News Release
For Release: 27 October 2022

Transcript of bluenotes video interview with ANZ Chief
Financial Officer Farhan Faruqui
ANDREW CORNELL: Morning, Farhan. Thanks very much for joining us on bluenotes themorning of the bank’s annual results. It's a very strong result. From your position as Chief
Financial Officer, where did you see the highlights and perhaps where did you need to see
the bank going from here?
FARHAN FARUQUI: Well, good morning, Andrew, and thank you for having me again. I
actually do agree with you, it's a really strong financial result for us in the half. But I think
the highlights in my mind, Andrew, are the fact that we have delivered a strong result
across all of our four key businesses: Australia Retail, Australia Commercial, New Zealandand our Institutional franchise. It has been characterized by revenue growth across all fourdivisions, three out of the four at double digit revenue growth. It's been characterized by ahealthy expansion of margin as well as risk adjusted margin. We've managed costs quite
well, particularly given the inflationary headwinds that we had to face into throughout thecourse of this year. We've continued to use that strong ‘run the bank’ cost management tocontinue to invest and spend in the strategic areas where we want to grow. So that's
actually been a great outcome this year as well. And we have delivered a portfolio risk
outcome which continues to reflect the high quality of our portfolio, which has been afunction of de-risking over several years. I think while this is a good half outcome and agood year on year outcome, it has been underpinned by years of simplification of the group,
by years of de-risking our portfolio, and by years of strong customer and margin andbalance sheet and capital management, that gets reflected in the half as well. But I thinkoutside of our financial outcomes, Andrew, we've also delivered strong strategic progress.
We launched ANZ Plus and we've seen a strong start since the launch to our ANZ Plus saveand transact proposition. We announced the agreement to buy Suncorp and that was amaterial transaction for us, and of course we raised capital as to partially fund that
acquisition of about three and a half billion dollars, which was the largest equity raise for an
M&A transaction this year globally, and was very successfully completed and was done
through a PAITREO structure which reflected very fair outcomes for our retail shareholders.
So I think it was a year of getting things done and was a half in particular where we madevery strong progress.
ANDREW CORNELL: It's a very positive outcome obviously for this and, you know, I don't
want to jump ahead, but the year ahead is looking uncertain. So when you look at that
overall performance that you've delivered for the full year result, where does the focus need
to be to maintain that, sustain that in the year ahead?
FARHAN FARUQUI: That's a really good question, Andrew, and it is an uncertain
environment that we're moving into in financial year 23. But the good news is, as I
mentioned earlier, that we are coming into 23 strong, all four businesses performing reallywell, our credit portfolio and quality very strong and strong management of revenue marginand cost outcomes. So we just have to continue to do that with an eye on risk settings andmaking sure that we protect us, our balance sheet in this uncertain environment. But inaddition to that, Andrew, the two big areas of focus for us in 23 would be to ensure that wecontinue to build on our early successes in ANZ Plus in the save and transact proposition,
but also to launch our home loan proposition in ANZ Plus. And in addition to that, weAustralia and New Zealand Banking Group Limited
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obviously have a task ahead of us in terms of completing Suncorp and bringing the twobanks together. And that's going to be a big focus for us in 23.
ANDREW CORNELL: You touched on margin there and we've seen margins improving, which
is not something that we've seen a lot of in recent years. Can you talk us through thatmargin outcome? I mean, you've been a banker for you know, well, I won't say how many
decades, but you've seen through a few economic cycles. Is this cycle the same?
FARHAN FARUQUI: That's a that's a great question, Andrew. But maybe I'll start withanswering your second question first. In my 30 plus years of banking, I don't think any twocycles have actually been alike. Again, because you come into cycles at different starting
points. And I think the starting point in this particular cycle is unique. It's unique because
it's coming post-COVID and in that period of time, because of government support andbecause of prudent financial settings by our customers, I think our customers are coming
into the cycle much better positioned to deal into the crisis relative to other cycles. Banks
are much stronger. Banks balance sheets and capital positions are much stronger coming
into the cycle, which I think is yet another positive. We're coming off a 0% interest rate andheading into rapidly rising interest rate environment. It hasn't happened very often in thepast. In fact, we've seen of the 60 rate hikes that have been done by RBNZ, the Fed and theRBA over the last decade, a third of those have happened in the last 12 months and havebeen of higher magnitude relative to the previous ones. So it's a very unique environment
and we're operating in a very almost record low unemployment environment as well. So I
think that it's a very different cycle and that's what makes it very hard to extrapolate theNIM outcomes and cycle impact as we go forward into the next 12 months. But I think ourfocus has been in the course of this year and particularly in the half, is to continue tomanage as optimally as we can, our margin outcomes, our pricing outcomes acrossdeposits, loans as optimally as we could. And I think that's been the result that we've
demonstrated in the course of the half. But we've also benefited, Andrew, because of thediversification of our business. Unlike some of our domestic peers, we have a bigger
presence in New Zealand and we have a bigger presence in the international business. And
because the tightening cycles were quicker outside of Australia, that has benefited ourmargin outcomes in the half as well, and we expect that that will likely continue as we go
into 23. So it's hard to extrapolate, it's hard to predict what the NIM outcomes are going tobe going forward. But I think we've managed it really well so far and we have to continue tomonitor the markets to react and be proactive in terms of delivering strong outcomes again
going forward.
ANDREW CORNELL: You also touched on provisioning for bad and doubtful debts down thetrack, what might happen. Now, provisioning actually, relatively speaking, is quite flatcompared with a year ago, compared with the half. And yet the outlook looks a lot worse.
Now, there's obviously moving parts in there. Can you talk us through how provisioning has
worked and what’s come off and what's gone on?
FARHAN FARUQUI: It's a good question, Andrew, and I think it's important to understandthat rather than looking at the headline number, it's important to understand what's
happening underneath the numbers. And in fact, I would actually take you back even to preCOVID and tell you that while the provision levels are higher today relative to pre-COVID,
our portfolio quality, our portfolio mix and the credit quality of our customers is actually farstronger. So we've actually released a lot of collective provisions over the course of the last
five or six years, because of that improving quality, which doesn't get reflected in half andhalf results, because that's been the journey that we've been on for the last few years. The
other thing is that when we ended the half in March 22, we ended with a lot of COVID
overlays still in our collective provision numbers. So when we look at our numbers now, wereleased much of those COVID overlays, but we've added on the overlays required to face
into the environment that we're going into, which addresses things like inflationarypressures, interest rate pressures, as well as a very uncertain geopolitical environment. So
it's the makeup of provisions has dramatically shifted over the course of the last few years
and even in the half. So we feel pretty strongly about the fact that we are provisioned well.
But I think also when you think about resilience in a broader context, Andrew, it's not justabout collective provisions, it's not our only insurance policy towards, towards resilience.

Again, as I said, much stronger portfolio credit quality, strongly capitalized position, strong
balance sheet, better risk settings, and a collective provision balance which we think reflects
the outlook. And I think in totality, I think the group is really well-positioned going into thisperiod of uncertainty.
ANDREW CORNELL: You talk about being well capitalized. Now obviously, during the year
there's been a capital raising to fund the Suncorp acquisition. If you look through that
acquisition, if indeed it goes ahead, what is the capital position looking like? Are you
comfortable with the balance sheet?
FARHAN FARUQUI: Yeah, Andrew, I think we've ended, as I said, the first half, sorry thesecond half, strongly. Even when pro forma for the Suncorp acquisition, we are above theAPRA unquestionably strong settings. So we feel, I feel comfortable from that standpoint.
But also, Andrew, we have demonstrated this half and certainly hope in the next half andthe next year, we continue to have strong organic capital generation which will continue tobuffer our capital position. So yes, Andrew, I feel quite comfortable with our balance sheet
settings right now.
ANDREW CORNELL: And just finally, on the cost front, cost management is something theANZ prided itself on for a number of years. Now, a key factor is the investment spend. So
where do you see investment spending going in the year ahead?
FARHAN FARUQUI: Yeah, I think, you know, as I mentioned, we've been very focused on
making sure that our investment spend is directed towards our strategic priorities. For thelast 12 months, one of those strategic priorities was to largely complete our BS11 program,and we are close to finalizing that now as we come out of 22, which is good news. We've
pledged to commit about 15-odd per cent of our investment spend to ANZ Plus, which as I
said, has already started to deliver strong outcomes and we will continue to invest in thatgoing forward into the financial year 23. We've been very focused on cloud migration andwe've already migrated at the end of this year about 31% of our total tech estate onto thecloud. The focus, the goal, is not to get to 100%, we'll probably be targeting closer to 7075% of our tech estate to be in the cloud. And of course, as Shayne has mentioned, wecontinue to be very focused on reinvigorating our commercial business and that's going to
be an area where we're going to be spending in technology to support better outcomes andbetter client experience for our commercial bank customers as well. Aside from that,sustainability is a very important theme for us overall as a bank, and that's an area that
we're going to continue to invest in building capability as we go into 23.
ANDREW CORNELL: Well, thanks very much for your time again Farhan, commiserations for
Sunday night in the cricket against India.
FARHAN FARUQUI: Thank you for that, Andrew. Not as good a result as we've delivered inthe half, but nonetheless, a very entertaining game. Thank you.
ANDREW CORNELL: Thank you.
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