investor discussion pack - rns submit · investor discussion pack. 1 snapshot • proud banking...

Mike Smith – Chief Executive Officer

November 2009

Investor Discussion Pack

1

Snapshot

• Proud banking heritage spanning 170 years

• A top 10 listed company on the ASX (market cap ˜A$60b), with ˜390,000 shareholders

• Largest listed company in New Zealand, largest Australian bank in Asia and a leading bank

in the Pacific

• AA rated bank on S&P long term ratings

• Well capitalised with a strong liquidity position

• Over 200 years of banking experience on the management board

• ~37,000 Full Time Equivalent employees (FTE)

Progress report on “Our journey to becoming a Super Regional bank”

2

• Institutional back to system

• Restore “jaws” –increase revenue faster than costs

• Drive Asia profit

• Capture existing opportunities

• Strategic cost management

RESTORE

OUT PERFORM

TRANSFORM

• Quality on par with global leaders in our markets

• Best of breed customer experience

• In-fill mergers and acquisitions in Asia (core geographies)

• Unlock the value of our franchise

Create a leading Super Regional bank

Global quality, regional focus

1 to 2 years 2 to 5 years 5+ years

3

1. Post restructure September 2009 Asia/Pacific also includes Europe & America 2. Excludes group centre, 2% in 2007

Where our profits will come from …Stronger Asia-Pacific1 contribution will result in more balanced profit profile

ANZ20072

ANZStrategic Direction

Australia 69% of all ANZ profit

Australia ~60% of all ANZ profit

NZ22%

NZ~20%

Asia/Pacific1

~20%

Asia/Pacific7%

What will drive growth

• Australia – opportunity to deepen customer

relationships (improving cross sell), both retail

and commercial

• New Zealand – maintaining existing strong

position, better harness cost synergies

• Asia Pacific - Main focus is on organic growth supplemented with in-fill mergers and acquisitions

• Institutional – restructure is driving improved results, focussing on core strengths in traditional banking

Super Regional strategy will drive increased earnings diversification

4

Focused approach to the Asia region

Strategic Imperative

Top 4 foreign bank

• Greater China

• India

Franchise Significant

Major bank (top 4)• Vietnam, Malaysia, Indonesia

Network Enhancement

Network clients, product and

liquidity hubs

• Singapore, Tokyo, Hong Kong

Next WaveHold position in short-term

• Cambodia, Laos,

Philippines, Korea, Thailand

Customer Deposits by geography (A$b)

Sep 08 Mar 09 Sep 09 Sep 08 Mar 09 Sep 09 Sep 08 Mar 09 Sep 09 Sep 08 Mar 09 Sep 09

133147 153

50 49 49

2330

30

205

226233

Retail Commercial Institutional Wealth

5

Australia New Zealand Asia Pacific, Europe & America

Total Group

15.7%

4.1%

(0.7%)

(0.4%) 35.3%

2.9%

13.9%

3.0%

Net loans and advances1 by geography (A$b)

Sep 08 Mar 09 Sep 09 Sep 08 Mar 09 Sep 09 Sep 08 Mar 09 Sep 09 Sep 08 Mar 09 Sep 09

246 252 247

82 82 80

21 23 19

350 357 346

Retail Commercial Institutional Other

6

Australia New Zealand Asia Pacific, Europe & America

Total Group

0.3%

(2.1%)

(2.9%)

(2.5%)(11.3%)

(16.2%)

(1.2%)

(3.1%)

1. Includes acceptances

Net Loans and Advances by product line (A$b)

Sep 2009

144

185

17

Cards & Other

Mortgages

Commercial

Australia NZ & Offshore

142

43

13

4

Mortgages Cards & Other

7

Group Net loans and advances1 (A$b) Retail NLA‟s1 (A$b)

Commercial / Institutional NLA‟s1 (A$b)

346155

47

Australia NZ & Offshore

4921

18

14

1511

16

Institutional / Large Corporate Commercial (incl. SME)

Asset Finance Rural / Regional Commercial

93

51

1. Includes acceptances. 2. Includes Wealth.

2

The Balance Sheet –Capital, Funding, Liquidity,

Provision coverage

Funding composition improved

Sep 07 Mar 08 Sep 08 Mar 09 Sep 09

0.73%0.94%

1.13%1.06%

1.31%

• Tier 1 Capital ratio increased to 10.6% (pro forma post RBS assets and ING is 9.5%)

• Pro forma Core Tier-1 capital ratio increased to 7.9% (10.3% FSA)

• Total Provision coverage of 1.97% of Credit RWAs

• Customer funding increased to 55%

• Short term wholesale funding further reduced to 17%

• Raised $26bn of new wholesale term funding

• Prime Liquidity portfolio maintained >$60bn, provides in excess of 12 months cover for offshore wholesale debt

• ANZ‟s strong credit ratings (AA, S&P/Aa1 Moody‟s) maintained throughout the GFC.

Strong Balance Sheet

Sep-08 Mar-09 Sep-09 Sep 09

pro

forma

FSA Sep

09 pro

forma

5.9% 6.4%9.0% 7.9%

10.3%1.8% 1.8%

1.6%1.6%

1.6%

Core Tier 1Hybrid Tier 1

9

Strong Collective Provision balance

Strong capital position

Category Funding composition

Volume change

Sep 08 Sep 09 AUD bn

Customer 50% 55% 27

Term w‟sale 21% 20% (2)

Equity & hybrids 7% 8% 5

Short term w‟sale 22% 17% (20)

7.7%

11.9%

9.5%10.6%

8.2%

11

1. Includes acquisition of RBS assets and INGA & ING (NZ) Joint venture

Capital position has been significantly strengthened throughout the year notwithstanding recent M&A activities

10

Capital Management Agenda

Maintain strong capital profile and buffers:

• Future business opportunities

• Risk of economic shocks despite improving global economic outlook

• Developing global regulatory environment requiring higher quantity and improved quality of capital

Modest reliance on hybrid capital (~15% Tier-1) provides scope to raise hybrid capital in a cost effective manner

Target operating range

Sep-08 Mar-09 Sep-09 Sep-09 pro forma1

FSA Sep-09 pro forma1

OSFI Sep-09 pro forma1

Core Tier 12 6.0% - 6.5% 5.9% 6.4% 9.0% 7.9% 10.3% 10.1%

Tier 1 7.5% - 8.0% 7.7% 8.2% 10.6% 9.5% 11.9% 11.8%

Total Capital 10.5%+ 11.1% 11.0% 13.7% 12.4% 14.6% 14.8%

Strengthening capital position

Capital positioned has been strengthened via:

• 3 ordinary equity raisings totalling $5.7bn:

• Institutional Share Placement $2.5bn

• Share Purchase Plan $2.2bn

• Final 2008 DRP underwrite $1.0bn

• Organic capital generation of $1.3bn

• RWA reduction

Even after capital committed to the RBS assets and the INGJV, capital position remains strong

1. Includes acquisition of RBS assets and INGA & ING (NZ) Joint venture. 2 ‘Core Tier 1’ = Tier 1 excluding hybrid Tier 1 instruments

Sep-08 NPAT Dividend/DRP

RWA movement

Other Ord Share Issuance

Prudential changes

Hybrid Call Sep-09 RBS acquisition

ING JV acquisition

Sep-09 Pro-forma

Sep-09 FSA Pro-forma

7.71

10.56

9.46

11.9

1.06 (0.59)0.54 (0.30)

2.070.29 (0.22)

(0.34)(0.76)

Strong Tier-1 position, ANZ well placed for growth opportunities

11

Capital Position (Tier-1 Ratio)

285bp

1. Includes Associates, Net Deferred Tax Assets, Pensions, Capitalised Costs, MTM gains on own name included in profit, FX, non-credit RWA growth

Tier-1 management target range 7.5 and 8.0

175bp

1

Portfolio growth & mix: 36bp increaseRisk migration: 34bp reduction Portfolio data review: 52bp increase

Sep-08 NPAT Dividend/DRP

RWA movement

Other Ord Share Issuance

Prudential changes

Sep-09 RBS acquisition

ING JV acquisition

Sep-09 Pro-forma

Sep-09 FSA Pro-forma

5.91

8.96

7.91

10.3

1.06 (0.59)0.45 (0.23)

2.070.29 (0.29)

(0.76)

Core Tier-1 position also strong

12

Capital Position (Core Tier-1 Ratio)

305bp

1. includes Associates, Net Deferred Tax Assets, Pensions, Capitalised Costs, MTM gains on own name included in profit, FX, non-credit RWA growth

Core Tier-1 operating range between 6.0 and 6.5

200bp

1

Portfolio growth & mix: 31bp increaseRisk migration: 30bp reduction Portfolio data review: 44bp increase

Strategic approach to increasing capital throughout the Global Financial Crisis

13

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

1H08 2H08 1H09 2H09 2H09 Total

Core

DRP1

DRP1

DRP1

Hybrid

Hybrid net issue

Hybrid conversion

Hybrid redemption

Share purchase

plan

Institutionalplacement

1. Underwritten DRP

Capital Raisings 2008-2009A$b

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

APRA

FSA

Tier 1 and Core Tier 1 ratios are higher under the FSA calculation

Capital differences arise principally because FSA:

Requires no deduction for net accrued dividends

Requires no deduction for certain capitalised expenses and deferred tax assets

Calculates expected loss vs provisions on a gross basis before tax

Has a more favourable treatment for Associate investments (including ING JV), and insurance and funds management subsidiaries

RWA differences arise principally due to:

APRA setting a 20% floor on the downturn LGD for mortgages (as compared with the 10% minimum set by the FSA)

FSA not requiring Interest Rate Risk in the Banking Book to be a Pillar I requirement

Differences in the treatment of specialised property lending, equity and margin lending products

14

Capital

RWA

Tier 1 Ratio

15

Reconciliation of ANZ‟s capital position to FSA Basel II guidelines (based upon INGJV as a subsidiary)

APRA regulations are more conservative than current FSA regulations, in that APRA requires:

• A 20% Loss Given Default floor for mortgages (FSA: 10% floor)

• Interest Rate Risk in the Banking Book (IRRBB) to be included in Pillar I risks (FSA: Pillar II)

• Capital deductions for investments in funds management subsidiaries (FSA: RWA assets)

• Insurance subsidiaries to be a mixture of Tier 1 and Tier 2 deductions (FSA: transitional regulations permit Total Capital deductions under certain circumstances)

• Expected dividend payments (net of dividend reinvestments) to be deducted from Tier-1 (FSA: no deduction)

• Collective Provision to be net of tax when calculating EL v CP deduction (FSA: tax effect difference between EL and CP on gross basis)

• Associates to be a mixture of Tier-1 and Tier-2 deduction (FSA: permits proportional consolidation under certain circumstances)

Core Tier-1 (%) Tier-1 (%) Total Capital (%)

Sep-09 pro forma2 under APRA standards 7.9 9.5 12.4

RWA (Mortgages, IRRBB) 0.8 1.0 1.2

ING Funds Management and Life Co businesses 0.4 0.4 0.1

Final dividend accrued net of DRP & BOP 0.4 0.4 0.4

Expected Losses v Collective Provision 0.2 0.2 0.2

Insurance subsidiaries 0.2 0.2 -

Investment in Associates 0.2 0.2 0.2

Other1 0.2 0.0 0.1

Total adjustments 2.4 2.4 2.2

Sep-09 pro forma2 FSA equivalent ratio 10.3 11.9 14.6

1. Other includes Net Deferred Tax Assets, Capitalised Expenses, Deferred Income and roundings 2. Includes acquisition of RBS assets and INGA & ING (NZ) Joint venture

0

5

10

15

20

25

FY10 FY11 FY12 FY13 FY14 >FY14

Senior Term Subordinated

Govt. Guaranteed

Improved funding metrics although term funding costs remain elevated

Sep-08 Mar-09 Sep-09

7% 7% 8%

50% 54% 55%

14% 15% 15%7% 6% 5%22% 18% 17%

Hybrids & SHE Total customer fundingTerm debt residual >1yr Term debt residual <1yrShort term wholesale

Funding composition improved

Term debt maturity profile ($bn)

Customer deposit

volumes increasing

Short-term wholesale

funding reducing

● Reliance on short term wholesale funding further reduced to 17%

● Funding from equity, customer and wholesale debt (with remaining maturity >1yr) increased to 78% of all funded assets

2

● ~$26bn of wholesale term debt issued in FY09

● Maintained access to all major global funding markets

● Average tenor of new term issuance in FY09 was 3.9 years

● Funding costs remain elevated by historical standards

● Majority of FY09 issuance was in Government Guaranteed (GG) format. Going forward we expect most new issuance to be non-guaranteed

● Forward maturities and required issuance volumes consistent with 2009 and remain manageable

● ANZ continues to build and maintain strong, long-term relationships with global wholesale debt investors

1. Represents funding issued by Australia or New Zealand in offshore wholesale markets 2: including all liquid assets

Only 3% of total funding is sourced from offshore1

short term markets

16

Mar-08 Sep-08 Mar-09 Sep-09

21.534.7

60.1 60.20.8

3.2

7.4 7.8

Prime Liquidity Portfolio Other eligible securitiesOther cash & liquid assets

● Prime liquid asset portfolio maintained at $60bn

● Covers >12mth offshore w‟sale funding maturities

● Prime Liquidity Portfolio and „other eligible securities‟ are cash deposits, and securities eligible for repo, with a major central bank

● Strong credit quality, 99% portfolio AA- or better

● Well diversified by geography & counterparty

● Additional liquid assets in the form of cash at banks, interbank lending & securities in trading and investment portfolios (not included in the prime liquidity portfolio)

Long Term Counterparty Credit

Rating1

Market Value2

AUD $bn

Cumulative % of

portfolioNo. of parties

AAA 43.8 73% 51

AA+ 3 78% 4

AA 10.8 96% 11

AA- 1.9 99% 9

A+ 0.3 99% 5

A 0.3 100% 4

Total 60.2 84

Liquidity position strengthened further

31% 41%

15%

3%

3%

2%

5%

Australia

Internal RMBS (Aus)

New Zealand

Internal RMBS (NZ)

Asia

United States

UK

17

Liquid asset position remains strong ($bn) Portfolio diversified by geography

Strong liquidity portfolio credit quality (Sep-09)

1. Where available, based on Standard & Poor’s long-term credit ratings 2. Market Value net of the repo discount (initial margin) applied by the relevant central bank

Mar 09 & Sep 09 positions support >12 months offshore wholesale funding maturities

Managing the Group‟s earnings denominated in non-AUD currencies

● NZD is currently the most significant single currency revenue exposure

● USD and Asian local currency revenues are increasing as a proportion of total group revenue

● FY09 revenues have been translated at an average AUD/USD rate of 0.73

● The majority of ANZ‟s non-NZD foreign currency revenue streams have a high correlation to AUD/USD

● A combination of macro and specific currency hedges against the risk of adverse currency movements may be considered appropriate, however aside from New Zealand no hedges are currently in place

● AUD strength against the USD presents a significant headwind for future earnings growth; potential FY10 negative EPS impact of 4-5% (based on current exchange rates)

68%

15%

17%

AUD NZD USD & Others

● FY09 NZD earnings were hedged at 1.19

● Future year hedges cover anticipated revenue streams.

● Partial hedges in place for FY10 & FY11 @ 1.19 to 1.20

18

FY09 reported profit before tax by currency

NZD currency hedging position

AUSTRALIA, NZ & ASIA –ECONOMIC TRENDS

20

Source - ANZ economics team estimates. Based on 30 September bank year.

Australia New Zealand

2008 2009 2010 2011 2008 2009 2010 2011

GDP 3.2 0.6 2.6 3.1 1.5 -2.0 1.9 2.9

Inflation 4.2 2.1 2.21 2.32 5.1 1.7 2.1 3.1

Unemployment 4.2 5.8 6.6 5.4 4.3 6.3 7.0 6.7

Current A/C (% GDP) -5.7 -3.4 -4.4 -4.4 -8.6 -4.2 -5.5 -5.4

Cash rate 7.00 3.00 4.00 4.75 7.50 2.50 3.00 5.50

10 year bonds 5.40 5.37 5.45 5.80 5.7 5.6 6.0 6.6

AUD/USD 0.79 0.88 0.92 0.81 N/A N/A N/A N/A

AUD/NZD 1.18 1.22 1.296 1.246 N/A N/A N/A N/A

Credit 10.3 2.0 4.2 5.3 10.9 3.6 2.9 5.3

- Housing 8.9 7.5 6.5 5.6 7.6 3.6 3.0 5.1

- Business 13.9 -3.6 0.6 4.9 16.5 4.0 2.8 5.9

- Other 2.0 -5.6 6.4 5.7 8.9 -1.5 2.0 5.1

Summary of forecasts: Australia and New Zealand

Australia one of very few developed economies to avoid recession

Australia has had a much softer landing than our developed economy counterparts

• The domestic economy/financial system well placed pre-downturn

• Significant, pre-emptive & effective policy action

• Strong population growth

• China rebound/commodities

Recent data encouraging, but short-term headwinds

• Household income expected to fall in 09/10 as stimulus wanes

• Drag from earlier commodity price bust

• Rising interest rates

• Housing – transition from first home buyers, rising interest rates?

• Commercial property – prices falling, potential for vacancies to rise

• Rising unemployment albeit much lower levels than anticipated

21

22

Retail trade

Recent data flow has been encouraging

17.5

18.0

18.5

19.0

19.5

20.0

20.5

Jan-08 Jul-08 Jan-09 Jul-09

$bn, sa

Consumer sentiment

Housing finance (ex-refin.)

Business confidence

150160170180190200210220230


$ billion

annualised

80859095

100105110115120125


index

-35-30-25-20-15-10-505

101520


index

23

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

08 09 10

quarterly % change

Household consumption

Business Investment

Dwelling investment

Real GDP

Sources: Bloomberg, Datastream and ANZ

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

08 09 10

quarterly % change

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

07 08 09 10

quarterly % change

-1.0

-0.5

0.0

0.5

1.0

1.5

08 09 10

quarterly % change

But economy to slow again before renewed life later in 2010

24

Australian growth likely to return to trend growth by 2011

GDP growth

Sources: ABS and ANZ

Unemployment rate

-2

-1

0

1

2

3

4

5

6

91 93 95 97 99 01 03 05 07 09 11

% annual change Forecasts

Trend

3

4

5

6

7

8

9

10

11

12

92 95 98 01 04 07 10 13

% Forecasts

25

Sources: ABS, ANZ

The labour market experience through the downturn has been comparatively mild so far

Employment through cyclical downturns - Total employment indexed to „peak‟

90

92

94

96

98

100

102

104

106

1 4 7 10 13 16 19 22 25 28 31 34

Months from 'peak'

Index

Early 1980s (Jan-82)

Early 1990s (Jul-90)

Early 2000s (Aug-00)

Current (Oct-08)

4.0

4.5

5.0

5.5

6.0

-10

-5

0

5

10

15

20

25

30

35

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Monthly change (trend, 000s) %Unemployment rate

26

-10

-5

0

5

10

15

20

25

30

35

40

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Monthly change (trend, 000s) Labour force and Employment

Unemployment

Labour force

Employment

Encouraging signs in labour market

27

…but hours worked has fallen as employers resist layoffs, therefore employment rebound could be muted

Employment vs. hours worked

Sources: ANZ, ABS

-4

-2

0

2

4

6

86 87 89 90 91 93 94 95 97 98 99 01 02 03 05 06 07 09

YoY % change

Employment - persons

hours worked

New Zealand economy has emerged from recession and is now gaining forward momentum

● The New Zealand economy is underpinned by a sound macroeconomic framework

An independent inflation targeting central bank, freely floating exchange rate and a transparent fiscal policy set over a medium term timeframe are the main pillars of the framework

● The recession experienced since early 2008 was the longest since the 1970s, reflecting:

The build up of structural imbalances during the previous expansion phase

A correction to the housing market, which started in 2007 and intensified over 2008 and early 2009

Drought conditions, which led to reduced agriculture production in early 2008

A deep global downturn across our major trading partners

● The economy emerged from recession in the second quarter. Forward momentum is building with economic activity set to expand at a modest pace.

● Close attention is now being paid to the composition of growth as the economy rebalances. For a sustained and durable recovery to take hold, it has to be export led. The need for households to rebuild their balance sheet means consumption growth will be subdued.

● New Zealand‟s future is fundamentally linked to the Asian region. Excluding Japan, Asia now accounts for 28 percent of NZ‟s exports. China is now our 3rd largest trading partner, and five of NZ‟s top 10 export destinations are from the region.

28

29

Sources: RBNZ; IMF October 2008 Global Financial Stability Report; RBA; Central Bank of Ireland: ANZ

The New Zealand banking system is sound

0

2

4

6

8

10

12

14

95 97 99 01 03 05 07 09

% of Risk Weighted Assets

Tier 1 capital ratio

Tier 2 capital ratio

Total capital ratio

0

100

200

300

400

500

600

700

800

Latin A

merica

Afr

ica

Mid

dle

East

United S

tate

sFin

land

Port

ugal

Asia

Sw

eden

World

Gre

ece

Austr

iaIt

aly

Japan

Canada

New

Zeala

nd

Germ

any

Austr

alia

Spain

Euro

are

aN

eth

erlands

Fra

nce

Denm

ark

United K

ingdom

Belg

ium

Irela

nd

Icela

nd

Bank debt as % of GDP

New Zealand banks well capitalised Banking sector not highly leveraged compared to other countries

Solid support factors remain and longer-term prospects for New Zealand are good

30

Sources: Statistics NZ, NZ Treasury, Bloomberg, OECD, ANZ

Commodity prices have corrected, but are starting to rebound

Infrastructure spending is also increasing

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

96 97 98 99 00 01 02 03 04 05 06 07 08

NZ Capital stock to NZ GDP

800

900

1,000

1,100

1,200

1,300

86 88 90 92 94 96 98 00 02 04 06 08

50

100

150

200

250IndexIndex

Terms of trade (LHS)

ANZ World Commodity Price Index

Well capitalised banking system

A healthy government balance sheet despite deficits

0

40

80

120

160

200

Austr

alia

Luxem

bourg

New

Zeala

nd

Icela

nd

Denm

ark

K

ore

aIr

ela

nd

Fin

land

Spain

S

weden

Norw

ay

Sw

itzerl

and

Pola

nd

Neth

erl

ands

United K

ingdom

Austr

iaC

anada

Germ

any

Euro

are

aPort

ugal

Hungary

Fra

nce

United S

tate

s

Tota

l O

EC

D

Belg

ium

Gre

ece

Italy

Japan

Gross public debt as % of GDP (2008)

0

2

4

6

8

10

12

14

98 00 02 04 06 08

% of risk weighted assest

Total capital

ratio

Tier 1 capital

Tier 2 capital

ratio

ASEAN 9.9%

Australia 22.4%

UK 4.1%

China 8.1%

Japan 7.8%

US 11.0%

Euro-zone 8.1%

Other 28.7%

New Zealand maintains a diversified export sector, weighted towards agriculture

31

Sources: Statistics NZ, ANZ

Finance &

Business

21.4%

Government

4.9%Electricity,

Gas & Water

1.8%

Wholesale

7.4%

Manufacturing

13.5%

Personal

Services

12.3%

Agriculture

4.8%

Fishing,

Forestry &

Mining 2.2%

Communicatio

n 6.3%

Retail 7.5%

Construction

4.7%

Transport

4.7%

…and by country

GDP composition

Exports ≈ 32% of GDP

Dairy 16.6%

Meat 8.0%

Other Food

7.7%

Forestry & Wood

9.0%

Services 21.9%

Crude 2.7%

Manufacturing

23.2%

Ag & Seafood

8.1%

Exports are diversified by product…

Addressing internal structural imbalances

32

Sources: Statistics NZ, RBNZ, Bloomberg, OECD, ANZ

Large current account deficit High household debt

0

40

80

120

160

200

91 93 95 97 99 01 03 05 07 09

% of disposible income

Household debt to

disposable income

Poor household savings

-16

-12

-8

-4

0

4

8

87 89 91 93 95 97 99 01 03 05 07 09

% of disposible income

Quarterly household

savings rate

-20

-10

0

10

20Ic

ela

nd

Gre

ece

Port

ugal

Spain

New

Zeala

nd

Turk

ey

Irela

nd

Hungary

Pola

nd

Austr

alia

Slo

vak R

epublic

United S

tate

s

Belg

ium

Italy

Czech R

epublic

United K

ingdom

Fra

nce

Tota

l O

ECD

Mexic

o

Kore

a

Euro

are

a

Canada

Denm

ark

Fin

land

Austr

ia

Japan

Germ

any

Sw

eden

Luxem

bourg

Neth

erlands

Sw

itzerl

and

Norw

ay

% of GDP

2008

Excessive reliance on housing

50

60

70

80

79818385878991 9395979901030507

% of total h/hold assets

Housing as a % of total

household assets

40

50

60

70

80

90 92 94 96 98 00 02 04 06 08

Index

NZ TWI

The New Zealand economy is being supported by policy stimulus

33

Sources: Statistics NZ, RBNZ, NZ Treasury, Reuters, ANZ

The Official Cash Rate has been slashed…

0

2

4

6

8

10

00 02 04 06 08 10 12

%

90-day bank bill

Our projections

…and this has flowed though into mortgage rates

20

30

40

50

60

70

-300

-200

-100

0

100

200

300

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Basis points

2-yr mortgage rate compared with 2 years prior (LHS)

Fixed mortgages with less than 12-mths until reset (RHS)

NZ$b

The fiscal purse has been opened

-4

-2

0

2

4

97 99 01 03 05 07 09 11 13

% of GDP

Fiscal impulseExpansionary

ContractionaryBudget 2009

forecasts

But a rebounding NZD is still somewhat problematic

The New Zealand economy is now stabilising. Cyclical sectors, such as housing, are strengthening

34

Sources: Statistics NZ, REINZ, ANZ

-40

-20

0

20

40

60

80

88 90 92 94 96 98 00 02 04 06 08

Net %

NBBO own

activity

Confidence picking up Bungy cord for the housing market

2

4

6

8

10

12

91 93 95 97 99 01 03 05 07 09

'000 (s.a.)REINZ house

sales

Financial conditions loosening Less NZ‟ers leaving

-4

-2

0

2

4

6

8

10

90 92 94 96 98 00 02 04 06 08

'000

DeparturesArrivals

Net migration

-4

-2

0

2

4

6

8

96 98 00 02 04 06 08 10

97.8

98.2

98.6

99.0

99.4

99.8

100.2

Annual % change

GDP (LHS)

FCI (adv 10 months,

inverted, RHS)

Index

35

Sources: Statistics NZ, www.interest.co.nz, ANZ

With stabilisation, attention now turns to the quality and durability of the rebound

Need to improve external deficits

-110

-100

-90

-80

-70

-60

-50

-40

-10

-8

-6

-4

-2

0

92 94 96 98 00 02 04 06 08

% of GDP

Annual current account (LHS)

Net International Investment Position (RHS)

% of GDP

Productivity performance needs to arrest its trend decline

0.0

0.5

1.0

1.5

2.0

2.5

3.0

'80-'95 '85-'90 '90-'95 '95-'00 '00-'05 '05-'08

Compound annual growth rate (%)

Labour productivity

A switch in the “mix” of growth is required

80

100

120

140

160

180

200

87 89 91 93 95 97 99 01 03 05 07 09

Index (Jun-87=100)

Non-tradable

sector

Tradable

sector

2

3

4

5

6

7

0 1 2 3 4 5

Interest rate (%) Top retail deposit rate

(across major banks)

Wholesale curve

Years to maturity

Deposit rates highlight the de-leveraging backdrop

36

“Change” is now a key buzzword across the economy

● Developments on a number of fronts include:

A new RBNZ liquidity requirement for NZ registered banks that effectively requires banks to fund 75

percent of their balance sheet from retail deposits or wholesale funding with terms in excess of 1 year.

This is aimed at reducing the vulnerability of the NZ financial system to global shocks.

New rules have been put in place for Non-Bank Deposit Takers that see them come under the greater

prudential focus of the RBNZ.

A Tax Working Group has been set up and is identifying issues that need to be considered when setting

medium-term tax policy. Some of the topics to be considered include: the structure of personal income

tax, GST and capital gains tax.

A review of the Resource Management Act (RMA). The RMA has been singled out as a reason for the lack

of investment in key infrastructure needs across the country due to the time and costs involved.

2025 taskforce has been set up (chaired by former RBNZ Governor Don Brash) to look at the ways and

initiatives that can be put in place to see the economy “catch-up” to Australia by 2025.

Overseas investment rules have been simplified, and the business migration scheme has been revamped

to make investing and attracting business and entrepreneurial migrants easier.

Steps taken to unlock NZ‟s natural resource endowments.

● All of these developments will take time to deliver real-time benefits but the process is underway.

37

Sources: Statistics NZ, Bloomberg, ANZ

Structural rebalancing for NZ is very much linked to the Asia region

0

2

4

6

8

10

89 91 93 95 97 99 01 03 05 07 09

% of total

Merchandise

exports to China

China is already growing in importance as an export market

30

40

50

60

78 82 86 90 94 98 02 06

% of GDP (nominal)

Household

consumption

China has significant room to grow its domestic economy

50

100

150

200

250

00 01 02 03 04 05 06 07 08 09

Index (2000=100)

The rest

Asia (ex

Japan)

Exports to Asia growing fastest

38

Sources: CEIC, ANZ Economics

2007 2008 2009 2010 2011 2012

China 13.0 9.1 8.3 9.5 9.6 9.8

India 9.3 7.5 6.2 7.7 8.4 8.5

NIE's

Hong Kong 6.4 2.6 -2.9 5.1 5.7 5.7

Korea 5.1 2.4 0.0 4.7 3.6 4.3

Singapore 7.8 1.2 -2.0 6.9 4.8 5.1

Taiwan 5.7 0.3 -3.8 4.0 4.3 5.2

ASEAN

Indonesia 6.3 6.1 4.4 5.9 6.0 6.6

Malaysia 6.2 4.7 -2.9 4.4 5.1 6.0

Philippines 7.1 3.9 1.2 4.1 4.6 4.8

Thailand 4.9 2.7 -2.3 4.8 3.6 4.4

Vietnam 8.4 6.3 4.5 6.8 7.1 7.3

Total 10.1 7.0 5.3 7.7 7.9 8.1

Total (ex China & India) 5.9 3.2 -0.2 5.0 4.7 5.3

Asian region - expected to perform better than much of the developed world

• Recovery depends on consumers in the US and Europe

• Asia‟s “supply side,” including the overall health of the banks, is largely intact

39

Fiscal and monetary policy stimulus has gained traction in China

Sources: Bloomberg, Datastream.

0.30

0.55

0.80

1.05

1.30

05 05 06 06 07 07 08 08 09 09

Million Units

Motor vehicle sales

10

20

30

40

50

60

00 01 02 03 04 05 06 07 08 09

0

5

10

15

20

25

30

Steel production (lhs)

Imports of Australianiron ore (rhs)

MT/mt

h

MT/mt

h

Steel production and Australian iron ore imports

40

China is on a very rapid growth path…

Source: BHP

China‟s tiered city structure (2003 and 2025)

2003:

45 tier 1-3 cities

2025:

147 tier 1-3 cities

20 large economic zones

358 cities in total

11 cities ~ 15 million

18 cities ~ 10 million

41

Ongoing urbanisation will be a key driver of growth

30

40

50

60

70

80

90

Europe C & SAmerica

NorthAmerica

Oceania Asia China

2005

2030%

% of population in urban areas

0

100

200

300

400

500

600

700

800

900

1000

1965

1985

2005

2025

0

10

20

30

40

50

60

70

80

90

100Urban Population (LHS)

% Urban (RHS)

million people % urban of total

China‟s projected urban growth

Source: UN, ANZ Economics & Markets Research

42

Korea Japan

India

Australia

China

0

1

2

3

4

5

6

7

8

9

0 5 10 15 20 25 30 35

Tonnes of oil

equivalent

Real GDP (at PPP) per capita (1990 US$)

Prim

ary

energ

y c

onsum

ption p

er

capita

US$000

United States

This will continue to have a profound impact on demand across all commodities

Sources: Groningen Growth and Development Centre Total Economy Database; BP Statistical Review of World Energy (2006); Economics@ANZ.

Primary energy consumption and GDP per capita, 1965-2005

China 2017

AUSTRALIA & NEW ZEALAND MORTGAGE MARKET DATA

44

100

125

150

175

200

225

100

150

200

250

300

350

400

450

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Population growth vs dwelling completions

Annual dwelling completions (RHS)

Annual population gain (LHS)

Population accelerating to record highs while home building slumps towards record lows

„000 „000

Sources: ABS, ANZ Economics and Markets Research

2.4

2.5

2.6

2.7

2.8

90 92 94 96 98 00 02 04 06 08 10 12 14

Number persons per household

assuming constant headship rates

by age

45

Demographic pressure to reduce persons per household

Persons per household


2012 – 9.1 million houses

2012 – would require 375K extra homes to meet demographic demand

46

Housing market balance: Australia

Shortage

Underlying demand

Surplus

Completions

Housing demand/supply imbalance remains

„000


-100

-50

0

50

100

150

200

250

300

350

400

450

500

550

600

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

47

SA WA Tas

0

5

10

15

20

25

30

35

40

45

50

55

60

65

NSW Vic Qld

Pent-up demand is rising in all states, most significant in New South Wales

Pent-up housing demand by state


monthsproduction

2009

2011

2009

2011

2009

2011

20092011 2009

2011

2009

2011

48

Sources: Economics@ANZ; REIA

4.6

4.2

4.2

3.9

4.1

5.1

6

4.9

6.9

5.4

6.7

3.6

0 5 10 15 20

Hobart

Brisbane

Adelaide

Perth

Melbourne

Sydney

ABSaveragerents

Residex"Advertised" rents

%p.a.0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

80 84 88 92 96 00 04 08

%; 4 qtr ma

National rental vacancy rate House rents

The supply imbalance has prompted the rental market to tighten and rents to rise sharply

49

Prerequisites for a solid housing upturn are in place

• Critical housing shortage

• Improved buyer sentiment

• Rising prices

• Rising rents

Tight rental markets pushing rents sharply higher

Inadequate building will place further upward pressure on rents

Good affordability conditions

But

• Rising mortgage rates from early 2010 will create significant headwinds…

• …as will the exit of first homebuyers

• Substantial roadblocks to supply

Real rents

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

90 92 94 96 98 00 02 04 06 08

annual % change


50

100

150

200

250

300

350

400

450

500

550

600

650

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

$000 Sydney

(5.9%*)

Melb.

(8.4%*)

Bris.

(5.6%*)

Perth

(4.4%*)

Hobart

(5.4%*)

Adel.(3.7%*)

50

Sources: ABS, ANZ Economics; *year to Sep 2009

Australia - median house price by city

House prices softened but did not fall appreciably

51

Recovery in dwelling prices has been broadly-based

Sources: RP Data, Economics@ANZ

Australian dwelling prices

90

92

94

96

98

100

102

104

106

08 09

index Jan 2007=100

Top 20%

(+8.2%)

Bottom 20%

(+7.5%)

Middle 60%

(+8.2%)*

* year to date

52

Sources: ABS, ANZ Economics

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

02 03 04 05 06 07 08 09

no./month

Housing finance commitments (excl. refin.)

First homebuyer

20,000

22,000

24,000

26,000

28,000

30,000

32,000

34,000

36,000

38,000

02 03 04 05 06 07 08 09

no./month

Non-first homebuyer

Significant inflows of first homebuyers and upgraders with investors becoming more active now

53

Sources: ABS, ANZ Economics

First-home buyers were the catalyst to price rises

0

5

10

15

20

25

30

35

40

45

07 08 09

% of total annualised

Upgraders

First-home buyers

Refinancing

Investors

Housing finance commitments

0

5

10

15

20

25

30

35

40

02 03 04 05 06 07 08 09

'000

Upgraders (excluding

refinancing)

First-home buyers

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Zero < 4 < 8 < 12 < 16 < 20 < 24 < 28 < 32 > 32

0 - 54 years old

Over 55 years old

Debt servicing ratio“the lending boom was

concentrated on existing homeowners who traded

up to bigger and better houses and bought

investment properties.Many of these were people

in the 40s and 50s who previously had low levels

of debt.”

Deputy Governor of Reserve Bank of Australia

Ric Battellino

70% of homes with

less than a 4%

servicing ratio

million households

The household sector was well placed to accumulate debt with two-thirds having little or no debt

Debt servicing ratio

54

55

Mortgage rates have reduced substantially, providing cash flow relief to households

4

5

6

7

8

9

10

11

12

97 98 99 00 01 02 03 04 05 06 07 08 09

Floating rates

2-year fixed

%

5-year fixed

Sources: REINZ, ANZ *12 months to September 2009 using REINZ Stratified House Price Index

50

100

150

200

250

300

350

400

450

500

550

92 94 96 98 00 02 04 06 08

$'000

NZ (+5.3%*)

Auckland (+9.0%*)

Wellington

(+8.7%*)

Other South Island

(+1.5%*)

Canturbury (+10.2%*)

Stratified Median NZ House prices

In New Zealand property markets have recovered off lows and house prices are starting to rise

56

57

While floating mortgage rates remain at 40 year lows, longer term fixed mortgage rates have started to rise

4

5

6

7

8

9

10

11

12

97 98 99 00 01 02 03 04 05 06 07 08 09

Floating rates

2-year fixed

%

5-year fixed

Sources: RBNZ, ANZ

Credit Quality

RWA reduction from reducing EAD1 and portfolio refinement, partly offset by portfolio deterioration, significantly impacting expected loss

Sep-08 Portfolio

growth & mix

Risk

Migration

Portfolio

Data Review

FX impacts Sep-09

250.8

229.8

(9.4)

6.3 (13.7)

(4.2)

Th

ou

san

ds

59

Movement in Credit Risk Weighted Assets ($b)

Regulatory Expected Loss movements

($m)

Sep 08 Mar 09

250.8 2.2 6.2 (5.7) 4.3 257.8

Mar 09 Sep 09

257.8 (13.3) 1.0 (7.8) (7.9) 229.8

Sep-08 Portfolio

growth & mix

Risk

Migration

IP Portfolio

Data Review

FX impacts Sep-09

3,051

4529

(84)

714

746121 (19)

Sep 08 Mar 09

3,051 59 468 657 (65) 10 4,180

Mar 09 Sep 09

4,180 (230) 350 88 170 (29) 4,529

1:Exposure at Default is also referred to as Regulatory Credit Exposure

Data refinement in Slotting

Corporate, Retail and Standardised

Basel II Asset Classes

Impacted by 5.5% reduction in EAD

Impacted by portfolio

deterioration, primarily Corporate

/ SME

NB – HOH changes do not add to YOY due to changes in mix

0

100

200

300

400

500

600

Sep-08 Dec-08 Mar-09 Jun-09 Sep-09

Corp/Corp SME Bank & Sovereign Residential Mortgage QRR & Other Retail

Specialised Lending Other CRWAs Standardised

(2.6%)

EAD reduction impacted by derivatives, reduction in off balance sheet exposures, portfolio management, exchange rates and data refinement

60

EAD($bn) EAD Basel II Asset class movements Sep 09 vs Sep 08

$bn (7.7%)

555.0582.6 567.8

538.4524.3

-17%

-4%

8%

-3%

-14%

-30%

4%

-15%

-18%

3%

-4%

-1%

-19%

-13%

Sep 09 vs Mar 09

(5.5%)

Largest reduction in absolute terms down $33.1b (16.9%) Sep 09 vsSep 08

0

50

100

150

200

250

300

Sep-08 Dec-08 Mar-09 Jun-09 Sep-09

Corp/Corp SME Bank & Sovereign Residential Mortgage QRR & Other Retail

Specialised Lending Other CRWAs Standardised

(4.8%)

Credit Risk Weighted Asset reduction primarily from declining asset volumes, exchange rate movements and data refinement

61

Credit Risk Weighted Assets ($bn) Credit RWA Basel II Asset class movements Sep 09 vs Sep 08

$bn

(10.9%)

250.8260.7 257.8

241.3229.8

-9%

-52%

9%5%

-20%

-8%

4%

-15%

-41%

2% 1%

-4% -6%

-13%

Sep 09 vs Mar 09

(8.4%)

Largest reduction in absolute terms, down 11.2bn (8.8%) Sep 09 vsSep 08

IP charge by Region and Segment: Increased impact from New Zealand and Middle Market

2H07 1H08 2H08 1H09 2H09

Australia New Zealand APEA

2H07 1H08 2H08 1H09 2H09

Consumer Commercial Institutional

2H07 1H08 2H08 1H09 2H09


62

Total IP Charge Segment IP charge by region1

63 81

137

201

289

267378

894

1,5311,283

267 378

894

1,531

1,283

2H07 1H08 2H08 1H09 2H09


173 167236

347

431

1: Note: Institutional IP not shown: 87% in Australia (FY08), 96% in Australia (FY09)

Commercial IP by regionBy Region

Consumer IP by regionBy Segment

Lending Risk Impacts

Cycle & Concentration

Mix

(2) 251 (1) (13)

17

Breakdown of FY09 collective provision charge

63

(144)

171

146

62APEA

(ex Insto.) & Group

Australia Division

New Zealand Division

Institutional

-50

0

50

100

150

(3)

3611 1

-500

50100150

59 8330

(26)

-500

50100150

(2)

55124

(6)

-200

-100

0

100

(56)

77

(183)

18

$235m

$m

Group Centre

Group Total

Collective Provision: Group remains well provisioned

1H08 2H08 1H09 2H09

249.2 250.8 257.8229.8

64

Collective Provision balance / Credit RWA‟s (%)

Total Provision balance ($m)

Credit Risk Weighted Assets ($b)

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%


0.72%

0.94%

1.13%1.06%

1.31%


0.96% 1.36% 1.39% 1.58% 1.97%

Provision Coverage

Total provision balance / Credit RWAs


1,992 2,340 2,821 2,742 3,000270

316

6751,341

1,526

CP Balance IP Balance

2,2622,656

3,4964,083

4,526

90 Days Past Due: Rate of growth has slowed

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

2H07 1H08 2H08 1H09 2H09

0.18%0.21%

0.30%

0.44%0.46%

0.00%

0.50%

1.00%

1.50%

2.00%

Sep-07 Mar-08 Sep-08 Mar-09 Sep-09

Retail Mortgages Consumer Cards

65

90 Days Past Due as a % of Gross Lending Assets less Non Performing

Loans

Australian Consumer Portfolio

90 days past due / GLA (%)

New Zealand Consumer Portfolio

90 days past due / GLA (%)

Well Secured

Not well secured

0.00%

0.50%

1.00%

1.50%

2.00%

Sep-07 Mar-08 Sep-08 Mar-09 Sep-09

Retail Mortgages Consumer Cards

Reduction partially reflects greater migration of loans to impaired

0

300

600

900

1200

1H08 2H08 1H09 2H09

Australia New Zealand APEA NPCCD Restructured

0

1000

2000

3000

4000

1H08 2H08 1H09 2H09

Impaired facilities: moving through the cycle, Institutional slowing, greater impact in middle market and NZ consumer

> $100m

$50m -$99m

$20m -$49m

$10m -$19m

$5m - $9m

<$5m

Institutional

66

Commercial impaired facilities by Region ($m)

Non Performing Loans (by single names)

Consumer impaired facilities by Region ($m)

Impaired Loans (Top 5 industries)

Commercial

Bus. ServicesHealth & CS

Manufacturing

Finance &Insurance

Property Services

Manufacturing

Finance &Insurance

Agriculture

W‟sale Trade

Construction

Institutional impaired facilities by Region

($m)

0

300

600

900

1200

1H08 2H08 1H09 2H09

NPCCD: Net Non Performing Commitments & Contingencies

Watch & Control lists: Control list stabilising, new names onto the watch list slowing in second half

Agriculture, Forestry &

Fishing30%

Property Services

15%

Wholesale

Trade14%9%

Retail Trade

7%

Transport &

Storage4%

Business Services

4%

Other17%

67

Watch1 & Control List by limits (indexed) Watch list by industry

Number of Groups (%)

Watch List Limits Control List Limits

14 3 2 1 2 3 40

Sep 08

Oct 08

Nov 08

Dec 08

Jan 09

Feb 09

Mar 09

Apr 09

May 09

Jun 09

Jul 09

Aug 09

Sep 09

Manufacturing

Watch list1

An alert report of customers with characteristics identified which could result in requirement for closer credit attention

Watch list reduced since March 2009 from easing risk concerns, debt reductions, equity raising and improved trading results

Control ListA report of high risk accounts which may or may not have defaulted

The number of new names on the control list has stabilised over the past 6 months

1. Watch list parameters have changed to watch lists disclosed in previous publications. Current watch list has been restated back to September 2008 for direct comparability purposes

Sep 08 Mar 09 Sep-09

15% 16% 12%

8% 8%7%

6% 7%6%

5% 5%5%

4% 4%3%

Finance & Insurance Property Services

Manufacturing Agri. Forest Fishing

Wholesale Trade

Sep 08 Mar 09 Sep-09

64% 61% 61%

16% 17% 17%12% 12% 12%6% 5% 5%23% 5% 5%

AAA to BBB BBB- BB+ to BB BB- >BB-

Risk Grade Profiles and large industry exposures


59.5% 58.6% 58.9%

13.6% 13.8% 13.4%

13.5% 13.0% 12.6%

9.0% 8.9% 8.8%

4.4% 5.7% 6.3%

AAA to BBB BBB- BB+ to BB BB- >BB-

68

Group risk grade profile by Exposure at Default

Institutional risk grade profile by Exposure at Default

Top 5 industries by EAD (% of total portfolio)

Australian Mortgage portfolio well diversified with good underwriting standards

20

26

26

716

1 2 2

QLD VIC

NSW SA

WA NT

TAS ACT

● Consumer lending represents 58% of gross loans and advances for the group

● 75% of the portfolio in Australia and balance primarily in New Zealand

● 95% of portfolio is residential mortgages with an average loan size of $205k

● No sub prime exposures

69

Australian mortgage portfolio

0-60% 61-75% 76-80% 81-90% 91%+

LVR at origination Sep 08 LVR at origination Sep 09

Current LVR Sep 08 Current LVR Sep 09

Mortgages Australia Loan to Valuation profile

83% of owner occupied and 88% of investment loans have a dynamic LVR of 80% or less

1H08 2H08 1H09 2H09 Sep 09

37% 45% 46% 37% 38%

45% 38% 37% 44% 46%

19% 17% 17% 19% 16%

Broker Network Specialist / other

Diversified mortgage flows across channels

FLOWS FUM

0.00%

0.50%

1.00%

1.50%

2.00%

Sep-06 Sep-07 Sep-08 Sep-09

ACT NSW QLD

SA TAS VIC WA

Australia - consumer lending delinquencies have remained at manageable levels

70

Australia Mortgages 90 day delinquencies by State (% of GLA)

0.00%

0.50%

1.00%

1.50%

2.00%

Sep-06 Sep-07 Sep-08 Sep-09

Low Rate Loyalty Proprietary

Consumer Cards 90+ day

(% of outstandings)

Australia Retail – credit card portfolio tracking inside prior year trends

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Mar-06 Dec-06 Sep-07 Jun-08 Mar-09

Low Rate Commercial Loyalty

Proprietary Portfolio

0

20

40

60

80

100

120

1 3 5 7 9 11 13 15 17

Index

2005 2006 2007 2008 2009

71

Consumer Cards Utilisation (% of limit)Consumer Cards 30+ Day Arrears Month

on books (Indexed as at FY05)1

Reflects tighter credit

standards

0%

5%

10%

15%

0

10

20

30

40


$b

0%

5%

10%

15%

0

10

20

30

40


$b

0%

5%

10%

15%

0

10

20

30

40


$b

0%

5%

10%

15%

0

10

20

30

40


$b

$b

Commercial industry exposures

72

Agriculture, Forestry & Fishing Mining

Manufacturing Electricity, Gas & Water Supply

Wholesale trade Retail trade

0%

5%

10%

15%

0

10

20

30

40


$b

Exposure at default EAD (LHS) % of Group portfolio (RHS) % in high risk (RHS)1% in non performing (RHS)1

0%

5%

10%

15%

0

10

20

30

40


1. Percentage of the industry portfolio Exposure at Default

0%

5%

10%

15%

20%

0

20

40

60

80

100


$b

0%

5%

10%

15%

20%

0

20

40

60

80

100


$b

0%

5%

10%

15%

0

10

20

30

40


$b

0%

5%

10%

15%

0

10

20

30

40


$b

$b

Commercial industry exposures

73

Commercial property Property and business services2

Construction Transport and storage

Finance and insurance Other

0%

5%

10%

15%

0

10

20

30

40


$b

Exposure at default EAD (LHS) % of Group portfolio (RHS) % in high risk (RHS)1% in non performing (RHS)1

0%

5%

10%

15%

0

10

20

30

40


1. Percentage of the industry portfolio Exposure at Default, 2. excludes Commercial property – see separate category, 3. Includes Education, Accommodation, Cafes & Restaurants, Communication Services, Government Administration & Defence, Health & Community Services, Cultural & Recreational Services, Personal & Other services, Unknown and Non-classified

Commercial Property Exposure

Australia

Offices

Retail

Residential - land subdivision

Industrial

Tourism and Leisure

Other

● Commercial property exposure of $26.2bn, a decrease of 8% on prior year

● Portfolio remains at 8% of total Gross Lending Assets

● This is well inside 10% cap ANZ has imposed on commercial property lending in Australia and New Zealand

● The offices sector makes up 25% of total commercial property exposure

74

Commercial Property ExposureGLA by Region

Commercial Property Exposure by Sector

New Zealand

Offices

Retail

Residential - land subdivision

Industrial

Tourism and Leisure

Other

1H08 2H08 1H09 2H09

19.9 21.3 22.7 19.9

6.6 6.1 6.15.2

0.7 0.8 0.81.0


27.1 28.3 29.6

26.1

75

Source: Jones Lang LaSalle

1990s commercial property downturn characterised by significant oversupply vs other downturns with the exception of WA & QLD

Supply Pipeline as a % of Total Stock Australian CBD Office Market

0%

5%

10%

15%

20%

25%

30%

35%

40%

Sydney Melbourne Brisbane Perth Adelaide

1982 Recession 1991 Recession 2001 Slowdown 2009 Recession

-200

0

200

400

600

800

1H07 2H07 1H08 2H08 1H09 2H09

New IP Recoveries CP

New Zealand: Provisioning levels increasing as the impacts of recession percolate through the economy

-50

0

50

100

150

200

250

300

20

112

271Scenario

Volume

Risk

FY07 FY08 FY09

● The NZ economy experienced 5 quarters of recession before recording 0.1% economic growth in the June 2009 quarter.

● This recession has been the most severe NZ has seen since the mid 1970s.

● Provisioning has increased significantly as impacts of credit cycle move through the economy.

● While provisioning has risen, write-offs remain relatively low. Workouts are taking longer to finalise in the absence of refinancing options.

● Asset values (particularly housing) have stabilised.

● Collective provisions increased NZ$159 to ensure appropriate coverage for potential losses across the portfolio.

Category IP Charge Net Write-off

NZDm bps NZDm Bps

Personal Housing 135 39 22 6

SME 68 44 28 18

Rural 52 28 19 10

Commercial/Insto. 273 103 101 39

Unsecured 90 386 88 383

Total 618 63 258 26

76

Provisions have grown from low levels NZ Geography (NZDm)

Contribution to Collective Provision Charge (NZ$m)

Individual Provision Charge Analysis

-300

-250

-200

-150

-100

-50

0

50

100

150

200

Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09

Spread between 2 year fixed mortgage rate and corresponding rate 2 years prior

Mortgages with <1y to rate reset

0

25

50

75

New Zealand mortgage portfolio beginning to stabilise

0

20

40

60

80

100

120

140

160

Jun-07 Dec-07 Jun-08 Dec-08 Jun-09

PLA Issued (LHS)

Mortgagee Sale Concluded

(RHS)

77

Number of PLA Notices issued1 and mortgagee sales concluded

Interest rate reductions benefiting consumers switching from fixed to floating rates

0

5

10

15

20

25

30

35

40

45

50

1. PLA notice = property law action notice. Customer has 45 days to repay arrears owing after which bank can proceed to mortgagee sale. NZ has no equivalent to the Australian mortgagee in possession process.

Forecast

„000‟s

0

200

400

600

800

1000

1200

1H07 2H07 1H08 2H08 1H09 2H09

Non-Performing Loans (LHS) % of GLA (RHS)

0.00%

0.50%

1.00%

1.50%

2.00%

New Zealand: Impaired Assets have increased however arrears have reduced

● Non-performing loans (NPL‟s) have increased across all portfolios.

● Rural segments, particularly dairy farmers, are now a more significant proportion of new NPL‟s.

● Given the high proportion of NPL‟s secured by property and the lack of refinancing options, recovery or rehabilitation involves a considerable work-out period.

● Arrears have reduced across most portfolios over the last quarter particularly in consumer and personal mortgages.

● Initiatives in customer credit education and early intervention strategies are having a beneficial impact on Retail arrears volumes and values.

78

90 Days Past Due largely secured Non-performing loans

Well diversified and well secured book

Gross Loans and Advances

Commercial & Corporate

UDC

Institutional

Retail & Wealth

Rural

Fully Secured75%

80-100%Secured

9%

60-80%Secured

3%

40-60%Secured

2%

<40%Secured

3%

Unsecured8%

NZ$445mPersonal Housing

Business

Rural

SME

Unsecured

92% has security coverage

<50%

50-65%

65-80%

80%+

New Zealand: Commercial credit quality holding up but rural showing deterioration. Rural portfolio remains very well secured.

Average Commercial Customer Credit Rating

Mar 08

Jun 08

Sep 08

Dec08

Mar 09

Jun09

Sep09

Rural 5.26 5.17 5.10 5.10 5.22 5.34 5.62

C&CB1 5.24 5.27 5.30 5.40 5.44 5.45 5.44

UDC 5.38 5.49 5.66 5.80 5.73 5.72 6.01

● Rural credit quality has reduced over the last year however a recent lift in dairy payouts is expected to provide some stability.

● Strength of the NZ dollar represents a continued headwind to the sector.

● Commercial segments also experiencing tough domestic conditions with single product and single market customers vulnerable to financial stress.

● Economic conditions are expected to remain difficult over the next year.

● Commercial property values are softening however tenancy levels remain relatively strong.

79

Commercial credit quality maintained despite poor economic conditions

Rural portfolio remains well secured

1. Commercial and Corporate Banking.

Loan to Valuation

Ratio

92% of portfolio has an LVR<80%

At fair market (current) value 74% of the portfolio has an LVR of 65% or better.

8%

18%

46%

28%

Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09

1,576 1,609

2,113 2,265 2,277 2,358

CCR 7 - 10 CCR 6 CCR 5 CCR 4 CCR 1 - 3

Property Credit quality shows decline in CCR 1-4 with increase in CCR 7-10

(NZ$b)

2009 Full Year Results

Overview of the 2009 result

81

Full Year 2009 ($m)

Growth 2009 vs 2008

Underlying Profit1 3,772 10%

Revenue1 14,367 17%

Expenses1 (6,068) 12%

Provisions1 (3,056) 46%

Statutory Net Profit After Tax 2,943 (11%)

EPS1 168.3 cents (4%)

Full Year Franked Dividend (interim 46cps, final 56cps)

102 cents (25%)

Customer Deposits 233,141 14%

Net Loans and Advances incl. Acceptances 345,769 (1%)

1. All figures other than NPAT and full year dividend are underlying.

Geographic performance - Highlights

82

Australia

● Strong contributions from both Retail and Institutional

Asia Pacific, Europe & America

● Partnerships and the Institutional business the major contributors

New Zealand

● Challenging domestic economic conditions impacted results

Institutional division

● Institutional revenue up 37% driven by both customer flows and trading revenue

1. Asia Pacific, Europe & America. 2. Institutional is a global line of business and is also included within Australia, New Zealand and APEA regions.

Institutional

division

New Zealand

APEA

Australia

1

2,560Up 13%

699 Up 81%

513 Down 32%

1,401Up 82%

Underlying Profit by geography2 ($m)

2

Solid underlying business performance, timing of costs and higher provisions impacting second half

83

Sep 2008 Reported

Non Core Sep 2008 Underlying

NII Other Income

Operating Expenses

Provisions Income Tax, OEI

Sep 2009 Underlying

Non Core Sep 2009 Reported

3,319 3,4263,772

2,943107

1,955 117 (662)(966)

(98) (829)

Group Underlying Profit FY09 vs FY08 ($m)

Mar 09 reported

Non Core

Mar 09 underlying

NII Other income

Operating expenses

Provisions Income tax &

minorities

Sep 09 underlying

Non core Sep 09 reported

1,417 491 1,908 3% 5% 6% 13% (5%) 1,864 (338) 1,526

Group Underlying Profit 2H09 vs 1H09 ($m)

Underlying profit up 10%

17% 12% 46% 7%

2H09 1H09 FY09 FY08YOY

Growth

Profit ($m) 1,526 1,417 2,943 3,319 (11%)

Adjustments to Statutory Profit

- Top up of NZ conduits tax provision (196) - (196) -

- Economic Hedging – fair value gains/losses (709) 461 (248) 243

- Other 2 2 4 47

Cash Profit 2,429 954 3,383 3,029 12%

Other Non Core Items

- One ANZ restructure (4) (79) (83) -

- ING New Zealand settlement (24) (97) (121) -

- Credit Intermediation Trades 595 (664) (69) (371)

- Non Continuing businesses / Other (2) (114) (116) (26)

Underlying Profit 1,864 1,908 3,772 3,426 10%

Statutory profit reconciliation

84

Both impacted by credit spreads

New Zealand

APEA

Australia

1,115up 70%

1,456up 5%

5,728up 18%

New Zealand

APEA

Australia 2,560Up 13%

699up 81%

513down 34%

Geographic businesses delivering solid performance in Australia and significant growth in Asia Pacific, NZ impacted by difficult conditions

85

2009 Pre Provisions Profit ($m) 2009 Net Profit After Tax ($m)

1. Asia Pacific, Europe & America. 2. New Zealand 2009 PBP NZD 1,783m; 2H09 vs 1H09 PBP down 20%.3. New Zealand 2009 NPAT NZD 628m; 2H09 vs 1H09 NPAT down 73%

1 1 2008 profit

2009 increase

2009 decrease

2H09 Performance (vs 1H09)

2H09 Pre Provision profit

2H09 NPAT

Australia 17% 36%

APEA 25% 31%

New Zealand 23% 75%

2 3

68%

18%14%

69%

21%10%


Global Markets and Asia Pacific key contributors to increase in total income

86

Total Income ($m) Markets Income (including NII) ($m)

1H07 2H07 1H08 2H08 1H09 2H09

414 442581 660

1,066 1,125

Markets sales Markets trading

1H08 2H08 1H09 2H09

4,329 4,544

1,6451,658

1,0661,125

Net Interest (ex Markets)Other Income (ex Markets)Markets income

5,9806,315

7,0407,32712,295

14,36717%

Growth in Asia offsetting lower New Zealand income (Total income %)

2008 2009

46% of FY09 growth

FY09 growth: 77%

Excluding markets FY09 up 10%

Asia Partnerships a key contributor to growth in other income

-500

0

500

1000

1500

2000

2500

1H08 2H08 1H09 2H09

Fee income FX earnings

Trading securities Other

FX Impact

87

Underlying other income ($m) Composition of “Other”

4,5574,440

2,3392,2182,2412,199

0

50

100

150

200

250

300

350

1H08 2H08 1H09 2H09

Asia Partnerships

INGA / NZ

Other

$m$m

Flat growth 2009 vs2008

71% increase 2009 vs2008

Refer Markets comments

200.9

213.2

229.5

12.33.5 (12.2)

(27.9)

44.8

5.0 4.5 (1.4)

222.3 216.4 5.9 5.6 8.4 4.2 (3.7) 236.8

Second Half 2009

Margins moving back to pre crisis levels

100

120

140

160

180

200

220

240

260

280

2H06 2H07 2H08 2H09Group NIM

Group risk adjusted NIM

Basis points

88

Net Interest Margin (NIM) Full Year 2009 (bp)

NIM excluding “Accounting noise”

2008

Accounting n

ois

e

Asset

& fundin

g m

ix

2008 adjusted

Fundin

g c

osts

Deposits

Assets

Mark

ets

Oth

er

2009Re-pricing impacts

16bp

Equity M

ix

Strong deposit growth and subdued lending position a result of environmental drivers, strategic and portfolio initiatives

89

1. Includes Institutional APEA under Matrix reporting

Average Net Loans

up 9%

(18%)

23%

(11%)

35%

(1%)

1%

7%

16%

(1%)

14%

Customer deposit and lending growth (2009 vs 2008) (%)

0

10

20

30

40

50

60

70

80

90

1H07 2H07 1H08 2H08 1H09 2H09

58.1

66.1

80.685.8 85.1

70.4

Th

ou

san

ds

Institutional Lending growth returning to more normalised levels

(NLA incl Acceptances $b)

TotalGroup

AustraliaDivision

NZ Division

(NZD)

APEADivision

1

GlobalInstit.

Net Loans and Advances including acceptances

Customer Deposits

$b29% CAGR

8% CAGR

Revenue growth

Cost growth

“Jaws”

32% 30% 2%

29% 20% 9%

9% 4% 5%

- +$71m -

(4%) 2% (6%)

Expense growth directed to growth markets and to drive superior returns, costs contained in New Zealand and Australia division

1. Asia Pacific, Europe & America, including Institutional. 2. Excluding Asia Pacific, Europe & America.

1.3%0.3%

1.3%

2.1%

3.5%

3.8%

Contribution to 2009 cost growth

APEA1

Institutional2

Australia Division

Group Centre

FX Impact

NZ Division

12.3%

Investment in network, support functions

and staff to deliver growth agenda

2H09 expense growth exceeded first half, impacted by timing of performance based payments

Investment in “rebuild and refocus”

program, remuneration increases

Front line staff and systems, salary inflation

Costs well contained

Infrastructure & transformation spending

FX Adjusted

FX Adjusted

FX Adjusted

90

1H07 2H07 1H08 2H08 1H09 2H09

1,072 981

241 486

122

154


Provision charge composition changing with the credit cycle -moved towards middle market, significant increase in New Zealand

1H07 2H07 1H08 2H08 1H09 2H09

330

103

653

460

201

290

142

187

205

243

Wholesale > 100m

Wholesale < 100m

Commercial

Consumer secured

Consumer unsecured

91

Total Provision Charge ($m) Individual Provision Charge ($m)

1,283

1,531

894

378

267172

77% 119% 88% 5% 13%

1,621

1,4351,364

726

331

187

FY06 FY07 FY08 FY09

Lending Growth Risk Profile

Portfolio Mix Other

Economic Cycle Concentration

No net release from

Concentration /Economic Cycle

provisions across year

Collective Provision Balance / Credit RWAs (%)


0.73%

0.94%

1.13%1.06%

1.31%


0.83% 1.07% 1.39% 1.58% 1.97%

Total Provision Coverage

Total Provision Balance / Credit RWAs

Balance sheet well positioned for the current economic environment

92

Collective Provision Charge returning towards a more normalised level ($m)

83

818

242

69

The material in this presentation is general background information about the Bank‟s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to

investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate

This presentation may contain forward-looking statements including statements regarding our intent, belief or current expectations with respect to ANZ‟s business and operations, market conditions, results of operations and financial condition, capital adequacy,

specific provisions and risk management practices. When used in this presentation, the words “estimate”, “project”, “intend”,“anticipate”, “believe”, “expect”, “should” and similar expressions, as they relate to ANZ and its management, are intended to identify

forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Such statements constitute “forward-looking statements” for the purposes of the United States Private

Securities Litigation Reform Act of 1995. ANZ does not undertake any obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof to reflect the occurrence of unanticipated events.

For further information visit

www.anz.com

or contact

Jill Craig, GGM Investor Relations,

ph: (613) 9273 4185 fax: (613) 9273 4899 e-mail: [email protected]

Disclaimer

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