1. Guy Hargreaves ACF-104 Wechat: Guyhargreaves

3. Goals of this section Understand various components of an Australian commercial banking business Review of important functions of a commercial bank including liquidity, capital, margins, revenues, strategy by studying ANZ Form a sound understanding between the theory of banking and practice by studying ANZ bank case 3

4. Top 20 global bank by market capitalisation One of four major banks in Australia Good commercial bank to study ANZ Banking Group 4

5. Areas covered so far 5 Capital allocation: sustainability Commercial banks are interested in: Group, financial, treasury, risk, strategy, mortgages, portfolio Strategy: global, regional, local, technology Risk: diversified income, asset portfolio, provisions, impairments, FX exposures, Cost/Income, KYC, liquidity Financial: NPAT, ROE, RoRWA, NIM, X-sell, Regulatory: CET1, RoRWA, LCR

6. Wholesale Asia strategy 6

7. Asia wholesale is diversified ANZ wholesale bank’s Asia portfolio very well diversified across countries China, Singapore, Japan, Hong Kong biggest exposures In another 5-10 countries as well Good management of Country Risk 7

8. ANZ in China 8

9. Markets revenue customer driven Dodd Frank rules move financial markets towards customers and away from trading Customer revenues not reliant on market volatility Income variability lower when customer driven 9

10. Diversified markets income Financial markets income diversified across products: FX Rates Capital Markets Commodities Other 10

11. Market risk carefully managed Balance sheet usage low Market VAR $150-200k Low revenue volatility 11

12. Cost management 12

13. Continual investment Investing in: Risk management Security Operational risk Front office products Front office infrastructure 13

14. Provisions: collective and individual 14

15. Historical losses lag corp leverage 15

16. Truly diversified portfolio 16

17. Diversified agri portfolio 17

18. Mortgage data – important! Mortgages are THE core product of retail banks ANZ’s mortgage business is very healthy 60% of all Australian lending is mortgages LVR: Loan to Value Ratio ie the amount of mortgage outstanding / value of the property secured under the mortgage Average mortgage size AUD 376,000 18

19. Mortgage risk - low 45% of ANZ’s mortgage portfolio is secured by property at LVR < 60% Some mortgage LVRs 95%+ which is a bit risky usually requires a mortgage insurance policy 19

20. Mortgage losses very low For Australian mortgages ANZ losses (ie provisions that have turned into actual losses) 0.01% If mortgage NIM is 2% then losing 0.01% is very acceptable Losses are low because mortgages are secured by property at LVR of 60%-90% mainly If borrower defaults bank can sell the property and usually recover all loan payments due ie recovery of 100% 20

21. Why low mortgage losses? 21

22. Prudent lending processes ANZ has very strong and prudent mortgage lending practices From pre-application to fulfillment (paying out the loan money) the system checks and assesses all risks carefully Credit assessment very important 22

23. What more have we covered today Risk: Asia strategy, portfolio diversification Financial markets: customer focus, risk management, diversification of income, cost management Balance sheet management: diversification Mortgages: risk management, strategy, diversification 23

24. Good commercial banking Good commercial banking requires sound management practices Diversity: risk, income, geographies, business lines and products Financial: focus on NIM, NPAT, regulatory capital, provisions (risk management), costs Strategy: invest in technology, focus on strengths, understand your business, enter/exit business prudently Good banking = healthy banking system = healthy financial system able to withstand crises/shocks 24