Investor Discussion Pack
Mike Smith
Chief Executive Officer
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
January 2011

ANZ has established a strong business foundation

A clear company wide focus on our super regional strategy:• Organised our business around three key geographies and our customers

p. 3-16• Maintaining strong businesses in our home markets:• Australia

p. 17-22• New Zealandp. 33-37• Investing for strong organic growth in Asia

p. 23-32• A redefined and clear focus in our global institutional businessp. 38-51• Supported by a strong capital and funding positionp. 52-61• Strengthened governance and risk systems and an improving credit outlook p. 62-69• Economic updates

p. 70-902

Investor Discussion Pack

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
January 2011

Overview and strategy

ANZ is structured by Geography & Segment

Asia Pacific, Europe & America (APEA)
Retail(including
partnerships)

Commercial

Wealth(emerging)

Institutional

Australia
Retail

WealthCommercial

Institutional

New Zealand
Retail

WealthCommercial

Institutional is a global business
4

Institutional

Super Regional strategy progressing well

OUT PERFORM

TRANSFORMRESTORE• Institutional backto system• Restore “jaws” –increase revenue
faster than costs• Drive Asia profit• Capture existing
opportunities• Strategic costmanagement

1 to 2 years• Quality on par with
global leaders in ourmarkets• Best of breed
customer experience• In-fill mergers andacquisitions in Asia
(core geographies)

Createa leading Super
Regional bank
Global quality,
regional focus• Unlock the value of
our franchise

2 to 5 years

5+ years

Launched December 2007
ANZ
target2012

Australia~60% of all ANZ profit

NZ
~20%

5

Asia Pacific~20%Super Regional Strategy
Australian 2 way trade weights
US & Europe1

Asian, Australian & New Zealandinterconnectedness increasing:• Following and supporting our customers
to the region, developing relationships
to work both ends of the trade flows.
• Trade flows between Asia and Australia
and New Zealand continue to grow.
• Significant intra-Asia trade flows arealso growing

Asia1

Strengthens and broadens theGroup balance sheet:• Leveraging deep liquidity pools within
Asia where there is a higher propensity
to save• Diversifies the balance sheet

1.

Source: ANZ, RBA. ASEAN 6: Singapore, Indonesia, Malaysia, Thailand, Philippines, Vietnam
6Regional and intra-regional trade and investment flows
are substantive
Denotes two way trade flow (2008)
FDI inward flow (US$b, 2008)
Asia1-Europe
Trade: US$1.1trn

Asia1-USA
Trade: US$1.0trn
CN
108

IND
42

Intra-Asia1

VN
8

INDON
8

Trade: US$2.5trn

TW
5

HK
63

Pacific-Asia1
Trade: US$7b

Aus/NZ-PacificTrade: US$5b

Aus/NZ-Asia1
Trade: US$235b
1. Asia includes China, Cambodia, India, Indonesia, Hong Kong, Japan, Korea, Laos, Malaysia, Philippines, Singapore, Taiwan and Vietnam
Data source: UN Comtrade database; country statistics; ADB website;
press searches; Datamonitor, McKinsey Global Banking Pools, APRA, CEIC
7

Building a genuinely pan regional business connectivity provides a competitive advantage
Linked through flows of trade,
capital and population

Growth in trade and capital flows between Asia
and Australia are tracking 17% to 25% pa
Surplus savings

There is approximately$60b in direct foreign
investment into Australia
from the Asian region

Key focus is to bridge gaps acrossthe region: Asia generates surplus
liquidity, Australia and NZ generate
hard and soft commodities

Commodity
consumers

Over 50% of domestic customers
depend on Asia for over 25% of
their business
Strategy extends beyond banking
Australia / NZ customers into Asia,
we are actively facilitating intra-Asia
cash management, trade andmarkets transactions for Asiancustomers

Migration &Investment

Commodity
producers

Natural resources account for $80b or 30%
of Australian and New Zealand exports
Soft commodities account for $40b or 15%
of Australian and New Zealand exports

8Strategy is supported by a disciplined approach to M&A– RBS Asia acquisition•

Acquired RBS¹ businesses in six countries,aligned with current strategy:
 Retail, wealth & commercial
businesses in Taiwan, Singapore
Indonesia² and Hong Kong;
 Institutional businesses in Taiwan, thePhilippines and Vietnam

•

•

1.
2.
3.
4.

Purchase price US$50m (˜A$60m)
premium to fully provided recapitalised net
tangible book value³. Equates to ˜1.1 x
net tangible book value
Transaction includes ˜US$7bn (A$9bn)
deposits, ˜US$3bn (A$4bn) loans,˜2maffluent and emerging affluent customers,
49 branches

Country

Business

TaiwanRetailCommercial
Institutional21& 16
licenses~1.3m~US $2.5b

Hong Kong

RetailCommercial

5

~30k

~US$1.4b

Singapore

RetailCommercial

5

~350k

~US$1.8b

Indonesia

RetailCommercial

18

~450k

~US$700m

VietnamInstitutional-~60~US$20m

Philippines

Institutional

-

~100

~US4m

Transaction is largely a sale of assets and liabilities, not companies, of businesses held by ABNAMRO mainly through branches, RBS will retain a presence in some countries.
The Indonesian retail, wealth and commercial businesses will be acquired through ANZ‟s 99%
owned subsidiary ANZ Panin.
Based on RWA calculated by ANZ under a Basel II standardised approach as at 31 May 2009.
On a fully provided recapitalised basis
9

Branches Customers DepositsStrategy is supported by a disciplined approach to M&A- ING Australia and New Zealand Joint Ventures•

Acquired ING Groep‟s (ING) 51% interest in ING
Australia and ING NZ (the JVs) for $1,760m 1
~11x multiple of normalised 2008 earnings2

1.2x multiple of embedded value (EV)3•

Cash EPS accretive in FY104•

Delivered immediate scale – FUM, In-force
premiums, and distribution

Australia
Acquired ING's 51% in ING Australia
manufacturing and distribution of investment
life & GI products, the Equity owned advisor
networks and administration platforms
Australia FUM: $39b

 ~$42b of FUM, $1.3b of in-force premiums

Oasis Wrap 13%

Mezzanine

4%
Wholesale1% ~1,700 aligned dealer group advisers (Aus) Historically around 2/3rd of operating income
from wealth management, one third from risk

OneAnswer Mastertrust 40%
Employer Super 27%

 Australia – No. 3 in life insurance5, No. 5 inretail funds mgt, largest aligned adviser force

Other Retail15%

 New Zealand – No. 5 in life insurance5 largest
KiwiSaver provider, No. 2 funds manager

New Zealand•Funded from existing resources, capital impact~(70)bps, pro forma Tier 1 post acquisition 9.5% 6•Transaction completed 30th November 2009•

Announced OnePath branding August 2010

Acquired ING's 51% in ING New Zealand:
Wealth Management and Retail, Wholesale
and Property Investment Management

1 Purchase price. Separately ANZ made a payment of $55m to acquire ING‟s share of the NZ Diversified Yield Fund (DYF) & Regular Income Fund (RIF)
redeemable preference shares 2 Earnings for the year to 30 September 2008 incorporating normalised long term expectations 3 As at 31 December
2008 4 Based on current share price 5 By in-force premium share 6 As at 30 June 2009 adjusted for $2.2b SPP and impact of RBS acquisition

10Strategy is supported by a disciplined approach to M&A- Landmark Loan and Deposit book
Overview of transaction

Overview of Landmark• Acquisition of Landmark Financial Services(LFS) loan and deposit book from AWB‟s rural
service business Landmark:• Leading Australian agribusiness company,
offering merchandise, fertiliser, farm services,wool, livestock, finance, insurance and realestate• Largest distributor of merchandise andfertiliser, with ~2,000 employees servicing~100,000 clients across over 400 outlets• Net book value on fully provided, nil premiumbasis• ~$2.2b lending assets & ~$0.4b deposits• ~10,000 banking customers• ~100 Relationship Management Staff

Acquired the LFS loan and deposit books,
the lending and deposit taking divisions ofLandmark• ~45 Support staff• ANZ / Landmark to enter exclusive customer
referral agreement:

FinanceInsurance

Fertiliser• Access to ~100,000 Landmark rural service
customers (~85% of Australian farming
entities)

Landmark
Livestock
Merchandise• Access through extensive network

Farm
Services

11

Wool

Real
EstateANZ has continued to invest for growth notwithstanding
recent tougher economic conditions
Revenue and Expenses

8%

6%

FY06

Net Profit by region

Pro Forma
17%1
12% Basis
12%
10%
9%
8%
7% 8%

FY07
Revenue

FY08

FY09

FY10

Expenses

Net Profit after tax2

Provision charges

1.
2.

Pro forma basis assumes ING Australia and New Zealand, Landmark and Royal bank of Scotland Asia acquisitions took effect from 1 October 2008
and also adjusts for exchange rate movements which have impacted the FY10 results.
FY06-07 presented on a cash basis, FY08-10 presented on an underlying basis adjusted to reflect the ongoing operations of the Group.
12Group loans and deposits
Group Customer Deposits (A$b)

Group Net Loans and Advances(including acceptances) (A$b)
Loan to Deposit Ratio Sep 2010 – 140%

Loan to Deposit Ratio Sep 2006 – 171%1

1

1. Includes Wealth and Other

Regional performance: Overview

13

Net loans and advances1 by geography
Australia

GrowthNew Zealand (NZD)

APEA (USD)

FY07

FY08

FY09

FY10

FY07

FY08

FY09

FY10

FY07

FY08

FY09

FY10

13%

15%

(1%)

6%

13%

11%

(1%)

(1%)

31%

99%

(14%)

45%

A$b

2
1. NLAs include acceptances 2. Retail includes Wealth and Group Centre

Regional performance: Overview

14

Customer deposits by geography
Australia

GrowthNew Zealand (NZD)

APEA (USD)

FY07

FY08

FY09

FY10

FY07

FY08

FY09

FY10

FY07

FY08

FY09

FY10

20%

12%

14%

7%

7%

5%

2%

0%

26%

69%

31%

72%

A$b

1
1. Retail includes Wealth and Other

Regional performance: Overview

15Diversified lending portfolio, weighted to secured
mortgage portfolio
Net Loans and Advances (including acceptances) by product line
361

(A$b)
1

(A$b)

172
1

47

(A$b)

90
52

1. Includes Wealth.
16

Investor Discussion Pack

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
January 2011

Australia Division

Australia Division – high value strategy has delivered
Pro Forma Basis2

Profit Before
Provisions growth

Australia Division Revenue & Expense growth1

Pro Forma
Basis2

Provisions

Net Profit after tax

1.
2.

2005 to 2008 based on “Personal Division” structure, 2009 and 2010 based on “Australia Division” structure,
Pro forma basis assumes ING Australia and New Zealand and Landmark a acquisitions took effect from 1 October 2008.

Australia

18

ANZ’s Super Regional strategy provides opportunities
across our Australian business
Retail
• By 2015 15% of the Australian population will be of
Asian origin

Migrant banking
platforms

In-country Business
Development
Managers

Asian banking
specialists acrossmajor capital cities

Cultural competency
education programs

Regional productpropositions

Private Bank

Building Common
products & platforms

Building Common
strategic disciplines

Regional customer
proposition

Regional
talentpool• Student volume is driving much of the in-flow from
Asia (particularly China, India and Korea)• Implementation of a global retail operating model
coupled with supporting infrastructure

Wealth• Differentiated services for Asian customer segments
linked to our regional proposition and product offer
including the Private Bank

Commercial• Over 50% of domestic customers depend on Asia forover 25% of their business• Links into our Institutional strategy – supported byinvestment in trade, cash and markets products• Customer insight in particular around resources,
agriculture and infrastructure

19Retail building on a strong customer franchise, revenues
impacted by fee changes and higher cost of funds
Pro Forma Basis3

Revenue growth

Expense growth• iKnow platform providing frontline staff withimproved customer insights and support• Renewed focus on customer service andexecution in Mortgages. More in-branch andMobile Managers and increased investment
in back office support• Deposit growth delivered throughdisciplined strategy• New products and packages including
Merchant EPOS, GoMoney iPhone app, ANZ
Extras package and prepaid cards

Leader in customer
satisfaction amongst the
major Australian banks1

Provision growth85Market share2(% of market share)2010 mortgage growth(Multiple of system)3% satisfied or very satisfied1
Growth of 1.4x system

80
75

NPAT growth

70
65

ANZ
Peer 2Peer 1
Peer 360
Oct-081.
2.
3.

Apr-09Oct-09Apr-10

Oct-10Roy Morgan Research ; Aust Main Financial Institution Pop‟n aged 14+, % satisfied (very or fairly satisfied), rolling 6 months
APRA / RBA statistics, Cannex. 3. APRA statistics
Pro forma basis assumes ING Australia and New Zealand and Landmark a acquisitions took effect from 1 October 2008.
20

Australia: Commercial
Pro Forma Basis3

Revenue growth

Expense growth

Provision growth• Acquired Landmark Financial Services($2.2bn lending, $400m deposits)• Invested in more small businessspecialists.
• Esanda transitioned to a purely auto
financier with business equipment asset
finance now in ANZ Commercial channels• Commercial Banking lending growth of
10% (5% ex. Landmark)• Deposits relatively flat, impacted bydebenture run-off in Esanda ($1.5bn from
FY09)

Growing market share1

Credit approvals increasing

Growing share of wallet2(% of market share)

Credit approvals (3mth rolling avg)3
Index: Jan 2010= 100

Up 27%

NPAT growth

1.
2.
3.

DBM Business Financial Services Monitor, overall lending and deposit FUM,
Finance industry statistics, 3. Business Bank and Small Business Banking.
Pro forma basis assumes ING Australia and New Zealand and Landmark a acquisitions took effect from 1 October 2008.
21

Australia: Wealth
Pro Forma Basis1

Revenue growth

Expense growth

Provisions
FY10: 36m credit vsFY09 charge of 67m• ANZ assumed full ownership of ING's
superannuation, investment andinsurance businesses• Combined with ANZ Private andInvestment & Insurance businesses toform a single Wealth unit
• Strengthened customer
proposition, offering manufacturing anddistribution of investment and insurance
products and advice, privatebanking, trustees, investment lending
and E*TRADE broking.

Insurance in-force premiums

E*Trade volumes

Funds under Management

Up 14%$m
1,155

contract notes per day (6 month avg)$b

NPAT growth

Sep00

Sep02

Sep04

Sep06

Sep08

Sep10

1. Pro forma basis assumes ING Australia and New Zealand acquisition took effect from 1 October 2008.
22

1,312

Up 2%
40.7

2H10: 33m credit vs3m credit in 1H10

1,230

41.7

41.7

Investor Discussion Pack

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
January 2011

The Asia Pacific Europe & America
DivisionDeep onshore presence and strong network model
delivers connectivity to clientsFranchiseFranchise Markets

Network

Core markets for Institutional, Commercial, Retail & Wealth• Greater China• Greater Mekong1• India• Indonesia• Malaysia• Pacific

Regional Business Hubs
• Singapore

Greater China(33)• Hong Kong

India (1)
Malaysia
Singapore (6)Network markets are crucial to delivering pan-regional
integrated solutions to clientsIndonesia (28)
• Korea• UAE• Japan• Europe() - Number of branches and• Philippines• America
representative offices in each country• Thailand

Institutional Network markets

1. Focus on Vietnam

Hubs

24

Greater Mekong(31)
Pacific (60)Since 2008, we have prioritised our build out, enabling
us to become a credible competitor
1H 2008• Institutional network• Formed partnership with
South andSouth East Asia

North East
Asia, Europe &Americas

AmBank•••••Pan-regional Institutional/commercial businessTop 4 foreign bank in Indonesia

Largest foreign bank franchise in Greater Mekong
Pre-approval for Indian banking licence
AmBank an outperformer• Limited Institutional business• Two branches in China• Stand alone Europe & America• Pan-regional institutional banking network and• Limited institutional business• Deep on shore Institutional capability• Full Retail and Wealth, Private Bank and Commercial

business

with few customers

Hubs

Today

• Ex-pat focused Private Bank

customer base• Taiwan –full franchise• China – Branches in top 4 cities + rural bank
• Europe & America - Interconnectivity

businesses• Full banking license in both Hubs

25

APEA: Balance sheet momentum1
2010 loan and deposit growth byregionAPEA loans & deposits (US$b)
RBS2

Dep.

Loans

2H10

5.0

2.8

1H10

1.5

0.4

APEA

APEA Current & Saving accounts

Asia

Pacific

Europe &America2010 loan & deposit growth by segment(CASA) (US$b)

Includes accounts from
RBS acquisition

Retail Asia

Retail Pacific

1. All figures based on USD financial information. 2. loans and deposits (in US$b) for the RBS acquisition, includes
Vietnam, Philippines & Hong Kong in 1H10, Taiwan, Singapore & Indonesia in 2H10

APEA

26

Instit.

WealthBusiness strategy allows for efficient use of APEA's
liquidity surplus• Focus on affluent and emerging affluent client segments
Business
Strategy• Building a substantive DCM and Cash Management
capability and investor client baseThis focus allows us to:• Fund our own regional growth in a less expensive andsustainable way• Take Australian and New Zealand clients to the Asian debt
markets

Efficient use of APEA
Liquidity surplus• Opportunity to provide Australian and New Zealand clientswith diversified funding structures, through assets written
in Asia• Access deep pools of liquidity throughout the region inparticular in North East Asia (e.g. Japan, Taiwan)• Contribute positively to the Group balance sheet27

Becoming a top four Institutional bank in Asia Pacific
Value Proposition

Customer Segments• Be a core wholesale bank to our clients
Institutional

MNC / Regional Corporate• Leveraging our strengths:– Regional network and connectivity– AA rating
Commercial

Emerging Corporate / SME– Deep insights – geographic, industry, client– Experienced Asian bankers

Financial Institution& Public Sector• Out-deliver on service and speed• Focused and deep product capabilities – Cash, Trade, Rates and
FX, Commodities and Debt Capital Markets

28

We are delivering for Institutional and our clients
across Asia and the PacificRegional Connectivity

ExamplesEuropean and US Multinational
companies accessing Asia

• Mandated Lead Arrangers with BNP and
HSBC• US$411m (2.7x launch size)-maiden Asian
syndication bond

Asia Funding for Australian and
New Zealand institutional
clients• Raised US$1,100m (3.7x launch size), mostinvestors new to client• Demand driven by companies with strong
Asian business links• Lead arranged the 3-year club syndication

Asian migration into Australia
and New Zealand –trade, investment and people

refinancing facility for LaSalle Investment
Management Asia's 50% stake in Westfield
Doncaster Retail Mall.

Intra-Asia trade and investmentflows• Joint lead managers for NZD225m Kauri
bond issuance• Demand from New Zealand (59%) and Asia
(37%)

Intra Pacific and Asia deals• Lead arranger of US$14b financing for PNG
LNG project• Largest debt raising in Asia Pacific29Our Retail & Wealth and Private Bank will deliver local
and regional banking to the affluent in each market• HNW, Affluent & Emerging Affluent
Customer segments• Owners, management and staff of our institutional andcommercial clients

Position and Value Proposition• Three critical value proposition themes – “Understands andrecognises me”
Retail and Wealth• Based upon relationships, customer advice not product led• Accessible across the region – Pan regional Signature
Priority Banking branches• Banking the family• Meeting the holistic financial needs – savings, protection tocreditPrivate Bank

• A trusted advisor with an understanding of personal,
professional and business needs• Leveraging ANZ‟s Institutional and Commercial business to
attract customers

30

Five key partnerships expand our organic agenda
 Double play in high growth, high returnmarketPartnership Model Focus on our key segments (Commercial,
Affluent & Emerging Affluent)• Significant influence Scale (Number 5 by assets & deposits) ina closed market• Exposure to growth markets
and segments we can‟tcurrently access ANZ significant driver of leap in
performance (market cap increase
56.4% 2008 – 2010)• ANZ adds value through Exposure to Shanghai – Top Commercial/ Wealth City in China- leadership & management,- product development,- technical expertise and- two way customer flows

 Focus in Commercial & Retail segmentscomplements our organic focus
 Play on fourth largest city Commercial
Centre in China
 Provides exposure in a market in which
we do not have a branch presence• Solid financial returns for ANZ

 Fourth largest credit card issuer• Potential for long term
strategic positioning Provides access to profitable segment ofretail market

31Organic growth a key driver of strategy

2008

2009

2010

2011

2012+

Develop strategy andbuild business modelContinue organic
growth with bolt-ons• Build substantive Institutional• Organic growth anchored by
Institutional / Commercial• Deepen organic growth inhubs and franchise countries• Build Singapore and Hong

• Rapid build out of Retail and
Wealth and Private Bank

• Build South East Asia business• Complete RBS acquisition andintegration• Commence build-out offranchise in second wave
marketsbusinessKong hubs• Created business model for

Retail and Wealth and Private
Bank – scaled up with RBS• Continue to focus on liability
growth• Build risk and governance• Deepen influence in five key
partnerships• Obtained licences• Continue to build out
technology and operational
platforms

model

32

Extend and deepen
franchise• Seek inorganic opportunities
to build scale

Investor Discussion Pack

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
January 2011

The New Zealand DivisionOur strategy is to fully leverage ANZ’s leading market
position to deliver superior growth and returns
Leveraging leading market sharepositions1

Two strong banking brands with apowerful market presenceMarket share1
39%

39%

33%

Well diversified portfolio, weighted
to Residential Property
Net Loans & Advances including Acceptances
March 2010

1.

RBNZ and TNS New Zealand Ltd Business Finance Monitor 2. Commercial Main Bank Share34

New Zealand - Retail & Wealth
Retail

Wealth• Asset growth flat, system growth
rates subdued• Income impacted by removal of
exception fees, margins
improving, costs impacted bymarketing phasing• Share of new mortgage businessincreasing in the <80% LVR market
and overall mortgage growth in thelater part of 2010

• Wealth profitability favourably
impacted by ING NZ full ownership

Retail Net Profit after Tax

Wealth growth rates

Pro Forma Basis2

Revenue growth

Expense growth• $1.5 billion KiwiSaver FUM withover 360,000 customers, #1 withgrowing market share (24.1%)• 19.4% growth in ING Life
Businesses InForce book
• ANZ Private Bank named BestPrivate Bank in New Zealand1
FY10

Provision growth

NPAT growth

1.
2.

NZD m

2H10

2010 Euromoney Private Banking Survey
Pro forma basis assumes ING Australia and New Zealand, Landmark and Royal bank of Scotland Asia acquisitions tookeffect from 1 October 2008 and also adjusts for exchange rate movements which have impacted the FY10 results.
35

New Zealand - Commercial
Pro Forma Basis1

Revenue growth

Expense growthCommercial

Rural• Leveraged Shanghai Expo as anopportunity to connect customers toAsia and demonstrate regional
capabilities• Privately Owned Business Barometerconsolidates thought leadership andcustomer connections as market leader• Strong UDC performance taking
advantage of relative strength infinance company sector• Clear improvements in customer
satisfaction, with ANZ score increasingfrom 58% to 69%

Provision growthCommercial NPATNZD mRural NPAT

(excl. Rural)

NZD m

NPAT growth

113
66
(5)
1H09

1.

• Higher Rural incomes with Fonterra
forecasting the third highest dairy payout
on record• ANZ continues to support customers
through this period of increased volatility
in product prices• Greater focus by borrowers on cash
returns and liquidity with many using
increased incomes to reduce debt
• Provisions are expected to improve as
farmers de-leverage• Seminars conducted across the industry
covering topics such as governance, large
business management and financial
understanding for young farmers

2H09

49
1H10

2H10

Pro forma basis assumes ING Australia and New Zealand, Landmark and Royal bank of Scotland Asia acquisitions tookeffect from 1 October 2008 and also adjusts for exchange rate movements which have impacted the FY10 results.
36

New Zealand - Institutional
Pro Forma Basis2

Revenue growth

Expense growth• ANZ continues to dominate theNZ institutional segment• Connecting customers to Asiaand demonstrating ANZ regional
capability with Shanghai World
Expo and Kiwi Day roadshows in
Asia

Customer revenue
down 14m

Strong Customer Relationships
New Zealand Relationship Market Penetration1 (%)• Extending its position as clear
market leader with customers(outstanding results across 5Peter Lee Associate surveys)• Leadership of Debt CapitalMarkets and Syndication loan
league tables• Market leading innovative client
solutions, e.g. 1st HKD bondissue, ECA financing

1.
2.

Trading revenue
down 161m• Second half expense growth
driven by investment inpayments systems• Awarded INFINZ bank of theyear for focus on customers anddeveloping growth opportunities
for NZNPAT growthInstitutional NZ
2010 Financial Performance

ANZ

Peer 1

Source: Peter Lee Associates Relationship Banking survey, New Zealand, 2010. Sample size 2009 N=132, 2010 N=135
Pro forma basis assumes ING Australia and New Zealand, Landmark and Royal bank of Scotland Asia acquisitions took effectfrom 1 October 2008 and also adjusts for exchange rate movements which have impacted the FY10 results.
37

Peer 2Peer 3Investor Discussion Pack

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
January 2011

The Institutional BusinessGlobal Institutional business focus redefinedFoundations laid

Revenue Contribution by Product• Strengthened the Institutional Leadership
Team, additional team members withinternational experience• Starting to execute the technology andoperations roadmap• Improving capital discipline• Exiting non-core businesses• Delivering record pre provision profits• Substantive progress in remediation
completion

Clear goals set• To become the bank of choice for Resources
and Infrastructure in the region

Global Markets
Lending
Trade & Transaction
Banking• Building leading cash, trade and markets
platforms with capabilities acrossAustralia, NZ and Asia

• Targeting significant growth in customer
relationships• Generating well balanced and sustainableearnings across geographies and segments
39

Increased focus on core customers and geographies
Over 3,500 active Institutional and Corporate
customers supported by over 5,000 staff

A single global team services customer
needs across the network• Corporate banking customers: t/over $40-400m• Global representation supports customers
based in Australia, New Zealand, Asia
Pacific, Europe and America geographies• Institutional customers: t/over >$400m• Domestic presence in Australia and New
Zealand for over 170 years

Customer relationship sectors• Banking a full range of customers• Building dominance in a limited number ofsegments• Asian representation commenced over 40
years ago and we now have a presence in 15
Asian markets

Global lines• Natural resources
Priority segments• Infrastructure• Agribusiness• Financial institutions & public sector• Institutional regional hub established in Hong
Kong (centralised support functions for APEA
institutional business)• Branches in Europe and North America
ensure global network coverage

Other lines• Property• Diversified industrials• Consumer and services• Telco‟s, media, entertainment and technology• Corporate Banking

40Regional networks, superior insights & service
underpin the competitive advantage

Competing globally requires
superior insights and service

Regionally Networked Model• A lead regional bank servicing
clients with pan regional needs• A strong regional branchfootprint• Single platforms for Cash, Trade
Offeringand Markets offering fully
networked seamless platforms
across the region• Deliver insight through industry
sector and regional specialisation
Why?

• Have a sound network throughAsia Pacific to build upon
• Uniquely placed to offer better
insight to region

How?

• Invest in technology and productdevelopment• Grow relationship teams in key
geographies• Focus on lead sectors andproducts• Building platforms offers viable alternatives• Offering a global service proposition andsetting clear service expectations• Research and innovation at the coreprovides a competitive advantage overscaled and standardised models• Drawing on insights into customer
industries, the region and the financial
markets adds significant value

41

Global Institutional – a focus on growing core customer
relationships supporting income performance
Customer Growth>1,100 new relationship managed
customers ex-acquisitions

Customer Income1

Cross Border Income

Super Regional strategy increasingly
capturing cross border revenue flows

14% CAGR

Domestic
BookedStrong Customer Relationships

21%

Debt Capital Markets a key strength• Peter Lee Associates survey of corporate andinstitutional clients in Australia ranked ANZ:

• #1 Bookrunner in Australia/NZ for Q1-Q3 2010 interms of volume and number of transactions

 First, or equal first, on 14 of the 26 qualitative
relationship categories (up from 8 in FY09)• #1 Mandated Lead Arranger in Asia-Pacific (ex Japan)
for Q1-Q3 2010 in terms of number of transactions

 First in "overall penetration" (domestic plus
offshore)• #1 Arranger of syndicated loans in Asia-Pacific (exJapan) over the last five years in terms of total loan
volume on a cumulative basis• Peter Lee Associates survey of corporate andinstitutional clients in New Zealand ranked ANZ
first on overall satisfaction, relationshipstrength, penetration and a further 17 measures• #1 on the A$ Corporate Bond League Table (INSTO)• #1 in the utilities & infrastructure sector - ANZ has
led over half of all Australian utility and infrastructuretransactions and raised over A$2.3bn in this sector• These results reflect the strength and quality of ourclient relationships
1.

Cross
BorderTotal income adjusted for Global Markets trading income.

42

Global Markets
Product Contribution

Global Markets Income% Total Income

Sales & Trading Mix (A$m)1
2,062
1,225
857

43%

36%

29%
71%

49%

1,816

51%

57%

64%

Whilst lower than 2009, market
volatility evident in 2010

• Capital Markets growth underlines the benefits ofAsian network expansion, ensuring we are wellplaced to connect our institutional customers with
Asian liquidity pools.
• Income diversification by geography and productline helping to offset revenue normalisation as
volatility recedes.
• 2H10 investment in Global Markets management
team to deliver scalable growth in coming years.

1.

FX Adjusted.

Global Institutional

43

Global Institutional P&L drivers
Underlying Performance1

Business Segment Performance1

YOY Movement (FY10 vs. FY09) A$m

YOY Movement (FY10 vs. FY09) A$m

large

14%

(22%)

large
2

2%

14%

(46%)

23%

Geographic Performance1
YOY Movement (FY10 vs. FY09) A$m

Up 29%

2H10 vs
1H10
1.
2.

3%

10%

(29%)

2%

13%

Pro forma basis assumes Royal bank of Scotland Asia acquisition took effect from 1 October 2008 and also adjusts for exchange
rate movements which have impacted the FY10 results. .
Increase largely due to provisions in FY09 related to divested custody business.
44

Investing across the business in systems and people
Expense Growth1
YOY

HOH

Asia Pacific, Europe & America• Continued investment in growing the Asia franchiseand driving customer acquisition• Investment in support infrastructure to underpin
revenue growth

31% 13%Australia• Investment in frontline capability - people and CRM
tools - to drive revenue uplift• Rollout of cash management platform (Transactive) with in excess of 2,500 Institutional clients now onboarded.

10% 8%• Investment in systems to enhance process automationand integrated work flow management and inenablement staff to ensure an efficient, well controlledenvironment

New Zealand• Strong cost management led to a YoY reduction in
expenses• HoH increase reflects investment in payments systems(1%) 16%
1.

(including settlement before interchange) and in cash
management platform

Pro forma basis assumes Royal bank of Scotland Asia acquisition took effect from 1 October 2008 and also adjusts for exchange
rate movements which have impacted the FY10 results.

Global Institutional

45

Predicated on disciplined execution
Significant growth opportunities

Implementation priorities

Estimated addressable Cash Management
Revenue pools

Sustained customer growth• Deepening relationships with existing 3500
active clients• Targeting a significant number of new
customer relationships already identified:o Over 50% of customer growth expectedfrom APEA, 25% from Corporate

($b)
17%
of pool

Process redesign• Simplifying operating platforms andstandardising procedures

Risk management• Effectively partnering with risk and introducing
industry specialists in priority markets
Equipping the team
• Building a high performance culture• Recruiting and training acrossAsia, Operations, Relationships, Cash, Markets
and Trade• Investing heavily in institutional banking
executive leadership and product expertise• Significantly expanding research capabilities
within priority segments* Korea, Thailand, Vietnam46

Priority segments – Natural resources & Agriculture
Natural resources

Agriculture• Well positioned to develop a super regional
natural resources business linking
Australian producers with Asian processors
and consumers• Growing soft commodity demand from Asia

• Well positioned for Australian and NZ
Corporate and Institutional agricultureclients> Clients and representation in all majordomestic cities, major financial centres
globally and 15 Asian markets• Primary emphasis on providing
Markets, Working Capital and supply-chain
solutions to clients• Strong Australian natural resources clientbase and an established and growing
network in Asia

• Revenue streams centred on trade and FX
which are already core competencies• Revenues exceed that of the other 3 majordomestic banks combined• An organic growth strategy with increasing
wallet penetration of existing clients as wellas capturing identified targets.

• Specialists mineral mining, oil &gas, mineral and oil and gas
processing, commodity trading, primary
services segments• Markets include cereals & sugar, protein
cotton, Dairy and Oil Seeds

47

Priority segments – Infrastructure
Addressable revenue in APAC
Infrastructure market set to grow to$5.5b• Goal to become a leading commercial
Infrastructure Bank in the Asia PacificRegion• Maintain dominant position in Australia and
NZ and invest selectively in Asia

(A$m)

• Infrastructure specialists, by adding
Advisory, Equity placement, underwriting
and DCM to lending and markets
capabilities.
• Focus on power and utilities corresponding
with Asia demand in this category• ROE enhancing by reduced requirement ofbalance sheet• Segments include Power &Utilities, Economic Infrastructure(roads, airports etc) and Availability
Infrastructure• The New Zealand Government has announced
a significant National Infrastructure Plan and
we are uniquely positioned to assist

48

Debt
Txn. Banking
AdviceMarkets
Debt Capital Mkts.
EquityPriority products – Cash Management & Trade
Cash Management

Trade• Support trade flows between our core
operating geographies• Vision to be a lead provider of pan-regional cash
management solutions via a single transactional
interface• Build on strong market position in Australia
and established presence and reputation as atrade bank in Asia

• Estimate the Asia Pacific wallet for cash
management services at $20b
• A significant driver of cross-sell revenue

Estimated market share of AustralianInstitutional Trade Business• Investment agenda centred around people andtechnology and designed to accommodate
substantial growth in customer numbers andtransaction volume• Rolling out ANZ Transactive, a web-based cash
management platform purpose-built for
institutional, corporate and large businessclients

International Peer
Domestic Peer49

Priority products – Regional Rates and FX; Commodities
and Debt Capital Markets
Commodities

Regional Rates and FX• Commodity revenue split: Hedging exposures of commodity producers
and consumers ~ 60% of revenue
 Trading for customers ~ 40%• Growth opportunities include capturing hedging
opportunities in domestic agri/ middle market
and commodity consumers in Asia

• Largest domestic markets business• FX revenues growing at 40% pa since 2007,• Aus/NZ/Pacific Niche, opportunity to expand into
Asian currencies & clients(to become Asian USD specialist)• Rates revenues growing at 75% pa since 2006
• 5 key rates components, natural growth
opportunity as Institutional expands:
 Hedging client interest rates
 Hedging client currency futures and swaps(as driven by rate differentials)
 Selling investors Gvt. and Semi Gvt. bonds
 Rates and credit trading Managing ANZ‟s balance sheet

Debt Capital Markets• Uniquely positioned with Super Regional

strategy, with significant Asian Capital Market
revenue pools• Borrower / investor multiplier effect• We raise more debt capital in Asia forAustralian and New Zealand borrowers thananyone else
ANZ
Borrowers
Seeking accessto low costcapital andrelated hedging• Corporates• Financial
Institutions• Public sector

•
•
•
•
•

GlobalCapitalMarkets
Team
Research,
adviceLoan
syndication
Bonds
Securitisation
Hedging

Investors
Seeking diverseand quality
credit exposure• Wholesale(funds• insurers)• Public sector
50

Our Institutional client transactions tell the story
Debt Capital Markets

Project, Asset & Export Financing

USD 600mn

SGD 1bn

AUD 1.75bn

USD 600mn

USD 263.7mn

AUD 1.179bn

Senior Unsecured Bonds

Senior Unsecured Bonds

Melco Crown Entertainment

Temasek
Joint Lead Manager andBookrunner

Acquisition of CSR Limited‟ssugar and renewable energy
business, Sucrogen Limited
Wilmar International

Finance for deliveries from
Nokia Siemens Network
ECA: Finnvera
Telkomsel

Financial Advisor

Term Facilities to refinance Hope
Downs 1 & fund development of
Hope Downs 4 iron ore projects
in Western Australia
Hope Downs Iron Ore Pty Ltd
Mandated Lead Arranger

Lender2010

Finance of the acquisition of
Port of Brisbane by Q Port
Holdings Consortium
Mandated Lead
Arranger, Facility Agent andSecurity Trustee

November 2010

2010

November 2010

AUD 478mn

NZD 150mn

Construction and Term Facilities
for the 206MW Collgar Wind
Farm in Western Australia

Finance for Meridian‟s purchaseof Siemens wind turbines for the
Te Uku wind farm
ECA: ELO/EKF
Meridian Wind Farm
Arranger & ECA Agent

Joint Lead Manager andBookrunner

2010

2010

PHP 2bn

SGD 500mn

AUD 3.1bn

AUD 461.572mn

Senior Unsecured Bonds

Senior Unsecured Bonds

Metrobank Card Corporation

Singapore Airlines

Project Financing of Collgar
Wind Farm
ECA: EKF/ELO
Collgar Wind Farm

Joint Lead Manager andBookrunner

Joint Lead Manager andBookrunner2010

June 2010

Structuring and arranging for
expansion of coal export
terminal to 53Mtpa
Newcastle Coal
Infrastructure Group
Financial Advisor

Syndication

INTEGRATED AUD
65mn SOLUTION

Syndicated Term Loan Facility

Syndicated Term Facility

Cash & transaction
management, FX/Interest rate
hedging and secured financing
Starhill Global REIT
Acquisition of David Jones
Building in Perth

Woodside Petroleum Ltd

Origin Energy

Mandated Lead Arranger andBookrunner

Mandated Lead Arranger andBookrunner

2010

2010

AUD 430mn

USD 1.0bn

Syndicated Term Loan Facility

Syndicated Term Facility
Sinochem Hong Kong
(Group) Company Limited
guarranteed by Sinochem
Group
Term Loan Facility Mandated
Lead Arranger & Bookrunner2010

Mandated Lead Arranger, ECA
Arranger and Agent, Facility
Agent and Security Trustee

March 2010

Transaction Banking

AUD 2.3mn &USD 200mn

Qantas Airways Limited

June 2010

2010

USD 1.1bn

Mandated Lead Arranger,
Underwriter and BookrunnerManaged Lead Arranger,
ECA Arranger & Advisor

August 2010

USD 200mn
Financing and working capitalfor palm oil plantation interests

New Britain Palm Oil

GBP 75mn
USD 150mn
Bi-lateral Letter of Credit
Facility to meet regulatory
requirements in UK and US
QBE Group

Mandated Lead Arranger

Letter of Credit Facility

2010

2010

November 2010

TRANSACTIONBANKINGCASH
MANAGEMENT

SGD 223mn

Internet banking platform forregional hub

Sole Provider of Transaction
Banking and Merchant Services
in Australia

CMC Markets Singapore

Vodafone Hutchison
Australia

December 2010

2010

51

Securitisation warehouse –credit card receivables
Card Centre Asset Purchase
Company

September 2010

April 2010

Investor Discussion Pack

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
January 2011

TreasuryANZ’s strong capital ratios are fully reflected whenmeasured consistently across various jurisdictions
Sep 09Mar 10

Sep 10FSA Sep 10

Core Tier 1(1)

9.0%

8.5%

8.0%

11.3%

Tier 1

10.6%

10.7%

10.1%

13.5%

Total Capital

13.7%

13.0%

11.9%

15.2%

Capital Update:

Capital Agenda:• ANZ‟s capital strength reflects ongoing economic
and regulatory uncertainty and the Group‟s aim
to maintain flexibility• Net organic Tier-1 generation +22bps:
 Underlying earnings net of dividends+119bps;
 RWA growth -48bps (principally non tradedmarket risk); Profit retention in Insurance and banking
associates (-23bps) and software (-11bps)• Impact of acquisitions reduced Tier-1 by
131bps, partly offset by net Tier-1 hybrid
issuances (+63bps)• 74 cent Final Dividend up 32% PCP (FY10 $1.26
up 24% PCP)
• 1.5% DRP discount retained to provide capitalflexibility and continuity for shareholders• Continue to be well capitalised and consistent with
“AA” long term credit rating category• Manage Basel 3 implementation:
 Final Basel 3 regulations on capital
deductions, minimums and buffers, and Tier-1
and Tier-2 regulations expected Dec-10
 Engage APRA throughout FY11 on interpretationand implementation of these changes
 Full alignment to proposed Basel 3 guidelines
would result in an increase in Core Tier-1 ratio
from current levels
 However, APRA have indicated the Basel 3 rules
are likely to be viewed as a minimum standard

1. „Core Tier 1‟ = Tier 1 excluding hybrid Tier 1 instruments

Treasury

53

Core Tier-1 level remains strong and well positioned
Capital Position (Core Tier-1 Ratio)

Portfolio growth & mix

19bp decrease

Risk migration

3bp increase

Portfolio data review

4bp increase

Non credit RWA

27bp decrease

ING

79bp

decrease

RBS

20bp

decrease

Landmark

7bp

decrease

Integration Costs

10bp

decrease

ING Debt Funding

9bp

decrease

Net organic up 34bp
Down 91bp

1

3
2

1. Underlying NPAT. 2. Includes impact of movement in Expected Loss versus Collective Provision shortfall, 3. Includes ING
Insurance Business, Asian Banking Associates, Capitalised Costs and Software, FX, Net Deferred Tax Assets, Pensions, MTM
gains on own name included in profit

Treasury54

Tier-1 position reduced during FY10 due to recent
acquisitions partially offset by Hybrid issuance
Capital Position (Tier-1 Ratio)

Portfolio growth & mix

23bp decrease

Risk migration

4bp increase

Portfolio data review

5bp increase

ING

79bp

decrease

Non credit RWA

34bp decrease

RBS

24bp

decrease

Landmark

9bp

decrease

Integration Costs

10bp

decrease

ING Debt Funding

9bp

decrease

Net organic up 22bp
Down 46bp

1

3
2

1. Underlying NPAT. 2. Includes impact of movement in Expected Loss versus Collective Provision shortfall. 3. Includes ING Insurance
Business, Asian Banking Associates, Capitalised Costs and Software, FX, Net Deferred Tax Assets, Pensions, MTM gains on own name included in
profitTreasury

55

Reconciliation of ANZ’s capital position to FSA
Basel 2 guidelines
APRA regulations are more conservative than current FSA regulations, in that APRA requires:• A 20% Loss Given Default floor for mortgages (FSA: 10% floor)• Interest Rate Risk in the Banking Book (IRRBB) included in Pillar I risks (FSA: Pillar II)• Capital deductions for investments in funds management subsidiaries (FSA: RWA assets)• Insurance subsidiaries to be a mixture of Tier 1 and Tier 2 deductions (FSA: transitional regulations permit
Total Capital deductions under certain circumstances)• Expected dividend payments (net of dividend reinvestments) to be deducted from Tier-1 (FSA: no deduction)• Collective Provision to be net of tax when calculating EL v CP deduction (FSA: tax effect difference between EL
and CP on gross basis)• Associates to be a mixture of Tier-1 and Tier-2 deductions (FSA: permits proportional consolidation undercertain circumstances)
Core Tier-1

Tier 1

Total Capital

Sep-10 under APRA standards

8.0%

10.1%

11.9%

RWA (Mortgages, IRRBB)

1.2%

1.4%

1.6%

ING Funds Management and Life Co. businesses

0.8%

0.8%

0.3%

Final dividend accrued net of DRP & BOP

0.5%

0.5%

0.5%

Expected Losses v Collective Provision

0.2%

0.2%

0.3%

Insurance subsidiaries (excluding ING businesses)

0.2%

0.2%

0.0%

Investment in associates

0.2%

0.2%

0.4%

Other1

0.2%

0.1%

0.2%

Total adjustments

3.3%

3.4%

3.3%

Sep-10 FSA equivalent ratio

11.3%

13.5%

15.2%

1. Other includes Net Deferred Tax Assets, Capitalised Expenses, Deferred Income and roundings.

Treasury56

Basel 3 & APRA Regulatory reform - CapitalBasel Committee Announcements

What remains outstanding under B3?

To date, the Basel Committee has announced:• New capital targets and buffers• Timetable and transition rules for implementation ofBasel 3 from 2013 – 2019
• Higher Core Tier-1 capital deductions: insurance
businesses, banking associates, and shortfall of EL v
CP, partly offset by 10/15% threshold allowance for
insurance/banking associates and deferred tax assets• Higher RWA charges for market & credit risks andsecuritisation assets• Leverage ratio based on Tier-1 capital

•
•
•
•

Methodology for determining countercyclical buffer
Final requirements for Tier-1 & 2 instruments
Contingent and „bail-in‟ capital requirements
Capital overlays for systematically important banks

ANZ position under B3 rules:• ANZ‟s estimated Core Tier-1 position under full B3 rules isabove the proposed 7.0% min.
• Position will remain uncertain until APRA finalises domestic
rules and re-calibration. Recent indications are that local
rules will at least meet the proposed new global standards• Leverage ratio unlikely to be a binding constraint
Core Tier-1 surplus
over 7.00%

8.0%

9.5%

~9.2%1
7.0%Counter
cyclicalbuffer2
0-2.5%

CapitalBuffer:2.5%

Additional Basel 3
requirements~ -140bps

Full alignment to Basel~ +260bps

Minimumtarget:4.5%

2

1. Subject to change pending final form of regulations
2. Counter-cyclical buffer expected to be comprised of Core Tier-1, Tier-1 Hybrids and contingent capital.

Treasury57

Improved funding profile achieved, stable term debt
issuance
Stable term funding profile

Key Funding Metrics• 82% of all funded assets financed by equity, deposits &LT debt (was 78% as at Sep „09 & 71% Sep „08)

Issuance

Maturities• $26.4b of term funding (including $2.4b of pre funding
and $2b CPS2 hybrid) issued in 2010
• Weighted average term of new issuance was 4.7yrs• Similar term funding task for FY11 of ~$25bn; 10% of
which has been pre funded• $13.5b of surplus APEA funding provided to Aus/NZ• Offshore short-term wholesale debt makes up 2% of
total funding for the Australian & NZ geographies

Funding Composition Improved
Short Term Wholesale
Funding
Term Debt < 1 year
Residual Maturity
Term Debt > 1 year
Residual Maturity
Customer Funding
Shareholders equity& Hybrid Debt

Treasury58

ANZ’s term debt issuance consistent and well diversified
Marginal term funding costs havestabilised but average costs continue
to increase as portfolio reprices

APEA funding benefit reduces
term debt issuance by ~10%

APEA surplus
deposits

Domestic
AUD/NZD

Offshore Private
Placements
Multi-currency

Japan
JPY

UK & Europe
EUR / GBP / CHF

North
America
USD/CAD

Offshore public benchmarks account for lessthan half of ANZ’s annual term debt issuance

Treasury59

Strong Liquidity Position leading into proposed B3changesBasel III Liquidity Developments

Maintaining post GFC liquidity
position ($b)• Reduction in required core funding of mortgages
from 100% to 65%• Improved treatment of „Retail‟ and „SME‟ deposits• Allowance for high grade corporate and coveredbonds as liquid assets• Recognition of jurisdictions (incl. Australia) thathave insufficient qualifying liquid assets.
Allowance for a committed liquidity facility from acentral bank to be used – at a fee• Extended transition period

Impacts

Composition of liquid asset portfolio($66.7b)Class 1

Class 2

Class 3$28.9b$7.3b$30.5bGovernment/ Semi Govt. / Govt.
Guaranteed bank paper, NZ cashwith RBNZ, supranational paper

Bank or Corporate
paper rated AA or
betterInternal RMBS

Priority of use
Treasury

60• Liquidity Coverage Ratio will require additionalliquid assets (where available) to be held resulting
in higher core funding requirements (remaining
deficit meet via central bank facility)• This is primarily driven by non-operational
deposits from Corporates and Financial
Institutions, and short term wholesale debt
• Australian bank‟s no longer discouraged fromholding mortgages on-balance sheet• Given the lack of eligible liquid assets inAustralia, APRA will allow banks to meet their LCR
requirements through a committed liquidity
facility at the RBA backed by repo eligible stock• The banks will pay a fee for this facility in linewith cost of holding BIII eligible liquid assets

AUD strength presents a headwind for future earnings• ~1.2% negative impact, including current hedging positions, on FY11 EPS growth expected if the
AUD maintains current levels• NZD remains the most significant single currency revenue exposure• USD and Asian local currency earnings expected to grow as a proportion of total Group revenue as
Super Regional Strategy gains momentum• Hedging approach remains to put in place macro and specific currency hedges only when the $A isperceived to be significantly below fair value

FY10 profit before tax by currency

NZD
earnings

FY10 earnings: effective
average translation rate

USD & Asiancurrency
earnings

1.221

0.899

FY10 EPS impact(0.3%)(2.7%)

Hedging in place for
FY11

~40%
@ 1.20~40%@ 0.91

EPS sensitivity to 5c
move inc hedging

~0.1%

~0.5%

• In addition there is typically A$500m–750m of secondary FX risk due to non AUD & NZD revenues
generated primarily by Markets business in Australia and New Zealand.
Treasury

61

Investor Discussion Pack

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
January 2011

Risk Management

Credit Risk Weighted Assets
Credit RWA Movement FY10 vs. FY09

Total Credit Risk Weighted Assets
A$b

A$b

Acquisitions Impact:

Risk

63

RBS

$4.6b

Landmark$2.3b

Impaired Asset balance has reduced ex-acquisitions
Gross Impaired Assets

Gross Impaired Assets

By typeA$m

By size of exposure

A$m

New Impaired Assets
A$m

NPCCD – Non Performing Credit Commitments and Contingencies

Risk

64

By Segment

Watch & Control Lists and Risk Grade Profiles
Watch & Control List by limits(Mar 2009 Watch List index =100)

Group Risk Grade profile byExposure at Default

Index

Top 5 Watch List Industries
By Exposure

By No. Groups

Agriculture, Forestry & Fishing

Agriculture, Forestry & Fishing

MiningProperty Services

Finance & Insurance

Manufacturing

Property Services

Wholesale Trade

Manufacturing

Construction

Watch List - An alert report of customers with characteristics identified which
could result in requirement for closer credit attention
Control List - A report of high risk accounts which may or may not have defaulted

Risk

65

90+ days past due Australia
Australia Cards

Australia Mortgages

90+ day delinquencies

90+ day delinquencies

Australia Commercial
90+ day delinquencies

Risk

66

Australia Mortgages
Dynamic Loan to Valuation Ratio

Portfolio Statistics• All lending is on a full recourse basis

Sep 2010 - 84%

12%

4%

• Approvals require demonstrated
serviceability• ~830,000 loans on book
• 65% of portfolio owner occupied lending• Average loan size at origination ~$226k
Application Quality• Average LVR at origination - 63%

Average Score New Applications• Average dynamic LVR – 46%• No subprime mortgages• LoDoc 80 loans (80% LVR) make up lessthan circa 1.3% of portfolio and closed to
new flows

Risk

67

New Zealand – Risk Performance
Total Provision Charge

Total Impaired Assets and as % Gross
Lending Assets(NZ$m)(NZ$m)

90+ Days Arrears

68Commercial Property Credit Exposure
Commercial Property Exposure
by Sector

Commercial Property Exposure
GLA by Region (A$b)
7.5% of Group GLA‟s

27.2

28.2

29.6

26.1

26.7 27.7

69

Investor Discussion Pack

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
January 2011

Economics

Exceptionally strong investment outlook over next few
years
80

$bn
Communication sub-total
Water & sewerage Sub-total
Manufacturing Sub-total
Gas Pipeline sub-total
Electricity Sub-total
Mining Sub-total
Energy Sub-total
Airports Sub-total
Rail sub-total
Ports sub-total
Roads Sub-total

Uncertainty

70
60
50
40
30
20
10
0
2008

2009

2010

2011

2012

2013

2014

Sources: Access Economics and ANZ
71

2015

2016

2017

2018

2019

2020

The outlook for mining investment has rarely beenstronger
ABARE Advanced Mining Projects, June 2010

Sources: ABARE

72

Record population growth coupled with undersupply
Population growth vs. dwelling completions
450,000
Annual population
gain (lhs)

400,000

225,000

200,000

350,000
175,000
300,000
250,000

150,000

200,000
125,000
150,000

Annual dwelling completions(rhs)

100,000

100,000
76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

Sources: ABS, ANZ Economics and Markets Research73

Housing shortage has reached unprecedented levels

400

Housing market balance

„000

360
320
280
240

Underlying demand

200
160

Completions

120
80

Cumulative Shortage

40
0
-40

Surplus

-80
86

88

90

92

94

96

Sources: ABS, ANZ Economics and Markets Research

98

00

74

02

04

06

08

10

12

14

Recovery in dwelling prices has been broadly-based
Australian dwelling prices
125

Price index value
Top 20%120

115

Middle 60%

110

Bottom 20%

105

100

95
Jan-09 Mar-09 May-09 Jul-09
Source: RP Data Rismark

Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10
75

Changing composition in those seeking finance approvals
Housing finance approvals (value)

Sources: ABS, RBA, ANZ Economics and Markets Research76

Distribution of debt rather than the aggregate debt is a
key factor…
Increased household debt has been
directed towards residential
property, not personal consumption

And has been taken up by higher
income households with the capacity
to service

Source: RBA paper “Aspects of Australia‟s finances” 15 June 201077

Complexion of household debt

• Household debt up but also total
assets held by households• Debt largely used to acquire assets• Financial assets (i.e. ex housing)
now equivalent to 2.75 years ofincome up from 1.75 years ofincome in the early 1990‟s• Increased debt mostly taken on byhouseholds in the strongest position
to service it (high income quintile)• Households in the top two quintiles
account for 75% of all outstandingdebt• Bottom two income quintiles accountfor 10% of household debt

Source: RBA paper “Aspects of Australia‟s finances” 15 June 201078

Australian house prices
Fundamentals are sound• Nominal house prices and ratio to income elevated• House price to income ratio ignores interest rates / debt servicing• Fundamentals are currently very supportive• Housing shortage worsening• Cyclical upturn underpinned by resources boom and authorities well placed to respondto any future crisis

Household sector well placed• Economy/labour market solid, unemployment falling – few forced sales (historically a••

pre-requisite for significant price falls)
Low delinquencies reflect comfortable debt servicing
Lending standards critical to sustainability

Financial system solid

•
•
•
•

On balance sheet lending = incentives re. sustainable serviceability
Conservative lending = low delinquencies
Full recourse lending cf. US = less incentive to default
Variable interest rate policy works
79Conservative lending, supportive policy and strong
economy has meant a very resilient housing market

Source: RBA

80

Australian house prices have broadly tracked incomes
since 2004 (incomes rising strongly due to terms of trade)

18

House price to income ratio

Index

Australia

US

89

93

UK

New Zealand

16

14

12

10

8

6

4
81

83

85

87

91

95

97

Sources: RP Data-Rismark, RBA, ANZ Economics and Markets Research
81

99

01

03

05

07

09

A structural lowering (halving) of mortgage rates has
significantly improved debt serviceability
Mortgage interest rates
20
18

Australia

US

UK

NZ

16
14
12
10
8
6
4
2

On average, mortgage rates have halved justifying anear doubling of house price to income ratios

081 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Sources: ABS, Datastream, ANZ Economics and Markets Research82Increase in house price to income ratio almost fully
accounted for by the halving of mortgage rate
Median house Average household
priceincome$000's$000's
600

120

500

100

House price toincomeMortgage rate
%

ratio

16

6

14
5
12

80

400

4

10

300

60

200

40

8

3

6
2
4

20

100

1

2

0

0
1985

2009

1985

2009

0
1985

Sources: ABS, RBA, ANZ Economics and Markets Research
83

2009

0
1985

2009

Household incomes and consumption
Household disposable income & consumption
10%
Gross disposable income

Consumption spending

Savings rate
8Forecasts
6

4

2

0

-2
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: ANZ, RBA, ABS
84

Labour market is strong and supporting household
confidenceMonthly employment and labour force growth, ‘000 people (trend)
40
Labourforce growth (trend)
Employment growth (trend)'000 change per month

30

20

10

0

-10
Jan-07

Jul-07

Jan-08

Jul-08Jan-09Source: ABS
85

Jul-09Jan-101990’s commercial property downturn characterised bysignificant oversupply vs other downturns1
Supply Pipeline as a % of Total Stock Australian CBD Office Market

Source: Jones Lang LaSalle. 1. with the exception of WA & QLD
86

Australia has run a current account deficit for most of thepast 150 years
Current account deficit

Sources: ABS, RBA, Butlin
87●

The current account deficit is the gap between
national saving and national investment●

That Australia has run a deficit for such a long
period suggests the country has moreinvestment opportunities than it can fund outof domestic saving●

By running such deficits and capitalising onthese investment opportunities, Australia has
been able to grow its economy and labour
market at a much faster rate than if it had
relied solely on domestic saving. Our living
standard will have been considerably lower on
domestic saving alone.

●

A natural consequence of running continual
current account deficits (flow) is a build up in
net foreign liabilities (stock) – from 40% of
GDP in 1989 to 60% of GDP in 2009 .

Investor Discussion Pack

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
January 2011

Economics – Forecasts

Economic updates
New ZealandAustralia
2009

2010

2011

2012

2009

2010

2011

2012

GDP

0.9

2.7

3.2

4.1

-2.5

1.5

2.3

4.3

Inflation

1.3

2.8

3.0

3.2

2.0

1.5

4.91

2.3

Unemployment

5.8

5.2

5.2

4.9

7.1

6.4

5.5

5.5

Current A/C (% GDP)

-3.3

-3.6

-2.6

-4.0

-3.3

-3.8

-3.7

-3.9

Cash rate

3.00

4.50

5.25

5.75

2.50

3.00

3.75

4.75

10 year bonds

5.36

4.96

5.80

5.70

5.8

5.0

5.9

5.8

AUD/USD

0.88

0.97

1.02

0.95

N/A

N/A

N/A

N/A

AUD/NZD

1.22

1.32

1.36

1.34

1.22

1.32

1.36

1.34

Credit

1.7

3.3

3.8

4.7

3.6

0.6

4.5

5.7

- Housing

7.6

8.0

5.3

5.6

3.9

3.0

3.5

5.1

- Business2

-4.6

-3.7

1.1

3.3

3.6

-2.8

5.9

6.5

- Other

-5.5

2.8

5.2

4.5

-1.8

2.2

4.1

4.9

Source - ANZ economics team estimates. Based on 30 September bank year.
1. Impacted by an increase in the Goods and Services tax rate from 12.5% to 15% effective 1 October 2010
2. NZ Business includes Rural lending89

Growth Forecasts – Asia

Emerging Asia GDP Growth Forecasts
2007

2008

2009

2010

2011

2012

China

13.0

9.6

9.1

10.1

9.6

9.5

India

9.5

7.3

6.8

9.2

8.4

9.3

Hong Kong

6.4

2.4

-2.7

6.5

5.0

5.2

Korea

5.1

2.3

0.2

6.2

4.3

4.6

Singapore

8.5

1.8

-1.3

14.5

4.2

5.9

Taiwan

5.9

1.1

-1.9

10.6

5.9

5.7

Indonesia

6.4

6.0

4.5

5.9

6.3

6.3

Malaysia

6.5

4.7

-1.7

6.5

3.5

5.6

Philippines

7.1

3.7

1.1

6.9

4.5

6.8

Thailand

5.0

2.5

-2.3

7.8

3.4

4.5

Vietnam

8.5

6.3

5.3

6.6

6.5

6.8

Total

10.3

7.3

6.1

9.1

8.0

8.3

Total (ex. China & India)

6.1

3.3

0.4

7.4

4.9

5.5

NIEs

ASEAN

Sources: CEIC, ANZ Economics.

Based on calendar year.

90

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the result of any revisions to these forward-looking statements to reflect events or circumstances after thedate hereof to reflect the occurrence of unanticipated events.
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or contact
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Group General Manager Investor Relations
ph: (613) 8654 7749 fax: (613) 8654 9977

e-mail: jill.craig@anz.com