Westpac today announced expected new and increased provisions (excluding impairment provisions) and asset write-downs totalling around $1,430 million after tax which will reduce First Half 2020 (1H20) cash earnings1. Statutory net profit after tax will also be reduced by these items.
Westpac is also undertaking detailed analysis to finalise its impairment provisions for 1H20. The 1H20 impairment charge is expected to include a significant collective provision increase that will lift the Group’s total provision balance in anticipation of credit losses that it expects to incur from the COVID-19 outbreak. Westpac plans to update the market once this impairment charge has been finalised and prior to the announcement of its 1H20 results on 4 May 2020.
Following the $2.8 billion of capital (around 63 basis points to the CET1 capital ratio) raised in the half, and payment of the final 2019 dividend, Westpac’s CET1 capital ratio was 10.8% at 31 December 2019. The impact of the items disclosed today on Westpac’s CET1 capital ratio is estimated to be around 30 basis points, noting that some items have no impact on capital as they are already capital deductions.
Westpac CEO Peter King said: “Having spent much of the last decade strengthening our capital we are well placed to respond to the unfolding environment.”
These items, along with their cash earnings impact, include:
- provisions and costs associated with the AUSTRAC proceedings and response plan of $1,030 million after tax;
- an increase in provisions for customer refunds, repayments and litigation of around $260 million after tax;
- a reduction in the value of several assets costing around $70 million after tax; and
- costs of changes in the provision of group life insurance of around $70 million after tax.
Details on each of these items is in Appendix 1.
Peter King said he was committed to fixing the processes that led to the AUSTRAC proceedings.
“In addition to closing relevant products and recruiting an additional 200 people in financial crime and compliance, I am putting in place a clearer accountability regime that will speed up decision making, improve implementation and more clearly define responsibility and its associated risk management.”
These items, and the likelihood of a higher impairment charge, mean that Westpac expects to report lower cash earnings in 1H20, which will be taken into account when considering dividends. A decision on 1H20 dividends will be made by the Board as part of finalising the Group’s accounts and is expected to be announced with Westpac’s 1H20 results.
Changes to the presentation of Westpac’s 1H20 Results
Westpac’s reporting of its 1H20 results will include the following changes:
- the result template will no longer be produced and a release on reporting changes will not be made for 1H20. The result template typically details the impact of accounting changes and earnings restatements on prior period results (in an Excel spreadsheet). Appendix 2 outlines the only change to the presentation of Westpac’s results for 1H20;
- the investor discussion pack will be streamlined, with increased focus on items of greater interest, particularly around COVID-19; and
- the Group will conduct its 1H20 results presentation online and by teleconference rather than in person.
1 For a definition of cash earnings refer to Westpac’s 2019 Full Year Results announcement section 1.3.
