ANZ 2025 Half Year Results – Chief Financial Officer Farhan Faruqui Speaking Notes

Thank you Shayne, and good morning everyone

We have continued to execute well as evidenced by strong revenue and cash profit growth at 5 per cent and 12 per cent respectively.

This reflects our focus on cost discipline, risk management, return-accretive growth and ensuring a robust capital and balance sheet position.

Importantly, you can see the ongoing benefits to our shareholders of a well performing, diversified portfolio in this result. In this half we have delivered:

• Our highest Cash Earnings per Share since the First Half of Financial Year 2023, up 13 per cent and RoE up by almost 100 basis points to 10.2 per cent
• Continuous improvements in capital efficiency, with risk intensity declining 1 per cent, and
• Consistent growth in NTA per share over the last decade, up a further 54 cents in the half. 

First half 2025 financial performance

At our FY24 results we framed our discussion around our two main businesses – Banking and Markets.

I’ll use that framework again today as it aligns with how we think about the Group. In the Half, both the Banking and Markets businesses grew across all key metrics – Revenue, Profit Before Provisions, Cash Profit, and Return on Equity.

Our Banking Business delivered a 5 per cent increase in revenue and maintained a Return on Equity of 14 per cent, despite lower seasonal fee income in the Australia Retail Division.

Our Markets Business achieved a third consecutive first half income greater than   $1 billion and we saw increased levels of customer activity post the US elections.

In addition, we operate a Group Centre which manages shared services and centrally held capital. We have continued to deliver further efficiencies, generating an improvement in PBP and NPAT in the Half.

Our businesses collectively generated $11 billion in income, marking the highest income for the Group in a single half-year period.

This result highlights both the strength of our franchise and the step change in our earnings and balance sheet from the first full half of Suncorp Bank’s earnings contribution.

Purchase price adjustments 

Before I move to our banking business performance, I’ll quickly draw your attention to some Suncorp Bank Purchase Price allocation adjustments which are covered on page 8 of our First Half Consolidated Financial Report.

In line with accounting standards, we are required to recognise a number of acquisition related adjustments with a corresponding reduction to goodwill.  These adjustments are then unwound to the P&L over time. 

Accounting adjustments of this type are customary in Bank M&A transactions. They were not material to the Group Result in the half.

Banking performance

Turning to our banking performance in more detail.

Macro factors, such as cash rate reductions and higher funding costs, together with seasonal impacts, drove around $200 million in headwinds in the half.

Against that backdrop we grew revenue 5 per cent through a combination of:

• Balance sheet growth across all divisions
• Revenue growth across Australia, New Zealand and International
• Capital held for Suncorp Bank being deployed into the business for a full half, and
• Continued improvement in Risk Adjusted Margins.

In additional to revenue growth our strong cost and capital management allowed us to deliver a stable Banking RoE at 14 per cent.

I’d particularly like to highlight some consistent Divisional RoE outcomes. Institutional and Commercial RoE at 13 per cent and 25 per cent respectively. Within our Institutional Division, our International Business delivered a 16 per cent RoE and pleasingly despite multiple cash rate reductions the New Zealand Division continued to deliver stable returns.

Net interest margins 

Moving to NIM.

Headline NIM reduced by 2 basis points in the Half with the operational drivers similar to that of the Banking Business. The net impact of Markets and Liquids was more than offset by the inclusion of Suncorp Bank. 

Banking NIM in total reduced by 6 basis points. However, half of the reduction was primarily the impact of a full six months of Suncorp Bank and higher remediation costs. Suncorp Bank’s margins are lower than our Banking NIM given the mix of their businesses.

The remaining 3 basis points were driven by operational impacts largely from deposits and funding.

As with our peers, we saw a combination of lower deposit margins including from cash rate reductions, along with higher wholesale funding costs due to increased domestic short-term spreads and the roll off of the last of the TFF in second half 2024.

The Asset and Funding mix impact was primarily driven by the Institutional Division, where asset growth was stronger than deposit growth in the first quarter. This moderated in the second quarter.

Our Capital and Replicating Portfolio delivered a benefit of 2 basis points. Our hedging strategy has been at the longer end of our 3-to-5 year range and this provides further protection as rates fall. All else being equal, the Portfolio is expected to remain a tailwind over the next 2 years. 

Loans and deposits 

Lending and deposit volumes were both up 3 per cent in the half with all Divisions contributing.

We had record levels of organic lending growth. This demonstrates that we have supported our customers as well as created value for our shareholders.

In Australia, our Retail and Commercial businesses self -funded lending growth with customer deposits up $10.6 billion.

Our total Australia Home Loan portfolio is now almost $392 billion with a market share of 16 per cent. In the half the Australian Retail Division grew at  system with Suncorp Bank at 0.6 x system. As we exited the First Half, Suncorp Bank had returned to above system growth.

While elevated in the first quarter, Institutional lending volumes moderated in the second quarter. On an FX adjusted basis core lending, which excludes markets, grew 4 per cent.

While the economic environment has been volatile, our Institutional customers have reacted patiently and largely adopted a ‘wait and see’ approach – with no material change in their borrowing or deposit behaviours. In our Retail and Commercial businesses we have seen conservative behaviour in the form of good deposit flows.

Banking deposit composition and trends 

Throughout Financial Year 2024, deposit mix impacts began to slow and that trend continued in the half with growth coming largely from at-call savings products.

We saw continued growth in core operational deposits in Institutional. While there was a small margin decline, Net Interest Income was broadly flat and has benefitted from the volume uplift. The PCM business has maintained an RoE of greater than 80 percent with deposit volumes up 4 per cent and payments volumes up a further 5 per cent.

Suncorp Bank performance and synergies 

Turning to Suncorp Bank.

The business is operating well, and since announcing the acquisition in mid-2022, it has grown scale, with:

• Customer numbers up by 5 per cent to 1.3 million; and
• Customer deposits and lending over 16 per cent higher, and continuing to grow.

In its first full half under our ownership, Suncorp Bank delivered a record Cash Profit of $286 million. Excluding the purchase price adjustment in this period, NPAT was $251 million in line with the previous record profit.

We have achieved $20 million in cost synergies since completion through property savings, optimising vendor spend, removing duplication in investment and operating model changes.

We will continue to provide further updates on synergies at subsequent results presentations.

Markets performance 

Markets income was $1.07 billion for the half, with Customer franchise income in line with our usual first half experience.

Three particular highlights stood out in the half.

First, Debt Capital Markets delivered record fee income from supporting Corporate and Financial Institution issuances.

Second, FX and Repo volumes continued to increase, powered by the International Business.

And finally, second quarter income this half was approximately 15 per cent higher than historical second quarter averages which reflects improving momentum in the Half.

Higher volatility and some financial markets disruption leads clients to implement, expand or refine their hedging strategies. Our Markets offering, including leading FX and Rates propositions across our global network, has consistently enabled us to monetise flows in these conditions. 

Expenses

As you know, we introduced Suncorp Bank into our cost base from August last year.

While incurring the full impact of Suncorp Bank expenses this half, we contained total cost growth to 4 per cent.

Excluding Suncorp Bank, Group Expenses reduced 1 per cent for the half.

To put this into context: we are integrating a large transaction, continuing to deliver on our dual platforms strategy and progressing our regulatory agenda – all within this cost envelope.

To achieve this, we have delivered $133m in productivity in the half, largely from a combination of:

• Technology savings from simplification, cloud migration, and decommissioning assets
• Optimisation of our international footprint and property costs
• Reshaping our workforce, which limited personnel cost growth ex Suncorp Bank to 1.5 per cent
• And finally continuing to carefully manage vendor costs.

And so once again, we were able to partially offset inflation through an ongoing sharp focus on productivity. We have now successfully delivered $1.9 billion in cumulative productivity savings since 2019.

In addition to productivity, we also benefited from a seasonally lower investment spend in the first half.

Historically we have a higher investment spend in the second half and this will be the case again in this Financial Year.

We will continue to manage cost and productivity to deliver on our FY25 full year guidance. Hence, we expect to be around 4 per cent up year on year, based on ANZ and the Suncorp Bank pro forma cost base as shown on this slide. 

Provisions

Turning to provisions.

Our lending portfolios have remained resilient, with an individual provision charge of $159 million, of which only $60 million was from our wholesale portfolio.

We continue to deliver peer leading loss outcomes with an annualised loss rate of four basis points.

This loss experience is consistent with the low embedded risk in ANZ’s portfolio, which is also lower than our peers.

In our Australian Home Loan portfolio, customers remain resilient with 83 per cent ahead on repayments and offset balances up 15 per cent to $50 billion.

While increasing slightly half on half, the 90 days past due cohort remains well under      1 per cent of the loan book. Compositionally, Victoria was the largest contributor to 90 days past due over the past twelve months. Growth in Home Loans hardship volumes moderated this half.

We actively monitor our Wholesale portfolio, in particular, those exposures that are not investment grade rated and are relatively less secured. This a well-diversified group of customers with lower concentration to material exposures.

Since 2016, this type of exposure has reduced by more than two thirds resulting in actual losses in our Institutional Business over the last 7 years being one twelfth of those in the 7 years prior.

This reflects the ongoing benefits of our multi-year de-risking strategy. We’ve included more detail on tail risk in the risk section of the discussion pack. 

Portfolio quality 

Our collective provision balance remained steady at $4.3 billion, which is $2.3 billion higher than our base case economic scenario and almost $600 million more than our downside scenario.

To give a more complete picture of our loss coverage we’ve provided additional detail on this slide. ANZ has a combined $5 billion of total loss coverage. This is the aggregate of our CP and IP provision balances and $304 million in the half, of capital deduction for regulatory expected loss.

While provision scenario weights remained unchanged for the half, we took          $52 million of overlay for increased uncertainty and economic volatility as we approached the end of March.

It’s important to consider collective provisions in the context of the composition of the loan book. You can see on the right-hand side of this slide a split of performing and non-performing loans. Our non-performing loans as a proportion of the loan book are well below peers, and provision coverage levels for our performing exposures remain in line with peers. 

Capital 

Our capital position remains strong at 11.8 per cent up around 30 basis points in second quarter. 

ANZ operates a Non-Operating Holding Company (NOHC). Inclusive of the capital held in the NOHC – which includes the capital for the remaining Share Buy Back, the CET1 ratio is equivalent to 12 per cent.

The Board has held the dividend at 83 cents per share franked at 70 per cent.

Global conditions have been more unsettled in recent weeks, and so, we believe it is appropriate to adopt slightly more conservative capital settings. This includes retaining the flexibility to adjust the pace of the Share Buy Back if needed.

It also provides capacity to support customers and to take advantage of attractive risk adjusted opportunities should they become available. 

Summary

While the environment has become more unsettled, the fundamentals of our business remain strong. The benefits of the diversity of our portfolio of businesses as well as our geographic footprint allow us more flexibility to optimise risk and returns. These benefits include:

• Firstly, active derisking over the years which through strong customer selection and prudent risk settings has resulted in the portfolio that we have today. This allows us to manage risk but also benefit from opportunities that arise in our portfolio of leading global corporates as the macro environment evolves.
• Secondly, the diversity of our businesses and our geographic footprint provide us with access to customer deposits and funding options across our network. This enables us to optimise funding costs and benefit from a flight to quality on the strength of our credit ratings. It also provides the unique opportunity to follow our clients as they dynamically shift supply chains.
• Thirdly, the strength of our Markets business which through leading product and local market capabilities is a go to for our clients globally as they consider their risk mitigation strategies.

We look forward to welcoming Nuno as our new CEO and to supporting him as he sets his priorities for execution. There are several value creating opportunities that lie ahead of us, including the full integration of Suncorp Bank, and we are excited about executing on these under Nuno’s leadership.

Finally, I would like to thank Shayne for his leadership over the last nine and a half years as CEO of ANZ – a period marked by significant transformation and innovation.

I have had the privilege of working alongside Shayne in my role as CFO since October 2021.

Shayne, that’s 8 of your 18 results presentations as CEO, and I am grateful for your enduring support and wise counsel.

Much like the All Blacks philosophy of “leave the jersey in a better place”, I and the entire team at ANZ, would agree that you are leaving ANZ in a better place.

I wish you the very best. Thank you and I’ll hand back to you for closing remarks.