Earnings Transcript for WEBNF - Q4 Fiscal Year 2024

Justin McCarthy: Good morning, everyone. Welcome to Westpac's 2024 results. My name is Justin McCarthy, General Manager of Investor Relations. Before we begin today, I acknowledge the Gadigal people of the Eora nation as the traditional custodians of the country we are meeting on today. I pay my respects to elders past and present and extend that respect to all First Nations people present today. The result will be presented by our CEO, Peter King; and CFO, Michael Rowland. [Operator Instructions] With that, over to you, Peter.

Peter King: Well, thank you, Justin, and good morning, everyone. Overall, I'm very happy with the progress we've made this year. Financially, we were disciplined with margin management to highlight, and the balance sheet is in a strong position. We've grown in all our key segments off the back of improving customer service. Business loans and consumer deposits grew 8%, while mortgages were up 5%. Our mortgage approval times were cut to less than 5 days. And importantly, service levels were more consistent throughout the year. In business, merchants and payments innovation, along with investment in bankers and simplification, has driven growth. And we've consolidated its leading position in markets and delivered strong balance sheet growth. The strength of the group's balance sheet, particularly the capital position, supported a further $1 billion increase in the share buyback program. Starting with our financial performance. Statutory net profit was $7 billion this year, that's down 3%, while our key return metric, return on tangible equity was 11%. Excluding notables, which were only hedging volatility, net profit was $7.1 billion. Revenue was up 1% from good loan growth across all key segments, while margins were well managed. Net interest margin, excluding notables, declined just 1 basis point, despite ongoing competition in the consumer segment. Noninterest income was lower with the main drivers being the impact of businesses we sold last year, along with a softer performance in markets. We indicated costs will be higher this year, with expenses up 7%. Technology expenses have been a headwind, reflecting the previously flagged rise in software amortization, along with higher technology expenses. Cost to wind down RAMS have also been a headwind. Impairment charges have reduced to 7 basis points of loans, and this low level of impairments reflects a combination of prudent lending practices and resilience across household and business customers. Improving customer service underpinned our financial performance. In Consumer, we are again improving our physical, digital and virtual banking offerings. Across our digital channels, we continue to upgrade services, improve navigation and enhance budgeting tools. The Westpac app was again rated the #1 mobile banking app by Forrester. And we continue to reshape the branch network, and we now have 111 colocated branches. We also are committed to keeping regional branches open until at least 2027. Everyday banking is at the heart of the customer relationship. We grew household deposits above system through the year, and our focus on behavioral saving products saw them rise to 85% of savings balances. And these deposits provide a very stable source of funding. New prompts within the app helped over 190,000 customers earn on average an extra $324 in annual interest. And this sees more than 80% of balances receive a bonus rate each month. A very competitive Consumer banking environment [indiscernible] pressure margins. NIM was down 18 basis points over the year, but up 1 basis point in the second half. Consumer return on tangible equity [indiscernible] this year, reflecting that intense competition in this segment. More consistent service has underpinned growth in mortgages and the chart on the top right shows the differential between Westpac's rate for [indiscernible] loans relative to the majors. We are priced above peers in the last 6 months, while holding share excluding the impact of [indiscernible]. For us, [indiscernible] has improved the customer proposition. Time to decision ended the year at less than 5 days [indiscernible] 20% of applications this year approved within 2 days. The [ performance] first-party channels is now similar, with broker average time to decision at 4.7 days in the month of September. We also improved our settlement process, recognizing it's a key moment for our customers. We improved our on-day settlement by 4 percentage points, and that sees us consistently towards the top of PEXA's ratings. In Business, we have and we will continue to invest in improving service, payments capabilities and increasing banker numbers. Merchant points of presence grew strongly as payments innovation remained a focus. EFTPOS, which turns a phone into a merchant terminal continues to grow, benefiting from our first-mover advantage. We also launched ETFPOS Flex, a cost-effective merchant terminal that integrates to over 500-point of sale systems. These capabilities help drive the [indiscernible] in transactional account openings. In line with the rising interest rates, there's been a shift in deposits away from call to term, with term deposits in the Business Bank now comprising over 1/3 of total business deposits. In business lending, the Biz Edge program is digitizing lending processes, and our processing times improved by 5 days. We've also approved more than $1 billion in loans since the launch of our simplified pathway for loans up to $3 million. And these initiatives, along with investment in bankers, supported lending growth of 9%, while growth was diversified. It was stronger in our target sectors, as you can see on the chart. Turning to Institutional. Focus on client service has been the key to repositioning WIB as a leading domestic institutional bank. We delivered solid revenue growth and maintained a return on tangible equity of 14%. Importantly, clients have recognized this, with customer advocacy up 5 points to 64, and this is the highest result since the survey commenced 7 years ago. 20% growth in average interest-earning asset reflected high lending and much higher trading inventory to facilitate client activity. Lending was up 9% for the year, mostly to existing customers, and we saw growth across property, infrastructure and industrials. Growth has not come off the cost -- at the cost of either margin or risk, with margins ex markets up 4 points to 2.10%. The average credit rating on new lending was also unchanged. On deposits, we have the #1 position with government, and that's across both state and federal governments. We're also applying a client-led approach to growth in financial markets. And we've been externally recognized with 9 KangaNews Awards, including the #1 bond house in Australia and New Zealand, and that's for the first time in more than a decade. That translated into higher fixed income revenue across rates, credit and bond fees. However, a negative DVA adjustment and softer FX revenue did weigh on total markets income this year. We're investing for the future in bankers, in their capability and also our systems. In particular, the build-out of Westpac One, our digital transaction banking platform, is making good progress. And we expect the pilot to commence with customers in late 2025. In New Zealand, we've supported customers through a challenging economic environment. Modest balance sheet growth reflected tough operating conditions. Core earnings rose 1%, as revenue growth was partially offset by ongoing investment to strengthen the technology foundations. We delivered an improved second half with margins up and better cost control. From a credit perspective, mortgage customers are on average 11 months ahead on repayments, and we've been proactive and engaged early with those customers in stress. Stress in the business sector was lower than expected, and these dynamics drove a low credit impairment charge. Despite these headwinds, return on tangible equity was a solid 13%, aided by a resilient asset quality. Across all segments, we've delivered improved service in both supporting and keeping customers safe. Three areas have been a particular focus

Michael Rowland: Thanks, Peter, and good morning, everyone. We are pleased with our performance this half and momentum across all our business segments. While GDP growth is below trend and cost of living pressures persist, affecting many of our customers, the economy remains resilient, unemployment is low and credit growth is solid. In the second half, we saw heightened mortgage competition and customers increasingly taking advantage of higher rate deposits. Against this backdrop, we're focused on the fundamentals. Our balance sheet and capital position remain strong. They gave us the ability to add $1 billion to our on-market share buyback, while supporting balance sheet growth and our investment in UNITE. We managed margins well, with the core margin expanding 3 basis points to 1.83%. Our cost reset program continued, limiting expense growth to 3%, despite higher technology cost inflation and wage and salary growth. Credit quality remains sound, and impairment charges are low at 4 basis points of average loans. The level of stress in both the Consumer and Business books, while higher, is less than we expected for this point in the cycle. We do, however, remain cautious and well provisioned for changes in the outlook. With this context, we are pleased with the outcomes we're seeing. Net profit in the half was up 9% to $3.6 billion. Excluding notable items, profit was up 3%. The cost-to-income ratio edged up to 51%, and the return on tangible equity rose 43 basis points to 11.4%. This key return metric is well above our cost of capital. Turning to Slide 17. Notable items in the half related solely to hedging items. Hedging items increased net profit by $41 million during the half compared to $164 million reduction in the first half. These hedging items unwind over time. Hedge volatility reduced this half, with more of our hedges now qualifying for hedge accounting treatment. Going forward, we expect this lower volatility to be maintained. Moving to the components of net profit, excluding notable items. The 3% growth in net profit reflects stronger net interest income and a reduction in impairment charges, more than offsetting higher expenses and lower markets income. Net interest income was up $214 million. Core net interest income was up 3%, with average interest-earning asset growth of 1% and a 3 basis point expansion in the core net interest margin. NIM, including treasury end markets, was up 2 basis points, reflecting a stronger treasury performance in the first half. Noninterest income was down $83 million, reflecting a decline in markets income, mainly in our FX business. Expenses were up $154 million. I'll cover this in detail in the expense commentary shortly. Overall, preprovision profit, excluding notable items, was flat. Credit impairments added $187 million to profit, reflecting a decrease in overlays as expected losses did not materialize or are now reflected in modeled outcomes. The effective tax rate was 30.8%, only slightly above the statutory rate of 30%. Total lending increased 3%, with growth in all our segments

Peter King: Thanks, Michael. The Australian economy has experienced an extended period of below trend growth, particularly in per capita terms. The subdued activity has been reflected in the spending patterns of Consumer and Business customers. Encouragingly, our most recent data, which is to the middle of October, shows that card spending is recovering with the quarterly growth pulse at 1.5%. However, on our estimates, most of the boost to income from tax cuts is being saved, not spent. Australian businesses have navigated tougher conditions by managing costs, and you can see this on the chart with commercial businesses, having been outperforming, especially in those industries providing essential goods and services to the growing population. However, as you can also see in the chart, the data for smaller businesses, these have been struggling to do this, and this has been reflected in their cash flows with some deteriorating. If we turn to the outlook, we expect the Australian economy to improve with GDP growth increasing from 1.5% to 2.5% in 2025. Recent indicators suggest consumer pessimism has reduced, and we saw this in the Westpac Melbourne Institute Consumer Survey, which rose to a 2.5-year high recently. These trends are expected to translate into the bank's key markets. In 2025, we expect credit growth of approximately 5% in housing and 7% in business. So to recap, it's been a very good year. We've been disciplined in growth and managing margins. Improvements in our customer franchise are reflected in improved service levels, higher customer advocacy, along with growth in all key segments. The balance sheet remains in the best shape it's been in my 30 years at the bank, and that has supported returning surplus capital to shareholders. Of course, today marks my final result as CEO, and I thank our people, customers and shareholders for their support. My tenure as CEO has been about driving change and strengthening the franchise. We've exited 10 businesses, and this sees Westpac now a simpler and stronger bank. Over the past 4 years, we've significantly improved risk culture and governance through our core program. And we're now in the transition phase to demonstrate the sustainability and effectiveness of the core changes. I've loved doing this job, and it's been an absolute privilege to lead our people. They consistently put our customers first and have worked hard to make the changes needed to help us deliver on our strategy for growth and return. Thanks also to Michael. He's been a great partner, and we've achieved a lot in refocusing the bank and returning it to growth. In May, Anthony Miller will hand down his first result. I know he'll be a great CEO, and I wish him all the best. Thank you, and over to Justin for questions.

A - Justin McCarthy: Thanks, Peter, and we've loved you doing the job as well. [Operator Instructions] First question comes from Ed Henning from CLSA.

Edmund Henning: Look, I'll start with a couple. Firstly, just on the margin, if you look on Slide 61, where you look at the Australian mortgage portfolio, if you look at -- you're growing your investment property lending, you're growing your interest-only lending, but the flows have stepped up quite a lot and you've stepped down on your proprietary channel. Can you just talk about, is that just the impact of RAMS? And can you talk about the impact on margin going forward and what you're seeing in the mortgage market, please, there, as the first question?

Michael Rowland: Yes. Thanks, Ed. Michael here. So look, RAMS didn't have an enormous impact. As we said in the call, it's about $3.5 billion reduction in the half, not a big reduction. And the flows you're seeing is just the outcome of the flows we saw. On margin, as I indicated, we think that there are a lot of moving parts in that. We expect a slight contraction in mortgage margin as we indicated, deposits to be at a similar level, and the replicating portfolio, while positive, to be slightly less in the first half.

Peter King: Yes. Ed, the only other thing I'd say is we have been -- we have seen improved flow through our business channel. Some mortgages sold through the Business segment, and that naturally comes with higher investor property product mix and, therefore, interest only as well. So that's the other feature that's coming through in this half.

Edmund Henning: And do you see that continuing, Peter? And is that going to give you a little bit of a tailwind on your margin?

Peter King: Definitely. We want to do more business through the Business segment, and that's across all products, including in mortgages. So Anthony has definitely had that as a focus this year. And certainly, that will be an expectation as we move forward. And as you rightly put out, the investor product is a slightly higher-margin product than owner occupied.

Edmund Henning: Okay. And just one other question on costs. Can you just clarify the UNITE headwind running into '25? It's currently roughly around $200 million. And then also can you just touch on what you're seeing on the -- or your BAU expectations? And you have -- have you gotten any more amortization headwind coming through as well, so we can just get a feeling of what we should expect for cost growth for next year at this point?

Michael Rowland: Yes. As we stand back, Ed, into the first half, we're expecting cost growth to be similar in the first half to the second half '24, and that includes the step-up in the investment in UNITE. As we indicated, our investment in UNITE will be 35% to 40% of the total investment spend of $2 billion, and we had about $147 million for UNITE in 2024. So you can expect that step-up in total investment spend, of which about 75% will be expensed. So I think that probably gives you enough to do the calc.

Justin McCarthy: Our next question comes from John Storey from UBS.

John Storey: Peter, congratulations on the last 5 years. My question just follows on from UNITE. Just on Page 24, just wanted to reconcile some of those numbers there. You've got $114 million spend on UNITE, and you suggesting in that slide that 57% has been expensed. So I just wanted to reconcile that $34 million. Looks like it's 30%. Maybe there's something else just in that number. That's the first one.

Michael Rowland: Yes. So Michael, here. So no, that's just the movement half-on-half. So $147 million worth of spend for the year, $114 million in the second half, of which $57 million. So that's just a delta half-on-half of the P&L impact.

Peter King: There was already some of the base said in the first half...

John Storey: Yes, yes. So the $34 million that you're calling out there is just in 57% expense. Obviously, they're not going to reconcile, right, just to make sure of that.

Michael Rowland: Yes, yes. That's fine, yes. We're just -- we're calling out the calc, so you don't have to do it.

John Storey: Perfect. No, that's perfect, that's perfect. Peter, maybe just a second question. It's kind of a bigger picture question for you. Hypothetically, new incoming CEO of Westpac, where would you be spending the majority of your time in the business and why?

Peter King: Well, I'm not going to box Anthony in. I think that's for Anthony to set out his priorities next year, which he will do. But broadly, if I step back, we've got a simplified business now, so it's back to banking. And we've got to get the UNITE program done, so that's obviously a priority. And that, I think, is critical for all aspects of the business, as you heard me say in the comments. And then if I look at all our businesses, they're all above the cost of capital, but the Consumer business is probably the pace that's not. So we need to do work there. And I'd be pretty happy to see Anthony grow in our business in Institutional, our New Zealand portfolio. So I don't want to lock him in, Ed, but I think there's plenty for him to work on.

Justin McCarthy: Thanks. And to our next question, sorry, Jonathan Mott from Barrenjoey.

Jonathan Mott: As you mentioned, your strongest balance sheet was probably ever same from Westpac. And first half, we've got a special dividend. This half, we saw it again. Strong capital positions expanded $3.5 billion of excess franking credits. And I know you've topped up the buyback. Why no special dividend this half?

Peter King: Yes. Well, I think first thing is we get to look at this every 6 months, and the Board will do that again. When we look at the operating environment, as I said, the domestic economy, there certainly signs -- more positive signs as we look into 2025. But we're very conscious of the global outlook at the moment. So we've obviously got conflict. We've got some big elections coming up. There's potential for supply chain disruptions and inflation. So we probably charted a more conservative path on capital, and that's why we've used the buyback as the mechanism to return surplus capital.

Jonathan Mott: Very conservative. If I can ask a second question then. You mentioned in the period you are about in line with the system on pricing. But if you look at the last half, there was big swings in pricing in the housing market and also swings coming back on the volume. So you're pricing aggressively in Easter. You won volume in that June quarter. You pulled back on pricing around that sort of June period, and then volumes slowed really aggressively through the September quarter. And now pricing has been more aggressive again. How do you get out of this cycle of turning price on, seeing volumes pulling back, seeing volumes slow because it does seem to be a bit almost bipolar?

Peter King: Yes. We tested the market this 6 months, and I think you've summed it up well that it remains a very price competitive market mortgages. So in the period that we moved our prices above the market, we saw flow go to other organizations, and we've had to respond by coming back into the mix. So for me, it's just an interesting thing that the mortgage market is very competitive. And at this point, the price is pretty fixed at a low point from my perspective. And so that's just the market. And that's why we're okay to sort of test the market at certain points. But if I turn to the flip side, we've got good growth in the Institutional Bank and Business Bank, both of which are earning very good returns. So we've definitely switched our focus in terms of how we're going to grow and where we're going to grow.

Justin McCarthy: Thanks, Jonathan. Our next question comes from Andrew Triggs from JPMorgan.

Andrew Triggs: Peter, just extending my best wishes, and thanks for your engagement over the last many years at Westpac. I had a couple of questions. First one, just on the margin. So especially looking at the exit NIM of 1.83%, that was in line with the average of the half, but the half had a benefit from the remediation provision write-back, which came through in Q4. Could I just -- that would suggest that maybe the exit NIM was slightly above the underlying Q4 level. But just interested in presume liquidity was reducing throughout the period, including the spot balance benefited from -- or the spot liquid asset balance was lowered. Was that a tailwind to the spot exit NIM?

Michael Rowland: Yes. So Andrew, Michael here. Yes, that's right. So you saw over the half, liquid asset -- reduction in liquid asset balances added about 2 basis points to NIM. So that was a slight tailwind in the half, but we're only talking a point or 2.

Andrew Triggs: So is it fair to say that exit NIM is fairly flattish [indiscernible] to one-off?

Michael Rowland: Yes. Probably what I'd say is, as you pointed out, there was a remediation release in the last quarter. We -- there are remediation additions and releases, which we've had over many years now as most banks do. So a point or 2 here is probably not one you want to spend too much time focusing on. We will see that volatility at that point. But yes, I think we would say that, overall in the half, the core net interest margin, as we call it, was sort of flat to up a bit.

Andrew Triggs: And can you unpack the 1 basis point headwind from lower lending spreads in the period, especially with regards to the tailwind from fixed rate to variable rate rolls during the period, which you said maybe gets to -- start to slow -- will slow certainly next half? Was that -- how sizable was that a benefit to the NIM?

Michael Rowland: Yes. I think, look, there are 2 main drivers of the loan NIM movement in the half. There's -- obviously, as Peter pointed out, there continues to be strong competition in the mortgage market. So that's obviously a headwind to margin. But at the same time, we saw increase in the fixed to variable rate switching, which is a tailwind. So net-net, it balances out to 1 basis point. As we indicated, we don't think we're through the most of the fixed to variable rate switching, and we've got some information in the IDP, which shows you that. But yes, I think we'll see -- as we -- as I indicated, we'll see continued mortgage compression, slight mortgage compression, and that will have that slight decrease in margin in the first half of '25.

Andrew Triggs: Michael, are you able to quantify at all what the tailwinds from the fixed rate rollovers were?

Michael Rowland: We don't. There's a lot of moving parts. If I sat here, there's probably 10 moving parts in loans. They are probably the 2 main ones.

Andrew Triggs: Okay. And just a follow-up on the strong business loan growth or -- particularly in Institutional. In the past, that is somewhat at odds with system growth, that odds with what we're seeing from some of the other major banks, which are prioritizing growth elsewhere and also Westpac's history of being pretty disciplined in lending within WIB. Could you just talk a little bit more about that? I know returns look strong on a headline basis. But with rate cuts in the not-too-distant future, I presume you'll start to see some margin compression in institutional.

Peter King: Well, I think the first thing is we're growing deposits very strongly across the franchise at the moment. So that's giving us opportunities to support growth in all segments. And so that's sort of the macro. I'd actually point to the strength of the deposit franchise across all businesses. And we have seen good opportunities in business that we like. So I wouldn't -- that's why one of the points I made is the average risk grade that we're writing is pretty consistent. The margin on the balance sheet actually is up a little bit. We look at that all the time. So that's the right settings for the business at the moment. If we get to a point that the returns on new business in WIB don't make sense because of whatever reason, then we'd have a look at it, but that's not the -- that's not where we're at the moment. We've got good opportunities to grow at a risk-adjusted return that we're happy with.

Justin McCarthy: [Operator Instructions] Thank you. Our next question comes from Victor German from Macquarie.

Victor German: Do you me?

Justin McCarthy: Yes.

Victor German: Great. I was, first, hoping just to clarify about the margins and replicating portfolio changes. You increased your replicating portfolio balance by $10 billion, and that should add about 4 basis points to the replicating portfolio with an offsetting impact on unhedged deposits. But I was hoping to just make sure I understand it correctly. Your guidance for slightly lower replicating portfolio benefit in 2025, does that include that additional benefit of about 4 basis points or it excludes it?

Michael Rowland: So Victor, Michael. Yes, look, that impact on replicating portfolio in the first half includes the additional $10 billion, which we added to the portfolio.

Victor German: So including that benefit, you're guiding slightly lower benefit at overall replicating versus FY '24?

Michael Rowland: That's right. We've had -- look, the replicating portfolio will be positive for margin in the first half and for most of 2025. It will be just less positive than we saw in '24 because we're past the peak of effectively the delta increase in the replicating portfolio rate. And we've got that chart in the IDP, which hopefully spells it out.

Victor German: All right. Okay. And then second question, I'd just be keen to hear your thoughts on capital management. I know you've already had a question earlier, and I appreciate it's a Board decision as well. But your dividend currently is at the upper end of your payout ratio with your impairment charges, which are pretty much close to 0. And also your model adjustment that contributed to capital generation over the last 3 years now only have about $1 billion until you reach the floor. So when you balance this with a starting strong capital position and lots of surplus franking credit, would your preference be to sustain the elevated dividend and try to grow into that over time? Or would it be to be sort of quicker with respect to the return of capital and do it via special dividends and ongoing buyback?

Peter King: Yes. Well, it's a decision the Board looks at every 6 months, Victor. But I would say, if we think about the payout ratio is one of the key inputs into any discussion, we talk about it as a medium-term payout ratio, 65% to 75%. So that would allow us to be below or above it because it's a medium-term ratio. And we'll always look at -- as we have historically, you're always looking at the growth in your business, the return from that growth, where you are in the payout range and then the way that we return capital. I'd just say, now this time when we stay into it, we're probably a little bit more conservative in what we did. We're just conscious that there's a lot going on in the globe at the moment, and we've had a little bit of powder up our sleeves, if you put it that way.

Justin McCarthy: Thank you, Victor. Our next question comes from Richard Wiles of Morgan Stanley.

Richard Wiles: My first question relates to the mortgage market. You said in the presentation that you're targeting volume growth in line with system in all your segments. Can you be a little bit more specific about Australian mortgage growth? Does that comment include the impact from RAMS runoff? And so does it mean you'd have to grow above system ex RAMS?

Peter King: Yes. No, no. I think around system, but I wouldn't be slavish to system in mortgages, Richard. I think we're thinking much harder now about different segments and growing faster. So the subsegmentation is where we're doing a lot of work and a lot of focus as opposed to the overall market. The comment is, just generally, we do want to grow in all our markets, but mortgages is the one where being below system, I wouldn't be upset depending on the market and competitive dynamics.

Richard Wiles: Okay. And then just a question relating to project UNITE. You said you've commenced 39 projects. How many do you expect to complete by the end of the first half and the end of full year '25? And can you give us some indication of what cost savings project UNITE will generate in the 2025 year?

Peter King: Yes. No, I understand the question, but this is one where Anthony will set out is thinking next year. So I'm allowing him a little bit of time, once he gets his -- effectively his feet under the desk tomorrow, to really think that through. And he'll give you an update next year, Richard.

Richard Wiles: So even though you've done the planning for project UNITE, you can't tell us how many of these 39 projects you'll expect to complete by March, by November.

Peter King: I'm going to leave it to Anthony to set out his plans next year, Richard. I understand that not -- might not be the answer you like, but I think that's the right thing to do for Anthony.

Justin McCarthy: Thanks, Richard. Our next question comes from Brendan Sproules from Citi.

Brendan Sproules: I just had a couple of questions around the business in wealth division and in the Institutional division. So in this half, you had 9% and 7% cost growth, respectively. Can you maybe give us an outlook on that cost growth, given that you have got inflation pressures across those divisions, as you've called out in the commentary. And you're also expanding the distribution in both segments. Are we going to see that sort of trajectory in costs in 2025?

Michael Rowland: Yes. I think -- look, just to give you a bit more background. So the cost growth in both divisions was a function of increased investment. And it's important to remember that Institutional Bank essentially undertakes all the payments build-out that we're doing and incurs the cost of that. So that's a group level investment. And so that's been a big driver both WIB and business have increased bankers, and that's been a driver of that as well. And with the increasing investment in both Biz Edge and business payments and Westpac One Institutional, they've been the recipient of a lot of that tech cost inflation that I talk about. So while we don't expect that necessary to be as high in the first half of 2025 for either WIB or business, it will be elevated because those investments will continue.

Brendan Sproules: And my second question is just in terms of the time line here. Obviously, revenue has lagged costs, as you've had this additional costs upfront. What is the reasonable time frame we can expect to see positive jaws across these 2 divisions?

Michael Rowland: Look, I think our view is -- as we said, our focus is on improving the cost-to-income ratio for the overall group over the medium term. And as we've indicated before, UNITE is a really big part of that. We expect to see the major benefits of UNITE come through in -- by FY '28, and that's the medium term for us. So we think the focus is best on the overall cost-to-income ratio rather than individual jaws in divisions, and that's how we think about it.

Justin McCarthy: Thanks, Brendan. Our next question comes from Brian Johnson from MST.

Brian Johnson: First of all, Peter, thank you very much for a valiant effort. Peter -- and just 2 questions, if I may. The first one is if we have a look at the slide at the front, you say that the return on tangible equity in the Consumer business is 9%. And we know that struck off a low loan loss charge. When we have a look at Slide 7, we can see that, basically, over the September year, you were pricing basically home loans at a premium to the peers. I just want to confirm. When we actually have a look at the external channel techs at the moment, Westpac have gone from pricing at a premium to suddenly pricing actually at a discount and are losing share. Can we just get a feel on what's happening in the Consumer business, this trade-off on the margin and the RoTE and the volume growth, what we're seeing in recent months?

Peter King: Yes. Well, what that data is in the slide is the RBA data, where we submit our pricing across the whole book, proprietary and third party, and that's the outcome for the 6 months. But you're right, Brian, we did -- we were above the market significantly in the first part of the half, and then we bought it back in. There will always be segments where we compete a little bit harder, but we're comfortable that the settings we've got at the moment are right. I see the anecdotes across the pricing channels internally, and there's always examples of people writing businesses -- business where you look at it and go, does that make sense? But for us, at the moment, in the first part of the 6 months, we're above the market. Now we're better in line with the market, and we feel like that's the right setting for us.

Brian Johnson: And Peter, from that, is it right to conclude that the 9% RoTE you got during the period, that takes a while for people to draw all down loans? Is it implying that the RoTE that you're doing in the Consumer business, as these loans get actually drawn down, that RoTE would actually fall?

Peter King: No, because we've actually seen better RoTE business as we target different channels and mixes. So if you look at, in particular, some of the high versus low LVRs, some of the business versus broker channels, those type of things, we're actively managing the subsegments within the mortgage portfolio. It's one of the areas that Michael and I spend quite a bit of time on.

Brian Johnson: Just the second question, if I may. Peter, what do you think the long-run loan loss charge is for Westpac now?

Peter King: We're debating this quite a bit. Somewhere between 10 and 20, and there's a bid offer within that internally, Brian.

Michael Rowland: Yes. I think what we'd say, Brian, is that the historical view on long-term loss rates, we would say we've had a step down, a, because of the quality of the portfolio that we now write, and that's a function of macro prudential settings, but also the nature of the business we have. We think that long-term loan loss rate, as Peter said, is closer to sort of mid-teens rather than the 25s that might have been in the olden days.

Brian Johnson: Sorry. Michael, just to clarify on that, we're saying 10 to 20?

Michael Rowland: Yes.

Brian Johnson: Then you've just -- when you say mid-teens, what are you referring to there, sorry?

Michael Rowland: It's the midpoint between 10 and 20.

Justin McCarthy: Thanks, Brian. Our next question comes from Jeff Cai of Jarden.

Jeff Cai: A question on NIM outlook on Slide 22, just interested in your thoughts. With deposit mix impact continuing rather than worse, but you're getting deposit pricing competition seems to be easing. So to what extent can the deposit margin piece here can be a small tailwind going forward, absent any sort of changes in cash rates?

Michael Rowland: Yes. So the way we think about that is we expect to see the trends in switching from our quarter savings and TDs to continue. And the benefit you saw -- you see on Slide 22 from the replicating portfolio will still be there in the first half, but slightly lower. So we don't think -- we think it will be a negative margin impact in the first half, only slight, but a negative. So there'll be a slight headwind in the first half is our expectation.

Jeff Cai: Fine. Okay. And then just a question on the business segment. Very strong lending growth in Aussie SME lending growth this half. Can you talk through how our front book lending spreads are tracking on a half-on-half basis and how you're seeing the lending pipeline going forward?

Michael Rowland: Yes. So on the front book position, we're seeing that pretty stable. And as you saw from the overall margin, again, reasonably stable in the half. And the pipeline is really very strong. As Peter indicated, business -- the growth in the Business segment is a real strategic focus for us. We're increasing bankers, we're increasing investment, and we're seeing that through the loan growth numbers. And we expect that to continue into 2025.

Justin McCarthy: Thanks, Jeff. We're done with the analysts now. [Operator Instructions] Our next question comes from Andrew Cornell from Capital Brief.

Andrew Cornell: Congratulations, Peter. Look, I get the sense that, in a way, this is a bit of a holding statement, this result before Anthony takes over next week-or-so. So how much of a surprise are you expecting Anthony to -- should we prepare ourselves for with these first results? Is there a lot of movable parts he's got discretion on here?

Peter King: Well, I'm still a big shareholder, so I would like Anthony to deliver a really good result. But no, I think the strategy is broadly set. One of the good things about an internal successor is they've been part of the strategy. But of course, he will put his own stamp on it. So I wouldn't expect a major tilting strategy. But Anthony will do what he wants to do in terms of being CEO. So I'll leave it for him to speak for himself next year.

Andrew Cornell: And just another quick question on the investment spend. How much of that is the consumer data rights and work for the MPP? And with the consumer data rights, you were one of the banks that was instrumental in lobbying against it with the ABA.

Peter King: I don't think we -- I'd actually know the number on the consumer data right, but it was -- probably, the big spend is behind us. For me, what we need to do on the consumer data right is use what we've got. We've built this asset. It's not actually being used, so it's underutilized. I'd actually like to see use cases that come forward that are used at scale. I don't think we need to expand it from here until we can actually get a value out of it. But the other thing -- one of the things I think we also need for the industry is access to the ATO data. So think about payroll slips, most payroll slips digital now in the economy. We still ask for records. So having payroll information available digitally would be good for the economy as well. But for me, Andrew, it's about using what we've got. I think we should pause on expanding it and expanding capability and particularly don't duplicate lots of payments capability that exists in multiple forms across the economy now.

Justin McCarthy: Thanks, Andrew. One analyst has snuck back in, Nathan, Nathan Lead from Morgans.

Nathan Lead: Just, I suppose, questions just around the CET1. So just first up, obviously, APRA has a proposal to remove the AT1 hybrids. Can you just talk through whether that additional 0.25 on the CET1 will get absorbed within the 11% to 11.5% target you've got? And just secondly, I suppose, look, you've been running at well above that target for a number of periods now. How relevant is that target going forward?

Peter King: Yes. Well, it's still a proposal from APRA, so we haven't adjusted the targets and we haven't made any decisions to adjust the targets. So that will be a future decision. The capital range is still very relevant, so it helps you understand our thinking on the range of capital outcomes at the moment. We would say we have excess capital, so it's still very relevant. But we haven't -- we'll decide on, what is it, a 2028 change or 2027?

Michael Rowland: For the AT1?

Peter King: Yes.

Michael Rowland: Yes, January 1, 2027.

Peter King: It's a 2027 change, so there's still a bit of time to go.

Nathan Lead: Okay. Great. And best of luck with your future endeavors, Peter.

Peter King: Thank you.

Justin McCarthy: Thanks, Nathan. Back to the media. Peter Ryan from ABC.

Peter Ryan: Thank you, Peter, for always being accessible whenever you can. It was always good dealing with you. Now you've been through a few times, I guess, going back to the money laundering counts. But putting that behind you, high inflation, interest rate rise since May 2022, and your borrowers under a lot of stress. And you've mentioned today that some borrowers are facing difficult choices. How much -- how high is that pressure? And are there some borrowers who are, I guess, collapsing or having to sell up their homes because of that pressure?

Peter King: Peter, the first thing I'd say is any customers that need help should call us. We've got more -- we've got plenty of options available. And the sooner you call us, the better would be the first thing I would say. What we've actually seen in the half is we provide -- or in the year, we provided 47,500 packages, tailored packages for people, for assistance. And the vast majority of them were 3-month packages. And so what that indicates to me is people were having issues that could be sorted out in time. And so that -- so that's, to me, what we're providing a lot of these packages is time to get yourself sorted out if you've got sick, if you lost a job, divorce is still one of the big issues. So time is helping, and we did see hardship packages outstanding peak in June, and they're starting to come down. So that says to me, a lot of people have got used to these higher levels of interest rates. So that's certainly the average and the experience. We have seen higher delinquencies. But as Michael said, they've stabilized in this period. So our economics team is forecasting an interest rate cut of 25 basis points in February. Hopefully, they're right because I think that will be good to give people a little bit of relief.

Peter Ryan: If I can just do one quick follow-up, Peter. Given that rates will fall maybe sometime in 2025, what's the pressure on borrowers to maintain those repayments, so they actually have some chance of paying their loan off? Or are we going to be seeing another cycle of people not repaying their loans or struggling under that?

Peter King: Well, we're actually seeing more people paid ahead. I haven't got the exact stat, but it did increase in the half. We saw offset balances grow 10% this year to above $60 billion. So in our book, our mortgage book, actually, more people are paid ahead. And there's more balances and offsets. So the vast bulk of the book is doing well, but that's not everyone. I acknowledge that, and that's why I say call us early if you need help. But there's signs that things could be a little bit more positive next year.

Justin McCarthy: Thanks, Peter. And our final question comes from Lucas Baird from the Australian Financial Review.

Lucas Baird: Can you hear me okay?

Justin McCarthy: Yes.

Lucas Baird: Yes. Cool. I just had two questions. I guess, the first one following up on Peter's. Economists are pushing out sort of rate cut projections deep into 2025, and some are even saying that may not come at all and we'll have to wait until 2026. How would that affect your customers' arrear levels and the overall economy if we had to wait that long for the first rate cut?

Lucas Baird: Well, I think we've -- as I said before, I think the majority of customers are used to these higher level of interest rates. So hopefully, we get a cut next year. But if we don't, then I think we'll actually see slower growth in the economy is what will really happen because people don't have as much discretionary income to spend. So it's probably more the growth will be slower than issues in the mortgage book. That assumes, of course, that unemployment remains very low because that's the biggest driver of issues in our mortgage book is actually unemployment.

Lucas Baird: Okay. Cool. And then just a second one. Recently, we've seen a sort of split in the banks over what should be done with lending rules to get more first-time buyers in the market. Why do you think that split has emerged between the big 4? And does it threaten the lobbying power of the ABA?

Peter King: No, I don't think it's -- threatens the lobbying power of the ABA. I think in a competitive market, you do get different views. And so that's what we've seen. From a Westpac perspective, the issue in housing is supply of housing, not access to finance. If you increase finance into a market, it pushes prices up. The way that we need to help first home buyers get in the market is to create affordable housing, and that's a supply issue. What we hear from developers is it's very hard to make the numbers work for affordable medium-cost housing. It's only premium housing that they're building at the moment because they know that they can sell it. So that's why we come back to supply. In a healthy competitive market, you will get differences, and we've seen that in that case.

Lucas Baird: I appreciate it. And congrats, Peter.

Peter King: Thank you.

Justin McCarthy: Thanks, Lucas, and thank you, everyone, for joining the call. Please reach out over the course of the day if we can be of further assessments. Thank you.