#1Westpac New Zealand Limited Year Ended 30 September 2013 Investor update January 2014 W#2Disclaimer The material contained in this presentation is intended to be general background information on Westpac Securities NZ Limited and Westpac New Zealand Limited and their activities. It should not be reproduced, distributed or transmitted to any person without consent of Westpac New Zealand Limited and is not intended for distribution in any jurisdiction in which such distribution would be contrary to local law or regulation. The information is supplied in summary form and is therefore not necessarily complete. It does not constitute a prospectus, offering memorandum or other offering document or an offer of securities. Also, it is not intended that it be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending upon their specific investment objectives, financial situation or particular needs. The material contained in this presentation may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. All amounts are in New Zealand dollars unless otherwise indicated. All financial data in this presentation is as at 30 September 2013 unless otherwise stated. This presentation contains statements that constitute "forward-looking statements" within the meaning of section 21E of the United States Securities Exchange Act 1934. Forward-looking statements are statements about matters that are not historical facts. The forward-looking statements include statements regarding our intent, belief or current expectations with respect to our business and operations, market conditions, results of operations and financial condition. We use words such as 'will', 'may', 'expect', 'indicative', 'intend', 'seek', 'would', 'should', 'could', 'continue', 'plan', 'probability', 'risk', 'forecast', 'likely', 'estimate', 'anticipate', 'believe', or other similar words to identify forward-looking statements. These statements reflect our current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond our control and have been made based upon management's expectations and beliefs concerning future developments and their potential effect upon Westpac Securities NZ Limited and/or Westpac New Zealand Limited. Should one or more of the risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary materially from the expectations described in this presentation. Factors that may impact on the forward-looking statements made include those described in the section entitled "Principal risks and uncertainties" in the Management Report in the Westpac Securities NZ Limited Financial Statements for the year ended 30 September 2013. When relying on forward-looking statements to make decisions with respect to Westpac Securities NZ Limited and/or Westpac New Zealand Limited, investors and others should carefully consider such factors and other uncertainties and events. We are under no obligation, and do not intend, to update any forward-looking statements contained in this presentation. : 2 W#3Agenda Franchise and Strategy Financial Results and Trends Capital Structure Wholesale Funding NZ Economic Outlook NZ Housing Portfolio W : 3#4Franchise and Strategy W#5: 5 Westpac New Zealand Limited (WNZL) - an award winning bank with a strong franchise WNZL at a glance One of new Zealand's largest banking organisations Regulated by the Reserve Bank of New Zealand (RBNZ) A wholly owned subsidiary of Westpac Banking Corporation, operating Westpac's consumer, business and institutional banking operations in New Zealand Strategy focused on organic growth within New Zealand Key Financial Data Year ended 30 Sept 2013 Change 2013-2012 Net profit after tax $714m 16% Cost to income ratio 42.5% 100bps Impairment charges $107m 44% Total gross loans $62b $2b Total deposits $47b $4b Common equity Tier 1 ratio 12.3% n/a Award winning KangaNews Kanga News - New Zealand Domestic Issuer of the Year 2013 Credit Ratings (Short term / Long term / Outlook) Market share1 Consumer lending Retail deposits As at 30 Sept 2013 20% 21% Strong franchise with over 200 branches nationwide and 1.3m customers THE ASIAN BANKER® STRATEGIC BUSINESS INTELLIGENCE FOR THE FINANCIAL SERVICES COMMUNITY The Asian Banker - Strongest Bank Balance Sheet New Zealand 1.Source: RBNZ Standard and Poor's Moody's Investor Services Fitch Ratings A-1+AA-/ Stable P-1/Aa3/Stable F1+/AA-Stable W#6WNZL - an important part of the Westpac Group Westpac Group New Zealand W Westpac Australia's First Bank Westpac InstitutionalBank Australia st.george BT Financial Group BankSA RAMS Asgard Westpac New Zealand Limited (WNZL) ☐ Westpac Securities NZ Limited (WSNZL) Locally incorporated Bank, wholly owned but not guaranteed by Westpac Banking Corporation Comprises Westpac's consumer, business and institutional banking operations in NZ Financial performance disclosed via quarterly WNZL Disclosure Statement (DS) Guarantor for WSNZL funding programmes A wholly owned subsidiary of WNZL Unconditional and irrevocable guarantees of funding programmes from WNZL Provides offshore wholesale funding for WNZL through its London branch BT New Zealand Westpac Life New Zealand : 6 W#7Our Strategy Purpose “To become much loved... helping you achieve your dreams" Brand - Help is what we do • Making banking easier Help when you need it most • Helping you make better financial decisions • Helping the community Ambition • Be the most sustainably profitable growth business in the Westpac Group and amongst New Zealand peers • Drive to a portfolio of #1 and #2 positions • Be known globally as an innovative bank Values • One Team • Courage • Achievement • Integrity Delighting Customers Outcomes • Growth Strength • Productivity • Return Priorities 國 Next Generation Distribution Faster, More Responsive Deeper Customer Relationships Radical Simplification Optimised Returns 7#8Clear, unchanged, balanced strategic priorities Higher growth in target segments, including Agri, SME, MyBank Targeted growth to optimise the portfolio Disciplined cost management Reshaping the distribution channels for business efficiency ☐ Maintain strong ROE with a focus on margin management Efficient use of capital Growth Return Various drivers Maintain discipline Productivity Continued improvement Strength A strong company ■ Continued strengthening of balance sheet ■Continued activity in the wholesale market : 8 W#930 September 2013 - A strong performance across key metrics Return ☐ Improved core earnings and reduced impairment charges leading to improved cash earnings ■NIM broadly maintained during FY13 despite competitive pressures Growth Deposit growth funded loan growth as well as wholesale debt and intra-group debt reductions ■ Targeted mortgage (below 80% LVR) growth with business lending growth in line with system Productivity Expense to income ratio reduced to 42.48% at 30 September 2013 from 43.50% at 30 September 2012 ■ Reduced FTE's from 4,691 to 4,481 at 30 September 2013 Strength Improved deposit to loan (D2L) ratio to 75.6% from 70.6% at 30 September 2012 ■ Asset quality improving with a reduction in Business stressed exposures and housing delinquencies : 9 W#10Financial Results and Trends W : 10#11A strong, all round performance in FY13 Variance Variance (NZ$m)¹ 2 FY11 FY12 FY13 ($) (%) Net interest income 1,316 1,499 1,536 37 2% Non interest income 308 356 371 15 4% Net operating income 1,624 1,855 1,907 52 3% Operating expenses (771) (807) (810) (3) (0%) Underlying profit 853 1,048 1,097 49 5% / core earnings Impairment charges (224) (190) (107) 83 44% Income tax expense (196) (245) (276) (31) (13%) Profit after income tax expense 433 613 714 101 16% / cash earnings Net interest margin 2.41% 2.31% 2.29% (2 bps) N/A ROE 10.1% 11.8% 11.5% (30 bps) N/A Deposit to Loan Ratio 65.0% 70.6% 75.6% 500 bps N/A Funding position 18,493 18,060 15,489 2,571 14% 1. Source: WNZL Disclosure Statements 2. FY12 includes 11 months of the institutional business which vested on 1 November 2011. FY11 excludes the institutional business. : 11 W#12A strong, all round performance in FY13 (NZ$m) 1 Assets FY11 FY122 FY13 Variance ($) Variance (%) Other assets Total assets Net loans 51,250 59,422 61,585 2,163 4% Funded Liquids 6,693 6,651 6,270 (381) (6%) Due from related entities 1,565 1,575 1,424 (151) (10%) 1,148 1,174 1,233 59 5% 60,656 68,822 70,512 1,690 2% Liabilities 4 Customer deposits 33,330 41,967 46,648 4,681 11% Wholesale funding 19,186 14,337 13,179 (1,158) (8%) Intra-company borrowings 970 4,070 2,100 (1,970) (48%) Other due to related entities 1,806 1,579 1,097 (482) (31%) Other liabilities 868 1,073 922 (151) (14%) Total liabilities 56,160 63,026 63,946 920 1% : 12 1. Source: WNZL Disclosure Statements 2. FY12 includes 11 months of the institutional business which vested on 1 November 2011. FY11 excludes the institutional business. 3. Funded Liquids exclude inter entity cash balance between WNZL and NZ Branch, which is included in Due from related entities ($467m) 4. Excluding Registered Certificates of Deposit which are included in wholesale funding W#13: 13 A strong, all round performance with continued investment in the business Historically... Cash earnings ($m) Consistent performance uplift ...And throughout FY13 Expense to income ratio (%) Improvements in efficiency Expense to income ratio (%) Cash earnings ($m) Improvements in efficiency Strong all round performance 50.0% 800 50.0% 250 714 37.5% 625 37.5% $200 25.0% 450 25.0% 48.4% 47.5% 150 46.1% 714 42.2% 43.5% 42.5% 41.4% 42.3% 40.1% 42.5% 613 185 275 433 12.5% 100 148 159 178 192 12.5% 248 286 0.0% 100 0.0% 50 FY09 FY10 FY11 FY12 FY13 FY09 FY10 FY11 FY12 FY13 4Q12 1Q13 2Q13 3Q13 4Q13 4Q12 1Q13 2Q13 3Q13 4Q13 Net interest margin (%) Disciplined margin management Impairment charges ($m) Improved asset quality Net interest margin (%) Disciplined margin management Impairment charges ($m) Improved asset quality 660 80 2.60% 2.53% 2.50% 107 495 60 2.38% 2.33% 2.40% 330 40 1620 2.25% 2.20% 2.29% 2.26% 59 165 334 2.13% 20 36 224 190 21 28 22 107 2.00% 0 2.00% 0 FY09 FY10 FY11 FY12 FY13 WNZL NIM FY09 FY10 FY11 FY12 FY13 4Q12 1Q13 2013 3Q13 4Q13 WNZL NIM 4Q12 1Q13 2Q13 3Q13 4Q13 FY12 includes 11 months of the institutional business which vested on 1 November 2011. FY11 and prior excludes the institutional business. W#14: 14 Focus on strong, above system growth in deposits and deepening customer relations Deposits FY13 ($bn) Historical trend in deposits and mix ($bn) 48.0 46.0 44.0 42.0 42.0 40.0 4Q12 % 76.0 73.0 70.0 1.7 10.95% growth Term 2.9 Call Deposit to loan ratio (%) 50.0 37.5 $33.3bn $42.0bn 23.1 $46.6bn 24.9 25.0 19.2 Call 47% Term 53% 46.6 Call 45% Term 55% 12.5 Call 42% Term 58% 21.8 18.9 14.1 4Q13 FY11 FY12 FY13 Term Call Customers with a Wealth product (000) '000s 370 315 260 75.2 75.6 219 205 70.6 67.0 67.8 500bps improvement 65.8 66.0 64.0 1H11 2H11 1H12 2H12 1H13 2H13 341 324 297 150 1H12 2H12 1H13 2H13 W FY12 includes 11 months of the institutional business which vested on 1 November 2011. FY11 and prior excludes the institutional business.#15: 15 Growth in lending impacted by deleveraging and subdued market 62,000 Total net lending ($m) +$1,670m, 2.8% 38,000 Gross Housing lending ($m) +$1,052m, 2.9% 59,500 36,000 34,000 61,585 37,594 60,453 37,062 59,915 36,542 35,986 35,978 32,000 57,000 54,500 59,422 59.91 3.6% growth 52,000 4Q12 1Q13 2Q13 21,000 20,500 20,000 3Q13 Gross Business lending ($m) +$561m, 2.8% 30,000 4Q13 4Q12 6,200 5,700 4.5% growth 1Q13 2Q13 3Q13 4Q13 Gross Agri lending ($m) +$61m, 1.0% 5,200 6,006 6,048 6,067 20,515 5,869 5,787 19,500 19,954 20,021 19,769 19,798 4,700 3.4% growth 3.8% growth 19,000 4Q12 1Q13 4,200 2Q13 3Q13 4Q13 4Q12 1Q13 2Q13 3Q13 4Q13 W#16Revenue has improved in a subdued environment Operating income trends ($m) Operating income ($m) $1,855m $1,907m 2,000 500 $1,624m 356 371 89 95 87 94 95 $1,455m 1,500 375 308 291 1,000 1,316 1,164 500 31% growth 250 1,499 1,536 382 382 384 386 384 125 0 T FY10 FY11 FY12 FY13 4Q12 1Q13 2Q13 3Q13 4Q13 Non II Net II I Non II Net II Fee and commission income trend ($m) 400 300 200 287 299 100 25% growth 100 95 90 358 336 FY10 FY11 FY12 FY13 Fee and commission income ($m) 97 : 16 85 91 86 85 84 80 4Q12 1Q13 2Q13 3Q13 4Q13 W FY12 includes 11 months of the institutional business which vested on 1 November 2011. FY11 and prior excludes the institutional business.#17: 17 Good balance between disciplined cost management and continual investment in the business Operating Expenses ($m) FY13 Expense to income ratio vs peers 840 630 420 210 5000 3750 46% 44% 42% 807 810 771 704 40% 41.06% 44.25% 43.86% 42.48% 38% FY10 FY11 FY12 FY13 Peer Peer Peer Westpac FTE (000) 2500 4698 4,660 4,691 4,481 1250 0 FY10 FY11 FY12 FY13 Investment and compliance spend ($m) Spend($m) 120 100 80 60 101 40 74 55 45 20 0 FY10 FY11 FY12 FY10 FY11 FY12 FY13 FY13 FY12 includes 11 months of the institutional business which vested on 1 November 2011. FY11 and prior excludes the institutional business. W#18Continued focus on asset quality resulting in falling impairment charges Stress assets to TCE (%) Continued improvement in the quality of assets Impairment charges to gross loans (%) Strengthening of lending book 8.0% 6.0% 4.0% 5.24% 2.0% 4.32% 3.35% 2.30% 0.0% FY10 FY11 FY12 FY13 Mortgage delinquency trend (%) Continued improvement in the quality of housing assets 0.8 0.75 0.6 0.40 0.4 0.29 0.2 -1bps +15bps -8bps +15bps FY13 0.18% 0.17% 0.10% 0.07% Peer Peer Peer Westpac FY12 0.32% 0.22% 0.09% 0.10% Peer Peer Peer Westpac >80% LVR as % of housing book against peers Continued improvement in the quality of housing assets 24% 22.13% 21% 18% 0.29 0.25 15% 0.12 12% 0 Sep-10 Sep-11 90+ days Sep-12 30-60 days Sep-13 60-90 days 21.74% : 18 23.10% 22.13% 20.49% 20.91% 18.65% 15.36% Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Peers Westpac FY12 includes 11 months of the institutional business which vested on 1 November 2011. FY11 and prior excludes the institutional business. W#19Capital Structure W : 19#20Strong Capital position maintained in FY13 Tier 1 capital ratio (%) Continued re-investment in capital FY13 Total capital ratios (%) Capital levels well funded 14.0% 10.5% 7.0% Basel II 11.90% 12.40% Basel III 12.61% 12.30% 12.0% 12.3% 12.30% 9.5% 9.9% 10.5% 10.40% 10.40% 8.87% 3.5% 0.0% FY09 FY10 FY11 FY12 FY13 Peer 12.0% 9.0% Return on equity (%) Strong return with reinvestment of profits 46,000 42,000 38,000 6.0% 11.80% 11.50% 10.10% 7.30% 3.0% 0.0% FY10 FY11 FY12 FY13 Peer Peer CET1 ит1 T2 Risk weighted assets trend (%) Improving asset quality 36,130 34,379 34,000 30,000 FY10 FY11 Westpac 44,893 42,567 FY12 FY12 includes 11 months of the institutional business which vested on 1 November 2011. FY11 and prior excludes the institutional business. Source: Company Annual reports and 30 September 2013 Disclosure statements or equivalents : 20 FY13 W#21Capital levels are well above regulatory minimums WNZL regulatory capital ratios (%) FY13 capital ratios Basel III (%) 20 20 Basel II Basel III Capital adequacy ratios 14.1 11.9 12.1 12.3 15 Common Equity Tier One Capital ratio 12.3 13.0 13.1 11.9 13.0 12.1 12.1 12.3 12.3 12.0 11.7 10.5 Tier One Capital ratio 12.3 10 Total Capital ratio 12.3 5 Reserve Bank minimum ratios 0 Sep-11 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Common Equity Tier One Capital ratio 4.5 Total common equity Tier 1 Total Capital Tier One Capital ratio¹ 6.0 Total Capital ratio 8.0 7,000 WNZL equity composition ($m) 970 500 500 5,500 1,079 1,237 1,425 1,602 1,818 970 4,000 967 4,600 4,600 4,600 4,600 2,500 4,600 3,470 1,000 Sep-11 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Equity Retained earnings Subordinated debt : 21 Buffer ratios Buffer ratio² Buffer ratio requirement² 4.3 2.5 1. Prior to a change in the Conditions of registration that took effect on 1 January 2013, locally incorporated registered banks having the benefit of the Wholesale Funding Guarantee Facility were required to maintain an additional 2% Tier One Capital ratio buffer above the then 4% regulatory minimum. Following the change, all locally incorporated registered banks are required to hold a minimum Tier One Capital ratio of 6%. 2. As at 30 September 2013, there was no prescribed minimum regulatory buffer. A prescribed minimum regulatory ratio of 2.5% came into effect from 1 January 2014. W#22Wholesale funding W : 22#23Strong and sustainable wholesale funding profile Term maturities Core Funding 3.0 WNZL Core Funding Ratio RBNZ Min Core Funding Ratio 100% 2.5 90% 80% 70% 60% NZD Equivalent ($bn) 2.0 1.5 1.0 0.5 50% 0.0 2H10 1H11 2H11 1H12 2H12 1H13 2H13 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Funding composition 8 6 13 17 8 Matured : 23 DMTN (GG) EMTN (GG) Covered ΠΕΜΤΝ DMTN ☐ ☐ Commentary Core Funding comfortable above RBNZ minimum. Term maturities well spread for manageable annual refinancing task On going reduction on reliance on offshore funding markets (27% FY10 to 12% FY13). 14 14 539 11 5 Wholesale Offshore <1Yr Wholesale Offshore >1Yr ☐ 9 Wholesale Onshore <1Yr 10 9 Wholesale Onshore >1Yr 57 57 68 57 63 57 FY10 FY11 FY12 FY13 Intercompany Debt Equity Customer Deposits W#24Funding structure continues to improve and is well balanced Total funding composition (%) Wholesale funding (%) : 24 Wholesale funding by currency (%) 9 9 10 9 5 20 34 34 23 16% 1% 6% NZD 12% Domestic Medium Term Notes 28% USD Euro Medium Term Notes 23% US Commercial Paper 39% □ EUR 57 57 63 68 57 Covered Bonds CHF 21% 23% Certificates of Deposit 31% Other FY10 Deposits 30.0% FY11 FY12 FY13 Wholesale Funding I Intercompany Debt Equity FY13 wholesale funding to total liabilities (%) Active management of wholesale debt 27.0% 24.0% 28.40% 21.0% 18.0% 22.60% 20.70% 20.60% 15.0% Peer Peer Peer Westpac I 2,776, 21% $13b 1,534 12% 8,869 67% CP RCDS Term debt issues FY12 includes 11 months of the institutional business which vested on 1 November 2011. FY11 and prior excludes the institutional business. Source: Company Annual reports and 30 September 2013 Disclosure statements or equivalents W#2512.0 Liquid assets are well managed Liquid assets ($bn) Liquid assets as % short term funding Liquids/Wholesale Debt <1 year 9.0 6.0 4.0 180% 4.0 4.0 4.0 160% 140% 7.1 7.2 6.9 120% 3.0 5.5 100% 0.0 FY10 FY11 FY12 FY13 80% Funded Unfunded 2010 2011 2012 2013 37% : 25 Liquid assets composition 12% 4% 17% 22% Cash Due from other financial institutions ☐ Supranational securities 4% 4% NZ Government securities NZ Local Authority securities NZ Corporate securities □RMBS Commentary Funded liquid assets have remained relatively stable over last 3 years. Liquid asset coverage of wholesale funding maturities continues to strengthen. Periodic changes in liquid assets reflects liquidity management activities undertaken in response to wholesale maturities to maintain compliance with internal and regulatory requirements. Asset portfolio diversified W#26NZ Economic Outlook W : 26#27New Zealand population distribution Region Population Kaitaia Northland 158,400 Northern Kaikohe WHANGAREI Dargaville Auckland 1,507,600 (53% of population) Waikato 416,200 Helensville AUCKLAND Bay of Plenty 277,300 Warkworth Orewa North Shore Papatoetoe Manurewa Papakura Pukekohe HAMILTON Thames TAURANGA Whakatane Tokoroa Gisborne 46,800 ROTORUA Central Te Kuiti Taumarunui Taupo Hawke's Bay 155,000 NEW PLYMOUTH (24% of population) Taranaki 110,100 Hawera WANGANUI PALMERSTON NORTH Manawatu-Wanganui 232,500 Levin Paraparaumu Motueka Gisborne Wairoa NAPIER HASTINGS Feilding Dannevirke Masterton Wellington 490,100 Porirua Upper Hutt Richmond NELSON Lower Hutt Westport WELLINGTON Blenheim Tasman 48,400 Nelson 46,600 Marlborough 45,700 South Greymouth Hokitika Rangiora CHRISTCHURCH Ashburton West Coast 32,900 (23% of population).ru Canterbury 558,800 Queenstown Te Anau Waimate Oamaru Alexandra Otago 211,200 CHATHAM ISLANDS Southland 94,900 Gore DUNEDIN Balclutha INVERCARGILL Statistics NZ Estimate as at June 2012 4,432,500 Source: Statistics NZ, 2006 Census : 27 W#28☐ The New Zealand economy - outlook Westpac forecast a strong NZ economy through 2014, following on from a robust Q3 in 2013, highlighted by a 1.4% rise in GDP. September's GDP highlights the robust recovery to farm production following the drought earlier in the year, along with the continued positive impact of the Christchurch rebuild as this continues to gain momentum. Westpac expects the construction sector to accelerate further, providing the main source of economic growth over the next couple of years, driven by Christchurch, and Auckland, where net migration feeds an already tight property market. ■ Post-earthquake building in Canterbury is expected to ramp up further. Latest official estimates of the total cost of reconstruction in Canterbury are NZ$40bn, or about 20% of annual GDP. This activity - largely funded by global reinsurance payouts – is expected to be spread over a decade or more, but to peak in 2015. - Higher house prices are also expected to encourage greater construction activity in Auckland. A housing shortage in Auckland developed after the 2008/2009 recession as a result of strong population growth and a construction downturn. ■ House prices are expected to continue rising throughout 2014 and 2015, albeit at a slower rate as interest rates rise. Recently introduced restrictions on mortgage lending to low-deposit borrowers are also expected to slow the market, albeit modestly. ■ Government austerity is expected to continue to constrain growth in government-related industries, and the high exchange rate will remain a considerable challenge for the export and import-competing sectors. ☐ : 28 Overall, we expect a further steady improvement in economic growth, with GDP reaching 3.7% by early 2015. W#29: 29 8 6 4 NZ Economic Growth remains positive 2 0 -2 -4 1990 1993 GDP Growth - Annual change ли World Prices for NZ commodities % Index 8 350 Forecast 6 300 4 250 2 200 0 150 Index 350 300 250 Forecast 200 150 100 -2 100 50 50 50 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 1996 1999 2002 2005 2008 2011 2014 2017 Unemployment Rate Net Immigration ('000s) % % 12 11 10 211 150 60 Net (right axis) Arrivals 50 Forecast 100 40 Forecast 30 σ 50 8 7 50 20 10 0 CO 6 -10 LO 5 -50 -20 4 -30 3 -100 -40 1990 1993 1996 1999 2002 2005 2008 2011 2014 1992 1995 1998 2001 2004 2007 2010 2013 2016 21 12 11 10 9 8 7 6 5 4 3#30Housing sector demand driven Christchurch rebuild $bn 1.6 Estimate Forecast 1.4 $bn 1.6 1.4 ■Residential 1.2 1.2 222 30 25 20 ■Commercial 15 1.0 1.0 ■Infrastructure 10 0.8 0.8 5 0.6 0.6 0 0.4 0.4 -5 0.2 0.2 -10 0.0 0.0 -15 2011 2013 2015 2017 2019 2021 House prices by region % House prices inflation % Forecast 20 2000 2002 2004 2006 2008 2010 2012 2014 2016 Average Prices : 30 0 -5 10 5 LG OG SNO -10 -15 130 2007 peak = 100 2007 peak 100 = 130 Nov-13 Nov-12 Change 125 Auckland 125 New Zealand $460,067 $421,497 9.2% 120 -Wellington 120 115 ⚫Christchurch 115 Auckland Area $685,350 $594,856 15.2% 110 Rest of North Island 110 Wellington Area $448,325 $435,468 3.0% 105 Rest of South Island 105 Christchurch City $450,049 $400,496 12.4% 100 100 95 95 Hamilton City $356,829 $338,384 5.5% 90 90 Tauranga City $438,540 $423,865 3.5% 85 85 Queenstown-Lakes District $638,630 $614,249 4.0% 80 80 75 75 2006 2007 2008 2009 2010 2011 2012 2013 W#31Household affordability Leverage and Servicing 40 642 % 180 160 140 120 100 80 60 % 16 Ratio 6 14 LO 5 12 4 10 8 3 6 20 Household debt as % nominal disposable income Servicing as % nominal disposable income 2 4 1 2 0 T T T T T 0 0 1991 1994 1997 2000 2003 2006 2009 2012 9% Rental vacancy rates 8% 7% 6% 5% 4% 3% National 2% Auckland 1% *Gtr. Christchurch Wellington 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 House affordability : 31 Ratio 25 House price-to-income ratio (left axis) Lower quartile house price-to-median rent (right axis) T 1990 1992 1994 1997 1999 2001 2004 2006 2008 2011 Commentary • House leverage at historically high levels • Mortgage servicing aided by historically low rates • Rental vacancy rate low driven by general housing shortage. 15 GN 20 10 5 LO W#32NZ Interest rate environment 90 day interest rates 90 day rate projections : 32 % 16 % 16 5.5 RBNZ projection (Sep % 5.5 MPS) 14 12 4 14 5.0 5.0 Swap market pricing Forecast 12 4.5 4.5 10 8 10 4.0 Westpac Economics forecast 4.0 8 3.5 3.5 CO 6 CO 6 3.0 3.0 4 st 4 2.5 2.5 2 2 0 0 2.0 2.0 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Nov-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 NZ interest rate markets Commentary Last Price 6.0000 NZD SWAP OIS 1 YR 3.1798 NZD SWAP 2 YR 3.8125 NZD SWAP 5 YR New Zealand Official Cash Rate 2.5000 5.5000 4.6900 5.0000 • 4.6900 -4.5000 • 4.0000 3.8125 -3.5000 • 3.1798 -3.0000 • 2.5000 2.0000 2009 2010 2011 NDS01 Curncy (NZD SWAP OIS 1 YR) Graph 9 Daily 19DEC200 2012 Copyrights 2013 Bloomberg Finance L.P. 2013 20 23-Dec-2013 14:01:46 NZ bill rates have been stable at historical lows for 4 years The broader market consensus is that rates will begin to rise in Q1 2014 Rates rises over next 2 years around 2.5% Swap rates reflect expectations W#33NZ Housing Portfolio W : 33#34Portfolio Overview Mortgage portfolio of $37.5bn. • Geographic profile consistent with population concentrations of New Zealand. ⚫ Well secured book with low LVR profile. • Growth in above 80% LVR lower than peers. 30% Home Loan Portfolio - Above 80% LVR Proportions 25% 20% 15% 10% Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 WNZL Peer 1 Peer 2 Peer 3 --Peer 4 Home loan Portfolio - Regional Profile 42% 40% 8% 10% Auckland Wellington Christchurch Rest Home Loan Portfolio - LVR Profile 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 0<=60 60<=70 70<=80 80<=90 90<=95 95+ W : 34#35Well seasoned, low concentration risk portfolio. • Majority of lending concentrated in lower loan amounts (less than $500k). • Less than 3% of the portfolio are large loan. sizes above $1m. Limits exposure to higher value market segments that are typically more volatile in a downturn. Well seasoned book with 37% of the portfolio past 5+ years maturation. This provides significant equity buffers from home price appreciation and loan schedule reduction. 52% of the portfolio is already past peak delinquency development (3+ years vintage maturation). 40% 35% 30% 25% 20% 15% 10% 5% 0% Home Loan Portfolio - Original Loan Amount Home loan Portfolio - Maturation Profile 22% 37% 16% 7% 9% 9% Less than 1 year ☑ 1 to 2 years 2 to 3 years 4 to 5 years 5+ years 3 to 4 years : 35 W#360.00 0.20 1H09 0.40 0.60 2H09 0.80 1H10 1.00 2H10 Low delinquencies continue to improve • Delinquency rates continue to improve for both 30+ and 90+ day arrears. 1.40% 1.20% 1.00% · Driven by improved underwriting standards and strengthening New Zealand housing market and economy. 0.80% 0.60% 0.40% 0.20% . Loss rates stable and continue to run at less than 1% annualised. 0.00% • More recent vintages performing strongly. Home Loan Portfolio - Half Year Loss Rates 1H12 2H13 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 90+ Days Delinquent Aug-12 Sep-12 Mortgage Portfolio - Delinquency Rates Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Home loan Portfolio -30+ Vintage Performance 1 3 5 79 11 13 15 17 19 21 23 25 27 29 31 33 35 37 2006 ―2007 2008 ―2009 2010 2011 2012 W 30+ Days Delinquent Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 : 36#37Payments in advance remain at consistent high levels. • Advance payments driven by customers maintaining scheduled payments at historical levels after rate falls. 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Housing Loans Payments In Advance % of Total Outstandings ***************** May-12 Jun-12 Jul-12 Aug-12 Sep-12 30 to <60 days Oct-12 ΖΙ-ΛΟΝ Τ Dec-12 cl-uef Feb-13 60 to <90 days Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 90 days plus W : 37#38Application Review Originator Fulfilment Verification Credit Decision Home Loan Origination Process Brokers Pre-filter-target market Broker Operations Proprietary Channel - Private, Mobile, Branch, Business Origination System (NZLO) Strategy Manager (SM) Scorecard Lenders Recommendation Underwriting standards Bureau Credit Authority Credit Manager Conditional Approval Exception Request Lenders Identification Income Valuation Other (e.g. construction) Documentation: Terms & Conditions, Mortgage Drawdown Support Centre Quality Assurance Checklists, Credit Manager, Credit Risk Review, Group Audit W : 38#39Collections and recovery strategy 1 - 10 days 1 - 21 days 21 - 30 days 32 days 39 - 45 days Payment retry Branch/Relationship contact Phone Call - Dialler Letter - penalty interest Phone Call Dialler - Letter - intention to list default Issue Demand 46 days 46 - 80 days Phone Call Dialler and Manual 80 days 90 days 90+ days 120+ days 150+ days 180+ days Demand expires - transfer to Recoveries Assess strategy - contact borrower - repayment arrangement agree/monitor Instruct Solicitors to issue Property Law Act Notice Instruct obtain Registered Valuation to confirm ERV and assess provision On expiry PLA, obtain two market appraisals and instruct mortgagee sale proceedings, marketing campaign usually four weeks Day of auction set reserve price and if met, settlement four weeks later Attend to settlement and assess any shortfall, any ongoing actions including Bankruptcy : 39 W#40Contact us : 40 For further information contact: Jim Reardon Treasurer Westpac New Zealand Limited +64 9 367 3539 [email protected] John Toro Westpac Securities NZ Limited +44 20 7621 7540 [email protected] For further information on WNZL and WSNZL: ☐ ☐ Funding and Securitisation Programmes WNZL Disclosure Statement WSNZL Financial Statements Please visit our investor website: www.westpac.com.au/investorcentre/fixed-income- investors/ Click on "Westpac New Zealand" or "Westpac Securities NZ Limited" Home Personal Business Lost or stolen cards Contact us Branches & ATMs Q Search Online Banking - Personal Sign in Corporate About Westpac Register and learn more Westpac Group Investor centre. 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