Bank Note$ Mentioned in despatches. 7 March December 2017 reporting wrap: Fundamentals sound

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1 7 March 2018 Analyst TS Lim Authorisation Chris Savage Bank Note$ Mentioned in despatches Stock Price Target Rating ANZ $28.58 $32.50 Buy CBA $75.69 $83.90 Buy NAB $30.10 $34.20 Buy WBC $30.37 $33.00 Hold MQG $ $ Buy ABA $5.22 $5.65 Hold BEN $10.77 $11.65 Hold BOQ $11.91 $12.85 Hold CYB $5.38 $6.45 Buy MYS $4.85 $5.55 Buy SUN $13.98 $14.35 Hold ASX200 Banks (J4010) Price Performance (1m) (3m) (12m) Price (A$) Absolute (%) Rel market (%) Absolute Price Mar Jul 16 Nov Mar Jul 17 Nov J4010 S&P 300 Rebased SOURCE: IRESS December 2017 reporting wrap: Fundamentals sound The recent reporting period was generally positive with few surprises. NIM benefited from lower funding costs, deposit mix, easing liquidity drag and stable lending spreads, and the domestic retail and business banks contributed to the bulk of NIM/NIE improvements. However, non-interest income was impacted by ongoing shift towards lower fee products, lower interchange and ATM fees and lower trading activity although these were offset by some positive CVA and better wealth outcomes from strong markets performance and positive net flows. Underlying cost discipline remained the key value lever and resulted in positive Jaws. The relative CIR ranges (42-46% for majors, 53-54% for regionals with BOQ being the outlier at 47% and 63-65% for smaller regionals) highlight the operating scale differences between the large and small players. Credit quality was manageable and the average sector BDD charge continued to gradually normalise towards the new normal range (majors 20-30bp, regionals 10-20bp and smaller regionals up to 10bp). Consumer BDD charges remained in good shape across all categories (e.g. expected mortgage loss only 2bp) and are in line with lower arrears and impaired asset experience. Capital adequacy and funding were non-issues in the reporting period. The respective outlook statements continue to emphasise cautious optimism in a challenging environment (NIM and non-interest income headwinds). We thus expect cost discipline to be ongoing and to underpin underlying earnings growth and CET1 capital generation, and for dividend payout intentions to be unchanged. Domestic retail and business banks still core to the majors There is no denying these are the majors most valuable businesses, e.g. CBA s RBS and B&PB combined NIM in 1H18 was a very healthy 2.95% while CIR was in the low 30s. Based on 1.5% and 1.6% ROA respectively and assuming the Group s conservative equity ratio, the respective ROE would be ~21% and ~24% (~22% combined). Based on a 10.5% CET1 requirement and given RBS s lower risk weights, ROE would be very attractive at ~36% and ~20% respectively (~30% combined). Forecast/price target/rating changes and top picks Forecast changes: BOQ cash NPAT -3% after lowering NIM by 3bp. Price target changes: ABA from $5.80 to $5.65 due to softer NIM outlook; BEN from $11.90 to $11.65 due to rebased dividend valuation; BOQ from $13.50 to $12.85 due to softer NIM outlook; MQG from $ to $ due to valuation time creep; and WBC from $33.90 to $33.00 due to rebased ROE and dividend valuation. Rating changes: SUN from Buy to Hold purely based on value (i.e. TSR now <8%). Top picks: (1) MQG (track record; risk management; growth outlook based on global asset management, infrastructure and overseas footprints; high ROE annuity-style components; and capital management flexibility); and (2) NAB (niche business bank; execution; risk management; cost discipline; capital position; and focus on ROE). BELL POTTER SECURITIES LIMITED ABN AFSL DISCLAIMER: THIS REPORT MUST BE READ WITH THE DISCLAIMER ON PAGE 19 THAT FORMS PART OF IT. DISCLOSURE: BELL POTTER ACTED AS CO-MANAGER IN THE FOLLOWING TRANSACTIONS AND RECEIVED FEES FOR THE SERVICES: WBC CAPITAL NOTES 5 OFFER (FEBRUARY 2018). Page 1

2 Mentioned in despatches December 2017 reporting wrap: Fundamentals sound The reporting period ended 31 December 2017 (1H18 for BEN, CBA and SUN Bank; limited 1Q18 updates for ANZ, MQG, NAB and WBC) was generally positive for most players in terms of top line growth, cost management and credit quality. NIM movements since June 2017 largely benefited from lower funding costs (retail and wholesale), deposit mix (having achieved NSFR for the majors and deposit funding targets), increasing free fund effect in a rising rate environment (with the yield slope surprisingly stable in the last six months) and stable domestic lending spreads (home loan repricing tailwinds offsetting drag from narrowing back to front book discounts). It therefore came as no surprise that the core Australian retail and business banking components contributed to the bulk of NIM and NIE improvements. As a result, there were NIM increases in CBA (+6bp despite the major bank levy) and the regionals (ABA +6bp, BEN +6bp and MYS +2bp) while SUN Bank slipped 1bp given easing loan repricing tailwinds and higher volume growth (at the expense of spreads in the chase for market share). NAB s 1Q18 trading update also suggested some slippage in NIM due to liquidity drag and bank levy impact excluding these, NIM would have been stable. NIE would have been higher if not for APRA-imposed lending caps on investor and interest only loans. This resulted in annualised sector lending growth that is roughly on par with GDP growth (3% for the majors, 4% for the regionals). There were no surprises in non-interest income as these were impacted by an ongoing shift towards lower fee products, lower interchange fees, removal of ATM fees for some banks and lower trading activity (from lower market volatility). However, there was a small positive from CVA adjustments and those that have wealth operations benefited from strong markets performance and positive net flows (that cushioned the impact of lower general insurance contributions from higher than normal weather claims) that helped to stabilise CBA s non-interest income. However, regional banks continue to trail the majors in this space due to having less diversified revenue sources and more vanilla products. On the whole, pcp revenue growth was a healthy ~5% for CBA and ~6% for the regionals. Underlying expense management [excluding major business reinvestment (e.g. SUN Bank s $50m for BIP and $36m for Marketplace) and extraordinary charges (e.g. AUSTRAC provisions and compliance spend for CBA)] remained the sector s key value lever, being largely capped at close to CPI (2% for CBA, ~4% for SUN Bank and 1% each for ABA, BEN and MYS) and despite new EBA arrangements. The relative CIR ranges (42-46% for majors, 53-54% for regionals with BOQ being the outlier at 47% and 63-65% for smaller regionals) highlight the operating scale differences between the large and small players. As a result, underlying Jaws was generally positive (CBA 3%, SUN Bank 2% based on 6% revenue growth and 4% expense growth, ABA 6%, BEN 5% and MYS 3%). The average sector BDD charge continued to normalise towards the 20bp mark (with 20-30bp being the through-the-cycle charge for the majors, 10-20bp for the regionals and up to 10bp for the small regionals). The slight BDD charge increases were mainly due to lower recoveries in the corporate and institutional segments (relative to the prior period and also from a low base) and a handful of individual charges involved in commercial property construction. Not surprisingly, consumer BDD charges remained in good shape (despite a soft WA and especially for the regionals) across all lending categories (e.g. expected loss for mortgages only 2bp) and are in line with lower arrears and past due loans and stable impaired levels helped in part by the flight to quality credit and focus on profitable growth. Overall provisions were almost unchanged and remained adequate in our view. Page 2

3 Capital adequacy and funding were non-issues in the reporting period. ANZ remains the strongest of the majors with a 10.8% CET1 ratio (pro-forma estimate 11.4%) and is significantly ahead of APRA s 10.5% requirement by This is followed by CBA (10.4% before the likely divestment of CFSGAM), NAB (10.2%) and WBC (10.1%), with all being on track to meet the 2020 requirement. On an international basis, the four majors (ANZ 16.0%, CBA 16.3%, NAB 14.6% and WBC 15.7%) are in the top quartile of the global peer group. MQG s CET1 ratio continues to rank highly (10.7% APRA, 13.0% international) while regional bank CET1 ratios are also ahead of APRA s 8.5% requirement. Wholesale funding maturities continue to extend forward while customer funding are ballpark with the desired 60-70% target range. As expected, the respective outlook statements for banks reporting their 1H18 results continue to paint a picture of cautious optimism amidst a backdrop of challenging conditions. Exit NIM was roughly stable but 2H18 NIM could be softer for the regionals due to widening of the discount between the front and back mortgage books and easing of the benefit in the funding cost unwind. As a result, the best case is for flat NIM in 2H18 although this is more likely to be 1-3bp lower. The only exception in our view is CBA where stable NIM will be the most likely outcome given its pricing and ROE discipline. We believe pressure on non-interest income will continue (an unintended but long term consequence of the banking Royal Commission) although the majors will probably try to mitigate this through further cost reductions (and CIR of <40% would not be out of the question). All else being equal, credit quality should continue to be manageable while the banks (the majors, especially ANZ and CBA, and regionals) should be able to maintain their dividend payout intentions given strong organic capital generation and CET1 ratios. Table 1 Bank comps Scorecard ABA MYS Sector Major bank 1 Capital adequacy (current) Regional bank H H H18 1H18 1H18 average average average 2 CET1 (International) 16.0% 16.3% 14.6% 15.7% % 15.7% - 3 CET1 (Basel III APRA) 10.8% 10.4% 10.2% 10.1% 8.6% 9.0% 9.0% 12.6% 11.4% 10.2% 10.4% 10.1% 4 CET1 (Basel III APRA) (pro-forma) 11.4% 10.4% 10.2% 10.1% >10.0% >10.0% >10.0% >10.0% >10.0% >10.0% 10.5% - 5 Leverage ratio (3-5%) 5.5% 5.4% 5.4% 5.5% 6.7% 6.4% 5.1% 5.9% 5.8% >5.0% 5.5% 6.0% 6 Asset quality 7 Bad debt charge / GLA 0.21% 0.16% 0.14% 0.13% 0.15% 0.11% 0.04% 0.05% 0.00% 0.11% 0.16% 0.07% 8 Provisions / GLA 0.65% 0.51% 0.62% 0.45% 0.51% 0.70% 0.43% 0.11% 0.12% 0.46% 0.56% 0.37% 9 Impaired assets / GLA 0.41% 0.45% 0.30% 0.22% 0.48% 0.44% 0.24% 0.21% 0.13% 0.32% 0.35% 0.30% days past due / GLA 0.51% 0.36% 0.40% 0.50% 0.79% 0.59% 0.71% 0.68% 0.56% 0.57% 0.44% 0.67% 11 Texas Ratio (GIA & 90d / SHE & prov) 8.5% 8.6% 6.8% 7.8% 13.1% 11.0% 12.7% 9.4% 9.2% 9.7% 7.9% 11.1% 12 Earnings sustainability 13 Net revenue growth (pcp) (underlying) -1% 5% 3% 2% 6% -1% 6% 7% 4% 3% 2% 4% 14 Expense growth (pcp) (underlying) -3% 2% 3% 2% 1% -1% 13% 1% 1% 2% 1% 3% 15 Jaws (pcp) 2% 3% 0% 0% 5% 0% -7% 6% 3% 1% 1% 1% 16 Cost / average assets 1.05% 1.11% 0.96% 1.05% 1.30% 1.01% 1.04% 1.36% 1.68% 1.17% 1.04% 1.28% 17 Cost-to-income ratio 46% 44% 43% 42% 54% 47% 53% 63% 65% 51% 44% 56% 18 Loan growth 1% 3% 4% 3% 1% 2% 7% 5% 5% 3% 3% 4% 19 Deposit & other borrowings growth 1% 3% 4% 4% 0% 1% 3% 5% 4% 3% 3% 3% 20 FUM growth 2% 7% 6% 10% 13% % 8% 6% 12% 21 FUA growth - 11% - 6% - - 1% - 7% 6% 9% 4% 22 NIM 1.99% 2.16% 1.85% 2.09% 1.98% 1.87% 1.86% 1.96% 1.94% 1.97% 2.02% 1.92% 23-6m movement -0.02% 0.06% 0.06% 0.03% 0.09% 0.05% -0.01% 0.06% 0.02% 0.04% 0.03% 0.04% 24-12m movement -0.08% 0.06% -0.03% -0.04% 0.15% -0.07% 0.08% 0.06% 0.00% 0.01% -0.02% 0.04% 25 Cash ROA 0.8% 1.0% 0.8% 1.0% 0.6% 0.7% 0.6% 0.5% 0.7% 0.7% 0.9% 0.6% 26 Cash ROE 11.8% 14.7% 14.0% 13.8% 8.3% 10.5% 8.8% 7.7% 11.0% 11.2% 13.6% 9.3% 27 Group liquidity / funding 28 Liquidity Coverage Ratio 131% 131% 126% 116% 129% 132% 123% % 126% 128% 29 Customer funding / total funding 64% 68% 58% 67% 73% 64% 63% 78% 78% 68% 64% 71% 30 Loan to deposit & borrowings ratio 125% 130% 133% 141% 104% 145% 152% 120% 120% 130% 133% 128% 31 Equity ratio 6.3% 6.9% 6.5% 7.0% 7.8% 7.1% 6.7% 7.1% 6.4% 6.9% 6.7% 7.0% 32 Net Stable Funding Ratio 114% 110% 110% 110% 111% 107% 113% % 111% 110% Page 3

4 Domestic retail and business banks the core profit drivers There is no denying these are the most valuable businesses for the banks. Using CBA s example, RBS and B&PB combined NIM in 1H18 was a very healthy 2.95% while CIR was in the low 30s. Based on 1.5% and 1.6% ROA respectively and assuming the Group s conservative equity ratio, the respective ROE would be ~21% and ~24% (~22% combined). Based on a 10.5% CET1 requirement and given RBS s lower risk weights, ROE would be very attractive at ~36% and ~20% respectively (~30% combined). Table 2 Retail and Business bank comps Retail & Business Banking ANZ RBS & B&PB BWA CBA NAB CB BB WBC BEN BOQ SUN ING Direct Regional bank average Major bank average (Latest reported 12m, local currency) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) 1 Revenue ($bn) Operating expenses ($bn) Underlying income ($bn) Footings ($bn) 5 - Home loans Business loans Other loans Deposits Branches (domestic) (#) , ,046-1, Customers (E) (m) FTE (E) (#) 11,387 15,112 2,866 17,978 13,853 10,206 3,145 13,351 4,387 2,031 1,700 1, Productivity/efficiency ratios 13 NIM 2.68% 2.95% 2.06% 2.80% 2.47% 2.32% 2.72% 2.45% 1.98% 1.87% 1.86% 1.39% 1.78% 2.60% 14 NIE / footings 1.53% 1.58% 1.12% 1.46% 1.41% 1.35% 1.48% 1.39% 1.05% 1.14% 1.22% 0.75% 1.04% 1.45% 15 Other income / footings 0.22% 0.36% 0.16% 0.39% 0.25% 0.14% 0.42% 0.24% 0.24% 0.22% 0.07% -0.01% 0.13% 0.27% 16 Revenue / footings 1.76% 1.94% 1.28% 1.85% 1.66% 1.50% 1.90% 1.63% 1.28% 1.36% 1.30% 0.74% 1.17% 1.72% 17 Revenue / branch ($m) Revenue / FTE ($'000) 843 1, ,656 1, Operating expense / footings 0.63% 0.62% 0.56% 0.62% 0.67% 0.60% 0.67% 0.62% 0.72% 0.63% 0.71% 0.29% 0.59% 0.63% 20 Operating expense / branch ($m) Operating expense / FTE ($'000) Underlying income / footings 1.13% 1.32% 0.72% 1.24% 0.99% 0.90% 1.23% 1.01% 0.56% 0.73% 0.59% 0.45% 0.58% 1.09% 23 Underlying income / branch ($m) Underlying income / FTE ($'000) , Cost ratio 36% 32% 44% 33% 40% 40% 35% 38% 56% 47% 54% 39% 49% 37% 26 BDD charge / GLA 0.26% 0.16% 0.10% 0.15% 0.11% 0.15% 0.21% 0.17% 0.13% 0.11% 0.04% 0.01% 0.07% 0.17% 27 Loans / branch ($m) Loans / customers ($'000) Deposits / branch ($m) Deposits / customers ($'000) Loan / deposit ratio (x) Footings / FTE ($m) Customers / branch 8,223 13,123 6,522 12,310 9,104 8,700-9,854 2,963 4,211 5,363-4,179 9, Customers / FTE , FTE / branch (#) New mortgages through broker channel 56% 38% - 43% 42% 46% - 46% 43% 28% 69% 66% 52% 47% 37 Mortgage - dynamic LVR 50% 49% - 50% 43% 42% - 42% 61% 67% % 46% 38 Mortgage - % ahead of repayments 71% 76% - 77% 73% 70% - 70% % 39 Mortgage - interest only 31% 39% - 39% 30% 46% - 46% 40% 37% 25% % 40 Sensitivity: 1% loan growth 41 New loan balance ($bn) Incremental loan ($m) 2,646 3, ,445 2,929 3, , Incremental NIE ($m) Incremental underlying income ($m) Underlying income upside 0.7% 0.7% 0.8% 0.7% 0.7% 1.0% 0.3% 0.7% 0.5% 0.5% 0.7% 0.8% 0.6% 0.7% Page 4

5 Our banks have come a long way The following table is updated for the majors latest reported results and shows their transformation since the early 1990s recession (despite NIM having halved in that period in line with lower base rates) and also since the GFC. CIR has generally improved while ROE has been impacted by a higher capital requirement although this is a good thing in a systemic way likewise balance sheet leverage (partly deleveraging from lower credit growth to shore up capital), stickier customer deposit funding (from ~45% to 60-70% of total funding as well as longer maturities) and overall LDR. Given the above, the average payout ratio appears to have stabilised at around 75%. The combination of 3-5% expected earnings growth and 5-6% expected dividend yield remains unbeatable in our view. KPI trends since the GFC are found in Charts 1-12 on the following pages. Table 3 Then and now Pre-1991/1992 recession ANZ CBA NAB WBC Average Comments NIM 3.95% 4.52% 4.70% 3.80% 4.24% Following from deregulation and removal of interest rate controls on banks ROE 17% 17% 10% 13% 14% CIR 73% 68% 58% 73% 68% Credit growth 15% 11% 10% 10% 12% Improved access largely from removal of lending controls Balance sheet leverage (x) Loan-to-deposit ratio (x) Normal range, all loans fully funded Tier 1 5.3% 6.3% na 5.4% 5.7% Lower Tier 1 due to banks' share of lending growing ahead of system Payout 54% nm 68% 68% 63% A result of double-digit credit growth BDD / GLA (T+1, T+2) 3.15% 1.47% 1.57% 4.22% 2.60% Largely commercial property and VIC downturn plus multiple exposures through owned finance Provisions / RWA 1.1% 0.6% na 1.1% 0.9% companies; high unemployment and interest rates; after-effects of deregulation FTE 48,182 37,427 40,997 45,395 43,000 CBA's excluding imposed M&A of SBV is 0.3%; Pre-GFC (2007) ANZ CBA NAB WBC Average Comments NIM 2.19% 2.19% 2.29% 2.19% 2.22% Peak NIM prior to GFC ROE 20% 22% 17% 24% 21% ~20%+ range possible given higher leverage CIR 45% 48% 51% 45% 47% Credit growth 13% 6% 14% 16% 12% Higher overall growth profile due to tail end of boom Balance sheet leverage (x) Stretched given higher LDR Loan-to-deposit ratio (x) Lower reliance on deposit funding Tier 1 6.7% 7.1% 6.7% 6.5% 6.8% Lower Tier 1 due to banks' share of lending growing ahead of system Payout 65% 73% 74% 69% 70% Too high given weaker capital position as the banks head into the GFC BDD / GLA (T+1, T+2) 0.89% 0.64% 0.86% 0.70% 0.77% Peak BDD due to commercial property, Bad Boys and risky investments, e.g. CDOs Provisions / RWA 1.3% 0.9% 0.9% 1.2% 1.1% Played catch up to the GFC from a lower base FTE 34,353 37,873 38,822 28,018 34,767 Pre-FSI (2014) ANZ CBA NAB WBC Average Comments NIM 2.13% 2.14% 1.88% 2.08% 2.06% Close to pre-gfc levels (except NAB largely given domestic H/L and UK drag) ROE 15% 19% 12% 16% 16% Within 15-20% range given higher capital requirement or lower leverage at that time CIR 45% 43% 48% 42% 44% Credit growth 8% 6% 4% 8% 7% In line with 2x GDP, retail assets close to fully funded by deposits Balance sheet leverage (x) More sustainable leverage Loan-to-deposit ratio (x) More sustainable leverage CET1 (APRA Basel III) 8.5% 9.3% 8.4% 9.1% 8.8% Better quality now, all CET1 ahead of APRA Basel III requirements Payout 69% 75% 77% 85% 77% Target payout ratio 65-70% for ANZ, 70-80% for the others BDD / GLA 0.19% 0.16% 0.15% 0.11% 0.15% In line with long term expectations (equivalent 20-30bp of GLA) Provisions / RWA 1.1% 1.2% 0.8% 1.1% 1.1% Better provisioning cover for CBA FTE 50,328 44,329 42,853 33,586 42,774 Post-FSI (last reported) ANZ CBA NAB WBC Average Comments NIM 1.99% 2.16% 1.85% 2.09% 2.02% Highlights the better spreads in retail-oriented banks such as CBA and WBC ROE 12% 15% 14% 14% 14% New normal range of 12-15% due to higher CET1 capital requirements CIR 46% 41% 43% 42% 43% Credit growth 1% 4% -2% 3% 1% Distorted by asset divestments in ANZ (Wealth, Asia) and NAB (Wealth, CYB) Balance sheet leverage (x) Further improvements since 2014 Loan-to-deposit ratio (x) Unchanged, majors still reliant on wholesale funding that is a structural issue CET1 (APRA Basel III) 10.8% 10.4% 10.2% 10.1% 10.4% ANZ ahead of APRA's 10.5% 2020 requirement, others on track; all majors now global top quartile Payout 67% 71% 79% 78% 74% Almost unchanged, highlights measure of sustainability given CET1 improvements BDD / GLA 0.21% 0.16% 0.15% 0.13% 0.16% Gradually normalising towards through-the-cycle range of 20-30bp Provisions / RWA 1.0% 0.9% 0.9% 0.8% 0.9% Lower than 2014 given better arrears and impairments FTE 44,896 42,959 33,422 35,096 39,093 Generally a function of respective efficiency drives Page 5

6 Figure 1 Sector NIM was higher mainly due to liability repricing and some asset repricing 2.75% Group NIM 2.50% 2.25% 2.00% 1.75% 1.50% 1.25% 1H08 2H08 1H09 2H09 1H10 2H10 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Figure 2 and this was largely a domestic event 2.80% Australian NIM 2.60% 2.40% 2.20% 2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 1H08 2H08 1H09 2H09 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Figure 3 Loan spreads were up in 2H17 due to repricing but this appears to have eased 5.00% Australian loan spread 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% 1H08 2H08 1H09 2H09 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Page 6

7 Figure 4 although deposit spreads continue to benefit from easing competition and mix 3.00% Australian deposit spread 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% 1H08 2H08 1H09 2H09 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Figure 5 while other funding spread had been relatively stable 2.00% Australian other funding spread 1.00% 0.00% -1.00% -2.00% -3.00% -4.00% -5.00% 1H08 2H08 1H09 2H09 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Figure 6 and this has resulted in steady Australian net spreads overall 2.40% Australian net spread 2.20% 2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 1H08 2H08 1H09 2H09 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Page 7

8 Figure 7 Other income decline appears to be slowing 1.6% Other income as % of average assets 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 1H08 2H08 1H09 2H09 1H10 2H10 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Figure 8 while cost discipline remains a value lever to cushion the bottom line in tough times 1.6% Costs as % of average assets 1.5% 1.4% 1.3% 1.2% 1.1% 1.0% 0.9% 0.8% 0.7% 0.6% 1H08 2H08 1H09 2H09 1H10 2H10 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Figure 9 BDD normalisation is still under way 1.0% BDD as % of GLA 0.8% 0.6% 0.4% 0.2% 0.0% 1H08 2H08 1H09 2H09 1H10 2H10 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Page 8

9 Figure 10 likewise provisions given lower GIA and arrears 3.0% Provisions as % of RWA 2.5% 2.0% 1.5% 1.0% 0.5% 1H08 2H08 1H09 2H09 1H10 2H10 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Figure 11 but individual coverage remains adequate 70% Individual provisions as % of impaired assets 60% 50% 40% 30% 20% 10% 1H08 2H08 1H09 2H09 1H10 2H10 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Figure 12 ROE still trending towards 12-15% for majors and 10-12% for regionals 25% Cash ROE 20% 15% 10% 5% 0% -5% -10% 1H08 2H08 1H09 2H09 1H10 2H10 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 Page 9

10 December reporting summaries ABA Price target $5.65, Hold Reported 1H18 NPAT was 10% pcp higher at $8.1m. Excluding the loss from discontinued operations (sale of investment in P2P lender MoneyPlace), underlying reported NPAT was 15% higher at $8.4m while our estimate of cash NPAT was 19% higher at $8.7m. This was a good half for ABA, largely driven by 6bp higher NIM of 1.96% and some volume growth (loan book +2% inclusive of ~6% lower loan approvals due to compliance with APRA investor lending caps) as well as cost discipline (cost growth capped at 1.4%) leading to 4% lower cost-to-income ratio of 63%. We estimate costs as a percentage of average assets declined by 6bp to 1.36% while Jaws was a healthy +5% (+7% revenue growth, +1% operating expense growth). Asset quality improved with 5% lower arrears to $19m and 30 days past due loans down by 5bp to 0.68% of GLA. Lending growth continues to be largely funded by deposits, with the deposit to loans ratio stable at ~83%. ABA s capital adequacy was another highlight with Tier 1 capital at 12.6% (largely CET1 capital) and total capital at 14.9%. Given strong organic capital generation, the interim dividend was increased by 2cps to 14cps (fully franked, ~75% payout ratio). ABA s 2H18 targets include launching in-house credit card products, growing the consumer lending book to $45m (organic growth and partnerships), growing the business banking book in SE and Central QLD and increasing investor lending capacity to meet the regulatory cap. Margin discipline would also be maintained. Our forecasts are unchanged although the price target is slightly reduced to $5.65 (previously $5.80) given a softer NIM outlook for regionals. The Hold rating is maintained. ANZ Price target $32.50, Buy ANZ provided a limited trading update today as part of its 1Q18 Pillar 3 disclosures. CET1 ratio was 10.82%, +25bp and included proceeds from recent Asian divestments. While ANZ s capital position is now considered unquestionably strong (vs. APRA s 10.5% requirement by 2020) and ahead of its peers, there is ~90bp upside from residual settlements in 2018/2019 (including 80bp from the sale of its OnePath businesses). Leverage ratio was 5.5% (vs. CBA s 5.4%, NAB s 5.4% and WBC s 5.5%). ANZ s capital strength has allowed the 2017 final DRP to be neutralised and supports the current $1.5bn share buyback. All else being equal, the bank s CET1 ratio would further benefit from the inevitable sale of large investments in Malaysia (~30bp benefit) and in Indonesia (~26bp benefit) that would result in combined CET1 upside of ~146bp and significant capital management flexibility for ANZ. Credit RWA increased by 0.7% in the quarter, largely driven by corporate (+1.5%, partly driven by seasonality in Trade) and residential mortgages (+2.1%, including $1.5bn RWA overlay for New Zealand mortgages due to model changes). Home lending growth was ahead of system while retail RWA was 4.6% lower (although we consider this a prudent outcome given the riskier nature of the latter exposure). The BDD charge in 1Q18 was $202m inclusive of a $220m individual provision charge (implying an $18m collective release). Credit quality trends continue to be favourable with the individual provision charge $26m lower than in 4Q17 and $88m lower than in 3Q17 (improvements largely coming from consumer lending). GIA was 9.3% lower to $2.2bn due to improvements across all core segments, while 90 days past due loans as a percentage of exposures were relatively stable (residential 60bp, retail 50bp). Our forecasts, $32.50 price target and Buy rating are unchanged. Page 10

11 BEN Price target $11.65, Hold BEN s 1H18 result components are as follows: (1) cash NPAT $225m (BP $227m, consensus $231m); (2) cash EPS 47cps (BP 47cps, consensus 48cps); (3) fully franked interim dividend 35cps (BP 37cps, consensus 35cps); (4) cash ROE 8.3% (BP 8.4%); (5) NIM 1.98% (BP 1.97%, consensus 1.99%); (6) BDD charge $46m/15bp GLA (BP $37m/12bp GLA, consensus $35m/11bp GLA); and (7) CET1 capital ratio 8.6% (BP 8.5%, consensus 8.5%). Statutory NPAT increased by ~11% pcp to $232m (+5% hoh) while cash NPAT was similarly higher at $225m. These outcomes were mainly driven by ~6% pcp higher total income of $843m (+4% hoh mainly due to liability repricing) and only ~1% pcp higher operating expenses of $458m (unchanged hoh). Excluding specific items (such as unrealised Homesafe funding costs, unrealised Homesafe revaluation income, integration costs, etc.), we estimate underlying income of $803m (+6% pcp, +5% hoh) and underlying operating expenses of $452m (+1% pcp, unchanged hoh). 33bp organic capital generation was strong resulting in 8.6% CET1 ratio ( unquestionably strong target achieved) and a 1cps increase in the interim dividend to 35cps (~75% cash payout ratio). However, management indicated it would be tougher to repeat the Jaws performance in 2H18 due to NIM headwinds from front book discounts. Our forecasts are unchanged but we have lowered the price target slightly from $11.90 to $11.65 due to a 50bp higher required dividend valuation yield of 6.5%. The Hold rating is maintained. BOQ Price target $12.85, Hold BOQ will report its 1H18 result on Tuesday 17 April. Our forecasts are: (1) reported NPAT $188m (consensus $185m); (2) reported EPS 48cps; (3) cash NPAT $192m (consensus $192m); (4) cash EPS 49cps (consensus 49cps); (5) interim fully franked dividend 40cps (consensus 39cps); (6) BDD charge $27m/12bp GLA (consensus $27m/12bp); (7) cash ROE 10.4%; (8) cash ROTE 13.1%; (9) CET1 capital ratio 9.4% (consensus 9.4%); and (10) NIM 1.90% (consensus 1.91%). We expect home lending growth to be around 0.5x system growth, slightly up on 0.4x in 2H17 but reflecting lower I/O and investor flows from third party channels. NIM is expected to be 3bp lower given front/back book repricing (discount widening) and funding cost (unwinding benefit easing) headwinds this appears to be consistent with the softer NIM expectations of regional that have reported their 1H18 results. While there would be ongoing pressure in non-interest income (particularly in traditional bank fees), this should be mitigated by stable credit quality (Sydney and Melbourne steady, similar experience to the regionals) and ongoing cost discipline (underlying costs to be capped at under CPI). We have lowered cash NPAT by 3% across the forecast horizon after factoring in 3bp lower NIM as discussed earlier. The price target is thus lowered from $13.50 to $12.85 and the Hold rating is maintained. CBA Price target $83.90, Buy CBA s 1H18 result components (including discontinued life insurance operations sold to AIA Group and $375m AUSTRAC provision) are as follows: (1) cash NPAT $4,871m (BP $5,002m, consensus $5,219m); (2) cash EPS 280cps (BP 288cps, consensus 300cps); (3) interim dividend 200cps (BP 202cps, consensus 206cps); (4) ROE 15.0% (BP 15.4%); (6) Group NIM 2.16% (BP 2.12%, consensus 2.16%); (5) Group BDD charge $596m/16bp GLA (BP $485m/13bp, consensus $477m/13bp); and (6) CET1 capital ratio 10.4% (BP 10.7%, consensus 10.5%). Page 11

12 The variance to consensus is largely driven by two material provisions taken above the line, including the non-tax deductible AUSTRAC provision and a $200m expense for expected compliance spend. On a continuing basis but excluding the AUSTRAC provision, CBA produced a strong underlying result with: (1) ~6% pcp higher cash NPAT to $5,110m; (2) 160bp lower CIR to 41%; (3) positive Jaws of ~3% comprising ~5% operating income growth and ~2% operating expense growth; (4) 4.5% pcp higher cash EPS of ~294cps; and (5) 15.7% ROE. Organic capital generation continues to be strong and our forecasts suggest CBA will comfortably maintain its dividend paying capacity and also exceed APRA s 10.5% requirement by There would also be material capital release should CBA decide to divest or IPO its CFSGAM business. Our forecasts, $83.90 price target and Buy rating are unchanged. CYB Price target $6.45/ 3.65, Buy It is relatively rare for banks to provide guidance in the current setting and yet CYB continues to do so. Given CEO David Duffy s previous success in turning around Allied Irish Banks, we believe he will repeat this at CYB. The motivation to achieve and exceed CYB s financial targets is further linked to performance rights that would largely vest over the same time horizon. Mr Duffy s 2015 award shares are probably in the bag with all IPO targets having been met. While the 2015 cumulative underlying PBT target is undisclosed, this will likely be surpassed given the impressive 36% CAGR achieved in 2017 and ~28% estimated CAGR in Likewise, our 2018 forecasts are also not that far away from the 2019 and 2020 target performance KPIs under the respective 2016 and 2017 awards. CYB s current guidance remains aggressive but we believe this is largely due to its capacity to extract further cost savings from branch closures and support function and other organisational redesign. Starting with CYB s pre-ipo underlying CIR of 75% and compared with the UK listed bank average of only 51% (comprising 57% for the average high street bank and 44% for the average new entrant), we assert that CYB s potential earnings uplift will be material. It remains our strong belief that reducing costs would be more achievable than increasing revenues ahead of Brexit in March Our forecasts, $6.45/ 3.65 price target and Buy rating are unchanged. MQG Price target $111.00, Buy MQG upgraded its 2018 guidance at the recent operational briefing. Due to substantial performance fees in 1H18 and 2H18, the Group now expects its 2018 result to be ~10% higher than the previous year. Based on reported NPAT of $2,217m in 2017, this should lead to a reported NPAT of ~$2,438m in 2018 (prior to this trading update, broadly in line with consensus but ~6% higher than our estimate mainly due to performance fee variation). The Group s banking prudential buffers remain in good order and are largely ahead of those of the major Australian banks: (1) 10.7% CET1 capital ratio (13.0% Harmonised, APRA requirement 10.5% by 2020); (2) 5.8% Leverage ratio (6.6% Harmonised, APRA likely requirement 5.5%); (3) 153% LCR; and (4) $4.1bn Group surplus capital based on 8.5% RWA (or a more realistic ~$2.3bn based on 10.5% RWA based on our estimates equating to around $7.00 per share). While no share buyback occurred in 3Q18, the program remains in place although this will continue to be weighed up against available investment opportunities to maximise shareholder returns. Our forecasts and Buy rating are unchanged although our price target is increased slightly from $ to $ due to DCF time creep. MQG remains our top sector Buy, underpinned by its competitive advantage as a top 50 global asset manager, expertise in infrastructure and in finance, banking, advisory and risk and capital solutions, lower-risk Page 12

13 annuity-style earnings streams, exposure to North America and Europe, strong capital management flexibility and medium term earnings upside from the full benefit of US tax reform. MYS Price target $5.55, Buy MYS s 1H18 result components are as follows: (1) reported NPAT $15.8m (BP $14.3m); (2) reported EPS 17.6cps (BP 16.0cps); (3) fully franked interim dividend 14.25cps (BP 14.5cps); (4) reported ROE 10.2% (BP 9.3%); (5) NIM 1.94% (BP 1.91%); and (6) BDD charge $0.1m/~0bp GLA (BP $0.6m/3bp GLA). Reported NPAT was 4% pcp higher at $15.8m (+6% hoh) due to better underlying performance. This was also ~10% higher than our forecast based on a stronger top line outcome (including 3bp better NIM, 1% higher NIE and better wealth income), expenses that were kept flat (that resulted in positive 3% Jaws that comprised ~4% operating income growth and <1% expense growth) and a low BDD charge due to stable asset quality including arrears that are much lower than those of its peers. Funding remains one of MYS s key strengths. 11.4% CET1 ratio is considered unquestionably strong (vs. APRA s 8.5% requirement by 2020) and the 81% interim dividend payout ratio (reported basis) was in line with MYS s very generous 70-90% target (maintained, noting the second half payout ratio is traditionally higher than the first half). Customer deposits (~67% of total funding) fully funded lending growth and ROE could have been higher if not for an inflated capital base. MYS had a good first half in our view and the outlook is for a much stronger second half underpinned by lending volume expansion (that would more than offset some NIM softness from ongoing asset price competition and rising funding costs) and further cost discipline (with the CIR approaching 60% by 2020). Our forecasts, $5.55 price target and Buy rating are unchanged. NAB Price target $34.20, Buy NAB s 1Q18 unaudited reported NPAT and cash NPAT were both $1.65bn. While the latter was 3% pcp higher (ahead of our ~$1.55bn estimate and likely consensus), it was 1% lower than the quarterly average of 2H17 (BP around -1.4%) mainly due to higher but well-flagged investment spend taken above the line. Underpinning the above was 1% higher revenue (BP flat) from strong volume growth in Business & Private Banking and Corporate & Institutional Banking although this was slightly tempered by some NIM slippage (undisclosed but we suspect a few basis points in line with our ~3bp quarterly decline due to liquidity drag and the bank levy). Expenses were 4% higher (BP estimate ~7% higher due to conservatism) as a result of higher investment spend ($1.5bn between 2018 and 2020) and the usual EBA arrangements. NAB reaffirmed that expenses would be 5-8% higher in 2018 (BP estimate 7-8%) and flat in 2019 and 2020 (BP unchanged) based on >$1.0bn cumulative cost savings by Jaws was negative but not unexpected as such. The $160m BDD charge (BP ~$200m) was 23% lower due to no new overlays and lower specific charges and impaired assets that more than offset some collective provision increases from mortgage model changes. Finally, CET1 capital ratio was 10bp higher at 10.2% (in line with the peer group range) and NAB remains on track to meet APRA s 10.5% requirement by This was a credible quarterly result in our view. Our forecasts, $34.20 price target and Buy rating are unchanged. Page 13

14 SUN Price target $14.35, Hold SUN s 1H18 headline result components missed our expectations: (1) cash NPAT $472m (BP $508m); (2) cash EPS 37cps (BP 40cps); (3) interim ordinary dividend 33cps fully franked (BP 35cps) implying ~90% payout (target 60-80%); (4) ROE 6.8% (BP 7.4%); (5) GWP $4.7bn (BP ~$4.8bn); (6) reported insurance margin 8.0% (BP 10.2%), underlying 9.4% (BP 9.2%); (7) COR 96% (BP 93%); (8) general insurance PCA 1.66x (BP 1.71x, target 1.50x), CET1 coverage 1.22x (BP 1.26x, target 1.05x); (9) bank NIM 1.86% (BP 1.86%); (10) bank BDD $13m/4bp GLA (BP $9m/3bp GLA); and (11) bank CET1 capital ratio 9.0% (BP 9.2%). This was another frustrating result, impacted by noise from the Victorian hail storm (as per 8 January guidance, so no great surprise here) and higher operating costs associated with SUN s Marketplace initiative (accelerated investment in front line capabilities and brand refresh) and Business Improvement Program (BIP, covering sales and service optimisation and extracting efficiencies from processes, claims and procurement). The latter costs caught us off-guard although there is a bit of a timing issue here and largely explained the variance to our cash NPAT forecast. Overall cash NPAT was 19% pcp (-16% hoh) lower at $472m. However, SUN s higher operating expenses masked good general insurance top line performance that was consistent with management expectations. SUN reaffirmed its commitment to pay a higher dividend payout ratio in 2018 (i.e. >60-80% target) and intention to return excess capital (currently $381m). Our forecasts and $14.35 price target are unchanged. However, SUN has had a stellar run in the past month (+8%) and a TSR of <8% suggests a Hold rating is now appropriate. WBC Price target $33.00, Hold WBC recently released its 1Q18 Pillar 3 update. CET1 capital ratio was 10.1% (15.7% international, global top quartile), 50bp lower than 4Q17 mainly due to payment of the final dividend (-70bp net of DRP) and with a 20bp offset from 1Q18 earnings net of RWA growth and other capital movements. The offset would have been greater if not for higher regulatory expected loss (a deduction to CET1 capital) due to risk model changes. Regardless, WBC s Leverage Ratio remained strong at 5.5% compared to the peer group range of % in We expect reversion to positive net organic capital generation heading into 1H18 and WBC should also meet APRA s 10.5% unquestionably strong CET1 capital ratio requirement by 1 January Asset quality continues to be sound with the undisclosed BDD charge likely at the bottom of the cyclical range underpinned by improvements in stressed exposures and actual losses, and with 90 days past due loans being stable. While overall stressed exposures were down from 1.05% to 1.03% over the quarter, there were some increases primarily in the property, services and construction industries. On a segment basis, impaired asset improvements in the corporate, business, Australian credit card and specialised lending books more than offset slight deterioration in the residential mortgage, other retail (unsecured lending, mainly hardship reporting changes) and SME lending books. Comparing actual losses with reported BDD charges over the last eight quarters (and with the 1Q18 actual loss being the lowest over this period), there appears to be a strong case for WBC to report a sub-$500m BDD charge in 1H18 (all else being equal and noting our current BDD forecast is $532m suggesting room for a small earnings upgrade). Our forecasts are unchanged while the price target is slightly lowered from $33.90 to $33.00 after rebasing the sustainable ROE for valuation purposes to 13-14% and increasing the required dividend valuation yield to 6.00% (previously 5.75%). The Hold rating is maintained. Page 14

15 Financial summary Table 4 Financial summary Mkt Cap Price / Book (x) PE (x) Yield ROE EPS growth Price Last ($bn) 2018e 2019e 2018e 2019e 2018e 2019e 2018e 2019e 2018e 2019e target price Rating MAJORS ANZ % 5.8% 12% 11% -1% 5% $32.50 $28.58 Buy CBA % 6.0% 15% 15% 2% 3% $83.90 $75.69 Buy NAB % 6.6% 13% 14% -6% 9% $34.20 $30.10 Buy WBC % 6.3% 13% 13% 2% 5% $33.00 $30.37 Hold REGIONALS ABA % 6.8% 8% 8% 8% 6% $5.65 $5.22 Hold BEN % 6.7% 8% 8% 7% 1% $11.65 $10.77 Hold BOQ % 6.9% 10% 11% 1% 3% $12.85 $11.91 Hold CYB % 2.9% 6% 7% 12% 11% $6.45 $5.38 Buy MYS % 6.4% 10% 10% 3% 4% $5.55 $4.85 Buy DIVERSIFIEDS MQG % 5.0% 16% 16% 10% 2% $ $ Buy SUN % 5.4% 7% 9% -12% 22% $14.35 $13.98 Hold Page 15

16 Cheat Sheet Page 16

17 Table 5 Bank Cheat Sheet 1 (S&P 100) ANZ CBA NAB WBC SUN BEN BOQ MQG 1 EaD ($bn) Home Other retail Agriculture, forestry & fishing Oil & gas Mining Mining services Other commercial Total 920 1, , e growth (BP) 3% 3% 7% 7% 9% 2% 4% e growth (BP) 5% 5% 6% 5% 7% 5% 4% - Domestic market share (APRA) Home - owner occupied 17% 27% 14% 24% 3% 2% 2% 2% Home - investor 15% 24% 19% 27% 2% 2% 2% 2% Credit card 19% 27% 14% 23% 0% 1% 0% 1% Other consumer 12% 27% 29% 13% 0% 4% 0% 6% Wholesale lending (non-financials) 14% 18% 21% 18% 2% 2% 1% 1% Mortgage lending by State NSW / ACT 31% 34% 38% 41% 30% 21% 21% - VIC 32% 26% 31% 26% 11% 36% 15% - QLD 16% 18% 17% 17% 48% 17% 48% - WA 14% 16% 9% 9% 8% 11% 11% - SA / other 7% 6% 5% 7% 3% 15% 5% - Total 100% 100% 100% 100% 100% 100% 100% - 2 Group funding (ex-she) Customer deposits as % of funding - Term 27% 23% 23% 26% 30% 38% 38% - Customer deposits as % of funding - Other 38% 45% 35% 41% 33% 35% 26% - Other as % of funding 36% 32% 42% 33% 37% 27% 36% - Total 100% 100% 100% 100% 100% 100% 100% - Customer deposits as % of gross loans 80% 77% 75% 71% 66% 97% 69% - Net interest margin 1.99% 2.16% 1.85% 2.09% 1.86% 1.98% 1.87% - NSFR 114% 110% 110% 110% 113% 111% 107% 109% Wholesale funding <12 month maturity 16% 15% 17% 15% 13% 13% 16% e w'sale funding requirement ($bn) Liquidity Coverage Ratio 131% 131% 126% 116% 123% 129% 132% 153% Domestic market share - deposits (APRA) 15% 25% 17% 21% 2% 2% 2% 2% 3 Asset quality Bad debt charge as % of GLA 0.21% 0.16% 0.14% 0.13% 0.04% 0.15% 0.11% - Provisions as % of GLA 0.65% 0.51% 0.62% 0.45% 0.43% 0.51% 0.70% - 90 days past due as % of GLA 0.51% 0.36% 0.40% 0.50% 0.71% 0.79% 0.59% - Commercial property exposure 6.9% 6.3% 6.3% 7.6% 3.8% 1.9% <1.0% - Texas Ratio 8.5% 8.6% 6.8% 7.8% 12.7% 13.1% 11.0% 13.0% Institutional loans by risk grade (estimate) AAA to BBB- (investment grade) 78% 69% 76% 60% Other 22% 31% 24% 40% Total 100% 100% 100% 100% EaD by industry ($bn) Agriculture, F&F & mining Construction & property related Entertainment, leisure & tourism Financial Manufacturing Retail Services Sovereign Trade Transport & storage Other Total 920 1, , Agriculture, F&F & mining 5% 3% 5% 3% 6% 9% - - Construction & property related 7% 7% 6% 8% 4% 2% - - Entertainment, leisure & tourism 2% 1% 1% 1% 2% 1% - - Financial 5% 4% 6% 7% 3% 1% - - Manufacturing 4% 1% 2% 3% 0% 0% - - Retail 47% 60% 42% 58% 67% 75% - - Services 1% 1% 2% 2% 0% 7% - - Sovereign 16% 9% 9% 7% 6% 0% - - Trade 5% 2% 3% 3% 0% 1% - - Transport & storage 2% 2% 2% 2% 0% 0% - - Other 6% 10% 21% 7% 13% 4% - - Total 100% 100% 100% 100% 100% 100% 100% 100% 5 EaD by portfolio ($bn) Retail Corporate Business / SME Financial Sovereign Total 920 1, , Retail 47% 60% 42% 58% 67% 75% 90% 46% Corporate 25% 18% 28% 20% 9% 0% 0% 38% Business / SME 7% 10% 15% 9% 16% 25% 0% 9% Financial 5% 4% 6% 7% 3% 1% 4% 6% Sovereign 16% 9% 9% 7% 6% 0% 6% 2% Total 100% 100% 100% 100% 100% 100% 100% 100% 6 NPAT by segment Retail banking 37% 68% 27% 47% 29% 48% 71% 8% Wholesale banking 43% 26% 69% 45% 7% 47% 25% 49% Wealth 3% 6% 4% 10% 10% 5% 4% 37% Other 17% 0% 0% -2% 54% 0% 0% 6% Total 100% 100% 100% 100% 100% 100% 100% 100% 7 NPAT by geography Australia 83% 89% 87% 89% 88% 100% 100% 32% New Zealand 20% 10% 13% 11% 12% 0% 0% 0% Other -2% 1% 0% 0% 0% 0% 0% 68% Total 100% 100% 100% 100% 100% 100% 100% 100% Bank group cost-to-income ratio 46% 44% 43% 42% 53% 54% 47% 71% 8 Capital management (last reported) APRA leverage ratio (3-5%) (Tier 1 / EaD) 5.5% 5.4% 5.4% 5.5% 5.1% 6.7% 6.4% 5.8% APRA CET1 (>10.5% MTB, >8.5% others) 10.8% 10.4% 10.2% 10.1% 9.0% 8.6% 9.0% 10.7% Tier % 12.4% 12.6% 12.2% 10.7% 11.0% 10.6% 12.5% Harmonised CET1 (estimate) 16.0% 16.3% 14.6% 15.7% % Page 17

18 Table 6 Bank Cheat Sheet 2 (S&P 100) ANZ CBA NAB WBC SUN BEN BOQ MQG 9 Pricing Shareprice $28.58 $75.69 $30.10 $30.37 $13.98 $10.77 $11.91 $ Price target $32.50 $83.90 $34.20 $33.00 $14.35 $11.65 $12.85 $ Target PB e e Target PE e e Target yield e 5.0% 5.2% 5.8% 5.8% 5.1% 6.0% 6.2% 4.5% e 5.1% 5.4% 5.8% 5.8% 5.2% 6.2% 6.4% 4.6% Expected return 19.4% 16.7% 20.2% 14.9% 7.9% 14.7% 14.6% 12.2% BP recommendation Buy Buy Buy Hold Hold Hold Hold Buy S&P long term Issuer Credit Rating (ICR) AA- AA- AA- AA- A+ BBB+ BBB+ BBB (Bank A) Moody's long term Issuer Credit Rating (ICR) Aa3 Aa3 Aa3 Aa3 A1 A3 A3 A3 (Bank A2) Market capitalisation ($bn) TSR 1 week 0% 2% 1% 1% 1% 2% 2% 3% 1 month 1% 1% 5% 3% 0% 2% 4% 5% 3 months 4% -5% 7% 6% -8% 10% 14% 4% 1 year 13% 10% 20% 14% 14% 15% 22% 17% BP estimates PB 2016 (x) PB 2017 (x) PB 2018e (x) PB 2019e (x) ROE % 17% 14% 14% 8% 8% 10% 15% ROE % 16% 14% 14% 8% 8% 10% 15% ROE 2018e 12% 15% 13% 13% 7% 8% 10% 16% ROE 2019e 11% 15% 14% 13% 9% 8% 11% 16% NIM % 2.14% 1.88% 2.13% 1.85% 1.89% 1.94% - NIM % 2.10% 1.85% 2.09% 1.82% 1.86% 1.87% - NIM 2018e 2.00% 2.16% 1.85% 2.09% 1.86% 1.97% 1.90% - NIM 2019e 1.99% 2.15% 1.84% 2.09% 1.86% 1.97% 1.90% - PE 2016 (x) PE 2017 (x) PE 2018e (x) PE 2019e (x) EPS 2016 (cps) EPS 2017 (cps) EPS 2018e (cps) EPS 2019e (cps) EPS growth % 0% -2% -5% -9% -5% -2% 23% EPS growth % 3% 2% 2% 5% 1% 2% 6% EPS growth 2018e -1% 2% -6% 2% -12% 7% 1% 10% EPS growth 2019e 5% 3% 9% 5% 22% 1% 3% 2% DPS 2016 (cps) DPS 2017 (cps) DPS 2018e (cps) DPS 2019e (cps) Yield % 5.5% 6.6% 6.2% 4.9% 6.3% 6.4% 3.9% Yield % 5.7% 6.6% 6.2% 5.2% 6.3% 7.1% 4.5% Yield 2018e 5.7% 5.8% 6.6% 6.3% 5.2% 6.5% 6.7% 4.8% Yield 2019e 5.8% 6.0% 6.6% 6.3% 5.4% 6.7% 6.9% 5.0% Payout % 76% 81% 80% 80% 78% 80% 65% Payout % 75% 79% 78% 82% 77% 87% 71% Payout 2018e 69% 75% 84% 78% 93% 74% 81% 69% Payout 2019e 68% 75% 78% 75% 78% 75% 81% 70% BDD as % of GLA % 0.20% 0.56% 0.24% 0.87% 0.07% 1.17% - BDD as % of GLA % 0.19% 0.38% 0.16% 1.87% 0.14% 0.32% - BDD as % of GLA % 0.16% 0.15% 0.11% 0.27% 0.15% 0.22% - BDD as % of GLA % 0.15% 0.14% 0.12% 0.11% 0.12% 0.18% - BDD as % of GLA % 0.18% 0.15% 0.17% 0.03% 0.08% 0.16% - BDD as % of GLA % 0.15% 0.15% 0.13% 0.01% 0.12% 0.11% - BDD as % of GLA 2018e 0.17% 0.16% 0.14% 0.15% 0.04% 0.13% 0.12% - BDD as % of GLA 2019e 0.18% 0.17% 0.15% 0.16% 0.06% 0.14% 0.13% - Provisions + GRCL as % of RWA % 1.6% 1.5% 1.4% 2.1% 0.9% 2.3% - Provisions + GRCL as % of RWA % 1.4% 1.3% 1.3% 1.4% 0.9% 1.8% - Provisions + GRCL as % of RWA % 1.2% 1.0% 1.1% 1.2% 0.9% 1.4% - Provisions + GRCL as % of RWA % 1.0% 1.0% 0.9% 1.2% 0.9% 1.3% - Provisions + GRCL as % of RWA % 1.0% 0.9% 0.9% 0.8% 1.0% 1.2% - Provisions + GRCL as % of RWA % 0.9% 0.9% 0.8% 0.7% 0.7% 1.1% - Provisions + GRCL as % of RWA 2018e 1.0% 0.9% 0.9% 0.8% 0.7% 0.8% 1.1% - Provisions + GRCL as % of RWA 2019e 1.0% 1.1% 0.9% 0.8% 0.7% 0.8% 1.0% - 10 Strategy 11 Value proposition Differentiated strategy, focusing on improving IB and Group returns and increasing core domestic banking footprint Work in progress, de-risking Wealth/APEA/IB exposures to free up capital and reduce costs IT leadership underpinning core retail bank in Australia & NZ with flexible growth options in Wealth Significant improvements in core retail banking efficiency and productivityin Wealth (or spin-off) Business (agribusiness) and retail banking focus Bridging ROE gap with peers, business banking and NIM upside Large Regional (similar to WFC) with multi-brand approach and skills in Business and Wealth Significant improvements in core retail banking efficiency and productivity More of a GI now with smaller banking component; lately pursuing retail banking growth options Surplus capital and further synergies; potential sale of life business to increase likelihood of capital return Strong retail funding base to provide platform for growth in SME and Wealth Value add is to buy SUN's Core Bank or regional QLD players such as ABA Strong retail funding base to support growth in WA and VIC; well capitalised and provisioned In turnaround mode, focusing on higher margin leasing and specialty finance businesses Moving towards annuity-style earnings; 31% exposure to US$ earnings a plus Leveraged to fast growing Wealth and Asset Finance segments and recovering US in core markets Page 18