COMPANY PROFILE Australia and New Zealand Banking Group Ltd

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1 A Progressive Digital Media business COMPANY PROFILE Australia and New Zealand Banking Group REFERENCE CODE: 65E8E252-8D18-4F84-AE CF27DD0D PUBLICATION DATE: 30 May COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED

2 Australia and New Zealand Banking Group TABLE OF CONTENTS TABLE OF CONTENTS Company Overview...3 Key Facts...3 SWOT Analysis...4 Page 2

3 Company Overview Key Facts Australia and New Zealand Banking Group Company Overview COMPANY OVERVIEW Australia and New Zealand Banking Group Limited (ANZ) offers personal, business, and corporate banking. Personal banking includes accounts, cards, home and personal loans, life and non-life insurance, investment, private banking, and travel solutions. Business banking comprises cash flow management, loans, payment solutions, insurance, international business solutions, employee management, and retirement investments. Corporate banking contains research, financing, transaction services, risk management, and foreign exchange services. It operates through a network of branch offices, ATMs, and online portals and caters to individual, SME, corporate, and institutional clients. The company operates in Asia-Pacific, the US, and the UK. ANZ is headquartered in Melbourne, Australia. The bank reported interest income of (Australian Dollars) AUD29,120 million for the fiscal year ended September 2017 (FY2017), a decrease of 2.8% over FY2016. The net interest income after loan loss provision of the bank was AUD13,677 million in FY2017, compared to an operating profit of AUD13,166 million in FY2016. In FY2017, the bank recorded a net margin of 22%, compared to a net margin of 19.1% in FY2016. KEY FACTS Head Office Phone Fax Web Address ANZ Centre Level Collins Street Docklands Victoria Melbourne Victoria AUS Revenue / turnover (AUD Mn) 35,584.0 Revenue (USD Mn) 27,269.9 Financial Year End September Employees 39,540 Australian Stock Exchange Ticker ANZ Page 3

4 SWOT Analysis Australia and New Zealand Banking Group SWOT Analysis SWOT ANALYSIS (ANZ) is a provider of banking and related financial services. Capital adequacy and adequate liquidity; and improved cost efficiency and assets quality are a few of its key strengths, even as its reduced net interest margin could be an area for improvement. Stiff competition, prolonged low interest rate environment, and requirement of additional capital may effect the growth of the company. However, strategic initiatives, growing cards and payment channel in Australia, positive outlook towards economy, and emergence of fintech may offer significant growth opportunities. Strength Cost Efficiency Adequate Capital Adequate Liquidity Asset Quality Opportunity Growing Cards and Payments Channel: Australia Short-term Economic Outlook: Australia Emergence of FinTech Strategic Initiatives Weakness Net Interest Margin Threat Prolonged Low-Interest-Rate Environment Additional Capital Requirements Competition Strength Cost Efficiency Improvement in the cost efficiency of the company in FY2017, enhanced its profitability. During the year, its cost efficiency ratio stood at 46.1%, as compared to 50.7% in the previous year. The ratio showcases operating expenses as a percentage of net operating income. The net operating income deteriorated by 1.3% to AUD20,273 million from AUD20,546 million, due to reduction in net interest income 1.5% and non-operating income 0.9%. The operating expenses declined 9.5% to AUD9,448 million from AUD10,439 million, which was due to decrease in personal expenses 6.5%, premises expenses 1.8%, technology expenses 23.1%, restructuring expenses 77.7%, and other expenses 6.9%. Adequate Capital ANZ has sound capital base ensuring capital adequacy to support its organic and inorganic growth with the secured and unsecured nature of its lending. Sound capital management and moderate risk weighted asset growth have enabled the company to enhance its capital base. In FY2017, common equity tier 1 ratio, tier 1 ratio, and leverage ratio stood at 10.6%, 12.6%, and 5.4%, respectively, as compared to 9.6%, 11.8%, and 5.3%, respectively. The ratios were well above the minimum requirement of 4.5%, 6%, and 4%, respectively, as per Basel norm III. Page 4

5 Australia and New Zealand Banking Group SWOT Analysis Adequate Liquidity ANZ reported adequate liquidity in FY2017, which enabled it to carry out day-to-day operations with ease. Its loan-to-deposit ratio stood at 98.07%, as compared to 98.61% in the previous year. Its liquidity coverage ratio (LCR) stood at 135%, as compared to 126% in the previous year, due to decline in total liquid assets 2.1% and net cash outflow 4.9%. The LCR ratio was well above the minimum requirement of 100%, as set by the financial authorities of the country. Asset Quality ANZ reported high quality of assets in FY2017, which ensures interest income from outstanding loans and leases. During the year, its net impaired loans (NIL) accounted to AUD2,118 million from AUD2,646 million in FY2016, showcasing a reduction of 19.9%. NIL as a percentage of net loans stood at 0.37%, as compared to 0.46% in the previous year. Provision for credit impairment (PCI) declined by 9.2% to AUD3,798 million from AUD4,183 million, due to decline in total collective provision. PCI as a percentage of NIL stood at %, as compared to %. Weakness Net Interest Margin During the year, NIM stood at 1.99%, as compared to 2.07% in the previous year. The company s interest rate spread contracted to 2.35% from 5.18% in FY2016, due to decline in average interest earning assets. Its interest bearing liabilities stood at 2.34% from 4.77% in the previous year, due to rise in average deposits and other borrowing. The reduction was also driven by impact of deposit competition, rise in liquidity portfolio, and less earning on capital. Opportunity Growing Cards and Payments Channel: Australia The growing cards and payments channel in Australia may provide growth opportunities for the group. According to in-house report, the number of payment cards in circulation in the country is projected to reach 83.9 million, including debit cards to 57.5 million, credit cards to 24.1 million, and charge cards to 2.3 million in The transaction value of the channel is forecasted to grow to AUD852.3 billion in 2021, including debit cards to AUD472.8 billion, credit cards to AUD306.7 billion, and charge cards to AUD72.9 billion.the growth is expected to be driven by growing e-commerce market, growing popularity of contactless payments, and expected launch of a new real-time retail payment system for low-value payments by the Australian government. Short-term Economic Outlook: Australia The company could benefit from positive economic outlook, in Australia, which is likely to enable Page 5

6 Australia and New Zealand Banking Group SWOT Analysis favourable market conditions and enhance performance of the banking, financial services and insurance sector in the country. According to the International Monetary Fund, the GDP growth of Australia stood at 2.3% in It is expected to be 3% and 3.1% in 2018 and 2019 respectively. The growth will be primarily driven by strengthening the non-mining sector and labour market, increasing household incomes and LNG exports, and structural reforms. Emergence of FinTech The company could benefit from venturing into FinTech arena as it is fast changing the way banking is done and challenging the regulatory structure. FinTech innovations such as crowd-funding, mobile payments, distributed ledgers, peer-to-peer lending, and online marketplace lending are cost effective and giving tough competition to banking institutions. In response, companies are increasingly pursuing opportunities to establish FinTech capabilities through partnerships or strategic collaborations, venture funding, developing in-house capabilities, setting up business accelerators, and/or acquisitions. In this direction, in October 2017, the company acquired a domestic start-up company REALas, a unique algorithm to predict property prices and was built by using data science method and local market knowledge from crowdsourced data from buyers and property experts. This will support ANZ in enhancing its digital transformation. FinTech offers cost savings for companies facing margin pressures from low interest rates. They also have the potential to expand intermediation services to the underserved. Strategic Initiatives Prudent initiatives support ANZ to grow organically and in-organically. In May 2018, the company s subsidiary ANZ Bank New Zealand Limited decided to sell OnePath Life NZ to Cigna Corporation for NZD700 million, which will enable the company emphasize more on life insurance business. Earlier in the month, ANZ entered into a contract to sell 55% stake in its Cambodian joint venture ANZ Royal Bank to J Trust. The sale is as per company s strategic decision to exit minority partnerships and investments and emphasize on institutional business in Asia. Prior to this, in April 2018, ANZ collaborated with Loanapp for offering innovative lending solutions, which will help in strengthening the ANZ s broker experience. Previously, in March 2018, the company decided to close its consumer asset finance business in Australia to enhance its focus in commercial asset finance solution. Threat Prolonged Low-Interest-Rate Environment Prolonged low-interest-rate environment could pose significant challenges to a banking institution. According to an IMF research, lower interest rates may boost companies' earnings in the short-term. However, they adversely affect profitability in the steady state once they fall below a particular positive threshold. With flattened yield curves, if company deposit rates cannot fall below zero, the profitability would be contracted further. In such a scenario, regional and deposit-funded companies are likely to be most adversely impacted. In order to enhance yield, larger companies would increase their risk exposures in other countries that offer higher returns and rely more on wholesale funding, whereas their smaller counterparts would take more interest rate risk by increasing the duration of bond portfolios. Prolonged challenging interest rate environment would result in consolidation of smaller companies. Page 6

7 Australia and New Zealand Banking Group SWOT Analysis Additional Capital Requirements The challenge on company solvency, as a result of highly leveraged balance sheets, prompted a regulatory response, which recommended an increase in capital. Basel III norms by Basel Committee on Banking Supervision are intended to protect the global banking industry from financial meltdowns. The new norms require companies to hold more and better quality capital, carry more liquid assets, and limit leverage. The norms will not only ensure companies to hold more capital on hand, which will limit the amount of money they can lend, but also reduce the risk of insolvency given many loan defaults. Basel III increases the minimum Tier 1 common equity ratio to 4.5%, net of regulatory deductions, and introduces a multi-year phase-in capital conservation buffer of an additional 2.5% of common equity to risk-weighted assets. The capital conservation buffer, once fully phased-in, increases the target minimum Tier 1 common equity ratio to 7%, minimum Tier 1 capital ratio from 6% to 8.5% and the minimum total capital ratio from 8% to 10.5%. The buffer requirement began in January 2016 and the companies are required to fully phase-in the buffer by January 2019 to avoid limitations on capital distributions and certain discretionary incentive compensation payments. In addition, Basel III introduces a counter cyclical capital buffer of up to 2.5% of common equity or other fully loss absorbing capital for periods of excess credit growth. Basel III also introduces a non-risk adjusted Tier 1 leverage ratio of 3%, based on a measure of total exposure rather than total assets, and new liquidity standards. Such regulations would render financial services companies to incur high costs, and exert increased pressure on companies, which are already in the process of improving their own governance processes. Competition The company operates in a highly competitive banking and financial sector of Australia. It faces stiff competition from domestic and foreign banks, financial institutions, wealth and asset management companies, insurance providers, and investment companies operating in the country. A few of its key peers include Bank of Queensland Limited, Commonwealth Bank of Australia, Macquarie Bank, National Australia Bank Group, and Westpac Banking Corporation. It competes based on factors such as fees charged, service quality, offering portfolio, and distribution network. Page 7

8 Copyright of Australia & New Zealand Banking Group Limited SWOT Analysis is the property of MarketLine, a Progressive Digital Media business and its content may not be copied or ed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or articles for individual use.

Australia and New Zealand Banking Group Limited

Australia and New Zealand Banking Group Limited ABN 11 005 357 522 Year 30 September 2008 Consolidated Results Dividend Announcement and Appendix 4E The Consolidated Results and Dividend Announcement constitutes