DBRS Confirms Australia and New Zealand Banking Group Limited

DBRS has today confirmed the ratings of the Australia and New Zealand Banking Group Limited (ANZ or the Bank), including the Bank’s Deposits and Senior Debt at AA and Commercial Paper rating at R-1 (high). All trends are Stable. The confirmation reflects the Bank’s (1) strong domestic retail banking franchise, (2) super-regional expansion strategy, (3) strong financial risk profile and (4) supportive regulatory environment. The long-term rating incorporates the implied support of the Australian government, adding one notch to the intrinsic assessment (based on the floor rating approach).

Australia is viewed as a good environment for banking due to the conservative and supportive regulatory environment put in place by the Reserve Bank of Australia and the Australian Prudential Regulation Authority (APRA). However, ANZ’s limited geographic diversification continues to expose the Bank to potential regional economic volatility, driven by the Australian economy’s high sensitivity to the domestic housing market, mining industry and China’s economy. Although Australia’s housing market has softened after reaching peak housing prices in 2010, DBRS does not expect ANZ’s loan loss ratios to deteriorate materially. Furthermore, ANZ’s strategy to create a super-regional bank that will expand its operations beyond the core base of Australia and New Zealand is gradually mitigating the Bank’s concentration in the domestic market.

The Bank, and its peers, continues to depend on offshore wholesale funding markets, due to years of strong domestic loan growth in excess of deposit growth, combined with structural factors, including superannuation contributions that are primarily invested in equity markets. The Bank is curtailing the resulting short-term wholesale funding exposure by extending the maturity profile of their wholesale funding portfolio and generating deposit growth.

ANZ has maintained a strong financial risk profile and acceptable asset quality in the half-year ended March 31, 2013 (H1 2013), with an APRA Basel III Common Equity Tier 1 ratio of 8.2% and non-performing loans/loans and bankers’ acceptances at 1.4%. DBRS-adjusted earnings in H1 2013 increased modestly to approximately $3.0 billion as operating performance remained strong and expenses decreased as a result of ongoing cost-saving initiatives.

Notes:
All figures are in Australian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are the Global Methodology for Rating Banks and Banking Organisations (June 2012) and DBRS Criteria: Intrinsic and Support Assessments (February 2009), which can be found on the DBRS website under methodologies.