The Westpac Group

Risk management

Introduction

We consider risk management as a fundamental activity, performed at all levels of the Group. Effective risk management requires taking an integrated and balanced approach to risk and reward, and helps us to both optimise financial growth opportunities and mitigate potential loss or damage.

In December 2007 we received advanced accreditation from the Australian Prudential Regulation Authority and the Reserve Bank of New Zealand under the Basel II capital framework, one of the first banks in the world to do so. We also received accreditation for the interest rate risk in the banking book capital calculation in July 2008 in accordance with APRA's implementation timetable. Our accreditation is an acknowledgement from our banking regulators on the quality and robustness of our risk management processes, systems and information.

Risk management structure

The Board is responsible for our risk management strategy and has delegated responsibility for approving our risk appetite and risk management frameworks to the Board Risk Management Committee. The CEO and executive management team implement the strategy and frameworks, and ensure that policies and processes for identifying and managing risk in all Westpac activities are developed.

Business unit risk management teams manage risks within their relevant businesses, and implement business-specific policies and processes to manage those risks. Our Group Risk function is independent from the business units and reports to the Chief Risk Officer, who in turn reports to the Board Risk Management Committee.

Our Group Assurance function independently evaluates the adequacy and effectiveness of management’s controls for risk. For further information refer to the   Corporate Governance Statement (PDF 214kb).

Risk management framework

Our risk management frameworks, which are approved by the Board Risk Management Committee, describe our approach to managing risk at Westpac. They encompass credit, market, liquidity, equity, operational and compliance risks.

In addition, we have developed specific policies that allow us to oversee and manage our material business risks, including the following:

Credit risk:

• Large exposure limits
• Industry concentration
• Country risk limits
• Credit and equity approval limits
• Credit provisioning
• Credit risk rating.

Market and liquidity risk:

• Group Value at Risk limits
• Net Interest Income at risk limits
• Funding plan
• Liquidity limits.

Operational and compliance risk:

• Business continuity management
• Incident management
• Risk and control assessment
• Operational risk in change
• Code of Conduct
• Conflicts of interest & trading in securities (including insider trading)
• Whistleblower protection
• Complaints handling
• Managing our relationships with regulators.

For further information on managing these risks, refer to the Financial Statements and the   Corporate Governance Statement (PDF 214kb).