2014

NEW ZEALAND
UPDATE

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

September 2014

David Hisco
Chief Executive Officer, New Zealand

New Zealand: Strong Core Market

New Zealand is “core” to ANZ’s strategy

Strong well established domestic franchise
The largest bank in NZ• ~8,300 staff, ~2.1m customers

ANZ NZ Geography
ANZ NZ Division•

Retail•Commercial- Comm Agri
- Small Business

July 14

Institutional

WealthNew Zealand major bank
Net Loans & Advances6
vsSep 13Market share
30.7%122bp• Mortgages:
2
28.7%
29bp
• Total deposits:
3120bp• Commercial lending: 30.7%
4
28.8%
68bp
• Credit cards:• #1 lead Relationship banking position5

NZDb

120
100
80
60
40
20
0

ANZ Peer 1 Peer 2 Peer 3
1. RBNZ C6 – July 2014; 2. RBNZ S8 – July 2014; 3. RBNZ S7 NZD claims, excludes Agriculture, Finance, Non-residents andHouseholds – July 2014; 4. RBNZ S5 – July 2014. 5. Peter Lee Associates Large Corporate and Institutional Relationship Banking
surveys New Zealand 2014. 6. as reported in 1H14 company reports

2

A significant contributor to the GroupOperating revenue bygeography (1H14, AUD)
APEA

Australia

20%

62%

Cash NPAT by geography(1H14, AUD)

Australia

APEA

Customer lending bygeography1 (1H14, AUD)
Australia

15%

19%

18%

New
Zealand

58%

23%

APEA

19%

New
ZealandNew
Zealand66%

NZ geography: operating
revenue by business

NZ geography: customer
lending by business1

NZ geography: customer
deposits by business(1H14, NZDm)(1H14, NZDb)(1H14, NZDb)

Commercial

Commercial

719
Retail

22.5

57.3
Retail636

Commercial

317
227
WealthInstitutional

Retail

36.9

32.7
13.6

6.9
1.6
Wealth5.2
Institutional

Institutional

Wealth

1. Customer lending represents Net Loans and Advances including acceptances3

Our journey is to create New Zealand’s best bank
ANZ Group Strategy
Connecting customers
to faster growing
regional capital,
trade & wealth flows

PROFITABLEASIANGROWTHStrengthen our
position in our coremarkets of Australia& New Zealand

STRONG
CORE
MARKETS

Built on common infra structure & enterprisefocus for greater
responsiveness ,efficiency and control

ENTERPRISEAPPROACH

ANZ New Zealand’s Strategy
1. Leverage our scale advantage by building and enabling world class sales teams to capture cross sell and share growth
2. Empower customers and drive efficiency and sales through further developing digital and payments capability
3. Maximise our scale advantage by simplifying our products, processes, policies, technology & leveraging Group investment

4. Capitalise on our data advantage by improving our data and insights infrastructure and end-to-end leads processes
5. Improve our connections between frontline channels to support customer interactions

NZ’s Best Bank
Leverage ScaleHow?

Create Scale HubsHow?

 Branch optimisation

 One team

 Leading brandrecognition One set of systems
 One product set
 One brand One branch network
2010-2013

How?
• Best brandconsideration

NZ’s Best Bank
Our Vision:• Integrated channels
leveraging Group
platforms„Helping Kiwis achieve more‟• Data driven insights• #1 Service• World class sales andservice teams• Automation of workflow

• #1 Market Share• Core remediation• Optimised channel
investment• Visible in the community• Payment infrastructure

2013-2016

Our Goal:• Growing

2017

4

Significantly simplifying and focusing the business tocreate scale
Create Scale2010 - 2013

Leverage Scale
2013-20162010 (FY10)2014 (1H14)

2017

Core systems

2

1

1

Brands2

1

1

ANZ brandconsideration1

27%

43%

Market leading

Staff engagement2

64%

78%

Best practice

NZ Geography
- CTI

49.1%

38.1%3Market leading- Cash profit (NZDm)
NZ Division- CTI- Cash profit (NZDm)

882
48.4%
545

1,432 (FY13)887 (1H14)
41.5%

Market leading

1,063 (FY13)
598 (1H14)• Brought 2 brands together • Leveraging global hubs
and shared platforms• Moved to 1 core banking• Improving branchsystemcoverage• Created 1 mgt structure•
Rolling out customer data
• Simplified and moved to asingle set of policies,
processes and products

Scale advantage
2017

focused sales strategy• Natural competitive

advantage in key markets• Enhancing digital offering
for improved customer
experience and banker
efficiency

1. Brand consideration - sourced from IPSOS Brand Tracking (first choice, or seriously considered)
2. Staff engagement survey for 2014 as at July 2014
3. Including the one off insurance recovery related to the ING frozen funds5 (excluding: 39.97%)
Note: FY10 financials are based on underlying profit definition, subsequent years cash profit definition as detailed in respective Results
Announcement documents

5

Growth has been achieved through disciplined
execution, productivity and efficiency
New Zealand Geography

New Zealand Division

Net Profit after tax

Cost to Income

NZDm
49.1%

Cost to Income

1,432

42.7%

43.5%

887

882

38.1%

16%

48.4%

27%

697

ROE

41.5%

12%

8%
4%
0%

FY10

FY13

1

1H14

FY10

FY13

1H13

1H14

1

NZ Simplification Programme

FY10 FY13 1H14
NZ Simplification Programme

Loans and customer deposits

FY13

1H14

Net Profit after Tax
NZDm

NZDb
Loans

Thousands

FY10

96.1
59.7

Deposits

93.6
62.0

96.1
66.1

Loan/Deposit Ratio (RHS)

100.1
70.6

102.6
74.1

1,063

200%
21%

180%
545

494

160%

569

598

2H13

1H14

140%
120%
Sep 10

Sep 11

Sep 12

Sep 13

Mar 14FY10

FY13

1. Including the one off insurance recovery related to the ING frozen funds (excluding: 39.97%)
Note: FY10 financials are based on underlying profit definition, subsequent years cash profit definition as detailed in
respective Results Announcement documents

1H13

6

2014

NEW ZEALAND
UPDATE

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

September 20142014 Half Year Results

1H14 results saw New Zealand geographic CTI below
40% for the first time
NZ Division 1H14 NPAT up 21% to NZD 598 million
NZ Division ROE accretive to ANZ Group: up 235bps to 15.8%1

Efficiency
649
bps

CTI 41.5% for NZ
Division v Sep 20102(NZ Geog: 1,111bps to38.1%3)

20% Revenue per Branch
Improved footprint
leading to:percentage point
82% • 7
improvement in
Branchmortgage sales via
Coverage4 Branch• 47% KiwiSaver accountsales via Branch

10%Commercial cross-sell
revenue from
Institutional products

Market Share

Brand
Brand considerationcompared to majorbanks10 – from last to
first position in 3 years

shareBoth total lending &total deposit share havegrown YTD5,6#1

22bpsMortgage market share
YTD7

17%

Uplift in brandconsideration10#1

Share of new mortgage
sales in all major NZ
cities – the first time in
Auckland & Christchurch8

14%Retail new customer
acquisition29%

Small Business Banking
new customer
acquisition

20bpsCommercial lending
share - growth in all
regions9

Note: All figures PCP unless otherwise stated; 1. ROE on Internal Expected Loss (IEL) basis; 2. CTI is against September 2010 – the reporting period
immediately preceding the commencement of NZS; 3. Including the one off insurance recovery related to the ING frozen funds (excluding: 39.97%); 4. Branch
Coverage measures the areas in which ANZ is represented relative to where New Zealanders do business – March 2014; 5. RBNZ S7 – February 2014; 6. RBNZ
S8 – February 2014; 7. RBNZ C6 – February 2014; 8. Source: Terralink – March 2014; 9. RBNZ S7 NZD claims, excludes Agriculture, Finance, Non-residents andHouseholds; 10. Source: IPSOS Brand Tracking (first choice, or seriously considered) – March 2011 v March 2014

8

New Zealand Division delivered strong financial resultsin 1H14
Profit Before Provisions
Movement Mar 2014 v Mar 2013
NZDb

19.0

794.0

Customer Lending
Movement Mar 2014 v Mar 20131
NZDb
2.6

8.0

44.0

90.5

0.7

94.8

C&A

1H14

1.0

723.0

Up 10%
1H13

RetailCommercial

Up 5%
Other

1H14

1H13

Net Profit after Tax
Movement Mar 2014 v Mar 2013

RetailSBB

Customer Deposits
Movement Mar 2014 v Mar 2013
NZDb

45.0

14.0

598.0

45.0

51.7

494.0

1.3

Up 21%

1H13
1.

RetailCommercial

1.1

1.2

55.2

C&A

1H14

Up 7%
Other

1H14

1H13

RetailSBB

Gross Loans and Advances
9

Continued improvement to credit quality across the
New Zealand book
New Zealand Geography
Net Impaired Assets
NZDm

Net Impaired Assets

New Zealand Geography
Total Provision Charge

NIA as % GLA

1,685

NZDm
200
150

IP Charge
85

CP Charge

105
103

99
44

100

22

50
1,307

-39

0
-50

1,169

-100
1H11

991

1.74%

883
1.38%

1H12

2H12

1H13

2H13

1H14

New Zealand Division90+ days delinquencies
662

1.23%

2H11

594

2.0%

Mortgages

1

Commercial

Agri

1.6%

1.02%
0.89%

1.2%
0.66%

0.57%

0.8%
0.4%

1.

Mar 14

Mar 13

Mar 12

Mar 11

Mar 10Mar 09Mar 08Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14

Mar 070.0%

Spikes in 2012 Commercial 90 day delinquencies are primarily due to internal classifications rather than any deterioration in underlying
credit quality
10

New Zealand home loan portfolio well diversified
Dynamic Loan to
Valuation Ratio

1H14 Portfolio Statistics
Total Number of Home Loan Accounts

484k

Total Home Loan FUM (NZD)$61b% of Total New Zealand Lending

59%% of Total Group Lending

11%

Owner Occupied Loans - % ofPortfolio

76%

Average Loan Size at Origination
(NZD)

$254k

Average LVR at Origination

63%

Average Dynamic LVR of Portfolio

46%% of Portfolio Paying Interest Only1

21%

Individual Provisions as a % of Gross Loans:
2H12

1H13

2H13

3%
12%

8%
10%

39%

47%
18%

27%
17%

7% 12%

0-60%
71-80%
90%+

61-70%
81-90%

AucklandChristchurch
Rest of South

0.43% 0.27% 0.24% 0.24%

NZ Home Loans

0.03% 0.02% 0.02% 0.02%

Wellington
Rest of North
Other

Mortgages have re-trended towards
fixed rates
100%

Sales Mix

ANZ % Fixed Ratemortgages in portfolio

27%

Variable

75%

1H14

Group

1.

Home Loan
portfolio by Region

73% Fixed

50%
25%
Sep
08

Sep
09

Sep
10

Sep
11

Sep
12

Sep Mar
13 14

1H14

Excludes revolving credit facilities
11Commercial Property and Agriculture well managed
Commercial Property Outstandings by
RegionAPEA (LHS)

New Zealand (LHS)

Australia (LHS)% of Group GLA's (RHS)

$b
40

8.0%

35
4.5
30
25

2.7
4.7

3.1
5.0

3.4
4.9

3.5
5.3

4.0
5.4

7.5%

4.1
6.1

New Zealand Agri Exposure and Average
Probability of Default
NZD Total Credit Exposure (LHS)
Average PD (Non-Defaulted Customers) (RHS)

NZDb
25

2.5%

20

2.0%

15

1.5%

10

21

5

18

17

18

Sep 12

Sep 13

Mar 14

0
6.9

7.0%

0.5%
0.0%

Sep 10

Sep 11Agriculture security levels

20

6.5%
8%

15
10

1.0%

19

20.7

21.3

21.7

22.1

21.2

21.8

0
Sep
11

Mar
12

Sep
12

Mar
13

Sep
13

5.5%

70%

5.0%

Group

23.0

5

Mar
11

6.0%

6%
16%

Mar
14

6%

10%
8%

11%

4%

26%

56%

Australia

79%

New Zealand

Fully Secured

80-100% Secured

60-80% Secured<60% Secured

12

2014

NEW ZEALAND
UPDATE

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

September 2014

Additional information

New Zealand benefiting from ANZ Corporate & Institutional
position in Australia and growing strength in Asia
7 of the top 10 countries New Zealandtrades with are from Asia Pacific region

Australia $14b

South Korea $3.7b

Greater China $21b

Imports$6b

Imports$2.1b

Imports$8b

Exports$8b

Exports$1.6b

Exports$13b

Japan $6b

Singapore $3b

Imports$3b

Imports$2b

Exports$3b

Exports$1b

China has surpassed Australia as New
Zealand‟s largest trading partner with
Chinese trade growing rapidly following
the signing of a FTA in 2008.

Australia FDI accounts for 68% of all FDI
in New Zealand
NZ$b
$80
$75
$70
$65
$60
$55
$50
$45
$40

4% CAGR

2007

2008

2009

2010

2011

SingaporeJapan

Greater China

2012

2013

Australia

In 2014 New Zealand signed a CNY/NZD
direct convertibility agreement with
China. This is expected to further
facilitate trade and investment flows.

The majority of New Zealand‟s exports to
China are agricultural products whilst
most Chinese imports to New Zealand are
manufactured goods.

Conduct regular face-to-face meetings
with existing and prospective foreign
investors to clearly understand theirinvestment objectives and criteria andfocus on building trusted relationships
first and then conducting business.

Leverage ANZ‟s “Super Regional”
network and connectivity to provide a“whole of bank” superior solution to
on-board or retain key customers andmaximise growth and revenue
opportunities.

ANZ’s FDI Strategy
Proactively identify specific FDI
opportunities by leveraging ANZ NZ‟smarket leading position andcapabilities, deep industry knowledge
and insights.

Source: Statistics New Zealand14

NZ Economic Update
The foundations for solid growth remain in place.
• Financial conditions are still consistent with 3% growth (growth >3% is not sustainable given supply-side capacity of theeconomy, which we put at a little under 3%)• Commodity prices (ex dairy and forestry) are holding up well
• A period of consolidation for house prices is welcome after the sharp run-up in 2013
• There are signs the trend rate of growth (i.e. beyond the business cycle) is higher
The economic picture is however becoming more fractured• Dairy prices have dropped sharply, as have forestry prices. A sub $6 per kg MS milk price now looks a reality• New Zealand‟s terms of trade peaked in Q2, and history shows commodity price booms tend to be short and sharp• House prices – whilst rising strongly in annual terms have started to soften• Financial conditions – a higher NZD and falling commodity prices – have tightened
Other key drivers of the economic expansion remain.
• Construction sector activity (projected to lift from 10 to 12% of GDP) is strong; this is supporting SME‟s in particular• Net migration flows (around 1% of the population) are providing considerable impetus• The unemployment rate is at a six year low and wage growth is lifting• Business and consumer confidence remain elevated and productivity growth is robust• Firms continue to express a strong desire to invest and unheralded factors behind NZ‟s economic upswing remain in play(unlocking natural resources, reasonable political platform, building Asia connectivity, progress in the free-trade arena, a very
good collection of microeconomic initiatives and uplifts in productivity growth)
The expansion is now maturing from strong growth off lows to moderate growth off better levels• The availability of labour as opposed to demand is becoming more relevant as constraints on firms.
Risks around the outlook are balanced• Upside risks from better migration inflows & construction sector, downside risks from weaker dairy payout & global uncertainties
Inflation pressures are benign• Construction sector inflation is not spilling over into the broader economy, the high NZD continues to suppress tradable inflationand solid productivity growth is capping service sector inflation• However, the RBNZ will remain alert to drivers of medium-term inflation trends (such as a falling unemployment rate)
The RBNZ is expected to keep the Official Cash Rate unchanged for the remainder of 2014
• A tightening bias remains intact and we expect rates to move up again (in a modest fashion) in 2015
The NZD has receded from extremes but remains elevated and is expected to do some for a while yet• A glaring 300 point yield differential remains on offer with roughly 2/3rds the world (by GDP) still having cash rates sub 1%

Still a lot of positives across the economy
GDP vs Confidence Composite – still astrong feel-good factor

Unemployment rate falling: surfeit oflabour less apparent

6

6

4

4

2

2

0

0

-2

-2

-4

-4

Annual % change

898Standardised

8

7
%

6
5
4
3

90 92 94 96 98 00 02 04 06 08 10 12 14

2

GDP (LHS)

95

97

99

01

03

05

07

09

11

13

ANZBO composite and current conditions (adv 5m, RHS)

Strong net migration adding to housing
demand but also the labour pool
120

Persons (12m total, 000)

Consents (000, 12m
total)

Residential building consents up acrossthe board – rebuild & housing shortages
16
14
12
10
8
6
4
2
0

100

92 94 96 98 00 02 04 06 08 10 12 14
Canterbury
AucklandRest of NZ

80
60
40
20
0
-20
90 92 94 96 98 00 02 04 06 08 10 12 14
Net PLT Immigration

PLT Departures

Sources: ANZ, Statistics NZ, RBNZ, Westpac McDermott Miller
16More risks to manage and be mindful of

4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
-500

1400

325

1300

275

1200

225

1100

175

1000

125

900

2013-14p

2011-12

2009-10

2007-08

2005-06

2003-04

2001-02

1999-00

1997-98

Index

Forecast

1995-96$ per hectare

Terms of trade still high despite falls indairy prices

OTI Terms of trade (LHS)
ANZ World Commodity Price Index (adv 3 mths, RHS)

Annual % change

8

97.8

6

98.2

4

98.6

2

99.0

0

-2
-4

99.4

Index

Sales per 000
dwellings

Annualised % change

Financial conditions have tightened –NZD not adjusting as quickly as
commodity prices
9
8
7
6
5
4
3
2
1
0

03 04 05 06 07 08 09 10 11 12 13 14
Prices (LHS)
Sales (RHS)75
88 90 92 94 96 98 00 02 04 06 08 10 12 14House prices and sales –LVR restrictions and OCR hikes
at work
30
25
20
15
10
5
0
-5
-10
-15
-20

Index

Average dairy farm profitability before
tax – good 2014, more challenging 2015

99.8
100.2
90 92 94 96 98 00 02 04 06 08 10 12 14
GDP (LHS)
FCI (adv 10 months, inverted, RHS)

Sources: ANZ, Statistics NZ, GlobalDairyTrade, Bloomberg
17Key thematics: solid growth, modest lifts in OCR, building
boom but restrained consumer & inflation to rise gradually
Still solid growth for New Zealand

Auckland and Canterbury housing
undersupply a major stimulus
20

6

15

4

10

Consumption needs to give way for aconstruction boom
85

80

20

75

15

70

% of GDP

25% of GDP

NZ

SL

OT

CTY

WC

NM

WGN

MAN

TAR

Inflation to rise gradually

88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Investment (LHS)
Consumption (RHS)

8
Annual % change

30

HB

-10
GIS

90 92 94 96 98 00 02 04 06 08 10 12 14 16
Quarterly % change
Annual % change

BOP

-4

-5
WAI

-2

0

AKL

0

5

NTH

% 2

Regional Housing
shortages „000

8

6
4
2

0
-2

CPI

-4
95 97 99 01 03 05 07 09 11 13 15 17

Sources: ANZ, Bloomberg, Statistics NZ, RBNZ
18

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 does not take into account the investment objectives, financial situation or needs ofany particular investor. These should be considered, with or without professional advice when
deciding if an investment is appropriateThis presentation may contain forward-looking statements including statements regarding ourintent, belief or current expectations with respect to ANZ‟s business and operations, market
conditions, results of operations and financial condition, capital adequacy, specific provisions andrisk management practices. When used in this presentation, the words “estimate”, “project”,“intend”, “anticipate”, “believe”, “expect”, “should” and similar expressions, as they relate to ANZ
and its management, are intended to identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak only as of the datehereof. Such statements constitute “forward-looking statements” for the purposes of the UnitedStates Private Securities Litigation Reform Act of 1995. ANZ does not undertake any obligation to
publicly release the result of any revisions to these forward-looking statements to reflect events orcircumstances after the date hereof to reflect the occurrence of unanticipated events.
For further information visit

www.anz.com
or contact
Jill Craig
Group General Manager Investor Relations
ph: (613) 8654 7749 fax: (613) 8654 9977

e-mail: jill.craig@anz.com