Faruqui: diversified revenue delivers amid volatility

ANZ’s full year result was underpinned by diversified income streams which grew despite global uncertainty and volatility, Chief Financial Officer Farhan Faruqui said.

During the last 12 months very different trends had impacted the bank’s four businesses – Australia Retail, Australia Commercial, New Zealand and Institutional. Amid such conditions, the bank was able to allocate capital where it was most effective, Faruqui said.

"The benefits of diversification have never been as evident as they were this year.” – Farhan Faruqui

“The benefits of diversification have never been as evident as they were this year,” Faruqui told bluenotes in a video. “When we think about diversification, we think about it in the context of taking advantage of the benefit of the scale of each of our businesses.”

Click here to read the transcript

Faruqui said while Australia Retail faced intense competition and tighter margins, the Institutional business used its geographic reach, customer and product mix to help drive record returns for the division, through a “period of uncertainty and volatility”.

“The mix of geography and customers, and our ability to capture opportunities, have come from each of those four businesses,” Faruqui said. “The portfolio mix actually provides great impetus for getting great return outcomes and growth as well.”

ANZ released an audited cash profit for the September 2023 financial year of $7,405 million, up 14 per cent on the previous year. Statutory profit after tax was $7,098 million, flat on the previous year. The final dividend is comprised of an 81 cent per share dividend partially franked at 65 per cent and an additional one-off unfranked dividend of 13 cents per share. Totalling 94 cents per share, 56 per cent franked.

Sustainable, high returning 

Faruqui said the returns from the Institutional division were the result of a seven-year process to transform it into a different business. All three of its divisions contributed equally to the result – with corporate finance, transaction banking and markets each delivering about $2 billion of revenue.

Reshaping the Institutional business included reducing customer numbers from 27,000 to about 7000 with a greater focus on investment grade and lower-risk customers including financial institutions and governments.

“It's the most balanced Institutional business we've ever had in our history, much lower from a risk profile perspective,” Faruqui said. “It's a completely transformed business.”

Technology investments including in cash management, payment systems, foreign exchange and rates platforms spurred greater growth and allowed a seamless experience – whether customers were in Australia, New Zealand, India, Hong Kong or Singapore.

Enterprise wide

Faruqui said the technology investment was now paying dividends in other parts of the bank to create savings and efficiencies across the business. For example, the bank’s payments and cash management business – the platform that allows business and corporate clients to conduct payment transactions with their customers.

While initially built for Institutional customers, about 70 per cent of its users are customers of the Commercial division, Faruqui said.

“The lesson we learned was we took that business and built it centrally, in a centre of excellence, to serve the entire bank. To provide a reliable service that had a great customer experience.”

Faruqui also pointed to the investment in the ANZ Plus digital retail bank platform, which he said was building new capabilities for things like onboarding and product management. These functions could be applied across the business, giving ANZ a common approach to customers across all divisions, he said.

“That allows us to be efficient, in terms of cost. But it allows us to deliver a really good experience to our customers and equally importantly, if not more, by virtue of creating that uniformity of common services, it allows us to reduce the non-financial risk in our business.”

Navigating change

On movements in interest rates and inflation over the last 12 to 18 months, Faruqui said ANZ had managed its costs – much the same way households had in this environment. While many customers were proving resilient, there still remained uncertainty ahead.

“Our customers have been a lot more resilient facing into this. You might argue that 4 to 5 per cent rates are not particularly high in the context of history, but it is the speed with which that acceleration took place,” Faruqui said.

“There is obviously a human side of this issue as well because obviously there is stress in households across the country in terms of the challenges with inflation and rising cost of living.”

The bank’s focus was first, to support customers through any hardships, and secondly manage its own costs prudently.

“We've seen costs rising and we've seen rate benefits sort of starting to fade. And while we haven't seen risk play out yet, there will be a time when, in the next 12 months or 24 months, there'll be some increases in the cost of credit,” Faruqui said.

“There will be some more risk and credit losses simply because households are having to face into a tough time and those who are not able to make that transition in time to the higher rate environment from a cost-of-living perspective will face into some challenges.”

Brett Foley is Managing Editor of bluenotes.

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