Anz Group Holdings Limited · ASX:ANZ
Anz — Australia and New Zealand Banking Group — Investor Presentation (August 2006)
31 slides from Anz's investor presentation, Aug 10, 2006
Slide 1: Risk Management - a CRO's view
Risk Management - a CRO’s view Peter Hodgson Chief Risk Officer July 2006
Slide 2: Contents
Contents My view on risk management and risk environment ANZs risk appetite framework Consumer risk environment Stress testing overview International Partnerships risk framework
Slide 3: CRO's view on risk management
Risk management should be predictive Risk management should be proactive rather than reactive Risk appetite needs to be clearly communicated and understood throughout the organisation Risk management focus should be on the core issues Risk management is no different to any other business activity CR
Slide 4: Snapshot of current risk environment – still looking good
Snapshot of current risk environment – still looking good Corporate & Business segment operating conditions remain favourable Generally highly secured portfolio Corporate/Business Credit quality sound across all segments, and traditionally performs better than Australia Non accruals in recent period
Slide 5: Risk appetite driven by a number of variables
Risk appetite driven by a number of variables… Asset writing strategies Risk appetite Current & emerging risk issues Portfolio review Stress testing Divisional Risk review CTC* oversight and policy framework Risk appetite impacted by a number of variables *Credit and Trading Risk Committee Portfolio
Slide 6: …and varies by risk type
…and varies by risk type Risk Type Risk Appetite Approach Operational Low Low tolerance, low limits with short escalation route to senior management Zero tolerance for compliance breaches Credit Medium Managing risk/return trade-off traditionally seen as core function of a commercial bank Diversify
Slide 7: Actively managing our risk appetite has aligned ANZ's risk profile with major peers
Actively managing our risk appetite over time has aligned ANZ’s risk profile with major peers ANZ remains the most conservatively provisioned major* *Collection Provision & GRCL to Risk Weighted Assets Reduced risk appetite actioned through de-risking program De-risking included Re-weighting exposur
Slide 8: Personal division growth dominated by mortgages, credit quality remains sound
Personal division growth dominated by mortgages, credit quality remains sound Australian delinquencies remain low (60+ days) Mortgages driving FUM growth (% of total Personal Net Lending Asset growth Aust & NZ) NZ delinquencies stable, and lower than Australia (60+ days) *Other includes Banking Prod
Slide 9: Consumer Finance credit quality in line with expectations
Consumer Finance credit quality in line with expectations Cards loss rates in line with expectations (index – Oct 03 Proprietary & Low Rate = 100) index No material shift in delinquencies (60+ day delinquencies) Strong Credit Card FUM growth* (12 months to May 2006) *source APRA Improvement from sea
Slide 10: Bankruptcies & debt agreements - UK v Aust
Bankruptcies & debt agreements - UK v Aust Slight increase in Australian bankruptcies/debt agreements…* (Aust. Non Business Bankruptcies and Debt Agreements) The key factors for increasing UK losses were: aggressive competition leading to strong growth in the unsecured lending segment weakening cred
Slide 11: Stress testing integral to strengthening the predictive approach to risk management
Stress testing integral to strengthening the predictive approach to risk management Group wide macro economic stress testing is being incorporated into risk management practices Creates greater understanding of impacts on financial performance through modelling relationships and sensitivities betwee
Slide 12: ANZ recently completed an IMF initiated stress test
ANZ recently completed an IMF initiated stress test under the IMF Financial Stability Assessment Program Widening credit spread increases cost of debt No ‘run’ on deposits Slowing deposit and credit growth partially offset wholesale funding requirements 100bps* Funding Domestically induced recession
Slide 13: Even under extreme stress scenario, financial performance likely to compare favourably
Even under extreme stress scenario * , financial performance likely to compare favourably to prior experience and broader market Under extreme stressed scenario NPAT impact significant, but still profitable (potential impact of ‘stressed case’ on ‘base case’ NPAT * ) NPAT impacted by both volume and
Slide 14: Where we would expect the stress to be felt
Where we would expect the stress to be felt Institutional Other^ Personal (excl. Mtges) Mortgages Corp. & Business Banking Contribution to NPAT decline under ‘stressed’ environment* (FY06 – FY08) *represents % of NPAT decline between FY06-FY08 attributable to business from base case scenario ^includ
Slide 15: Key investment risks and mitigants for international partnerships
Transaction Financial Governance Business Transaction experience Due Diligence experience Involvement in capital/financial decisions Agreement on targets, and ensuring ANZ adds value Board seats and independent regulator relationships Public listing/strong liquidity Partner selection/agreement on st
Slide 16: The Partnership Risk Framework varies with the extent of control
The Partnership Risk Framework varies with the extent of control Example Objective Approach International Partnership Equity Minority Equity Equity Accounted (20%) Significant Management Influence Equity Accounted (40%) Subsidiary Consolidated (85%) Build risk management capability to protect and en
Slide 17: Summary
Summary Risk management at ANZ is forward focussed on areas of core capability Do not anticipate significant deterioration across the portfolio Consumer losses expected to slightly increase in line with strategic risk/return shift in Credit Cards, offset by higher revenues No material shift in Austr
Slide 18: Additional Information
Additional Information 18
Slide 19: ANZ risk management structure
ANZ risk management structure Chief Risk Officer Peter Hodgson Head of Risk Personal & Chief Retail Credit Officer Chief Risk Officer ANZNB Head of Operational Risk & OTSS Risk Head of Risk, Institutional & Chief Wholesale Credit Officer Institutional Group General Manager, Compliance Head of Risk S
Slide 20: Portfolio credit quality remains strong
Portfolio credit quality remains strong Increase in Non Accrual loans driven by two accounts Individual Provisions maintained at low levels (Net Individual Provisions / Net Lending Assets) $m # 0 100 200 300 400 500 600 700 Sep-04 Mar-05 Sep-05 Mar-06 < /font> 0 5 10 15 20 25 30 35 40 45 New Non Acc
Slide 21: Shift in ANZ's International Lending from UK/Europe to the Americas and the Pacific
There has been a shift in ANZ’s International Lending from UK/Europe to the Americas and the Pacific Region in March-06. Lending Assets concentrated in the lower risk domestic markets Composition of the Loan Book by Key Lending Region International Lending Assets Distribution More sustainable busine
Slide 22: Impaired Assets remain at historically low levels
Impaired Assets remain at historically low levels Impaired Assets New Non Accruals by Geography $m $m %GLA Pip fruit industry in NZ 1,357 1,208 975 717 802 0 200 400 600 800 1,000 1,200 1,400 1,600 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% Impaired Assets % of Gross Lending As
Slide 23: Total portfolio remains well diversified
Total portfolio remains well diversified % Group Net Lending Assets by industry Concentration closely monitored in any of following circumstances: Industry comprises > 10% of Group net lending assets Industry consumes > A$500m economic capital ANZ has large share of aggregate industry exposure 0% 1%
Slide 24: Single customer concentration limits are in place
Single customer concentration limits are in place to cap single name exposures within the portfolio Sub Investment Grade Investment Grade * Maximum Direct Credit Limits are based on Class One SCCL Limits. ** Customers classified as Global Offshore Corporates can borrow according to Onshore lending p
Slide 25: Group risk grade profile largely unchanged
Group risk grade profile largely unchanged Group – Outstandings $ 248 bn $257 bn * $ 206bn AAA to BBB BBB- BB+ to BB BB- >BB- $ 236bn B+ to CCC 1.8% 1.7% 1.6% 1.5% Non Accrual 0.5% 0.3% 0.3% 0.3% *Excludes Kingfisher securitisation amount of $1.5bn Investment Grade lending as at Mar-06 is $178bn or
Slide 26: Institutional risk grade profile continues to improve
Institutional risk grade profile continues to improve Institutional – Outstandings $ 47 bn $49 bn $ 43bn AAA to BBB BBB- BB+ to BB BB- >BB- $ 46bn B+ to CCC 1.8% 1.1% 1.1% 0.9% Non Accrual 1.4% 0.6% 0.5% 0.7% Investment Grade lending as at Mar-06 is $36bn or 73.4% of the portfolio 3.2% 1.7% 1.6% 1.6
Slide 27: What is VaR?
What is VaR? The “Value at Risk” (VAR) of a portfolio: is a statistical estimate of the potential daily loss to a specified confidence level (eg, 97.5%) is based on an historical simulation using changes in market prices over the past 500 days… … which takes into account correlated movements across
Slide 28: ANZ market risk lowest of major peers
ANZ market risk lowest of major peers Global non-traded VaR mismatch significantly below limits $m ANZ VaR* well below major peers $m *Source company reports. Note, CBA do not disclose max VaR numbers ANZ Operating Limits at $32m 0 10 20 30 40 50 2000 2001 2002 2003 2004 2005 ANZ ave. CBA ave. WBC a
Slide 29: Scorecard cut-offs aim to achieve an appropriate risk/return trade-off
0 40 80 120 160 200 240 280 320 360 400 440 480 520 560 600 640 680 720 760 800 Score Number Of Clients ‘Goods’ ‘Bads’ Scorecard cut-offs aim to achieve an appropriate risk/return trade-off Key challenge: achieving the appropriate risk-vs-return trade-off Ratio of ‘good to bad’ customers increases w
Slide 30: Basel II – implementation on track
Basel II – implementation on track Since ANZ’s application for Advanced IRB accreditation to APRA in September 2005, APRA has conducted two ANZ reviews across Operational and Credit Risk. These reviews provided APRA the opportunity to examine ANZ’s Basel II progress, test parts of the operation for
Slide 31: The material in this presentation is general background information about the Bank’s activities current
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 potential investors and
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