News Release
For Release: 4 May 2022

Transcript of bluenotes video interview withANZ Chief Financial Officer Farhan Faruqui
ANDREW CORNELL: Morning Farhan. Thanks very much for joining us on bluenotes for whatessentially is your first half-yearly report. You had just started the job for our full-year
report last year. So, given that relatively new position in the role, what was your overview
of this interim result?
FARHAN FARUQUI: That's a great question, Andrew. As I look at the environment in which
we had to operate in the half, I actually think it was a very solid result. And I'll give yousome highlights. I will start with net interest margins. In an environment which was perhaps
the most competed across all our businesses in the first half of 2022, I think ourperformance was actually quite exemplary. We managed margins tightly. There were lots ofheadwinds that we had to deal into and we were able to offset those headwinds, to a large
extent, with some of the actions that we undertook in terms of repricing deposits and in themanner in which we priced assets. So, we feel quite pleased with the way that we havemanaged margins in the half. I think on expenses, in an inflationary environment that has
almost been unprecedented for a long, long period of time, we actually delivered flat runthe-bank costs, which basically is a nod to the great work we are doing across productivity
and running our business increasingly more efficiently. And we've been doing that, Andrew
as you know, not just for this half but we've been doing that for the last five or six years.
And we've been doing that very successfully. It has become sort of a core DNA of ANZ interms of managing costs. So, I'm quite pleased with that. I think from an investment
standpoint, our investment spend continued to remain elevated, but we're increasingly
investing towards growth and productivity initiatives, which actually will yield benefits for us
to become a more resilient and a more profitable and a growing bank in the future. So, I'm
quite pleased from that aspect as well. I think from a divisional standpoint, really pleased
with the performance of our New Zealand division. It has gone from strength to strengthand continues to grow and gain market share while maintaining both pricing capital and risk
disciplines, which I think is really quite incredible. The Institutional business – particularly
the Institutional banking business, the ex-Markets business – has actually had a really goodhalf. And we've seen growth across all product areas. And really, growth targeted at what
are our strategic sectors, which are financial institutions, which are food and supply chains …
food and agri supply chains, as well as the incremental focus that we've had and thesuccesses that we've had – not just in this half but over the last couple of years – onsustainability. So, I think all of those are trending very positively and we are exiting thesecond half with great momentum … exiting the first half with great momentum into thesecond half. So, I think that it's been a pleasing result in the context of the environmentthat we were heading into. I think the area of work that still remains to be done – and we've
made progress – is that we entered the half with our Australian home loan balance sheet
shrinking. We committed to the market that we will turn that around in the half and we will
get that back to growth again, which we have done. And we feel that we are tracking welltowards getting back to system growth at some point in the second half of the year. So I
think that there's been a bit of a mix of progress in some areas and great performances inothers, and we just need to continue to build on that in the second half.
ANDREW CORNELL: And if we look at what's happening today, we're in a climate globally ofrising interest rates as inflation is starting to kick up. And, generally speaking, higher
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interest rates are positive for the banking system. We don't know how it's going to play out
this time because as you say, it hasn't happened for a generation. But how do you frame
your outlook with a tide of rising interest rates and perhaps rising inflation around theworld?
FARHAN FARUQUI: Right. So, I think it's a really good question Andrew because rising rates
and inflation have both pros and cons. So, you're right, generally, banks are positively
inclined towards a rising rate environment. But the reality is that much of that inflation
comes first in our costs, then into our revenues, and then eventually, if you're not managing
our portfolio well, it flows into our risk provisions. So, we have to be careful as we think
about the rising rate environment because it comes with both positives and negatives. Also,
even on revenue, while it is supportive from a revenue standpoint, we also have tounderstand that lots of things will change, as you said, given that it hasn't happened for ageneration, particularly in Australia. Customer behaviors will shift. And we have to anticipate
those customer behaviors and we have to make sure that we position our balance sheet andour customers business accordingly. So, there is uncertainty that lies ahead. Yes, it'sbroadly positive, but we have to be also careful that over time we tend to over anticipate
the benefits of interest rate rises because they do get competed away. And while you mightgrow revenue, you might not necessarily be growing profitable revenue. So, it is going to be
an interesting exercise in the next one or two years to manage the business in line with ourobjective of profitable growth in light of the changing environment.
ANDREW CORNELL: And along with cost management, another area where ANZ has
delivered consistent results is capital generation and then particularly discipline around howthat capital is used. Now, Shayne Elliott today didn't announce any capital management
initiatives, but can you talk us through the moving parts in how you think about capital?
What are the factors at play here?
FARHAN FARUQUI: Thanks for that, Andrew. And I think capital management actually has
been a strength of ANZ’s for the last six or seven years. In fact, we were the first bankamong the Big Four in Australia to lead on capital management and we've returned about a$A5.5 billion dollars through capital management actions over the last few years. So, I thinkthat has been a trademark for us in terms of doing… in terms of ensuring that we aremanaging our capital prudently from a shareholder point of view and allocating capital
within our businesses prudently as well to achieve profitable growth. Now, we sit at a time
where the environment is changing dramatically. While we have a very strong capital
position, and we are well above the unquestionably strong benchmark that is required byour regulators, we do think this is a time to reflect on the opportunities that are available tous in this shifting environment before we make capital return decisions. So, at this point, weare in that process of evaluating the first and best use of capital from our shareholders’perspective before making any decisions. But I do want to say, Andrew, that we as amanagement team and certainly in our interactions with the Board engage very actively on
a very frequent basis in terms of discussing the best use of capital. So, it's not somethingthat doesn't get attention. It's something that we just have to evolve as we face into thisenvironment. And, of course, we will keep the market informed on decisions that we make.
ANDREW CORNELL: Thanks very much Farhan. We obviously will all look around at theuncertain global environment that's developing before us. But thanks very much for yourtime today.
FARHAN FARUQUI: Thank you.

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