Westpac Banking Cp Ord

Good morning and welcome to Westpac's first half 2025 results briefing. I'm Justin McCarthy, the General Manager of Investor Relations. Before we commence, I acknowledge the traditional custodians of the land on which we meet today. For us in Barangaroo, that's the Gadigal people of the Eora Nation. I'd like to 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 CEO, Michael Ryland. After the presentation, we'll move to Q&A, taking questions on the phone. With that, over to you, Anthony.

Thanks, Justin, and good morning, everyone. It's a pleasure to present my first results announcement as CEO. We have a very strong financial foundation which provides us with stability and security to support our people, customers, shareholders and the broader economy. This is particularly important given the global uncertainty that has shaped 2025. It provides us with flexibility to navigate challenges as well as deliver both growth and return. Customer service excellence is critical for future success and we aim to be number one. To achieve this, we are investing in our people, innovation and simplification. Service quality is improving and we will see this continue as platforms such as Bizedge, Westpac One and Digital Banker come online alongside the boost to customer facing teams. We're also transforming the company via One Best Way, a philosophy that is driving simplification, consistency and efficiency. By implementing One Best Way across products, processes and technologies, we are streamlining operations to make banking easier and more cost effective. This will reduce risk and improve our operating and financial performance. We focus on ensuring we have a strong balance sheet. The foundations of the bank have strengthened materially over the last two decades. The common equity tier one ratio of 12.2% is more than six percentage points higher than pre-GFC levels. Additionally, the deposit to loan ratio is at a record high of 84.5%, which is up 31 percentage points in that time. This has significantly enhanced our financial resilience and reduced dependence on wholesale funding, especially from offshore. Over the same period, liquid assets had more than doubled and now make up 19% of total assets. Our credit impairment provisions exceed the base case scenario by $1.7 billion. These foundations will support us to navigate increasingly volatile and uncertain conditions stemming from trade and geopolitical tensions. Australia, and to a lesser extent New Zealand, entered this period of uncertainty in good shape. Inflation is moderating and interest rates are trending downward. Our stable political and regulatory environment presents Australia with the opportunity to differentiate and be a leading global destination for both talent and investment capital. Recent data highlights the resilience of the Australian economy, with household spending modestly improving and business conditions just below average levels. This aligns with insights from our analytics team, Westpac DataX. The credit card tracker indicates consumer spending is gradually improving, with annual credit card activity growing at 3 to 3.5%. Cash flow positions for business customers are now stable, and for many, they are now improving as they manage costs, including SME customers whose cash flows had been deteriorating for the last 18 months. While we're marginally low at our economic growth forecast for 2025, growth is still expected to accelerate to 1.9%. Housing and business credit are projected to grow by 5% and 6%, respectively. However, there are risks to this outlook. The most recent Westpac Melbourne Institute Consumer Sentiment Survey declined 10% among those interviewed after the US imposed reciprocal tariffs. Business confidence has also weakened. This could lead to softer consumer spending and business activity. Critically, wholesale funding spreads have widened since the end of the first half. Volatility may push funding costs higher. We recognise the important role we play across the economy. Supporting customers through hard times is a responsibility we take with pride. On scams, every layer of defence counts. Our latest innovations, Safe Block and Safe Call, are designed to further strengthen customer security. I am pleased that reported customer scam losses were down 19% this half, saving our customers $115 million in potential losses. More recently, we stopped a $320 million transfer by a business customer who was deceived into paying a hacked invoice with altered account details. While our customers remain resilient and stress has improved, we provided 23,000 hardship packages to customers and businesses this half, including 280 tailored disaster relief packages. Through the Westpac Rewards Hub, customers received $70 million in value through shop back, promotions and discounts. We have a proud legacy of supporting communities and we're strengthening this by expanding regional banking access. We are growing our regional presence with new service centres, giving homeowners, farmers, small businesses and local councils more access to financial services. It was a privilege to travel to Moree last month to make this announcement. To support women when starting or growing their business, we recently doubled the Female Entrepreneurs Fund to $1 billion. This initiative has empowered more than 1,000 women since 2023. We are supporting Australia's economic growth and shaping a stronger, more prosperous future. Cash is here to stay, and we're working with peers and the government to address the country's ongoing challenges in the storage, transportation and utilisation of cash. We've paid $1.7 billion in tax for the first half of 2025, ensuring we play our part in supporting the economy. Additionally, our 36,000 employees received more than $3 billion in salaries during this period. Turning to financial performance, the result reflects our focus of generating growth but making sure this is not at the expense of return. Net profit, excluding notables, decreased 1% to $3.5 billion compared to the prior corresponding period. There was a slight improvement in our key return metric, return on tangible equity, but this was mainly due to the reduction in share count through the buyback. The cost to income ratio increased by two percentage points. As I said at the market update, we have to structurally lower costs within the company. Unite is one, but not the only way we will achieve this. The ordinary dividend was maintained at 76 cents per share. This represents a payout ratio of 75% of net profit excluding notables. Our market position strengthened across areas aligned with our strategic tilt to business and institutional banking. We focused on improving returns in consumer. The 9% growth in consumer deposits is testament to the quality of and the ongoing improvement in the franchise. This reflects the health of our customer base and was supported by the success of our award-winning Westpac app and simplified product suite, which provides customers with consistent everyday banking solutions. Business lending increased 14%, with strong growth across target sectors of health, professional services and agriculture. In institutional, a focus on deepening client relationships and improving service underpinned loan growth of 15%. The progress made is evident in our improved rankings across key financial market industry surveys. The strategic tilt has been accretive to ROTI, while the average risk grades across the business and institutional lending book remain stable, which is particularly pleasing. Looking more closely at mortgages, we've managed through a very competitive banking environment and achieved a solid performance in the half. We have made headway in improving returns, added by further operating efficiency with front book returns now higher than back book. We've been focused on delivering consistent service through our home finance managers and mortgage brokers. This is reflected in time to decision, which further improved this half and is now under five days. Additionally, we have intensified efforts to retain customers during critical moments, such as the expiry of fixed rate loans. This has improved mortgage NPS, where we are now second. We are targeting growth in line with system, excluding RAMS. Decisions taken in recent months to focus on a better balance between growth and returns are expected to lead to a slightly softer Q3. Looking ahead, we are targeting higher returning segments, improving the performance of our proprietary channel and unlocking the benefits of scale through Unite. We have a great team in our first party channel and we have changed our reward and recognition structure to reflect that. We're adding another 180 home finance managers and have simplified our pricing structure to improve transparency for customers. Mortgage brokers are important partners. To support them, we've halved time to decisions since 2023 and continue to remove pain points for faster loan decisions. Customers remain at the heart of everything we do. We aim to be number one in service and we're going after this by embracing a whole of bank to whole of customer approach. Our priority is to win the entire customer relationship by providing consistent service excellence on the app, the phone and in the branch. To support this, we are mapping processes from the customer's perspective to remove pain points and making banking simpler, faster and more personalised. We're also investing in our people. In business, we are streamlining processes and increasing customer-facing roles. Over the next three years, we expect to add 350 bankers in business and wealth, with approximately 90 onboarded so far. Likewise for institutional, we are halfway towards our target of adding 80 frontline employees to support growth. We are focused on providing our people with training, including generative AI, data protection, cyber awareness, and in more specialised areas such as working capital. The Business Performance Academy has been launched to enhance banker development and expertise. To make banking simpler and more accessible, we're improving digital experiences. Our number one banking app is consistently upgraded and has new digital tools to help businesses with cash flow and expenses. We're also embracing AI through our AI Accelerator platform. In mortgages, we're using it to improve processes and communication. The Virtual AI Assistant answers process and policy questions for our people, saving significant time and allowing them to respond faster to our customers. Meanwhile, GenAI is being used to complement the expertise of our 800 assessors. By processing documents, summarising key information in broker applications, it ultimately speeds up approvals for customers. While AI is surrounded by hype, its true value lies in delivering sustainable productivity gains and cost savings, which can take time to materialise. It's early days, so we will measure the benefits of each test case to make sure we make informed decisions on further investment. To support service excellence, we're also investing in innovation. We have launched BizEdge, our new lending origination platform for commercial, SME and small business bankers. This is dramatically improving how we lend to businesses by guiding applicants and bankers through the best application pathway. With this platform, we expect to see a 60% improvement in time to decision. We are investing approximately $300 million in this initiative through to financial year 29. Upon completion, we will have merged 27 banker systems and tools into a single digital platform. Additional benefits will follow as we phase out legacy systems, reduce complexity and lower costs. For institutional clients, Westpac One will be our new platform bringing together real-time treasury management, FX, trade and lending with powerful data insights. It's progressing well. These investments support our goal to be number one in customer service. We have an ambitious transformation agenda, and this is focused on simplifying our operating environment across products, processes and systems to deliver the one best way through Unite. We expect this to improve customer experiences, make work easier for our people and reduce the cost of run and change. We covered Unite in detail at our update at the end of March. To recap, Four initiatives have been completed and 41 are underway. We are focused on getting the initiatives that are red back on track. We'll use the status by initiative and project stage to keep you updated on our progress. In the first half of 2025, we spent $251 million on Unite and we expect to spend between $350 and $400 million in the second half. spend towards the higher end of the range would reflect more initiatives progressing than we previously anticipated. Looking ahead, we anticipate Unite will represent approximately 40% of total investment spend from financial year 26 to FY28. We have set five strategic priorities. Today, I've devoted more time to performance, customer and transformation, which sit alongside the priorities of people and risk. A market-leading employee proposition underpins a market-leading customer proposition. We are fostering an accountable and empowered culture to create an environment where employees feel valued, supported and equipped to perform at their best. We are building on our solid employee engagement baseline with a clear ambition to reach the top decile. Risk management practices are being embedded into all roles and operations, not just as protection, but as a differentiator. We have set key metrics with FY29 targets to measure our progress in the years ahead. These will continue to be a regular feature so you can track our progress each half. Over the last two years, we have improved consumer NPS and are now second. We have made progress in business, but there is more to do. With several executive changes, we have a strong leadership team supported by an engaged workforce who are steadfast in their commitment to helping customers overcome challenges and achieve their financial goals. We will be open and transparent as we drive to complete Unite on time and on budget. Performance remains a key focus. Our decisions and approach are guided by delivering improvements in ROTI and cost to income ratio. In closing, we are pleased with the strength of our balance sheet. It positions us well to navigate uncertainty while supporting our customers and driving both growth and return for our shareholders. Michael will now take you through the performance in more detail.

Thanks, Anthony, and good morning, everyone. This result shows we're on track with the strategic repositioning of Westpac while strengthening the balance sheet for uncertain times. I have four observations on the result. One, our strong balance sheet settings enable growth in our target segments and increased investment in Unite while supporting our customers and the community in increasingly uncertain times. Two, the core margin was only three basis points lower in the half and one basis point in the second quarter in a competitive and volatile environment. Three, expenses were well managed with the ongoing cost reset program constraining expense growth to 3% despite elevated wage and salary growth and the step up of Unite. And four, credit quality is sound with impairment charges low at six basis points of average loans. To be in a strong position to support customers, it's worth reflecting on the extent to which the balance sheet has strengthened since the GFC. The CT1 capital ratio of 12.2% is up from 6% in March 2008. Not only does this place us in the top 10 banks globally, it's the way we absorb losses in times of extreme difficulty and continue to support customers. Our funding composition has improved significantly. Customer deposits have risen from 44% to 67% of total funding. This continued in the first half with deposit growth of $20 billion compared to the loan growth of $18 billion. Our liquidity and funding metrics are above normal operating ranges, which we believe is appropriate given the market backdrop. Our term funding issuance plan is the lowest it's been in the last 10 years, reducing our need to access wholesale funding markets. Moving to capital in further detail. The CT1 capital ratio ended the half at 12.2% and 12% on a pro forma basis. Net profit added 74 basis points, while the payment of the full year dividend reduced capital by 58 basis points. Risk-weighted assets, excluding IRRBB, was neutral as the increase from lending was offset by data refinements and improvements in delinquencies. IRRBB added 31 basis points, of which 23 basis points related to the extension of the deposit hedge from four to five years. Removing this impact is subject to APRA's approval of new models under APS 117. The ongoing share buyback reduced capital by 13 basis points this half. moving to capital management. We've actively balanced investment and growth while returning some of the surplus to shareholders through the on-market share buyback. Given that $1.1 billion of the previously announced buyback is left to complete and the focus on supporting growth and Unite, we've decided not to increase the buyback further. We expect the remaining buyback to take us the rest of the year to complete. it will continue to reduce the share count and support dividend sustainability over the medium term. Buybacks completed over the last three years have added approximately 27 cents per share in dividends. The interim dividend was held flat at 76 cents per share, equating to a payout ratio of 75%, which is at the top of our sustainable payout range of 65% to 75%. Turning to financial performance. Net profit was down 9% to $3.3 billion, largely due to notable items which relate solely to hedging. Hedging of our wholesale funding manages interest rate risk and unwinds over time. These hedging items reduced net profit by $140 million compared to a $41 million benefit in the second half. While we continue to improve hedge effectiveness, we plan to adjust our disclosures at the full year to make peer comparison easier. Excluding notable items, profit was down 4%. Higher expenses and impairment charges more than offset balance sheet growth and a recovery in markets income. EPS decreased 3%, less than the decline in net profit due to the buyback. Moving to the components of net profit, excluding notable items. Net interest income was up $4 million. Core net interest income was stable, with average interest earning asset growth of 2%, offset by a three basis point contraction in core net interest margin. Treasury and markets income was down slightly on the second half, but remains above the medium term average. Non-interest income was up $42 million, mainly reflecting an increase in FX revenue. Expenses were up $149 million. I'll cover this in detail in the expense commentary shortly. Overall, pre-provision profit excluding notable items was down 2%. Credit impairments detracted $75 million, reflecting an increase in the downside scenario weight to capture heightened external risks. The effective tax rate of 31.4% was slightly above the statutory rate of 30% with prior period adjustments and non-deductible expenses impacting tax expense. Total lending increased 2% with growth in all our segments, consumer, business, institutional and New Zealand. Australian mortgages, excluding RAMS, grew by 2%, slightly below system as we balanced growth and return in a competitive market. Australian business lending is showing good momentum. Lending grew 7% in the first half with solid growth in our target sectors of health, professional services and agriculture. Institutional lending grew by 6% as we continue to deepen relationships with customers. Lending edged up 1% in New Zealand with mortgages growing at 0.9 times system. Economic activity remains subdued, only recently emerging from recession. The portfolios in runoff included RAMS and the sale of the auto finance portfolio, which completed in March. Our strategy to grow household deposits continues to deliver, with deposits growing 3% in the half. Consumer deposits were up $17 billion as we attracted new customers. Growth in customer savings accounts more than offset a decline in transaction account balances. Mortgage offsets increased by $5 billion as new lending was almost exclusively in variable rate mortgages and customers brought other savings with them as they shifted from fixed to variable rate loans. Business deposits increased by $4 billion with customers preferring term deposits, albeit at a slightly slower rate than previously. The growth in WIB deposits was mostly in transaction accounts, reflecting a targeted strategy to maintain the number one position in the public sector. New Zealand deposits grew by $1 billion, with growth in savings accounts as customers preferred to maintain some flexibility given the uncertain economic and interest rate environment. Core net interest margin declined three basis points over the half to 1.8%. This compared to an increase of three basis points in the prior half. March exit NIM was 1.79%. We benefited from higher earnings on the replicating portfolios, although pressure across lending and deposit portfolios persist. Looking at the drivers for the half. Loan spreads subtracted one basis point. In mortgages, the market remains competitive and we saw several factors play out. We prioritised retention of existing customers. The impact on margin was offset by the spread improvement of switching from lower margin fixed rate mortgages to higher margin variable rate mortgages. We are now well past the peak of fixed to variable rate mortgage switching, with the portfolio now 95% variable rate. We've also seen business lending spreads tighten, reflecting the competitive market and growth in lower risk products. Deposits subtracted two basis points in the half as a four basis point benefit from the replicating portfolio was more than offset by the impact of customers moving away from transaction accounts and some compression in savings and TD spreads. We lengthened our deposit hedge from four to five years. This gives us additional downside protection in the event of more substantial declines in interest rates. Wholesale funding costs were slightly higher, as the prior half still had some benefit from the final tranche of the term funding facility. Higher earnings on capital contributed one basis point. The benefit from higher replicating portfolio rates was largely offset by the reduction in surplus capital as we continued to buy back shares. Treasury and markets lowered NIM one basis point with the contribution falling from 13 to 12 basis points, still well above the expected medium term average contribution. Notable items reduced the margin five basis points with a one basis point benefit in the second half, moving to a four basis point reduction. Moving now to non-interest income. Excluding the impact of notable items, non-interest income increased 3%. Fee income was up 1% with higher underwriting fees in WIB. Wealth income was up 7% with higher funds under administration driven by the strong equity market performance in the half. Trading and other income increased 5% from higher FX markets revenue. We continue to focus on sound expense management across all our businesses and this half expense growth was kept to 3%. Staff expenses increased 5% as the new EBA began and superannuation rates increased to 11.5%. FTE increased 2% as we added more staff to support Unite and more bankers in business, WIB and for first party mortgages. The technology vendor inflation we saw in prior periods eased this half to 3%, with higher technology operating expenses coming from higher software amortisation and the additional licences, data and storage costs to support growth. We worked hard to offset these cost headwinds, delivering $261 million of savings through cost reset. This included benefits of a simpler operating model, more automation and reductions in corporate and branch space. As Anthony discussed, Unite is ramping up with expenses higher in the half. Investments excluding Unite decreased largely due to the usual seasonality of investment spend and the completion of some risk and regulatory projects. We remain committed to cost reset and our objective remains to close the cost to income ratio gap to peers over the medium term. Moving to investment spend. Risk and regulatory spend was 38% lower following the completion of projects, however remains the largest component, accounting for just over 40% of total investment. Growth and productivity initiatives included continued digital investment to improve the customer experience, including Westpac One and BizEdge. Unite investment was $251 million as the project continued to step up through the period. The proportion of investment spend that was expensed increased to 61%, with Unite expensed at 77%. Turning to credit quality. Overall, credit quality metrics remain sound, with consumer and business portfolios performing well. Stressed exposures to total committed exposures decreased nine basis points to 1.36%. This reflects a decrease in mortgage arrears and stress across most of our business segments. This half, we have seen continued improvement in 90 days plus Australian mortgage arrears. These have reduced from a peak of 1.12% in September last year to 0.86%, reflecting a change in how we report these loans when customers complete their hardship period, along with customer resilience. In New Zealand, mortgage arrears lifted by five basis points to 54 basis points. The fixed rate nature of the mortgage market means rate relief is taking a bit longer to benefit customers and economic conditions are somewhat weaker. Our Australian unsecured lending portfolios saw a slight deterioration in credit card arrears due in part to seasonal factors. Business customers are managing conditions well, with stress rates improving across most sectors. We have not seen material issues from the floods in Queensland, and despite more recent market volatility, have not seen additional drawdowns on facilities. Turning to credit provisions. We have maintained total impairment provisions above $5 billion. This is just $24 million lower on the prior half, despite the reduction in stress. A small reduction in collectively assessed provisions was offset by a $75 million increase in individually assessed provisions, mainly from a single name in the services sector. While there was little change in the overall balance of our provisions, the composition shifted. Stage 1 cap increased, mainly reflecting growth in our business portfolio. Stage 2 cap decreased, largely due to the runoff of the auto finance portfolio and RAMS. Stage 3 cap was little changed. The weighting to the downside scenario was increased by 2.5 percentage points to 45%. The base case reduced by the same amount to 50%. In our view, this better captures the increase in risks that may come from heightened geopolitical and economic uncertainty that we can't yet see in the portfolio. In addition, we have removed overlays that have served their purpose. In total, collectively assessed provisions to credit risk-weighted assets decreased four basis points to 1.26%, which remains appropriate for our portfolio. The impairment charge of $250 million was the equivalent to six basis points of average loans, up from four basis points in the prior half. This remains well below the long-run average. I usually conclude with the main financial considerations for the half ahead. However, heightened volatility makes it difficult to provide a detailed outlook. For example, the BBSW OIS spread has oscillated within a 20 basis point range in recent weeks. What I can say is that our economics team is forecasting loan growth of 5% to 6% this calendar year in Australia and for official interest rates to decline to 3.3%, 3.5% by the end of 2025. Australian economic growth is expected to recover from 1.2% in 2024 to 1.9% in 2025, with private demand likely to overtake the public sector as the primary driver of activity. Recent data also shows household spending modestly improving, while business conditions are just below average levels. Second half expense growth is expected to be slightly higher, impacted by higher investment spend, including Unite. Expense management will continue to be a focus. Credit quality is expected to remain resilient on the back of low unemployment and GDP growth. We will maintain the strength of the balance sheet across capital, liquidity, funding and provisioning. In a volatile environment, we are well positioned to support our customers and the economy. With that, I hand back to Justin.

Thanks, Michael. We'll move to questions now. We'll take questions first from the analysts and then move to the media. As a reminder, if you'd like to ask a question, please press star one. Our first question comes from John Story from UBS. John?

Good morning, guys, and thanks for giving me an opportunity to ask a question. Anthony, I wanted to just touch on the strategic pivot that Westpac's going through, the growth in business, banking, and institutional. If you go and have a look at some of the metrics, I guess, in the half, numbers down quite sharply, RE contracted quite a lot. The first question I had is just how quickly is the economics in this product category resetting? And then clearly there's an investment that you're making in additional bankers. How much of this investment will allow you to keep a bigger percentage of the margin and potentially drive an improvement in profitability?

Yeah, thanks for the question, John. I would say that there's a bit of noise in the first half results for Business Bank. And so you're right to call out that margin looks like it has moved considerably. And likewise, the return on tangible equity was adjusted due to certain ins and outs. So it's sort of part of that to one side. I mean, we did and are growing exactly we want to in both business bank and institutional banking. The targets that we had were always focused on what's going to be margin accretive for the group, what's going to be ROTI accretive for the group, and we did deliver on those. I would say that the compression that you saw in the division is also a little bit of a consequence of if we're growing loans as much as we are relative to deposits, you'll see a natural compression in margin as a result of that. I would also sort of flag that the focus has been around growing with our existing customers. And so, again, much of it is high quality risk that we've been putting on as our existing customers have rapidly engaged with the opportunities that they see in the marketplace. And so, again, feel like it's the right allocation of priority for us in terms of where we grow and why we grow. The bankers, you know, we've added a number of bankers so far. I would say that we've still got some way to go. And more importantly, we're very focused on making sure we get the right bankers because it's not just about adding resource. They've got to be able to ensure that whole of bank, whole of customer proposition is one that we can deliver on. And then I would also say that in terms of the returns in the division, We haven't properly captured the opportunities that we should be getting, for example, in FX in the division. So, for example, in Business Bank, our market share in terms of FX is half of what some of our peers are in terms of their respective divisions. And so it really calls out that there's a lot of upside for us in terms of just getting more bankers and more focus on how we deliver the whole bank into those customers in Business Bank. On the institutional side, there's just been some excellent growth with existing customers. Again, the priority being around what opportunities they see. And frankly, over the course of the last month, what's stood out to us is that the pipeline continues to grow and it's anchored around a lot more positive outlook and activity likely in the institutional banking space in the next three to six months.

Thanks, John. Our next question comes from Tom Strong from City. Tom.

Great, thanks, and good morning. Thanks for taking my questions. We did look at the impact from the unhedged deposits on the near-end of six basis points, three from pricing and three from mix. And we saw the mix improve in this half with transaction accounts growing again. So should we expect that mix component to come down over the next sort of six, 12 months? But on the other side, you know, we've seen peers talk to widening savings and TD spreads. Will that rise and sort of mitigate that mix impact?

I'll invite Michael to add some comments, but I would say that one thing we have noticed over the last two months is a moderation in that mix adjustment, and so that is helpful. Nevertheless, it is still competitive in the context of deposits right across the marketplace. And I think that competitiveness, again, has moderated over the last couple of months. But we need to be conscious of the fact that I think a volatile international wholesale market will only potentially put more pressure on that competitive element in the market. But we are pleased, at least in terms of the composition shift, has moderated quite a bit in the course of the last two months. Michael?

Look, I just add that, as you will have seen, we didn't give an outlook slide this half. And as Anthony indicated, that's mainly because of the volatility we're seeing more broadly in the economy and in funding markets. So it's a bit hard to say. Having said that, the best guide I can give you is that the exit margin was 1.79%. We see that there is still upside in the hedge deposits and capital going into the second half. And as Anthony said, we are seeing slightly less compression from mix shift and in TD. So all up difficult to predict, but the level of mix shift impact is slightly less going into the end of the half.

Thanks, Tom. Our next question comes from Ed Henning from CLSA. Ed.

Thanks for taking my questions. Look, a couple from me. Firstly, can you just run through the thoughts on changing your hedge from a four to five year? How are you thinking about the impact next year when the others still have embedded gains and how you're going to compete with that? when you think about growth versus margin. And also, can you just touch on, I know the auto finance business is only small, but the runoff in that book, is that any headwind to margin there as well, running into the next half, please?

Can we take that? I'll answer your second question first. The consumer finance book is small, as you indicated, and it doesn't have much of an impact on margins. That's the first point. Second point is, look, as we think about the non-rate sensitive deposit hedge, we were at four years. Some of our competitors were further out. We just waited until we thought that was the right time to hedge to give us more earning stability over time. We've got benefit from that in the half, as you will have seen in the materials. We still have benefit in the second half and into 26, but it's just lower.

Thanks, Ed. Our next question comes from Matt Wilson from Jarden, Matt. Have we got you, Matt? We might keep moving if we haven't got Matt, and we'll go to Andrew Lyons from Jefferies. Andrew, can you hear us?

Yeah, thanks, Justin. Can you hear me?

Yep. We've got you.

Yep. Yeah, just I'll ask two questions and I'll ask them up front. Firstly, on expenses, you've delivered 3% expense growth, which was consistent with what you said at the full year 24 result. I note there was seasonality in your investment spend in the number, which will increase in the second half. And so just given the high levels of expected expensing of the Unite spend, should we expect expense growth to accelerate half on half in 2H? And then just a second question on capital performance. Obviously, solid in the half, supported by further optimisation and benign credit conditions. Just on optimisation, can you just talk to the extent to which you see further opportunities for that? And also... One of your peers is now running up against their standardised capital flaws. To the extent to which we do see further optimisation from Westpac, can you just give us some sort of a feel from how far you are from hitting your flaws?

I'll make a couple of comments, Andrew. I mean, we're absolutely focused on that optimisation program of work and we've still got some way to go, but I must admit we're much closer to the standardised four, which I suppose in some respects is a first class problem because we are really working hard on the optimisation under the RRRB. And so we would hope to realise that over the course of the next 12 to 24 months. In terms of the expense growth, I mean, 3%, our focus is to control expenses, but That expense growth that we incurred in the first half was very focused on two things. One is adding bankers, which will drive revenue and hopefully and we would expect and are focused on driving a better cost income ratio through revenue generation and within the six to 12 month timeframe. And then secondly, Unite, you know, the long term benefits for the company of getting Unite done are quite profound, as I've laid out a month or so ago. And so therefore we just have to incur that spend. And so the challenge for us is to how do we contain, but more importantly, make sure that that expense is prioritised and we make sure that we don't compromise the overall performance that we need to deliver for the shareholder.

Yeah, look, I just add, Andrew, look, on the expenses, as I indicated in my section, we think it'll be slightly higher. We did say in the slides that expense on Unite will be higher in the second half, so that will put some upward pressure. Not a lot, but it'll be slightly higher. On capital, yes, we're very conscious of the standardised floor. As Anthony said, there's a lot of work underway on reducing IRB capital, risk-weighted assets. but we're also conscious that we've got work to do on the calculation of risk weighted asset density that goes into the overall calculation of the standardised floor. So we've got work to do on that and we'll continue to do it. So we still expect risk weighted asset reduction from that work and conscious of the standardised floor, making sure it doesn't impact.

Thanks, Andrew. Hopefully we've got Matt Wilson this time. Matthew, can you hear us?

Thanks, Justin. Apologies. Tech issue. Can you hear me now?

Yes. Got you.

OK, thank you. Unite's been listed to the top end of the range. It's sort of 40% from 35% to 40% of investment spend through the period 26 to 28. That sort of entails $200 million extra in expenditure. Does that cover the additional uncosted increase in scope from consolidating the deposit ledgers? Further to John Storey's question on the business banking returns, in the divisional disclosures, NIM was down 28 basis points. It's about 30% of the group, so that would contribute to about eight basis points at the group level. You call out one basis point in loans from business banking. Should we then imply that seven basis points went from deposit? That's

Well, working back from that, I mean, certainly the shift in the composition of the deposit base in Business Bank, where, as I said, in the last month or two it has tempered, and so that's pleasing. It is still competitive in deposit land in Business Bank. One of the things I would say, though, in relation to the growth in the Business Bank in the first half, we grew, particularly in the commercial end, in the lower risk, therefore lower margin segment of really appropriately roti accretive for the bank. But we grew in that area and we grew quite significantly, particularly if you look at the agricultural growth was quite extraordinary over the course of the last six to 12 months. So that has, if you will, slightly amplified that growth in loans relative to growth in deposits as a proportion in terms of its contribution on the business bank margin. The other thing that happened in business bank in the first half is we didn't grow in small business. That was something we were aiming to do. We didn't deliver. We've made changes in terms of how we go after that opportunity, in terms of leadership, reorganisation of the small business offering. Because the margin in that area is clearly more attractive than almost any other area. And we need to get that growth right. And the return on equity in that space is really, really positive as well. And then equally in the first half, when we grew our loans, we didn't grow in working capital product suite. And again, the margins in working capital are materially higher than almost any other part of the loan portfolio. And our proportion of our book that is allocated to working capital and business bank is much, much lower than our peers. And so we're addressing that, Matt. What we've also done is just launched last month the invoice financing platform. It's a new sort of digital end-to-end platform which will help us improve our working capital offering. And the whole idea is to grow more significantly that proportion of the book, which I think will go some way to tempering those pressures on margin. In terms of the overall opportunity for us in Business Bank, it's still very attractive because we are underweight relative to our peers. We are also underweight in what we've been providing to our existing customers in terms of the full product suite. So that's why we see it as a really important and a really good opportunity for the bank.

Yeah, look, I just add to what Anthony said, remembering that the overall net interest margin in business bank is over 5%. And so the big impact in the half was that mixed shift from growing commercial assets faster than deposits. Deposit spreads are much higher. So the mixed shift had the bigger impact. As Anthony said, looking forward, what we see is actually growing the whole customer relationship, particularly in SME and small business, and that will grow in a relative sense. So we don't think that the impact will be so great going forward, but it's more a mix shift than a deposit spread impact. The first question was about Unite, so on the 40%. Yes, that does include the decision to go to one deposit ledger.

Thanks, Matt. Next question comes from Victor Gurman from Macquarie. Victor.

Thank you, Justin. Also a few questions from me. So there's been a bit of discussion already, but I was hoping to get a little bit more clarity of some of your margin drivers. So, Michael, as you mentioned, your economics team is forecasting more rate cuts and the yield curve has clearly reflected it as well. What does it mean for your replicating portfolio benefits in 2026? I know you talked about 2025, but maybe in 2026? And also, can you please remind us on sensitivity to margins from a 1% reduction in cash rate and also from VBSW movements? And my second question is about your mortgage volume growth. So, Anton, maybe for you, if I look at headline numbers, it suggests that your proprietary balance has declined by about 2% while broker growth was about 5%. Assuming RAMS is captured in proprietary, it would still imply pretty much flat growth. What do you think... is impacting and why are you struggling to grow proprietary and what are your plans to fix it?

Why don't I talk a little bit about that now Victor, thanks for the question and it is a key priority and I've been working on this for a while with Jason and his leadership team and so we're very focused on how do we get the mix of first party, third party back to a more sustainable level. And the question for us is why has it eroded? And I think the actions we've undertaken in the last few months sort of highlight why it hasn't, if you will, been where it needs to be. We've changed the leadership and we've got the leadership focused on how we drive first party. Secondly, we've definitely adjusted the way we reward and incentivise our home finance managers. And again, that just means we're now much more in alignment with where the market is and the market being not just our peers, but also the broker community who who do hire our bankers and go forward and execute business without us. And so we've focused on how do we, if you will, uplift that home finance manager capability. And so we're investing in more home finance managers. One of the things that we didn't do, and we're very focused on that now, is we didn't really go after the first party opportunity that sat within business bank and to a lesser extent the private bank. And so what we're doing is we're adding 80 home finance managers who will work with the business bankers and will go after that part of the market. And so we have not been, with all of those existing business customers who we have very good and deep and connected relationships with, we have not been pursuing the opportunity of doing their home financing. And so now we're after that. And I think that's another example of what we're doing to redress where we are with first party. I think the other thing we've done is we're making sure that the processes for our first party channel is far more efficient and far more responsive. I think we've made excellent progress overall, particularly with Broker over the last couple of years, and the emphasis now is to really make sure that first-party process is really sharp and really precise. And then you would have noticed recently we just tidied up the way we put our price on both the internet and other collateral, just to make it very clear about where our offer is. I think classically we had a very high headline number and it was all dependent upon discounting and engagement, et cetera. We're just making it much clearer. We've got the sharp price that we're prepared to write first party business sitting on our website, and that's really making it much easier for both our customers and our bankers to get business done. So that's a bit of a flavour for you about how focused we are and what we're doing, but equally what we're doing isn't rocket science, but we just need to do it and we need to do it well.

So just on your other two questions, just on the replicating portfolio and the impacts, as you saw, we had good benefit in this half. It reduces each half from here into 26. There's a slide in the IDP which I think accurately shows you how that will play out into 26. So I'll leave that with you. On sensitivity to rate cuts, look, we've said in the past that Our sensitivity to rate cuts was in the low single digits. That hasn't changed. What we would say is there's lots of different factors at play at the moment. I talked about BBS, WIS, spread movement, talked about funding costs, potential movement. So we're not making a big thing, but it's less of an impact for us than maybe for some others. But our previous guidance stands.

Thanks, Victor. Our next question comes from Matt Dunger from Bank of America Merrill Lynch. Matthew?

Thank you very much, Justin. I just wanted to touch on credit quality and collective provision coverage having reduced while peers have been holding their provision coverage pretty stable. I understand you might think the peers are over-provided, but how are you thinking about the relative gap at a time when the individually assessed and the write-offs are rising?

Yes, I'll pick that one up. Look, we feel very comfortable with our provision coverage at this point. You will have seen that overall the stress in the portfolio continues to decrease. Mortgages, 90-day plus due arrears continues to decline. So you would ordinarily expect overall provision coverage to drop. So where we ended up, and we look at this obviously very carefully, we follow the accounting standards, but we did, you know, given the The volatility we're seeing in the uncertainty in the outlook, we did increase the downside scenario by 2.5 percentage points, as I outlined, just to cover that. But where we've ended up, I think we're comfortable with, and I think it's difficult to compare us to others. Other banks have different skews on business versus residential mortgages. And so, you know, I think you've just got to be a bit careful about comparing us. But certainly where we've ended up, we're very comfortable.

Thanks, Matt. Our next question comes from Jonathan Mott from Baron Joey. Jonathan.

I have two questions if I could. First one, Michael, a year or so ago you made a call which turned out to be very correct that margins were going to stabilise and that you were going to see a period of margin stability. It's your last result. What's your expectation? You've talked about replicating portfolios. There's about 50 different moving parts. Are you expecting the current rate of margin decline of about one basis point per quarter to continue? Is that the trend that you would expect given all these moving parts that you're seeing? The second question is a little bit more technical. There's a lot of moving parts with the IRBB, I understand. But at the end of the day, you've got a 75% payout ratio, which is looking like it's going to be challenging to maintain today. Yet at the same time, you've got $3.5 billion of excess ranking credits and a chairman who wants to distribute that. What's the feeling with the sustainability of the dividend? And would you be prepared to see your CET1 ratio continue to track down to maintain that dividend stability given its ranking? Those two questions, if I could.

Yeah, that's fine, John. Just on your second one first. Look, the way we think about the dividend is obviously we've established a sustainable payout ratio range, as you said, 65% to 75%. We're not a slave to that, but we certainly think about it through the cycle. So we look at a through-the-cycle credit impairment. We look at a through-the-cycle growth rate. We look at a through-the-cycle margin position. So where we're sitting there today, we ended the half at 75% payout, which you said, but we're conscious that, as you point out, that we've got excess franking credits. Also, our capital is strong. You know, 12.24% in the half, we think that that will persist over the medium term. It does give us options in the future. So we're not a slave to the 75%. It is a guide. But, you know, at this point, you know, the outlook is uncertain. But, you know, we're conscious of all the points that you made and we'll continue to focus on it. And certainly the board will make an assessment of the full year. On the margin point, you're right, there's a lot of moving parts. Look, you know, we obviously model out what we think the margin will do over the next half, the next year, the next three years. It's really difficult to call. My view is that margins have stabilised somewhat. um but the the the propensity for uh you know what we call cash plus so bbsw is spread to move positively and negatively still there and that can have a big impact on the overall margin so i would say i'd say uh yes margins have stabilized somewhat but i'm not going to make a call on on what i think it'll do in the next half or the next year at this point thanks jonathan our next question comes from andrew triggs from jp morgan andrew

Thanks, Justin. Morning. Two questions, please. The first one, just to follow back around to the... sort of the diminished replicating portfolio tailwinds going forward. Given the lack of such benefits, if you look backwards, you've obviously been taking advantage of strong capital position to take share across the business segments. Is there any change, do you think, in effect reinvesting those benefits from the replicating portfolio into customer franchise growth? Any change to that thinking going forward from a margin growth trade-off perspective? And then second question, just given the APRA proposal on change to capital requirements across the sector, just interested if we should just be adding 25 basis points to the established capital target range from the 1st of Jan 2027, should that proposal be confirmed?

Just one comment, Andrew, and thanks for those questions. The idea of margin growth trade-off, the whole focus we have and the priority that we're attaching is making sure we grow without compromising returns and hence the allocation of effort and banking growth in areas such as business bank and the institutional business. We do need to grow and there is opportunities for us to grow there. pretty quickly, pretty safely, and in a way that's accretive to margin and return on equity. So I suppose if there's an impression I want to leave with everybody is that we're focused on growth and we need to grow revenue for this company, but the growth will not be at the risk of return.

Yeah, I'll just add, fully support what Anthony said. So we are focused on growing the higher return segments. So that is institutional banking, and we've been saying that for some time. That is business banking, particularly small business and SME. And it is first-party mortgages. It's the highest returning segment of mortgages. First-party mortgages, less than 80% LVR and investor. So we're not constrained by the way we think about margin, but... we are focusing on the higher returning and the higher margin segments in all those, because that will improve roti at a group level and improve the group margins. So that's how we think about that. Secondly, on AT1, look, the minimum capital ratio, CT1 capital ratio will increase from 10.25 to 10.5. We'll have to wait and see what APRA does on guidance. Your guess is as good as mine about whether That will increase what banks have put out as their capital, their target operating ranges in ordinary times. We've got a little bit of time to work that out. It doesn't apply to the 1st of January 2027. But, you know, we'll just see how it plays out.

Thanks, Andrew. Our next question comes from Brian Johnston from MST. Brian.

Thank you very much for the opportunity to ask some questions. Anthony, I had two, but just on the first one, which I'd like to ask you because at the end of the day, you are a director. You've just had the dividend hold flat. We know, well, there's a fair chance that capital intensity rises. We've got a narrowing gap between the capital floor. I know you get some capital relief, hopefully from the interest rate risk in the banking book, but that doesn't help the capital floor at all. The question is how sacrosanct is actually the dividend at this level? Because it certainly looks to be high relative to the earnings power at the moment, but you do have the surplus franking. The capital generation perhaps is not as strong as people have thought. We face the prospect of basically rising credit growth. Just should we think this is the floor level of the dividend or how sacrosanct is that 76 cents a half year?

Well, Brian, thanks for the question. And clearly, Michael sort of set out some thoughts on how we think about dividend. The way I'd frame that up is we're very clear about that we want to consistently deliver a dividend to shareholders given that's what they expect, and B, the franking credit balance we have is substantial. Secondly, we're thinking about it through the cycle, and so the position of the company in terms of its capital position, the performance that we've delivered in the half, married up with what the outlook looks like, what are the opportunities that we might be able to pursue in terms of further capital liberation and release, for example, without sort of wanting to commit it. You know, we get some capital return back to us if we're able to have the enforceable undertaking lifted. All of those things will feed into the idea, what should we do and what do we want to do? But it's very clearly set out for me by the board, which is we want to deliver a consistent dividend to our shareholders through the cycle. And the exam question set for me is to make sure I drive a financial performance in this second half so that we can deliver and deliver on that consistency, which I think we all agree is very important. And the board has made very clear it's important to me.

The second one, if I may, if we have a look at the ECL provisioning, We have got this kind of widening in the ECL provisioning coverage between the banks. I think everyone appreciates the fact that at the moment we can see that the present asset quality trends look actually really very, very good. Anthony, should you be... Could we just get a feel about this idea of deploying further capital to continue to increase the provision cover, or should we be thinking that you're at the spot you want to be now?

Well, that's a decision that's, if you will, in the hands of a whole host of my colleagues in the bank in terms of what is the right level of provisioning, what is the outlook, what is the current, if you will, data in the books telling us. And I suppose I'll just say, well, it'll be what it needs to be based on following that governance and that process. There's definitely opportunities for us to continue to grow in a way which is margin and roti accretive and we saw that in the context of the first half many of our existing customers we are underweight in how we're supporting them many of our existing customers are very high quality credit grade and so there's opportunities for us to deploy drive margin drive roti without if you will a consumption of of capital and resource So I feel like there's a way through this one, Brian, but I would say that the level of ECL and how we determine it is very much a governance process that I have a lot of faith in how we deliver it and how we arrive at it. Michael, is there anything you want to critique?

Oh, look, I'll just say, it's not just a matter of allocating capital to provisions. As Anthony said, there's a detailed process where we model outcomes, we model probability default, loss given default across portfolios. We look at the underlying performance. And as you'll see from the IDP, Brian, the stress in the portfolio is reduced. Now, notwithstanding, we've got a lot of global uncertainty around and we've increased the downside to cope with that, all the forward-looking economic indicators, whether it's unemployment, whether it's GDP, whether it's commercial property prices, they're not telling us we're going to have a downturn in the future. So in that environment, the provision that we have for the half is entirely appropriate for our portfolio and as i said i caution you to compare us with others because our portfolio is what we look at others have their own metrics and their own issues going on but we're very comfortable with the portfolio and the coverage that we have thanks brian our next question comes from richard wiles from morgan stanley richard good morning everyone i have

couple of questions. Firstly, on expenses, slide 25 shows that the cost reset benefits were $261 million in the first half of 25. That's up on about $230 million in the first half of 24. Does that mean you're confident of keeping these cost reset benefits at around $600 million per annum? And can I confirm that the Unite benefits are actually additional to cost reset benefits? And then my second question relates to the consumer bank. You've talked about Unite being a business-led transformation, so clearly your decision on who is going to be CEO of consumer will be very important, both for the franchise performance and the Unite project. So, Anthony, when should we expect an announcement on the new CEO of consumer and what sort of skill set and experience are you looking for?

Thanks for the question, Richard. So we have a process up and running, as you'd expect, and engaging with prospective candidates domestically and internationally. I've been very pleased with the range of candidates that we have. But you're right about the choice of candidate will be heavily influenced by their ability to lead their ability to lead a division through a significant transformation program, which is Unite. I'd sort of say approximately 80% of Unite sits in the middle of consumer effectively. And so therefore the leader's ability to navigate that kind of complexity and to navigate that kind of transformation is going to be a reasonably critical part of the criteria. Equally, we have aspiration for driving particularly first party and restoring and really promoting that whole of bank into the whole of customer and trying to win the full relationship with the customer and provide the full suite of product and service for them. Again, that's an important aspect of what we're looking for from our leader. who will be head of consumer. In terms of the timeline, that timeline will take as long as it needs to take to get the right person. And I'm hopeful that it'll be sooner rather than later, but frankly, it'll take as long as it needs to take. In terms of expenses, you're right, as I said in my opening remarks, Unite will deliver a lot of benefit for us in terms of our cost to income ratio and the goals we set there, but we don't see the benefits from Unite until 28, 29. We're seeing some now, but you don't see the lion's share of those until the back end, 28 through to 29 in particular. And so therefore, as I flagged them in comments, we need to continue to tackle costs and the achievements over the last few years have been pleasing. We definitely want to continue that and challenge ourselves to do even more to obviously protect the financial performance of the company while we do this fairly significant program of investment in Unite. Michael, do you want to?

Oh yeah, I think absolutely agree. So to sort of another way of answering question here, Unite benefits are additional to any cost reset benefits. We think in the interim before as they kick in, as Anthony indicated, there's still more we can do around organisational construction around other discretionary spend. So we will continue to drive cost reset hard. We're not putting a number on it. But, you know, I think if you look out over the last three or four years, you can get a general feel for what that number looks like.

Thanks, Richard. Our last analyst question comes from Nathan Leed from Morgans. Nathan?

Yeah, g'day. Just a couple of detailed questions if I could. Just first up, could you give us an idea about what the size of your unhedged low rate deposit balance is?

That's a good question. I don't know off the top of my head. I'll have to come back to you on that.

And then the second one, obviously, in the first half, we saw a decent step up in the amortisation expense coming through OPEX. Is that kind of at plateau levels now, or is it likely to step up again alongside the additional costs coming through in the second half, 25?

Yeah, so we think at this stage that there will be a slight step up into the second half, but it's not as material as the second half to the first half, 25.

Thanks, Michael.

Excellent. Thanks, Nathan. So we've got some media questions now. Our first question comes from Peter Ryan from the ABC. Peter?

Yes, thank you very much. G'day, Anthony. Just a quick question, given Labor's landslide win at the weekend. Do you see this as a bit of a golden opportunity to take on tax reform or, importantly, productivity reform?

Peter, welcome back. It's good to see you back on the tools. So nice to meet you over this conference. Well, first of all, congratulations to the Prime Minister and to the Labor team on that pretty comprehensive win on the weekend. I definitely think there's a really significant positive for Australia as a result of that election victory in the sense that the continuity, the consistency, the certainty that that re-election delivers is quite profound. And it certainly sets us up and sets us apart from many other countries around the world, given the uncertainty and given the inconsistency and the volatility that we're seeing. So I think it's an enormous positive for the country. And in the battle to win talent and to bring capital in to invest and to grow the country, I think that sets us up very well. I do think to complement that advantage that we have, which is that consistency and that certainty now that people can rely upon Getting after productivity and really driving the economy to take advantage of that opportunity is a really unique opportunity. We saw late last week the Treasurer flag his focus on working with industry and community leaders around driving the productivity agenda in Australia and I think that's a really important one. I think it's too early for me to sort of comment or speculate on potential tax or other reforms, but I think the opportunity around driving productivity is an obvious one. But what I would emphasise is that that transparent, that consistent, that certainty that the Labor Party has provided over the last couple of years in government and now re-elected is an incredibly powerful outcome and a very positive one for the country.

Thanks, Peter. Thank you very much, Anthony.

Thank you, Peter. Our next question comes from Jackson Hewitt from The Nightly. Jackson?

Thanks so much for taking my question. Anthony, I noticed that you've got house prices growing at 7% in 2026 at the bank. I just want to ask you about the issue of housing affordability. You're targeting kind of loans, you know, with the sort of 80% and below ratio. So Where's this sort of growth in house prices going to come from if we're finding already affordability issues?

Well, to sort of separate things where we want to grow and the priority we're attaching is driven around finding that balance about growth and return. So I'll just leave that to one side. But in terms of housing affordability, the big challenge is clearly not necessarily who's going to buy and what we can finance in terms of the demand side it's really fundamentally a supply challenge and the big challenge for this country is how do we get around and how do we review and if you will almost unpack and repack the entire system in terms of how houses if you will approved, constructed and delivered into the community. The big challenge is that houses at the right price point, not enough are being built. If you think about the average income, sort of circa $80,000, $90,000, a mortgage is a maximum of five, maybe six turns in terms of your income, subject to expense verification and all the other disciplines we have to set, and then the average house price is $800,000 or $900,000, you immediately get to this point that the number of houses needed is quite significant but it's needed in that price point that suits you know the average income in Australia and that's the challenge that's ahead of us and it's an entire ecosystem challenge rather than one government or one regulator or one part of the industry.

Our next question comes from Joyce Malakis from the AFR, Joyce.

Sorry. Hi there. Thanks, Anthony, for taking the question. You've got pretty bold ambitions in business banking around staffing and SME, you know, targeting that high margin business. Your plans to hire more bankers, that comes as, you know, NAB and CBA have also ramped up there. They've changed their pay structures to be able to do that. How competitive is it to find those bankers and attract them to Westpac, given this competitive intensity that's happening for bankers in the market at the moment?

Thanks for the question, Joyce. I acknowledge that it is competitive. We certainly have set that goal of adding more bankers to allow us to engage more with our customers and to do more business, but that addition of bankers will only be if we can get the right people. And so, in all honesty, that's a risk in terms of that ambition we set. We've got to get the right people in the right seats to deliver the outcome we want. It is quite competitive. It does come back to something which is important for me in terms of the priority we set for the company is making sure that the employee proposition at Westpac and what we are about and how we're going about things is attractive because In the war for talent, it's not just what you pay, it's what you offer and what's the whole of opportunity for that employee to grow and develop and prosper at Westpac. I think we've also started to deal to, as you saw me discuss around the home finance managers, get the right calibration of reward right because we do need to compete with our peers and we do need to compete with the broker industry if we're going to get that part of our broker build out in the right way. get done in the right way.

Thank you.

Our next question comes from Luca from The Guardian. Luca?

Yeah, thanks, Anthony, for taking the question. Just wondering about the increase in the weighting of the downside scenario to 45%. Are there particular parameters that you're seeing moving there? What are the particular parameters that you think might disappoint that you've lost confidence in?

So I'll invite Michael to add some comments to this, but I think it's a prudence that we need to apply in terms of the outlook at the moment is unusually volatile. Some of the dynamics geopolitically, trade, have moved in such significant ways so quickly that I think it's just prudent to you know a layer in that kind of increase in the downside scenario and the other side of it is that While we do think there's a way through this and we do think in those geopolitical and trade tensions that there's a way through for Australia and the impacts on us very directly are not as significant as perhaps the headlines would suggest, the idea is that we need to be prudent and thoughtful about this and so hence why we introduced or increased that downside weighting. Michael, would you like to?

Yeah, look, I'll just add, when we assess the appropriateness of the ECL, we look at what the risks in the current portfolio are and we look at that and that tends to play through delinquencies and those sorts of things. But we're also required to look forward. And so look forward 12 months and say, gee, are all the risks that we see in the future represented in the actual outcome of the provision? And when we did that, It's a judgment. There's not a sort of a numerical outcome. It's a judgment that the uncertainty in the forward outlook is more today than it was previously. And so, therefore, the best way to quantify that is by an increase to the downside weight. That's taking it back to 45%, which it was previously. We just think that's, on a good judgment basis, the right way to think about it.

Thanks, Luca. Cleone from The Australian. Cleone.

Hi there. Thanks very much for taking my question. I just have two, if I could. Anthony, you mentioned productivity and housing in response to a couple of earlier questions on the macro outlook. But I'm wondering if you can talk me through what you think Labor's key priorities should be now in their second term. You know, where do you want their focus to be? And my second question was on the outlook for growth in business and institutional lending. I'm wondering, are you targeting double digit growth again for the coming half and beyond? Or could you talk through a little bit of that, please?

Yeah, in terms of the second point, You know, the growth that we achieved in, for example, in business bank over the last 12 months, 80% of that was with our existing customers. And there's a similar proportion in the institutional business, in fact, slightly higher. So we definitely want to grow and we're very focused on that. But the cornerstone to that growth is that it's with our existing customers. And where it makes sense, we'll add and we want to attract new customers, new customers of the bank. But we do that thoughtfully because the best risk, the best growth, the most sustainable growth is obviously to support your existing customers. And that's where we will prioritise as we go forward. So I feel like that balance is one which will, if you will, ensure that that growth is sustainable and more importantly, the right growth in terms of getting a return and getting it done safely. In terms of priorities for the re-elected Labor governments, probably a little soon for me to be offering my views, given they should be and probably are still celebrating the success of the election on Saturday. But there's no doubt that they've already called out, as you saw the Treasurer, productivity. That's definitely an area of focus. But at the same time, the consistency and certainty that they represent as a result of their re-election just puts us in a very good position globally to attract capital and talent to this country. And so I think consistency and certainty and just getting things done methodically as opposed to boldly going in different and new directions is something to be thoughtful about. I certainly think that the opportunity to accelerate the work on the transition for the country remains a great opportunity for the country. The defence build out for the country is an enormous opportunity. AUKUS alone, what it could mean for Australia is extraordinary. And then, of course, some of those other initiatives that have been flagged, which I think, again, really allow us to grow Australia, grow the pie for all Australians, things such as the critical minerals, rare earths opportunity in Australia is quite significant. So, I mean, what... ought to be that priority is to grow the economy and grow it for all of Australians. And there's so many opportunities for them that I think it's a very positive outlook for the next few years, notwithstanding the global uncertainty that we're operating in.

Thanks, Kleona. James from the AFR.

James Ayres here. Anthony, I was just trying to get your thinking on where you see some of the incremental competition sort of coming from in your core segments, sort of, you know, who you view as your toughest competitors, I suppose. We've heard the judo guys like last week point to some of the branchless banks like ING and term deposits. But when you still look at mortgages, is it still Macquarie through the broker channel, you know, rather than the other majors sort of driving some of your thinking there on the time to yes investment? And... Similarly, you know, NAB and business, A&Z and INSTO, you know, are they the guys you're matching up against in those segments?

Look, thanks for the question, James. Yeah, I think you're spot on. I mean, you know, in all those areas, whether it be mortgages and consumer, business bank, you know, it's always been pretty competitive and the competition has been relatively consistent. You know, the big four do compete consistently. very actively and so therefore that competition won't abate. It's slightly more emphasised in one versus the other but that competition remains. Certainly need to acknowledge that Macquarie has been very thoughtful and very precise and very targeted in its growth agenda and so that has introduced a new element of competition into the mortgages market and then likewise you know some of the digital only who don't have the if you will the the legacy or if you will infrastructure burden of branch and otherwise they've also been able to be very very targeted but Where we stand in relation to that competition is that this principle of just the whole bank delivering into the whole customer. A lot of that competition finds a certain segment or finds a certain product or a certain precise part of the customer that they want to win over. And our comparative advantage and our opportunity is to deliver the whole bank, where we do everything for the customer. And if we can deliver that everything to the customer really thoughtfully across the phone, across the app, across the branch and across virtual, it becomes a comparative advantage in terms of our large size and our large incumbency means that we can compete. And so that's, I think, how we compete. And nevertheless, it doesn't change the fact that the competition is the same as what we've had for a long time. It'll just be coming at us in slightly different ways, as I said, in terms of digital only or, for example, a very precise and very targeted competition like Macquarie in mortgages.

Thanks, James. And our final question comes from Clancy Yates from the Sydney Morning Herald. Clancy?

Oh, hi, Anthony. You've mentioned that the funding markets are sort of being affected by all of the global volatility around Donald Trump's trade policies. Could you just explain...

uh you know in simple terms how is that playing out is it pushing up your wholesale costs um and and if so how significant is that like could it affect the bank's ability to pass on rba rate cuts for example so the way the way i'd frame it up is that the volatility we've seen particularly over the last couple of months has increased the cost of credit in the international and wholesale markets globally And so that volatility, if it continues, will mean that as and when we need to access the markets for incremental funding, we will have to pay a higher price. But that's yet to fully manifest itself. We're just calling it out as a key risk. And one of the reasons why I think forecasting and trying to put down a marker as to where you think NIM will be through the course of the half or the next six to 12 months is a little bit hard. It's that volatility and the uncertainty that follows in terms of not just the cost of the credit that we want to raise in international markets, but the accessibility. Some of these markets of late have been so volatile that you would say to yourself, Why would you try to access that market? Now, if that continues, then that will, if you will, focus us much more on domestic funding and focus us much more then on how to resource it, where to resource it and the cost of that funding. And so that's how I think about the contribution or the impact that we're seeing from that volatility in wholesale markets. Michael is every other day looking at and examining market opportunities for us. So I said, Michael, if there's anything else you'd like to add to that.

Yeah, look, I just say, look, I agree. And I think the difficulty is we all want certainty in the outlook and in an environment where trade policies change, geopolitical... volatility occurs, it's hard to predict where funding spreads will be, where credit spreads will be. The other thing just to add is also, as we indicated, business confidence takes a hit when there's uncertainty around the global outlook. We are a small, open economy in Australia, and so we're very dependent on the growth of our partners, and when the growth of our partners is put under question, then it has a broader impact. So we think about it from a funding point of view, but we also think about it from a broader economic growth point of view, that while there is uncertainty, that economic growth can be impacted.

Thanks, Clancy. That brings us to the end of today's presentation. We look forward to catching up with you over the coming days and weeks. Thank you.