Australia and New Zealand Banking : Transcript ANZ 3Q20 Trading Update

21 August 2020

Market Announcements Office

ASX Limited

Level 4

20 Bridge Street

SYDNEY NSW 2000

Transcript ANZ 3Q20 Trading Update

Attached is a document titled Transcript ANZ 3Q20 Trading Update. It has been approved for distribution by ANZ's Continuous Disclosure Committee.

Yours faithfully

Simon Pordage

Company Secretary

Australia and New Zealand Banking Group Limited

Australia and New Zealand Banking Group Limited ABN 11 005 357 522

ANZ Centre Melbourne, Level 9A, 833 Collins Street, Docklands VIC 3008

	TRANSCRIPTION
Company:	ANZ
Date:	19 August 2020
Time:	9:00am (AEST)
Duration:	1:08:46
Reservation Number:	10008587

	[START OF TRANSCRIPT]
Jill Campbell:	Thanks operator and good morning everybody. It's Jill Campbell here I'm
	Head of Investor Relations for ANZ, for those of you I haven't met. Welcome
	to the conference call and audiocast for our 3Q20 trading update. This will be
	available also for replay later in the day. We've released a number of
	materials today, including two slide packs which were released as one
	document. For the purposes of the session this morning, it's the discussion
	pack that we'll be referring to, we won't be taking you through the pack, but it
	will be helpful if you've got that handy.
	I also apologise if at any point there's a little less clarity in the sound than
	we'd like, we're in a Stage 4 lockdown in Melbourne and so we're working
	through all of the logistics issues that come with that.
	We haven't done a Trading Update for a while, in fact not since 2017 and so a
	reminder about how this will work. Our CEO, Shayne Elliott and CFO,
	Michelle Jablko, will speak for between 5 and 10 minutes. We'll then go to
	Q&A. The operator has already explained to you some instructions about how
	to do that, but I'll come back with a little bit more housekeeping before we
	start.
	Also in the room with us today, we have our CRO, Kevin Corbally, and on the
	phone, the head of our Australian Retail & Commercial business, Mark Hand.
	I'll hand over to Shayne.

Shayne Elliott:	Thanks Jill and thank you all for joining us this morning. Now as Jill said, this
	will mainly be an opportunity for you to ask questions, however I do want to
	make a few initial comments and then I'll ask Michelle to provide a couple of
	observations. Firstly, it's very clearly a difficult and unusual time and our
	thoughts are with those that have been impacted either from a health or a
	financial perspective. I want our customers to know that we will continue to do
	all that we can to support them through to the other side of the pandemic.
	You only need to look around the streets of Melbourne to understand the
	impact of COVID, not only on the way we go about our daily lives, but also on
	the economy more broadly. Even in New Zealand, a country that on every
	measure had this virus beat, recent days demonstrate this virus is going to be
	with us for some time to come. As a community, as an industry and as a
	bank, we need to adapt to a COVID way of life.
	Governments will continue to manage the health and macroeconomic
	response and it will be up to the banks, like the ANZ, to support customers
	while balancing the interests of our shareholders, as well as the safety and
	wellbeing of our employees. I don't want to sound overly pessimistic or
	unrealistic. Sure, Victoria is doing it tougher than other states at the moment,
	but Western Australia is ticking along with iron ore prices holding up. Parts of
	Queensland not exposed to tourism are already showing signs of recovery,
	particularly in the agricultural sector and even in Victoria, there are
	businesses and sectors of the economy that have adapted and are doing
	okay.
	This is going to be a very difficult environment to navigate. It's fast-changing
	and the impact varies from state to state, industry to industry and customer to
	customer. It requires us to have the capacity, flexibility and the experience to
	make decisions and manage that change in real time and I'm pleased to say
	that to date, we've navigated this difficult environment effectively. As a bank,
	we entered the crisis in great shape, with an incredibly strong balance sheet,
	with record levels of capital and liquidity.

The work done over several years to simplify the Bank means we're now only focused on the things that matter, our people are more engaged than ever and we are able to quickly adapt to the challenges the future holds.

Put simply, we've never been in better shape to support all our stakeholders through what will be one of history's great challenges. But it's not just luck, it's a combination of decisions that we've made over many years to focus on the things we're good at, strengthen our foundations and invest for the long term.

There is no doubt we're also benefiting from a strong regulatory regime and swift and decisive government intervention. You'll see from the Media Release and the Chart Pack that we posted an unaudited Statutory Profit for the third quarter of $1.3 billion and a Cash Profit of $1.5 billion. Common Equity Tier 1 capital is strong at 11.3% on a pro forma basis, without having to raise additional capital from shareholders. This is a good result in difficult circumstances. Our operational and balance sheet strength allowed us to provide significant support to customers and our people, while also providing a fair return to shareholders.

Now it's worth noting that not all banks have the same exposures. Sadly, the Small Business and Commercial Property segments are where much of the economic pain is currently being felt. Relative to others, our loans to these segments are much smaller. But despite that, we took the prudent step of adding to our credit reserves in the quarter.

Our performance and strong balance sheet position developed the confidence in our ability to navigate this crisis and it's meant we've been able to announce an interim dividend of $0.25 per share fully franked. As you know, we delayed this decision from April, however we believe it was in the long- term interests of the Bank and its owners that we waited until we had more information and given all that has happened in the last month, this has proven to be prudent.

Turning to the underlying business, during the quarter we outperformed in Australian home lending, growing well above system. Customers acted very prudently by strongly increasing their savings and paying down credit card debt. Institutional customers also acted prudently and repaid loans in the quarter, particularly in our international franchise, which delivered a capital benefit to the Group.

Markets activity was also higher as customers sought to increase currency and rate digits and as a result of strong customer flows and underlying volatility, our markets business revenue was up 60% on the first half quarterly average.

In fact, as the impacts of the health crisis became better understood, the performance of our Institutional and international business highlighted the benefit of maintaining a diverse and well-managed portfolio of businesses. We have taken the foot off the accelerator when it comes to simplifying our business, with the sale of UDC in New Zealand to Shinsei Bank and our offsite ATM fleet in Australia to Armaguard.

Costs were down 1% for the quarter (compared to the first half quarterly average). This is a very pleasing outcome, which is a result of thoughtful and disciplined cost management in the environment. It wasn't a kneejerk response to COVID or from underinvestment. In fact, we invested record amounts this quarter to build a better bank for customers and staff. Despite this, we expect annual costs to remain broadly flat on a FX-adjusted basis for the year.

The biggest feature we'll call out, however, has been the work we've done to support customers through the pandemic.

In many respects, you have to remember this crisis is only five months old. It seems an eternity ago that we were all free to go about our business, or here in Melbourne, even venture outside our suburbs. I don't know what the future holds, nobody does, but what I do know is that we are better placed than when we entered the GFC to identify changes and quickly adapt. We've made prudent investments in big data and real-time monitoring systems, that allow us to spot trends quickly and respond to customer needs promptly. But I also know that our people have stepped up and it's been our company's purpose of shaping the world where people and communities thrive that has guided this response.

Great companies step up when it really counts and while challenges clearly still remain, we've already supported around 200,000 customers in Australia and New Zealand with their loans, which will go a long way to carrying people to the other side of the crisis. Finally, while this is an investor briefing, I would like to acknowledge the terrific work of our 40,000 people across the world.

From our hubs in Bangalore and Manila, through to our contact centres in Australia and branches in New Zealand, they've all done a great job for customers in very difficult circumstances, with people productively working from home despite competing priorities for a long period. They've also done their best in keeping costs under control, with everybody playing their part in managing our annual leave balance. This has been a meaningful contribution to our cost work and I thank them all for their efforts.

I'd also like to acknowledge the passing of our former chief executive, Will Bailey, last week. Will was chief executive between 1984 and 1992, having started as a teller in the Oakleigh branch at the old ES&A Bank in 1950. I did have the pleasure of meeting Will, but I never worked with him. But I know he was a mentor to many of ANZ's leaders and made significant contribution in building the ANZ we all know today over many years, particularly in his efforts to modernise the Bank through the use of technology. On behalf of everyone at ANZ, I'd like to pass on our condolences to his wife, Dorothy and his daughters Alison, Robyn and Merryn as well as his extended family and friends.

With that, I'll now pass to Michelle to make a few comments before opening up for questions. Michelle.

Michelle Jablko:Thanks Shayne. I'll just make a few comments, with a focus on how we've strengthened our balance sheet and capital over the quarter. If you've got it handy, I'd point out slide 2 of the investor discussion pack that we released today.

You will see here we finished the June quarter with pro forma CET1 of 11.3%, which is around $50 billion of CET1 capital in dollar terms. This means in a pro forma sense we were able to generate 47 basis points of capital over the quarter, which is equivalent to a $2.1 billion capital raising without shareholder dilution. Let me take you through how we did this.

Firstly, pre-provision profit added 43 basis points and was up 6% for the quarter. We haven't provided granular detail on this, but I'll point out that Institutional benefited from geographic diversification and our markets business achieved revenue around 60% higher than the average of the two quarters. Margins were impacted by low rates, as we foreshadowed at the first half and also higher liquids and mix related impacts.

We manage costs really well. Absolute costs were down 1% compared to the average of the first two quarters. We diverted resources to where they were most needed in response to COVID and we continue to benefit from productivity across the Bank, as well as savings like lower travel costs. We were able to manage costs down, even though we invested more in our business this quarter than we ever have, so we were able to benefit from our ongoing focus on simplification, which drove productivity in the quarter, plus we took tactical action, but not at the expense of good customer outcomes or business investment.

Now while we grew PBP, we didn't consume additional risk weighted assets in doing so. In fact, we released 12 basis points of capital on an underlying basis. This is consistent with what we told you at the first half result. You might remember we said we supported customers with liquidity in the early stages of the crisis and we told you this was largely timing. Since then, many of our customers have not needed this level of liquidity, which has released capital. Most of this was in our international business and we've seen this trend continue in July.

In terms of credit impact, this was 21 basis points for the quarter, split roughly 50/50 between the increase in credit provisions and risk weight migration. We increased our collective provision by $234 billion to $4.65 billion. If you recall, at 31 March we based our EPL modelling on some very grim economic forecasts, including a 13% peak quarterly fall in GDP and 13% peak unemployment in the June quarter.

While more recent economic forecasts have not be as negative as that, we increased our collective provisions. We believe this was appropriate given the level of economic uncertainty, so for example, we added further overlays for small business and mortgage deferral.

Our risk weight migration today has been less than we originally anticipated, especially in our Institutional portfolio and we're very well progressed on all our wholesale customer reviews. We thought migration might have been closer to 20 to 25 basis points this quarter, instead of the 10 basis points we actually experienced.

A key reason for this is that our customers have been proactively managing their own balance sheets, they've been managing their own costs and some have also raised capital. It's too early to call out whether this means our risk weight migration to the end of 2021 could be lower than the 110 basis points we previously said with our base case. We'll provide much more detail at the full year and of course consider the economic outlook again at that time.

We've had strong capital generation this quarter, even after credit impacts and then of course we've announced the sale of UDC, which is on track to complete in the coming weeks. All of this has given our Board the confidence to pay a prudent first half dividend of $0.25 per share, fully franked and without a discount on the DRP. The dividend is 46% of first half statutory earnings, but 30% of earnings if you add back in impairments we took at the first half of AmBank and Panin which were capital neutral.

We think this decision is sensible right now. We know we have shareholders that depend on us for part of their incomes and we've balanced this with keeping our capital position strong and not [unclear] shareholders. It also sits comfortably within the APRA guidance.

I'm now going to hand back to Jill for questions. I'll point out, we've got quite a bit of information in the slide pack on our customer support packages, so of course we're happy to talk to any questions.

Jill Campbell:Thanks Michelle and thanks Shayne, I'll hand back to the operator in a second. As I mentioned, we have our CRO, Kevin Corbally with us today and Mark Hand who is our Group Executive for Australia Retail and Commercial is also available. If you can please just try to limit your questions to two, the IR team are available after this call to help you with any additional questions that we don't get to. To any media dialling in, thanks so much for participating and welcome, but if you could please direct your questions to the media team. With that, I'll hand back to you, operator, to start the questions.

Operator:	Thank you. If you would like to ask a question, please press star then one on
	your telephone and wait for your name to be announced. If you wish to cancel
	your request, please press star then two. If you are on a speakerphone,
	please pick up the handset to ask your question. Our first question is from
	Richard Wiles of Morgan Stanley. Please go ahead.
Richard Wiles:	Good morning. Could you provide some more commentary on net interest
	income, particularly the impact of liquids on average interest earning assets
	and the margin, the impact of competition and whether the strong markets
	income meant the underlying decline in margin was different from the
	headline decline please?
Shayne Elliott:	Thanks Richard. I think it's best that Michelle take you through the numbers.
	Michelle.
Michelle Jablko:	In relation to liquids, that had about a two basis point impact on margin. I think
	we increased liquids by about $13 billion for the quarter. In terms of your
	question on the difference between the underlying and the headline its one
	basis point.
	There was some other ups and downs. We've called out the main ones,
	which were really low rates, which was six basis points as we'd previously
	told you, liquids as I've mentioned, and then mix. On mix, the main things
	were a shift from variable to fixed home loans which has gone up a bit this
	quarter and also just we had more Institutional relative to the rest.
Richard Wiles:	Thanks, Michelle. Could you also comment on competition?
Michelle Jablko:	Yes. In terms of competition, I'd say the impact of competition was broadly
	the same as its always been, but we had some offsets to that. Because if you
	recall, we had some high Institutional lending margins through the quarter. So
	I would say in terms of competition, similar to the trend First Half
Richard Wiles:	Okay, and if I could just ask a second question, please. Do you have some
	sense about what proportion of your deferred home loan customers and
	deferred small business customers may seek an extension of that deferral for
	an extra four months?
Shayne Elliott:	I mean the short answer to that, Richard, is no we don't actually. I think it's
	just a timing issue. We're right at the point actually where we're going to start

	to know. We've obviously been in contact with all of our customers. But I
	might just ask Kevin. Do you just want to talk where we are in terms of that
	contact program and when we will have better insight into the numbers that
	will be seeking the extension, or any colour you can give Richard on that?
Kevin Corbally:	Sure. Look, at the moment we're contacting every - but I think home loans
	first. We're contacting every deferral customer either digitally or, alternatively,
	via phone or letter as the case might be. That's to ensure they understand
	when those payments are actually due to restart and what the payment will be
	and what their options are. We've also given them the opportunity, and some
	have done so, to schedule a discussion closer to the end date. Or
	alternatively, they can speak to someone sooner if they need to.
	What we're doing in terms of the process, from a call-in perspective
	(telephone perspective), is we're actually checking in on those portions of the
	deferral group who have the characteristics, if I can describe it that way, that
	suggest they might need some more help - they're possibly higher risk, e.g.
	they've had a material drop in their income or they're unemployed.
	What we have seen, which is really interesting, is that two-thirds of the
	customers who sought the deferral, actually their income level has either
	improved or it's stable. In addition, a quarter of the customers who sought
	deferral have also made a repayment. Notwithstanding the fact that they were
	actually on a deferral during this period, they still continued to make a
	repayment. More than half have at least three months or better in terms of
	payment buffer.
	So that's essentially the process. At this stage, we've contacted in the order of
	about two-thirds of our customers on the mortgage side. On the commercial
	side and the small business side, slightly different in that you have to opt into
	that process. We spoke with every customer prior to them actually taking up
	the package, so they understood exactly what it was that was on offer.
	We're not required to do the same three-month reviews as we are for
	mortgages. However, we have started contacting those customers in any
	case and we have continued the normal credit and portfolio monitoring that
	we would have as well.

	Within the Small Business and Business Bank, some of what we've seen
	there is that 60% of them have actually, interestingly, got higher cash
	balances than at the same time last year, and for 45% of them, their cash
	inflow is actually greater than the same time as last year.
	One of the key things commercial customers have been trying to do is figure
	out how they can reduce their cost base. About a third of them have actually
	decreased their cost base by more than 30% which is quite significant. So
	that's where we're up to.
Shayne Elliott:	The other thing I would add to that, Richard, just to give you a bit of colour
	clarity on that, over two-thirds of the home loan customers where Kevin
	mentioned where their income is stable, that's quite a broad definition. So that
	might still be down, it might be down 10%, 15%, but it's not fallen off a cliff. So
	just to be clear on that, it doesn't mean it's necessarily flat.
	The other thing I would just add there, I made a reference in my opening
	about the data investments we've had. That has really shone through.
	Compared to the GFC, our ability to actually, literally in real time, going
	through, getting all the customers who've got a Jobseeker payment in their
	account, getting all the customers who have seen their income levels fall, and
	our ability to be able to respond and target, is just at a massively different
	level than it was in the past. I think that's enabled us to be much more
	targeted in the way that we respond and reach out. It's not perfect because
	we don't have everybody's operating account, but it's really been a massive
	advantage I think this time.
Operator:	Our next question is from Ed Henning of CLSA. Please go ahead.
Ed Henning:	Thanks for taking my questions. Just two questions from me. You talked
	about the trends continuing in July around the pay down of the Institutional
	borrowers. Can you just run through how much more you think has got to play
	out here? Could the fourth quarter be the same as the third-quarter impact, or
	you think this is falling?
Shayne Elliott:	That's a really good question. Obviously, we don't know yet. But, look, let's
	just back up a little bit here. What happened at the end of the first half, March,
	right in the heat of the moment, COVID really heavily hit the shores not only

	of Australia but the United States and parts of Europe. That's where a lot of
	our multinational customers are based.
	What did they do? They did what they're supposed to do. They shored up
	their balance sheets, they hoarded cash, they drew down liquidity, etc. We
	saw that more than others and we made sure we were getting paid for that.
	So people were basically behaving as you'd expect.
	In the third quarter, things started calmed down, capital markets continued to
	operate. People realised they could raise equity, and we saw that on a
	massive scale here in Australia, in particular, and also internationally.
	Treasury, generally, calmed down and realised - I don't need this expensive
	debt - and they started repaying.
	So we stayed at a reasonable clip in the third quarter. If we look at the period
	between 30 June and today that trend has continued at about the same pace.
	So even today it's lower. I don't know from here. I think it really depends on
	the state of capital markets and the general economic sense. But if you were
	a betting person you'd have to say it's probably a worst case of flat and
	probably continue to come down.
	Which from our perspective isn't a bad thing really, it releases capital. But
	we'll continue to support our customers as necessary. But I'd say it's probably
	flat to down would be a pretty decent estimate.
Ed Henning:	Thanks. Just the second one. Markets income was obviously very strong
	during the period. Can you just touch on what's happened in July and August
	now you've seeing that going forward?
Shayne Elliott:	So let's get back to why it's strong, it's coming from a couple of things. Again,
	our markets business, I think it's worth pointing out, is quite different to some
	of our local peers in particular. More than half of our markets business is
	international. It's not in Australia. In fact, some of our biggest operations are
	in Asia, for example, in Singapore, and also in London and New York. That
	goes for that international franchise we had.
	Actually, there has been - the really strong performer has been offshore. It's
	been strong everywhere, but out performance has really very much been in
	our international franchise, and for the reasons that I mentioned. Underlying
	volatility, what happens? Well, there's a bit of spread, a little bit on volatility.

	You get a little bit more activity from customers who are seeking to hedge. All
	of those conditions have continued from the third quarter into the fourth
	quarter. So the basic conditions persisted, but probably not to the same
	degree. It's not as volatile as it was. Spreads are not as wide as they were.
	But it's still a pretty buoyant environment for global markets businesses.
	Again, just to be clear, our business, what do we do in markets as opposed to
	others? Our franchise is a very big foreign exchange franchise and a rates
	and credit franchise. Our commodities business is tiny, we don't do equities,
	etc. So it continued probably at a slightly more modest pace though, but still
	looking pretty good.
Ed Henning:	Okay, thank you.
Operator:	Our next question is from Andrew Lyons of Goldman Sachs. Please go
	ahead.
Andrew Lyons:	Thanks and good morning. Just a question on slide 11, just around your
	business loan deferrals. On slide 11, you note 94% of your SME book on
	deferral is fully or partially secured. Can you perhaps provide a bit more detail
	about what this collateral is, and how you'll ultimately balance the needs of
	your customers versus the needs of your shareholders as we go deeper into
	this cycle and you may have to start accessing that collateral in a fairly
	significant way?
Shayne Elliott:	Yes, look, I'll start with that, Andrew, and I'll ask Kevin to give a bit more detail
	on that. Starting at a little bit high level, but philosophically what we're saying
	here, for the most part the reason that these small businesses have gotten
	themselves in harm's way is through no fault of their own. It's not that they
	had bad business models, it wasn't that they were over geared, it wasn't that
	they made bad decisions.
	They have been caught in a general - their business was essentially
	prohibited by government. So the good thing is fundamentally good
	businesses can, in the right circumstances, quickly get back on their feet.
	Now, those circumstances, unfortunately, are outside of their control. They're
	largely due to government policy. So we take the view that the best thing we
	can do here, the best people to run those businesses, whether it's a

	manufacturing business or a restaurant or whatever it might be, are the
	people who currently do.
	So giving them time is the right thing to do. So that's the approach we've
	taken. We are very fortunate, the cost of giving them time is a hell of a lot
	lower than it would have been in the GFC or in any other normal financial
	crisis. So the cost to them and cost to us of giving time is lower.
	But we know, sadly, that even if tomorrow morning a vaccine is discovered
	and governments open up everything, not all of those businesses will have
	the wherewithal to get back on their feet, you're quite right. Sadly, at the right
	time, we're going to have to take some hard decisions. That's what we do or
	that's our role in the economy. But again, I think we've taken that view that the
	best thing to do is to give as much time as we can. It's in their interests and
	it's actually in our interest that these people get back on their feet.
	So I think we are being more tolerant in terms of - and really focus on that
	customer care in terms of that balance. The cost to the shareholder is actually
	quite low of giving that time. That's got to be a really, really important factor
	when you're doing this. So this idea of a cliff that in some magic state when
	all these things happen we're going to act irresponsibly I don't think holds
	water for all sorts of reasons.
	Kevin, do you want to add anything, it is true there's a lot of security behind
	there.
Kevin Corbally:	Typically it is secured by either residential or commercial property. There are
	some other assets that businesses have as well but the vast bulk of these is
	that. When you look at the security for SBB typically it is over 100% secured
	and partially secured is a bit less than 100% but it is predominantly residential
	and commercial property.
Shayne Elliott:	But obviously we've run models and our analysis considers what if the bad
	things happen to large chunks of that? What is the dimensions of that?
	The good thing - and the bad thing about it, obviously, is that you really have
	to make some pretty difficult decisions and you might argue well, a lot of that
	security is the same category. On the other hand is, it tended to be pretty well
	diversified and so…

Kevin Corbally:	On that point, Shayne, you're absolutely right. When we -determine the risk
	rating on a customer, we actually run sensitivities on the value of that
	property. So the property data is sensitised so- we have very different
	scenarios and those scenarios will drive an outcome in terms of the risk or
	security rating that we then provide to the customer.
Andrew Lyons	Thanks so much.
Operator:	Thank you. Our next question comes from Jonathan Mott of UBS. Please go
	ahead.
Jonathan Mott:	Thank you, I've got a question on a dividend. Really, why did you see the
	urgency to pay it now? It seems very unusual to have a delayed or belated
	dividend. Why didn't you wait until the full year result in three months' time
	when the economic outlook is going to be a lot clearer?
	Especially when you haven't seen the full impact of procyclicality, you haven't
	seen the deterioration going through and if you look across Victoria and
	Auckland, you've got 10 million of the 30 million people in Australasia locked
	in their houses at the moment. Why not wait and see how the economy is
	going, rather than pay a dividend out on a belated basis?
Shayne Elliott:	Yes, fair question. Just to put it into context, Jonathan. We generated pre
	provisions 68 basis points of capital during the quarter and what do we do?
	We used around a third of that for credit costs, provisioning etc. and the
	dividend we paid out is 15 basis points of that capital we paid out and that's
	why we used the word modest.
	We've got a really strong capital position. Could we have retained it so we
	were even higher? Yes, well of course. I mean - and there will always be - this
	is a judgment.
	The judgment that our Board took was, this is about balance. Our business is
	profitable. It generates profits every day. Not as much as it used to but it's still
	profitable and that's generating organic capital during the quarter. You saw
	that in this quarter and you'll continue to see that.
	That allowed us to put away some more money for a rainy day and increase
	our credit provision again. Yes, despite the fact that actually on some

	measures, economic outlook is better today than it was at 31 March. At the
	half. But nonetheless, we're prudent and we've topped up our credit provision.
	We've strengthened our capital ratios again and we've been able to pay a
	modest dividend to shareholders.
	We think that balance is the right thing to do. You can always kick the can
	further down the road and wait for more and more information but we think
	that was a fair thing to do. Then also, I think - look, we also have a role in the
	broader economy and we know that many of our shareholders are retirees
	and depend upon that income and that really weighted. We thought that it
	was a fair decision to make.
	But again, I think the more - the most important point of all of that is let's put it
	in context. It's 15 basis points here. I think that on any description, it's prudent
	and modest.
Jonathan Mott:	Okay, can I just ask a second question if I could? Probably to Kevin. You spat
	out a lot of positive statistics about the 12% of the mortgage book which is still
	on deferral, like a two-thirds haven't seen a fall in income. Can you give us -
	well we all know in banking it is tail risk. We're not worried about the two-
	thirds that haven't seen a fall in income, we're worried about the one-third that
	have.
	Can you give us some statistics about the tail? How are they looking? What
	are they seeing in their income and what prospects have they got of getting
	back on their feet and repaying their debt?
Shayne Elliott:	So I'll start, Jon and I think your observation is spot on and I - in my
	experience, that's even more the case in this crisis than it is in a normal one.
	The pain of this crisis has been felt disproportionately by a relatively small
	cohort.
	The more impacted part of the economy has tended to be lower-skilled
	workers, more casual workers and sadly more females, more low-income
	cohort and therefore that's disproportionately the renter population as
	opposed to the homeowner population but nonetheless, you're right and
	there's a tail risk.
	We do have some colour on that, Kevin can you talk to the proportion there.
	So for example, a number of people that are home at the moment are on

	JobSeeker the proportion who actually aren't employed is small, as you can
	imagine. But do you want to give a bit of colour to that?
Kevin Corbally:	Yes, look, a couple of things I'd say with one really important one, An
	important one to remember is that every customer who we offered a home
	loan deferral to had to be current with their loan - when the deferral was
	granted.
	Each of the Banks has done this slightly differently. Not everyone used that
	approach in terms of who they granted the deferral to. We know we've been a
	little stricter than possibly some others. That's the approach we did take.
	It's very difficult to see who is getting JobKeeper but we can see JobSeeker
	and that's a single digit percentage of those that are on deferrals.
Jonathan Mott:	Just in terms of trying to compare that to comments from one of your peers, I
	think it was NAB came out and said they're seeing a disproportionate number
	of people who are in the private bank and had mortgages over $1 million on
	deferral. Are you seeing a very, very different cohort on deferral and having
	financial stress?
Shayne Elliott:	Yes. I think - I don't - obviously, don't know their book as well as ours - but I
	imagine that some of that is to do with their business mix. Because a lot of
	small business people could be private bank customers we have not had that
	experience.
	There is a slight skew to slightly bigger mortgages but that is on average
	slightly higher. That sort of makes sense because as you know, they're
	averages and in our total book, there's a whole bunch of people who have got
	a $50,000 mortgage, probably don't need to get a deferral but they're only
	small. So no, we don't have that same skew at all. We wouldn't - we wouldn't
	have identified that as a trend within our book.
Jonathan Mott	Thank you.
Operator:	Thank you. Your next question is from Brian Johnson of Jefferies. Please, go
	ahead.
Brian Johnson:	Good morning and thank you very much for giving us the opportunity to ask
	some questions. I have two questions. The first one is the slide where you've
	got on your home lending, the growth. New sales, $10 billion, new sales ex.

re-fi $10b and then net of Refi $5b, then repay down $15b, which is telling us that the growth is basically the redraw and the interest.

The first question is, can you confirm that basically what has grown your book, how much of that $4 billion is the deferred interest that you - the interest that you've accrued on the deferred home loans?

The other point about it is - Shayne, is that I know that you're very positive that it's starting to turn around. Is that performance good enough? Then I have a second question, if I may.

Shayne Elliott:Yes, look I'll answer it. I'll get Mark Hand who is online to give you a bit more colour, Brian. Of the - so the technical answer to your question, of the $4 billion in redraw and interest, it's about 10% of that relates to the deferrals that you mentioned.

We had some issues a year ago with things like processing etc. We spent a lot of money - I've talked about record investments and part of that has been to get our home loan processing back into shape.

We had a big campaign a year ago, which was very, very successful (David Hasselhoff). That really gave us the ability to test some of our processes. So then, what we've been doing this year, actually just as COVID was starting, was we went out with a very, very sharp fixed rate offer in market.

I - we were stunned by the response. We - you might have thought that in a COVID time we would just sit on our hands. What we saw was a massive uplift, you know across the industry in terms of refi. So we were in the right place at the right time. We got completely smashed with volumes - good thing. Did mean our processing times blew out again. We saw levels of application at multiples of what we have seen in our history for an extended period of time which is a good thing. Those things are still being worked through.

You are not seeing the benefit of that volume yet because, as you know, there is a time delay between the funds are approved and drawing down. So in the third quarter numbers here, you're just starting to see some benefit but that will be something that will be much more evident in 2021.

	We do absolutely think we are doing enough. The volumes have stayed
	relatively high. So higher than normal for us. We know we continue to pick up
	share. We've made a judgment to our pricing etc. to make sure that our -
	we're in the market getting a fair return for the risk.
	We've been very targeted about the kinds of loans that we want because
	clearly, there's a heightened risk at the moment. But Mark Hand, you're much
	closer to it in terms of just giving Brian and the others a bit more colour on the
	home loan business.
Mark Hand:	Yes, probably the only other thing to add is, in that repayment bucket,
	because of the COVID environment, we've seen significant deposit growth
	and that's included in off-set accounts, for instance. Customers that have a
	re-draw capability at their- I guess their mortgage, have paid against that
	mortgage, knowing that they can withdraw it and that is effectively their buffer.
	So that minus 15 number, I'd suggest is a little bit elevated.
	Then, as Shayne said, this is up to 30 June where we saw really good
	volumes late last year, right through that period this year but a lot of those
	deals have hit the balance sheet you'll have seen from the APRA stats in the
	last couple of months and we expect to see that to continue.
	Our re-finance out continues to improve so I wouldn't call it a flight to quality
	but there has been a significant flight to the major banks throughout this
	period. So where we expect to see continued growth and some of that
	repayment response because of COVID will ease.
Brian Johnson	Thank you.
Brian Johnson:	Yes, the second question, Shayne, when we have a look at it and you might
	recall, I complained rather loudly about what I thought was the relatively poor
	disclosure and I'd just like to reiterate that point. But on the loan losses - on
	the provisioning and the capital intensity.
	But as far as I can work out today, you've lifted your provision coverage to
	exposure at default from basically 42 basis points to 45 basis points whereas
	your peers are all sitting at 60 basis points.
	You've had a higher historical, basically rate of loan losses than your peers,
	and you acknowledge that in your expected loss disclosures.

	We can also see that in your housing book, you have a much higher
	proportion of greater than 90% LVRs. Can we please get a little bit more
	detail on what you've done in changing the economic scenarios? What have
	you actually done in the provisioning and the probabilities that you've
	basically assigned to the base case and the undisclosed downside case?
Shayne Elliott:	Yes and in a moment, I'll get Michelle to answer and Kevin to add to that but
	just going back a little bit before we get into detail. I think again, we have to
	go back to the fact that our businesses are very different. As you know and
	constantly criticise us for, we have a much bigger Institutional business than
	our peer group.
	The reality is that today our Institutional book is 86% of Investment Grade. Try
	as we might, when you look through this crisis, at this stage - and I don't think
	we're alone, this does not appear to be a crisis that has done a
	disproportionate impact to the Institutional side of the business. As you know,
	the Institutional bank, just the normal course of business, has a much higher
	risk weight in the first place when you're booking business. It is very very
	different than a business that might be exposed to for example the SME
	sector which as you know we're not. So there are differences in this. Michelle,
	do you just want to talk through some of this …
Michelle Jablko:	Sure.
Shayne Elliott:	…and importantly the ECL function.
Michelle Jablko:	Yes and we will provide additional information at the full year as well. The way
	we thought about it, if you go back to what we provided in March, my
	comments - we had a pretty grim view of the economic outlook at that point
	in time. We can debate the various assumptions around that but we had a
	pretty grim view of the economic outlook.
	What we have done now is while the economic outlook is still negative, at the
	end of June it was less adverse, but what we did was increase the ECL. We
	did that through a few means.
	Partly through changes in the probability weight and partly through overlays.
	Again, I am happy to provide much more detail at the full year with all the
	disclosures then taking on board your feedback, Brian.

Brian Johnson:	Sorry, the other question, Michelle, was on the capital density. Previously you
	said 110 and I can see in the slide there seems to be about - would I be right
	in thinking 10 of the 110 has happened in the quarter?
Michelle Jablko:	So, 10 in the quarter, we had seven in the second quarter as well, so 17 of
	the 110 has happened so far. What I did say is it's a bit early to predict this.
	What we are seeing - we are really well progressed in terms of our wholesale
	review, as of June, we were about half way through and today on institutional,
	for example, we're probably about two thirds of the way through and we're
	well progressed on Commercial as well.
	What we've actually seen in our customers, and clearly we don't do this once
	and set and forget. Our actual outcomes are tracking more positively than
	what we'd anticipated might have happened this quarter, but I don't want to
	call out yet a sensitivity to the 110...
Brian Johnson:	Michelle, your ECL provisioning that you say that you've changed the
	economic forecast and made them slightly more adverse, are they still more
	bullish or, sorry, less adverse than the RBA's August restated base case
	scenario.
Michelle Jablko:	Sorry, again, the way we have done it, I don't want to make it so formulaic
	we've got overlays, et cetera, in there. The way we did it is in our March
	forecast, which we disclosed, they were in some ways more adverse than the
	RBAs on slightly different, probably more adverse up front, but on a slightly
	different track in terms of how things improved, but broadly speaking about
	the same. What we have done today is despite the economic forecast being a
	bit better and clearly that changes all the time and we will update it in
	September, we have added to the provision and we have done that through a
	mix of, as I said, probability weights and overlays.
Brian Johnson	Thank you.
Operator:	Our next question is from Brendan Sproules of Citi. Please go ahead.
Brendan Sproules:	Good morning. I have a couple of questions. My first question is just on your
	operating expenses for the quarter. In the first half you actually called out
	three notable items in expenses. I was wondering if you could help us
	understand how much a change in those notable items has contributed to this
	quarter's result. Then I have a question on your provisioning as well.

Shayne Elliott:	I'll give you the generic answer and then Michelle can talk. Brendan, really
	importantly what we have done through this is look, clearly COVID is
	overwhelming and there's a lot of things that we need to adapt to, but we
	have not given up on our long-term ambitions and our strategic desire to
	simplify the bank and make it more efficient. That will continue at pace. We
	have been more thoughtful about how we are implementing those changes
	because of the impact on people and just generally your ability to get stuff
	done working from home, but that does continue.
	That transformation is just, a lot of it, is dividend to the business, it is just
	better productivity and a lower/flat cost. So that will just continue with a whole
	raft of detail in there and so the important thing is that the performance of the
	quarter was not a kneejerk reaction to COVID, let's go and hack out costs, ,
	let's go tighten people or anything like that. We didn't do that at all.
	What we did do is we quickly went back and looked at our cost base and said
	what are the things we can manage differently and more tightly. Obviously
	you get a tail wind or trade-off, I mean if you don't do anything it probably just
	stops right. We continued in terms of our productivity work to get that cost
	down. The other thing I will mention is that this is not come because we've
	slowed down in business, so our investment in new technology, new
	platforms, new features and functions, actually increased in the quarter. It
	was the largest investment quarter we have ever had in our history. That's a
	good thing because those things will drive benefits, not only in productivity but
	better outcomes for customers in terms of some of the new platforms.
	Because of COVID we brought forward some of that investment, for example,
	e-signatures, the ability to do things digitally that might have been features on
	our backlog. We brought those forward because they're more appropriate.
	Michelle you want to talk through the large / notable bit …
Michelle Jablko:	Yes, and Brendan when we talk about expenses being down that's excluding
	large / notables. You'll see in our media release that our large/notables are
	about $100m and third of that was expenses, bunch of little things but nothing
	really big to call out.
Brendan Sproules:	Thanks and just on your CP charge for the quarter, could you help us
	understand what you've taken specifically around the deferral packages?

	Obviously in three months' time when the holidays do expire there's going to
	be quite a bit of movement across the portfolio so I'd be interested in what
	you've taken now relative to what we'll need to look at later in the year.
Michelle Jablko:	Why don't I start here
Shayne Elliott:	Yes, okay.
Michelle Jablko:	You would have seen in the pack our 90 days past due were elevated and we
	spoke about that in terms of customers that we did put on deferral packages.
	So that's had an increase in the provision as well as we've applied an overlay
	across all portfolios actually looking at the deferral packages and then on top
	of that we applied an additional overlay for Small Business.
Kevin Corbally	So, one way Brendan of looking at this is that the majority of the increase this
	year, this quarter I should say, in expected loss reflects the deferral
	packages and the higher risk segments within commercial.
Shayne Elliott:	I mean I think the obvious answer there is as the quarter unfolded it became
	more and more apparent where the pain was being felt and we can see it in
	the data, it is the SME sector sadly and we were able to do more work on that
	and figure out what we thought was a more appropriate number. It obviously
	is not a sector that lends itself to individual risk review so that's why we used
	the overlay to account for that.
Brendan Sproules:	Thank you.
Operator:	Thank you. Our next question is from Andrew Triggs of JP Morgan. Please go
	ahead.
Andrew Triggs:	Thank you and good morning everyone. Shayne, I just had a question, a
	couple of questions. Firstly, just on the rate environment in New Zealand. A
	number of economists, including your own, now expecting negative rates last
	year. I know this was talked about at the last result, but just the expectation
	for the margin impact perhaps on FY21 if that were to come through.
Shayne Elliott:	Yes, good question. It's still pretty early days, Andrew. Look, as you know the
	Reserve Bank there made that announcement to prepare the market for
	negative interest rates, banks have to be operationally prepared to do that by
	December, I think. It is worth pointing out that we are - and again just for the
	point of clarity - that's the wholesale rates in New Zealand, not retail deposit

	rates. That is not been moved by the Reserve Bank, so we are talking about
	wholesale rates.
	You're right, our economists are considering that wholesale rates may be go
	to minus 0.25%. Michelle, have we done work of what that might mean for
	people it has an impact on?
Michelle Jablko:	I mean it's a bit hard to predict exactly what it's going to mean because it
	depends on where rates go.
Shayne Elliott:	Yes.
Michelle Jablko:	What the number is and what the customer behaviour is in the market
	response. So, it's a little bit hard to give an exact number.
Shayne Elliott:	Yes.
Michelle Jablko:	But as Shayne has said, we are preparing for it so…
Shayne Elliott:	I think that's a fair question and something we should be more forthcoming
	with at the full year. We will have had time to think that through a little bit
	more. The other thing I'd say in NZ that there will be a lesser reliance on
	Wholesale in NZ. A fair question Andrew and we will give some thought about
	how we can give a better answer at full year.
Andrew Triggs:	Thanks Shayne and just a follow up on I guess the messaging that
	institutional will perform more strongly this cycle than previous cycles. Just
	back to the collective provision coverage discussion with Brian. I mean the - I
	think you have 125 basis points of CP coverage of credit risk weighted
	assets. CBA and Westpac are sitting at 170 basis points. There was a
	meaningful collective provision charge in the last half, 42 basis points of gross
	loans annualised. Just interested in some comments on that. It would appear
	that there was a top up taken for that book in the previous half but is the
	message that I guess it's no worse than what you had first modelled on that
	side of things.
Shayne Elliott:	So, I think again, going back to something I said before, I think we don't know
	the processes of other banks, we only know what we do. We know we run a
	really robust process around that. We know that our business looks different
	to the others and we also know that in a lot of these models there's an
	assumption that the relative credit risk weightings are good indicators of true

	risk and we don't necessarily believe that that's always the case. As I
	mentioned, we know in Institutional which we have a skew towards, high level
	of investment grades, high risk weightings in the normal course of business.
	And the nature of this crisis looks like it's going to be disproportionally felt at
	this stage in other parts of the sector. So I'm not so sure this raw comparison
	of ratios is necessarily helpful but as we said we know our processes are
	robust. So Michelle …
Michelle Jablko:	Andrew, just on your numbers, I think you're comparing total provision charge
	/CRWA with CP charge (CP/CRWA), so just the like for like is not exactly as
	you said, but there is a difference. As Shayne said, look our books are not
	necessarily the same. We hold more capital for unexpected loss through
	institutional because that's the way that will work and so you would expect the
	denominator composition to be slightly different
Shayne Elliott:	Yes and the business, the book that holds the least amount for unexpected
	loss is homeowners and on a relative basis we have got a smaller proportion
	of our book allocated there and the two banks you refer to have a higher, so I
	think there's a reason. There's a mix issue if you will, and that has to do with
	the difference in capital and expected losses and the provision for expected
	losses.
Andrew Triggs:	Thanks sorry Michelle, that was an apple versus oranges comparison on the
	CRWA versus total provisions but thanks for the answers.
Shayne Elliott:	Yes, thank you, Andrew. Next question?
Operator:	Thank you, the next question is from Victor German of Macquarie.
Victor German:	Good morning and thank you for taking the time to answer my questions. I
	just was hoping to follow up on the revenue trajectory. If my math serves me
	right, it looks like markets contributed about $900 million or slightly more than
	$900 million in the third quarter, implying that revenue excluding markets was
	under $4 billion, which appears to be well below markets' expectations.
	I'd be just interested in perhaps a little bit more colour as to what drove that.
	I'm assuming partially driven by margins, so any more colour on margin
	trends and any potential volatility in that margin would be I think useful.

	On a related subject, Michelle you've guided for a 6 basis point impact from
	lower rates. It looks like that 6 basis points actually has fully come through in
	the third quarter. Does that mean that 6 basis point guidance is actually going
	to be bigger for the full half or is fourth quarter not going to be impacted?
Shayne Elliott:	I'll just make a very generic obvious statement. The revenue environment is
	tough Victor. Let's face it, margins are under pressure, very very competitive
	market. We're also seeing a continuation of a trend which was the removal
	and reduction of fees-based income over long periods of time, there's still a -
	there's still a headwind of that - there's still a tail of that coming through the
	business.
	Despite that, we are growing market share in home loans and doing it
	responsibly and at a reasonable return. You've got to pedal real fast when
	you're booking P&I loans. You've got the headwind of low rates - low rates,
	then that puts pressure on revenue, et cetera.
	It's not a great environment, and we're not going to kid ourselves and that's
	why we've been really focused on things like productivity, about capital
	efficiency and other things, that's not new. I think the margin pressure has
	actually become more intense, and our ability as you know very well, to
	reprice is much more constrained today than it would be historically because
	of low rates and even on the deposit side, we're reaching some sort of natural
	limit to reprice there. That's not true in institutional. You've got an ability to do
	that and we get a little bit of a boost there but the outlook is really really
	tough.
	The only - the tail wind we're going to get on revenue if you will, there will be
	some volume growth in our home loans business as we mentioned. That will
	start to come through now and there will start to be a little bit of a tail wind on
	the volume side into 2021 but boy it's not going to be hugely meaningful.
	It is a tough environment and I don't think we should shy away from that. But
	on the other hand, that's when - this is the type of environment when market
	businesses shine and they should. We shouldn't be surprised that they're
	having a good time. If we go back over long periods of time, they are
	countercyclical businesses. In times of volatility they do well. That's the
	benefit of having that diversification in our book but I'm sure Michelle will give
	you more colour.

Michelle Jablko:	Yes, so deposits margins, in terms of the other impact from revenue, it's
	mainly to do with what I've heard others say - in terms of what are transaction
	volumes. On margins themselves, the 6 basis point I referred to at the half
	was for the second half and that hasn't changed.
	As you look further out, depending on what happens with rates from here. If
	rates were stable the impacts on deposits is largely true, the impact of ITOC
	and capital will continue about that and there's a slide at the back that shows
	you how that will progress.
	Otherwise on margins, what's sort of the negatives and the positives. In terms
	of potential positive, the deposit mix is probably improving a bit, that's
	potentially positive. On the negative side, we'll get - we've still got mix that will
	continue to change, asset mix will change a bit in the fourth quarter.
	We've got lower credit card spending and we've got continued conversion of
	fixed home loans and then we've got the drawdown as the TFF.
Shayne Elliott:	Yes.
Michelle Jablko:	There's probably less benefit - and we had a very small benefit from
	Bills/OIS, that probably will be a bit less. So we've had few ups and downs.
Shayne Elliott:	A little point that Michelle made is that for cards - it's good, customers are
	doing the right thing, paying down cards, I think that's actually been surprising
	and counter to what we've seen in other markets locally. People are actually
	being pretty cautious, sure they're not spending; they're not using the credit
	card to buy flights and go on holidays, so those balances came down and
	tend to be a higher margin business.
	Little things like that again will slowly chip away and - but the outlook is tough.
	Next question?
Operator:	Thank you. Our next question is from Brett Le Mesurier of Shaw and
	Partners, please go ahead.
Brett Le Mesurier:	Thanks. Two questions; firstly, am I right in assuming that the larger notable
	items impact - the $99 million adverse impact, that was largely in income, that
	largely occurred in income, is that correct?
Michelle Jablko:	That's correct, yes. It was…

Brett Le Mesurier:	Okay.
Michelle Jablko:	…it was, yes.
Brett Le Mesurier:	The second question I had was looking at the pillar three, the impaired loans
	from March to June fell from $1.5 billion to $1.3 billion in the write-offs, and
	I'm talking about corporate impaired facilities, fell from $1.5 billion to $1.3
	billion from March to June and the write-offs increased by $65 million - from
	$65 million to $241 million. Am I right in assuming that the reduction in
	impairments was because you wrote off the loans?
Shayne Elliott:	Yes.
Brett Le Mesurier:	Can you comment on the industries in which - to which those write-offs
	related?
Shayne Elliott:	I can't remember. Kevin?
Kevin Corbally:	It's a range, one of them is what's been mentioned previously - in the
	commodity trading sector.
Shayne Elliott:	Right, yes.
Kevin Corbally:	Would be one of the bigger drops.
Shayne Elliott:	Could you hear that?
Brett Le Mesurier:	Okay.
Shayne Elliott:	Did you hear that?
Brett Le Mesurier:	I heard bits of it.
Shayne Elliott:	Yes, because it's - the largest - there's a portfolio, but it's not a single but a
	large part was in the commodity trading sector and we referred to a charge
	we took in the first half and that was potentially written off.
Brett Le Mesurier:	Okay, great. They're all the questions I have, thank you.
Shayne Elliott:	Thank you.
Operator:	Our next question is from TS Lim of Bell Potter, please go ahead.

TS Lim:	Good morning, guys. Thanks for the opportunity. Just going to slide number
	10, you have some commercial customers having higher cash inflows and
	some having lower cash inflows; are these net of JobKeeper payments? My
	second question is, how can a bank protect itself from businesses that
	actually fiddle their books to get JobKeeper payments?
Shayne Elliott:	The question - the first question you've given was I think how much of that
	cash inflow was JobKeeper; the answer is, we don't know.
Kevin Corbally:	We know that roughly about a third of our Commercial customers are
	receiving government assistance in the form of JobKeeper, so we do know
	that and those cash numbers, they will be inclusive of JobKeeper payments
	as well.
Shayne Elliott:	The second question I think - I don't - again, I think second question whether
	our customers are, I think the word was fiddling - fiddling their books…
Kevin Corbally:	Obviously, one of the things we look at when we take on board any customer
	and we lend to any customer is the character of our customer so that is part
	of the assessment process that we go through. Outside of that is individuals
	within that company and their activity and we've seen and we saw even at the
	half it can be sometimes quite difficult to pick that up in where those results
	are being then audited by major accounting firms as well. It's a challenge for
	all of us.
Shayne Elliott:	What I will say on that TS is that there's a - as you know, there's a small
	program where it's - there are small businesses apply for JobKeeper with
	bank will actually fund that before they get payment from the ATO. That stuff
	though is pretty low-risk from our point of view because it's well documented,
	it's well supported by our data is likely to be approved etc..
	I think from a risk perspective in a classic sense, I don't think that's a risk but
	your point more broadly about the word fraud, that is obviously a very
	complex for us to look at.
TS Lim:	All right, thanks.
Shayne Elliott:	Thank you.
Jill Campbell:	Operator, I think at that point, we're through the questions. Everybody, thanks
	for persevering with the Stage 4 lockdown sound. I realise that some of what

we've been talking about could have been a little harder to hear than we would like, so we are doing a replay later today but also we will be lodging a transcript and so hopefully that will help make up for anything that you may not have heard clearly as we would have liked you to. The IR team and myself are obviously available through the afternoon if there were any questions we didn't get to and with that, thanks to everyone and stay safe and well.

[END OF TRANSCRIPT]