Anz Group Holdings Limited · ASX:ANZ
Anz — Investor Presentation (July 2007)
40 slides from Anz's investor presentation, Jul 25, 2007
Slide 1: What do I worry about?
For personal use only What do I worry about? July 2007 Peter Hodgson Group Managing Director Institutional (previously CRO) David Stephen Chief Risk Officer 1
Slide 2: Key takeaways
Key takeaways • Environment still supportive For personal use only • “De-risking” worked, ANZ risk profile now in line with peers • Some concerns, but not likely to have material impact on ANZ – Isolated pockets of NSW housing • Longer term, we can’t ignore the risks posed by climate change – Indire
Slide 3: The current risk environment – still in good shape
The current risk environment – still in good shape Division / 2006 2007 Outlook For personal use only Commentary Business Environment Environment (short term) • Portfolio credit quality remains strong Institutional • Continuing low business gearing levels at system level • No emerging concerns • Hig
Slide 4: Economic environment still strong, no early warning signs of deterioration
Economic environment still strong, no early warning signs of deterioration materially impacting credit quality Unemployment remains at very …with price and wage pressures low levels…* remarkably contained^ For personal use only 10 % of labour force 5 % annual change 8 Wage Price Index 4 6 3 4 2 Core
Slide 5: ANZ risk profile now broadly in line with peers, with healthy balance sheet cover
ANZ risk profile now broadly in line with peers, with healthy balance sheet cover ANZ risk profile realigned to peers… Implemented Total provision charge / Net Lending Assets For personal use only • Comprehensive single customer 0.6% concentration limits 0.5% Increased 0.4% • Domestic retail exposur
Slide 6: Although further increase in provisioning from unsustainable lows still expected
Although further increase in provisioning from unsustainable lows still expected Consumer IPs well up, but New & increased commercial IPs higher in line with expectations as expected…. For personal use only $m 200 182 148 19% ? 150 127 Seasonally 103 107 Expected to go $m higher in 100 higher, but 2
Slide 7: Pre-emptive approach to maintain high quality unsecured portfolio
Pre-emptive approach to maintain high quality unsecured portfolio Factors impacting credit quality; Arrears levels actively managed For personal use only • Asset growth (60 day arrears on Cards) 2.0% • Seasoning impact • Portfolio mix 1.5% • Unemployment and wage inflation 1.0% • Interest rates 0.5%
Slide 8: Arrears have risen, particularly in NSW and primarily housing market related
Arrears have risen, particularly in NSW and primarily housing market related Mortgages Credit card Personal Lending > 60 Days delinquencies delinquencies For personal use only (>60 days / NLA) (>60 days / NLA) Delinquencies* ~1.4x 0.6% ~2.5x 2.0% other $m other states states 1.5% 500 0.4% 1.0% 0.2%
Slide 9: Higher NSW arrears impacted by property market, particularly in outer Sydney
Higher NSW arrears impacted by property market, particularly in outer Sydney Lower NSW property prices Greatest stress in outer For personal use only reducing available equity Metropolitan Sydney >60 Day Delinquencies (Mar-07) Rolling 12 month change in House Prices 50% Perth Brisbane 40% Gosford/ W
Slide 10: Drought - recent rains have helped in short term, but mindful of longer term impacts
Drought - recent rains have helped in short term, but mindful of potential longer term impacts Dramatic change in rainfall from Regional and Rural portfolio has May 06 to May 07 held up well, with arrears below For personal use only 2003 drought levels 1.0% 0.8% 0.6% 0.4% > 60 Days 0.2% > 90 Days 0.
Slide 11: Impacts from drought can be beyond the obvious - electricity prices up significantly
Impacts from drought can be beyond the obvious - electricity prices up significantly, with water a key input $/MWh Calendar 2008 Electricity Futures Prices (dollars per megawatt hour) For personal use only 100 Snowy warning 90 announcement 80 Tarong Start of water Q2 70 capacity reduction Water 60 i
Slide 12: Stress Testing a key component of risk appetite framework
Stress Testing a key component of risk appetite framework – we all want to understand the downside Group wide Macro Economic Stress Testing For personal use only 2007 Macro Economic Stress Test Events Liquidity Drought Mild Recession “Armageddon” scenario for Scenario 1: Unemployment Aus 2.4% Austra
Slide 13: What might a mild recession do to provisioning charge?
What might a mild recession do to provisioning charge? Mild Recession Stress Test For personal use only Credit provisioning increased by $0.4b Mild Recession pre-tax over 2 years CP tends to move Aus 2.4% 100 in advance of IP 58 Unemployment NZ 2.2% 86 46 25 0 -46 -28 3 Year Interest Aus 1.5% -61 -8
Slide 14: In event of downturn, history has shown likely offset between credit costs and spreads
In event of downturn, history has shown there is likely to be some offset between credit costs and spreads Fallout from economic downturn, fallen angels, and S11 caused spike in spreads… For personal use only Corporate/ANZIB Risk Grade Profile* Net interest margin* % 2.50 Deterioration in AAA to 35.
Slide 15: Risk playing a large role in International Partnerships
Risk playing a large role in International Partnerships… MD Chief Risk International Head of Risk Officer Partnerships International For personal use only Partnerships Indonesia Cards Head of Senior Senior Head of Credit Chief Risk Chief Risk Head of Credit Risk Risk Credit Risk ANZ Officer* Officer
Slide 16: Adding value to individual Partnerships through identifying and managing Risk
… and adding value to individual Partnerships through identifying and managing Risk Key business risks • Partner’s agreement on Board seats, Board Committee For personal use only Corporate Governance • Governance advice • Existing in-house expertise plus ANZ best practice Management • Extended secon
Slide 17: The Partnership Risk Framework operates three distinctive models
The Partnership Risk Framework operates three distinctive models International Partnerships For personal use only Partnership ANZ Panin Credit Cards SacombankCards Cards Equity Equity Accounted Equity Accounted Consolidated Objective Objective Build risk management capability to protect & Adapt ANZ’
Slide 18: ANZ's readiness for Basel II
ANZ’s readiness for Basel II At commencement of Basel II programme, ANZ credit, market and For personal use only operating risk methodologies incorporated many Basel II requirements Rating methodology consistent with Basel II credit rating system requirements Methodology for determining “loss gi
Slide 19: ANZ's readiness for Basel II
ANZ’s readiness for Basel II Key areas requiring improvement to achieve accreditation at the For personal use only more advanced levels within the new Accord Time series data on defaults Loss information and meeting the cycle adjustment requirements of Basel II Enhancements to risk management
Slide 20: Other Risk matters
Other Risk matters Inner city delinquencies For personal use only • No issues • Previous large supply increase has been absorbed, lack of new supply coming on to market Low Doc loans • Lo doc 80 less than 1% of Portfolio Sub prime market • No exposure to sub-prime related RMBS or CDO issues. • Total
Slide 21: Institutional lending growth – targeting a sensible balance
Institutional lending growth – targeting a sensible balance Focus on improving RORWA Focusing on optimal balance For personal use only impacting lending growth sheet usage Institutional NLA (AUD $b) Highest growth 20% from a major 73.3 peer (12 months 71.4 20% to Mar 2007) 69.5 4.1 66.5 3.9 4.3 3.5
Slide 22: Additional information
For personal use only Additional information 22
Slide 23: Risk appetite driven by a number of variables…
Risk appetite driven by a number of variables… Risk appetite impacted by a • Portfolio Review gives For personal use only number of variables an overview of movement in asset quality and how risk profile is tracking Portfolio compared to asset writing review strategy • Asset Writing Strategy sets ou
Slide 24: …and varies by risk type
…and varies by risk type Risk Risk Type Approach For personal use only Appetite • Low tolerance, low limits with short Operational Low escalation route to senior management • Zero tolerance for compliance breaches • Managing risk/return trade-off Risk appetite traditionally seen as core function of
Slide 25: Bankruptcies and Debt Agreements
Bankruptcies and Debt Agreements # Household debt service ratio Rate of growth in bankruptcies^^ For personal use only 13 % p.a. 12 Bankruptcies growth Australia 100% UK rate reducing despite 11 Aust 80% increased indebtedness 10 60% 9 8 40% 7 UK 20% 6 0% 5 -20% 90 92 94 96 98 00 02 04 06 Mar-05 Sep
Slide 26: Business Bank - Credit quality remains sound
Business Bank - Credit quality remains sound, some losses in 1H07 but no systemic issues Portfolio is well secured Delinquency trends steady* across different risk bands For personal use only $2.1bn $12.6bn $1.1bn 1.2% 100% >60 Days 80% 0.8% 60% 40% 0.4% 20% 0% 0.0% >BB+ BB+ to BB- <BB- Mar-03 Mar-0
Slide 27: Non-performing loans remain stable
Non-performing loans remain stable New Non-Performing Loans* …Non-Performing Loans* as a % For personal use only relatively stable, default rate of the portfolio down to just 0.45% AUDm down… AUDm 700 Annualised default 0.6% 800 0.5% rate (RHS) 726 600 700 661 0.5% 640 642 640 0.4% 600 500 0.4% 500
Slide 28: Net Individual Provision charge remains at 2006 levels
Net Individual Provision charge remains at 2006 levels. High levels of recoveries unlikely to be repeated in 2H07 Individual Provision Charge 1 customer For personal use only $20m- Individual Provision Charge $30m 2 customers $5m- $m Increase in Asia $10m 250 207 primarily from Asian cards portfolio
Slide 29: Risk grade migrations
Risk grade migrations# DPG Institutional DPG Institutional Risk Grade Migration (Net Lending Assets $18.6b*) Summary by Customer Group (1H07) For personal use only • Upgrades led downgrades 6.8% to 4.7%, Upgrade Downgrade with 81.4% of the total portfolio 14 unchanged 11 9 7 • Positive re-ratings oc
Slide 30: ANZ continues to maintain a well diversified portfolio
For personal use only 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% Real Estate Operators & Agriculture Manufacturing Finance & Insurance % of ANZ Group Lending Assets Retail Trade Wholesale Trade Transport & Storage Business Services Construction Mar-06 Utilities Accom, Clubs, Pubs, Cultural & Sep-06 Recreational
Slide 31: Proactive management of social and environmental risks a growing focus
Proactive management of social and environmental risks a growing focus Equator Principles identify and ANZ Forests Policy providing For personal use only manage social and greater transparency environmental risks • First of a series of ANZ Public • Adopted by ~ 50 banks policies / guidelines on soci
Slide 32: Consumer Finance is at the forefront of Responsible Lending
Consumer Finance is at the forefront of Responsible Lending What are we doing? For personal use only 9 ANZ Customer Charter includes new ‘responsible lending promises’ to prevent credit limit increase (CLI) Promoting 9 Enhanced filtering process excludes CLI offers responsible to recent “poor” credi
Slide 33: Economic factors impacting the credit environment
For personal use only Economic factors impacting the credit environment 33
Slide 34: Australian Credit Cycle Trends– Key Facts
Australian Credit Cycle Trends– Key Facts Credit quality remains sound • No clear signs of systemic deterioration For personal use only • Private sector credit growth strong (near 15%) but converging towards income growth • Consumer confidence trending upwards since 2006 Increased household debt mor
Slide 35: Household sector remains very well placed
Household sector remains very well placed Household assets dwarf …and household debt has household debt risen For personal use only Household % of income Billions 12 % disposable income 3500 Assets 10 +$2876b 2500 08 1500 Liabilities +$912b 06 500 04 90 94 98 02 06 88 92 96 00 04 Source: Economics@A
Slide 36: Two thirds of households have little or no debt…
Two thirds of households have little or no debt… For personal use only Million households 3.5 3.0 Below age 55 Age 55 and above 2.5 2.0 1.5 1.0 0.5 0.0 Zero <4 <8 <12 <16 <20 <24 <28 <32 >32 Debt servicing ratio Source: Economics@ANZ 36
Slide 37: Total non-performing loans are more correlated with unemployment than household debt ratio
Total non-performing loans are more correlated with unemployment than household debt ratio Household debt service Employment rate vs Non ratio vs NPLs performing loans For personal use only % 0.8 12 0.8 10 0.7 11 0.7 9 Household debt 0.6 service ratio 10 0.6 Unemployment rate 8 0.5 9 0.5 12 months f
Slide 38: Corporate balance sheets are in better shape than ever before
Corporate balance sheets are in better shape than ever before Corporate Gearing Ratio Corporate interest cover For personal use only % Times 7 125 6 5 100 4 75 3 2 50 1 86 90 94 98 02 06 86 90 94 98 02 06 Source: Economics@ANZ 38
Slide 39: Rising mortgage loan delinquencies largely confined to non-banks
Rising mortgage loan delinquencies largely confined to non-banks Major banks % Regional banks 5 25 $b 5 40 For personal use only % $b 4 20 4 30 3 15 3 20 2 10 2 10 1 5 1 0 0 0 0 96 96 97 98 98 99 00 00 01 02 02 03 04 04 05 06 06 96 96 97 98 98 99 00 00 01 02 02 03 04 04 05 06 06 Other banks Non-bank
Slide 40: For personal use only
For personal use only The material in this presentation is general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or p
Australia and New Zealand Banking Group Limited (ANZ) — Investor Presentation (July 2007) on 6ix