| Credit risk management | Note 11. Credit risk management Note Index Note name number Credit risk Credit risk management framework 11.1 The risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac. Credit risk ratings system 11.2 Credit concentrations and maximum exposure to credit risk 11.3 Credit quality of financial assets 11.4 Credit risk mitigation, collateral and other credit enhancements 11.5 11.1 Credit risk management framework Please refer to Note 21.1 for details of the Group’s overall risk management framework. ● The Group maintains a Credit Risk Management Framework, a Credit Risk Management Strategy, and a Credit Risk Appetite Statement, and a number of supporting policies and appetite statements that define roles and responsibilities, acceptable practices, limits and key controls. ● The Credit Risk Management Framework describes the principles, methodologies, systems, roles and responsibilities, reports and key controls for managing credit risk. ● The BRiskC, Westpac Group Executive Risk Committee (RISKCO) and Westpac Group Credit Risk Committee (CREDCO) monitor the risk profile, performance and management of the Group’s credit portfolio and the development and review of key credit risk policies. ● The Credit Risk Rating System Policy describes the credit risk rating system philosophy, design, key features and uses of rating outcomes. ● All models materially impacting the risk rating process are periodically reviewed in accordance with Westpac’s model risk policies. ● An annual review is performed of the Credit Risk Rating System by the BRiskC and CREDCO. ● Specific credit risk estimates (including PD, LGD and EAD levels) are overseen and reviewed annually in line with the Group’s Credit Model Risk Policy. Models are approved under delegated authority from the Chief Risk Officer. Model Risk is overseen by the Group’s Model Risk Committee. ● In determining the provision for ECL, the forward-looking economic inputs and the probability weightings of the forward-looking scenarios as well as any adjustments made to the modelled outcomes are subject to the approval of the Chief Financial Officer and the Chief Risk Officer with oversight from the Board of Directors (and its Committees). ● Policies for the delegation of credit approval authorities and formal limits for the extension of credit are established throughout the Group. ● Credit manuals are established and maintained throughout the Group including policies governing the origination, evaluation, approval, documentation, settlement and ongoing management of credit risks. ● Climate change related credit risks are considered in line with our Climate Change Position Statement and Action Plan. Climate change risks are managed in accordance with the Group’s risk framework which is supported by the Sustainability Risk Management Framework (SRMF), Group Environmental, Social and Governance (ESG) Credit Risk Policy and Board Risk Appetite Statements (RAS). Where appropriate, these are applied at the portfolio, customer and transaction level. ● The Climate Change Financial Risk Committee oversees work to identify and manage the potential impact on credit exposures from climate change-related transition and physical risks across the Group and reports to CREDCO. ● The Group’s ESG Credit Risk Policy details the Group’s overall approach to managing ESG risks in the credit risk process for applicable transactions. ● Sector policies guide credit extension where industry-specific guidelines are considered necessary (e.g. acceptable financial ratios or permitted collateral). ● The Related Entity Risk Management Policy and supporting policies govern credit exposures to related entities, to minimise the spread of credit risk between Group entities and to comply with prudential requirements prescribed by APRA. Note 11. Credit risk management (continued) 11.2 Credit risk ratings system The principal objective of the credit risk rating system is to assess the credit risk to which the Group is exposed. The Group has two main approaches to this assessment. Transaction-managed customers Transaction managed customers are generally customers with business lending exposures. They are individually assigned a Customer Risk Grade (CRG), corresponding to their expected PD. Each facility is assigned an LGD. The Group’s risk rating system has a tiered scale of risk grades for both non-defaulted customers and defaulted customers. Non-defaulted CRGs are mapped to Moody’s and S&P Global Ratings (S&P) external senior unsecured ratings. The table below shows Westpac’s high level CRGs for transaction-managed portfolios mapped to the Group’s credit quality disclosure categories and to their corresponding external rating. Transaction-managed Financial statement disclosure Westpac CRG Moody’s Rating S&P Rating Strong A Aaa – Aa3 AAA – AA– B A1 – A3 A+ – A– C Baa1 – Baa3 BBB+ – BBB– Good/satisfactory D Ba1 – B1 BB+ – B+ Westpac Rating Weak E Watchlist F Special Mention G Substandard/Default H Doubtful/Default Program-managed portfolio The program-managed portfolio generally includes retail products including mortgages, personal lending (including credit cards) as well as certain small to medium sized enterprise lending. These customers are grouped into pools of similar risk. Pools are created by analysing similar risk characteristics that have historically predicted that an account is likely to go into default. Customers grouped according to these predictive characteristics are assigned a PD and LGD relative to their pool. The credit quality of these pools is based on a combination of behavioural factors, delinquency trends, PD estimates and loan to valuation ratio (housing loans only). 11.3 Credit risk concentrations and maximum exposure to credit risk Credit risk concentrations Credit risk is concentrated when a number of counterparties are engaged in similar activities, have similar economic characteristics and thus may be similarly affected by changes in economic or other conditions. The Group monitors its credit portfolio to manage risk concentrations and rebalance the portfolio. Individual customers or groups of related customers The Group has large exposure limits governing the aggregate size of credit exposure normally acceptable to individual customers and groups of related customers. These limits are tiered by customer risk grade. Specific industries Exposures to businesses, governments and other financial institutions are classified into a number of industry clusters based on related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are monitored against the Group’s industry risk appetite limits. Individual countries The Group has limits governing risks related to individual countries, such as political situations, government policies and economic conditions that may adversely affect either a customer’s ability to meet its obligations to the Group, or the Group’s ability to realise its assets in a particular country. Note 11. Credit risk management (continued) Maximum exposure to credit risk The maximum exposure to credit risk (excluding collateral received) is represented by the carrying amount of on-balance sheet financial assets (which comprise cash and balances with central banks, collateral paid, trading securities and financial assets measured at FVIS, derivative financial instruments, investment securities, loans, other financial assets and certain balances included in assets held for sale) and undrawn credit commitments. The following tables set out the credit risk concentrations to which the Group and the Parent Entity are exposed for on-balance sheet financial assets and for undrawn credit commitments. The balances for trading securities and financial assets measured at FVIS and investment securities exclude equity securities as the primary financial risk is not credit risk. The credit concentrations for each significant class of financial asset are: Trading securities and financial assets measured at FVIS (Note 16) ● 58% (2022: 61% ) were issued by financial institutions for the Group; 59% (2022: 63% ) for the Parent Entity. ● 37% (2022: 33% ) were issued by government or semi-government authorities for the Group; 37% (2022: 32% ) for the Parent Entity. ● 76% (2022: 76% ) were held in Australia by the Group; 83% (2022: 82% ) by the Parent Entity. Investment securities (Note 17) ● 21% (2022: 17% ) were issued by financial institutions for the Group; 22% (2022: 18% ) for the Parent Entity. ● 79% (2022: 82% ) were issued by government or semi-government authorities for the Group; 78% (2022: 82% ) for the Parent Entity. ● 89% (2022: 91% ) were held in Australia by the Group; 99% (2022: 98% ) by the Parent Entity. Loans (Note 9) ● The following tables provides a detailed breakdown of loans by industry and geographic classification. Derivative financial instruments (Note 20) ● 80% (2022: 84% ) were issued by financial institutions for both the Group and the Parent Entity. ● 75% (2022: 79% ) were held in Australia by the Group; 76% (2022: 80% ) by the Parent Entity. Note 11. Credit risk management (continued) 2023 2022 Total all Undrawn Total all Undrawn other on credit other on credit Consolidated balance commit- balance commit- $m Loans sheet ments Total Loans sheet ments Total Australia Accommodation, cafes and restaurants 8,747 22 1,606 10,375 7,984 12 1,682 9,678 Agriculture, forestry and fishing 11,860 52 2,667 14,579 11,291 62 2,661 14,014 Construction 6,988 37 4,427 11,452 6,608 82 3,830 10,520 Finance and insurance 1 27,948 129,081 13,426 170,455 22,877 143,402 11,403 177,682 Government, administration and defence 642 62,231 1,412 64,285 653 63,965 1,479 66,097 Manufacturing 9,630 824 7,381 17,835 9,425 1,539 6,063 17,027 Mining 2,331 520 3,368 6,219 2,819 446 3,610 6,875 Property 55,494 668 13,326 69,488 53,104 588 12,238 65,930 Property services and business services 13,128 207 6,533 19,868 12,959 126 6,653 19,738 Services 13,155 86 8,721 21,962 11,171 88 8,954 20,213 Trade 14,197 452 9,352 24,001 14,046 522 7,578 22,146 Transport and storage 8,782 668 5,428 14,878 8,738 819 5,610 15,167 Utilities 7,288 924 5,874 14,086 6,381 798 4,320 11,499 Retail lending 493,720 936 86,143 580,799 477,314 659 87,417 565,390 Other 4,362 576 1,526 6,464 5,480 952 1,970 8,402 Total Australia 678,272 197,284 171,190 1,046,746 650,850 214,060 165,468 1,030,378 New Zealand Accommodation, cafes and restaurants 317 1 33 351 309 1 79 389 Agriculture, forestry and fishing 8,823 62 623 9,508 8,555 25 614 9,194 Construction 408 2 460 870 423 1 390 814 Finance and insurance 4,440 15,779 2,414 22,633 3,727 17,608 1,643 22,978 Government, administration and defence 183 7,598 809 8,590 138 6,066 665 6,869 Manufacturing 2,128 33 1,374 3,535 1,783 1,512 1,243 4,538 Mining 156 4 72 232 191 9 82 282 Property 7,011 618 1,291 8,920 6,530 569 1,244 8,343 Property services and business services 996 111 420 1,527 873 216 614 1,703 Services 1,620 26 1,106 2,752 1,356 16 1,195 2,567 Trade 2,404 25 1,115 3,544 2,515 47 1,178 3,740 Transport and storage 762 115 403 1,280 981 77 609 1,667 Utilities 1,566 606 1,488 3,660 1,243 495 1,205 2,943 Retail lending 62,397 92 13,979 76,468 57,344 62 12,733 70,139 Other 115 81 152 348 156 70 148 374 Total New Zealand 93,326 25,153 25,739 144,218 86,124 26,774 23,642 136,540 Other overseas Accommodation, cafes and restaurants 107 - 10 117 116 - 10 126 Agriculture, forestry and fishing 3 - 1 4 1 - 1 2 Construction 60 - 127 187 34 - 122 156 Finance and insurance 1 2,413 14,236 4,417 21,066 2,508 14,328 3,703 20,539 Government, administration and defence - 3,218 - 3,218 1 3,465 - 3,466 Manufacturing 211 1 1,639 1,851 523 1 2,524 3,048 Mining 29 - 664 693 74 - 693 767 Property 424 1 43 468 397 1 30 428 Property services and business services 544 22 400 966 728 27 536 1,291 Services 189 2 335 526 100 - 672 772 Trade 998 3 1,359 2,360 1,257 2 2,380 3,639 Transport and storage 438 6 132 576 468 1 209 678 Utilities 232 1 39 272 232 - 33 265 Retail lending 403 3 16 422 393 3 33 429 Other 38 75 40 153 47 146 43 236 Total other overseas 6,089 17,568 9,222 32,879 6,879 17,974 10,989 35,842 Total gross credit risk 777,687 240,005 206,151 1,223,843 743,853 258,808 200,099 1,202,760 1. Comparative amounts have been revised to align to current year presentation. Note 11. Credit risk management (continued) 2023 2022 Total all Undrawn Total all Undrawn other on credit other on credit Parent Entity balance commit- balance commit- $m Loans sheet ments Total Loans sheet ments Total Australia Accommodation, cafes and restaurants 8,714 22 1,606 10,342 7,950 12 1,682 9,644 Agriculture, forestry and fishing 11,812 52 2,667 14,531 11,245 62 2,661 13,968 Construction 6,468 36 4,427 10,931 6,181 82 3,830 10,093 Finance and insurance 1 27,899 176,422 13,426 217,747 22,830 191,300 11,403 225,533 Government, administration and defence 640 62,231 1,412 64,283 651 63,965 1,479 66,095 Manufacturing 9,485 824 7,381 17,690 9,284 1,538 6,063 16,885 Mining 2,305 520 3,368 6,193 2,796 446 3,610 6,852 Property 55,457 668 13,326 69,451 53,052 588 12,238 65,878 Property services and business services 12,823 207 6,533 19,563 12,631 125 6,653 19,409 Services 12,958 86 8,721 21,765 10,974 88 8,954 20,016 Trade 14,039 452 9,352 23,843 13,897 522 7,578 21,997 Transport and storage 8,529 668 5,428 14,625 8,508 819 5,610 14,937 Utilities 7,265 924 5,874 14,063 6,359 797 4,320 11,476 Retail lending 493,703 934 86,142 580,779 477,288 656 87,414 565,358 Other 3,898 474 1,526 5,898 5,034 789 1,964 7,787 Total Australia 675,995 244,520 171,189 1,091,704 648,680 261,789 165,459 1,075,928 New Zealand Accommodation, cafes and restaurants - - - - - - - - Agriculture, forestry and fishing - 29 4 33 7 3 3 13 Construction 4 - 52 56 3 - 34 37 Finance and insurance - 9,916 112 10,028 - 11,765 100 11,865 Government, administration and defence - 1,761 2 1,763 - 1,165 2 1,167 Manufacturing 43 26 85 154 45 1,285 59 1,389 Mining - 3 - 3 - 8 - 8 Property - 138 1 139 - 120 1 121 Property services and business services 5 19 13 37 11 214 15 240 Services - 20 7 27 - 12 4 16 Trade 316 20 254 590 422 44 193 659 Transport and storage 1 15 20 36 1 10 21 32 Utilities - 311 77 388 - 292 62 354 Retail lending - - 1 1 - 1 - 1 Other - 2 - 2 - - 1 1 Total New Zealand 369 12,260 628 13,257 489 14,919 495 15,903 Other overseas Accommodation, cafes and restaurants 75 - 10 85 70 - 10 80 Agriculture, forestry and fishing 2 - 1 3 1 - 1 2 Construction 53 - 109 162 27 - 115 142 Finance and insurance 1 2,406 14,341 4,410 21,157 2,501 14,276 3,688 20,465 Government, administration and defence - 1,831 - 1,831 - 2,357 - 2,357 Manufacturing 195 1 1,636 1,832 519 1 2,470 2,990 Mining 2 - 662 664 43 - 690 733 Property 198 1 19 218 191 - 11 202 Property services and business services 521 22 395 938 705 27 532 1,264 Services 173 1 332 506 82 - 671 753 Trade 866 3 1,242 2,111 1,142 2 2,228 3,372 Transport and storage 410 6 128 544 406 1 201 608 Utilities 207 1 18 226 210 - 14 224 Retail lending 334 - 14 348 312 - 30 342 Other 28 75 20 123 35 145 17 197 Total other overseas 5,470 16,282 8,996 30,748 6,244 16,809 10,678 33,731 Total gross credit risk 681,834 273,062 180,813 1,135,709 655,413 293,517 176,632 1,125,562 1. Comparative amounts have been revised to align to current year presentation. Note 11. Credit risk management (continued) 11.4 Credit quality of financial assets Credit quality disclosures The following tables show the credit quality of gross credit risk exposures measured at amortised cost or at FVOCI to which the impairment requirements apply. The credit quality is determined by reference to the credit risk ratings system (refer to Note 11.2) and expectations of future economic conditions under multiple scenarios. Consolidated 2023 2022 $m Stage 1 Stage 2 Stage 3 Total 1 Stage 1 Stage 2 Stage 3 Total 1 Loans - housing Strong 408,900 42,316 - 451,216 393,754 41,790 - 435,544 Good/satisfactory 40,365 35,626 - 75,991 36,862 35,581 - 72,443 Weak 2,018 12,612 5,237 19,867 1,916 10,133 3,916 15,965 Total loans - housing 451,283 90,554 5,237 547,074 432,532 87,504 3,916 523,952 Loans - personal Strong 4,807 84 - 4,891 4,961 99 - 5,060 Good/satisfactory 5,701 1,039 - 6,740 6,903 1,056 - 7,959 Weak 159 397 192 748 232 433 213 878 Total loans - personal 10,667 1,520 192 12,379 12,096 1,588 213 13,897 Loans - business Strong 82,382 14,221 - 96,603 82,280 5,704 - 87,984 Good/satisfactory 61,333 52,308 - 113,641 87,770 23,018 - 110,788 Weak 96 4,980 2,914 7,990 84 4,031 3,117 7,232 Total loans - business 143,811 71,509 2,914 218,234 170,134 32,753 3,117 206,004 Debt securities Strong 73,963 - - 73,963 75,230 - - 75,230 Good/satisfactory - 51 - 51 - 77 - 77 Weak - 876 - 876 - 774 - 774 Total debt securities 2 73,963 927 - 74,890 75,230 851 - 76,081 Assets held for sale Strong - - - - 20 - - 20 Total assets held for sale - - - - 20 - - 20 All other financial assets Strong 112,482 - - 112,482 116,466 - - 116,466 Good/satisfactory 597 - - 597 596 - - 596 Weak 197 - - 197 37 - - 37 Total all other financial assets 113,276 - - 113,276 117,099 - - 117,099 Undrawn credit commitments Strong 152,160 12,765 - 164,925 150,424 7,235 - 157,659 Good/satisfactory 25,714 13,706 - 39,420 34,011 6,946 - 40,957 Weak 97 1,343 366 1,806 100 1,036 347 1,483 Total undrawn credit commitments 177,971 27,814 366 206,151 184,535 15,217 347 200,099 Total strong 834,694 69,386 - 904,080 823,135 54,828 - 877,963 Total good/satisfactory 133,710 102,730 - 236,440 166,142 66,678 - 232,820 Total weak 2,567 20,208 8,709 31,484 2,369 16,407 7,593 26,369 Total on and off-balance sheet 970,971 192,324 8,709 1,172,004 991,646 137,913 7,593 1,137,152 1. This credit quality disclosure differs to that of credit risk concentration as it relates only to financial assets measured at amortised cost or at FVOCI and therefore excludes trading securities and financial assets measured at FVIS, and derivative financial instruments. 2. Debt securities included $1,438 million (2022: $1,187 million) at amortised cost. $511 million (2022: $336 million) of these are classified as strong, $51 million (2022: $77 million) are classified as good/satisfactory and $876 million (2022: $774 million) are classified as weak. Details of collateral held in support of these balances are provided in Note 11.5. Note 11. Credit risk management (continued) Parent Entity 2023 2022 $m Stage 1 Stage 2 Stage 3 Total 1 Stage 1 Stage 2 Stage 3 Total 1 Loans - housing Strong 366,904 35,852 - 402,756 349,025 40,448 - 389,473 Good/satisfactory 35,631 29,107 - 64,738 30,966 32,458 - 63,424 Weak 1,746 11,786 4,754 18,286 1,646 9,545 3,587 14,778 Total loans - housing 404,281 76,745 4,754 485,780 381,637 82,451 3,587 467,675 Loans - personal Strong 4,338 55 - 4,393 4,506 77 - 4,583 Good/satisfactory 5,390 914 - 6,304 6,582 950 - 7,532 Weak 117 299 180 596 178 334 198 710 Total loans - personal 9,845 1,268 180 11,293 11,266 1,361 198 12,825 Loans - business Strong 70,393 13,287 - 83,680 70,028 5,284 - 75,312 Good/satisfactory 48,859 45,824 - 94,683 74,339 19,112 - 93,451 Weak 68 3,749 2,581 6,398 69 3,242 2,839 6,150 Total loans - business 119,320 62,860 2,581 184,761 144,436 27,638 2,839 174,913 Debt securities Strong 67,257 - - 67,257 69,944 - - 69,944 Good/satisfactory - 51 - 51 - 77 - 77 Total debt securities 2 67,257 51 - 67,308 69,944 77 - 70,021 All other financial assets Strong 155,014 - - 155,014 157,534 - - 157,534 Good/satisfactory 515 - - 515 427 - - 427 Weak 50 - - 50 31 - - 31 Total all other financial assets 155,579 - - 155,579 157,992 - - 157,992 Undrawn credit commitments Strong 132,925 11,198 - 144,123 131,918 6,594 - 138,512 Good/satisfactory 23,077 12,042 - 35,119 30,953 5,814 - 36,767 Weak 78 1,150 343 1,571 79 945 329 1,353 Total undrawn credit commitments 156,080 24,390 343 180,813 162,950 13,353 329 176,632 Total strong 796,831 60,392 - 857,223 782,955 52,403 - 835,358 Total good/satisfactory 113,472 87,938 - 201,410 143,267 58,411 - 201,678 Total weak 2,059 16,984 7,858 26,901 2,003 14,066 6,953 23,022 Total on and off-balance sheet 912,362 165,314 7,858 1,085,534 928,225 124,880 6,953 1,060,058 1. This credit quality disclosure differs to that of credit risk concentration as it relates only to financial assets measured at amortised cost or at FVOCI and therefore excludes trading securities and financial assets measured at FVIS, and derivative financial instruments. 2. Debt securities included $51 million (2022: $79 million) at amortised cost. $0 million (2022: $2 million) of these are classified as strong and $51 million (2022: $77 million) are classified as good/satisfactory. Details of collateral held in support of these balances are provided in Note 11.5. Note 11. Credit risk management (continued) 11.5 Credit risk mitigation, collateral and other credit enhancements Westpac uses a variety of techniques to reduce the credit risk arising from its lending activities. This includes the Group establishing that it has direct, irrevocable and unconditional recourse to collateral and other credit enhancements through obtaining legally enforceable documentation. Collateral The table below describes the nature of collateral or security held for each relevant class of financial asset. Loans – housing and personal 1 Housing loans are secured by a mortgage over property and additional security may take the form of guarantees and deposits. Personal lending (including credit cards and overdrafts) is predominantly unsecured. Where security is taken, it is restricted to eligible motor vehicles, caravans, campers, motor homes and boats. Personal lending also includes margin lending which is secured primarily by shares or managed funds. Loans – business 1 Business loans may be secured, partially secured or unsecured. Security is typically taken by way of a mortgage over property and/or a general security agreement over business assets or other assets. Other security such as guarantees, standby letters of credit or derivative protection may also be taken as collateral, if appropriate. Trading securities, financial assets measured at FVIS and derivatives These exposures are carried at fair value which reflects the credit risk. For trading securities, no collateral is sought directly from the issuer or counterparty; however this may be implicit in the terms of the instrument (such as an asset-backed security). The terms of debt securities may include collateralisation. For derivatives, master netting agreements are typically used to enable the effects of derivative assets and liabilities with the same counterparty to be offset when measuring these exposures. Additionally, collateralisation agreements are also typically entered into with major institutional counterparties to avoid the potential build-up of excessive mark-to-market positions. Derivative transactions are increasingly being cleared through central clearers. 1. This includes collateral held in relation to associated credit commitments. Note 11. Credit risk management (continued) Management of risk mitigation The Group mitigates credit risk through controls covering: Collateral and valuation management The estimated realisable value of collateral held in support of loans is based on a combination of: ● Formal valuations currently held for such collateral; and ● Management’s assessment of the estimated realisable value of all collateral held. This analysis also takes into consideration any other relevant knowledge available to management at the time. Updated valuations are obtained when appropriate. The Group revalues collateral related to financial markets positions on a daily basis and has formal processes in place to promptly call for collateral top-ups, if required. These processes include margining for non-centrally cleared customer derivatives as regulated by Australian Prudential Standard CPS226. The collateralisation arrangements are documented via the Credit Support Annex of the ISDA dealing agreements and Global Master Repurchase Agreements (GMRA) for repurchase transactions. In relation to financial markets positions, Westpac only recognises collateral which is: ● Cash, primarily in Australian dollars (AUD), New Zealand dollars (NZD), US dollars (USD), Canadian dollars (CAD), British pounds (GBP) or European Union euro (EUR); ● Bonds issued by Australian Commonwealth, State and Territory governments or their Public Sector Enterprises, provided these attract a zero risk-weighting under Australian Prudential Standard (APS) 112; ● Securities issued by other sovereign governments and supranationals as approved by an authorised credit officer; or ● Protection bought via credit-linked notes (provided the proceeds are invested in cash or other eligible collateral). Other credit enhancements The Group only recognises guarantees, standby letters of credit, or credit derivative protection from entities meeting minimum eligibility requirements (provided they are not related to the entity with which Westpac has a credit exposure) including but not limited to: ● Sovereign; ● Australia and New Zealand public sector; ● ADIs and overseas banks with a minimum risk grade equivalent of A3 / A–; and ● Others with a minimum risk grade equivalent of A3 / A–. Credit Portfolio Management (CPM) manages the Group’s corporate, sovereign and bank credit portfolios through monitoring the exposure and any offsetting hedge positions. CPM purchases credit protection from entities that meet minimum eligibility requirements. Offsetting Creditworthy customers domiciled in Australia and New Zealand may enter into formal agreements with the Group, permitting the Group to set-off gross credit and debit balances in their nominated accounts. Cross-border set-offs are not permitted. Close-out netting is undertaken with counterparties with whom the Group has entered into a legally enforceable master netting agreement for their off-balance sheet financial market transactions in the event of default. Further details of offsetting are provided in Note 23. Central clearing The Group executes derivative transactions through central clearing counterparties. Central clearing counterparties mitigate risk through stringent membership requirements, the collection of margin against all trades placed, the default fund, and an explicitly defined order of priority of payments in the event of default. Collateral held against loans The Group analyses the coverage of the loan portfolio which is secured by the collateral that it holds. Coverage is measured as follows: Coverage Secured loan to collateral value ratio Fully secured Less than or equal to 100% Partially secured Greater than 100% but not more than 150% Unsecured Greater than 150%, or no security held (e.g. can include credit cards, personal loans, and exposure to highly rated corporate entities) Note 11. Credit risk management (continued) The Group and the Parent Entity’s loan portfolio have the following coverage from collateral held: 2023 2022 Housing Personal Business Housing Personal Business % loans 1 loans loans Total loans 1 loans loans Total Performing loans Consolidated Fully secured 100.0 10.0 66.1 89.1 100.0 10.0 66.0 88.9 Partially secured - 16.4 15.2 4.5 - 24.0 14.6 4.5 Unsecured - 73.6 18.7 6.4 - 66.0 19.4 6.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Parent Entity Fully secured 100.0 10.9 66.3 89.4 100.0 10.8 65.9 89.2 Partially secured - 18.0 15.3 4.5 - 25.9 14.4 4.3 Unsecured - 71.1 18.4 6.1 - 63.3 19.7 6.5 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Non-performing loans Consolidated Fully secured 93.9 - 55.3 78.2 93.2 - 54.1 73.7 Partially secured 6.1 33.9 23.9 13.0 6.8 42.7 22.7 14.7 Unsecured - 66.1 20.8 8.8 - 57.3 23.2 11.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Parent Entity Fully secured 93.9 - 56.8 78.9 93.2 - 56.7 74.8 Partially secured 6.1 35.6 23.3 12.7 6.8 44.4 22.2 14.5 Unsecured - 64.4 19.9 8.4 - 55.6 21.1 10.7 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1. For the purpose of collateral classification, housing loans are classified as fully secured, unless they are non-performing in which case they may be classified as partially secured. Details of the carrying value and associated provision for ECL are disclosed in Notes 9 and 10 respectively. The credit quality of loans is disclosed in Note 11.4. Collateral held against financial assets other than loans Consolidated Parent Entity $m 2023 2022 2023 2022 Cash, primarily for derivatives 3,526 6,372 3,244 6,300 Securities under reverse repurchase agreements 2 11,862 8,838 11,821 8,838 Securities under derivatives and stock borrowing 2 53 58 53 58 Total other collateral held 15,441 15,268 15,118 15,196 2. Securities received as collateral are not recognised in the Group and Parent Entity’s balance sheet. |
