Anz Group Holdings Limited · ASX:ANZ
Anz — Investor Presentation (July 2006)
30 slides from Anz's investor presentation, July 2006
Slide 1: Risk Management - a CRO's view
Risk Management - a CRO’s view Peter Hodgson Chief Risk Officer July 2006 1
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 2
Slide 3: CRO's view on risk management
CRO’s view on risk management ¾ Risk management should be predictive ¾ Risk management should be proactive rather than reactive ¾ Risk appetite needs to be clearly communicated and understood throughout the organisation ¾ Risk management focus should be on the core issues ¾ Risk management is no dif
Slide 4: Snapshot of current risk environment – still looking good
Snapshot of current risk environment – still looking good Current Outlook Division/Business Commentary Environment (short term) • Strong portfolio credit quality, no systemic/industry concerns Institutional • Non accruals in recent periods isolated one-offs • Secured and unsecured portfolios perform
Slide 5: Risk appetite driven by a number of variables…
Risk appetite driven by a number of variables… Risk appetite impacted by a • Portfolio Review gives 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 out planned portfolio gr
Slide 6: …and varies by risk type
…and varies by risk type Risk Risk Type Approach 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 a Credit Medium establ
Slide 7: Actively managing our risk appetite over time 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 Credit losses to total advances in line with peers • Reduced risk appetite actioned 0.6% Asian Crisis through de-risking program (once in several Fallen Angels 0.5% generations event) ANZ • De-risking inclu
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) 1.8% Mortgages driving FUM growth 1.5% (% of total Personal Net Lending Asset growth Aust & NZ) 1.2% 0.9% 0.6% 0.3% 15% 13% 0.0% Oct- Apr- Oct- Apr- Oct- Apr- Oct- Apr- 7% 7%
Slide 9: Consumer Finance credit quality in line with expectations
Consumer Finance credit quality in line with expectations Strong Credit Card FUM growth* Growth in Low Rate cards moderating (12 months to May 2006) after strong launch (% mix of new account growth) 25% ANZ CBA NAB WBC 20% System 40% 47% 15% 57% 10% 28% 28% 21% 5% 31% 22% 25% 0% 1H05 2H05 1H06 May-0
Slide 10: Bankruptcies & debt agreements - UK v Aust
Bankruptcies & debt agreements - UK v Aust Slight increase in Australian The key factors for increasing UK losses bankruptcies/debt agreements…* were: (Aust. Non Business Bankruptcies and Debt Agreements) • aggressive competition leading to Bankruptcies Debt Agreements 7,000 strong growth in the uns
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 be
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 ‘Extreme stress’ scenario provided Stressed Metric Impact Scenario • Domestically induced recession, impacting Unemployment to 9% lending growth and provisioning Interest Rates • Cash rate unchan
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 Extreme stressed scenario NPAT impact significant, but still profitable performance significantly better (potential impact of ‘stressed
Slide 14: Where we would expect the stress to be felt
Where we would expect the stress to be felt Contribution to NPAT decline under ‘stressed’ environment* Higher unemployment (FY06 – FY08) will reduce NPAT, particularly on unsecured lending Other^ Personal (excl. Mtges) 15% Australian corporate sector 26% under pressure, key driver of lower NPAT Mort
Slide 15: Establishing and expanding Partnerships requires careful identification and management of the challenges and risks
Establishing and expanding Partnerships requires careful identification and management of the challenges and risks Key investment risks Managing these risks • Transaction experience Transaction • Due Diligence experience Financial • Involvement in capital/financial decisions • Agreement on targets,
Slide 16: The Partnership Risk Framework varies with the extent of control
The Partnership Risk Framework varies with the extent of control Example International Partnership Credit Cards Significant Management Equity Minority Equity Subsidiary Influence Equity Accounted (20%) Consolidated (85%) Equity Accounted (40%) Objective Build risk management Compliance with ANZ capa
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
Slide 18: Additional Information
Additional Information 18
Slide 19: ANZ risk management structure
ANZ risk management structure Chief Risk Officer Respective Chief Executive Officer, Group Managing Peter Hodgson New Zealand Directors ANZ New Zealand Institutional Personal Partnerships OTSS Centre Risk Head of Head of Risk Head of Chief Risk Head of Risk, Group Risk, Personal & Operational Head o
Slide 20: Portfolio credit quality remains strong
Portfolio credit quality remains strong Increase in Non Accrual loans Individual Provisions maintained at driven by two accounts low levels $m # (Net Individual Provisions / Net Lending Assets) 700 45 40 600 35 500 30 0.23% 400 25 0.17% 300 20 0.15% 0.13% 15 200 10 100 5 0 0 Sep-04 Mar-05 Sep-05 Mar
Slide 21: Lending Assets concentrated in the lower risk domestic markets
Lending Assets concentrated in the lower risk domestic markets More sustainable business mix (lending assets) There has been a shift in ANZ’s International 2000 2006 Lending from UK/Europe to the Americas and the Pacific Region in March-06. International Lending Assets Distribution 36% 45% 50% 55% S
Slide 22: Impaired Assets remain at historically low levels
Impaired Assets remain at historically low levels Impaired Assets New Non Accruals by Geography $m %GLA $m 1,600 1.0% 900 1.4% 1,357 800 1,400 1.2% 1,208 0.8% Pip fruit 700 1,200 industry in NZ 1.0% 600 975 1,000 0.6% 0.8% 500 802 800 717 400 0.6% 0.4% 600 300 0.4% 400 200 0.2% 0.2% 200 100 0 0.0% 0
Slide 23: Total portfolio remains well diversified
Total portfolio remains well diversified % Group Net Lending Assets by industry 9% Mar-05 Sep-05 Mar-06 Concentration closely monitored in any of following circumstances: 8% • Industry comprises > 10% of 7% Group net lending assets • Industry consumes > A$500m 6% economic capital 5% • ANZ has large
Slide 24: Group risk grade profile largely unchanged
Group risk grade profile largely unchanged Group – Outstandings $206bn $236bn $248bn $257bn* AAA 11.3% 10.9% 11.1% 11.2% to BBB Investment Grade lending as at Mar-06 is BBB- 56.7% 58.2% $178bn or 69.5% of the 58.3% 58.3% portfolio BB+ to BB 15.6% 15.6% 16.6% 16.1% BB- 14.1% 13.3% 12.1% 12.6% >BB- 2.
Slide 25: Institutional risk grade profile continues to improve
Institutional risk grade profile continues to improve Institutional – Outstandings $43bn $46bn $47bn $49bn AAA to BBB 48.6% 49.6% 50.9% 51.0% Investment Grade lending as at Mar-06 is $36bn or 73.4% of the portfolio BBB- 19.5% 21.1% 19.5% 22.4% BB+ to BB 19.0% 17.7% 17.1% 13.5% BB- 9.7% 10.5% 10.3% 1
Slide 26: 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 a
Slide 27: ANZ market risk lowest of major peers
ANZ market risk lowest of major peers ANZ VaR* well below major Global non-traded VaR mismatch peers significantly below limits $m $m ANZ Operating 50 ANZ ave. CBA ave. Limits at $32m 35 WBC ave. NAB ave. 40 max ANZ max WBC 30 max NAB 25 30 20 20 15 10 10 5 0 0 M 05 M 06 ov 4 N 05 M 06 Ja 4 M 05 Ja
Slide 28: Key challenge: achieving the appropriate risk-vs-return trade-off
Key challenge: achieving the appropriate risk-vs-return trade-off Scorecard cut-offs aim to achieve an appropriate risk/return trade-off • Ratio of ‘good to bad’ customers increases with cut- ‘Goods’ off score Number • Scorecard cut-offs Of Clients are set at a customer/product level with reference
Slide 29: 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 fo
Slide 30: www.anz.com
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