Since merging with local rival St George, as well as
successfully integrating the RAMS mortgage franchise, Australia’s
Westpac has become one of the biggest banks in the Asia-Pacific
market. Hugh
discusses the group’s domestic retail plans
with Peter Hanlon, group executive of retail and business

Measured by branches, Westpac is now the largest bank in the
Australian/New Zealand market – though arch rival Commonwealth Bank
of Australia (CBA) remains ahead in terms of deposits. Both have
upped their game over the past year with major acquisitions – St
George for Westpac, BankWest for CBA – in a relatively stable
Australian market that has not (yet) succumbed to the financial
crisis lows of other major economies.

In its half-yearly results published at the
start of May, Westpac’s retail and business banking unit was the
star performer: while group earnings of A$2.3 billion ($1.83
billion) were down 6 percent year-on-year for the six months ended
31 March 2009, retail and business banking earnings were up 17

Peter Hanlon, Westpac

The retail and business banking division had a
strong performance due to above system growth across mortgages – up
15 percent – and deposits – up 21 percent – with improved lending
margins. Specialist mortgage lender RAMS, acquired in October 2007
as it suffered in the wake of the collapsed US subprime market, now
accounts for 19 percent of Westpac’s mortgage growth.

Westpac rolled out a major marketing campaign
on 8 May, days after its results announcement, as part of a renewed
corporate strategy. The ad campaign re-introduced an old company
slogan – ‘We’re a bank you can bank on’ – and focused on, among
others, the bank’s Westpac Local initiative. The strategy, akin to
Sweden’s Handelsbanken, decentralises decision making back to
branch managers, and is seen as a way to promote better customer
service, product sales and staff engagement.

Revitalise the distribution

Peter Hanlon, group executive of
retail and business banking at Westpac, told RBI that the
Westpac Local strategy was developed to “revitalise our
distribution capability”.

“It was designed around strong local
businesses focused on our priority customer segments of mass
affluent, SME and commercial, supported by a technology platform
that makes doing business easy for our people and for our
customers,” Hanlon said.

“There was a time when Australians consulted
their bank manager for just about everything – for financial
advice, real estate advice, or advice on births, deaths and
marriages. Customers knew their bank manager, and the bank manager
had all the answers. But that was a long while ago. A revolution is
taking place in Westpac, [we] are bringing back the bank manager
into local communities.

“To really bring back the bank manager we have
to give them more than training – we have to give them authority
[and] the power to make decisions quickly. So we are giving
managers greater autonomy and accountability, and bringing all the
local Westpac team – branches, business bankers, wealth advisers –
together under one roof.”

Assets - business split of total assets, H109

He says his bank is increasing its branch
network over the course of the year, with 12 new branches and three
business banking centres currently underway. In all, the Westpac
and St George Retail and Business Banking distribution networks in
Australia have 2,700 ATMs and 1,200 branches.

“We have a sector leading cross-sell of 2.36
products per consumer customer and there was further investment in
our front line with over 250 additional people in Westpac branches
and business banking centres in the first half period, as well as
three new branches and two new business banking centres,” said

In terms of cross selling, Hanlon puts
Westpac’s relative success (its ratio of 2.36 is below a global
average of 3.69 as found by RBI in a world survey of
cross-selling – see RBI 611) down to a long-term focus on
“looking after all existing customers needs” rather than customer
acquisition via a single product.

Since the 2002 merger with asset manager BT
Financial, connections between Westpac’s retail bank and BT wealth
division have grown considerably, he says, adding that the group
shares “targets and people” which have delivered good results
particularly in the insurance category.

And on the point of cross selling, Hanlon
said: “We aspire to increase this further by earning all of our
customers business.”

Performance - Westpac H109 versus H108


Largest bank M&A to

The St George franchise, acquired in
May last year for A$14 billion in what remains the largest
Australian banking deal to date (see RBI 592), delivered
earnings growth of 6 percent with solid deposit growth of 18
percent and lending growth of 10 percent, partly offset by an
increase in impairment charges of A$115 million.

Asked whether Westpac will look to drop the St
George brand, Hanlon said: “No, from the inception of the merger we
made it clear that we will run the group as a multi-brand
environment which is a new approach in the Australian financial
services sector.

“We have several distinct and separate brands
and we intend to keep them that way, ensuring they appeal to
customers and meeting their needs. In fact, we intend to enhance
the differentiation of the brands over time, by investing in them

Gail Kelly, Hanlon’s boss and CEO of Westpac
(and the ex-CEO of St George), has herself stressed the benefits of
a multi-brand strategy. In an interview on 12 June with the
Australian Financial Review, Kelly said while working for
South Africa’s Nedbank “she learnt the power of brands”.

She added: “[Westpac] clearly learnt from the
Bank of Melbourne experience. We decided we were going to keep Bank
of Melbourne but we actually shut a lot of Westpac branches and
said to Westpac customers, ‘by the way, there’s a Bank of Melbourne
around the corner, so you should feel free to go around and do your
business over there’. Now that doesn’t respect choice, that doesn’t
respect that customers have chosen a brand for a particular reason.
Westpac customers said, ‘I didn’t choose Bank of Melbourne, I chose
Westpac. You can’t tell me what to do. I will leave [both


Social responsibility

Talking about Westpac’s overall vision, Hanlon
says that the group’s goal is to be the leading financial services
company in Australia and New Zealand, “and I believe that starts in
the local community”.

In both Australia and globally, Westpac has
made a name for itself with its ethical/socially responsible
banking ethos – and the Westpac Local initiative is part of an
ongoing process to better integrate corporate social responsibility
into the group.

Products and company initiatives rolled out
and introduced over the past two years include:

• 29 April 2009 – commemorates 10
years and A$20 million in donations to more than 1,200
Australian-based charities through its Matching Gifts

• 19 November 2008 – launches a
five-year climate change strategy with an “aggressive” overall
emissions reduction target of 30 percent by 2013;

• 11 July 2008 – joins other leading
Australian companies in the launch of Together, a consumer
engagement campaign focused on climate change;

• 8 May 2008 – launches a new
sustainability code for its 10,000 suppliers;

• 27 November 2007 – launches
‘Westpac Assist’ initiative to help customers struggling to meet
their financial commitments, the centrepiece of the group’s new
Responsible Lending Principles;

• 25 October 2007 – named as the
only bank in the world, and one of just four companies in the
Global FT500 list, to achieve a 100-point, AAA rating in the 2007
Climate Disclosure Leadership Index;

Hanlon says that sustainability remains a core
part of how the bank “does things” and is a key pillar of its
corporate strategy.

“We believe sustainability is a must for
Westpac’s future. Customers are at the heart of our sustainability
priorities as the major sustainability impacts of the financial
services sector play out in the homes and businesses of our
customers,” he added.

“Our climate change strategy launched in late
2008 focuses on developing product and service solutions to help
customers transition to a low carbon economy.”

Some other examples given by Hanlon are that
customers can elect to have electronic statements versus paper ones
(“over half a million customers have”, he says) or redeem rewards
points as donations to various charities.

Extended Westpac Assist

In a sign of the growing level of bad
debts in the Australian market, Westpac recently extended its
Westpac Assist programme which supports customers and businesses
facing financial difficulty.

“Thousands of our customers have sought this
assistance to support them since the service began in late 2007,”
Hanlon said.

While noting that unemployment is rising in
Australia, the bank’s forecast for the remainder of 2009 is for the
Australian household sector to remain relatively “solid”, even
though the country’s commercial sector, including the property
market, is showing increased bad debts.

Impairment charges rose to A$1.61 billion
during the first half, while total provisioning ended the period at
almost A$4.5 billion. In its results round-up, Westpac warned of a
“sharp rise in stressed loans”.

Westpac - customer metrics in New Zealand