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Banking and Financial Institutions
Guy HargreavesACF-104
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Recap of yesterdayOverview of structure of different types of
commercial banking enterprisesUnderstand the different departments and
roles of those departments within a typical commercial bank
Overview of units within a typical investment banking business
Theory versus practice: how does a real commercial bank operate in 2015?
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Today’s goalsUnderstand various components of an
Australian commercial banking businessReview 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
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Top 20 global bank by market capitalisation
One of four major banks in Australia
Good commercial bank to study
ANZ Banking Group
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Some ANZ shortcuts:Australia – means retail + small commercial
in AustraliaNew Zealand - means retail + small
commercial in New ZealandAPEA – Asia Pacific Europe Americas (ie all
the rest!)IIB – Institutional Investment Bank ie all
Commercial Wholesale Banking activities including Financial Markets, Corporate Banking etc
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Sustainability important to ANZ
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Elements of good banking
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Global bank, regional strategy
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Diversified income streams
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Diversified balance sheet
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Important numbers for ANZProvisions: write down
of loan value which flows through P&L
PBP: profit before provisions
ROE: return on equityCET1: Common Equity
Tier 1 - % equity versus total assets ie regulatory capital
APRA: ANZ’s banking regulator
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FX matters to resultsRevenue 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 TaxROE: Return on Equity
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Net Interest MarginNIM closely
watchedDifference
between deposit rates and lending rates mainly
NIM defined for: Business Assets Retail Assets Deposits
NIM falling = more competition in market usually
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Cost / Income closely watched
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Return on RWARWA: Risk Weighted AssetsRegulatory 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
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Risk: CreditProvisions 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
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X-Sell is vital in commercial bankingCustomer 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!
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Digital investment criticalFrom 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)
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Many factors impact Wholesale BankingANZ Wholesale Bank was impacted by:
Margins, counterparty credit risk charges (FVA), commodity prices, regulatory costs, trade finance volumes, FX rates etc etc