(The following statement was released by the rating agency) Fitch Ratings-Sydney-July 17: Fitch Ratings has revised the Outlook on Australia-based Westpac Banking Corporation's (WBC) Long-Term Issuer Default Rating (IDR) to Negative from Stable. At the same time, we have affirmed the IDR at 'AA-'. Fitch has taken a similar action on WBC's New Zealand subsidiary, Westpac New Zealand Limited (WNZL). Key Rating Drivers VIABILITY RATING, IDRS AND SENIOR UNSECURED DEBT The revision of our Outlook to Negative reflects the risk that WBC's focus on remediating operational andcompliance risksas well ascultural issues may result in resources being diverted from ongoing operations, which could lead to a weakening of WBC's earnings relative to peers. The affirmation of WBC's ratings reflects Fitch's expectation that despite these challenges, the bank will maintain its strong company profile in the short term, which in turn supports its sound financial profile. The Australian Prudential (LON:PRU) Regulation Authority's (APRA) announcement on 11 July 2019 that it was applying additional operational risk capital requirements on WBC, in response to the bank's self-assessment on governance, accountability and culture, is the main driver of Fitch's rating action. The additional capital requirements should remain manageable and not impair the bank's ability to meet APRA's'unquestionably strong' targets starting in 2020, but it indicates material shortcomings in operational risk management, which were not aligned to what Fitch had previously incorporated into its ratings. This has resulted in a downward revision to our score for management and strategy and weakeroutlook on earnings and profitability. APRA's findings indicated deficiencies within WBC's management of operational and compliance risks, as well as culture and governance. APRA said it will increase WBC's minimum capital requirements by AUD500 million from 30 September 2019. The increase will remain in place until the bank has completed its planned remediation and closed the gaps identified in the self-assessment. Fitch believes WBC continues to have robust risk and reporting controls around other risks, including credit, market and liquidity risks, as reflected by its conservative underwriting standards and high degree of asset-quality stability. More detail on other rating drivers is in the rating action commentary, "Fitch Revises NAB's Outlook to Negative, Affirms Australia's Four Major Banks", published 14 February 2019. SUPPORT RATING AND SUPPORT RATING FLOOR WBC's Support Rating and Support Rating Floor reflect its systemic importance, as highlighted by its market share and potential for contagion risk in a stressed environment. As a result, there is an extremely high probability of support from Australian authorities, if needed. The current proposal for loss-absorbing capital has not affected this view, as it does not allow for a senior bail-in instrument; the additional requirement would be met through existing Tier 2 capital instruments. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings on WBC's Tier 2 subordinated debt, both legacy and Basel III compliant instruments, are notched down one level from the Viability Rating for loss severity. No notching has been applied for non-performance risk. Tier 1 hybrid capital instruments are notched down five levels from WBC's Viability Rating - two notches to reflect loss severity and three notches to reflect non-performance risk. SUBSIDIARY AND AFFILIATED COMPANIES OurOutlook on WNZL's Long-Term Foreign-Currency and Local-Currency IDRs are aligned with WBC's to reflect Fitch's assessmentthat there continues to be an extremely high likelihood of support from the parent, if required. WNZL is a highly integrated and integral part of WBC's business. The possibility of support is reinforced by strong regulatory linkages between Australia and New Zealand banking authorities. The ratings of senior unsecured debt issued by Westpac Securities NZ are aligned with WNZL's Long-Term IDR, as WNZL guarantees the debt instruments. Rating Sensitivities VIABILITY RATING, IDRS AND SENIOR UNSECURED DEBT The Viability Rating and IDRs of WBC may be downgraded if the bank fails to prevent the risks from the remediation of operational and compliance shortcomings spilling over into its ongoing business. This is most likely to manifest in weaker earnings relative to peers. Ratings are also likely to come under pressure if shortcomings are identified in other risk controls, such as credit and market risks. Conversely, our Outlook on WBC may be revised to Stable if the governance of operational and compliance risks can be strengthened in line with regulatory expectations without a substantial impact on the ongoing businesses and earnings. SUPPORT RATING AND SUPPORT RATING FLOOR A weakening in the propensity for the authorities to provide support may result in Fitch lowering the Support Ratings and Support Rating Floors of the major banks. A change in the ability of authorities to provide support, which is likely to be reflected in a downgrade of Australia's sovereign rating (AAA/Stable), may also result in a downgrade of the banks' Support Ratings and Support Rating Floors. However, this would not directly affect the banks' IDRs, which are driven by their Viability Ratings. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and hybrid instrument ratings are broadly sensitive to the same considerations that may affect the banks' Viability Ratings. SUBSIDIARY AND AFFILIATED COMPANIES Any change in WBC's ratings is likely to also be reflected in WNZL's ratings. The IDRs may also be downgraded should Fitch change its assessmentof WNZL's role within WBC or if the authorities change their cross-border regulatory approach. The ratings of the senior unsecured securities issued by Westpac Securities NZ are sensitive to the same factors as WBC. ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) ISSUES WBC's customer welfare - fair messaging, privacy and data security - is scored '4' while thegovernance structure is scored '5' on Fitch's ESG scale. It reflects our view that the bank's remediation of conduct issues may affect its Viability Rating, which in turn drives the IDR. The conduct of Australian banks has come under increased public and regulatory scrutiny following a number of inquiries into the financial services sector that found many instances where conduct fell below community standards and expectations. Fitch assigns an ESG relevance score of '4' where an issue affects the rating but is not a key rating driver. A relevance score of '5' is assigned where an issue is a key rating driver. Westpac Banking Corporation; Long Term Issuer Default Rating; Affirmed; AA-; RO:Neg ; Short Term Issuer Default Rating; Affirmed; F1+ ; Viability Rating; Affirmed; aa- ; Support Rating; Affirmed; 1 ; Support Rating Floor; Affirmed; A ----senior unsecured; Long Term Rating; Affirmed; AA- ----subordinated; Long Term Rating; Affirmed; A+ ----junior subordinated; Long Term Rating; Affirmed; BBB ----senior unsecured; Short Term Rating; Affirmed; F1+ Westpac New Zealand Limited; Long Term Issuer Default Rating; Affirmed; AA-; RO:Neg ; Short Term Issuer Default Rating; Affirmed; F1+ ; Local Currency Long Term Issuer Default Rating; Affirmed; AA-; RO:Neg ; Local Currency Short Term Issuer Default Rating; Affirmed; F1+ ; Support Rating; Affirmed; 1 ----senior unsecured; Long Term Rating; Affirmed; AA- Westpac Securities NZ Limited ----senior unsecured; Long Term Rating; Affirmed; AA- Contacts: Primary Rating Analyst Jack Do, Director +61 2 8256 0355 Fitch Australia Pty Ltd Level 15 77 King Street Sydney NSW 2000 Primary Rating Analyst Tim Roche, Senior Director +61 2 8256 0310 Fitch Australia Pty Ltd Level 15 77 King Street Sydney NSW 2000 Secondary Rating Analyst Tim Roche, Senior Director +61 2 8256 0310 Secondary Rating Analyst Jack Do, Director +61 2 8256 0355 Committee Chairperson Heakyu Chang, Senior Director +822 3278 8363
Media Relations: Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com; Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com. Additional information is available on www.fitchratings.com Applicable Criteria Bank Rating Criteria (pub. 12 Oct 2018) https://www.fitchratings.com/site/re/10044408 Short-Term Ratings Criteria (pub. 02 May 2019) https://www.fitchratings.com/site/re/10073011 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10082638 Solicitation Status https://www.fitchratings.com/site/pr/10082638#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2019 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.