis points. Credit impairment charges were stable at 10 basis points of average gross loans. Total credit provisions rose marginally and at $5.3 billion and now $2 billion above our base case. Collectively assessed provisions to credit risk-weighted assets decreased two basis points to 127, while total provisions to gross loans were stable at 58 points. Modeled collective assessed provisions were slightly higher. Revised economic forecasts provided a modest release, This was more than offset by management judgements, including updates to the downside severity methodology and increases in overlays. The SET1 capital ratio remains strong at 12.1%. The reduction in SET1 reflects a payment of the half-year 26 dividend and an increase in risk-weighted assets, more than offsetting earnings for the quarter. Various movements in risk-weighted assets are outlined in the materials. We received a 23 basis point benefit from the completion of the RAMS portfolio sale on 1 August. To conclude, the performance for this quarter demonstrates solid progress against our plans in a competitive environment. Disciplined execution is driving our momentum. We're striving to be more efficient while investing in our business. And with that, I'll hand back to Justin for questions.

Thanks Nathan and just to restate we've got a dozen of you in the queue so if you could limit your questions to one that would be helpful for us to get through. Our first question comes from Richard Wiles from Morgan Stanley.