Westpac Banking : Pillar 3 Report for 31 March 2024

2 WESTPAC GROUP MARCH 2024 PILLAR 3 REPORT

Acknowledgment of Indigenous Peoples

Westpac acknowledges the First Peoples of Australia and recognises their ongoing role as Traditional Owners of the land and waters of this country, and we pay respect to Elders past and present. We extend that respect to Westpac's Aboriginal and Torres Strait Islander employees, partners and stakeholders, and to the Indigenous Peoples in the other locations where we operate.

In Aotearoa (New Zealand) we also acknowledge tangata whenua and the unique relationship that Indigenous Peoples share with all New Zealanders as partners and custodians of their natural ecosystems under Te Tiriti o Waitangi.

Structure of Pillar 3 Report

PILLAR 3 REPORT	3
Executive Summary	4
Introduction	7
Risk Appetite and Risk Types	8
Controlling and Managing Risk	9
Group Structure	14
Capital Overview	16
Leverage Ratio	20
Credit Risk Management	21
Credit Risk Exposure	31
Credit Risk Mitigation	59
Counterparty Credit Risk	61
Securitisation	64
Market Risk	74
Interest Rate Risk in the Bank Book (IRRBB)	79
Operational Risk	81
Equity Risk	83
Funding and Liquidity Risk Management	84
Liquidity Coverage Ratio	85
Net Stable Funding Ratio	86

APPENDICES	88
Appendix I - Regulatory capital reconciliation	89
Appendix II - Entities included in	96
regulatory Consolidation
Appendix III - Level 3 entities' assets	98
and liabilities
Appendix IV - Regulatory expected loss	99

Appendix V - APS330 quantitative requirements 100

Appendix VI - Exchange rates	103
GLOSSARY	104
DISCLOSURE REGARDING FORWARD-	109
LOOKING STATEMENTS

In this report references to 'Westpac', 'Westpac Group', 'the Group', 'we', 'us' and 'our' are to Westpac Banking Corporation and its controlled entities (unless the context indicates otherwise).

In this report, unless otherwise stated or the context otherwise requires, references to '$', 'AUD' or 'A$' are to Australian dollars. References to 'US$', 'USD' or 'US dollars' are to United States dollars, references to 'NZ$', 'NZD' or 'NZ dollars' are to New Zealand dollars, references to 'GBP' are to British Pound Sterling and references to 'EUR' are to European Euro. Refer to Appendix VI for information regarding the rates of exchange between the Australian dollar and other currencies applied by the Group as part of its operating activities as at 31 March 2024, 30 September 2023 and

31 March 2023.

Any discrepancies between totals and sums of components in tables contained in this report are due to rounding.

In this report, unless otherwise stated, disclosures reflect the Australian Prudential Regulation Authority's (APRA) implementation of Basel III.

Information contained in or accessible through the websites mentioned in this report does not form part of this report unless we specifically state that it is incorporated by reference and forms part of this report. All references in this report to websites are inactive textual references and are for information only.

Westpac Banking Corporation ABN 33 007 457 141

			DISCLOSURE
PILLAR 3 REPORT	APPENDICES	GLOSSARY	REGARDING FORWARD-	3
LOOKING STATEMENTS

PILLAR 3 REPORT

EXECUTIVE SUMMARY

INTRODUCTION

RISK APPETITE AND RISK TYPES

CONTROLLING AND MANAGING RISK

GROUP STRUCTURE

CAPITAL OVERVIEW

LEVERAGE RATIO

CREDIT RISK MANAGEMENT

CREDIT RISK EXPOSURE

CREDIT RISK MITIGATION

COUNTERPARTY CREDIT RISK

SECURITISATION

MARKET RISK

INTEREST RATE RISK IN THE BANK BOOK (IRRBB)

OPERATIONAL RISK

EQUITY RISK

FUNDING AND LIQUIDITY RISK MANAGEMENT

LIQUIDITY COVERAGE RATIO

NET STABLE FUNDING RATIO

4 WESTPAC GROUP MARCH 2024 PILLAR 3 REPORT

EXECUTIVE SUMMARY

Key capital ratios

	31 March	30 September	31 March
	2024	2023	2023
Level 2 regulatory capital structure
Common equity Tier 1 (CET1) capital after deductions ($m)	55,764	55,885	55,644
Risk weighted assets (RWA) ($m)	444,417	451,418	452,946
CET1 capital ratio	12.55%	12.38%	12.28%
Additional Tier 1 capital ratio	2.46%	2.21%	2.20%
Tier 1 capital ratio	15.01%	14.59%	14.48%
Tier 2 capital ratio	6.42%	5.86%	5.27%
Total regulatory capital ratio	21.43%	20.45%	19.75%
APRA leverage ratio	5.49%	5.50%	5.46%
Level 1 regulatory capital structure
CET1 capital after deductions ($m)	51,999	52,273	52,021
Risk weighted assets ($m)	406,397	414,293	416,254
Level 1 CET1 capital ratio	12.80%	12.62%	12.50%

CET1 CAPITAL RATIO MOVEMENT FOR FIRST HALF 2024
75bps	(57bps)	17bps	2bps	(1bps)	(19bps)	12.55%
12.38%

Sep-23	Net profit	Dividends	RWA movement Capital deductions	FX translation	Share buyback	Mar-24
			and other items	impacts

Westpac's Level 2 CET1 capital ratio was 12.55% at 31 March 2024, 17 basis points higher than 30 September 2023. Key movements included:

• First half 2024 net profit:75 basis points increase;
• Payment of the 2023 final dividend: 57 basis points reduction;
• RWA: 17 basis points increase mainly from a reduction in Interest Rate Risk in the Banking Book (IRRBB) RWA;
• Capital deductions and other capital movements: 2 basis points increase mainly due to lower deductions for capitalised software;
• Foreign currency impacts: 1 basis point reduction; and
• On-marketshare buyback: 19 basis points reduction. As at 31 March 2024, approximately $0.85 billion of the
  $1.5 billion on-market share buyback announced in November 2023 has been completed with a total of 34,442,450 shares bought back and cancelled at an average price of $24.65.

Westpac's Level 1 CET1 capital ratio was 12.80% at 31 March 2024, 18 basis points higher than 30 September 2023 with movements in line with Level 2.

			DISCLOSURE
PILLAR 3 REPORT	APPENDICES	GLOSSARY	REGARDING FORWARD-	5
LOOKING STATEMENTS

Risk Weighted Assets (RWA)

	31 March	30 September	31 March
$m	2024	2023	2023
Risk weighted assets at Level 2
Credit risk	339,741	339,758	340,558
Market risk	11,251	11,538	15,168
Operational risk	54,934	55,175	56,900
Interest rate risk in the banking book (IRRBB)	33,599	40,138	34,748
Other	4,892	4,809	5,572
Total RWA	444,417	451,418	452,946
Total Exposure at Default	1,177,971	1,173,867	1,187,904

Total RWA decreased by 1.6% to $444.4 billion over the half largely due to the decrease in non-credit RWA. Credit RWAs were flat. Key movements included:

• A $2.2 billion increase from higher lending primarily in Corporates;
• A $3.0 billion increase due to deterioration in credit metrics mainly from an increase in delinquencies in Residential Mortgages;
• A $4.0 billion decrease from data refinements mainly related to Residential Mortgages and Corporate exposures;
• A $0.3 billion decrease from counterparty credit risk and mark-to-market related credit risk due to decreases in the mark-to-market value of derivatives from changes in underlying foreign currency rates; and
• A $0.8 billion decrease from foreign currency translation impacts, predominantly the appreciation of the A$ against the NZ$ and US$.

Non-credit RWA were $7.0 billion lower. Key movements included:

• IRRBB RWA: $6.5 billion decrease, driven by:
• • Reduction of $8.4 billion from a lower regulatory embedded loss due to lower swap rates; and
  • Increase in repricing and yield curve risk of $1.4 billion in line with underlying banking book positions;
• Operational RWA: $0.2 billion decrease driven by the outcome of the annual Standardised Measurement Approach (SMA) capital revision and the roll-off of indemnities provided as part of the exit of non-core businesses; and
• Market RWA: $0.3 billion decrease from changes in market risk exposures.

6 WESTPAC GROUP MARCH 2024 PILLAR 3 REPORT

EXECUTIVE SUMMARY

Exposure at Default

Exposure at Default (EAD) increased $4.1 billion over the half. Key movements include:

• A $15.5 billion increase from higher lending, mainly in Corporates and Residential Mortgages;
• A $6.7 billion decrease in Sovereign exposures, mainly driven by maturing Term Funding Facility (TFF) drawdowns;
• A $2.4 billion decrease from foreign currency translation impacts; and
• A $1.2 billion decrease in derivative exposures.

Additional Tier 1 (AT1) and Tier 2 capital movement for First Half 2024

During the half, the Group issued $1.75 billion of Additional Tier 1 capital instruments and redeemed $0.8 billion of Additional Tier 1 capital instruments. The net impact of these transactions was an increase in the Tier 1 capital ratio of approximately 21 basis points.

The Group also issued $2.7 billion of Tier 2 capital instruments over the half. The impact of these transactions was an increase in the Total Capital ratio of approximately 59 basis points. There were no Tier 2 capital instruments redeemed.

Domestic systemically important banks (D-SIBs), including Westpac, have a Total Capital requirement of 18.25% from 1 January 2026.

Leverage ratio

The leverage ratio represents the amount of Tier 1 capital relative to exposure1. At 31 March 2024, Westpac's leverage ratio was 5.49%, down 1 basis point from 30 September 2023, and above APRA's regulatory minimum requirement of 3.5%.

Liquidity Coverage Ratio (LCR)

Westpac's average LCR for the quarter ended 31 March 2024 was 132% (31 December 2023: 133%), well above the regulatory minimum of 100%. The decrease in the ratio was mainly due to higher average Net Cash Outflows (NCO). This comprised higher wholesale funding outflows, mostly from long-term wholesale funding maturities, and maturing TFF drawdowns. This was partly offset by higher issuance of wholesale term funding in the quarter which increased cash holdings.

Net Stable Funding Ratio (NSFR)

Westpac had an NSFR of 114% as of 31 March 2024 (31 December 2023: 114%) and continues to be above the regulatory minimum of 100%. The NSFR for the quarter ended 31 March 2024 held flat on the previous quarter.

1. As defined under Attachment D of APS110: Capital Adequacy.

			DISCLOSURE
PILLAR 3 REPORT	APPENDICES	GLOSSARY	REGARDING FORWARD-	7
LOOKING STATEMENTS

INTRODUCTION

Westpac Banking Corporation is an Authorised Deposit-taking Institution (ADI) subject to regulation by APRA. APRA has accredited Westpac to apply advanced models permitted by the Basel III global capital adequacy regime to the measurement of its regulatory capital requirements. Westpac uses the Advanced Internal Ratings-Based approach (Advanced IRB) for credit risk and the Standardised Measurement Approach (SMA) for operational risk.

In accordance with APS330 Public Disclosure, financial institutions that have received the Advanced IRB accreditation, such as Westpac, are required to disclose prudential information about their risk management practices on a semi-annual basis. A subset of this information must be disclosed quarterly.

This report describes Westpac's risk management practices and presents the prudential assessment of Westpac's capital adequacy as at 31 March 2024.

In addition to this report, the regulatory disclosures section of the Westpac website1 contains the reporting requirements for:

• Capital instruments under Attachment B of APS330; and
• The identification of potential Global-Systemically Important Banks (G-SIB) under Attachment H of APS330 (disclosed annually).

Capital instruments disclosures are updated when:

• A new capital instrument is issued that will form part of regulatory capital; or
• A capital instrument is redeemed, converted into CET1 capital, written off,or its terms and conditions are changed.

1. http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/

8 WESTPAC GROUP MARCH 2024 PILLAR 3 REPORT

RISK APPETITE AND RISK TYPES

Westpac's appetite for risk is informed by our strategic objectives and business plans, regulatory rules and ratios, and the potential for adverse outcomes that may result in material impacts on our customers, our people, our reputation, our regulatory relationships and/or our financial position including the potential for capital and liquidity ratios to fall below target levels in stressed scenarios.

Westpac distinguishes between different types of risk and takes an integrated approach toward identifying, assessing, and managing risks. The Risk Management Framework, which includes the Risk Management Strategy and Board Risk Appetite Statement, together with monitoring and controls are key to identifying and managing risk.

Overview of key risk types:

• risk culture - the risk that our culture does not promote and reinforce behavioural expectations and structures to identify, understand, discuss and act on risks;
• strategic risk - the risk that Westpac makes inappropriate strategic choices, does not implement its strategies successfully, or does not respond effectively to changes in the environment;
• capital adequacy risk - the risk that Westpac has an inadequate level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under both normal or stressed operating environments;
• funding and liquidity risk - the risk that Westpac cannot meet its payment obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets;
• credit risk - the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac;
• market risk - the risk of an adverse impact on Westpac's financial performance or financial position resulting from changes in market factors, such as foreign exchange rates, commodity prices, equity prices, credit spreads and interest rates. This includes interest rate risk in the banking book, which is the risk of loss in earnings or economic value in the banking book as a consequence of movements in interest rates;
• operational risk - the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events;
• cyber risk - the risk that Westpac or its third parties' data or technology are inappropriately accessed, manipulated, or damaged from cyber threats or vulnerabilities;
• compliance and conduct risk - the risk of failing to abide by compliance obligations required of us or otherwise failing to have behaviours and practices that deliver suitable, fair, and clear outcomes for our customers and that support market integrity;
• reputational and sustainability risk − the risk of failing to recognise or address environmental, social or governance (ESG) issues and the risk that an action, inaction, transaction, investment, or event will reduce trust in Westpac's integrity and competence by clients, counterparties, investors, regulators, employees, or the public; and
• financial crime risk - the risk that Westpac fails to prevent financial crime and comply with applicable global financial crime regulatory obligations.

We have put in place a risk management framework that seeks to:

• achieve Westpac's purpose of creating better futures together;
• deliver fair outcomes for our customers and counterparties that support market integrity;
• protect Westpac's depositors and investors by maintaining a balance sheet with sound credit quality and buffers over regulatory minimums;
• manage risk within risk appetite;
• make Westpac resilient to operational risks and disruptions, and manage the risks arising from service providers;
• ensure appropriate reward for risk we take aligned to our purpose, values and behaviours; and
• meet our regulatory and statutory obligations.

The Board Risk Appetite Statement and Group Risk Management Framework and Strategy are reviewed annually by the Board Risk Committee. This review includes consideration of whether the framework continues to be sound, and that Westpac is operating with due regards to risk appetite. The Board Risk Appetite Statement and Group Risk Management Framework and Strategy were approved by the Board during the 12 months to 31 March 2024.

			DISCLOSURE
PILLAR 3 REPORT	APPENDICES	GLOSSARY	REGARDING FORWARD-	9
LOOKING STATEMENTS

CONTROLLING AND MANAGING RISK

Roles and responsibilities

We have adopted and embedded a Three Lines of Defence model which enables all our people to understand their roles and responsibilities in the active management of risk.

First Line

First Line under the Three Lines of Defence Model refers to all Divisions and Functions excluding the Risk and Audit functions. The First Line proactively identifies, evaluates, owns, monitors, manages and controls the existing and emerging risks in their business. It manages business activities within approved risk appetite and policies. In managing its risk, the First Line establishes and maintains appropriate governance structures, controls, resources and self-assessment processes, including issue identification, recording and escalation procedures.

Second Line

Second Line under the Three Lines of Defence Model refers to the Risk Function. It is an independent function that develops risk management frameworks, defines guardrails, provides objective review and challenge regarding the effectiveness of risk management within the First Line business, and executes specific risk management activities where functional independence and/or specific risk capability is required. Its approach is risk-based and proportionate to First Line activities.

Third Line

Group Audit is the Third Line assurance function that provides the Board and Senior Executive with independent and objective evaluation of the adequacy and effectiveness of the Group's governance, risk management and internal controls.

Risk management governance structure as at 31 March 2024

Board	• approves the overall risk management framework for managing financial and non-financial risks,
	as well as Westpac's Risk Management Framework, Risk Management Strategy and Board Risk
	Appetite Statement, and monitors the effectiveness of risk management by Westpac;
	• forms a view of Westpac's risk culture and oversees the identification of, and steps taken, to address
	any changes to risk culture;
	• approves the Internal Capital Adequacy Assessment Process (ICAAP), including reviewing Group
	stress testing scenarios/outcomes, and approves recovery and exit plans and resolution plans; and
	• makes its annual declaration to APRA on risk management under APRA prudential standard
	CPS 220 Risk Management.

10 WESTPAC GROUP MARCH 2024 PILLAR 3 REPORT

CONTROLLING AND MANAGING RISK

Risk management governance structure as at 31 March 2024

Board Risk Committee (BRiskC)

From the perspective of specific types of risk, the BRiskC's role includes:

• credit risk - reviewing and approving Westpac's Credit Risk Management Framework, Credit Risk Management Strategy, Credit Risk Appetite Statement and material policies and limits supporting Westpac's Credit Risk Management Framework, approving credit provisioning levels, and monitoring the risk profile,performance, and management of our credit portfolio;
• funding and liquidity risk - reviewing and approving Westpac's Liquidity Risk Management Framework and key policies and limits supporting that framework, including our annual funding strategy, and liquidity targets and limits, reviewing and recommending recovery and exit plans and resolution plans to the Board for approval, and monitoring the liquidity position and requirements;
• capital adequacy risk - reviewing and approving Westpac's Capital Adequacy Risk Management Framework and key policies supporting that framework, reviewing and recommending the ICAAP to the Board for approval including target capital ranges (where appropriate) and reviewing and monitoring capital levels for consistency with the Board Risk Appetite Statement;
• market risk - reviewing and approving Westpac's Market Risk Management Framework and key policies and limits supporting that framework, and reviewing Westpac's trading and non-trading market risk profilesand their respective exposure against limits;
• non-financialrisks, including operational risk, compliance and conduct risk, cyber risk, financial crime risk, and reputational and sustainability risk - reviewing and approving the risk classes' Risk Management Frameworks and key policies supporting those frameworks, and monitoring the performance of risk class management and controls; and
• risk culture - reviewing and approving Westpac's Risk Culture Framework, forming a view on Westpac's risk culture and the extent to which it supports our ability to operate consistently within Westpac's Risk Management Framework and Board Risk Appetite Statement, and overseeing the identification of, and steps taken to address, any desirable changes to risk culture.

The Board Risk Committee also:

• reviews Westpac's Group stress testing results, monitors management response and, together with the Board provides recommendations for future scenarios;
• provides relevant periodic assurances and reports (as appropriate) to the Board Audit Committee;
• refers or recommends to the Board and any other Board Committees (as appropriate) any matters that have come to the attention of the Board Risk Committee that are relevant for the Board or the respective Board Committee; and
• in its capacity as the Westpac Group's US Risk Committee, oversees the key risks, risk management framework and policies of Westpac's US operations.

Assists the Board to:

• consider and approve Westpac's overall risk management framework for managing financial and non-financial risks;
• oversee risk culture across Westpac;
• oversee Westpac's risk profileand set risk appetite for material risks;
• review and approve the Risk Management Framework, Risk Management Strategy and Board Risk Appetite Statement;
• make its annual declaration to APRA on risk management under APRA prudential standard CPS 220 Risk Management; and
• oversee compliance risk management within Westpac.

The Committee is also responsible for:

• reviewing and monitoring Westpac's risk profileand controls for consistency with the Board Risk Appetite Statement;
• overseeing and recommending recovery and exit plans and resolution plans to the Board for approval;
• reviewing and approving the limits and conditions that apply to the delegated credit risk approval authorities;
• monitoring changes anticipated for the economic and business environment including consideration of emerging risks and other factors considered relevant to our risk profileand risk appetite;
• reviewing and where appropriate approving risks beyond the approval discretion provided to management; and
• overseeing material legal and regulatory change relevant to Westpac and the management of material litigation and regulatory investigations and associated remediation activities.