1. Win-Win situations: Responsible Lending at ANZ Jenny Fagg Managing Director Consumer Finance National Consumer Congress 14 March 2007

2. 2 The industry needs to take a lead on responsibility Banks are seen to be contributing to escalation of household debt Credit Cards – expectation to control unsolicited offers Rising interest rates, household debt, petrol prices and bankruptcy increase heat Failure to act = lose-lose: –consumers in difficulty remain trapped –credit providers no better equipped –further regulation

3. 3 Responsible lending is part of ANZs broader framework These proactive steps can assist with long-term strategic issues: A more informed market place lessens market failures which prompt regulation Empowered and confident consumers more deeply engage with financial institutions Rebuilding our reputation Responsible Lending Better credit assessment Better at identifying and assisting customers in difficulty Giving customers tools to manage money better Financial Literacy and Inclusion Leading research Innovative Programs Customer Charter Public benchmark for service to our customers

4. 4 The ANZ Customer Charter is our commitment to customers Customer Charter –convenience –service –complaints –simple products –fast account opening –simple and clear communications Results: –ANZ has highest customer satisfaction rating of all major banks –customer complaints have decreased by almost 36% in five years Key features – public, specific, measurable Customer Charter

5. 5 Responsible lending is a key focus Media, political and community focus Credit card debt is a minor contributor to overall debt levels But there are customers at the margins Credit limit increases raised during the Vic Governments review of consumer credit ANZ was the first Australian bank to introduce Responsible Lending commitments as part of its enhanced Customer Charter Responsible lending – To Date

6. 6 Behaviour scoring and other traditional credit practices are effective for managing most customers Key in determining credit limit increases Extremely robust for averages: –Comprehensive historical data –150 behavioural variables –9-12months data, regularly refreshed Prescription of credit assessment techniques will not necessarily lead to better results –Statistically more reliable than manual assessment: e.g. ACT UK Banking Code – best practice means at least two of: –manual assessment –past performance –credit reports –credit scoring Excluding marginal customers is more likely to be effective than increasing disclosure or asking for more details

7. 7 ACTs CLI restrictions started on 25 Nov 2002 Delinquency rates of ANZ credit card customers in ACT and rest of Australia Delinquency rate (indexed) Note: Delinquency rates show the percentage of customers 90 or more days past due in the last 12 months. Data for ACT and Rest of Australia has been indexed to give an average of 100 for 6 months prior to November 2002. Source: ANZ Credit Cards Australia ACT Rest of Australia ACTs credit limit requirements have not worked to reduce defaults

8. 8 Circumstances Out of Individuals Control Unhealthy Financial Ways of Thinking Over-Spending &/ Over- Commitment Decreased Income &/ Increased Expenses Poor Financial Decision-Making ANZ research highlighted financial difficulty (affecting 2%) arises from a combination of factors Of the 2% of borrowers who feel out of control, financial difficulty is most often due to behaviour and traits of the individual or unexpected events (or a combination) Lack of financial skills and knowledge only a small component Lack of skills, knowledge

9. 9 Responsible lending requires increased sensitivity to marginal customers ANZs response guided by this research and stakeholders Lenders can indirectly influence the path to financial difficulty –Customer Limit Increase (CLI) offers provide the opportunity to access credit –it must be OK if the lender sent it to me Stakeholders (especially financial counsellors) have told us people are particularly vulnerable where they do not have the capacity to deal with unexpected financial pressure ie there is no buffer

10. 10 So, we have additional promises and business practices to exclude some customers from limit increases ANZ does: –not offer a CLI to those with poor recent credit performance or struggling to meet repayments (eg. overdue, minimum payments) –not offer a CLI to customers whom we know are on a fixed income (eg. receiving a government benefit into ANZ deposit account, has a deeming account) –with any CLI offer, outline how much the minimum monthly repayment would increase if the offer was accepted

11. 11 These simple but effective steps have brought good results Pool of customers reduced by around 11% Breaking this down: –7% reduction due to exclusion of customers on fixed incomes –2% enhancements to behavioural scoring –2% reduction due to exclusion of customer making late or only minimum payments Performance reported and independently audited Credit assessment is not everything ANZ moving to the next phase: early assistance new product online calculator

12. 12 Early assistance helps customers having difficulty Assistance to customers is often too late Identify those in early difficulty Early assistance could be: –rescheduling repayments –offering repayment holiday –amending payment days –offering external assistance (e.g. financial counsellors) Prevention better than cure Aim: –create the right environment for customers to discuss their situation –build capacity to identify troubled customers early and offer the right assistance Responsible lending – Next phase early assistance

13. 13 Early assistance is good for business and customers Identifying through behaviour Approaching customers: –not debt collection –flexible solutions Win-Win –timely assistance –responsible and responsive –good for business Pilot to begin in April/May

14. 14 New product to assist money management Assisting customers to manage money more effectively ANZ Paydown Plan: –isolate balance –pay down by instalments –credit limit remains same – tool to achieve own repayment goals –incentive to make instalment payments Results so far –high response rate –used by those with low capacity Possible changes to improve new product

15. 15 Online calculator to provide tailored information Tailored information about credit card payments Calculates how long it takes to pay off debt if making minimum repayments More effective than the government-prescribed disclosure, which covers only one scenario Simple to use To be developed March/April online calculator

16. 16 ANZ is committed to financial literacy We continue to invest in community programs and work with community partners aimed at improving the financial literacy of Australians Financial literacy

17. 17 Conclusions Current climate = opportunity for industry Responsible lending is good for business and consumers: –banks more responsive to customer needs –informed customers comfortable approaching their bank about their financial situation –shareholders benefit from reduced bad debts –staff pride in the outcome It is a journey and we look forward to working with you