Australia and New Zealand Banking Group Limited (ASX: ANZ)

While the major banks of Australia now seem to be hammered by Royal Commission, Australia and New Zealand Banking Group is putting efforts in different directions to streamline its business eyeing its long-term targets.

Focussing on Long-term targets: With regards to latest release of the Australian Prudential Regulation Authority’s (APRA) discussion paper on revisions to capital requirements, Australia and New Zealand Banking Group confirmed ANZ’s APRA CET1 position of 10.8% as at December 2017 and this augurs with the compliance conditions in line with APRA’s existing Unquestionably Strong requirements. While ANZ aims to continually consult APRA to fully understand the impact of the proposed changes, the bank believes that the divestment of non-core businesses should continue to provide ANZ with the flexibility to consider further capital management initiatives in the future. It is worth noting that ANZ’s current capital ratio of 10.8% includes the proceeds of the sale of Shanghai Rural Commercial Bank and a small benefit of the sale of its Asian retail and wealth businesses. As APRA also proposed a minimum leverage ratio requirement of 4% for Internal Ratings Based (IRB) banks and changes to the leverage ratio exposure measure calculations for implementation by 1 July 2019, ANZ’s leverage ratio at December 2017 of 5.5% is notable.

While the group’s buy-back up to $1.5 billion of shares on-market relating to the sale of 20% stake in Shanghai Rural Commercial Bank is on, ANZ’s divestment program progresses with the completed sale of its retail and wealth businesses in six Asian countries. The businesses have been transferred in Indonesia, China, Hong Kong, Taiwan and Singapore to Singapore’s DBS Bank, and the bank had also finalised the sale of its Vietnamese retail business to Shinhan Bank. Earlier, the bank offloaded its consumer credit insurance business to Zurich for $2.85 billion.

These moves have been said to help the bank focus on long-term targets with presence in Asia through Institutional business, and the sale the retail businesses in Asia is expected to boost the support to large corporate and institutional customers moving goods and capital across the region. Lately, ANZ had appointed Rohit Bhasin as Head of Markets India and is continuously driving efforts for growth in ANZ’s market business in India.

The group will release its half year 2018 results on May 01, 2018. We have a “Buy” recommendation on the stock at the current price of $28.07, looking at the potential and view of dividend paying capability.

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