Case Study

ASSET QUALITY & LOSSES

Asset Quality:
Key Learnings

• Stricter lending criteria can reduce losses but can limit growth

• Changes to risk settings take time to transform the customer base

• Better quality loans can provide a release of capital

• Risk should be priced appropriately using a “through the cycle” view

Asset Quality Matters

24 April 2012

Brian Johnson, Jeffries

Asset Quality Impacts On Profits

Drivers of Losses

30 October 2018

Shayne Elliott – ANZ CEO

Drivers Of Bank Losses

Historical Context: Losses

September 2016

Platinum Asset Managers

Australian Bank Losses – Historical Context

Profits Highly Sensitive To Losses

Assume a Bank comparable to CBA / Westpac…

Bps = basis point

Australian Bank Losses (%*)

Losses can be very volatile

*Losses as % of Gross Loans

Australian Bank Losses ($m)​

5 Years Pre-Crisis vs. 5 Years Post-Crisis

Losses can easily destroy billions in shareholder value

Summary

• Stricter lending criteria can reduce losses but can limit growth

• Changes to risk settings take time to transform the customer base

• Better quality loans can provide a release of capital

• Risk should be priced appropriately using a “through the cycle” view