Westpac Banking Cp Ord

Good morning everyone and welcome to Westpac's first half 26 results briefing. I'm Justin McCarthy, Head of Investor Relations. Before we commence today, I acknowledge the traditional custodians of the land in which we meet. For us here in Barangaroo, that's the Gadigal people of the Eora Nation. I pay my respects to Elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people. Pleased today to be joined by our CEO Anthony Miller and CFO Nathan Goonan and after the presentation we'll have time for Q&A. With that, over to you Anthony.

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

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

Thanks, Nathan. We track progress against our FY29 targets with a continued focus on making improvements every day. On service excellence, we're making steady progress. Consumer NPS continues to improve, and we are ranked equal second with the gap to first narrowing. In business, we have moved into first place overall. However, we are realistic about the work ahead to improve customer service. In institutional, we've moved into equal third position in the last annual RSI survey. We aim to accelerate the pace of delivering our transformation agenda by moving to a new operating model from FY27. We'll also continue to methodically work through Unite. These will support a structurally lower cost base. On performance, our ambition is to outperform peers over time. Cost to income is currently 4.5 percentage points above peers, and return on tangible equity is 1.8 points below, with our decisions guided by improving efficiency, returns and disciplines. Overall, our operating momentum and financial position are sound, giving us a strong platform to deliver sustainable returns and build a bank for the future. Thank you.

Thanks, Anthony. We'll move to Q&A now. In the interest of time, given we've got plenty of people on the line, if you could limit your questions to one, that would be appreciated. Our first question comes from Ed Henning from CLSA. Ed?

Thanks for taking my question. If you can just run through how you're thinking about yourself versus peers on the replicating portfolio benefit. You've got less than peers coming through. How should we think about you competing against peers? Are you going to be selective in targeting niches or are you happy to take a little bit of volume for margin trade-off there, please?

Yeah, good morning, Ed. What a nice start and Anthony might add, I think We've called it out Ed and we intend just to be as transparent as we can about where the replicating portfolio benefits are and clearly sort of decisions over time have meant that we've had more of the replicating benefits earlier than some of our peers and so in the outlook will be a little bit less. We said in the second half we'll get two basis point benefit from replicating portfolio and as we go into 2027 we expect that to be something like three basis points in 2027 for the full year. As it relates to then how that impacts competitive pressure, Ed, I guess we're competing in the market with everyone every day and we've got to make sure that in particular on deposit pricing, that we're competitive, that we've got our prices there with an offer and a service that our customers will appreciate, but we've got to make sure that price is not a determining factor in them going from one company to another. So, you know, we expect that we'll have to continue to compete there. You know, whether that means that we have a little bit more margin degradation than others who have got the benefit of the replicating portfolio, that may well be masked. The important thing for us is just to continue to improve the service at the front end and you alluded to it a little bit. I think there are pockets where service really does matter, where our digital offering can improve, where we can make it easier for customers on things like rollovers and those other important points and so we've got to continue to make sure we're really focused on those points that really matter.

Yeah, I think that's... I think we have made progress though on our deposit franchise and in particular the capacity now to originate and do so inside seven minutes with actually 50% of all the customers originating that now inside five minutes. So I feel like we're making the right allocation of our resource and our priority that will allow us to balance that challenge you've called out, Ed, in driving our deposit franchise.

Thanks, Ed. Our next question comes from Andrew Lyons from Jefferies. Andrew?

Thanks and good morning. Nathan, maybe a question for you just around your capital sensitivity. You've obviously provided... what it looks like in relation to energy-intensive sectors and a one-notch downgrade, but would it be at all possible to marry up what that capital sensitivity looks like in relation to your economic scenarios that you've used around your provisioning modelling, I guess? If we see your base case assumptions play out, for example, would that, in your view, be equivalent to a one-notch downgrade? And perhaps if I can extend it to sort of maybe help us understand what would the downside scenario look like from a capital perspective?

Yeah. Thanks, Andrew. Good morning. Yeah, we've been really just trying to think about this a little bit, Andrew, and try and be helpful in terms of making sure that people could understand the sensitivity here and the procyclicality in the risk weights. And so I appreciate that other banks looked at it on the ETL basis. We thought it was a little bit more intuitive just to think about those energy-intensive sectors that we took the overlay for and think about that one notch, which we said was $4 billion. It's a little bit of a coincidence, Ed, that if you do run it through the base case of the ECL, we get a very similar number. I think it's about $3.8 billion for the first six months or for the next six months if we ran through the base case, and I think that's pretty consistent with peers. I think there's probably a couple of other ways to think about this, Andrew, and we're certainly keen for people to sort of understand the sensitivity in the capital base here, so open to all ideas that are sort of helpful for people. If you go back a little bit over time, Andrew, we've had about 10 billion of risk-weighted asset benefits from asset quality over the last 12 months. The majority of that has come through our mortgage book and so another way to think about that is if you sort of unwound those asset quality benefits, so 90 days arrears are probably down 20, 25 basis points over those 12 months, you could see a scenario where you unwind back to that and that would be that sort of 10 billion of risk weights in that scenario. So there's sort of lots of ways to sort of think about it but there's just a few ways to try and triangulate around that sensitivity and hopefully that's helpful.

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

I've got a question about the institutional bank, if I could. And I noticed there was big growth coming through in that first quarter. But if you look over the last half and also the year, you can see the loan book in the institutional business is up 23% and 12% in the last half. And then if you look at the margin excluding markets, it's fallen from 203 down to 184 over the last year. So down 19 basis points in the year, 14 basis points in the half. And also you're seeing a huge increase in the amount of allocated capital going, so over a billion dollars. I wanted to sort of get your feeling on why you're lending so aggressively into this sector because the returns don't appear to be coming through. Are you covering your cost of capital on the new activity, the marginal activity? I know you mentioned some sectors and some green sectors in there. Are you covering your returns on this or are you planning on selling down just given this massive growth that you're seeing in the institutional business?

I'll make a few comments and I can just jump in. I mean, It's very deliberately anchored around the customers we have and the sectors where we are, if you will, positioned at the moment. And so that growth isn't, if you will, us just choosing to grow, Jonathan, and just chase growth. It's been anchored around the faith of the staff of our customers in sectors such as infrastructure, energy, generation... mining, resources, data centres etc all growing rapidly and so we've just been banking them, banking them and so about 70% plus of all of what we've done is just with existing customers, so point number one. Absolutely the priority is when we deploy that capital in those loans that we are aiming to get to the return target we have for the shareholder and I can confidently say that we are delivering on that in terms of the loans that have been originated. I do acknowledge also that one of the interesting aspects of what we're doing here is many of these customers are really highly rated and so hence the margin is a little narrower just because they are very, very strong investment grade and they are very high quality risk classes. Then the other thing I'd just call out is that what you see in the institutional business is sort of that feature where market's moving, you're supporting your existing customers, there's a lot of growth in a very concentrated period, banking certain themes, and then it dissipates and it slows. And so it's important that we do follow our customers in that setting. The other thing I'd say is given the ratings and the position of many of these customers, they'll end up taking a lot of that debt down in the form of going to capital markets and then we'd obviously anticipate given that support we've provided that that gives us opportunities in the capital markets, debt capital markets, risk management opportunities. And so I do feel like it's aligned with how we want to support our customers and how we bring the bank to bear for those customers given what we're doing for them at the moment.

Thanks, Jonathan. Our next question comes from Tom Strong from City. Tom? Hi, Tom.

Great. Thanks for the chance to ask the question. Nathan, I just wanted to ask about your comments.

I mean, you noted that the funding gap had widened modestly in the half and we're almost at the point of realising the Rams funding with that deal closing. How do you sort of think about funding growth from here and will we see the above system growth be sustained across mortgages, business and institutional, or will the growth be a bit more targeted going forward on the asset side?

Yeah, thanks. Thanks Tom for the question. I think we've been deliberate and I made some comments just about how we're structuring the balance sheet in the lead up to RAMS that we've probably done about $15 billion of short-term funding and then we were quite deliberate with some institutional TDs just to give us a little bit of flexibility around the settlement date. There's some learnings from sort of how we manage things around the TFF that we're sort of applying there. When that washes through, we'll obviously be back to sort of a more normal deposit loan ratio in the bank and then sort of expect that that will continue to sort of grow proportionally. As it relates to our posture in terms of growth, more medium term or over the second half, I think we've tried to be a bit clear as we go through the pre-prepared remarks. I think Anthony's covered institutional well. There's some long-term macroeconomics here or macro trends that are really driving credit appetite and investment, and so we continue to want to participate in that. We both moderated in institutional in the second quarter off a really strong first quarter but we would continue to expect to support customers to the extent they want to participate in those macro themes. In business we've still got some appetite to take share and we would expect to continue to do that and in mortgages we've been Pretty consistent, and I think consistent's the word we'd like to stress here. You know, we want to be at or around system in those books, and we think we can continue to do that. If that means sort of 0.8 or 1.1, you know, we'd call that in the margin of error on those books, Tom. So that's what you should expect from us going forward, and that's what we've been able to do with the balance sheet we've got post-RAMS.

Thanks, Tom. Our next question comes from Andrew Triggs from JPMorgan. Andrew? Andrew?

Thanks, Justin. Good morning. Just a follow-up on margin growth balance. I mean, are you sure you're getting the balance right there? The NIM fell quite appreciably in every division. And connected to the question, what's the sort of decision tree you have on re-engaging with the buyback or paying a special dividend? rather than persisting with above-system growth? And maybe if I could just push my luck. There's a really strong offset balance growth across the industry, which is weighing on average balances in the average interest earning assets and average balance sheet. Could you sort of set out whether that should be expected to continue at current levels, please?

That's free.

Yeah. So maybe I could start and Anthony can sort of jump in and off. I think the essence of the first part of the question, Andrew, was really around sort of how we're going on lending margin and I think that you'll do the work on that but I suspect the three basis points in the half was pretty much as we expected. So we came into that period thinking that we had a much more moderate compression in lending margins than what we've seen in prior years in particular. and we were expecting sort of a gradual decline there. We've probably had... We've had three basis points over the half. It was two in the first quarter and it was one in the second quarter, so it's a little bit of a moderating trend. mortgages has been pretty consistent and business has been pretty consistent just edging lower and then we had a little bit more in institutional. So I think you know I don't see anything that's sort of out of the ordinary in terms of the wending compression that we're having there relative to peers and I think you know it's consistent with us participating in the market as you're saying you know and as I said with that posture that we've got around add around system in mortgages. We want to continue to take a little bit of share in business bank, but with a bigger push into more in proprietary. And then in INSTO, we're really just following some of those macro themes. And I think, you know, three basis points was pretty much as we expected for the half.

Yeah, the only thing I'd just add, I mean, the quality of the cohort that we've been particularly active in in institutional and in business bank is very high quality, so as you'd expect. lower margin. I think the other thing and this is what we are working on and we must get better at is we need to do more in small business where there's clearly a better margin. We're just not where we want to be there but we're making progress and I think also there's a few product components that we really haven't got right and we've only now got the means to do that. So for example working capital and invoice financing and the margins there are You know, we've now got the best, what we think is one of the best platform capabilities in the market and that's been growing nicely, but we're just very small at the moment in that and so we've got some way to go. I just feel like that will, in time, help balance any idea or risk or worry that we're not getting the margin right in terms of the growth we're pursuing.

And then maybe the second question, I think, Andrew, is just around like capital management and how we think about that relative to growth and I think we've tried to lay out here some sort of cascading principles that we would think about and as you know we've put investing profitably in the business is important to us and so we start by wanting to make sure that we've got a strong balance sheet that can be there to withstand the shocks that we might have and I answered Andrew's question to try and give some of the sensitivity as to where asset quality could go on risk weight. So we obviously carefully watch things like that. We want to be able to support the growth in the business. You know, Anthony's spoken about that and we've talked about that. And then when we get down to, you know... what we do when we balance out, you know, capital returns. It will be only after we're really comfortable that we've got those first two right and that we're, you know, that's the best use of capital in our belief, that investment in the franchise.

Yeah, I want to just add one sort of emphasis there. It's not just a picking growth and just trying to grow the sheep. You know, as you, and as was flagged in my comments and previous questions, We're supporting our existing customers, and they're just a very active moment in the institution at the moment, so we've just got to be there. And so that is the right way to deploy our capital in terms of supporting our existing customers, and we are generating the right return on that capital, and that's how we think about it, as opposed to just somehow a big focus on growth.

Thanks, Andrew. Our next question comes from John Story from UBS. John?

Yeah, thanks very much, Justin. Morning, Ben. I get quite deep into the call and I don't want to be much spoken about in terms of asset quality. I thought I'd just switch gears and get your views. Westpac's definitely got one of the more bearish views on the underlying economy in terms of your forecast. How do you guys think about growing at the rate that you are into what on your expectations is going to be quite a steep kind of deterioration in terms of the economic outlook and then how do you square that off with a through-the-cycle credit charge just given the change in your business mix at the moment?

Well, I think first and foremost, you know, John, on this point of being emphasised, there's a moment at the moment in the institutional space where those customers are pursuing those macro themes that are very attractive and very much... on strategy and so it was just critical that we support our customers. Likewise, you know, when I look at business bank and the growth we've had, it's all been at the larger or the larger end of the business board and particularly ag, with the theme there, healthcare and professional services. So we feel like supporting those existing customers in those particular areas has been first of all the right thing to do for the customers and secondly the right risk orientation because there's obviously very strong underlying thematics that support those growth opportunities and so that's what's driving the way we're going after growth. I do think though with the environment that we're in with the Middle East conflict and some uncertainty that you're likely to see some areas pull back and so there will be less growth just because customers are just going to sit by and sort of wait until that uncertainty clears and so I don't think we'll see a sort of a headlong rush of ongoing growth into particular challenges because already people are just pausing and tempering what they might do, what might be their investment plan. So as a result, I think our growth will reflect that. The only area that I'd say is an exception to that is I think the institutional business, particularly with the large corporates who are very focused on, for example, infrastructure or... power generation transmission, renewable power generation transmission, that investment thematic underpinned by the government is one that I think will continue and we'll obviously look to make sure we do that bulkily and as we have been doing over the last 24 months.

Maybe just one point to add which is just to re-emphasise. it's unlikely, John, that you get all of those things happening at the same time. So I think if we walk into an environment where the base case scenario plays out, you are going to have lower growth in credit and that will just be a reality. And we're seeing that. Anthony made the comment in his pre-prepares. We're seeing that a little bit in mortgages. You know, our growth in applications in April relative to the second quarter was down quite a bit. The last time it was down or comparably down like that was in 2023 where we had the last rate tightening cycle. So, you know, we're seeing the early signs of that. In business credit, we probably came into the year thinking business credit might grow at something like seven. It got to the first quarter, we thought that it would be, we felt like it was growing at something like 10. And, you know, we would expect now, even though pipelines are really high, you know, pricing inquiries are really high, so it feels like there's good activity there, you know, that could easily be something like five or six now. So we're expecting that slowdown as that base case goes through.

Thanks, John. Our next question comes from Matthew Wilson from Jarden. Matt?

Yeah, thanks, Justin. Good morning, Matt Wilson, Jarden. The opportunities for IT innovation appear exciting. And when we look at your net interest income, around 20% of your net interest income or 30 basis points of your margin comes from customers lending you money for free. And in the context of, you know, digitisation, AI and other innovations, how sustainable are is that business model? You know, you've got new competitors, new technology, changing the fundamental nature about banking.

Yeah, so Matt, you know, thanks for the question. I agree. I think banking is changing. I think new competitors, new ways of competing will put pressure on those ways that we have those ways we've assumed and those approaches we've adopted in the past so definitely acknowledge that. I think a couple of truths though that are foundational which is a deposit is a very very privileged thing to provide and obviously to receive and so Therefore, an institution which is very well capitalised, very well rated and highly trusted is sort of foundational to how we want to position ourselves in the marketplace with deposits. And then things like the digital offering and then other forms of value stores such as digital assets are all of what we must improve on and are planning to deliver on over the course of the next two or three years to ensure that we can compete and definitely offer the customers what they want, where and how they want it. I do acknowledge that also the introduction of AI and the genetic programs mean customers will likely have the means to move and identify best pricing all the time, real time, and we understand that emerging challenge and are definitely working to make sure we can meet that challenge. And I think it's something that, you know, in a funny old way, is already in place. If you think about an institutional business, we take deposits from our customers there. We're still able to generate a good return for shareholder, a good margin for that business by dealing with very sophisticated customers who can move their deposits and check price check at all times. I think that's likely the future for banking at some point more broadly and so therefore we've just got to make sure we've got the offer, the means and the tools to be able to provide that to our customers and serve them the right way and meet that competitive challenge head on.

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

Yeah, thank you very much, Justin. Anthony, if I could please just follow up on the questions about balance sheet-led growth. You've previously talked to the market share opportunity at Westpac on the non-interest income side from deepening customer relationships, but the growth in markets income doesn't appear to have matched the volumes. You've called out the product capabilities in FX. When should we expect to see this opportunity converted to market share gains across non-interest income?

Thanks for the question Matt and spot on. We definitely have seen some real progress in our non-interest income in I think about over the last 12 months but there is so much more for us to do and it all comes back to where we are as a bank and what we've got to do which is to continue to lift and get that service offering and get that, if you will, execution of how you run a bank day in, day out right. And so one of the things I'd call out is that we do feel like, for example, our FX offering in consumer is starting to improve, but there's so much more for us to go there. We definitely feel very underweight in what we're doing from, for example, an FX perspective in the business bank, and so there's more for us to do on that front. We're equally cognizant that we're not doing anywhere near enough trade finance, invoice financing, working capital style solutions in the business bank which will all contribute to non-interest income opportunities for us. And so just acknowledge that we're working with what we've got now. We're executing well with what we've got. What we need to do is and what we have done is start to invest in and expand and make sure that we're prioritising so that we do grow that non-interest income. It is the case that I think the growth in deposits and lending as it is here today, at least that's the cornerstone of that relationship with our customers and then how do we graduate and provide much more to our customers over time. That's very much how we're going after it.

Maybe just one quick add to that. I think all the points Anthony said spot on. There is a little bit of volatility half on half, so just be a little bit aware of that, like in terms of in our credit trading business and in DBA. So I think some of the underlyings might be a little bit better than that, but not taking away from where Anthony was going, that the opportunity ahead of us is material.

Thanks, Matt. Our next question comes from Carlos Cacho from Macquarie. Carlos?

Thanks, Justin. You had this slide where you discussed kind of the AI opportunity ahead of you. You've had, obviously, quite a bit of change in the leadership around AI in the Pankow for the last year or so. I was just wondering, you know, if you've had any changes in the approach there and what, if any, additional investments in infrastructure you think are required to really leverage that? And what we've seen from some global peers is investing in large orchestration layers that could be used across the group and really handle a lot of the admin. If there's something like that ahead of you or if it's a bit more piecemeal or if you already have the infrastructure in place that you think you need,

So, you know, great question and one we could wax lyrical on for hours, Carlson. Maybe we should at your conference tomorrow. But definitely, first things first on AI, the focus for us is to get the right people in the right seats. While it is a wonderful technology, a wonderful tool, ultimately it's only as good as the people we've got using it. And so we've been very focused over the last, nine, twelve months to really get the right people and I think we've put the best team on the street together and we're up and running. The second thing is making sure that it is adopted by everyone in the company and that's what we've done. I think we're one of the first here to say let's have every single employee, no matter what role, access to co-pilot so that they can, if you will, start to immerse themselves in it because the real unlock for us, the real opportunity for us with AI is that it challenges you to be far more open-minded about how you do things and asks you to think about doing things in a different way with far more productivity, far more speed, far more consistency and far more service consequence for whoever you're working with as a result. And so it does require a bit of a mindset shift. And that's what we've really focused on and I think that's what we've now got. And I feel like we've got enough momentum in the company to now go after it. And then what we're doing, and we're under Andrew McMullen's leadership, and we're going to do a day on this later in the year where you can really see how we're doing this. We are building those capabilities which allow people to utilise those AI engines, those AI tools to do things faster and more efficiently than they ever have done. And then more importantly, we intend to provide more of that capability to our customer-facing roles and then in time to our customers so that they have full access to what we represent and what we want to represent from an AI perspective. So, yeah, we're up and running on it. I think we've got the right people in the right seats. I think we've got the right embedment program in the company. And I think, more importantly, we're now starting to see tangible outcomes, but it's all about how do I have everybody using it, how do I have everybody ambitiously using it in a way to reinvent and refresh how they do their job and deliver better outcomes internally and for our customers.

Thanks, Carlos. Our next question comes from Brendan Sproles from Goldman Sachs. Brendan?

Good morning. Brendan from Goldman Sachs. Nathan, I just have a question on the impact of higher-cost deposits on your NIM in the second half. I notice in the business division and in institutional, you've seen a big pick-up and fastest growth of customer deposits has come in TDs. Also notice that you're pricing TDs a lot higher across... retail and business bank over 5% now on the 12-month special rates. To what extent is this going to impact NIMS in the second half and is this a function of this really strong credit growth that you're seeing across business and institutional that you're having to lean on these more expensive sources of funding?

Yeah, thanks Brendan. I think if I just isolate sort of outlooks on margins for deposits in the second half, it's probably one of the line items when you walk across the NIN bar that's got a few moving parts in it. So we will get the benefits of the higher cash rate so they'll flow through. We have had qualification rates in our savings product which has been a really strong growth product for us in consumer. They've been ticking up and in this half we had some impacts from higher qualification rates. I think We spoke about that at the quarter and at the full year where we've gone from sort of 84% of our customers qualifying to 85%. That's actually plateaued this half, so I don't expect that that'll be a continuing headwind on deposits going forward. And then, as you said, we've had a higher growth in TDs at the back end of the half, which will be a nim drag as we go into the second half. And then, you know, when you put all that together, you've got a couple of benefits and then you've got the replicating portfolio coming through and then you've got some of those higher price deposits coming through. I also expect that we'll have more growth in those higher rate sensitive deposits. It's just You know, when you go back in history, Brendan, which I'm sure you've done, you know, when you think about rate cycling, you know, rate tightening cycles, you do get more growth in those more rate sensitive products. And we certainly saw that in the business bank. I think in institutional, we were a little bit more deliberate. It was much more about we had very steady sort of TD growth in institutional, not particularly strong growth at all. And then we were very deliberate just towards the end of the period just to grab a little bit of that. As we said, there's more of funding trade into RAM. So I don't expect that continues, but we would expect that we'll continue to see, you know, growth in the higher yielding products in business and in consumer as customer preferences push that way.

That's really detailed. And so thank you, Kev. I guess I'd ask the second question. I just want to clarify your comments on business lending growth. I mean, it's been very strong in the period. You said it could drop down to sort of 5% to 6%. But given what you're seeing in your pipelines now, I mean, how realistic is that going to happen in the short term? Are we still going to see this macro wave flow through and then maybe into 27 you see it slow down?

Yeah, maybe I'll just start with a couple of comments and Anthony will have a good sense of the market with his conversations with customers. I think there's one thing I think, Brent, that's just worth calling out is we've already seen a real bifurcation in the system here in business lending. So even today with the strong growth we've seen, it's been really pushed towards the top end. So, you know, you haven't had huge amounts of growth in SME and small, but you've had very significant growth in SME in the larger corporate sector which is in our business bank and then in the domestic corporates in institutional. So we've seen that skew and so the first point is we think that skew continues and so that will suit our existing book mix and as Anthony said, we're largely lending to existing customers here. In terms of pipeline and things like that, there's lots of stats I could throw at you, Brendan, that would tell you that it's not going to slow down. So, you know, pipelines have been building in the second quarter. They are stronger than they were 12 months ago. They've really, really rebuilt over the last little while. We were talking to the pricing desk yesterday. We've got pricing inquiries this week which are above the 12-week average. So there's lots of front-of-funnel activity that we could tell you looks like it's going to continue. But we just also know that in our conversations that, you know, when you've got this rate increasing cycle and the level of uncertainty that we've got, we're just expecting that that will take longer to pull through and we're going to have some slowing of that. So, you know, our judgment on this, as I said, was that we came in thinking we could have 7% business credit growth We certainly were in a period in the first quarter where it felt like we were tracking much higher than that. We have to be in an environment now where we think that slows and that it's not going to grow dramatically. 5% business credit growth would still be a very healthy number.

I don't know if Anthony has a... Oh, look, I think that bifurcation is the key point. I think the small business SME end was coming into this year navigating things. They were not sort of, if you will, a robust disposition around what they're going to do and how they're going to grow, but And so that was active, but I think that's the one that was slow, and maybe ATP is already slowing a little bit now. But the larger end is very clear, and I think very much of the view at the moment, notwithstanding the uncertainty, they can see a way through it. They feel they can absorb and or pass on the price or other disruptions that are following from the Middle East. And so they're, if you will, pretty robustly going after it. I think the one to keep an eye on for all of us is just simply, you know, those... knock-on effects of the disrupted supply chain and a whole host of impacts that that will have on broader economic activity. We've got to keep a close eye on that over the next three months.

Thanks Brendan. We've still got quite a few questions to get through so just a reminder if you can limit it to one we appreciate it. Thank you very much. Our next question comes from Richard Wild from Morgan Stanley.

Good morning, Anthony. Good morning, Nathan. I think in your overlays, you addressed energy-intensive sectors. I'm not sure you included agriculture in that overlay. Could you explain why you didn't? It's a very diesel-intensive sector. It also has higher reliance on fertiliser. So I'd just like to get your thoughts on the outlook for that sector, please.

Yeah, I'll just give some comments on what we did, Richard, and then maybe offer an opportunity for Anthony. What we did here in terms of the overlays, Richard, is probably as you would expect, that there's a little bit of top down, there's a little bit of bottom up here. And so, you know, I think as it relates to the overlays, we've certainly been working in the business, looking at all our sectors. And so we've ended up with overlays on a small number of sectors that got identified through that work. But rest assured, you sort of look at the, you start with the whole portfolio, you start to look at where we've got higher proportions of energy inputs and so they'll be more subject to it and then you sort of narrow down as to where do we then think that we've got the potential for losses and so we narrowed in on the industries that we're know that we've landed on so i guess the point being you know rest assured we looked at agri um but but for us and and where our current book is and what we're expecting to flow through there what the teams when they did that bottom-up detailed work came up with is that's not one where we expect losses in our portfolio that's not to say that we don't expect that that's an industry that's going to have some challenges with higher input costs and you know, all the other things that will flow through there. It's just for us, when we did the work, it wasn't one where we thought that that would translate into needing a specific overlay over and above what we're holding.

Yeah, I mean, Richard, the agricultural sector, the farmer, the cattleman, they are the best risk managers by none. I mean, I've had a few conversations and anecdotes given way of evidence, but, you know, they were well ahead in terms of organising sales on diesel reserves and storage, well ahead on fertiliser. You know, I've got some farmers saying maybe I might start selling some of this diesel just to capture the price opportunity at the moment. So I don't want to be flippant about it, but it's remarkable their ability and where they're at. And so we're very, we feel very confident about the position of our book. That doesn't mean that there won't be some challenges there, but certainly as we sit here today and with what we can see and are working on with them over the next six months, So many of what we're working with are in a position where they'll find a way through. It is the case that I think the government's done a very good job on this front, which is making sure the diesel is prioritised in the right way. That ensures the Australian economy keeps ticking over and that rural Australia continues to have what it needs. And likewise, it's also done an excellent job on that fertiliser and the prioritisation of that acquisition and bringing into the Australian marketplace. I do think, you know, while Agri is one we're very focused on, it does feel like at this point it's in an OK spot.

I probably should have just said one thing. Sorry, Richard, to just jump back in. It's also been a sector where we've seen utilisation rates are down. So, you know, we have seen them come into this particular little bit of shock with pretty low utilisation rates. So that's a little bit seasonal, but that's also played into some of the thinking.

Thanks Richard. Our next question comes from Brian Thompson from MST. Brian.

Thank you very much. Just a question. The only thing that really matters from an asset quality perspective really in a crisis is housing. If I have a look at slide 68, I can see that overall the housing actual loss rate is up a little nine basis points whereas the other banks are saying it's zero. When I have a look at slide 74, the investor, I can see it gapping up quite markedly to 1.8 basis points. Both of those numbers are after basically the lender's mortgage insurance. Is there something I'm missing here? Why is Westpac's housing loss rate higher? And can we just get some comments basically on the outlook for that going forward, given that we've got higher rates and you've got this kind of sharply worse outlook going forward under the base case.

Yeah, thanks, Brian. And it might be one we can pick up online and just go through. I must admit I haven't looked at where peers reported this over the last couple of days, so we can have a look at that and where the trends might be slightly different. I think where we would look at in terms of the outlook for housing credit is back to the basics and so it is all about unemployment and then when you have the unemployment it's all about where the asset prices are and so we do come into this even with the economic forecasts that we're that Lucy's put through which you know one of the other questions was it did feel like it was a bit more severe than where others were we saw unemployment picking up to just under five percent which is you know in historical level still really low so you know I think when you think about that asset quality outlook for housing it is going to be all about that and then we're going where we should be concerned is sort of the obvious spot. So we know that to lose money in mortgages, it's in the tails and that will be people who are earlier into their home buying journey. They haven't had the opportunity to build up the buffers. and then they have a life event, whether that be unemployment, an illness or something like that, and that's when they get into trouble. And so, you know, it is all going to be about that unemployment number, really, is to think about the outlook.

Thanks, Brian. We've got some questions from the media ready to go. So, Stephen Johnson from Seven West Media. Stephen? Stephen?

Yes, good morning. I'm from the Nightly, which is part of Seven Week Media and the West Australian. Lucy Ellis, your Chief Economist, is seeing three more interest rate rises, taking it to an 18-year high of 4.85% the cash rate. Anthony, how concerned are you about surging mortgage stress and the prospect of a recession in Australia?

So Lucy's forecast, yeah, so certainly forecasting rate rise in May today and then one in June and likely one in August. I think the rate rise, if it was the case today, would then return us to where we were about 18 months ago. And so moving beyond this, I think, you know, the next two rate rises take us into territory we haven't been in for a period of time. The other thing I sort of want to acknowledge is that while we have the employment levels that we have and even with a higher unemployment level from here, there is still so much more capacity and ability for the economies to absorb any potential future rate rises and therefore potential impact on our mortgage bills, for example. I think at the moment we don't forecast But people who talk with absolute certainty today in this environment I think are misinformed because it's an unusual environment in which we're in and there's no doubt that there's a lot of competing forces here. On the one hand increasing interest rates, looking to slow the economy down. You also have actually increased input costs, pressures coming through to the consumer with the Middle East conflict etc which also could have a dampening effect on demand and may therefore facilitate or help in the slowdown that the Reserve Bank is looking for and thus maybe the future rate rises don't need to be as much as it has been called or suggested. So we've got to watch and see how that plays out. I do think you know the Uncertainty is the bigger issue here because the thing that I'm more worried about, I think we are more worried about, is that businesses and investment decisions are put on hold or it's impossible to make an investment decision that you will build or you will invest in or you will construct something, you know, and you want stuff for six to nine months. You just can't make that decision at the moment because of the uncertainty. And so the risk is that no decision today or a delayed decision today is in effect a no investment opportunity and as a result, activity will fall off in that forward setting of 3, 6, 12 months out. And so that's the thing that we just want to stay focused on is that investment decision and activity is still, if you will, able to think about future investment future plans which ensure that the activity levels which are helping us through at the moment will sustain and thus I think that's the worry in the context of potential recession. Having said that, we remain at this point with our forecast. I think there's a way through this and it will obviously also be dependent upon another input of uncertainty which is the Federal Budget next week and its role and contribution to both helping Australians through particularly interesting times and also potentially what it will do for future economic activity will be something that we'll work out over the course of the next few weeks.

Thanks, Stephen. Our next question comes from James Ayres from the AFR. James?

Thank you. And just to the last two questions, you called out some softening activity in the mortgage market in April and also hardship sort of Could you just talk a little bit more about that, please, Anthony? Like if we do get these three rate rises coming through or even just one today, do you expect these conditions that you saw in April in the mortgage market extending through to May and June?

Yeah, look, I think what we saw in April was something that was anticipated. It wasn't more dramatic than was otherwise expected. to be expected, you know, as a result of, you know, the two previous rate rises. And frankly, you know, the signalling both from government, from regulators, from Reserve Bank about a need to slow down and the idea that we may increase interest rates further. I don't think we sort of can also tie any of what we saw in April necessarily back to Middle East conflict, et cetera. We definitely have seen a couple of things which I think we just need to be cognizant of is consumer sentiment has really fallen off. And so the drop in consumer sentiment is an important indicator. And alongside that, it's only one month, sort of, if you will, result. But, you know, the drop in business confidence is just another indicator that things are slowing. And so those are the things that we're currently cognizant of. We've also noticed that, you know, auction clearance rates are a little bit lower. We've also noticed that people's expectation of price is being a little bit more tempered. We also notice that turnover is slowing. So things are slowing and in many ways, James, that's exactly what the Reserve Bank was looking for, which is to see things slow and moderate and bring, if you will, activity to a point where we get inflation back into that target band. Hopefully I've given you some reflections and some inputs there that you're looking for. But we do also feel that it's a little early to be calling things and talking with absolute certainty. Because the other thing that we just need to keep in mind is with employment levels as they are, and even if there's an increase in unemployment, as I say, there's still plenty of capacity there in terms of what it provides for the economy. And also notice that, you know, when the constrained consumer arrived into 2026, you know, the pre-payment levels, the buffer levels on the mortgage broker at 85%, you know, where people are at least one month or more ahead in their payments. And so there is quite a bit of buffer in the economy as we see here today.

Thanks, James. Look, we've still got quite a few callers online, but we are out of time, unfortunately. So we'll be available over the course of the day to take your questions. Thank you very much for dialling in.