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Fundamental View
AS OF 22 Dec 2023- ANZ (Aa3/AA-/A+) has the leading corporate banking franchise in Australia and New Zealand, and is the largest bank in New Zealand. It has a relatively small share of the Australian domestic retail market (and so it is acquiring Suncorp). Its Asia-focused regional business suffered from weak returns post-GFC but, after restructuring, has achieved better results.
- Its core institutional business continues to do well, capital levels are comfortable, as are asset quality metrics with good collective provisioning.
Business Description
AS OF 22 Dec 2023- ANZ is a Melbourne-based bank with a history dating back to the early 19th century. Historically, its strength has been in corporate banking. It is the largest bank in New Zealand and was previously active in Asia but cut back, pulling out of India in the 1990s. It subsequently built up minority stakes in Indonesia (Panin, 39%), Malaysia (AMMB 24%) and China (Bank of Tianjin 12%), all of which it is trying to sell. After the crisis it acquired banking operations from RBS in several Asian countries including Hong Kong, Singapore, Taiwan, Philippines and Indonesia, much of which it subsequently sold to DBS.
- Its broader strategy is to shift capital allocations away from institutional towards retail and commercial in Australia where its market share is relatively small. To grow its mortgage marketshare, it announced the acquisition of Suncorp's banking business in Jul-22; final approval for the deal is expected in early 2024.
Risk & Catalysts
AS OF 22 Dec 2023- The limited impact of COVID-19 on the Australian economy has seen ANZ able to reverse provisions with little sign of credit risk deterioration. It is well positioned for a housing market downturn with collective provisions of ~70 bp.
- ANZ has a relatively small share of the Australian domestic retail market, but it aims to increase market share through the acquisition of Suncorp Bank (final authority approval/rejection will come through in early 2024).
- ANZ’s large presence in New Zealand makes it more exposed to that economy, but there has been no negative impact so far, nor is one anticipated.
Key Metrics
AS OF 26 Dec 2023AUD mn | Y19 | Y20 | Y21 | Y22 | Y23 |
---|---|---|---|---|---|
Return on Equity | 10.8% | 6.2% | 9.9% | 10.1% | 10.9% |
Total Revenues Margin | 2.0% | 1.8% | 1.7% | 1.8% | 1.9% |
Cost/Income | 47.7% | 52.9% | 51.9% | 51.6% | 48.5% |
CET1 Ratio (APRA) | 11.4% | 11.3% | 12.3% | 12.3% | 13.3% |
CET1 Ratio (International) | 16.4% | 16.7% | 18.3% | 19.2% | 19.2% |
APRA Leverage Ratio | 5.6% | 5.4% | 5.5% | 5.4% | 5.4% |
Liquidity Coverage Ratio | 143% | 139% | 136% | 129% | 132% |
Gross Impaired Loans/Gross Loans | 0.3% | 0.4% | 0.3% | 0.2% | 0.2% |
CreditSights View
AS OF 08 Jan 2024ANZ has a relatively small share of the Australian domestic retail market, which it has overhauled and aims to improve through the acquisition of Suncorp Bank (approval for the merger is before a tribunal), but it is the largest bank in New Zealand and is the leading corporate bank in both countries; both divisions are performing well, as is a new commercial division. The bank’s recent focus has been on a new retail app, an improved payments business, and sustainable finance. The NIM hit a bottom in 1H22, improved, and is on its way down again. Asset quality is strong, with ~57 bp of collective provisions. Pro-forma for the Suncorp acquisition, its CET1 ratio is ~12.1%. We see better value in its Tier 2 and its sole $ AT1. We do not see call risk with the Australian bank majors.
Recommendation Reviewed: January 08, 2024
Recommendation Changed: October 05, 2016
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