Case Study

CAPITAL MANAGEMENT

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Capital Management: Key Learnings

1. Regulation improves Bank safety but is costly and can reduce returns.

2. Funding is more easily accessible for banks which generate appropriate returns on shareholder funds.

3. Capital intensities vary by product (and perceived risk). Banks should optimise returns for capital deployed on their products.

Bank Regulation

17 July 2018

The Sydney Morning Herald

Overview of bank regulation

Capital & “Unquestionably Strong”

18 July 2018

The Sydney Morning Herald

Increasing capital – impact on returns

Capital Management

30 October 2018

Michelle Jablko – ANZ CFO

Risk Adjusted Returns and Capital

Shareholders’ Equity

Australian banks have had to raise significant amounts of capital

(AUD bn)

Common Equity Tier 1 Ratios

Capital ratios are increasing to achieve APRA’s “unquestionably strong” 10.5% ratio

Shareholders’ Equity : Assets Ratio

Whilst banks are deleveraging in relative terms, they are still highly leveraged

Return on Equity(%)

Higher capital levels are a major driver of declining ROE

Capital Management: Key Learnings

1. Regulation improves Bank safety but is costly and can reduce returns.

2. Funding is more easily accessible for banks which generate appropriate returns on shareholder funds.

3. Capital intensities vary by product (and perceived risk). Banks should optimise returns for capital deployed on their products.