Westpac Banking Corporation

Good morning everyone and welcome to Westpac's full year 2026 results briefing. I'm Justin McCarthy, General Manager of Investor Relations. Before we commence, I acknowledge the traditional custodians of the land in which we meet and for us today 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. I'm pleased today to be joined by our CEO Anthony Miller and CFO Nathan Goonan. After the presentation we'll move to Q&A, taking questions from the lines. With that, over to you Anthony.

Thanks Justin and good morning. We delivered a solid financial result this year and made good progress against our priorities. Our balance sheet remains a clear advantage. We have a peer leading capital position and the deposit to loan ratio increased to a new high. Both measures have strengthened materially over the past decade, allowing us to support customers through the cycle and grow the business. Operating momentum generated solid growth across both sides of the balance sheet, with market share gains in business and institutional. First party home lending returned to growth. Advocacy and NPS also improved, demonstrating the trust we're building with more customers. Our priority now is to become the primary bank for more of these customers. We are investing to improve returns. Unite, alongside investments in bankers, Biz Edge, Westpac One, digital, data and AI, are helping to enhance service and improve productivity. We expect the investment to generate more revenue and structurally lower costs over the medium term. Turning to the operating environment, the conflict in the Middle East added to uncertainty in the Australian economy. By May, higher energy prices and supply pressures had increased inflation risks. and we were expecting a more pronounced slowdown. Thankfully, concerns around energy supply, particularly diesel, did not eventuate. The transition from public demand to private investment has been smoother and faster than expected. Business investment has strengthened, supported by infrastructure, data centres and the energy transition, with the pipeline of projects pointing to a further surge in investment. High interest rates and inflation continue to put pressure on household budgets and business costs. will remain conscious of these pressures and encourage customers who need help to get in touch. A feature of the current environment is the gap between confidence and economic activity. Business confidence is in the bottom 5% of historical readings, yet activity has been more resilient. Our cash flow data shows dispersions by size and industry with larger businesses managing their costs better, while small businesses have less capacity to absorb or pass from on. By industry, Agriculture and transport recorded an improvement in cash flows, despite rising fertiliser and energy prices, while manufacturing and construction found conditions more challenging. We see a similar picture for households. The cumulative impact of high interest rates and cost of living pressures continues to weigh on confidence, with sentiment recording its lowest or longest period of weakness in 30 years. Yet spending remains resilient. Our card data shows discretionary spending growth of 5.3%, approximately 1 percentage point below pre-conflict levels. The housing cycle has turned, although at this point the downturn is consistent with previous cycles. Mortgage applications were 15% lower in the fourth quarter than a year ago. Total applications however remain above their five-year average. Our result reflects a strong financial position. Solid balance sheet growth and a continued focus on managing costs. Net profit, excluding notable items, was steady at $7 billion, with 4% pre-provision profit growth offset by higher impairment charges. A return on tangible equity was up 14 basis points to 11.1%. The set-one ratio of 12.5% was stable. The Board has determined a final dividend of 77 cents per share, taking full-year dividends to 154 cents, fully franked. Balance sheet momentum was solid with growth in deposits and lending of 6% and 5% respectively. While cost growth was modest, our cost to income ratio of 51.9% remains too high. I'm pleased with the momentum we're seeing across the franchise. We grew the balance sheet across all four segments while making decisive changes to how we run the bank. We achieved pre-provisioned profit growth across Australia. The tilt towards business and institutional is progressing well with pre-provisioned profit growth of 11% and 8% respectively. New Zealand grew both deposits and lending against the backdrop of modest activity with competition intense in a lower interest rate environment. We saw good traction in business banking with lending excluding agribusiness growing above system. We can and must do more to improve returns. We have a large, diverse and well-balanced franchise with significant market share across consumer, business, institutional and New Zealand. This gives us significant scope to meet more of our customer needs. In consumer, the integrated service offering is shifting simple sales and servicing to digital while focusing branches and assisted channels on more complex needs. This should deliver a faster, more consistent customer experience. In business, one in five Australian businesses view us as their main bank, Our opportunity is to do more for them. We're investing in bankers, rolled out regional service centres to strengthen service and are aiming to deepen those relationships, particularly across working capital and transaction banking. In institutional, we increase FX share and are building out our commodities, trading and transition capabilities. As Australia's oldest bank, our performance is linked to the prosperity of our customers, our communities and the broader economy. I want to highlight two areas where it's striving to make a difference. Housing remains a national challenge. We are supporting social, affordable and rental housing along with pathways to ownership with a target to finance $100 billion in lending by 2030 across these areas. We're working hard to protect customers and get ahead of scammers. Customer net scam losses declined 23% and we helped prevent more than $350 million in losses. Our five priorities anchor how we deliver our strategy to drive sustainable returns for shareholders. We're very clear about what we're going after and where we need to execute. We need to continue to prioritise balance sheet strength to grow and invest. Better service helps us earn the right to bring more of the bank to each customer. This supports growth in deposits and proprietary lending, strengthening the economics of our franchise and supporting higher returns over time. The significant investment underway is helping Westlac become more efficient, agile and connected. As we deliver the transformation agenda, we'll be better placed to capture the benefits of scale, strengthen risk settings and build a more resilient business. Maintaining a strong balance sheet gives us the capacity to invest and grow with discipline. We are deliberate in our approach, with performance driven by supporting customers in their growth. A set one capital ratio of 12.5% is peer leading, having improved by almost 3 percentage points over the past decade. We've also improved our funding position with the deposit to loan ratio increasing to a new high of 85.5%, an improvement of 15 percentage points over 10 years. This has supported growth while maintaining strong capital funding and risk settings. Housing lending grew 7% while business and institutional lending increased 12% and 18% respectively. Deposit growth was also solid with household deposits up 7% and institutional deposits increasing 14%. We're investing in our people and leaders to build the workforce we need for the future. Our workforce is highly engaged and I've been really pleased with our AI adoption. There is a focus on strengthening their capabilities and we're also simplifying how our people work. We have simplified 195 processes since Unite began. Ultimately we want our people to have the skills, tools and opportunities to perform at their best, serve customers better and build long-term careers. We're taking an enterprise-wide approach to how we build and use data, digital and AI. Data is one of the most valuable assets we have and we're getting much better at putting it to work for our customers. Westpac Intelligence is putting valuable insights into the hands of our bankers to better understand and anticipate customer needs. Our initial AI use cases are showing potential with models being built and deployed five times faster. A combination of digital experiences and face-to-face support is helping us deepen our engagement with customers. Across Westpac, we're making it easier for customers to engage with us in a way that suits them. Customers who are digitally engaged are four times more active with Westpac and 35% more likely to consider us their main financial institution. Since February, customers have made more than 100,000 appointments through the new Booker Banker tool, choosing a convenient time to discuss their home loan. These service level improvements are translating into measures of advocacy. Consumer MPS reached an all-time high of plus 10 in July. increasing four points over the financial year and closing the gap to the leading major bank. Business also made good progress with NPS improving four points. We were number one for half a year but slipped back as we worked through KYC remediation requirements. In institutional, relationship strength improved to its highest level in more than a decade. We are in the early stages of improving our digital proposition in New Zealand to support higher customer advocacy. We have made progress. However, there is more work for us to do. Deposits are central to our strategy, funding strength and ambition to become the primary bank for more customers. While the composition of deposits will ebb and flow over the course of the interest rate cycle, we have delivered improvement over time. Growth in quality deposits since September 2022 has helped to avoid the need to hold an additional $30 billion of liquid assets. We've been able to divert that to additional lending. We are targeting engaged customers through improved digital onboarding and propositions such as spend and save. In business, we are growing the number of transaction accounts and specialist capability. In institutional, we retain a leading position in public sector deposits and will serve more client needs through Westpac One. We must attract more transaction accounts and convert them into MFI customers. They provide more stable funding, richer customer insights and a platform to bring more of the bank to each customer. We are focused on getting the basics right, competitive propositions simple, digital experiences and bankers with more time to understand and meet customer needs. The consumer segment delivered a resilient performance in a more challenging environment. Following changes announced in the federal budget, home loan applications slowed across the industry. Proprietary lending for the Westpac brand increased to 42.4% of originations in the second half of 26 compared to the and 34.8% in the prior corresponding period. The result shows what is possible when our people, processes and technology operate in one best way on the right platform. It also reflects investment in bankers and deliberate work to strengthen consideration, improve lead quality and allocation, increase lender effectiveness and simplify application requirements for consistent service. There is further opportunity to improve retention and turn more customer insights into relevant lending conversations. Progress is good but our proprietary mix remains below some peers. Business lending momentum continues with the book up 12% over the year supported by growth across our major segments. Lending remained disciplined and relationship led with almost three in four loans written for existing customers. Credit demand was strongest in medium and large businesses with more work to do in small business. Other areas we are focused on is working capital and invoice finance where our current position does not reflect our capability. Biz Edge is helping simplify business lending, reducing rework and helping our bankers spend more time with customers. Institutional had another strong year. Lending grew 18% with the portfolio well diversified and high quality. Much of that growth supported investment in infrastructure, energy and resources. The 81% of new lending to existing customers speaks to our established customer base and ability to serve customers as they invest and grow. We're also meeting more of their broader needs with growth across debt capital markets and foreign exchange. There is significantly more opportunity in transaction banking and Westpac One is an important part of closing that gap. It brings treasury management, payments, foreign exchange, trade and lending together supported by richer data and a consistent digital experience. The first pilot customer has now been onboarded. Over time, the platform will make it easier for customers to manage liquidity and cash across markets. We want risk management to be differentiated by enabling streamlined and better decisions that support us to deliver faster on our strategic priorities. Our credit quality remains resilient, supported by prudent underwriting and portfolio management. We continue to simplify processes and strengthen controls across operational risk. We're also embedding the governance and oversight needed to deploy AI responsibly. And we continue to invest in cyber resilience, infrastructure and customer protection. Unite remains the cornerstone of our transformation agenda. We delivered on all key FY26 milestones. The Asgard migration to BT Panorama is complete. One commercial bank migrations are underway and 18 legacy applications were decommissioned. The program remains on track. We will continue to be transparent about progress and risk of delivery scales. We look forward to providing a full update in March. We are using AI within Unite. An example is the migration of the Legacy St George Data Warehouse. The team used AI tools to speed up code conversion, testing and documentation. It's helped us complete the migration more than two years earlier at half the cost. We expect to start booking the benefits of this from FY27. The tools, methods and experience developed can also be reused for other migrations. It is a good example of what can be achieved when AI capability is integrated. Catalyst is designed to improve the speed and consistency of execution. We have moved from hundreds of annual projects to 21 delivery units and six practices with persistent teams, clear accountability and multi-year outcomes. Catalyst is now live across the group. While the early signs are encouraging, its success will be determined by whether it produces faster delivery, better outcomes and a structurally lower cost base. That is what we will measure from here. Nathan will now take you through our financial performance in more detail.

Thanks Anthony and good morning everyone. Starting with the financial performance over the year before talking in detail about the half year trends. My remarks will refer to the result excluding notable items which relate to hedging and the costs associated with the RAMS sale and litigation. Net profit was flat with higher operating income and lower operating expenses offset by higher credit impairment charges. Revenue was up 1% comprising a 1% increase in net interest income driven by an increase in average interest earning assets and a 7 basis point decline in net interest margin. and a 1% increase in non-interest income. Operating expenses were 1% lower, including the restructuring charge in FY25. Excluding the charge, expenses rose 1%. These revenue and expense outcomes resulted in a 4% increase in pre-provision profit or a 1% increase excluding the prior year charge. Credit impairment charges increased to 10 basis points of average gross loans compared to 5 basis points in the prior year. Moving to the second half, net profit was up 1% with higher operating income and slightly lower credit impairment charges, more than offsetting higher operating expenses. The increase in operating income was supported by strong balance sheet growth. Cost outcomes reflect seasonality of staff-related expenses, continued investment in strategic priorities and ongoing cost discipline. These revenue and expense outcomes resulted in flat pre-provision profit. Credit Impairment Charges were nine basis points of average gross loans. Deposits grew 6% over the year with growth evenly split between the two halves. At a system level, the composition of deposit growth shifted in the second half beyond normal seasonal patterns. Broader macro trends, including the interest rate cycle and liquidity movements between sectors of the economy, drove divergence. This resulted in strong market growth in government and ongoing growth in financial institutions. Household deposit growth was relatively stable and non-financial corporate deposit growth moderated. These trends were evident in our growth during the half. Institutional transaction and saving balances grew strongly, particularly in the third quarter, reflecting the market backdrop, continued momentum in our financial institution strategy and the strength of our leading government franchise. Consumer continued to experience demand for savings products and term deposit balances grew strongly across all segments as term moved above savings rates for the first time in several years. This pricing dynamic subsequently reverted as we moved into the current half. Offset balances grew supported by both mortgage portfolio growth and customer preference. Our strategic focus remains on growing transaction banking relationships and becoming the main financial institution for more customers, with strong account sales across all segments supporting this objective. Balance growth moderated in consumer transaction accounts in line with seasonality, while business and wealth transaction balances contracted as the system softened. Loans, after rising 4% in the first half, increased a further 3% in the second half, with growth across all segments. Australian mortgages grew 3% in line with system. This reflected sustained improvement in our first party proposition and continued execution of our mortgage strategy. Activity moderated in the fourth quarter and we accept system growth to slow to 3.8% in FY27. Australian business lending continues to show good momentum, growing 7.5%. While growth was diversified, it was strong across target sectors. The larger commercial, regional and agricultural segments generated most of the growth, while SME performed well, albeit off a considerably smaller base. Institutional lending grew by 5%. Growth was mostly investment grade and in the financial sector, including our participation in the funding structure accompanying the RAMP sale. Lending grew by 2% in the half for New Zealand, where demand for credit improved notwithstanding a challenging economic environment. Operating income increased 1% in the half to $11.4 billion. Income excluding Treasury and markets and the depreciation of the New Zealand dollar was up 2.3%, reflecting solid operating momentum across consumer, business and wealth and institutional segments. Strong balance sheet growth more than offset a reduction in movements in Cornu. Fee and wealth income increased driven by lending activity and higher funds under administration. The depreciation of the New Zealand dollar had a $60 million adverse impact. Treasury and markets income decreased $65 million. Treasury income was $50 million lower, while markets income, excluding DVA, declined $44 million as rates activity slowed in the fourth quarter. Total treasury and markets income was 5% below the five-year average. I will review the components of net interest margin in detail. Core net interest margin decreased three basis points to 175. As expected, the non-repeat of timing differences following RBA rate changes in the first half added one basis point, and the replicating portfolio added two basis points across deposits and capital. Lending margins were lower and rounded up to a full basis point impact. The rate of compression moderated in institutional lending was stable in business lending and Australian mortgages and was more pronounced in New Zealand mortgages where competition intensified as fixed rate lending increased. Deposits contracted one basis point as benefits from the replicating portfolio, higher rates and term deposit spreads were more than offset by higher qualifying rates on savings products and mix. The two basis points of mix impact comprised one basis point from divisional mix as higher rate institutional deposits grew faster than other segments and one basis point from product mix as customers shifted to higher rate term deposits. The total mix impact and the impact of higher qualifying in savings products were both more pronounced in the fourth quarter. As foreshadowed at the third quarter, liquid assets moved from a benefit to a drag in the fourth quarter, reflecting stronger than originally expected deposit growth at the time of the RAMS divestment. Overall, liquids were neutral in the half. The Treasury and markets contribution of 11 basis points was stable. Looking ahead to the first half of 2027, the replicating portfolio is expected to be a benefit of two basis points. Liquid assets should provide a two basis point benefit as they are expected to grow slower than lending assets. We expect a one basis point benefit from the September RBA rate rise on unhedged deposits. We expect overall lending margins to edge lower as competition persists. However, next period this will be partially offset by mixed benefits from the sale of brands and the repricing of credit cards. Deposit mix is expected to be less of a drag as institutional deposit balances contracted in the fourth quarter and are expected to grow in line with the book moving forward. We expect customers to continue to be attracted to higher yielding products and qualification rates to remain high. We have also provided sensitivities to potentially higher interest rates. This slide provides important context to our cost position. We are sustaining investment to grow and simplify the bank while maintaining discipline over the broader cost base. Cash investment spend is 9.4% of revenue, reflecting the scale of the transformation underway. A greater proportion of our investment is also expensed, which increases reported costs today relative to peers. We understand the critical importance of executing Unite and more broadly delivering improved benefits from this spend. Catalyst provides an important structural opportunity for us. At the same time, productivity delivery is accelerating. We delivered $581 million of structural savings in FY26 and are targeting more than $600 million in FY27. This productivity provides an important shield to inflation and presents opportunities to reinvest in our strategy. Our commitment to strong cost discipline and structurally lowering our cost base over time remain unchanged. In this context, expenses increased 1% to $11.8 billion in FY26. The rise in employment costs reflected higher wages, continued investment in bankers and the build-out of our DDAI function. The moderation in technology costs notwithstanding ongoing inflation reflected a shift in some spend into the investments category in the second half, combined with disciplined vendor and volume management. The slight rise in volume and other reflected a GST benefit and sizeable unit cost savings from the team's ability to absorb higher volumes. Higher structural productivity savings included the benefit of a simpler operating model, reductions in branch spaces and the initial benefits of Unite. Investments were up significantly. Drivers include higher cash spend, the recategorisation of some spend from technology and lower capitalisation rates. The latter was a result of higher proportion of Unite investment. Overall, we are managing costs well. The underlying cost trajectory is improving and we are pleased with the execution of our full year plans. As we enter the new financial year, we expect similar cost growth to FY26 and there are several items to consider. Employee costs will rise as the impact of the enterprise bargaining agreement flows through. We continue to reinvest productivity savings in bankers and data, digital and AI talent. There will be less benefit from prior year restructuring costs. Technology expenses are expected to accelerate as we invest more in AI, strengthen cyber security and absorb ongoing vendor inflation. Amortisation will become a tailwind as our amortisation expense peaked in the first half of 26. Finally, the New Zealand dollar benefits are unlikely to repeat. Moving to investments, we spent approximately $2.1 billion in FY26 with Unite accounting for 44% of that spend. This was slightly higher than previously guided, reflecting a shift of some technology costs into investments and slightly more spend on Unite. The proportion of investment spend that was expensed increased to 68% with Unite the main driver, expensed at 75%. Looking for FY27, we expect spend to be relatively stable. Unite is projected to be between $850 and $950 million. We expect spend on growth and productivity to increase as we invest in our strategy across DDAI, Biz Edge, Westpac One, alongside the end-to-end productivity opportunities we see in our major product lines. Overall, credit quality metrics remain sound. Businesses continue to show resilience and while consumer spend has slowed marginally, is at a reasonable rate of growth by historical standards and unemployment remains low. Stressed exposures to total committed exposures increased one basis point. Households have been resilient in the face of higher interest rates and cost of living pressures. Mortgage delinquencies are flat over the year and edged up five basis points in the half. Hardship balances rose three basis points. In New Zealand, mortgage arrears decreased by 8 basis points. We are cautious of the impacts of the ongoing Middle East conflict and higher rate environment, with the balance sheet provisions well placed for potential deterioration. The unemployment rate will continue to be the major determinant of mortgage asset quality. Total credit provisions were flat at $5.2 billion, $2 billion above our base case. Total provisions to gross loans were stable at 58 basis points. Collective provisions decreased slightly due to the RAMS sale. Excluding RAMS, collective provisions increased by 129 million, reflecting a combination of modelled outcomes and management judgement. As a result, collective assessed provisions to credit risk-weighted assets decreased two basis points to 127. The movement in provisions comprised and increase reflecting the modest deterioration of 90 day plus delinquencies in the mortgage portfolio and the impact of declining house prices. New overlays related to energy intensive and discretionary spending sectors. Management updates to the downside severity methodology and a release from updated economics forecasts largely reflecting an improved GDP outcome. Individual provisions increased 48 million. New and increased individually assessed exposures were 497 million, up 34 million on first half 26, largely driven by single names in the utilities, agriculture and transport sectors. A strong balance sheet is critical to our strategy and a consistent focus of ours. It supports growth and value creation over time. That strength is reflected in our liquidity and funding position, underpinned by high-quality customer deposit growth. We raised $40 billion of long-term funding during the year. Most of this was issued during the first three quarters. Strong deposit growth together with the RAM sale narrowed our funding gap. The deposit to loan ratio increased half a percentage point to 85.5%, a new high for our bank. Our liquidity and funding metrics remain comfortably above regulatory minimums. We believe that is appropriate given the market backdrop. The average LCR of 137% was elevated in the last quarter with strong deposit flows coinciding with the proceeds of the RAM sale. Subsequent actions through limited issuance and the expiry of both short and long term wholesale funding has reduced the spot LCR to the high 120s as we begin the new financial year. Our capital position provides us flexibilities and opportunities over the medium term. The set one capital ratio ended the year at 12.5%. Net profit added 74 basis points while the payment of the interim dividend reduced capital by 57 basis points. Risk weighted assets attracted 28 basis points with higher lending balances more than offsetting data refinements.