1. Guy Hargreaves ACF-104

2. Recap of yesterday Overview of structure of different types of commercial banking enterprises Understand the different departments and roles of those departments within a typical commercial bank Overview of units within a typical investment banking business 2

4. Today’s goals 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 4

5. Top 20 global bank by market capitalisation One of four major banks in Australia Good commercial bank to study ANZ Banking Group 5

6. Some ANZ shortcuts: 6 Australia – means retail + small commercial in Australia New Zealand - means retail + small commercial in New Zealand APEA – Asia Pacific Europe Americas (ie all the rest!) IIB – Institutional Investment Bank ie all Commercial Wholesale Banking activities including Financial Markets, Corporate Banking etc

7. Sustainability important to ANZ 7

8. Elements of good banking 8

9. Global bank, regional strategy 9

10. Diversified income streams 10

11. Diversified balance sheet 11

12. Important numbers for ANZ 12 Provisions: write down of loan value which flows through P&L PBP: profit before provisions ROE: return on equity CET1: Common Equity Tier 1 - % equity versus total assets ie regulatory capital APRA: ANZ’s banking regulator

13. FX matters to results 13 Revenue generated in multiple currencies ie AUD, NZD, USD, GBP etc When revenue generated in non- AUD then AUD FX rate important If AUD FX rates held constant over the six months Revenue growth would have been 5.3% NPAT: Net Profit after Tax ROE: Return on Equity

14. Net Interest Margin NIM closely watched Difference between deposit rates and lending rates mainly NIM defined for: Business Assets Retail Assets Deposits NIM falling = more competition in market usually 14

15. Cost / Income closely watched 15

16. Return on RWA RWA: Risk Weighted Assets Regulatory Capital = RWA * BIS III % ratios BIS III % ratios set by Basel committees and managed by Bank Regulators Return on RWA = NPAT/RWA Gives properly adjusted sense of banks net earning margins adjusted for risk 16

17. Risk: Credit Provisions are losses expected to be made on defaulted or near defaulted loans Impaired Assets are financial assets that are under significant risk of having provisions made against them ANZ’s impairment trend is positive ie problem customers are being worked out of the bank 17

18. X-Sell is vital in commercial banking Customer acquisition costs are mostly fixed (not variable) Once a Customer has passed KYC (Know your Customer) rules then an account can be established Once an account is established ANZ wants to not just sell one product to the customer, but two or three or five! 18

19. Digital investment critical From zero in 2012 ANZ has grown mobile banking revenue massively Fending off the challenge from Silicon Valley which is using technology aggressively to poach bank customers Commercial banks MUST invest in FINTECH or risk being left behind like the old taxi industry (UBER) 19

20. Many factors impact Wholesale Banking ANZ Wholesale Bank was impacted by: Margins, counterparty credit risk charges (FVA), commodity prices, regulatory costs, trade finance volumes, FX rates etc etc 20