News Release
For Release: 5 May 2023

Transcript of bluenotes video interview with ANZ Chief
Financial Officer Farhan Faruqui
ANDREW CORNELL: Morning. Farhan, Thanks very much for joining bluenotes on themorning of the half year result. Now both you and Shayne Elliott have drawn attention tothe benefits of diversification at ANZ. Where do we see those benefits in this result?
FARHAN FARUQUI: No, thank you, Andrew, for that question and good morning to you. We
have built through simplification and through the reshaping of the bank, four corebusinesses, which is our Australia Retail business, the Australia Commercial business, ourNew Zealand business and of course the Institutional business which is more global. All ofthese four businesses today are growing, generating returns above cost of capital andaccretive overall to the bank in terms of profitability and returns. So it's a good set ofbusinesses which provide diversification, and diversification really plays out, Andrew, when
you look at the fact that these businesses operate in different markets, so while Australia
Retail and Commercial is Australia based, we have the New Zealand business and we havethe Institutional business. They all go through different experiences in terms of thecompetitive environment, in terms of the rate cycle that we're experiencing today, and thatcreates diversity in terms of our ability to allocate capital in the most appropriate direction
and finding the most return accretive opportunities with the lowest risk profile. So Australia
Retail, as is well known, particularly in the home loan space, has been very competitive.
Australian household deposits have been very competitive and that has impacted the return
profile of the Australia Retail business. Whereas, in the Institutional business we've had thebenefit of higher and earlier tightening cycles in global markets, particularly in the US dollar,
certainly in New Zealand, and that has helped the Institutional business because of the work
we have done over the years in building strong, robust platforms for cash payments as well
as for currency, which has allowed us to capture that business opportunity and be able tobenefit from the diversification benefit we get geographically. Our Commercial business, forexample, has a greater skew towards deposits, and that has benefited from the rising rate
cycle as well. Quite differently to say, the Australia Retail or the New Zealand business. So,
the diversity of these businesses has allowed us to capture these opportunities to allocate
capital more prudently and to be able to get better quality outcomes from a return andrevenue perspective over the course of the half. Now we also have benefited fromdiversification in terms of our funding. So if you look at our Australia Commercial businessor our Institutional business, they’re self-funded. Our household structure funding gap is thesmallest relative to our peers. So our task in terms of funding is much smaller. Our balancefrom the RBA TFF facility (Reserve Bank of Australia Term Funding Facility) is smaller
relative to peers, so our ability to fund more flexibly also helps in terms of diversification ofour businesses. And then finally, in terms of capital, we've just gone through the APRA
(Australian Prudential Regulation Authority) capital reforms. They've become live fromJanuary of 23, and that has allowed us to capture the benefit of the outsized Institutionalbusiness that we have relative to our overall business mix and relative to our peers, which
has allowed us a benefit in terms of CET1 (Common Equity Tier 1) of 100 basis points, and80 per cent of that benefit has come because of the size of our Institutional business.
ANDREW CORNELL: And you touched on the 20 markets or so that the bank operates in partof Institutional, that international component of Institutional, is that another source ofdiversification?

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FARHAN FARUQUI: Yeah, I'm glad you asked that question, Andrew, because ourinternational business actually this half – in fact building on a strong half last year – hasactually continued to demonstrate its great performance, again off the back of the platform
investments that we've made over the course of the last few years. 60 per cent of overall
Institutional growth has actually been driven by our international franchise. By international
I mean Asia, Europe and North America. 75 per cent of that growth in our international
business has actually come in non-lending, more return accretive and lower capital intensity
businesses. So they've actually produced an ROE (Return on Equity) this half which is higher
than the Institutional average. This is the first time the international business has done thatand is therefore one of the best performers in our group. So that international diversity
absolutely has played into the broader, stronger results that we've had this half.
ANDREW CORNELL: And that's obviously a benefit to the bank. We can see that in theseresults, and hence for shareholders in the bank, do customers benefit from thisdiversification?
FARHAN FARUQUI: Well, we certainly want to continue to optimise that benefit because if
you think about it, our Commercial customers, many of whom are small, medium sizedenterprises, are suppliers or distributors for our Institutional customers. Many of those same
Commercial customers use our Retail products. They use our deposits, our credit cards, thehome loans. So there's a lot of synergy across our businesses. So while they're diverse, inmany ways, the customers are interconnected and it's about finding the best opportunities
to make sure that we are servicing our customers across these platforms, across thesebusinesses in the most efficient fashion, and giving them every advantage of being acustomer of our bank and benefiting from the broader ecosystem that we have in terms ofour business diversity.
ANDREW CORNELL: And you've mentioned and Shayne Elliott has mentioned over recent
years a consistent performance on costs, on productivity within the bank, but we are now inthis rising interest rate environment, it's coupled with higher, stubbornly higher inflation –does that affect the way that you're managing the bank?
FARHAN FARUQUI: I think the inflationary environment has been extraordinary. We've hadten consecutive months of rate rises by RBA. We've had over 500 basis points of rateincreases, both for RBNZ (Reserve Bank of New Zealand) as well as for the US Fed throughthe tightening cycle. So there's no question that it has been extraordinary and has affected
obviously our customers’ ability to manage both the higher inflation and the higher interest
rate environment. Our focus, frankly, in this environment is primarily first to manage risk.
And that has been a result of the years of reshaping that we've done. But continued focus
on ensuring that our risk profile is very strong, and some of our risk results and provisioning
results this half will demonstrate that. In addition to that, how do we allocate capital interms of finding the most accretive opportunities, as well as managing risk and ensuring wedeliver the right outcomes for our customers is an important priority in this rising rateenvironment. And insofar as productivity is concerned, Andrew, we've had seven years infact when Shayne started as CEO in the first half of 2016, from then to now, we have soldor exited over 30 non-core businesses. That has allowed us to simplify the organisation andthat has allowed us to reduce the number of people that we have so our FTE (Full TimeEquivalent) is down 9000 from the time when Shayne started, but we've done that also byensuring that we automate, we invest in digitisation, simplify our technology infrastructure.
And that work has continued this half, and we've delivered very strong productivity results
to somewhat offset the inflationary headwinds that we had to face into in the half and thatwork is going to continue. So we are not under any misconception that productivity is a kindof done once and forgotten effort, it's something that we have to continue to focus on.
ANDREW CORNELL: ANZ is now one of the most highly capitalised banks in the world andindeed by some measures it is the most highly capitalised bank in the world. Now obviously
the economic environment is a bit uncertain, there's room for caution here, but are there
opportunities to use that capital? How are you thinking about capital management?

FARHAN FARUQUI: Yes, Andrew, you're right. We are now one of the most highly capitalisedbanks in the world. We are ending the half at 13 per cent in CET1 ratio. Now that is an APRA
standard equivalent, but if you compare that to internationally comparable standards, that's
about 19 per cent, which definitely puts us in the top bracket in terms of highly capitalisedbanks. Now, part of that admittedly, is for the Suncorp acquisition once it is approved andcompleted, but proforma for that, we are circa 12 per cent in terms of CET1. So that's ourCET1 ratio as we are today. In terms of the unquestionably strong minimum that APRA has
set for banks in Australia, it used to be 10.5 per cent, but now with APRA capital reforms,
that number has gone up to 11.25 per cent at our reporting cycles. So in effect, the bufferthat we have over and above the unquestionably strong to our proforma number is 75 basis
points, which we think is an appropriate buffer today in terms of the environment that we'reheading into. Now, having said that, we constantly review our capital position. We
constantly review our surplus capital with the board and with management, obviously, andwe continue to look for the first and best use of our capital in terms of creating value for ourshareholders. And that process, of course, will continue as we go forward, and we'll continue
to review the best use for that capital as we work through the next environmental cycle.
ANDREW CORNELL: Just finally, it looks like, and some of your commentary has suggested
that we may be nearing the end of that environment that delivers higher margins. Have wereached the peak of margin growth? What's your view on margins?
FARHAN FARUQUI: Well, I think you and I have spoken about this before Andrew, that
we've said, look, a rising rate environment is supportive for margins for banks. But we knowthat eventually they get competed away and we're starting to see that in the markets inwhich we operate. They are getting competed away at different scale and quantum
depending on which country, which geography, which business, etc. But the fact is that thatpressure has started. And I think it's probably most profound in the Australian home loans
and Australian household deposits. So yes, I think we are sort of if not there, we're getting
close to the point where we are potentially reverting to the long-term trend in the sector ofmargin compression. So to that point, you're absolutely right that we are there, Andrew. ButI think the one point which is important to understand is that when we look at our business,
we measure NIM (Net Interest Margin) obviously it’s an important component of ourbusiness. But the aspect of NIM that we are most focused on is risk adjusted NIM. And thatrisk adjusted NIM really signifies not just how we are allocating capital efficiently, but also
how we’re managing overall risk and how we are reshaping our book. And that risk adjusted
NIM has continued to expand very generously over the course of the last few years. And
that's something that's going to continue to be our focus, and while there will be somemargin compression challenges, we think that within the construct of managing risk,
allocating capital well, and the fact that we have the diversification of the businesses that
we have, I think we have more optionality in terms of how we manage through that cycle as
we get into it.
ANDREW CORNELL: Thanks very much for your time this morning, Farhan.
FARHAN FARUQUI: Thank you very much, Andrew.
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