ANZ Bank Banking Group Limited 2021 Full Year Results
28 October 2021
Start of Transcript
Jill Campbell: Good morning everyone, I'm Jill Campbell, ANZ's Head of Investor Relations.
Thank you for joining us for the presentation of our 2021 Full Year Results. I'm welcoming
you from ANZ's Head Office on the banks of the Birrarung in Docklands, which is on
Wurundjeri country. I pay my respects to Elders past, present and emerging, and I also
extend my respects to any Aboriginal and Torres Strait Islander people who are joining us
for today's presentation.
Our results presentation and the other materials was lodged with the ASX earlier thismorning. All of those lodgements are available also on the ANZ website in the Shareholder
Centre. A replay of this session, including the Q&A, will be available on our website as wellfrom about mid-afternoon.
The presentation materials and the presentation being broadcast today may containforward-looking statements or opinions. In that regard I draw your attention to thedisclaimer on page 1 of the slide deck. I'll talk more about Q&A procedure when we get tothat point. But just a reminder that if you do want to ask a question you need to do that
via the telephone.
Our Chief Executive Officer, Shayne Elliott, is presenting from Melbourne, and our Chief
Financial Officer, Farhan Faruqui, is presenting from Hong Kong, which I think is reallytaking COVID-19 social distancing a little bit too far, but there you have it. They will
present for around 35 minutes or so, and then I'll go to Q&A and I'll remind you of theprocedure at that point. With that, Shayne.
Shayne Elliott: Hey, thanks Jill, and thank you all for attending this morning. As Jill
mentioned, I am joined here today by Farhan, who started as our new Chief Financial
Officer just earlier this month. He is of course no stranger, having joined ANZ in 2014, andbeing a member of my Executive Team for more than five years. Now along with Mark
Whelan, Farhan has played an important in the turnaround of our institutional business. I
will be looking to him to have the same impact in the new phase of our Grouptransformation.
Now a few comments about the environment before I turn to the result. Now frankly interms of tone, this has been one of the more difficult results speeches to write. On one
hand we share the optimism as lockdowns end. But on the other hand we accept that there
is still many uncertainties. In the short-term we are benefiting from the economic reboundPage 1 of 45

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28 October 2021
and government support for customers. But in the longer-term we still face significant
disruption as an industry.
The challenges of the transition to a digital and low carbon future are reshaping our own
industry, our customers, and they present both a risk and an opportunity. But in summary,
I believe ANZ is better positioned than ever. We are well-capitalised and provisioned tohandle any risks, and we are well-prepared to take advantage of opportunity.
But let me walk through that in a bit more detail. First, regarding the impact of COVID-19,
there are good reasons to be optimistic. Vaccination rates in Australia and New Zealand
are approaching global highs. History suggests that the economy will bounce back quickly
from lockdown. Combined with the normal summer trading spike, we are likely to see asubstantial economic bounce in the coming months.
But while the initial damage of COVID-19 is receding, a range of challenges remain.
COVID-19 is still mutating, governments are grappling to get the balance right between
safety and freedom. Inflation is increasing. The transition to a low carbon future isgathering pace. The impact of technology disruption, labour shortages and supply chain
bottlenecks impact our businesses and our customers every day.
Now as we know, when confronted with rapid change many customers will adapt andthrive. But some will struggle. We stand ready to support customers in need. But
thankfully we are also increasingly being asked to help customers position for opportunity,
and we are well-positioned to do so with ample capital and liquidity.
Our own portfolio is also well-positioned. We are well-diversified, with the Markets
business positively correlated to volatility and higher interest rates, and a strong positionin sustainable finance. Our costs are well-managed, providing the capacity for us toaccelerate investment at a time of opportunity. We have strong relationships with many of
the global firms leading digital and low carbon transitions.
Now let's move to the result. This is a good outcome, with all parts of our diversified
portfolio contributing. Statutory profit increased 72%, return on equity came in just shy of
10% despite elevated capital levels, earnings per share up 65%, and net tangible assets
up 5% per share. Now given our strength and readiness for the future, the Board declareda final dividend of 72 cents per share, taking the total to $1.42 for the year.
Now Farhan will take you through divisional performance, but let me just share a few
observations. In Australia Retail and Commercial delivered a good margin performance andgrew pre-provisioned and after-tax profit. Home loan revenue grew more than 10%,
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28 October 2021
however the total home loan book fell a little in the second half, with customers paying
down loans faster, and our own issues processing increasing numbers of applications.
Now there's no excuse for the processing issues, and you'll want to know what we've done
about it. Over several months we have materially increased assessment capacity by hiring
more assessors and simplifying our processes. Now there's a time lag between applications
and asset growth, but we are already seeing improvement.
Australian home loan assets fell $1.1 billion in July, but momentum has improved eachconsecutive month. For October assets are only marginally down. Our expectation is thatthe improving trend will continue, and all else being equal, we forecast home loan assets
to grow during the first half. At some point in the second half we should be growing in linewith our major bank peers.
But we continue to act, and this week we announced that my ex-co-colleague, Emma
Gray, will temporarily lead the Australian Operations team. Her experience in automation
is ideal. She will work with Mark Hand on further improvement.
Now while restoring momentum remains a top priority, we are also focused on the rebuildof our proposition, including home loans, which will reposition us for long-term growth. I
am going to share some of that later.
But staying in Australia, a quick update on the SME lending platform GoBiz. Launchedrecently this allows customers, including those not yet with ANZ, to receive real-time
conditional approvals for unsecured loans by providing direct access to their accounting
package. Now it's still in soft launch, but it's generating an average of 2900 applications
every month. It's timed perfectly for the emerging rebound in the small business segment.
Turning to New Zealand. We have had one of our strongest performances ever. Revenue isup 8% and cash profit up 41%. In our New Zealand Funds business, the total funds undermanagement, including KiwiSaver, grew 11% to NZ$39 billion. Now the investment tocomply with the Reserve Bank of New Zealand's BS11 regulation will finish this year wellahead of schedule. The Bank is already positioned to absorb the capital changes whichtake effect through to 2028.
Now this leads me to institutional. We have built a high performing business delivering well
above the Group cost of capital, and are well-positioned to capitalise on the structural tailwinds arising for the sector. For example, right across our network institutional's
customers are rapidly increasing activity, M&A, digitisation, restructuring supply chains.
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28 October 2021
Trade and capital flows are growing, interest rates are rising, and yield curves steepening.
Some of our major competitors are reducing their presence in the market.
We also expect APRA's proposed capital reforms, which take hold in 2023, to be a net
positive for institutional. We just have access to institutional growth opportunities thataren’t available to others. For example, Platforms, where we provide core banking services
to other banks. This is a significant strength of ours, and we are the market leader bysome margin.
Underlying volume growth was strong, and we are gaining market share. Now at therevenue line this has been offset a little by falling interest rates. But positive operating
leverage, low capital intensity and ongoing growth will see this emerge strongly andcontribute to better returns.
One of the best examples is the new Payments platform, or NPP. Where we havedominated mandates to service other banks. It's fee driven, the platform is already inplace, and scalable, so the marginal cost of transactions is almost zero. Now growth has
been exceptional, with transactions more than doubling this year, and we are only at theearly stages of adoption.
Now we are also well-positioned for the rapid transformation of how the world produces,distributes and consumes energy, which will drive trillions of dollars in global investment.
Now thinking about the capabilities required to participate in this flow, many of them are in
our toolkit.
We are the largest institutional bank at home, and Australia's most international bank. We
are a leader in banking resource extraction, arranging finance for large-scale
infrastructure, connecting buyers and sellers across Asia, distributing debt, and hedging
market risk. Based on Bloomberg's data, we estimate we participated in around 5% of
global sustainable finance flow in 2021. Which increased our sustainable finance revenues
more than 60%.
Now it's just the beginning. Opportunities include the electrification of transport, thecommercialisation of hydrogen, and financing energy efficient buildings. No other
Australian commercial bank has the skillset, customer relationships or the track record toparticipate as seriously in this global super cycle.
Now as mentioned, I wanted to share our progress in building a better Retail andCommercial bank here in Australia. Longer-term forces shaping the industry are leading tostructurally lower returns, lower growth, and driving an unbundling of traditional banking.
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Now to remain relevant and to succeed, we are building a more agile, open and more
focused business centred around financial wellbeing to deliver higher lifetime value per
customer.
It's an exciting opportunity to reposition ANZ for the long-term. But our technology was amajor inhibitor. Its complexity and its age make it hard to change, prone to error, and lessresilient than required. Now patching it up made no sense. Moving to a greenfield stackwasn’t practical given our scale and breadth.
So we looked at a range of alternatives, but based on our starting point and the experienceof European banks in particular, the best path for ANZ was to progressively rebuild ourtechnology starting with Sales and Service. So under Maile's leadership and the ANZxbanner, we have built a team of over 800 people. More than half are engineers, and many
joining from leading technology companies like Apple, Amazon and Square.
We are using this talent to completely rebuilt our capability and integrate a raft ofcontemporary technology.
Now, the work is challenging and it's mostly unseen, but this year we made significant
progress building a platform for low-cost scalable resilient growth. The first task was tointroduce a range of new platforms and we have already integrated 11, including
Salesforce for CRM, ForgeRock for identity and access management, Zafin to manage
products and Twilio for contact centres.
We have also built nine major assets from scratch, but it's a bit like building a skyscraper,
all the hard work is beneath the ground, but once it emerges, if it is well engineered, it
does grow quickly. With the foundations complete we are now building a range of new
customer propositions based around our nine principles of financial wellbeing. We are
currently testing our first proposition with staff and will be ready to launch with newcustomers early in 2022 under a new brand ANZ Plus.
This will become the cornerstone of how our retail and small business customers bank with
us in the future. It will allow us to deliver non-bank services and deepen engagement withour customers. Much of this will be delivered by the strategic partnerships we are building
through our ventures and incubator business, 1835i. Through 1835i we only invest where
we see a path to acquire more customers, deepen relationships or co-develop new
propositions that we couldn't develop on our own.
For example, last week we announced that we entered into a deed to take over Cash
Rewards, Australia's leader in the buy now save now sector. It's a great fit with ourPage 5 of 45

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28 October 2021
customer proposition of financial wellbeing and it brings over a million customers into the
ANZ family while driving additional value to our retail and hospitality customers. In
addition, we have invested in eight fintechs like Lendi and Airwallex and launched three
start-ups, each intended to drive customer acquisition and deepen engagement.
Now, to date we have been pretty quiet about ANZx but you will be hearing a lot more
about this, particularly as we launch ANZ Plus and prepare to test digitised home lending.
This is an important investment in our future but we have largely funded it within our
existing expense envelope and capitalised only 5% of the investment. We wouldn't have
had that capacity without the ongoing success of simplifying the Bank.
We always knew that a simpler more focused bank would be lower risk and lower cost andour work indicated that we can run the Bank well and continue to invest appropriately foraround $8 billion and we retain that view. At the half I clarified the expected shape of the$8 billion, specifically differentiating between the cost of running the Bank, which wetarget at $7 billion and around $1 billion for ongoing investment. This year, we reduced thecost of running the bank a further 3% on a constant currency basis to $7.4 billion, so weare well on the way to exit 2023 at our $7 billion ambition.
With respect to the $1 billion in operating expense for that annual investment, with someassumptions on capitalisation levels, that should allow a cash investment per annum ofaround $1.4 billion. To give that context, it's about the same as today if we exclude theremediation work which is coming to an end and the one off BS11 investment in New
Zealand which is also coming to an end. We will not underinvest in the business to meet
the target, but with the current outlook, the peak and regulatory and remediation spend,
we are confident in our $8 billion aspiration.
In summary, look, 2021 was challenging and we didn't get everything right, but we stoodby our people, we supported customers as best we could, we managed our balance sheet
prudently and we increased investment to drive long term value while delivering strong
returns to shareholders. With that, I will now pass to Farhan to run through the result in a
bit more detail.
Farhan Faruqui: Thank you Shayne and hello everyone. I am new to the CFO role but not
to ANZ and many of you I already know well and I am looking forward to seeing all of you
once I am in Melbourne. My three decades in banking span a wide variety of roles andgeographics and it is that commercial lens I am bringing to this role. In partnership withour business heads, my focus is squarely on the base and quality of the delivery of the
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28 October 2021
next phase of our strategy execution, with the view to ensuring that our capital andresource allocation is delivering value for our stakeholders.
There is no question banking is changing dramatically and while there are challenges
ahead, we see opportunities in the change as well and I am confident we have the team,the culture, the corporate foundations and the diversity of businesses to capitalise on thoseopportunities. Yes, sustainable and profitable growth requires disciplined execution. At ANZ
we have successfully demonstrated that skillset including in the institutional businesswhere I was fortunate enough to be part of a successful transformation.
Our financial year 2021 results highlight the benefit of our diverse portfolio of businesses
and geographies. New Zealand capitalised on its scale and a rebalanced business to
produce very strong results. Institutional continued to dominate in Australia and New
Zealand and efficiently navigated COVID related challenges in the international business togrow in non-market banking.
Our market business delivered a solid revenue outcome despite a less conducive macro
environment. Australia retail and commercial delivered income growth year on year andhalf on half, notwithstanding the challenges in home lending which Shayne referred to andI will discuss more later.
Our cash profit, EPS and ROE outcomes for the full year again reflect our diversificationand continued focus on building a more efficient more resilient business. Looking forward I
feel we are well positioned given capital liquidity and funding are robust, the credit qualityof our portfolio is strong and importantly, we are delivering for our shareholders withstronger dividends year on year, a share buyback and a TSR performance of 70% for theyear.
To my agenda. Today I will focus on our strong corporate foundations, then turn to ourfinancial performance and finally to our investment agenda, before concluding with myfocus areas as we move into financial year 2022. On the topic of corporate strength, I will
begin with capital.
Our CET1 ratio at 12.3% sits approximately $6 billion above APRA's unquestionably strong
benchmark. It reflects strong organic capital generation along with ongoing capital
allocation discipline. We have supported our customers profitably and increased ourdividend year on year with the final dividend of 72 cents per share within the target rangeof 60% to 65% of cash profit, excluding large notable items.

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As you know, we did not need to dilute shareholders with equity raisings during the
pandemic. We are almost half way through our $1.5 billion share buyback and we willcontinue to consider the best use of any surplus capital. By the end of the current
buyback, we will have reduced our share count by 5% over a five year period. In terms ofliquidity and funding, our key ratios are all well in excess of regulatory minimums as wellas management targets.
Turning now to our portfolio credit quality which reflects five years of management action
to reshape the portfolio, coupled with ongoing customer selection discipline, this provides
greater predictability and stability in our earnings profile. Generally, customers havemanaged well through the pandemic. Our gross impaired assets are at historic lows andthe long run into internal loss rate sits at 22 basis points.
Now, moving onto our financial performance. Cash profit was up 65% for the year. It's asolid result against a challenging backdrop. This outcome required well executedmanagement action to offset margin headwinds, heightened competitive intensity, achallenged environment for our markets business and housing lending growth challenges
for our Australian business. Lower credit provisions provided a tailwind and disciplined run
the Bank cost management ensured that we created investment capacity.
We released information regarding two second half large notable items last week. I would
note these had a limited impact in the half and as is customary, from this point forward myreferences will be to cash profit excluding large notable items. In my opinion the key
factors which drove the result were (1) core banking income increased 1% benefiting fromdisciplined margin management, (2) markets income at $1.94 billion while strong was
lower following our performance last year and (3) costs were up 1.9% FX adjusted for theyear in line with the guidance we provided at the half.
However, our run the Bank costs decreased 3% off the back of over $300 million of
productivity savings this year. This enabled a record level of investment, the details of
which I will speak to a little later. Finally, a significant decrease in credit provisions
reflecting an improved economic outlook.
Our margin outcome was a highlight. The headline margin improved two basis points in thehalf, while underlying margins were down two basis points. Disciplined margin
management largely offset the impact of industry headwinds. Now, there are a number ofstructural trends impacting sector margins in both Australia and in New Zealand. Ongoingcustomer preference for fixed rate home loans in the lower interest rate environment
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28 October 2021
drove a significant mix shift in our mortgage flows with fixed rate volumes up $22 billion
and standard variable loans down $16 billion.
House price growth saw increased sector home lending activity, higher refinancing levels
and intense price competition. For example, about 30% of our home loan portfolios reset
this half. System liquidity continues to expand with average customer deposits increasing$17 billion in the half, out pacing growth in customer lending. This coupled with ourtransition off the RBA's committed liquidity facility increased liquid assets, which was
negative for margins, but positive for returns.
Collectively these structural headwinds compressed group NIM by eight basis points.
Partially offsetting this was a net $40 billion shift in term versus at call deposits ascustomers favoured flexibility in a low-rate environment. In addition to a shift in deposit
mix, more expensive term wholesale debt matured and our teams actively managed thepricing of our deposits. Overall, macro factors along with management actions resulted in a
six basis point benefit to margin this half.
Now, turning to the outlook and consistent with long run sector trends, there is downsiderisk to margins in financial year 2022. The negative impact of higher liquids, along withasset price competition and customer preference for fixed rate home loans, is expected topersist. However, you should expect that as in financial year 2021, we will undertake
management actions to mitigate market conditions wherever possible. We will continue to
optimise funding costs, albeit the opportunity for further repricing is becoming limited.
However, rate rises and further steepening in yield curves will provide a tailwind, but it will
depend on global macroeconomic settings and the inflation outlook in the markets in which
we operate.
Now let me turn to our divisional performance. Firstly, to our Australian retail andcommercial division, which recorded a solid result year on year with higher revenues, flat
expenses and lower provisions. However, our balance sheet performance in the second half
was more challenging, with home loan volumes declining $3 billion half on half.
Against this backdrop, margins have performed well, with NIM higher half on half and risk
adjusted NIM improving 15 basis points, the highest it has been since first half 2018. This,in turn, allowed for revenue to be higher half on half. The commercial bank grew revenue
during the half despite commercial lending continuing to be impacted by weaker demand
as a result of economic uncertainty. Unsecured lending volumes were adversely affected byongoing lockdowns and travel restrictions.
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Now turning to the topic of momentum in the Australian housing portfolio that I mentioned
earlier. On a spot basis, the home loan book grew $3 billion for the year, with growth in
the first half followed by a decline in the second half. Available operational processing
capacity in financial year 2021, while 30% higher than that of three years ago, was simply
not sufficient to match system growth. In fact, simply put, the strength of the Australianproperty market well exceeded our expectations, with sector activity both from newlending and refinancing elevated.
Now growth for growth sake is of course not our focus. Improving the performance of ourAustralian home loan portfolio in a sustainable and profitable way is our highest priority.
Our efforts have been focused on creating additional sustainable processing capacity andimproving assessment turnaround times. While there has been a circa 40% improvementin processing times across the entire portfolio in the last six months, we are clearly notback to where we want to be.
But good progress is being made on this front. We have a firm handle on the issues that
we need to address and over a number of months we have been working on operational
and process enhancements, including increasing operations resources to support
assessment activity, streamlining our origination processes and progressing work on
digitisation and automation to create capacity. As a result, as Shayne mentioned, ourbalance sheet momentum has shifted and we expect to continue to see improvements as
we move through financial year 2022.
Moving to institutional, which today is a simpler, more resilient and well diversified
business which again delivered returns well above our cost of capital. Revenue, excluding
markets, was up 2% in the second half as economic conditions continued to improve.
Pleasingly, risk adjusted margin increased six basis points, reflecting appropriate pricing
for risk and strong capital discipline in the business. Corporate finance revenue increased
3%, driven by a strong margin outcome and better momentum in customer activity,
particularly in our FIG business.
Cash management revenue was flat, despite ongoing impacts from the low-rateenvironment. We’ve had strong market share growth and are well positioned to benefit
from improving market conditions. Markets revenues at $1.94 billion normalised closer toour long-run average after the exceptional volatility seen in 2020 and with returns well
above the Group cost of capital. Importantly, this half marked the 11th consecutive half ofabsolute cost reduction in our institutional business.
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We see structural tailwinds for this business over time, arising from future rate rises, thesignificant potential in sustainability financing and the growing momentum of the platformbusinesses that Shayne talked to earlier. Also, upcoming capital reforms, while expected tobe neutral at a system level, may favour institutional businesses like ours, that further
improves the attractiveness of our portfolio.
Now to the New Zealand result, which is a testament to efficiently leveraging the benefitsof scale. In financial year 2021, the division delivered one of its strongest performances formany years, with revenues up 8% year on year and 5% up half on half, resulting in cash
profit increasing 41% despite a high level of regulatory investment required for BS11.
We’re on track to deliver BS11, well ahead of the required RBNZ deadline and we’rethrough the majority of spend on this project.
Home loan volumes grew 11% year on year, risk adjusted margins further improved in thesecond half and were up 15 basis points as we continued our focus on improving returns inour business division to reflect the changing capital environment.
Now turning to provisions, credit conditions remained benign in the second half. Individual
divisions were at historic lows and delinquency rates trended downwards. The modest$145 million release from the collective provision was largely driven by volume reductions
and an improved portfolio risk profile. But while increasing vaccination rates is a positive
for the economic outlook, we will maintain a cautious approach to provisioning given theuncertainty of the implications arising from extended lockdowns in a number of our major
cities. We believe our collective provision balance and coverage ratio of 122 basis points
remains appropriate at this time.
Now let’s consider expenses. We do have a strong track record of disciplined expense
management since 2016 and that has continued this year. Adjusted for FX, our run-thebank costs decreased 3%, with productivity initiatives offsetting inflationary impacts andthat allowed us to continue to invest in the business at record levels. Our accelerated
strategy initiatives contributed $308 million of run-the-bank benefits this year.
Savings came from across the entire business, including, one, greater use of digitaltechnologies and customer self-service, for example, digital sales as a percentage of total
sales rose to 41% in New Zealand and to 49% in Australia, up from 26% and 30%
respectively only two years ago. Secondly, creating efficiencies via process automation andsimplification in our contact centres and our back office.

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Thirdly, the rationalisation of our property footprint and lower operating costs. And finally,
network and vendor contract optimisation. We expect to continue to see run-the-bankcosts reduce over time, with productivity benefits offsetting inflationary uplifts and higher
technology costs as we digitise the business. The trend, however, may not be linear ineach half.
Our investment spend, we are investing more than ever before to build a simpler, more
resilient business and in a variety of platforms for future growth. Our investment spend
has increased by $600 million over the past two years and was up 23% to $1.8 billion thisyear. We continued our discipline on capitalisation with the investment expense rateincreasing to 79% and our capitalised software balance falling to below $1 billion.
Almost half of our investment spend this year was on growth and simplification initiatives,
including key strategic initiatives like ANZx, GoBiz and sustainability finance, along with
our transition to cloud-based technology. In financial year 2021, we reached the peak ofour spend on the current regulatory projects which, when complete, will deliver a greaterlevel of operational resilience and a stronger base for future growth.
We remain committed to investing to grow and to simplifying the business with investment
spend in financial year 2022 expected to be slightly higher than this year, with a higher
investment expense rate. Year on year total expenses are expected to increase slightly
from the financial year 2021 base of $8.67 billion and that will be an outcome of lower runthe-bank expenses and higher investment spend.
So to conclude, a few words on my key areas of focus. One, we must rebuild our homeloan momentum. Mark Hand and his team, along with the entire executive committee, issharply focused on this. Two, our simplification agenda remains central to our cost targets.
We must fund essential growth and we can only do that effectively by managing
productivity and efficiency and my team and I will relentlessly pursue that objective. We
have done this the last five years and I’m confident we can continue to do it consistently.
Three, we have to maintain our resource management and allocation discipline, which is a
key agenda for me. Our investment governance framework is aligned with our strategic
priorities to ensure that investment is well managed and rewards strong execution which
produces the promised cost and revenue benefits.
Four, the growth initiatives, some of which were outlined by Shayne, are importantpriorities and will also operate under the governance framework I just mentioned. And
finally, all of this will require strong execution and a critical focus on returns. We have a
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proven track record and an embedded culture that is clear about return expectations. We
will continue to build on that culture.
I thank you very much for your attention and I certainly look forward to meeting all of you
in person soon. In the meantime, I am contending with the very important task of picking
a footy team. Unsurprisingly, Jill is pressuring me to pick Richmond. With that, I’ll handback to Shayne.
Shayne Elliott: Okay, thanks Farhan. As I said, it wasn’t an easy year, but it was a goodresult overall. We could have been quicker to address challenges processing Australianhome loans, but I’m confident we have that under control.
Looking ahead, the immediate impact of COVID is receding but there will continue to bechallenges, including long-term industry disruption. Given the repositioning of ANZ, ourstrong balance sheet, the investments made and benefits of simplification, we are wellcapitalised and well provisioned should things deteriorate and we are well positioned as
growth emerges. Put simply, the headwinds will persist, but structural tailwinds are
emerging for us.
Now Farhan shared his priorities and I’m very clear on what’s important at a Group level.
First, restoring momentum in Australian home loans. Second, launching ANZ Plus
successfully. Third, seed profitable, high-return growth in institutional with a focus on theplatforms and sustainability areas. Fourth, in New Zealand, finish BS11 and continue torecycle capital to improve returns. Lastly, across the Group, continue our work on
simplification, capitalising on the investments made in automation, cloud migration anddigitisation to enable low-cost, high-resilient customer growth.
But whatever eventuates, we’ll continue to be prudent and methodical. We will be guided
by our purpose and balance the need of all stakeholders and we’ll do what’s right. This isgoing to be another big year of change and transformation and I’m confident that we havethe team to deliver. I’d like to acknowledge our 40,000 people who have been unwaveringin their support of customers, colleagues and their community in a challenging and attimes emotional environment. They continue to be true to our purpose and they embody
the best of our culture and I thank them for their ongoing commitment.
Now finally, it would be remiss of me not to mention that 70 years ago this month themodern ANZ was born, with the merger of the Bank of Australasia and the Union Bank ofAustralia. It also launched a new motto, tenacious of purpose, which resonates as strongly
today as it did in 1951. Our purpose, to shape a world where people and communities
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thrive has guided us through recent challenges and we will continue to pursue it with thetenacity it deserves.
With that, we'll open for questions.
Jill Campbell: Thanks, Shayne. I know that you've all done this a million times but just incase, we want to get through as many questions as we can, so if you could keep it to no
more than two questions each and try to resist the urge to have 27 sub-questions, thatwould be great. If you can work the words Go Tiges or Dustin Martin into any of thequestions we might let you go longer.
With that, operator, if you can open up the lines I believe the first question is from Andrew
Triggs from JPMorgan. Thanks.
Andrew Triggs: (JP Morgan, Analyst) Thanks, Jill. Can you hear me?
Jill Campbell: Yes.
Andrew Triggs: (JP Morgan, Analyst) Excellent. Thanks, Shayne. Just a few related
questions on cost, please. In terms of the explicit reiteration of the $8 billion cost
aspiration, can you, Shayne, just clarify that excludes restructuring costs? That's been a it's listed as a notable item but it's been an ongoing trend of relatively high restructuringcosts, and it was $127 million this year.
A couple of other questions, just sticking on costs. FTEs are up 5% in the second half andall divisions saw growth, so I'm just interested in any explanations on this given the
productivity savings that we saw outlined on slide 23.
Just a final one, if I could push my luck. Sticking with slide 23, that cost inflation bar looks
relatively low at about - at $53 million or about 0.6% of the starting cost base. I'm justinterested, I would have thought it would be a lot higher than that given a lot your people
sitting in offshore markets.
Shayne Elliott: Sure. No, they're very reasonable questions, and I'll get Farhan to go
through the detail. Just a highlight from me, though. Restructuring, the $8 billion I think
it's fair to say there's normal restructuring that will be part of the $8 billion and what we'regoing through at the moment in terms of transition is some higher levels of restructuring
required in terms of that productivity outcome, but Farhan can comment a little bit onthat.
On the FTE, before I hand to Farhan, because he'll have a bit more of the detail, I think it's
important, Andrew, to stand back and think about over the year - and I know yourPage 14 of 45

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question was on the half, but over the year the FTE is up about 2000. About half of that is
explained by some transitory things.
For example, we are moving a significant amount of work from our base, our operational
centre in Chengdu. We're migrating that to Bangalore, but as we do that we end up with a
bit of a double-count. We've got about 400 roles moving as we speak, so we hire 400
people in Bangalore ready to take the work but we still have 400 people in China, and sothat's a big part of that.
Then for example, we're closing a product in New Zealand, a product called Bonus Bonds,
which we can go into what it is, it's an old product we inherited from when we bought
PostBank. There's about 150 people sitting just contracting in to manage through thattransition. There's some unusual things in the FTE, which we're confident are transitory.
Farhan, you'll have some more comments to make on those questions.
Farhan Faruqui: Yes. Thank you, Shayne. I think there are two drivers of the exit rate. One
of course is there is a small increase in our BAU FTE, but as Shayne said, a large part of it
is transitory, things like Bonus Bonds, the Chengdu service centre exit, which will slowly
reduce over the course of next year. Investment in ANZx, in cloud, in things like GoBiz,
was obviously part of the reason why the FTE was higher. Inflation we expect next year
will be slightly higher than financial year '21. We've also, as we've said, delivered $308
million of productivity saves, and there are many more initiatives in flight which willcontinue to reduce our BAU or run-the-bank costs.
Overall, our view is that Bank BAU will trend lower over the year; investment will be up, as
I said earlier; but we will fall in financial year '23 as we complete major programs like
BS11 and some remediation. That impact was about $300 million alone in financial year
'21 but will start to come off in '23. That's our view on FTE. We'll see some transitory rise,
which we have seen, we see that reducing as some of the regulatory projects complete,
we'll see the impact of that coming off, and we'll continue to invest in the key initiatives
that Shayne talked to earlier.
Andrew Triggs: (JPMorgan, Analyst) Thanks, Farhan. What should we assume is a normal
restructuring cost line ex this period of extreme productivity focus?
Shayne Elliott: That's a good question.
Farhan Faruqui: Well, I think...
Shayne Elliott: No, go on Farhan.
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Farhan Faruqui: Go ahead, Shayne.
Shayne Elliott: No, you go ahead.
Farhan Faruqui: No, I think it is a good question. We have factored in some numbers inanticipation of that restructuring. I can't share the details with you just yet but I would be
happy to discuss those with you later.
Female: Andrew Lyons. Operator, we can move to the next question, thank you, which is I
think Andrew Lyons.
Andrew Lyons: (Goldman Sachs, Analyst) Thanks, and good morning. I just wanted to ask
a question, Shayne, just about the expense part of it. You've spoken to an exit rate in
FY23 of $8 billion and yet costs are going to grow again incrementally in FY22. Just in lightof that, I'm wondering if maybe you can help us with a bit more detail around exactly what
an FY23 exit rate on costs of $8 billion actually means the reported number will look like? I
think particularly given you're going to grow costs in '22, I think the market would reallyappreciate any guidance as to what that exit rate of $8 billion actually means for thereported number in FY23.
Then just a second question on markets income. You've just delivered about $2 billion ofmarket revenue which is about in line with what you've previously spoken to as being
normal. Against this, all your major bank peers are talking to this line item as being undersignificant pressure, so much so that we've actually seen one of your peers write down
assets within the institutional business, somewhat related to this. Can you perhaps talk tomaybe why you are seeing some divergence against the major bank peers on this line?
Thanks.
Shayne Elliott: I'll start with that. I guess the glib answer is we're better at it than ourpeers, but the reality is, as you know, Andrew, our business is just more diversified thanour peers. I think it's really important to note the diversity of our markets business in two
factors. One is the geographic diversification. More than half of our business sits outside
Australia and that's really the big difference when you compare us to certainly ourdomestic peers. We have a great franchise across Asia, et cetera, and so that geographic
diversity really comes through at a time like this.
I think the other point that we've done within that business also the diversification. When
you think about - and there's some detail in there about just how we generate value inthat business in terms of our customer base. So, we have a much bigger institutional
business to begin with than our peer group, and remember again, institutional for us,
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where we really dominate and do extraordinarily well, is with the multinationals segment.
That multinational segment - and yes, many of them operate here in Australia, and that's
the core to our relationship, but it means we're servicing them in multiple markets aroundthe world.
So, we just have a broader customer diversification in terms of flow and opportunity andwe have that geographic diversification. I think that's why our business, we feel pretty
good about that result. I take your point, I think it is better than what we're certainly
hearing from many of our peers. That's why we're confident in that.
In terms of the expense target, we don't give guidance for FY23. I understand the natureof your question and I understand sitting here today it looks like a big move from $8.6
billion, $8.7 billion-ish down to $8 billion and it's clearly not going to be a straight line, but
as I mentioned, I think we've given pretty decent guidance around that exit. What it
essentially means is we exit the fourth quarter of '23 at about $2 billion in total, and I've
talked to the $7.1 billion plus $1 billion and how we get there. What's difficult aboutanswering your question, to be perfectly frank, is there's a lot of moving parts in there.
We've got really strong momentum on BAU but the real difficulty is really on the projectside. I think I'm more confident in the - it won't be a straight line but I'm more confident
in the BAU trajectory and timing; it's a little bit harder on the project side to know exactly,
for example, when something, or the equivalent of a BS11 or the cloud migration or someof the remediation work, in which quarter that will actually finish, whether it's the firstquarter of '23, fourth quarter of '22, fourth quarter of '23. That's why I'm a bit reluctant to
go into that. Farhan, I don't know if you wanted to add anything on those questions.
Farhan Faruqui: No, I think you've covered it, Shayne. As Shayne said, I think on the BAU
expenses I think we have a much greater degree of confidence in terms of the run into
FY23 exit. As Shayne said, we have a very clear strategy around our productivity
initiatives, which will offset inflation and will deliver to the $7 billion target that we arehoping to achieve by then.
On the investment, I think the only thing I would say at this point is that, as Shayne said,
and as I mentioned earlier, there's $300 million simply from BS11 and remediation, which
will be elevated this year but will slowly reduce in FY23. Therefore, if you think about ourslate, which is about $1.8b now, it drops to $1.5b just on the basis of those two projects,
and then of course we'll have to decide on the pacing and the timing exactly of when they

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come on and come off. I think we have a plan, but the timing remains a little bit uncertain,
as Shayne said.
Andrew Lyons: (Goldman Sachs, Analyst) Just on the BAU, $7.4 billion down to $7 billion,
would you expect that should be more linear - and go Cats to get that question in.
Shayne Elliott: It will be more linear. It won't be perfectly linear but you would expect so.
There will be a little bit of a tail-end impact there; you would expect the savings toaccelerate at the end. I'll give you an example and reason why. If we think about some ofthe - that BAU is not easy and it comes out of investments we're making. If I think ofsomething like the cloud migration - and again, I know you guys know this, but you haveto invest a lot, you build capability to migrate to the cloud, you've still got to run yourdatacentres and run your new services in the cloud.
It's again a bit like the example I gave with Chengdu and Bengaluru, there's a little bit of adouble-up and then it's only towards the end of the program and the migration that you
can start to release the cost of your own datacentres. That release would come through in
the BAU costs. So, it will be straighter and more linear but not perfectly so. There'll still bea bit of a tail-end impact.
Andrew Lyons: (Goldman Sachs, Analyst) Thanks so much.
Shayne Elliott: Thanks. I would say - sorry, just one thing on that. I think it's worth - ifyou go back and look at the productivity that we've got, and Farhan mentioned the $308
million, what's really interesting about that - and I know when we first started and had theambition around the $8 billion there was a lot of scepticism and I understand that. We
talked about when we first started delivering into that there was a sense, hey, you're doing
the easier stuff first and it's going to get harder, and there's an element of truth to that,but we're also getting better, and I think that's important.
That $308 million actually is higher than it has been historically, so actually we are
generating more productivity saves as we go through the program. It's not slowing, it's
actually accelerating, because if you look back over the three-year prior, the three-year
average prior to that I think was about $260 million per annum. So, we're getting better,surprisingly, in terms of our execution on productivity benefits.
Operator: Thank you. Next question is from Ed Henning with CLSA.
Ed Henning: (CLSA, Analyst) Thanks for taking my questions. You've talked about
improved mortgage outlook, a firm handle on the issues. Speaking to a number of brokers,
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you're still around six weeks to pick up a self-employed deal, three to four weeks for PAYG
which is still well out of market and has recently got worse. Firstly, can you just run
through in a little bit more detail why it's taking so long to fix the issues and why that
won't happen again?
Secondly, given your improving outlook for credit growth expectations, do you need to pull
the price lever? With that, do you see increasing front-book pressure and also fixed-ratemigration coming through in your '22 NIM?
Shayne Elliott: Yes, fair questions. I'll get Mark Hand here, who runs Australia business, tomake some comments on that in terms of the turnaround times [unclear]. So why it takes
time, because at the - so let's understand what the issue is. We do not have an issue
today of people wanting to choose ANZ for a home loan solution. We in fact, in a funnyway, that’s part of the problem, we've got lots. Actually the application volumes we areexperiencing today are extremely elevated relative to history.
So we don’t have a problem at the front end. Where we have had the problem is inprocessing. If you go to - and Mark will talk about it more articulately than me - but interms of our Branch network we don’t have a problem at all, in terms of turnaround times.
People going into Branch get a turnaround really quickly and very competitively.
It has been in the broker space. For without going into all the sort of detail, some years
ago we made a risk-based decision that we would manually assess all broker applications.
That was a reasonable thing at the time. So basically we have a very, extremely manual
process sitting in behind broker applications.
So the reason it takes time to ramp-up, it is difficult to hire and train people, and get them
to be really productive in terms of home loan assessment. That was particularly true
during COVID-19 where we were more restricted in terms of being able to get people into
a building to train them, et cetera, and get them on the tools quickly. But Mark can talkmore sort of with up-to-date data in terms of turnaround times. Mark?
Mark Hand: Yes, so firstly, I'm the first to admit that I didn’t pick the boom that we saw
coming in home loans this year. So in terms of our preparedness for that, we weren't
ready. But what we have done is constantly improve the business. So our ability to write
home loans today is more than double what it was 18 months ago.
We are in the process of doubling that again. But that takes time. To automate processes
you need to change systems, you need to retrain staff, and you do need to put new staff
on. So we have redeployed a lot of staff from other parts of the Bank to help with thisPage 19 of 45

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problem. But the technology solutions, the automation solutions, that we need to put inplace just simply take time.
Now the turnaround times, we do have a little bit of a bias. So we have a mobile network
which accounts for about 15% to 20% of our volumes. They are treated similarly to theway we treat our brokers. So we do a full check of those deals the same as we do for
broker deals. So we have a bigger piece of our pie that goes through I guess the slower
process. Compared to the Branch deals where 60% of customers will walk out the door
with a decision within about one hour of entering the Branch.
So we do have a lot of work to improve that process. We have got a lot of work underway.
But we also have a bias towards, because we have the best offer in market for selfemployed. So we bat very strongly in that part of the market, and those deals do takelonger. So you won't get an approval in 24 hours for a self-employed customer from any
bank. It does take longer, there is much more intensive checks to be done. The fact that a
lot of those come through a broker add to those.
So our bias plays towards a little bit of a longer turnaround time. But if you look at our
turnaround time for a straightforward deal, that is comparable to the deals that a
Macquarie, for instance, might be writing, and we're still slower. But the difference is in a
few days, not in weeks.
Shayne Elliott: In terms of your question, Ed on, you asked a question about margin,
you're right, there's been a big mix shift across the market, and certainly for us in terms ofcustomers choosing fixed rate over variable. Of course that does have an impact on
margin. That’s already sitting in our book today, and it's already, if you will, within the exitrate.
I don’t know, Farhan, if you wanted to comment a little bit more just broadly about themargin trends?
Farhan Faruqui: Yes, look, I think have - and I tried to cover that in the speech earlier,that obviously we have a combination of head winds and tail winds coming into FY22. I
think the head winds are likely to persist around competition, the continued shift fromvariable to fixed, and sort of other back book related margin pressures, et cetera, in themix.
But we do have tail winds. We have the ability to reprice. We still think we have someability to reprice deposits. We are waiting to see how rates perform in the course of thenext few months. Hopefully that’s going to give us some tail wind as well. The deposit mix
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is something that continues to change and provides, and our teams are working hard out
to make sure that we get some tail winds as a result of those.
Of course the wholesale funding costs are relatively lower in the debt markets. Of course
as those roll off we will be able to refinance cheaper through the deposit liquidity that wehave. So to some extent we have several tail winds. Net net we think there are obviously
net head winds. But again, depending on what happens with rates, and depending on how
we are able to take appropriate management actions to offset some of those head winds.
But I think it's fair to assume that in general there is a head wind pressure going into next
- going into this year.
Ed Henning: (CLSA, Analyst) Just if you think about your credit growth expectations, do
you need to pull the price…
Shayne Elliott: Oh yes, good - yes.
Ed Henning: (CLSA, Analyst) … to accelerate those head winds?
Shayne Elliott: Look, I don’t know what the market is going to look like, I don’t know
what's going to happen with rates or in terms of competition. But I think again when you
stand back and at it from a simple level, as I said, the issue today, we have today is notthat people do not want to choose ANZ. That we don’t have a compelling competitive
position in the marketplace.
It's really just our ability to sort of churn through the volume. So our view is just, where
we are putting our resources is really to build the capacity. Mark talked about the doubling
we have already seen, and the expected doubling we are going to get. That’s our focus.
We know actually from history that what's really important in terms of growing volume isjust being competitive in terms of turnaround times.
That is our strategy, to be in the mix, to be highly competitive through this in terms of thebroker channel. As Mark said, on the Branch channel, we are already very effective there.
Ed Henning: (CLSA, Analyst) Sorry, just one other follow-up.
Shayne Elliott: Yes.
Ed Henning: (CLSA, Analyst) Just on the broker, you fully reassess the loans. Do peers dothat? So if you do see another spike in volume you will get the same issue again for ANZ?
Shayne Elliott: I can't speak for peers, that’s for them. We, today we manually assess what's part of the changes we are making is to reduce our reliance on total 100% manual
assessment through the broker channel. So there is part of the work, and what Emma will
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lead and is already underway, is how can we automate, streamline some parts of thatprocess. So that’s already underway and we are confident we can do that.
But I think the point here, and Mark I think spoke clearly about this, we are aiming, wehave already doubled our capacity. If you look in the data, it's not that we're processing
less home loans than we used to. We're actually processing more, it's just not enough. We
are building that capacity to double again.
Now who can say what the volume outlook will look over the next year. But that should be
more than sufficient for us to meet the objectives we talked about. Getting asset growthback into the home loan book in the first half, and being back towards the average of ourmajor peers at some point in the second half.
Ed Henning: (CLSA, Analyst) Right, thank you very much.
Shayne Elliott: Thank you.
Operator: Your next question comes from Matthew Wilson with E&P. Please go ahead.
Matthew Wilson: (E&P, Analyst) Yes, good morning team, I presume you can hear me
okay?
Shayne Elliott: Yes, good to hear from you Matt.
Matthew Wilson: (E&P, Analyst) Thanks Shayne. You mentioned in the opening remarks,
and I think it's a good point, your institutional franchise [isn't] well-appreciated. You cantell that by the questions today, everyone's focusing on home loans. We'd think we'd betalking to a building society.
But there is $150 trillion that needs to be invested in net zero emissions over the next 30
years. Perhaps this is a question for Mark Whelan, but can he sort of provide more colour
how your franchise is front and centre well-placed to deal with the opportunities that will…
Shayne Elliott: Yes.
Matthew Wilson: (E&P, Analyst) …arise across the capital stack, across the assets thatneed to be created, financed and managed long-term?
Shayne Elliott: Yes, and I'm glad you raise it, because I totally agree with you. That waspart of the - and so I'll get Mark to come up in a sec. While he's getting ready, this ismassive opportunity. There is no doubt, we're talking enormous amounts of money. As I
sort of tried to cover, and Mark will give you a bit more detail about the work we're doing

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here. You stand back and think about that transition and what would you need to do to bepart of it? A lot of those things, if not all of them, we're really good at.
For example, just good old-fashioned resource extraction and banking that. Yes, okay, theunderlying shift, and it won't be coal, it will be lithium or something else. But the fact is or hydrogen and all those. It's still got to be around, we're good at that. We’re number 1
at that, and we've been good at that for a long time.
We're really good at banking large scale industrial projects in terms of the conversion ofthings. We're really good at moving and financing the movement of goods. Whether thattoday might be gas or iron ore, and in the future might be hydrogen or something else.
We're good at knowing how to do those things, and we have the customer base that
actually will drive a lot of that.
I mean the reality is that transition is going to be driven by large multinationalorganisations, many of which, if not most of whom, are core clients of ours today. Not
fringe clients, like core. We had this discussion yesterday with our Board. Going through, if
you go through and think through who is going to drive that transition, I am talking about
the names. These are people we know and have banked for a long time and are very
closely working with. So I think there's a lot.
But we are excited about the opportunity. It's really early days. But Mark can talk a little
bit more about the various ways we can participate in it. Because it's not just going to belending, far from it.
Matthew Wilson: (E&P, Analyst) Correct, yes.
Shayne Elliott: Mark?
Mark Whelan: Yes, thanks Shayne, and thanks, Matt, for the question. We have spent thelast probably six months doing a real deep dive into what we're seeing in the sustainability
area globally. Some strategic work with around 75 of our people working with McKinsey.
We've got a pretty good picture on where we see the opportunities.
But it effectively starts with what Shayne talked about. I mean the quality of our customer
base, both domestically and internationally, they're the customers that are going to drive
this transition to net zero by 2050. Many of them are already well progressed on their own
plans. So our intention is to follow them, and to work with them on their own transition.

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So that customer base, plus our geographic footprint, really puts us in a strong position to
be at the forefront of this, based on what our customers are telling us and what they want
to do, and where we think this will move.
The second point I'd make is, don’t forget our Financial Institutions business. A lot of
where you're seeing drive and pressure and move to net zero is coming through from ourfund managers and our investors who take both our equity and our debt. But also they dothat with many of these companies that are obviously looking to transition.
We have an exceptionally strong FI business, a very deep business across multiple parts ofour product offering. We're working with a number of them now around what we can do toimprove our product capability. So when you roll all that together, there's areas we'll needto develop. We do a little bit in advisory today. We're thinking about what we need to do
there.
We're looking at the product range we offer. Green bonds, green loans, it's going to bemuch broader than that. Supply chains are going to shift on the back of this. We have gotvery good trade businesses with these multinationals. We are actually reshaping them
today to focus on where these opportunities will be. There's obviously with the fundmanagers and the FI business that we have, we're talking to many of them around how weparticipate in other parts of the business. Whether it be in equity, and how we structurethat up.
So it's multi-faceted. I think we're pretty well prepared. We've got a very strong starting
position and a very strong reputation in the marketplace. Very well co-ordinated across the
Bank as well, which is quite important in this area. Because it's going to touch manyindustries.
Matthew Wilson: (E&P, Analyst) Thanks guys, that’s helpful.
Farhan Faruqui: Just to add quickly, Shayne if I could, and Mark too, what Mark said, Matt,
that we have the relationships in our international business alongside our relationships inAustralia that we will leverage together to deliver the outcomes on sustainability, as Marksaid.
But I think it's worth pointing out that we have market leading businesses in this region interms of debt capital markets, syndicated loans, project financing, export credit. Many of
those are going to be critical in terms of the financial engineering that will be required as
many of these projects are taken on.
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So we have the network, we have the relationships, and we have the product capability toactually bring this to realisation. Which I think sets us apart a little bit from some of ourcompetitors.
Shayne Elliott: Again, without over speaking, because you can probably tell, we are excitedabout this opportunity. The reality is, because of that customer base and because of thatcapability, this is going to happen naturally anyway. We are going to, our business is goingto shift because our customers are going to take us there. What we're talking about isdoing more than that. Not just being, moving because our customers are shifting. But
actually how do we position to have even a greater participation in this and that's going torequire investment.
Now, the good news from a shareholder's point of view, that investment we're talking
about is largely a people and capability. It’s not about - we don't need new big systems or
technology or big dollar investments. It's really about the intellectual investment aroundpeople and under Mark's leadership we've already hired in some really thoughtful people
from the whole sustainability spectrum to augment that team, because we need to be at
the forefront of the thinking as much as just in terms of delivery. So it is an exciting area.
Matthew Wilson: (E&P, Analyst) Thanks, guys. Farhan, you are well advised with respect toa recommendation for a football team. Thank you.
Farhan Faruqui: Thanks, Matt.
Operator: Your next question comes from Jonathan Mott with Barrenjoey, please go ahead.
Jonathan Mott: (Barrenjoey, Analyst) Yes. Thank you. Probably staying a bit more in that
institutional side, you talk a lot about the benefits from the steepening yield curve andpotentially rate raises. So could you just elaborate on that, just the leverage that you get
across the Institutional space in the markets if we have the volatility that's been going onin recent times. Shouldn't we expect a pretty good environment for markets for the next
little while? Also, for the rate rises, do we actually need to see effectively the RBA rate
rise kick in before you really start to get the leverage through widening spreads as well?
Shayne Elliott: Okay.
Jonathan Mott: (Barrenjoey, Analyst) So could you talk about that leverage to rates?
Shayne Elliott: Yes, yes. Good. I'll get Mark Whelan to talk a little bit about - because
you're specifically talking about markets in particular there. But I think if we just standback a little bit and, again, I don't want to sound preachy, because you guys will know
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this, but as we know, higher rates and steeper curves are generally a good thing for banks
overall.
The old borrow shortly and long argument, and that is undoubtedly true. What we'resuggesting here is not only does ANZ benefit from that like others, because of the shape ofour business and, in particular, our strength in institutional, we think - we see that as amore of a tailwind for us, yes? So - and Mark can talk that through. The other point there
I think is in terms of volatility in general, as rates rise, it tends to come with a little bit
more market volatility.
What's interesting at the moment is there's this quite significant debate happening, notjust here in Australia, but around the world, about inflation. Is it transitory? Is it
permanent or not? We saw even yesterday with the data some reasonable moves in the
shape of the curve.
That sort of environment, as my view, is there's going to be a lot more of that debate. It's
not going to get settled any time soon and there'll be market flip-flopping around on thatdecision and so that's an ideal - and that means our customers are increasing theiractivity, more hedging, more positioning, etcetera, and that's generally a good thing forus. But, Mark, you're in a better position to just talk through about the impact and theopportunity we see in our markets business.
Mark Whelan: Yes, I think that's a good backdrop to it, Shayne, because we do - thebusiness is built around the customer flows and so Jonathan, I think the issue for us is
more following what we're seeing with customers. I think in the last few months we'veseen - or the last six to 12 months we saw customer activity actually drop a bit, because
they did a lot of pre-hedging, as you know, last year, when volatility was up, spreads werewide, yield curves were uncertain, et cetera. Then when all the liquidity came into themarket, what happened is that it really suppressed volatility and you'd already had a lot of
pre-hedging from customers put in place. So it was a tougher year this year. However,when you look forward - and I don't think it's an issue of if things will get better for thatenvironment for markets - it's more the question of when.
So we do think that rates will rise. Now, because we've got more - a global business in ourmarkets business, we've already seen New Zealand rates rise, so we'll benefit from that.
You already - you talk in the US about when the US rates will rise and also it's an issue ofwhen does Australian rates rise? But we're exposed to all three of those and we canleverage them at different times.
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Yield curves are already starting to move. Spreads are already starting to move out. It's anissue of how quickly that will happen and whether it's a continual factor and when it feeds
into volatility, which then attracts back in the customers to take more action around theirpositions going forward. So, as I said, I think it's more an issue of when it will hit than if.
At the moment, it's still - volatility is still pretty low, but we're starting to see more activity
and M&A customers starting to borrow more money. That's usually a good precursor tostarting to see some of these market conditions hit, which are really good for our financial
markets business.
Shayne Elliott: Yes. Just to go into your question, Jonathan, about the RBA, look, clearlywith rates so low here in Australia, essentially at zero, any increase, yes, would be of
benefit, but the greater benefit to a business shaped like ours is the steepness of the curve
as opposed to just the position of the cash rate. So in a funny way, the longer the RBA
keeps rates low, the more likely it is that we get a steeper curve as those sort of
expectations of rates rise start to get built in.
So I know there's a lot to unpack in that, but basically what we're saying is our business iswell positioned for higher rates but, more importantly, steeper curves, both from a market
positioning business, just lending - borrowing short, lending long, but actually also interms of driving customer activity.
Jonathan Mott: (Barrenjoey, Analyst) Thank you.
Farhan Faruqui: I'll just add, Shayne, to your point that it is absolutely right and,Jonathan, to your question, away from the market's impact that Mark spoke about - andShayne touched on the fact obviously cash rates going up is obviously helpful, but we want
to see the rate structure rise. That would impact not just the market's business, but itwould also impact favourably the ITOC and replicated portfolio as well.
Jonathan Mott: (Barrenjoey, Analyst) Thanks.
Operator: The next question comes from Brian Johnson with Jefferies, please go ahead.
Brian Johnson: (Jefferies, Analyst) Thank you for an opportunity to ask a question. I justwondering who this Jon Mott character is. Shayne, congratulations on a great result, butjust something I wanted to understand is on slide 10, you actually say consumer lending is
becoming more capital intensive and less profitable, which I would agree with. But when
we go back to what you said in 2016, when you took on the gig, you basically said that

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you'd written down on an environment that basically ANZ is too much in Asia, too much
institutional, more in-housing.
When we actually have a look at the housing market share, over and above what we'veseen just of late, the market share is down in housing from 2016 to basically now. I justreally want to understand is are you saying that institutional is better than SME lending, isbetter than housing? I just want to…
Shayne Elliott: Yes.
Brian Johnson: (Jefferies, Analyst) Are you happy with basically the current mix? Because
it's the great unknown. I'd just like to find out…
Shayne Elliott: Yes, it's a great question.
Brian Johnson: (Jefferies, Analyst) … that one first.
Shayne Elliott: It is a very reasonable question. Thank you, Brian. So I think when we - so,again, just standing back a little bit. There is no doubt that consumer lending - the returns
are under pressure for all sorts of reasons. We've talked about partly due to its pricing,
partly to do with capital intensity and also partly to do with just an opening up of thatmarket and an unbundling of it and new competition, right? But it's still very attractive, so
the point there again, it's getting lower, but it's still, when you think about our stack ofalternatives, it's still - and, again, we're using broad terms here - it's still one of the most
attractive.
So if we just stand back today and think about the relative attractiveness of ROE - andI'm, again, being pretty blunt or think about the economic profit generation of the various
businesses, just as a spot - on a spot basis, parts of SME are the highest. Not all of it. So
part - the parts of SME are the highest. Consumer, including home loans is there.
Institutional is still a lot lower than those two. Now, then you've got to think about, but
what's the change happening, both from an industry perspective in terms of - and as aresult of our own management. What we're suggesting is that retail is getting harder andso returns are falling structurally. Institutional is actually getting better.
So the gap is closing and so now we've got an institutional business that is comfortably
above our Group cost of capital and we're not done yet. Like, we - partly because of the
tailwinds we've talked about, partly because of the work we're doing to restructure thatbusiness, we think that continues to get better. The APRA, the proposed capital changes
from APRA - and they're not done yet, but as they're proposed at the moment that come inPage 28 of 45

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in '23, they're a pretty reasonable boost to institutional. It might be neutral overall, but,
again, it'll help start to close the gap.
So that's our view. By the way, just to finish that, SME not really changing too much. A
little bit of pressure there from some of the capital changes. So that's the way we think
about it. Now, we are a diversified business and we want to be great in all three of those.
We think our mix at the moment is about right in terms of about two-thirds, one-third issort of our mix. It's about right. I don't want anybody to walk away thinking that wedeliberately - and know you didn't mean that, but we didn't deliberately reduce share in
our retail business in Australia. Far from it.
We do want to increase share. We want to increase the right share at the right price andthat is why we're investing really, really heavily through ANZx, but also just in general interms of really trying to craft a position where we've got a compelling proposition that issustainable for the long term.
Brian Johnson: (Jefferies, Analyst) So, Shayne, just on that, sorry…
Shayne Elliott: Yes.
Brian Johnson: (Jefferies, Analyst) …this is part of the first question.
Shayne Elliott: Yes.
Brian Johnson: (Jefferies, Analyst) If we go back to APRA's last announcement on this,they said that when the amended Basel 3 comes through, basically, it's just a change inthe way you measure something, but housing capital intensity goes up. But theyspecifically reference SME falling. Are you saying that's not the way it looks at thismoment?
Shayne Elliott: No, that's - you're right. I'm - again, I think it's taxonomy here about SME.
So when we think about our SME base, SME for us is a pretty broad church of things. So atthe very - so it depends - when we - I'm talking about sort of more of the - some of thelarger parts and more capital intensive parts of SME.
Again, the impacts as we - as articulated by APRA are broadly neutral at a bank or industry
level, but they do level the playing field a little bit between [INSTO], so [INSTO] will get abenefit and other businesses will have a small reduction in terms of attractiveness for ROE.
So it's a relative - but it's relatively neutral, but, again, within our portfolio, institutional
will look relatively more attractive than it does today.
Brian Johnson: (Jefferies, Analyst) Great.
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Shayne Elliott: Yes.
Farhan Faruqui: I think [unclear] maybe…
Brian Johnson: (Jefferies, Analyst) Shayne, the second one, if I may…
Shayne Elliott: Yes, go ahead.
Brian Johnson: (Jefferies, Analyst): …is just on the housing pricing going back to Ed's
question. If we go back to basically March 2020 when the RBA cut, ANZ, you cut your front
book/back book housing variable rate far more than your peers and we had an uplift inyour market share. So you basically hurt the back book, but you got a growth in share. If
we go back to November when the RBA cut from [25 to 10], the other banks cut moreaggressively their fixed rates. You guys didn't and basically you basically appeared to havelost fixed share.
But if we look at it now, your fixed rates look to be pretty punchy relative to your peers,
but we've still got this higher back book variable rate. Does that feel to you like basically
ANZ gets more front book/back book pressure or less going forward than your peers…
Shayne Elliott: It's a big - there's a lot…
Brian Johnson: (Jefferies, Analyst) …as you go back to market share growth? I apologise.
There's a lot to unpack there.
Shayne Elliott: Yes, I was just about to say there's a lot to think through in that one. I
don't want to give a glib answer. I'd have to think that one through. I'm not debating
anything you've said there, Brian. I think all - your assertion there is probably notunrealistic, but I'd have to really honestly sit down and work that through. I can't say. I
mean, I think the point here is…
Brian Johnson: (Jefferies, Analyst) Sorry. Can I…
Shayne Elliott: Yes.
Brian Johnson: (Jefferies, Analyst) …just…
Shayne Elliott: No, go on.
Brian Johnson: (Jefferies, Analyst) Shayne, your fixed rates are low relative to your peers.
Shayne Elliott: No, I understand the question.
Brian Johnson: (Jefferies, Analyst) So that creates more…
Shayne Elliott: Yes.
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Brian Johnson: (Jefferies, Analyst) …front book/back book pressure, but your benchmark
variable rate is well below your peers, which creates less. How should we add the two
together?
Shayne Elliott: As I said, I need to work that through, because we also need to understandthe relative weight of the business today and the relative flow and clearly the issue is - soall else being equal, you're correct. That will create more of a headwind for us. But all else
isn't equal and the point being that we - pricing shifts and also importantly, as we've said,
we're not achieving the kind of volumes that we want today. And why we talked about anaggregate about the fact that we want to get our book back to growth in the first half andback towards peers at some point in the second half, clearly the mix of that will be very,
very important in terms of where that growth comes from.
So, again, you're right, but I don't know that you can necessarily just extrapolate that too
far given we've got some of our - you know, the processing challenges we have andmaking sure we get back into the volume that we need.
I think what's important here is what we are saying is we don't believe - I don't wantpeople walking away here and saying hey, our plan is we get our [process] in and we’regoing to use price as a lever. We have to be competitive, we understand that, but that's
not the issue today.
That is not our issue about people wanting to choose ANZ. We have got a pretty, youknow, as I said we are in the mix when it comes to pricing. We will be a little bit better
here, a little bit worse there, but we're in the mix. It's really about the processing capacitythat we need to fix.
Brian Johnson: (Jefferies, Analyst) Thanks Shayne and well done on the result.
Shayne Elliott: Thank you Brian.
Operator: The next question comes from Azib Khan with Morgans Financial. Please go
ahead.
Azib Khan: (Morgans Financial, Analyst) Thank you very much Shayne and team. You havecovered pretty well the sensitivity and the leverage of the markets business to the shapeof the yield curve in rising rates. I would like to understand the same sensitivity to anotherpart of the institutional business being the payments and cash management business.
Shayne Elliott: Yes.

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Azib Khan: (Morgans Financial, Analyst) If we go back to 2018 and 2019 the PCM business
was delivering revenue of somewhere between $1.2 billion and $1.3 billion per annum, but
it has since trended down such that it's now delivering about $900 million per annum.
Firstly, to what extend has that down trend been driven by lower rates globally andsecondly, I now note that that revenue, the PCM revenue, has stayed in large from thefirst half to the second half. Do you believe that that down trend has now come to a halt inthis cycle? Mark mentioned earlier that we're already starting to see yield curves move inmany of the geographies that you operate in.
Shayne Elliott: Yes.
Azib Khan: (Morgans Financial, Analyst) Is that starting to bode well for the outlook at PCM
revenue.
Shayne Elliott: Yes, look, it's a great question and don't forget you're talking to an old cash
management person so it's going back a bit. We love this business. You're right, so
actually the decline in revenue is more than explained by lower rates, yes, because
actually what we have seen at that time is actually an increase in the volume and theincrease in the volume comes twofold. We have been increasing shares, we've beenacquiring new customers and mandates and our customers are increasing volumes.
I think so we have this odd sort of, well it's not odd, we have had this situation where
despite the fact we have been winning more business and getting more transactions andputting more through the pipe if you will, the way that market works in terms ofgenerating value and revenue for us was heavily skewed towards NIM, i.e. the amount wemade on balances and less reliant on fees, yes. So when a lowering rate environment, yes,it did and so in some ways we have had to pedal really, really fast to actually reduce thereduction in total revenue.
What we are signalling and talking about here, well signalling is not the right word, butwhat we are talking about in the result is look, for what we see now and remember thisbusiness is not just in Australia and New Zealand, it's an array of currencies across anarray of markets and pretty well diversified, but broadly yes, we think that business hasbottomed in terms of the drag of interest rates.
Actually, as we start to see rising rates and we have started to see them in New Zealandand other parts of the world and there's more talk of that happening, that will absolutely
be a net positive for that business, yes. We have got higher operating leverage in that
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business today because it's got bigger balances and bigger transaction volumes than it
used to.
The other thing that I referred to in there is, it's small but important, increasingly theservices we provide through that business are more fee driven and so the business modelis shifting a little bit. The best example is NPP. On the NPP services the way we generate
revenue there is a fee per transaction, yes, and so it's not a NIM business at all. As thebusiness mixes and we become more of the processing shop, processing payments forpeople, again, we see a tailwind coming through in that business.
So yes, we see that as an upside. Rates will benefit, steeper yield curves will benefit, butalso the changing nature of the business and the underlying growth that we are seeing
there which is really pretty powerful.
Azib Khan: (Morgans Financial, Analyst) Shayne, putting all of that together, so theoutlook for the PCM business is looking quite rosy. The markets business, we understandthe sensitivity there to rising rates in the shape of the yield curve and on balance that's
looking pretty good for the next couple of years.
Your outlook for corporate finance and trade is looking good in light of what you're looking
to do with the transition to the low carbon economy. Putting all that together, are you
expecting cash earnings for the institutional division to outperform other divisions over the
next two to three years?
Shayne Elliott: I think it's about - so all of the factors you talked about - you should do myjob, come and [sell it]. You did a good job of explaining the positives there. We do see
those things as structurally tailwinds. The question we have here is really about timing. To
your point, over the coming years, yes, absolutely we see those things as positives.
Now, what we have got to do is keep our heads around - and I have, Farhan has, Mark,
we've been in institutional banking and that for a long time, we know what to do here I
think in terms of really strongly managing risk, it's all about getting the risk settings rightand it's also making sure we keep on top of our costs base.
We are in a great position, we have more structural tailwinds than we have had for a longtime that I can certainly remember in terms of institutional banking and we will keep a
very, very disciplined approach around execution, but over the medium to longer term,
yes, there are some real positives there that are exciting. You still have to win thebusiness with customers and get your stuff together to take advantage of it but we'refeeling a lot more positive about that that is certainly the case.
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Azib Khan: (Morgans Financial, Analyst) Thank you.
Farhan Faruqui: If I can just add a quick point on that Shayne…
Shayne Elliott: Yes.
Farhan Faruqui: …because I think you have covered it really, really well. Also, I think it'sfair to say you're an institutional business person yourself, but I think while the tailwinds
are absolutely accurate, I think we have got to make sure that we continue to keep oureye in terms of margin and the competitive intensity that the institutional business,alongside other businesses, is going to be facing into.
The good news is that Mark has driven incredible discipline in the institutional business interms of capital and a return orientation, but we shouldn't be - we are not going to belooking at institutional for growth for growth's sake, it is going to come on at profitablelevel.
Shayne Elliott: Yes, well said.
Operator: Your next question comes from Victor German with Macquarie. Please go ahead.
Victor German: (Macquarie, Analyst) Thank you and thank you for the opportunity.
Shayne, I would be interested just to go back to mortgages and expenses actually. I was alittle bit surprised with comments from Farhan and Mark that you underestimated growthin the market and it would make sense if it grew by 4% or 5% and the market grew at
8%, but surely when you're not growing, you're going backwards, it's not justunderestimating the growth in the market. So basically, in a little bit more colour in termsof what is going on and why do you think your mortgage processing is less scalable thanyour peers? That's question one.
Then the second question on expenses. I guess, Farhan, if you could perhaps maybe
provide us a little bit more colour. Now, you have mentioned that next year you expect
expenses to be up. If we look at your second half expense rate you are effectively
averaging $8.9 billion based on second half and I appreciate there is high investment
spend in there, but I would just be interested in how we should reach that $8.9 billion
number to $8.6 billion base and where you expect those potential reduction in spending tocome from, particularly in the context presumably you will need to continue to invest to fix
some of the mortgage issues that we spoke about earlier.
Lastly, I will take Jill on her offer of bringing in her favourite club. If we look at thefavourite player, there is some speculation that he might not be coming back and retiring,
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so how committed are you to actually delivering on that $8 billion target in 2023? It's notthat far away. Are you actually thinking about delivering that or are you really putting
together structure in place for someone else to take that and deliver on that number?
Thank you.
Shayne Elliott: Okay. No, look, I'm committed. Let's just remember on the - we will dothem in reverse order, Victor, a little bit. Hey, let's not forget where the $8 billion camefrom, right, so I'm not walking away from it. I made comments about the fact that weneeded a simpler bank. That we were way too complicated, we were doing way too manythings and some of them we weren't doing very well and we wanted to de-risk thebusiness and we wanted to make it a better bank for customers.
Yes, we wanted our processing - and home loans is a great example, it's too manual, it's
too slow and it's too clunky. We wanted to build scalable better compelling propositions
and we wanted our business to be really centred around things that we did well. That was
the objective.
Now, when we sat back and did the work and said, well what will that look like and what
would the organisation - what would the shape of it be, what were the things we would bedoing, where would we be doing them and how would we be doing them, we back solvedthat and said actually that comes out about $8 billion.
So, the $8 billion was an outcome as much as it was - it wasn't just a target, it wasn't justa number we made up. I know it has become a target and I know that target is on myhead, I understand that, but it's important to understand why we have that number. So
yes, I am committed, but I am committed to the simpler better bank proposition and I still
believe and I went through, that $8 billion is about right.
We are not going to do anything stupid to get there and I know I have said this probably
every half recently, actually we can get there now. It's not that difficult. You have seen thenumbers. Our run the bank costs are at $7.4 billion. Right, all I have to do to get there
now is finish BS11, shut down ANZx, I am basically there. Now, there's a bit of noise in
there but that's all I have to do, but that would be the wrong thing to do. Right, we want
to invest for the future.
So yes, I am committed to it. No, I am not setting it up for, well that's up to the Board I
guess, but no I'm not setting it up to hand that task onto somebody else. I think that
simpler better bank that we want at the end of 2023 is absolutely within our grasp and it's
not going to be easy on a few areas but we are committed to doing it.
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In terms of the home loan piece, why did we call it? That's a good question and it's a fairquestion. Again, it's really important and there's some charts there to look at the moving
parts, it's not just about system growth. The other thing that we did not see - because
what actually drives the work isn't just system growth, it's the churn, right, and what we
saw is massive levels of churn in terms of refinancing. The level of refinancing activity inthe market has gone to an extraordinary level.
Now, we did not foresee that coming. Even to hold still in volume we would have had tohave significantly higher levels of processing capacity. I think that's a little bit broader thanjust saying oh system growth was eight and we thought it was going to be five. It's a little
bit more than that because what drives it is actually the turnover.
Why are we less scalable? We're less scalable because we are more manual. Most of thebanks today, despite what people say, they're largely manual but we are even moremanual than our peer group. In a time when frankly hiring and training people has been
more difficult, that makes it harder for us to scale.
That's why, two things, we're dealing with it in the short term, we've put the resources,
we've repositioned literally hundreds of people in our network. We had people in ourbranches who were underutilised who we could put onto this. We have hired people,
literally hundreds of people to come in. They are being trained. Every week more and more
people are getting into actually being and assessor and being able to chip into that.
We are investing in some of the technology solutions that Mark alluded to in terms of
simplifying this, that and the other, for example, the way we ingest applications frompeople. We have put Emma in and Emma is an expert and got a lot of skills around data
and automation.
So, we are doing the short to medium term things and I don't want to underestimate
those. Those are having an impact, absolutely having an impact today. Our capacity today
is higher than it was last week and the week before. It's literally going up and we measure
it literally to the deal number and the dollar we know what our capacity is in getting readyfor that.
Then on the other hand, we are also investing for the long term because I don't think thatthat is the solution. The solution cannot be that the answer to this is just keep throwing
people at this and tinkering around at the edges. That's why we talked today about thefundamental rebuild of ANZx.

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I know it's hard to sit and listen and I throw a bunch of names at you and a bunch ofnumbers, what the hell does it all mean? What it means is essentially a whole new stack or
a whole bunch of new technology and processes that initially are around helping people
join the Bank and start and have a savings and transaction account with us and that wewill then be able to plug in all the other sort of ancillary services, including home loans atsome point.
So we’ve got the short medium-term strategy, yes, which we’ve talked to death on and
we’ve got the longer-term strategy, which we think means will put us – we’ll have a
proposition that is far more compelling, which will make us far more competitive, we won’t
be talking about just moving our capacity a little bit, but really have a scalable, compelling,
low-cost resilient platform to really grow in the market and that’s why we’re doing the hardyards on X. So that’s sort of those questions.
Somewhere in there, there was a question for Farhan, which I’ve forgotten. It was about
costs, I think, Farhan.
Victor German: (Macquarie, Analyst) Yes, thank you Shayne. Out of that investment, bothmanual and automated stuff, I mean how much of that has already been captured in yoursecond half cost base versus what’s carrying it through into the next half.
Shayne Elliott: Yes, good question. So in terms of the short and medium, the stuff we’re
doing to fix the now, a big chunk of that cost is in our second half. Now not all of it, so theexit rate of those expenses will be higher than the average, if you will, because some ofthose people only got hired in the last two or three months, so there’s a little bit of thatand we haven’t finished. So there’s a little bit of a headwind from a cost perspective in theAustralia division on home loan processing.
But let’s not get carried away here. We’re not talking hundreds of millions of dollars, we’retalking relatively modest amounts in terms of the scheme of things, so we’ve got that. In
terms of the longer-term investments and X and the rebrand with Plus and the newopportunities there, by and large they were in our run rate on the investment slate.
Now there’s going to be an uplift in the investment in X, so the work that Maile’s doing that
I talked about, that will be higher cost in FY22 than it is in FY21, but there are some otherthings coming off the slate and that was what Farhan referred to. There’s a mix shift inthere. It is going to be slightly up, the total investment, but a lot of it, there is a mixed
shift in there, so ANZx up a little bit, some other things down to offset some of that.

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Farhan Faruqui: I think, Victor, maybe the best way to think about it is that, as Shayne
said, we have tome BAU uplifts and we have some investment uplifts towards the back halfof the year. As we’ve indicated, investment spent for the full hear next year is likely to beslightly higher. Now that’s going to take different shapes and forms as investments go in
and other projects roll off and particularly some of the regulatory projects start to reduce,
so we’ll probably see a non-linear sort of event in 2022, uplift in first half with a reduction
in second half.
Also, I should say that the OpEx rate is also up due to the mix of projects. So the way weare expensing those projects is also going to be a little bit higher next year than this year.
So investment spend will go up overall, but will probably be slightly higher in first half andthen start to trend down in the second half in terms of the pattern it will follow.
BAU cost is, as Shayne said, is exiting because we have hired people in home loan
processing, we have some transitory uplifts due to things like Chengdu and our Bonus
Bonds business, et cetera. We also recognise of course that we’ll have inflation headwinds
in 2022, but the productivity saves that we have in plan for next year will largely offset
that and we will see BAU expenses trend down in 2022. So that’s sort of the mix, Victor, if
that helps to give you a sense of the travel, if you like, in to 2022.
Victor German: (Macquarie, Analyst) So annualising second half of cost base is overly
conservative, it sounds like, if I add up everything you say, annualised cost base of $8.9
billion, it sounds like it’s too high.
Shayne Elliott: So the question Farhan, I’m not sure you could hear. The question was, so
he’s annualised the second half and said $8.9 billion, so he says that sounds like a littlehigh for FY22. He’s trying to figure out the FY22 number. Now I think that’s up to you,
Victor.
Farhan Faruqui: Totally your call, Victor, how you want to add those numbers up. But I
think what we are indicating is that we expect total expense slightly higher than this year,
higher on investment, lower on BAU and I’ve told you what the travel looks like between
first half and second half next year.
Victor German: (Macquarie, Analyst) Thank you.
Shayne Elliott: Thanks Victor.
Operator: The next question comes from Richard Wiles with Morgan Stanley. Please go
ahead.
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Richard Wiles: (Morgan Stanley, Analyst) Good morning everyone, I have a couple ofquestions. The first one relates to funding and the second one relates to some of thesestructural tailwinds you’re talking about. On the funding, slide 84 shows that you’ve got$21 billion of term debt maturities next year, but you're also going to have run down the
CLF and I think this seems to have taken the banks a little bit by surprise, the timing ofthat CLF rundown.
So my question on the funding is, how much term debt do you think you’ll need to issue
next year and what are your expectations for the cost of funding? Do you think we’ve seen
the best and the cost of funding is going to go up?
Shayne Elliott: Yes, that’s a fair question and Farhan, I’ll get you to make some commentson that. I think the first thing just to note is in terms of the CLF, Richard, as you probably
know, we have by far the smallest CLF and that was because we made some decisions
early on and we looked at cost benefit and the structure of our funding which is different toour peers, partly because of our strong FIG business and institutional, et cetera, we didn’t
have the same need for it. So we have less of a replacement challenge, if you will, on CLF.
But Farhan, do you just want to answer Richard’s question?
Farhan Faruqui: Yes, so look I think from a – so CLF, Shayne has already covered, it’s asmall number, we think it’s very manageable, in fact I think it’s the smallest CLF of ourmajor bank peers. Now whether we need to issue next year or not in terms of term debt, I
think Richard, is going to be a function of a lot of things, right? It’s going to be a functionof what the system deposit growth looks like, how depositors change their behaviour in a
post-lockdown period in terms of deposit mix and the level of liquidity that we have sittingwith us. That will then drive our decision whether we need to issue.
There is a possibility that we may issue a term debt next year, but we’re not at the point
where we are clear whether that is a requirement because we have to wait and see how
the deposit and liquidity situation plays out over the next few months. I think CLF, as
Shayne said, is not really a challenge. We acted faster on that relative to some of ourcompetitors, we’re down to about $10 billion or thereabouts of CLF and that will go topretty much zero by the end of next calendar year. That, by the way, is a positive for
returns as we save the fee on the CLF.
Shayne Elliott: I think just a broader, I was thinking about it, preparing for this, Richard
and looking at some of the – I mean it’s an extraordinary shift when you look at the loan
to deposit ratios essentially in the banks for something like ANZ. To see the massive shift
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28 October 2021of that in a relatively short period of time with these extraordinary levels of amounts ofliquidity and a lot of it obviously sitting on our balance sheet, so that has structurally
changed and gives us more options in terms of ways we think about issuance.
I think what the team, under our Treasurer, Adrian’s, leadership has given them more
options and really focusing on getting the best cost and also maximising return, while
maintaining diversity and all those other things that we need in terms of funding. So it’s
given us way more options than we’ve ever had before.
Now you wanted answered questions about structured…
Farhan Faruqui: I just wanted to add to that point around…
Richard Wiles: (Morgan Stanley, Analyst) Yes, I wanted to ask about some of thosestructures you were referring to. You’ve mentioned sustainable finance several times inyour initial comments. Shayne, you talked about platforms and I think you mentioned the
New Payments Platform and it seems like you’re dominating in that space. I just want to
get an idea of how material these structural tailwinds and initiatives are for the Group’s
revenue.
You’ve got about $17 billion of revenue. How much are you generating from sustainablefinance at the moment and what fees are you generating from the NPP? Are they
meaningful to the Group?
Shayne Elliott: Yes, good, totally fair question. So remember I’m talking about the longer
term here, so I’m not talking about next year, although they will be there, but you're rightto point out they’re probably not going to be material in the base of a $17 billion, $18
billion kind of revenue base, so I understand that. So sustainable finance is certainly not in
the hundreds of millions of dollars, not yet, but we think that it can be. I think that’s animportant thing and it will grow pretty materially.
NPP I use an example, it is relatively modest in terms of the total fee today, but thereality, the point is, the growth rate’s high and so I just used that as an example. But if I
think of something like clearing, so Australian dollar clearing and New Zealand dollar
clearing, we have more than 50% market share of those businesses. So that is basically
clearing Aussie and Kiwi payments for international banks, so it’s a great business, we’regood at it. Those things have actually again got structural tailwinds in terms of we benefit
from higher rates as that comes through and we’re actually also continuing to see strong
volumes in those areas.
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So the cash management business, it goes to, I think it was -I can’t remember who it was,the question before there, Richard, if you think about payments over all of which NPP I
accept is a small part, the tailwinds there are more and more volume, so there isunderlying volume growth and we use some of the data in the pack. Two, more of thatvolume benefiting to us is being driven by fees than margin, so the changing shape, whichis positive from a return profile perspective and opportunity there. And the parts that are
related to NIM, a steeper yield curve, higher rates, also benefit. So there’s sort of amultiplication effect in there.
The cash management business is a billion-dollar business of the $17 billion. That has
more tailwinds. We’ve had, oh gosh I can’t remember, at least five years of tailwinds inthat business with rates falling and now it seems to be bottoming out and we’re going tostart to see some benefit in there. So if you think of that base, the billion, has some realpositives and that’s an important mix issue for the institutional bank overall, because thatreally drives a lot of the return benefit into institutional going forward.
Richard Wiles: (Morgan Stanley, Analyst) Thank you, Shayne.
Shayne Elliott: Thanks for the questions, Richard.
Operator: Your last question comes from Brendan Sproules with Citi. Please go ahead.
Shayne Elliott: Hey Brendan.
Brendan Sproules: (Citi, Analyst) Good morning team. Hi, how are you going, Shayne?
Shayne Elliott: Good.
Brendan Sproules: (Citi, Analyst) I’ve got a couple of questions, one of the SME and thenone on the institutional lending book. So just quickly on SME, I noticed you talked earlier
about the attractive returns that you’re getting in SME and also that the capital intensity isprobably coming down. I’ve just noticed on page 61 of your 4E today that the commercial
and private bank was actually the biggest drag on the performance of the Australianregion, bigger drag than retail and we saw similar results last year.
What’s the outlook for this business? A couple of your larger competitors are spending a lotof money in hiring bankers and trying to win business here. But when you went throughyour five priorities, you’re focusing on other parts of the business. How are you seeing thisbusiness, I guess, going forward and maybe how this can turn around?
Shayne Elliott: Yes, good question Brendan and now my team are going to say I told you
so, because they said to me you should put the SME in and make it a sixth priority. But I
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like the number five more than I like six. But anyway, you’re right. So let me answer yourquestion.
First of all, there’s a mix issue in that commercial and – actually our private bank is doing
extraordinarily well and the commercial bank is a very broad array of businesses in there.
So our small business banking is doing extremely well, that is that high return, highly
diversified growing business and we love it and it’s great and that’s going to be an
important part of that ANZx proposition, because small businesses want to be able to deal
with banks equally in a digital fashion, et cetera. So that business is really good.
But way at the other end of the spectrum there's a whole bunch of other things in there
including some businesses that are much more heavy in the asset finance area, financing
bulldozers and whatever.
That stuff actually in a funny way looks a lot more like institutional. It's really hard. It's
hard to get the returns right; it's asset and capital heavy, very competitive, broker-driven,
all sorts of things. We had made some decisions to exit parts of that business. Two
reasons: we don't think we can generate competitive returns, so it was a drag, the returns
were well below Group cost of capital; and secondly, the nature of that business was not
relation-driven. These were transactional, they were broker-driven - we finance you atruck or something. You didn't really care about ANZ, you didn't give us any otherbusiness, and it was just a balance sheet thing.
So, we've exited some parts of that. It's not immaterial in the balance sheet and thatbusiness is essentially rolling off. That's what's driving the outcome here; you're seeing theroll-off in that business has masked other benefits there. If I stand back and think about
the commercial bank, you're right, others have gone out and said they're going to go andhire and have people knocking on doors. When we stand back, and we've talked to ourteam, we can do that too. When we don't have a constraint and we've asked the team if
we need more people there, we actually don't see that as being what our customers andwhat we do well actually want.
We're actually much more interested in building a digital capability, and that's why we've
put our money into and our thinking behind GoBiz, which again I don't want to overstate,
it's a small but important part of our proposition which allows you to go in, you give us
access to MYOB or Xero or Intuit or whatever it might be in terms of your accounting
platform and literally in real time we can approve - and it's completely automated - we canapprove unsecured lending up to $250,000 today, and we can do that now. That was what
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I mentioned. That's going really well. It's a soft launch; we're getting almost 3000
applications a month and we approve what we can during that channel automated and theones that pop out do go to a specialist team to see if they need a bit more work.
We think the future is more digital and that's where we want to put our effort. So, it is apriority; it just didn't make my five cut, and I think I've explained what's going on in thosenumbers. We will expect to see the roll-off starting to - it will pretty much be finished I
would imagine over '22, and so that won't be a drag on the business. In fact, it will be apositive for returns.
Brendan Sproules: (Citi, Analyst) Thanks for that. Secondly, on the institutional business,
obviously you've had the lending grow again in this half. I think it's up 5% ex-currency,
but noticeably the risk-weighted asset growth is obviously a lot weaker and you've had aslide showing us how the average risk weight has been coming down.
My question is, what effect is this going to have on the net interest margin ex markets,
which has obviously gone up two halves in a row? Are we now going to see that start toreverse, and are you going to really get a lot of revenue benefits I guess from these loans
given just where spreads are being priced at the moment?
Shayne Elliott: Yes. That's a good question. I'll get Farhan to comment on that but I'll justmake some broader comments first. Institutional is a - we're in a much better position interms of our institutional bank in terms of discipline. That business is completely focusedon risk-adjusted returns. We know it's not that difficult to grow revenue in an institutional
bank; it's difficult though to grow quality revenue above our cost of capital. So, they havea ruthless focus on returns, but the way they assess customers, the way they assesstransactions, et cetera, is pretty ruthless in terms of making sure we get paid appropriately
for the risk that we are taking. So, I can assure you of that.
Farhan, there are some mix issues happening in terms of the reasons why they've got
asset growth but RWA actually improving that is worth just talking through for Brendan'ssake.
Farhan Faruqui: Yes. I think there are two aspects to that. One is that there have been risk
re-ratings as a result of the improving economic outlook so that has helped in terms of
reducing RWA intensity in the business. I think a fairly large part of the growth that has
occurred in the institutional business on the loan side or on the lending side has actually
come in the financial institutions business that Mark had spoken about earlier.

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The financial institutions business, as you know, is much lower risk-weight intensity as
well. We've seen loan growth basically outpacing what has been happening on the riskweighted asset side, partly because of the risk re-rating and partly because it's low-risk
intensity growth on the loan book.
Shayne Elliott: Yes. The only other thing I would add to that, Brendan, which is really
positive again for institutional, if you look at the equivalent front-book pricing, if you will,
like we might think about in home loans, it's held up a lot better than any of us thought it
might.
Understandably, with all this liquidity in the world where there's a very real prospect offront-book institutional pricing being under pressure, and while it's not at its peak levels it
certainly has held up a lot better and certainly for our business and our mix of customers,
which again is much more diverse than our peer group, we're actually pretty pleased about
where we sit today in terms of margins.
Brendan: Perfect. Thanks, Shayne. That's really encouraging.
Shayne Elliott: Thank you.
Jill Campbell: Okay. That's it.
Shayne Elliott: I think we're done. Hey, thanks everybody for the questions. I didn't haveany prepared remark but just really quickly, it's great to have Farhan on board andobviously you'll get to speak to him, hopefully meet him when he moves to Melbourne
early in the new year. So, he's got his place in quarantine all set up. This has been a reallyinteresting time for us, but we are - and hopefully you get from the tone, we're feeling forthe medium term really positive about the position of ANZ. For the first time in a longtime, institutional is really positioned for tailwinds and to be a net contributor and we are
feeling really positive.
While we've got challenges in Australian home loans, we're feeling positive we've got the
momentum back into that business and that again we will resolve that - we're resolving
that as we speak. So, we've got I think the prospects of having institutional with the
tailwinds, Australia being restored back into momentum, and some really exciting things
with ANZ Plus coming soon, which will fundamentally transform our long-term businessand the New Zealand business doing extremely well. That's a great position to be in as weenter into '22. Thanks, everybody, for your time.

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Jill Campbell: Thanks, everyone, and if you didn't get to ask your question the IR team are
obviously around to help you with that, so give Cameron, myself, or Harsh a call and we'll
take that question from you. Thanks, everyone.
End of Transcript

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