News Release
For Release: 29 October 2020

Transcript of bluenotes video interview with ANZ Chief
Risk Officer Kevin Corbally and Group Executive forAustralia Retail and Commercial Mark Hand
ANDREW CORNELL: Morning Mark, morning Kevin. Thanks very much for joining us on
bluenotes on the morning of the full-year result. We’re in Melbourne so you’re sitting 1.5
metres apart, you’ve had your masks on. And so maybe it’s good to start with the Chief Risk
Officer. Kevin, in these extraordinary circumstances how are you thinking about the risk
settings of the bank?
KEVIN CORBALLY: Morning Andrew. Look each crisis that we enter into is different right? So
if I think back to some of the ones I’ve worked through - whether that’s GFC, Asian crisis,
whether it’s this one, whether it’s the early 90s too. The way that the crisis unfolds, who it
impacts and how we respond to that and how we’re positioned is different for each of those.
If I look at this one, we’re in a very different position, we’re a much stronger, simpler bankthan we were a number of years ago so better positioned. In addition, one of the things we
did straight away was we tried to identify those customers, those industries that we think
could be more susceptible to this type of crisis. And initially what we ended up doing is weundertook a series of industry deep dives, stress tests, we reviewed over 20 industries. We
also then looked at the risk rating of our customers. So we ended up, as of today, we’ve
reviewed over 93 per cent of the customers within our Institutional business, over 80 per
cent of those within our Commercial business.
ANDREW CORNELL: When we look at the result then in terms of the provisions for actual
bad debts – individual provisions, they’re reasonably stable – it’s the collective provision
that’s been raised quite a lot for what might happen in the future. To date there hasn’t
actually been COVID-related losses but they will come. So how are you forecasting that?
KEVIN CORBALLY: Yes Andrew, look you’re right. While shareholders will have seen a $A2
billion increase in our credit impairment charge, we haven’t actually lost money as yet
directly as a result of COVID. So, as you point out, there are two provisions – one is theindividual provision, which are for those losses for customers who you’ve incurred a loss onor you have impaired them. With the exception of one large number that we alluded to at
the half-year, that’s broadly the same as last year. It’s the collective provision charge thathas increased. And what happened was that there was a new accounting standard that camein to effect for us – came into effect for all banks – but for us it was from 1 October 2018.
What that requires us to do is to look at what we think to expected future credit loss might
be. And we use economic models to help us derive that outcome and in addition we also
apply a management overlay to them. What shareholders will have seen is that it was thatcollective provision that increased by $A1.7 billion this year. And essentially the way I think
about it is that’s us setting aside money for a rainy day right? So we haven’t incurred a loss
today, we may at some stage in the future, it’s also possible we may not. But we set it
aside. And for us it meant that we have $A5 billion in reserve for that rainy day as such.
What we did in the second half is we took some extra provisions. At the first-half we looked
at it and said “grim economic outlook, 13 per cent unemployment, 13 per cent GDP
contraction at a peak”. We then said “you know what, it’s probably not going to be as broad
based as that.” We then looked and applied some additional management overlays tocomplement the economic models. And I think as a result of that we’ve come up with a very
prudent and considered approach to our provision levels for this year.
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ANDREW CORNELL: Thanks Kevin. And so Mark you run the Australian bank so in thecontext of what Kevin has been talking about, how are you seeing it from the customer
perspective? What are the key insights there and obviously customers are still anxious?
MARK HAND: Yes absolutely, customers are anxious and one thing we’ve got to remember isAustralia’s been exceptionally lucky economically. We have had many, many years of
economic growth and so it’s been a long time since our customers and indeed our staff inthe bank have seen anything that looks like a recession. So I think it’s important at times
like this to remind our customers that they need to ask questions, they need to go back totheir trusted advisors – whether that be their banker or their accountant or their lawyer or
people that they know that have run businesses similar to them, perhaps been throughtougher times. And have conversations with them and make sure they understand what thefuture could look like. We’ve got to remember a couple of things that are in our advantage
at the moment – interest rates are at all-time lows so, in terms of running a business andkeeping debt going, if you like, to make sure that you sustain your business at the moment– debt is as cheap as it’s evert going to be. It’s hard to imagine that it would be cheaper
than it is at the moment. So I want to remind our customers that it is a good time to take abreath, have conversations with people that have been through this scenario. Talk to yourbanker and really think about how you want to manage for the next six or so months.
Because we’re seeing some really positive signs out of states like WA and Queensland inparticular who have had that period of stability, they’ve had a lower impact of recent
months in terms of COVID as compared to Victoria. And we’re seeing some really positive
signs in terms of how customers are recovering.
ANDREW CORNELL: And Kevin’s spoken of the actual bad debts but a lot of… there’s been a
lot of deferrals of loans and the statements to the Stock Exchange have provided a lot of
detail on that. But, can you give us a sort of understanding of how deferrals on loans areplaying out? And also this idea of “ghosting” where you’ve tried to contact people ondeferrals and can’t get to them.
MARK HAND: Yes, well firstly on the ghosting, we haven’t had a big issue with ghosting. So,
certainly customers that you call don’t answer the phone the first time you call – they’ve gota lot of other things on in their lives than to talk to their banks, particularly when we’recalling in advance of the expiry of their facility. But what we are finding is you email
customers, you write to them, you call them, some proactively call us. But, for us it’s only
about three per cent of customers that we’re trying to get in contact with that we still
haven’t had that conversation and we’re confident those conversations will take placebecause this is a really important issue for customers to make sure that they’re got theirfinancials sorted out. So, I don’t think ghosting has been an issue for us and won’t be going
forward. In terms of the deferrals, the conversations we’ve had with customers have been
about their situation as it stands today and the outlook for their situation. And soremember, we only gave original deferrals to customers who were in good shape.
Customers who were running profitable businesses, customers that were paying theirmortgages and credits cards and the like. So it is the circumstances that has created thishardship for them. And so there is every reason to believe that when these circumstancemove on, they will recover in some shape or form. So our conversations with thesecustomers have been very much about, impact aside, what does the outlook look like? If
you’re a mortgage owner, what are your employment prospects beyond this period? If
you’re a business owner, is Christmas trading and the fact that we open borders for instancein Australia, is that going to make a difference to your business? So it’s very much aconversation about, put this current circumstance aside, what do we think it will look like foryou on the other side? And by and large it’s a fairly positive story.
ANDREW CORNELL: Well thanks both for giving us those insights into the numbers that havegone out today. Thanks very much for your time.
KEVIN CORBALLY: Thank you Andrew.
MARK HAND: Thanks.

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