News Release
For release: 9 August 2016

Transcript: Trading Update – BlueNotes interview
with ANZ CEO Shayne Elliott
The following is a transcript of a video interview with ANZ Chief Executive Officer Shayne
Elliott discussing ANZ’s third quarter 2016 trading update which was released today.
The interview was conducted by Andrew Cornell Managing Editor of BlueNotes, ANZ’s digitalpublication for news, opinion and insight and can be viewed at www.bluenotes.anz.com
Andrew Cornell

Good morning Shayne, thanks very much for joining BlueNotes again on themorning of the 9-month trading update for the bank. The bottom line in the
trading update seems to be: revenue flat; cost control good; bad debts
manageable. Is that a fair assessment?

Shayne Elliott

I think that’s a pretty good assessment. You know, the world we’re living inat the moment is one of subdued growth, we see that right across most of
the world but that’s also starting to be much more true here in Australia. And
I don’t think that’s a short-term thing. And so we want to be prepared forthat slow-growth environment and that says that much more of our focus ison righting our own ship and getting our costs under control and that theme
certainly came through in the 9-month result.

Andrew Cornell

Indeed there’s a focus on reduction in risk-weighted assets which you’ve
talked about previously. The positive note is, revenue has decreased lessthan the reduction in risk-weighted assets – does that say that you’reactually succeeding in the focus on returns there?

Shayne Elliott

Absolutely. What we’re doing is really seeing quite a big shift of balance
within our balance sheet but we’re still growing and we’re still lending moreto customers and segments where we feel positive and where we can do a
better job, and where we can win. But at the same time we need to reduce
our exposure to some other sectors and net-net that actually means we’redown in terms of risk-weighted assets. That’s the right thing to do from acapital efficiency point of view and to drive our returns a little bit harder. The
good news is, to your point, what we’re seeing is that as we’re doing thatshift and shrinking the balance sheet just a little bit our revenue is only
coming off at a much slower rate. And that tells you that we’re putting on theright new assets and taking off the right low-yield assets.

Andrew Cornell

So it’s not a case of shrinking to greatness or particularly shrinking fromAsia?

Shayne Elliott

Absolutely not. It’s about finding out those areas where we can do reallywell, where our customers will reward us, where we can help them - anddoing more of that but also getting out of some of the fringe businesses thatwe have. And in terms of Asia, it’s absolutely not about getting out of Asia.
It’s really just about finding, as I said, those segments and areas that are
doing well. There’s going to be a little bit of RWA or balance sheet shrinkage
in Asia at the moment. A lot of that is to do with the fact that commodity
prices are down and therefore the value of what we are financing has comedown naturally.

Australia and New Zealand Banking Group Limited

ABN 11 005 357 522

Andrew Cornell

You also talk about the restructuring program and indeed that it’s going to beongoing. Is it possible to say how far through the restructuring we are at thebank in terms of FTEs for example, and business restructuring?

Shayne Elliott

Oh look, I think we’ve got a fair way to go because I think we’re getting
ourselves ready for the long term. This isn’t just a short-term, tactical
approach to some dark clouds on the horizon. We basically think we’re in fora lower growth environment for many years to come, which is not necessarily
a bad thing by the way. In Australia we’ve had it really good for a long periodof time but it’s just getting a little bit harder. We think that the banks thatare going to win in the future are those that can really excel when it comesto productivity. And the good thing about that is a lot of it is to do withadopting new technology, about digitising our own processes and that justnaturally drives a better productive output and that’s what we’re seeing.

Andrew Cornell

And on the credit-quality front, the previous half-year bank profit season
talked about the bottom of the credit cycle and bad debts are probably goingto rise from here – what’s your experience with bad debts?

Shayne Elliott

We talked about that and we’ve said actually when we were at the half ourloss rate, which we talk about in basis points, is more or less at our long-run
average. So it’s come from really low rates and it’s come back towards theaverage. And that’s actually been the case as we’ve come back through forthe 9 months as well – so it hasn’t got any better but hasn’t got any worse
and we think that probably feels about right and we’d expect the same tocontinue for a period of time.

Andrew Cornell

Last week there was considerable negative publicity around the banking
sector’s decision to pass on only part of the Reserve Bank’s rate cut tomortgage holders and shelter savings by raising the rates on some of thedeposits out there. But the public focus is very much on the mortgage side –how do you balance that tension between savers, borrowers andshareholders?

Shayne Elliott

Well look, unfortunately that’s a rather complex formula that we need tosolve. Yes, you’re right – we have depositors on one side and we haveborrowers on the other; and it’s interesting to note, we have 5 times as
many depositors as we do borrowers. We need to get that balance rightbecause without those really valuable deposits, we don’t have any money tolend out. I mean, we are essentially an intermediary and so we need to getthat balance right and we need to be really competitive with depositors tomake sure they keep money in the bank and don’t take it out into otherinvestments. The RBA cash rate is an important ingredient when we look atthat formula and think about what the right number is on both sides –deposits and borrowers – but it’s certainly not the only ingredient. It’s
important, we absolutely took it into account and that’s why we came to abalanced outcome of passing half of that rate cut onto our mortgage
borrowers in particular and small business but also being able to afford to
keep a little bit so we can afford to increase the rates that we pay fordepositors.

Andrew Cornell

Well thanks very much again, Shayne, for speaking with BlueNotes.

Shayne Elliott

Thank you.

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