ANZ to explore IPO as part of strategic options for UDC

ANZ says  it will explore the possibility of an initial public offering (IPO) of
ordinary shares in UDC Finance as part of a range of strategic options for UDC’s future.

A wholly-owned subsidiary of ANZ Bank New Zealand, UDC is New Zealand’s leading asset finance company funding plant equipment, vehicles and machinery.

ANZ New Zealand CEO David Hisco said: “We have been looking at strategic options for UDC’s future for some time as part of ANZ’s strategy to simplify the bank and improve capital efficiency.

“While UDC is continuing to perform well and there is no immediate requirement to make decisions, after last year’s planned sale to HNA did not proceed it makes sense to keep examining a broad range of options for UDC’s future.

“This will include exploring whether, subject to market conditions, an IPO would be in the interests of UDC’s staff and customers, and ANZ shareholders.

“The range of strategic options we have for UDC, including approaches we have received regarding the business and the option of retaining it, will take a number of months to examine before any decision is made. In the meantime, it will continue to be business as usual for UDC,” Mr Hisco said.

ANZ to suspend consumer asset finance in Australia

ANZ has announced it will suspend providing new secured asset finance loans for retail customers in Australia while it undertakes a detailed review of its business.

Consumer asset finance includes loans provided for motor vehicles, boats and caravans for retail customers. The announcement covers both direct and broker originated channels.

ANZ will continue to service its existing consumer asset finance customers and will continue to provide customers with access to personal loans during the suspension.

Its asset finance product for commercial customers is not impacted by this announcement.

ANZ Managing Director Retail Distribution Catriona Noble said: “Given the increased technology costs required to effectively compete in the secured consumer asset finance market, we have decided to suspend all new loans while we conduct a detailed review of the business.

“Our secured consumer asset finance product represents less than one per cent of revenue within our broader Australian business, so we need to assess if it is better for our customers, shareholders and employees if we focus our investment on areas of our business that are core to what we do.

“Providing asset finance solutions for commercial customers remains a core business for ANZ and we will also continue to service existing retail customers for the duration of their loans,” Ms Noble said. The suspension of new loans is effective 30 April 2018. The review is expected to be completed by 30 September 2018.

Best Interest and Brokers – It Could Be Positive – ANZ

From The Adviser.

Applying best interest obligations to brokers could help preserve the integrity of the third-party channel, according to ANZ CEO Shayne Elliott.

In his opening address to the Productivity Commission (PC) on Tuesday, 6 March, Mr Elliott claimed that a “best interest duty” applied to the broking space could enhance consumer protection.

“About half of our mortgages originate from brokers. As such, while we don’t own a broker network, we believe the integrity of the channel is critical,” the CEO said.

“The Productivity Commission has made some recommendations concerning brokers. We see merit in enhancing the consumer protections in this space.

“A best interests duty could support the existing law to promote consumer interests when receiving help from a broker.”

In draft recommendation 8.1 of its report, the PC called for the Australian Securities and Investments Commission (ASIC) to impose a “clear legal duty” on lender-owned aggregators, which should also “apply to mortgage brokers working under them”.

The ANZ CEO told commissioners that despite the absence of a legal duty of care, consumers may be under the impression that such obligations already exist.

Mr Elliott added: “I imagine that a lot of people think that the broker does have a duty of care to them. I imagine that when mums and dads walk into a [brokerage], they assume that is the case.

“You may go as far as to say that they have a best interest duty as well — I don’t know — but I think there is an expectation.

“[I] think FOFA [Future of Financial Advice reforms] and others have probably raised that expectation and say well if that’s the rule for a financial planner, we assume it is for a broker, but I think it’s important to go and ask consumers and their representatives.”

ANZ on fees for service

Further, PC commissioner Peter Harris inquired about the feasibility of a fixed fee model as opposed to a volume-based commission paid to brokers.

“I have the impression that perhaps a fee is a better proposition. The question might be, should it be paid by the consumer, or should it still be paid by the bank?” Mr Harris said.

In response, the ANZ chief said that there is “absolute merit” in exploring such a model, and he pointed to the use of a fixed fee structure in Europe.

“The reality is, today, in an open, highly competitive market, [we have been] taken down a commission-based structure,” Mr Elliott said.

“There’s an understandable logic to that given that there’s an alignment between the commission and the volume obviously driving revenue to the bank.

“I think there’s merit in looking at a fee-based structure. I can’t imagine [that] it would evolve naturally — that would require some intervention. Either as an industry or through regulation would be my guess.”

ANZ on financial planners entering the credit space

The major bank chief also commented on calls from the PC to introduce financial planners into the credit space.

Mr Elliott highlighted the difference between the two services and noted that there are no restrictions on financial planners obtaining a broking license.

“To my knowledge, there’s nothing stopping people from doing that today, so if I have a financial planning license, I can go and get a broking license — there’s nothing prohibiting that, but for some reason, that has not evolved,” the CEO said.

“Our view from experience, and just looking at the products, they are different and our customers think about them in a very different way.

“There’s an old adage: wealth products are sold and mortgages are bought. People think about them very differently; they think about who they go to for that advice.”

Court finds ANZ breached responsible lending laws in its former Esanda car finance business

ASIC says the Federal Court in Melbourne has published its findings and reasons for ordering Australia and New Zealand Banking Group Ltd (ANZ) to pay a penalty of $5 million for breaches of the responsible lending provisions by its former car finance business, Esanda.

The Court’s judgment follows ASIC’s announcement of a package of actions against ANZ for contraventions of various responsible lending provisions of the National Consumer Credit Protection Act (refer: 18-013MR).

In relation to the civil penalty proceedings, the Court found (in summary):

  • in respect of 12 car loan applications from three brokers, ANZ failed to take reasonable steps to verify the income of the consumer because ANZ relied solely on a document which appeared to be the consumer’s payslip in circumstances where ANZ:
    • knew that payslips were a type of document that was easily falsified;
    • received the document from a broker who sent the loan application to Esanda; and
    • had reason to doubt the reliability of information received from that broker;
    • income is one of the most important parts of information about the consumer’s financial situation in the assessment of unsuitability, as it will govern the consumer’s ability to repay the loan;
    • while ANZ did not completely fail to take steps to verify the consumers’ financial situation, it inappropriately relied entirely on payslips received from these brokers; and
    • ANZ management did not ensure that relevant policies were complied with and, in the case of the contraventions involving one broker, no action was taken despite management personnel having become aware of the issues about the broker.

The judgment annexes a statement of facts which sets out why ANZ had reason to doubt the reliability of the payslips being provided with the 12 applications, including that one of the brokers had been previously investigated for fraud. ANZ had also become aware of issues with payslips being provided by the brokers that gave it reason to doubt the authenticity of the submitted payslips.

The statement of facts also sets out that reasonable steps to verify a consumer’s income would have included requesting from the consumer a bank statement showing a history of salary deposits or substantiating salary deposits in ANZ bank accounts for an existing customer.

In its judgment, the Court made clear that where unlicensed brokers submit loan applications in reliance on the “point of sale” exemption under regulation 23 of the National Consumer Credit Protection Regulations 2010 (Cth), lenders have a heightened obligation to exercise particular care. This was the basis for the higher penalties imposed on ANZ relating to the loans submitted by one of the brokers under the point of sale exemption.

ASIC Deputy Chairman Peter Kell said, ‘A consumer’s income is an essential component in determining their ability to repay a loan. Lenders must take reasonable steps to verify a consumer’s financial situation, and this includes checking the reliability of documentation that is provided to them. Lenders must be alert to the potential for documents to be falsified and ensure that their controls are sufficiently robust.  ‘


ANZ will be remediating approximately 320 car loan customers for loans taken out through the three broker businesses from 2013 to 2015 which are likely to have been affected by fraud. The remediation will total around $5 million.

ANZ will:

    • offer eligible customers the option of entering into a new loan on more favourable terms than the existing loan;
    • provide refunds to some customers who have paid their loan out or had the car repossessed; and
  • remove any default listings resulting from the loan.

Fitch Affirms Australia’s Four Major Banks

Fitch Ratings has affirmed the ratings of Australia’s four major banking groups: Australia and New Zealand Banking Group Limited (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank Limited (NAB) and Westpac Banking Corporation (WBC). The Outlook on each bank’s Long-Term Issuer Default Rating (IDR) is Stable.

The rating review focuses on the Australian-domiciled entities within each group and therefore does not encompass their overseas subsidiaries.


The Long- and Short-Term IDRs and Stable Outlook on all four banks are driven by their Viability Ratings and reflect their dominant franchises in Australia and New Zealand as well as robust regulatory frameworks. Stable, transparent and traditional business models have proven effective in generating consistently strong profitability, while the banks maintained a conservative risk appetite relative to many international peers. High exposure to a heavily indebted household sector and increased focus on conduct related issues from authorities offset some of these strengths.

Australia’s banking regulator has been critical in helping the banking system manage rising macroeconomic risks – including historically high household debt and house prices, low interest rates and subdued wage inflation – through strengthening underwriting standards and increasing capital requirements. This has contributed to improving the banks’ ability to withstand a severe downturn in the housing market and household sector should it occur.

However, a severe downturn is not Fitch’s base case. We expect Australian house prices to remain high relative to international markets, with modest price rises in 2018. Overall, property prices should be supported by low interest rates and population growth. Offsetting this is high household debt, falling rental yields, increasing supply and rising dwelling completions.

Household debt could increase further, driven by historically low interest rates and high house prices, as residential mortgages make up almost 70% of household debt. Household debt reached 188% of disposable income at end-September 2017. Combined with low wage growth and high underemployment, this leaves households increasingly susceptible to higher interest rates and deteriorating labour market conditions.

The four major banks dominate their home markets. Their combined loans accounted for 80% of Australia’s total loans at end-December 2017 and 87% of New Zealand’s gross loans at end-September 2017. The banks have simplified their businesses and footprints with a strong focus on their core banking operations in Australia and New Zealand, or are in the process of doing so. They have well established and long standing competitive advantages and strong pricing power – manifested in strong earnings, profitability and balance sheets – which is likely to be maintained over the next two to three years.

The increased focus on conduct and competition by authorities has resulted in the establishment of a number of inquiries, the outcomes of which are uncertain. This could limit the banks’ growth potential and pricing power, pressuring the banks’ company profiles and ultimately affecting their ratings, although any significant impact appears unlikely to arise within the next two years.

Conduct related issues may also negatively affect our view of risk appetite and ratings if they indicate widespread failing within a bank’s risk-management framework. All four banks have faced a number of conduct related issues in the previous few years, although we continue to see these as isolated cases and believe risk-management frameworks remain robust. CBA has faced particular scrutiny following the August 2017 announcement of failures related to its anti-money laundering and counter-terrorism financing requirements. This, combined with a number of other infractions, prompted a regulatory inquiry into CBA’s governance, culture and accountability. Findings of systemic failure by this inquiry could pressure CBA’s ratings.

Disruptors, particularly in the digital sphere, are increasing in prominence, although they remain a small part of the system. The disruptors also pose some longer-term risks to the franchises of the major banks, although management appears to be addressing this pro-actively with strong IT investments, which we expect to continue.

Fitch expects the banks’ credit risk appetite to remain tight. We believe the banks have robust risk management frameworks. Regulatory intervention and oversight provide an additional restriction on the banks’ ability to take larger risks by weakening underwriting standards. Fitch expects additional regulatory scrutiny on serviceability testing in 2018, particularly around the assessment of borrowers’ expenses, which should further strengthen underwriting. Limits on growth rates for investor and interest-only loans has seen the pace of growth in these products slow; we see these as riskier types of mortgages relative to amortising owner-occupier mortgages. The growth rates of these products could be further curtailed by proposals by the regulator to have them carry higher risk-weights than amortising owner-occupier loans.

We believe the banks’ asset quality is likely to remain a strength relative to similarly rated international peers, although some weakening is possible through 2018. Large losses are not probable without an economic shock, such as may occur if there was a sharper-than-expected slowdown in China. Industries, such as retail, may come under pressure from soft consumer spending due to low wage growth, high household debt and competition from online retailers. However, given the banks’ limited exposure to the retail sector, our base case means any deterioration should be manageable.

Fitch believes the Australian major banks are well-capitalised and will meet Australian Prudential Regulation Authority requirements for “unquestionably strong” capital ratios well ahead of the proposed deadline. Implementation of the final Basel III framework should not be onerous either. Comparisons of risk-weighted ratios with international peers are difficult due to the Australian regulator’s tougher capital standards relative to many other jurisdictions. These include, among other factors, higher minimum risk-weightings for residential mortgages through Pillar 1 and larger capital deductions.

Funding remains a weakness relative to similarly rated international peers. Fitch expects the banks to continue relying on wholesale markets in the medium-term, although strengthened liquidity positions and swapping borrowings into the functional currency – usually either Australian or New Zealand dollars – help offset some of this risk. The banks’ funding profiles are also supported by access to contingent liquidity through the central bank, if needed, and the likelihood that they would benefit from a flight to quality in a stress environment.

Profitability growth is likely to slow in 2018, reflecting Fitch’s expectations for slower asset growth, competition for assets and deposits, higher funding costs and a rise in loan-impairment charges from cyclical lows. Cost management will remain a focus, but could be affected by continued technology investment and regulatory-related costs.

Why More Lending Curbs Are Still Likely

There is a rising chorus demanding that APRA loosen their rules for mortgage lending in the face of slipping home prices. This despite the RBA’s recent comments about the risks in the system, especially relating to investor and interest only loans.  But this is unlikely, and in fact more tightening, either by a rate rise, or macroprudential will be needed to contain the risks in the system. The latter is more likely.

Some of this will come from the lenders directly. For example, last week ANZ said it will be regarding all interest-only loan renewals as credit critical event requiring full income verification from 5 March. If loans failed this assessment these loans would revert to P&I loans (with of course higher repayment terms).  We are already seeing a number of forced switches, or forced sales thanks to the tighter IO rules more generally. This is just the start. More than $60 billion of IO loans are outside current underwriting standards on our estimates.

But, as ANZ has pointed out in a separate note from David Plank, Head of Australian Economics at ANZ; household leverage is still increasing, this despite a moderation in housing credit growth over the past year. Household debt continues to grow faster than disposable income.

With household debt being close to double disposable income it will actually require the growth in household debt to slow well below that of income in order for the ratio of household debt to income to stabilise, let alone fall.

In fact, he questions whether financial stability has really being improved so far, when interest rates are so very low.

A key concern we have with the RBA’s comfort with recent household debt trends is whether the slowdown in household debt growth is likely to be sustained with interest rates so low.

Our analysis on the debt/income gap suggests that the RBA’s comfort with how things are evolving on the debt front may be misplaced.

The first sign of this will be clear evidence of recovery in house prices, possibly already underway, which will likely be followed by a reacceleration in debt growth.

If things develop in this fashion it will be interesting to see whether the RBA maintains its focus on clear progress toward the mid-point of the inflation target range as the key to the setting of interest rates.

We suspect that the first port of call to any signs of a reacceleration in household debt will be additional macro-prudential policy…

In other words expect more tightening before the cash rate goes up.


ANZ partners with Data Republic to speed up innovation

ANZ has announced a strategic investment and partnership with local start-up Data Republic to speed up innovation through secure data-sharing environments.

The partnership will provide ANZ access to the Data Republic platform, which delivers a ‘data sharing control centre’ for organisations to store, categorise and share data while maintaining strict governance and auditing frameworks. ANZ will be able to use the platform to share data with trusted third parties in a secure and well-governed environment.

Announcing the partnership, ANZ Chief Data Officer Emma Gray said:

“Using data analytics and insights to deliver better customer outcomes more often is an essential part of how we need to operate in the digital economy.

“This partnership allows us to get more out of the data we already have, but in a safe and secure environment that provides the highest levels of governance.

“Through the cloud-based platform we will now be able to access trusted experts and other partners to develop useful insights for our customers in hours rather than months,” Ms Gray said.

Data Republic CEO Paul McCarney said: “We are very excited to welcome ANZ as both a strategic investor and technology client.

“ANZ clearly understand the importance of secured data sharing practices in today’s data-driven economy.

“This partnership is about ANZ investing in the right technology to future-proof their data collaboration capabilities and will ultimately position ANZ to overcome many of the challenges and potential risks associated with open data, data sharing and the Federal Government’s recently announced Open Banking reforms.”

ANZ will start using the Data Republic platform from late March to develop greater customer insights and a series of operational improvements.

ANZ Capital Update 1Q18

ANZ Banking Group released their 1Q update today.  Overall capital ratios are up, with their Common Equity Tier 1 (CET1) ratio at 10.82% at Dec-17, 25bp increase from Sep-17. Dec-17. CET1 ratio includes the proceeds of the sale of Shanghai Rural Commercial Bank stake and a small benefit from the sale of the Asian retail and wealth businesses (Taiwan & Vietnam settlements in the December quarter).

Funding and liquidity position remains strong with LCR 131% (Dec-17
quarter avg) and NSFR 114% (as at 31-Dec-17).
Total Risk Weighted Assets (RWA) increased $2.4b, including a $2.3b increase in Credit RWA, with growth in Residential Mortgages, Corporate and Bank Pillar 3 categories.

Home lending portfolio grew at 1.2 times system in the December quarter, with Owner Occupied growth of 10% annualised (1.4 times system), Investor growth of 2% annualised.Interest only new business in the December quarter (1Q18) represented 14.3% of total new business flows. $5.7b of interest only loans switched to principal and interest in 1Q18, compared with $9.5b in 4Q17 and $4.3b per quarter on average across 1Q17 to 3Q17.Total provision charge of $202m in 1Q18 with individual provision charge of $220m.

Residential Mortgage 90+ day past due loans (as a % of Residential Mortgage EAD) increased by 1bp.

ANZ comments on APRA capital discussion paper

ANZ today noted the release of the Australian Prudential Regulation Authority’s (APRA) discussion paper on revisions to capital requirements and confirmed ANZ’s APRA CET1 position of 10.8% as at December 2017 is already in compliance with APRA’s existing Unquestionably Strong requirements.

The paper outlines proposed changes to the capital framework following the finalisation of the Basel III reforms in December 2017 and changes to its risk framework, with APRA’s implementation timetable extending to 2021.

ANZ will continue to consult with APRA to fully understand the impact of the proposed changes. APRA has confirmed that if the proposed changes result in an overall increase in risk weighted assets, it will reduce the capital ratio benchmark of 10.5% flagged in July 2017.

ANZ’s current capital ratio of 10.8% includes the proceeds of the sale of Shanghai Rural Commercial Bank and a small benefit of the sale of its Asian retail and wealth businesses. Further benefits will be achieved following completion of other asset sales, including the sale of the Australian wealth businesses.

APRA has also proposed a minimum leverage ratio requirement of 4% for Internal Ratings-Based (IRB) banks and changes to the leverage ratio exposure measure calculations for implementation by 1 July 2019. ANZ’s leverage ratio at December 2017 is 5.5%.

ANZ’s previously announced buy-back up to $1.5 billion of shares on-market relating to the sale of ANZ’s 20% stake in Shanghai Rural Commercial Bank remains ongoing.

ANZ Chief Financial Officer Michelle Jablko said: “The divestment of non-core businesses should continue to provide ANZ with the flexibility to consider further capital management initiatives in the future. Further initiatives will be considered once we receive the proceeds of our announced sales and will remain subject to business conditions and regulatory approval.”

ANZ refunds $10 million for failing to disclose credit card charges

ASIC says the ANZ bank will refund $10.2 million to 52,135 business credit card accounts, after it failed to properly disclose fees and interest charges for the product.

ANZ reported to ASIC that for some of their ‘Business One’ business credit card customers they either failed to disclose, or incorrectly disclosed (in some cases from as early as 2009):

  • Applicable interest rates
  • The interest-free period
  • The annual fee
  • When an overseas transaction fee might apply
  • The amount payable for overseas transactions with foreign merchants or financial institutions.

ANZ has contacted eligible customers to advise they will receive a refund with interest.  Former customers will receive a bank cheque and current customers with an open account will receive a refund paid into their account.

ANZ has since updated its procedures and fee information for Business One.

Customers with queries or concerns about this matter should contact ANZ on 1800 032 481.


No consumer credit card accounts have been impacted by this matter.

Many of the ‘Business One’ credit card customers were small businesses. In 2017 ASIC launched a small business strategy to assist, engage and protect small businesses.

ASIC acknowledges the cooperative approach taken by ANZ in its handling and reporting of this matter.