Analysis of Banking Sector in Australia: A Comparative Study of Westpac and BOQ

This paper presents a comparative analysis of Westpac and BOQ based on their latest financial statements. It analyzes their equity and debt ratios, cash flows, and other comprehensive income statements. The paper also provides insights into the banking sector in Australia. It concludes that both banks offer good investment opportunities, but Westpac seems to be doing relatively better than BOQ. The paper is relevant for students studying corporate accounting and finance courses in universities and colleges.

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CORPORATE ACCOUNTING
Author
Course
Professor
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Executive summary
The paper presents analysis of the banking sector in Australia. It also present analysis of
Westpac and BOQ based on their latest financial statements. Based on the analysis, WBC
was found to be doing relatively better than its counterpart. The WBC seems to enjoy high
cash flow over the period unlike BOQ which is currently experiencing relatively low cash
flows. Further, by looking at their equity and debt ratios, it is evident that both companies
would offer relatively good investment opportunity for existing and potential investors.

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Table of Contents
Executive summary....................................................................................................................2
Introduction................................................................................................................................4
OWNERS EQUITY...................................................................................................................4
Item of equity reported in BOQ and Westpac Banking Group..............................................4
Comparative Analysis of the debt and equity position of BOQ and Westpac.......................6
CASH FLOWS STATEMENT..................................................................................................7
Item reported in Westpac Banking Corp and BOQ the cash flows statement........................7
Comparative Analysis of BOQ and Westpac Banking Based on the Three Broad Classes of
the Cash Flows......................................................................................................................9
OTHER COMPREHENSIVE INCOME STATEMENT........................................................10
Items Reported In Westpac Banking Corp and BOQ’s Other Comprehensive Income
Statements.............................................................................................................................10
Reasons for the items not being reported in the Income Statements....................................11
Comparative analysis of items reported in other comprehensive income statement............11
Evaluation on whether the other comprehensive income ought to be included in assessing
performance management of the company...........................................................................12
ACCOUNTING FOR CROPORATE INCOME TAX............................................................12
Tax expenses reported by BOQ and Westpac......................................................................12
Effective tax rate of BOQ and Westpac Banking Corp........................................................12
Deferred Tax Assets/Liabilities............................................................................................13
Comment on any increase or decrease in the deferred tax liabilities or assets.....................13
Cash Tax Amount.................................................................................................................13
Cash tax rate for BOQ and WBC.........................................................................................14
Explanation of the difference cash tax rate between book tax rate......................................14
Conclusion................................................................................................................................14
List of References....................................................................................................................15

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Introduction
BOQ and WBC are some of the largest banks in Australia. Basically, WBC is amongst the
second largest banks in terms of market cap (Westpac Banking Corp 2017). It is second in
terms of the market cap and is the chief credit card producers within the country. On the other
hand, BOQ is the oldest banking operating in Australia headquartered in Queensland. It
employs a total of 48,556 staff who are said to operate across its 200 branches (Bank of
Queensland 2017). The bank offers form of the financial services comprising of retail
banking, insurance, credit insurance, accident insurance, motor vehicle insurance, small
business loans and saving accounts (Morningstar 2017).
OWNERS EQUITY
Item of equity reported in BOQ and Westpac Banking Group
Based on Westpac statement of the changes in the equity, it is evident that some of the items
included in this statement were reserves, share capital, retained profits as well as the non-
controlling interests. In the case, of the reserves, there were several items reported under this
single item. Some of these items comprised of net other comprehensive incomes which was
around 98 million, share based payments as well as other income of around 1 million.
Further, items reported under share capital included dividend reinvestment plan of around
1,452 million, exercise of the employees share rights and options of around 11 million, the
purchase of the shares or around -43 million and acquisition of the treasury shares of amount
-40 million. On the other hand, the items reported on the retained profit section included
dividends on the ordinary shares of around 6,291 as well as other investments contributing to
-4 million (Westpac Banking Corp 2017). On overall, the amount of equity attributable to the
shareholders included dividend on the ordinary share of around -6,291 million, dividend
reinvest plan of around 1,452 million, share based payment of 98 million exercise of the
employees share rights and options of around 11 million. Additionally, there purchase of the

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shares of around -43 million, acquisition or disposal of the treasury shares of around -40
million as well as other amount of around -3 million (Morningstar 2018).
The total amount share capital is found to have increased over the years moving from 33,041
million in the year 2016 to around 34,394 million by 2017. Besides, amount for reserves
increased from 727 million to 794 while amount for the retained earnings or profit increased
from 24,379 to 26,100. On overall, Westpac total equity increased from 58,181 at 30th
September 2016 to 61,342 million at year end 30th September 2017. The increase was
attributable to increase in most of the items reported in the statement. Basically, increase in
its share capital from 33,014 million to 34,394 million in 2017 and increase in its retained
profit from 24,379 million to 26,100 million in 2017 (Morningstar 2018).
On the other hand, based on BOQ statements of the changes in the equity, it is evident that
there were a number of items reported. Some of these items included employees benefits
reserves, cash flow hedge reserve, ordinary shares, equity reserves for the credit losses,
retained profits as well as available-for-sales reserves. Some of the figures included in the
ordinary shares included balance at the start of the year of around 3,243 million, issues of the
ordinary shares of around 12 million, as well as dividend reinvestment plan of 105 million
(Bank of Queensland 2017). Further, figures attributable to employees benefits reserves
included balance at the start of the year, as well as equity settled transactions of around -1
million. Cash flow hedge reserves comprised of balance at the start of the year, of about -153
million, net gains moved to equity of 13 million as well as net losses that was transferred to
the income statement of 23 million. Equity reserves comprised of balance at the year start of
81 million. On the other hand, retained income comprised of balance at the start of the
financial year of 311 million, profit generated within the year of 352 million, and dividends
to the shareholders of -292 million. Finally, Available-for the sales reserves comprised of
balance at the beginning of the financial period of around 78 million, net variation in the fair

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value for the financial assets of 3 million and net gains transferrable to the income statement
of -14 million.
Furthermore, based on the statement, value for the ordinary shares increased over the past
two years moving from 3,243 million to 3,360 million in 2017. Nonetheless, employees
benefits reserves decreased from 27 million reported in 2016 to 26 million which was
reported in 2017. Further, equity reserves for the credit losses remained constant over the past
two years at 81 million. Cash flows hedge reserves increased decreased from -153 million to
– 117 million while its available-for the sale reserve decreased from 78 million to 67 million.
Retained earnings for BOQ on the other hand, increased from 311 million to 371 million by
2017. On overall, BOQ total equity increased from 3,587 million to 3,788 million in the year
2017.
Comparative Analysis of the debt and equity position of BOQ and Westpac
Based on the above highlights, it is evident that Westpac Banking Corp had high level of
shareholders’ equity compared to BOQ. In fact, despite the two banks recording significant
increase in their total equity over the last two years, Westpac reported total equity of 58,181
at 30th September 2016 and 61,342 million at year end 30th September 2017. This marks an
increase in its total equity of around 3,161 million or 5.4%. On the other hand, BOQ reported
total equity of 3,587 million at 2016 3,788 million at September 2017. This marks an increase
in the bank’s total equity with around 201 million or 5.6%. In reality, BOQ experienced
significantly high increase in its total equity as compared to its counterpart. On the other
hand, Westpac reported total liabilities of 765,216 at 30th September 2016 and 772,867 in
2017. This marks a 7,651 million or 1% increase in its total debts. On the other hand, BOQ
total liabilities increased from 47,266 million to 47,870 million. This means that BOQ
experienced an increase of 604 million or 1.28% in its total debts. This implies that BOQ was
at higher financial risk compared to Westpac.

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CASH FLOWS STATEMENT
Item reported in Westpac Banking Corp and BOQ the cash flows statement
From BOQ cash flow statements there are a number of items that have been listed. These
items have been listed based on the three categories; that is, cash from the operations
segment, cash used in the investment activities segment and cash from the financing
operations segment. The items reported in the cash flow from operations category included
interest received which is said to have decreased over the years from 2,156 million in 2016 to
1,990 million in 2017. There were also fees and other income that increased from 130 million
to 137 million and dividends received which remained constant at 1 million over the past
three years. Interest paid was another items repowered in this section which is said to have
decreased from 1,263 million to 1,066 million by 2017 (Bank of Queensland 2017).
Items that are reported in the cash from the investment section include acquisition of the
BOQF cash flow Finance Ltd costing 14 million, disposal of the vendor finance firm of 19
million, and receipt of the third party repayment of loan of 95 million. Other items are
payments for the PPE of 18 million an increase from 16 million from previous year,
payments of the intangible assets of 46 million a decrease from 67 million in the previous
year (Morningstar 2018).
Items that were reported in the cash from the financing operations section comprised of
proceeds from the issues of the ordinary shares of 12 million a decrease from 20 million in
the previous year. There is also the proceeds from the borrowing of around 4,090 million an
increase from 3,515 million reported in the previous year, repayments of the borrowings of
3,963 million an increase from 2,818 million from the amount reported in the year 2016.
Further, there was payments for the treasury shares of 12 million which was a decrease from
20 million reported in 2016 and finally dividends paid of 188 million which was an increase
from 180 million reported in 2017.

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Based on Westpac Banking Corp, it is evident that the items reported in the cash flow
statement were classified into three categories; that is, the cash from the operation section,
cash used in investment and cash from the financing operations section. Items listed in the
cash from the operations sections include interest received of 31,133 million, interest paid of
-15,415 million and dividend received in in exclusion of the life business of 27 million as
well as other non-interest income received. Other items reported in this section are operating
expenses paid of 7,966 million, income tax paid of 3,388 million, receipts from the
policyholders as well as customer of 2,239 million, interest and the other items of same
nature of 24 million, payment to the suppliers and policyholders of 1,861 million, dividend
received of 433 and income tax paid of 164 million (Morningstar 2018). There was also items
on the net decrease in the trading securities and the financial assets which were designated at
the fair value of 5,054 million, decrease in loans of 26,815 million, increase in receive due
from the other banks of 2,653 million, increase in the life insurance assets of 219, increase in
the regulatory deposits with foreign central banks, increase in other assets of 200 and
decrease in derivative financial instruments of 5,042 million. Additionally, there were items
on net decrease in the other financial liabilities at the fair value of 681, net increase in
deposits as well as other borrowings of 23,062 million, increase in payables due to the other
banks of 3,859 million as well as decrease in the other liabilities of 15 million. Amount
reported in 2017 was a decrease from the previous year amount of 31,817 million resulting
from increased interest rate used in offering loans.
Items reported in the cash from investment sections included proceeds from the available-for-
sale stocks of 25,717 million, purchases of the available-for-sale stocks of 27,028 million,
purchases of the intangible assets of 766 million and proceeds from the disposal of PPE of 65
million (Westpac Banking Corp 2017). In addition, there was item on purchase of the PPE of
264 million as well as proceeds from the sale of the associates of 630.

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Items reported on Westpac cash used in financing operations section included issues of the
loan capital of 4,437 million, redemption of the loan capital of 2,188 million, net increase in
the debt issues of 3,249 million, proceed from the exercise of the employee options, share
purchased for the delivery of the employees share plan of 27 million and purchases of the
shares on the exercise of the employees options and rights of 17millon (Morningstar 2018).
There were also purchases of the RSP treasury stocks, of 7 million, payments of the
dividends of 4,839 million and payments of the distributions to the non-controlling interests
of 13 million.
Comparative Analysis of BOQ and Westpac Banking Based on the Three Broad Classes
of the Cash
Flows
Westpac cash flow from its operations increased from -541 million in 2015 to 5,497 million
in 2016 but later decreased to 2,820. On the other hand, cash used in investment operation by
Westpac decreased over the past three years from 18,715 million in 2015 to 7,245 million in
2016 and later to 1,698 million in 2017 (Morningstar 2018). Further Westpac cash provided
by its financing operations decreased in the past three years from 5,513 million in 2015 to
4,573 million in 2016 and later to 552 million in 2017.
On the other hand, BOQ cash outflow from the operations decreased from 875 million in
2015 to 381 million in 2016 and later to 302 million in 2017. Its cash from the investment
increased from 56 million to 68 million in 2016 but in 2017, BOQ generating some cash
income from its investment of around 49 million. It cash from the financing activities
decreased in the last three years from 765 million to 574 million and further to -61 million in
2017 (Morningstar 2018).
By looking at the two companies based on the three broad levels of the cash flows, it is
evident that Westpac was able to generate positive income from its operations and from its

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financing activities unlike BOQ instead incurred some negative amount from operations and
its financing operations. Therefore, Westpac Banking seems to be financially healthy in terms
of cash flow generation unlike its counterpart.
OTHER COMPREHENSIVE INCOME STATEMENT
Items Reported In Westpac Banking Corp and BOQ’s Other Comprehensive Income
Statements
As per BOQ statement of the comprehensive income, it is evident that a number of items
were reported in the financial year 2016/2017. Basically, some of the items reported included
cash flow hedges which comprised of net losses transferred to the income statements and net
losses to equity. In this case, the bank reported net gains taken to the equity of around 13
million in 2017 while it reported net losses that were transferrable to income statements of
around 23 million (Morningstar 2018). The net gains taken to the equity for BOQ increased
as from -75 in the year 2016 to 13 million in the year 2017 while its net losses that were
transferable to the income statements increased from 12 million to 23 million by 2017. Other
items reported in this statement were foreign currency translation alterations on the foreign
operations and net variation in the fair value of the financial assets which was available-for
sale of around 3 million. Foreign currency translation variations on the foreign operations for
BOQ increased from -1 to a positive figure in 2017. Nonetheless, the net variations in fair
value of the financial assets recorded a significant decrease from 24 million in the year 2016
to around 3 million in 2017 (Morningstar 2018). Further, there were net gains which were
transferable to the income statement for the financial assets which were available-for-sale.
The net gains transferable to the income statement for the bank decreased from -10 million in
2016 to -14 million by 2017.
On the other hand, items reported in Westpac Banking Corporation other comprehensive
statements were categorized into two, those items which might be reclassified concurrently to

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the income statements as well as those one that would never be reclassified to the income
statements. Items that were classifiable subsequently to Westpac’s income statement
comprised of gains on the available-for-sale stocks recognized in the equity of around 75
million which was an increase from the previous year where the amount was 56 million. The
other item was losses on the available-for-sales stocks transferable to the income statement of
-3 million, an increase from the previous year where the amount was at -8 million
(Morningstar 2018). Thirdly there was losses on the cash flow hedging recognized in the
equity which is said to have declined from -304 million in 2016 to -91 million in 2017.
Another item was gains on the cash flow hedging transferable to the income statement of 115
million, an increase from 21 million in 2016. In the statements there were income tax on the
items transferred from or taken to the equity which included available-for-sale stock reserves
and cash flow hedging reserves. Other items were share of the associates recognized in the
equity and item transferable to the income statement.
Items which were not classifiable subsequently to income statements comprised of the own
credit adjustment on the financial liabilities which was designated at the fair value as well as
re-measurement of the defined benefits commitment recognized in the equity. Re-
measurement of the defined benefit obligations recognized in the equity increased from
negative 47 million to 190 million in 2017 (Morningstar 2018).
Reasons for the items not being reported in the Income Statements
The items in the other comprehensive incomes are not reported in organizations’ profit/loss
accounts as they are yet to be realizable. In essence, items are only reported only if they are
realized and therefore ready to be considered as income or losses.
Comparative analysis of items reported in other comprehensive income statement
The items reported in other comprehensive income for BOQ were relatively lower in
comparison to the amount of the items reported in Westpac statement. This is evidenced by

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the fact that the overall amount for these items increased for the Westpac from 6,941 million
in 2016 to 7,991 million in 2017. On the other hand, the overall amount of items reported in
BOQ other comprehensive income statements increased as from 288 million to 377 million in
2017 (Morningstar 2018). In case, such items were included in income statements for the
two companies, the net income attributable to the shareholders would increase from its
current value to a higher value which would be good for the shareholders.
Evaluation on whether the other comprehensive income ought to be included in
assessing performance management of the company
The other comprehensive income should not be included in assessing performance of an
organization’s management. This is because by including the items, one would end up using
untrue figures which would yield favourable report about the managers’ performance unlike
when the amount was excluded.
ACCOUNTING FOR CROPORATE INCOME TAX
Tax expenses reported by BOQ and Westpac
The tax expenses indicated in BOQ and Westpac latest financial statements are income tax
expense of 155 million for BOQ and income tax expense of 3,518 million for Westpac
Banking Corp (Morningstar 2018).
Effective tax rate of BOQ and Westpac Banking Corp
In this case, it is good to first understand the formula of getting effective tax rate. This is
usually equals to income tax expenses divided by the organization’s EBIT
Effective tax rate for the companies was as follows;
Effective tax for Westpac in 2017 = 3,518/11,515 * 100% = 30.55%
Effective tax for BOQ in 2017 =155/507 * 100% = 30.57%

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Based on the above computations, BOQ had the highest effective tax rate compared to
Westpac Banking Corp. This implies that BOQ is more effective in settling its tax expenses
compared to its counterpart.
Deferred Tax Assets/Liabilities
According to Westpac 2017 balance sheet statement, it is evident that the company reported
deferred tax assets of around 1,112 million in the year 2017. On the other hand, Westpac
Banking Corp reported deferred tax liabilities of 10 million in 2017. Based on BOQ balance
sheet statement, the bank reported deferred tax assets of 55 million in the year 2017.
Nonetheless, the bank did not have any deferred tax liabilities over the period. These are
reported in the balance sheet since they have not year been realized to be able to be reported
in the companies’ income statements.
Comment on any increase or decrease in the deferred tax liabilities or assets
Westpac Banking Corp deferred tax assets experienced a slight decrease over the past two
years from 1,351 million to 1,112 million in 2017. On the other hand, a similar trend was
observed in the bank deferred tax liabilities, where the amount moved from 36 million to 10
million. In another case, BOQ deferred tax assets decreased from 80 million in the year 2016
to 55 million in 2017. Nonetheless, no increase or decrease in deferred tax liabilities was
reported for this bank since for the last two years BOQ did not report any deferred tax
liabilities.
Cash Tax Amount
Cash amount = the book tax plus the upsurge in organization’s deferred tax liabilities minus
an upsurge in its deferred tax assets. Therefore, cash tax amount for the firms would be as
follows:
Westpac cash tax amount = 3,518 + (10-36) – (1,112-1,351) = 3,731
BOQ cash tax amount = 155 +(0) – (55-80) = 180

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Cash tax rate for BOQ and WBC
Cash tax rate = cash amount / EBIT
In this case, cash tax rate for WBC = 3,731/ 11,515 * 100% = 32.40%
Cash rate ta for the BOQ is = 180/507 * 100% = 35.50%
Based on the above computations, BOQ has relatively high cash tax rate compared to its
counterpart.
Explanation of the difference cash tax rate between book tax rate
Cash tax rate tend to differ from the book tax rate as its calculation is usually based on book
tax value unlike the book tax rate which is based mainly the original tax expenses for
computation.
Conclusion
To conclude, WBC and BOQ are amongst the leading banks in Australia. Furthermore, from
the cash flow, owner equity, other comprehensive income and income tax income. WBC
seems to do better than its counterpart. The WBC seems to enjoy high cash flow over the
period unlike BOQ which is currently experiencing relatively low cash flows. Further, by
looking at their equity and debt ratios, it is evident that both companies would offer relatively
good investment opportunity for existing and potential investors.

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List of References
Bank of Queensland 2017, Bank of Queensland annual report 2017: Viewed from:
https://www.boq.com.au/content/dam/boq/files/reports/annual-report/annual-report-2017.pdf
(Accessed 22nd September 2018)
Morningstar 2018, Bank of Queensland (BOQ): Viewed from:
http://financials.morningstar.com/balance-sheet/bs.html?t=BOQ&region=aus&culture=en-US
(Accessed 22nd September 2018)
Morningstar 2018, Bank of Queensland (BOQ): Viewed from:
http://financials.morningstar.com/ratios/r.html?t=BOQ&region=aus&culture=en-US
(Accessed 22nd September 2018)
Morningstar 2018, Bank of Queensland (BOQ): Viewed from:
http://financials.morningstar.com/income-statement/is.html?
t=BOQ&region=aus&culture=en-US (Accessed 22nd September 2018)
Morningstar 2018, Bank of Queensland (BOQ): Viewed from:
http://financials.morningstar.com/cash-flow/cf.html?t=BOQ&region=aus&culture=en-US
(Accessed 22nd September 2018)
Morningstar 2018, Westpac Banking Corp (WBC): Viewed from:
http://financials.morningstar.com/ratios/r.html?t=WBC&region=aus&culture=en-US
(Accessed 22nd September 2018)

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Morningstar 2018, Westpac Banking Corp (WBC): Viewed from:
http://financials.morningstar.com/balance-sheet/bs.html?t=XASX:WBC&region=AUS
(Accessed 22nd September 2018)
Morningstar 2018, Westpac Banking Corp (WBC): Viewed from:
http://financials.morningstar.com/income-statement/is.html?
t=WBC&region=aus&culture=en-US (Accessed 22nd September 2018)
Morningstar 2018, Westpac Banking Corp (WBC): Viewed from:
http://financials.morningstar.com/cash-flow/cf.html?t=XASX:WBC&region=AUS (Accessed
22nd September 2018)
Reuters.com 2018, Bank of Queensland annual report 2017: Viewed from:
https://www.reuters.com/finance/stocks/companyProfile/BOQ.AX (Accessed 22nd
September 2018)
Westpac Banking Corporation 2017, Westpac Banking Corp annual report 2017: Viewed
from: https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2017_Westpac_Annual_Report_Web_ready_&_Bookmarked.pdf (Accessed 22nd September
2018)