Westpac Group

Risk management

• Introduction
• Risk management structure
• Risk management framework

Introduction

We regard managing the risks that affect our business as a fundamental activity, as they influence our performance, reputation and future success. Effective risk management involves taking an integrated and balanced approach to risk and reward, and assists us in achieving our objectives of mitigating potential loss or damage and optimising financial growth opportunities.

In December 2007 we received advanced accreditation from the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of New Zealand under the Basel II capital framework. 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.  In May 2010, APRA extended these approvals to include the St.George portfolio, effective 30 June 2010.  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 overall 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 develop policies and processes for identifying and managing risk in all of Westpac’s activities.

Our approach to risk management is that ‘risk is everyone’s business’ and that responsibility and accountability for risk begins with the business units that originate the risk. For further information refer to the   Corporate Governance Statement (PDF 4.53mb).

Risk management framework

Westpac adopts a "Three Lines of Defence" approach to our management of risk. Our frameworks are approved by the Board Risk Management Committee. We distinguish four main types of risk: credit, liquidity, market and operational risks.

In addition, we have developed specific policies and limits 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 Strategy
• Liquidity limits
• Stress-testing Escalation Policy
• Profit & Loss Escalation Policy

Operational risk: 

• Business continuity management 
• Incident management 
• Operational risk management 
• Code of Conduct 
• Conflicts of interest
• Securities trading
• Whistleblower protection 
• Complaints management
• Managing our regulator relationships.

For further information on managing these risks, refer to the Financial Statements and the   Corporate Governance Statement (PDF 4.53mb).