Anz Group Holdings Limited · ASX:ANZ
Anz — Australia and New Zealand Banking Group — UBS Conference: Current issues in Financial Management (June 2005)
23 slides from Anz's conference presentation, Jun 22, 2005
Slide 1: UBS Conference: Current issues in Financial Management
Slide 2: Current issues in financial management
Current issues in financial management Cost of capital Measuring performance e¢ IFRS ¢ EVA Approach to acquisitions Potential credit issues
Slide 3: A quick recap on the first half — a solid result
A quick recap on the first half — a solid result Cash EPS* 85.9c {* 8.9% NPAT* $1,492m t 13.7% Interim dividend 5ic ? 8.5% Net non-accruals $326m v 37% Net specific provisions $15im Y 23% FYO5 cash EPS growth likely to be modestly ahead of 8% target “= Ahead of expectations xX- In line with expectat
Slide 4: Capital levels in Australian banks - the Goldilocks conundrum
Capital levels in Australian banks —- the “Goldilocks conundrum” % Tier 1 Capital Ratios* Change in RWA under Basel IT? . QIS 3 results Domestic banks ANZ G10 major Advanced Aust Majors bank % IRB Average average credit rating, 4 are in Australia
Slide 5: Changes to Hybrid rules should include provision for non-innovative instruments
Changes to Hybrid rules should include provision for non-innovative instruments Tier 2 (ex GP) Cost = 4.4% Innovative Hybrids Cost = 4.7% Core Equity (before deductions) Cost = 11.0% Total Capital Ideal capital position 10.20% 7.5% Max 15% innovative hybrids 10.20% 8.4% Max 15% innovative / 35% non-
Slide 6: Measuring performance under IFRS
Measuring performance under IFRS Key points No change to ANZ’s underlying business Increased earnings volatility likely under IFRS, driven predominantly by: >» Provisioning > Hedging Volatility means very specific guidance no longer possible No change in substance of dividend policy, form of policy
Slide 7: Impact of IFRS on cash EPS
Impact of IFRS on cash EPS _ ® Goodwill no longer amortised in PAT, no impact on Cash EPS Goodwill i na __unless there is ‘impairment’ Fee Revenue Small _ © Amortisation of fees has small impact on Cash EPS. With fees ee u decrease growing, this slightly lowers (lags) income in each period Hybrid /
Slide 8: Credit Provisioning greatest area of uncertainty
Credit Provisioning greatest area of uncertainty Significant changes to credit loss 9° £!? will be replaced by a charge for: provisioning methodology ¢ Movements in Specific Provisions (SP), Based on 1HO5 ¢ Plus/minus a charge for movements in the Collective Provisions $m IFRS P&L charge « SP’s dete
Slide 9: Financial management requires an arsenal of measures
Financial management requires an arsenal of measures — no one measure is enough EVA™ a powerful management tool, but important to understand limitations Some key qualities of performance management tools EVA NPAT EPS Reflects across the cycle credit losses xX IFRS ¥*X IFRS Incorporate cost of capita
Slide 10: High level of acquisition discipline
High level of acquisition discipline Our starting point e Organic growth fundamentally more attractive . Generally less costly and lower risk . Easiest way is to be positioned in growth areas (products or regions) e But - attractive opportunities may arise which are capable of generating value for o
Slide 11: Potential risks we are watching carefully
Potential risks we are watching carefully Why are we watching? Current position Ford & GM have strong cash positions, but urgent remedial action needed Component manufacturers tied to fortunes of car makers ~ small exposure for ANZ Auto sector Potential upstream impacts from financial difficulties a
Slide 12: Potential risks we are watching carefully
Potential risks we are watching carefully Why are we watching? Current position Rural Impact of drought * Recent rains have helped significantly Lending * Agri represents ~6% of portfolio, although ~68% of this is in NZ, which has not suffered drought conditions Consumer High level of consumer * Con
Slide 13: Summary
Summary e Solid first half, no change in FYO5 guidance e Changes to APRA capital requirements could have a substantial impact on Australian banks ¢ Introduction of IFRS will add volatility to reported earnings, with no change to underlying cash flows e ANZ adopts strong financial management discipli
Slide 14: Slide 14
Slide 15: Additional Slides
Additional Slides
Slide 16: APRA changes to Hybrid rules could reduce organic funding capacity
APRA changes to Hybrid rules could reduce organic funding capacity Capital Generation & Usage % of RWA Cash Earnings Dividend 1.59% (1.0%) Core prpyBop Generation INGA etc rund RWA 0.68% (0.11%) "U" mame °°?" no to a. © nU wo ££ oo go oF £a © = 2 ge ee ao g 3 Options available for capital generation
Slide 17: Implementation of IFRS and Basel II in Australia
Implementation of IFRS and Basel ITI in Australia e IFRS and Basel 2 are international standards, adopted by countries who wish to further integrate their financial systems into the global market e Adoption of ‘amended’ global rules could result in competitive disadvantage for Australian banks - on
Slide 18: Provisioning post IFRS
Provisioning post IFRS Individual provisions Specific Provision 1 AL = New provisions (including those provided for and written off in the same period) add increases in existing provisions fess write-backs & recoveries Collective Provisions . 2 ~ long-term historic performance ELP less A2 = Current
Slide 19: Comparison to ELP
Comparison to ELP Losses included * Average one year loss expected to be incurred if the same loan portfolio was held over an economic cycle ¢ Losses inherent within the Group’s existing loan portfolio including: - specifically identified losses on individually significant loans and on a portfolio b
Slide 20: Determining the Collective Provision
Determining the Collective Provision e Collective Provision held for presently unidentified impaired assets e Period between when event causing impairment occurs, and when impairment identified by lender, is referred to as “emergence period” e Emergence periods will vary according to the type of loa
Slide 21: Collective Provision treatment in balance sheet
Collective Provision treatment in balance sheet e Excludes provisions for identified impairment - these are specific provisions, and assessed either on an individual or a portfolio basis. e Basel: a general loan loss reserve, held against presently unidentified losses is eligible for inclusion in Ti
Slide 22: Net interest margins under IFRS
Net interest margins under IFRS Reported net interest margin (NIM) is likely to increase slightly under IFRS IFRS NIM Existing NIM + Amortised fee income + Impaired assets unwind StEPS distribution reported as interest expense + Impact of including Bills in interest earning assets
Slide 23: General background information disclaimer and contact
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