Bluenotes video interview with ANZ Chief Financial Officer Michelle Jablko and Andrew Cornell
Bluenotes 01/05/2019
ANDREW CORNELL: Morning Michelle, thanks very much for joining us on bluenotes on the morning of theinterim result. In recent years and with the simplification programme that has been so fundamental to thebank, the results had a few one-offs and different things, but I wonder for this, can you talk us through theongoing bank, as it were, and where you saw the strengths and challenges.
MICHELLE JABLKO: Yeah sure Andrew. It was a really good half, a good start to the year from institutional.
That business has been through enormous change over the last three years and it’s good to see our hard
work paying off, so we really saw that come through strongly. The New Zealand business had a pretty
consistent result, pretty in-line with prior periods. Australia certainly had its challenges and that’s something
we’re doing a lot of work on. I think, if I add it all up at a group level, because of our buyback, because webought back three billion dollars worth of shares over the last little while, our EPS increase was five per cent,which was more than the growth in profit and our balance sheet is really, really strong.
ANDREW CORNELL: One factor that we’re seeing in the results this year is remediation. Across the wholebanking sector, we’ve had the Royal Commission. It can be difficult to sort of compare across the sector so Iwonder, can you talk about where remediation costs are sitting within the ANZ result?
MICHELLE JABLKO: Yeah and it is really hard to compare. I actually think it’s very hard. Because you’ve got tolook at when you started. So I can’t really talk about what others have done, I can just talk about us. We
started early, so we’ve been going for quite a while. Our salaried planners, fee-for-no-service issues, weprovided for that and have largely dealt with that in prior years. Last year, we took quite a large provision for
the aligned dealer groups that we don’t own anymore, we took a large provision there.
And then we’re working through our reviews on the banking side. We’ve been going probably for 18 to 24
months there, reviewing all our products, trying to do the largest, riskiest products first. And I’d say we’re
probably about half way through the review there.
ANDREW CORNELL: If we look at capital, which you mentioned briefly. Capital generation has been astrength in recent results. But also we’re seeing some new capital challenges, whether it’s in New Zealand orelsewhere. So can you talk us through where you see the capital picture at the moment and what sort ofoptions you have with capital?
MICHELLE JABLKO: Yeah sure, we’re in a really, really strong position as a starting point. We’re well above
APRA’s “unquestionably strong”, and well ahead of time. Capital allocation has been a big strength of ours,
we’ve shown over the last few years that we’ve been able to allocate capital to its best use to generateorganic capital for shareholders. And actually that’s been one of the big drivers, on top of asset disposals, asto why we’ve been able to do the buyback that we’ve done.
Looking forward, we’ve got some challenges, particularly in New Zealand, that we need to work through. It’sa bit early to tell what the ultimate impact of that will be. And of course it depends on what our balance
sheet looks like in the future as well. So we just need to work through all of that.

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ANDREW CORNELL: What sort of things do you think about when you’re looking at capital allocation,because indeed, almost inevitability, as capital builds up, there are calls for returns of capital. But across thebusiness how to you think about it?
MICHELLE JABLKO: The way we think about it is, we’re not really emotional with our businesses, so we say,look can we drive a better outcome for our shareholders, our customers by allocating capital into thebusiness, or by giving it back to shareholders? So that’s the first question we’d ask. Across our businesses welook at whether the return we’re getting on our capital is right. So we look very much at risk-adjusted
margins, or risk-adjusted returns and it’s important to us that we’re putting our capital to the best use. And I
think that’s been a big driver of the changes we’ve made in institutional over the past few years. And also
some of our decisions to sell assets like Asia retail or our wealth business.
ANDREW CORNELL: Another factor which, it’s actually been quite a long period now over multiple results,
has been the credit cycle, which continues to be quite benign, albeit in this result there’s a couple of patches
here and there. So can you talk us through how you are seeing the credit cycle?
MICHELLE JABLKO: So the credit environment is very, very benign. And so losses are low, 13 basis points. Weknow that can’t last forever. Having said that, we’ve changed our book a lot in terms of the way we’vechanged our portfolio. And that’s having a real impact. So if I look at something called our long-run loss rate,
that’s down about a third compared to where it was three years ago. Which is a really, really big change in ashort amount of time. There are some pockets of stress in home loans there’ve been some increases incustomers falling behind in payments. It’s small in context and we’re coming from a very low base. But there
are some pockets that we’re watching.
ANDREW CORNELL: If we look to the year ahead, and both you and Shayne in the ASX releases have talked
about what a tough environment it is and it’s not going to change presumably. So where, as CFO, are you
focusing over the next six months and 12 months?
MICHELLE JABLKO: So if I talk about our Australian business to start with, we think the right thing to do inthat business at the moment is to be selective and targeted in terms of the business we do. We think though
there are some areas where we could do better. And so we’re putting quite a lot of focus into just gettingthat balance right. On top of that, clearly we spoke about the potential capital changes in New Zealand.
Definitely a lot of my effort and my time is going into how we work through those.
And then continuing the disciplined approach to capital allocation and costs. Both of which we’ve had really
good outcomes on consistently over the last two to three years. But we want to make sure we keep thatdisciplined approach across the business.
ANDREW CORNELL: Well thanks very much for your time this morning. Thanks Michelle.
MICHELLE JABLKO: Thanks a lot Andrew.

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