ANZ Q3 FY17 Trading Update

ANZ released their unaudited Statutory Profit for the Third Quarter to 30 June 2017 was $1.67 billion. Provisions were $243 million. Cash Profit of $1.79 billion up 5.3%. Profit before Provisions increased 0.3%.

Customer deposit growth of 2.3% with net lending asset growth of 2.0% during the quarter.

Revenue decreased 0.3% which in part reflected a normalisation of the Markets business performance after an unusually strong first half along with the sale of 100 Queen Street.

Expenses reduced 1% and continue to be well managed. As flagged the proceeds of the sale of 100 Queen Street are being reinvested in the business with approximately two thirds occurring in the second half, largely in the final quarter.

The Group Net Interest Margin (NIM) was stable, up several basis points excluding Markets. Australia Division NIM improved offsetting a decline in Institutional NIM. The Australian Bank Levy will impact the NIM in the fourth quarter being reflected within the cost of funds.

The reshaping of the Institutional Division asset base continued with Risk Weighted Assets (RWA) reducing a further $3 billion to $156 billion, with a cumulative reduction of $12 billion (-7%) during the Financial Year to date. The changing profile of the book has resulted in a decline in the Division’s provision charge and an improvement in the risk adjusted return (NII/Average Credit Risk Weighted Assets (CRWA)).

Above system growth in residential mortgages in Australia has been primarily driven by the Owner Occupier segment. The Division is tracking well in respect of meeting various macro prudential requirements regarding mortgage growth.

The total provision charge of $243 million was comprised of an Individual Provision (IP) charge of $308 million and a Collective Provision (CP) release. The release of CP was largely driven by continued reshaping of the Institutional portfolio along with some transfers to IP.

The Australian Prudential Regulation Authority Common Equity Tier 1 (CET1) ratio was 9.8% at 30 June, which incorporates 51 basis points of net organic capital generation offset by the Interim Dividend (59 bps) and adoption of the new RWA models for Australian Residential Mortgages. Proforma CET 1 was 10.5%.

Post the end of the third quarter ANZ completed the sale of the Retail and Wealth businesses in China and Singapore to DBS with Hong Kong expected to complete prior to the end of the second-half. All other transactions remain subject to regulatory approvals and completion.

1 Excludes Markets income
2 Source: ANZ analysis of APRA monthly banking statistics

ANZ pays further $10.5 million to consumers for OnePath breach

The Australian Securities and Investments Commission (ASIC) has confirmed an additional $10.5 million in compensation for 160,000 superannuation customers who were affected by breaches within the OnePath group between 2013 and 2016.

ASIC has been monitoring the resolution of a number of OnePath breaches. This has resulted in ANZ (the parent company of OnePath) providing further compensation, mainly in relation to incorrect processing of superannuation contributions and failure to deal with lost inactive member balances correctly.

ASIC has also confirmed the finalisation of all recommendations made by an independent review of OnePath’s business activities. The final two recommendations were the last to be implemented after an independent review of OnePath’s compliance functions was announced in March 2016.

The independent review was sought by ASIC, following ANZ reporting a number of significant breaches. The review addressed OnePath’s life and general insurance, superannuation, and funds management activities.

OnePath has contacted the majority of affected customers and finalised the majority of these additional compensation payments. Customers who have queries about whether they are owed compensation or another form of remediation should contact OnePath on 133 665.

ASIC will continue to monitor the breaches reported to us by ANZ until the matters are resolved, including any remediation where appropriate.


The ANZ Group’s subsidiaries with AFS Licences include OnePath Custodians Pty Ltd, OnePath Life Limited, OnePath Funds Management Limited and OnePath General Insurance Pty Limited.

From early 2013 to mid-2015 around 1.3 million OnePath customers were affected by breaches requiring refunds and compensation of around $4.5 million, rectifications and other remediation of around $49 million.

An ANZ spokesperson said:

In March last year we estimated we would reimburse about $4.5 million in relation to compliance breaches that affected 1.3 million customers.

Following detailed analysis this has increased $10.5 million impacting 160,000 customers.

While this work is ongoing, we don’t expect the majority of these customers to receive significant further reimbursements.

As soon as we became aware of issues in 2013 we reported these breaches to ASIC and have fully cooperated with their review of this matter.

In January 2016 we appointed PwC to conduct an independent compliance review, and reported the findings of that review in December 2016.

ANZ Job Advertisements continue to trend up

ANZ Job Advertisements continue to trend up, rising 1.5% m/m in July in seasonally adjusted terms. Total job ads are now up 6.5% since the beginning of the year. Annual growth picked up from 10.5% in June to 12.8% this month.

In trend terms Job Advertisements were up 1.0% m/m in July following a 1.3% rise in the previous month. The trend growth rate has averaged 1.1% m/m over the first seven months of the year, compared to 0.3% m/m over the same period a year ago.

ANZ said:

“Recent data has shown a clear improvement in labour market conditions consistent with elevated business conditions, profitability and capacity utilisation.particular, the strength in full-time employment and a solid increase in hours worked (near 3.3% y/y) are quite encouraging. Among other things we think this strength has contributed to the lift in consumer
confidence from its recent low point in April.

That said, several challenges remain and we expect the pace of improvement to moderate over the medium term. First, the level of underutilisation remains high and business surveys suggest
that it is likely to fall only gradually. Second, the drivers of growth over the next few years look to be less labour intensive given the slowdown in housing construction and the expected
contribution of labour-lite LNG exports to growth. We also don’t expect the recent strong pace of public sector jobs growth to continue. Lastly, despite the improvement in labour conditions,
wage growth is sluggish and is expected to remain so.

Broadly, forward indicators and survey based measures point towards near-term jobs growth in the order of 15-20k per month. Given the importance of the labour market and wage growth to the course of monetary policy, we will be closely watching the Q2 Wage Price Index number, out on August 16.”

ANZ is the first Big Four bank on both Samsung Pay and Apple Pay

From Business Insider.

ANZ has joined Samsung Pay, becoming the first of the big four Australian banks to be on all three major digital wallets.

The bank had already been the only one of the majors to be on Apple Pay and was already available on Android Pay.

“Samsung has strong device market share in Australia and many of our customers love its open approach to technology, so it made sense for us to work with them in bringing this convenient and secure mobile payments solution to our customers,” said ANZ product managing director Bob Belan.

ANZ joins Westpac and a range of smaller institutions on the Samsung platform, which allows contactless payments through selected Samsung smartphones and Gear smartwatches.

The Commonwealth, NAB and Westpac have resisted getting onto Apple Pay while they, along with some smaller banks, fought to negotiate collectively with Apple in order to gain access to the iPhone’s near-field communications (NFC) chip which would allow their own apps to make contactless payments.

Apple has denied the request, arguing access would be a security risk and accusing the banks of acting as a cartel to “free load” from its technology.

Meanwhile, former Google Australia boss and now ANZ digital banking head Maile Carnegie said in February that her company had no hesitation in joining Apple Pay.

“People were asking specifically for Apple Pay. They were asking specifically for Android Pay. And if that’s what they want, we needed to figure out the most pragmatic way of giving that to them,” she said at the time.

 “We could look back and say, ‘I wish that was us, I wish they wanted our digital wallet as much as they wanted [Apple Pay]’. But they didn’t.”

Belan also stuck to a similar line this week regarding Samsung Pay, citing customer demand.

“At ANZ, we believe our customers are best placed to make their own choices about which digital wallet works best for them,” he said.

The addition of ANZ now sees Samsung Pay have more than 40 Australian credit and debit card brands in its stable, along with more than 100 loyalty cards. Internationally the platform has more than 870 bank partnerships.

Successful blockchain trial for bank guarantees

ANZ and Westpac have teamed with IBM and shopping centre operator Scentre Group and have now successfully digitised the bank guarantee process used for commercial property leasing.

The trial used Distributed Ledger Technology (DLT) to eliminate the need for current paper-based bank guarantee documents, resulting in a single source of information with reduced potential for fraud and increased efficiency.

The partners involved in the trial have today released a whitepaper detailing how the solution worked and how it could be used in other situations that rely on bank guarantees.

In addition to eliminating the need for physical document management, the trial also addressed other inefficiencies in the current bank guarantee process, including the challenges in tracking and reporting of a guarantee’s status through multiple changes.

This forms part of a broader plan to build a shared solution with the rest of the industry, and to invite other organisations to participate in a larger pilot.

Commenting on the successful trial, Mark Bloom, Chief Financial Officer at Scentre Group, said: “An update of the decades-old process for issuing, tracking and claiming on guarantees is long overdue.

“With approximately 11,500 retailers across Australia and New Zealand, who use guarantees to support rental obligations, manual tracking of guarantees has been an extremely cumbersome and labour intensive process.”

Nigel Dobson, General Manager Wholesale Digital, Digital Banking at ANZ, said: “We have been keen to avoid the hype surrounding blockchain and distributed ledger technologies, and instead focused on practical and deliverable use cases.

“This proof of concept demonstrates how we can collaborate with our partners to develop a digital solution for customers, which also has the potential for industry-wide adoption.”

Andrew McDonald, General Manager Corporate and Institutional Banking at Westpac, said: “This is about removing the cost of fraud, error and operational risk that will continue as long as bank guarantees remain paper-based and manually issued.

“Next steps involve encouraging all industry players to adopt this technology so we can better protect and save money for our customers. Beyond that there is no reason why this couldn’t be applied across other industries.”

Dr. Joanna Batstone, Vice President and Lab Director of IBM Research Australia, said: “Using an agile approach, IBM collaborated with ANZ to combine the bank’s deep knowledge of the industry and their partners, with IBM’s blockchain expertise.

“The business use case demonstrates the opportunity to lift efficiency and transparency for all parties involved. We believe blockchain can potentially drive productivity across all Australian industries.”

This blockchain trial used Distributed Ledger Technology (DLT) powered by Hyperledger Fabric V1.0 – a blockchain framework and one of the Hyperledger projects hosted by The Linux Foundation. You can view the whitepaper.

ANZ’s opening address – Senate Economics Legislation Committee on Major Bank Levy Bill

ANZ’s address makes three points. The levy should be temporary, should be applied to foreign banks, and the costs will be passed on in one way or another.

Good morning and thank you for the opportunity to appear today.

With me today are Rick Moscati, our Group Treasurer, and Jim Nemeth, our Head of Tax. While ANZ is disappointed by the bank levy, we accept that it will become law.

Our aim today is to work constructively to ensure that the legislation is as fair and efficient as possible.

We appreciate the changes made already to the treatment of derivatives and that the rate of the levy is reflected in the Act.

I have three points to make briefly today in relation to our submission.

Firstly, as one of the principal reasons for the levy is budget repair, we think that the levy should cease when the budget returns to surplus.

Secondly, we believe the levy should apply to major foreign banks operating in Australia and exclude the offshore branches of Australian banks. This would be consistent with principles of international taxation, avoid double taxing Australian banks and mean that all major banks in Australia, foreign or domestic, are treated equally. Without the levy applying to major foreign banks, Australian banks will be at a significant disadvantage in the institutional markets where foreign banks mainly compete.

Further, we borrow money in offshore branches to lend to offshore institutional customers. If the levy applies to our foreign branches, it makes us less competitive overseas. This will constrain Australian banks’ ability to develop offshore business and serve customers in the region.
Recent amendments to the UK levy are consistent with this. That levy applies to large foreign banks operating in the UK and is being amended to exclude UK banks’ offshore liabilities.

The reasons for this approach include ensuring UK banks are not hurt by operating offshore and to tax foreign and domestic banks equally. The same rationale applies to Australia.

My last point is that we are concerned about the combined impacts of increased bank regulation and the levy.

We believe there should be appropriate reviews of how these policies interact.

Speaking to international investors recently, they share these concerns, not just in relation to the banking sector, but also in relation to broader investment in Australia.

The points I’ve made concerning a levy sunset and reviewing its cumulative impact with other policies would help alleviate these concerns.

Before I close and to anticipate your questions, we have not decided how we will respond to the levy. In any event, there are legal limitations to what I can say today.

However, we cannot ‘absorb’ the levy. Based on ANZ’s 31 March Balance Sheet, we estimate that the annualized financial impact of the levy would have been $345 million before tax.

It is an additional cost that the shareholders, customers and employees of ANZ will bear.

Our options are to reduce what our owners receive, reduce our costs or charge higher prices.

As announced last year, ANZ has already reduced what our owners receive by cutting our dividend. We are also already focusing heavily on reducing absolute cost levels. We have reduced costs over the last year and announced that we are working on further reductions.

ANZ will continue to work constructively with you and your Parliamentary colleagues to ensure that the levy is as fair and efficient as possible.

House price growth to ‘slow sharply’: ANZ

From Investor Daily.

In a housing market update this week, ANZ Research said it expects “prices to slow sharply this year and next” and flagged the potential oversupply of apartments – particularly in Melbourne and Brisbane – as a key concern.

“The twin issues of housing affordability and financial stability are front of mind for governments, the RBA and APRA,” the bank said. “Household debt is at record levels, which increases vulnerability to future shocks.”

According to ANZ, the residential construction cycle has lost momentum with approvals down about 20 per cent from their 2016 peak. The major bank expects another 5-10 per cent fall in the next 6-12 months.

“That said, the solid pipeline of work suggests that the level of residential construction activity will slow only gradually this year. There has been a slight rise in settlement risk which bears close monitoring,” ANZ said.

ANZ believes that the housing market will steadily cool going forward with a combination of further regulation and changes to government policy, tighter borrowing conditions and out-of-cycle mortgage rate increases all expected to weigh on the outlook for prices.

“We anticipate nationwide dwelling prices will rise by 4.5 per cent through 2017, before slowing further to 1.9 per cent 2018 and expect to see continued divergence across regions,” the group said.

While price growth in Sydney and Melbourne is expected to slow to well below historical averages, ANZ said these markets will remain positive as demand and population growth remain elevated.

“On the other hand, prices are expected to ease slightly through 2018 in Brisbane, given the significant volume of supply due to hit that market,” the bank said.

ANZ Ups IO; Lowers P&I Mortgage Rates

ANZ has announced changes to loan rates today, effective 16 June.  They are using the price lever to throttle bank interest only loans, whilst seeking to gain owner occupied P&I share.

ANZ today announced a five basis point reduction in variable interest rates for customers paying principal and interest on their home loans, taking the bank’s standard variable rate for owner-occupiers to the lowest of major banks at 5.20%pa

The decrease will benefit more than 80% of ANZ’s customers with an owner-occupier home loan. Customers with an investor loan paying principal and interest will also benefit from a five basis point reduction on their standard variable rates.

Variable interest-only home loan rates for investors and owner-occupiers will increase 30 basis points in response to regulatory and market conditions.

ANZ Group Executive Australia Fred Ohlsson said: “Many Australians are finding it difficult to manage household budgets at present and ANZ is pleased to be able to reduce rates for the majority of our customers who are working hard to pay off their homes.

“While we know those only paying interest on their loans will be disappointed, we need to manage our regulatory obligations and we are now required to hold additional capital against our home loans. We also need to better balance our portfolio towards those paying off their homes.

“There are clear benefits for our customers to be paying off their loans and we have made this as easy as possible by removing fees associated with moving across from interest-only loans.

Mr Ohlsson added: “Today’s decision is not in response to the recently announced bank levy and we are still to determine the final impact of the tax.

“We do however recognise the work regulators are doing to manage the growth of both investor and interest-only loans and we will continue to be transparent on the impact this will have on how we structure and price our home loan products,” he said.


ANZ APRA Mortgage Risk Weight Up to 28.5%

The new risk weight for mortgages at ANZ will be around 28.5% according to information released today. This is higher than some expected, but still well below the 35-40% weighting of the regional banks, so continues to highlight the relative benefits the large players have. This is before the next round of discussion on risk weights we expect from APRA later in the year.

The rise in risk weights has been one of the main drivers of mortgage repricing, which is impacting all lenders in the sector to varying degrees.

In an ASX announcement on 8 August 2016, ANZ said that it expected the average risk weight for its Australian residential mortgage lending book would increase following changes by the Australian Prudential Regulation Authority (APRA) to capital requirements for Australian mortgages and a review by APRA of ANZ’s mortgage capital model.

APRA has now completed its review of ANZ’s mortgage capital model and approved the new model for Australian residential mortgages to be adopted from June 2017.

Adoption of the new model is expected to decrease ANZ’s Level 2 Common Equity Tier-1 ratio by 26 basis points based on ANZ’s balance sheet at 31 March 2017, representing an average risk weight applied to the Australian mortgage portfolio of a little over 28.5%.

This impact is consistent with ANZ’s 2017 capital management plan and no additional capital management actions are required as a result.

As indicated at ANZ’s First Half 2017 financial results, the Group expects APRA to make further changes to sector capital requirements through a clarification to the “unquestionably strong” capital framework.

ANZ Accepts Bank Tax Will Be Imposed

David Gonski, ANZ Chairman wrote to its shareholders, and included comments on the bank tax, and and also addressed the question of the relationship between the community and the banks.

Normally I would write to update you on our financial performance at that time. However, with the recent announcement of a new tax covering five major Australian banks in the Australian Government’s Federal Budget, I felt there was a need to be in touch with you sooner.

It is not only important to share with you the key aspects of our performance in the first half of 2017, we feel it is important that you are aware of the likely impacts of the tax and how we are addressing the situation.


During the first half of 2017 ANZ made good progress with our strategic focus on creating a simpler, better capitalised and more balanced bank. Statutory Profit was $2.9 billion, up 6%, allowing us to distribute an Interim Dividend of 80 cents per share fully franked in line with the first half of 2016.

A highlight of ANZ’s performance in the first half was the progress we made in strengthening the bank and improving shareholder returns. ANZ’s Common Equity Tier 1 capital position rose to 10.1%, our strongest position in recent history. Our Return on Equity increased from 9.7% to 11.8%, the first material increase we have seen since 2010.

These are strong outcomes reflecting a significant reshaping of ANZ’s business over the past 18 months to adapt to the rapidly changing environment and deliver materially better outcomes, not only for shareholders but for our customers and the community.

In every area of the business we continued to work hard to improve the experience of our customers. We reduced interest rates on some credit cards, introduced new debit cards to improve accessibility for vision-impaired customers, and announced plans to improve security through the use of voice biometrics. To support small businesses, we launched new digital solutions such as ANZ BladePay and ANZ Be Trade Ready.

In Australia and New Zealand our aim is to be the best bank for home owners and people who want to start and run a business. Both Australia and New Zealand delivered a solid performance in the first half. We are growing prudently in home lending in Australia and remain number one for home loans across New Zealand concentrating on owner-occupiers,
and in the small business segment.

In Institutional Banking we continued to reshape the business to improve returns through the distinctive proposition we have supporting trade and capital flows to customers who value our network and capabilities in Australia, New Zealand and Asia. This saw Institutional Banking deliver positive results in Australia and Asia supported by strong productivity gains and improved capital efficiency.

We also made good progress in simplifying our business. We completed a strategic review of Wealth Australia and we are currently exploring strategic options for the business while ensuring that the distribution of quality Wealth products and services remains part of ANZ’s customer proposition. We also signed agreements to sell our 20% stake in Shanghai Rural Commercial Bank, the UDC Finance business in New Zealand, and ANZ’s Retail and Wealth businesses in six Asian countries.


In the 2017 Federal Budget, the Australian Government announced it would introduce a new tax from 1 July covering five major Australian banks. Based on the current draft legislation and ANZ’s 31 March 2017 balance sheet, we estimate that its annual financial impact would have been approximately $240 million after tax.

The net financial impact, including the Bank’s ability to maintain its current fully franked ordinary dividend, will be dependent upon business performance and decisions we make in response to the tax.

Clearly we are disappointed at the introduction of this new tax. However, given the support it has in Parliament, we accept that it will pass into law.

Our focus has been to work constructively with government to ensure the legislation associated with tax is as fair and efficient as possible in the circumstances. We believe:

  • The tax should have a sunset clause where it is extinguished when the Federal Budget is repaired, which is the principal stated reason for the tax.
  • The level of the tax should be set in the legislation so it cannot be increased in the future without the agreement of both Houses of Parliament.
  • Any future proposed adjustment should be referred to the Council of Financial Regulators for their public advice on how the tax and any proposed changes interact with other regulatory objectives.
  • The tax should apply equally to large foreign banks operating in Australia to ensure that it does not give foreign banks a competitive advantage over Australian banks in the area of global institutional lending.


To me, the bank tax is further evidence of the breakdown in the banking industry’s relationship with many in the Australian Parliament and the broader community. I want to assure you that ANZ has been working hard to ensure that community trust in banks reflects the crucial role we have in keeping our economy strong and secure. This includes our positive and constructive approach to recent Parliamentary inquiries and to dialogue over the introduction of this tax.

It is not in shareholders’ interests or the national interest that the relationship between banks and the community continues in this way. We clearly have much to do but our aim is to work even harder to help repair the relationship for the good of shareholders and of all Australians. We acknowledge that this will require us to think and act differently. However, ANZ believes that making this change is fundamental to creating value for shareholders, for customers and for the community now and in the future.

Our acknowledgement of the need to change and our actions will, I hope, be understood by the community as a genuine commitment to responsibly, serving our customers’ and communities’ needs.

ANZ has been an important contributor to Australia and New Zealand’s economic growth and prosperity for more than 180 years. While this is a challenging time, at ANZ we have a clear strategy, our business is performing consistently and we are committed to work even harder to help our customers succeed and to build stronger communities. On behalf of shareholders, I want to acknowledge and thank our 50,000 employees around the world for the contributions they make every day in the interests of so many customers in Australia and internationally.

ANZ is well positioned to continue delivering for shareholders and all our other stakeholders.