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  1. #391
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    Quote Originally Posted by Biscuit View Post
    Possibly a result of increased restrictions around home loan lending?
    Could be Biscuit. The thing is though, if it has become harder to get a mortgage, this might imply that those that no longer qualify for a mortgage would go for an 'other retail' loan. So on balance 'other retail' might be expected to be riskier for FY2016 than FY2015. Yet the risk for 'other retail' loans has fallen as well! One explanation is that those denied a mortgage have moved to a different lending institution. So ANZ has got risk off the books by losing those customers. But if that had happened, one might expect the 'non mortgage' retail loan book to shrink.

    Go back to my post 362 on this thread and you will see that overall ANZ.NZ loans for 'Personal & Other Lending' have gone from $85,202m (FY2015) to $87,719m (FY2016). That is an increase of 3.0%. If people roll over their houses , on average, every seven years and house price inflation is 21%, then one might expect an increase of 21/7 = a 3% increase in the residential Mortgage book per year. If house price inflation is not that high (and nationwide I don't think it is) , one could infer that more 'non mortgage' retail lending is going on. IOW, ANZ are increasing the size of their 'non mortgage' retail loan book. Yet the 'other retail' loan risk is falling?

    I am having trouble making sense of it all. Just as well I am not a banker in 'real life'.

    SNOOPY
    Last edited by Snoopy; 11-01-2017 at 03:41 PM.
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  2. #392
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    Quote Originally Posted by Snoopy View Post
    I am having trouble making sense of it all. Just as well I am not a banker in 'real life'.

    SNOOPY
    Your attempts to make sense of it are very admirable, personally I would not dare try.

  3. #393
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    Quote Originally Posted by Snoopy View Post
    ... if it has become harder to get a mortgage, this might imply that those that no longer qualify for a mortgage would go for an 'other retail' loan....
    SNOOPY
    I'd think two things at least would happen as LVR restrictions were introduced and increased: 1. people who were about to be locked out, stepped up and took out a mortgage before the rules changed; and 2. people who were locked out dug deeper for longer (or hit on their parents) to achieve the new ratios. Both effects probably have improved the margin of safety on new loans over time and the margin of safety on old loans gets steadily larger over time with house inflation and principle reduction.

  4. #394
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    Quote Originally Posted by macduffy View Post
    Thanks, Snoopy, interesting numbers. The big improvement on UDC's previous year's 1.43% wouldn't indicate that ANZ is using the finance coy to quarantine impaired loans - but then, perhaps all three of the above are taking a slightly more relaxed view of their loan books this year!
    Yes the drop from 1.43% impaired to 1.19% impaired over the period of a year is a significant improvement. However, while I am concerned about the level of loan impairment in finance companies, once a loan becomes impaired it is already out in the open for all to see and there is little that can be done. My concern is more over the level of 'stressed loans'(*), or those just shy of being impaired. IMO 'Streesed loans' are worth spending managment time on to make sure they do not become impaired. Unlike impaired loans, 'stressed loans' are subject to managment discretion during categorization. It is easier to manipulate the size of 'stressed loans' on the books than to manipulate the quantum of 'impaired loans'.

    With UDC in FY2016 (my post 352 on this thread) the ratio of 'stressed loans' to 'actual write offs' was 3.22/0.41 = 7.9 for FY2016, slightly up on the 3.39/0.49 = 6.9 for FY2015. Contrast this with the equivalent statistics for Heartland 1.21/0.6 = 2.0 (FY2016) 1.36/0.12= 11.3 (FY2015). This indicates to me that Heartland are being far more lax with their definition of 'stressed loans.' Not an issue for Heartland now of course. But if Heartland are likely underestimating their 'write offs' in the future becasue of this, then lax classification of 'stressed loans' today will come back to bite them. I have no such concerns with the UDC treatment on 'stressed loans'.

    (*) 'Stressed Loan' is defined by Snoopy for the purposes of this discussion as 'Loan Categories 7 and 8' plus 'Default' loans less Provision for Credit Impairment. Note that this definition of 'stressed loans' removes 'loan impairments' to a separate and dintinct loan category

    SNOOPY
    Last edited by Snoopy; 12-01-2017 at 09:30 AM.
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  5. #395
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    Quote Originally Posted by Biscuit View Post
    I'd think two things at least would happen as LVR restrictions were introduced and increased: 1. people who were about to be locked out, stepped up and took out a mortgage before the rules changed; and 2. people who were locked out dug deeper for longer (or hit on their parents) to achieve the new ratios. Both effects probably have improved the margin of safety on new loans over time and the margin of safety on old loans gets steadily larger over time with house inflation...
    Yes, excellent point Biscuit. Because most mortages are not rolled over in any one year, house price inflation actually pays a large part in reducing risks for banks on the 6/7 (or so) of mortages that are not rolled over. I hadn't considered the point before that house price inflation is really good for trading banks, assuming of course that any possible subsequent house price collapse level also increases with the overall level of house price inflation.

    and principle reduction.
    LOL, I find that statement very amusing! I am going to assume this is a spelling error and you meant 'principal'. Because if you actually meant 'principle reduction', that means you are saying that as house prices increase, then the lenders become less scrupulous with shareholder funds and more inclined to accept lies from their lying 'borrowing customers' about their ability to repay the loan!

    SNOOPY
    Last edited by Snoopy; 12-01-2017 at 09:45 AM.
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  6. #396
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    Quote Originally Posted by Snoopy View Post
    LOL, I find that statement very amusing! I am going to assume this is a spelling error and you meant 'principal'. Because if you actually meant 'principle reduction', that means you are saying that as house prices increase, then the lenders become less scrupulous with shareholder funds and more inclined to accept lies from their lying 'borrowing customers' about their ability to repay the loan! SNOOPY
    Well spotted. I did indeed mean principal reduction, although logically the longer a customer has successfully serviced a loan the more inclined the bank should be to view them as lower risk? So, maybe I am right either way?

  7. #397
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    Default ANZ.NZ Loan Book Industry Funding Concentration FY2016

    Quote Originally Posted by Snoopy View Post
    One year later (30th September 2015) we compare the break down of the loan book. From the ANZ New Zealand statement to the reserve bank on 30th September 2015, page 29, the loan book break down is like this:

    ANZ (New Zealand) Loan Book FY2012 FY2013 FY2014 FY2015
    Agriculture $19,071m $18,842m (-1.2%) $18,811m (-0%) $19,717m (+4.8%)
    Forestry, fishing and mining $1,260m $1,850m (+46.8%) $2,049m (+10.8%) $2,014m (-2.0%)
    Business and property services $11,706m $11,334m (-3.2%) $12,051m (+6.3%) $13,681m (+13.5%)
    Construction $2,059m $2,154m (+4.6%) $2,154m (+23.2%) $2,170m (+0.7%)
    Entertainment, leisure and tourism $1,697m $1,389m (-18.1%) $1,294m (-6.9%) $1,386m (+7.1%)
    Finance and insurance $19,245m $18,412m (-4.3%) $20,254m (+10%) $27,569m (+36.1%)
    Government and local authority $13,433m $9,910m (-26.2%) $11,363m (+14.6%) $12,229m (+7.6%)
    Manufacturing $5,591m $5,051m (-9.6%) $5,312m (+5.2%) $5,925m (+11.5%)
    Personal lending $58,664m $63,492m (+8.2%) $70,098m (+10.4%) $80,935m (+15.5%)
    Retail trade $2,964m $2,859m (-3.5.%) $3,026m (+0.5.8%) $3,046m (+0.7%)
    Transport and storage $2,416m $2,147m (-11.1%) $2,264m (+5.4%) $2,470m (+9.1%)
    Wholesale trade $2,653m $2,704m (+1.9%) $2,695m (-0%) $2,739m (+1.6%)
    Other $4,792m $4,577m (-4.5%) $4,093m (-5.6%) $4,267m (+4.3%)
    Total $145.551m $144.315m (-0.8%) $155,174m (+7.5%) $178,148m (+15%)

    Finance and Insurance and Personal loans are the two categories that are driving loan portfolio growth!

    SNOOPY
    Time to update what is now a five year funding picture showing what sectors ANZ in New Zeland is lending their money to.

    http://www.anz.co.nz/about-us/media-...r-information/

    FY2016 information is from the September Quarter Report to the Reserve Bank, corresponding to the end of the financial year for ANZ bank in New Zealand

    ANZ (New Zealand) Loan Book FY2012 FY2013 FY2014 FY2015 FY2016 Five Year Growth Five Year Geometric Average Annual Growth
    Agriculture $19,071m $18,842m (-1.2%) $18,811m (-0%) $19,717m (+4.8%) $19,787m (+0%) +3.75% +0.74%
    Forestry, fishing and mining $1,260m $1,850m (+46.8%) $2,049m (+10.8%) $2,014m (-2.0%) $1,633m (-19.0%) +29.6% +5.32%
    Business and property services $11,706m $11,334m (-3.2%) $12,051m (+6.3%) $13,681m (+13.5%) $14,275m (+4.3%) +21.9% +4.04%
    Construction $2,059m $2,154m (+4.6%) $2,154m (+23.2%) $2,170m (+0.7%) $2,367m (+9.1%) +15.0% +2.83%
    Entertainment, leisure and tourism $1,697m $1,389m (-18.1%) $1,294m (-6.9%) $1,386m (+7.1%) $1,744m (+25.8%) +2.77% +0.55%
    Finance and insurance $19,245m $18,412m (-4.3%) $20,254m (+10%) $27,569m (+36.1%) $31,956m (+15.9%) +66.0% +10.7%
    Government and local authority $13,433m $9,910m (-26.2%) $11,363m (+14.6%) $12,229m (+7.6%) $12,373m (+1.2%) -7.89% -1.53%
    Manufacturing $5,591m $5,051m (-9.6%) $5,312m (+5.2%) $5,925m (+11.5%) $5,651m (-4.6%) +1.07% +0.21%
    Personal lending $58,664m $63,492m (+8.2%) $70,098m (+10.4%) $80,935m (+15.5%) $83,256m (+2.9%) +41.9% +7.25%
    Retail trade $2,964m $2,859m (-3.5.%) $3,026m (+0.5.8%) $3,046m (+0.7%) $2,970m (-2.5%) +0.202% +0.04%
    Transport and storage $2,416m $2,147m (-11.1%) $2,264m (+5.4%) $2,470m (+9.1%) $2,584m (+4.6%) +6.95% +1.35%
    Wholesale trade $2,653m $2,704m (+1.9%) $2,695m (-0%) $2,739m (+1.6%) $3,207m (+14.8%) +20.9% +3.87%
    Other $4,792m $4,577m (-4.5%) $4,093m (-5.6%) $4,267m (+4.3%) $4,463m (+4.6%) -6.87% -1.34%
    Total $145.551m $144.315m (-0.8%) $155,174m (+7.5%) $178,148m (+15%) $186,266m (+4.6%) +29.1% +5.24%

    Over the five year picture it is very clear that 'Finance and Insurance' and 'Personal Loans' are the two categories that are driving loan portfolio growth, even if persoanl lending has slowed over the past year. What is more of a surprise is the very low growth in the loan book of Agriculture, supposedly the backbone of the country!

    So how useful is the above information? Given that ANZ is New Zealand's largest bank, ANZ is probably the best single company proxy for the whole New Zealand economy. If you are an NZX investor, it might pay to be looking in those sectors that are powering the overall loan market forward. A growth company in a growth sector might face less headwinds than a growth company in a flat sector.

    SNOOPY
    Last edited by Snoopy; 28-06-2018 at 08:43 AM.
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  8. #398
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    Default Capital Adequacy ratio for ANZ.NZ: Update for FY2016

    Quote Originally Posted by Snoopy View Post
    Today I want to update the ANZ New Zealand banking covenants for September 30th 2015 quarter (corresponding to the EOFY). ANZ New Zealand includes their wholly owned subsidiary UDC finance.

    Once again the document I am referencing is the:

    "ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2015, Number 79 issued November 2015"

    Page 49, note 28 contains the information on capital adequacy.

    The information supplied is as follows:

    Common Equity Tier 1 ratio: 10.5% (vs RBNZ minimum of 4.5% + 2.5% buffer)
    Total Tier 1 ratio: 12.7% (vs RBNZ minimum of 6.0% + 2.5% buffer)
    Total Tier 1 & 2 ratio: 13.6% (vs RBNZ minimum of 8.0% + 2.5% buffer)

    The improvement in these ratios could have benefittted from the $3.2b capital raising by institutional placement and subsequent share purchase plan offer to shareholders made during the financial year. However the ANZ.NZ Tier 1 capital ratio has gone down in New Zealand over the year, and no new share capital injection is apparent from the accounts. Additional capital requirements recently announced by the Australian Prudential Regulation Authority (APRA), in particular the increase in average credit risk weights for major bank Australian mortgage portfolios to 25% taking effect from 1 July 2016. So it looks like all the capital raising monies were ear marked for Australia, and the ANZ.NZ subsidiary operations have not benefitted at all.

    Instead, the ANZ New Zealand operation has been shored up by the issue of two new tranches of ANZ convertible notes.

    • On 5 March 2015, the Bank issued 10.0 million convertible notes (ANZ NZ ICN) to the NZ Branch at NZ$100 each, raising NZ$1,003 million.
    • On 31 March 2015, the Bank issued 500 million convertible notes (ANZ NZ CN) at NZ$1 each, raising NZ$500 million before issue costs.

    Both of these issues are structured as additional Tier 1 capital for ANZ.NZ.

    Page 50 contains detailed notes on just how the ANZ NZ capital is made up. If you use that information and use it to calculate the above ratios, based on a loan book with net loans and advances of $106,357m (from the balance sheet) I calculate the above ratios as follows (total net loans and advances of broken down under Note 12 'Net Loans & Advances'):

    Common Equity Tier 1 ratio: $8,441m/$106,357m = 7.9%
    Total Tier 1 ratio: $10,282m/$106,357m = 9.7%
    Total Tier 1 & 2 ratio: $10,984m/$106,357m = 10.3%

    Those figures are a different to those on the preceding referenced page. That is because the Tier 1 and Tier 2 capital figures have been 'risk adjusted' before they went into my calculation. The risk adjustment is done because the expected capital recovery from loans should they go bad is different among the different classes of loans (corporate, sovereign, bank, retail mortgages and other retail)

    SNOOPY

    PS Tabulated version of above results

    30/09/2015 (risk adj) 30/09/2015 (book value) RBNZ Required
    Common Equity Tier 1 Ratio 10.5 7.9 4.5+2.5
    Total Tier 1 Ratio 12.7 9.7 6.0+2.5
    Total Tier 1&2 Ratio 13.6 10.3 8.0+2.5
    Today I want to update the ANZ New Zealand banking covenants for September 30th 2016 quarter (corresponding to the EOFY). ANZ New Zealand includes their wholly owned subsidiary UDC finance.

    The document I am referencing is the:

    "ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2016, Number 83 issued November 2016"

    Page 49, note 29 contains the information on capital adequacy.

    The information supplied is as follows:

    Common Equity Tier 1 ratio: 10.0% (vs RBNZ minimum of 4.5% + 2.5% buffer)
    Total Tier 1 ratio: 13.2% (vs RBNZ minimum of 6.0% + 2.5% buffer)
    Total Tier 1 & 2 ratio: 13.7% (vs RBNZ minimum of 8.0% + 2.5% buffer)

    The ANZ.NZ Tier 1 capital ratio has gone down slightly again in New Zealand over the year, and no new share capital injection initiative is apparent from the accounts. Total equity has increased to $12,710m, an increase of 2% due to an increase retained earnings.

    From N0te 17 on Subordinated Debt, The ANZ New Zealand operation has been shored up by the issue of a new tranche of ANZ convertible notes, dubbed "ANZ New Zealand Internal Capital Notes 2."

    • On 15 June 2016, the Bank issued 9.38m million convertible notes (ANZ NZ ICN2) to the NZ Branch at NZ$100 each, raising NZ$938 million.

    This issue is structured as additional Tier 1 capital for ANZ.NZ.

    Page 50 contains detailed notes on just how the ANZ NZ capital is made up. If you use that information and use it to calculate the above ratios, based on a loan book with net loans and advances of $114,623m (from the balance sheet) I calculate the above ratios as follows (total net loans and advances of broken down under Note 13 'Net Loans & Advances'):

    Common Equity Tier 1 ratio: $8,725m/$114,623m = 7.6%
    Total Tier 1 ratio: $11,505m/$114,623m = 10.0%
    Total Tier 1 & 2 ratio: $11,973m/$114,623m = 10.4%

    Those figures are a different to those precedingly calculated. That is because the Tier 1 and Tier 2 capital figures have been 'risk adjusted' before they went into my first calculation. The risk adjustment is done because the expected capital recovery from loans -should they go bad- is different among the different classes of loans (corporate, sovereign, bank, retail mortgages and other retail)

    SNOOPY

    PS Tabulated version of above results

    30/09/2016 (risk adj) 30/09/2016 (book value) RBNZ Required
    Common Equity Tier 1 Ratio 10.0 7.6 4.5+2.5
    Total Tier 1 Ratio 13.2 10.0 6.0+2.5
    Total Tier 1&2 Ratio 13.7 10.4 8.0+2.5

    A multi year picture of capital adequacy is shown below:

    FY2012 FY2013 FY2014 FY2015 FY2016
    Quoted Common Equity Tier 1 Ratio N/A 10.4% 10.7% 10.5% 10.0%
    Quoted Total Equity Tier 1 Ratio 10.8% 10.8% 11.1% 12.7% 13.2%
    Quoted Total Equity Tier 1 & 2 Ratio 12.5% 12.4% 12.3% 13.6% 13.7%

    It is interesting that although the Common Tier 1 equity has been weakening, other tier 1 (including preference shares) and tier 2 capital has been issued to strengthen the balance sheet.

    SNOOPY
    Last edited by Snoopy; 15-07-2018 at 09:25 PM.
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  9. #399
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    Default Capital Adequacy for ANZ (Australia) -The Consolidated Group (FY2016)

    Quote Originally Posted by Snoopy View Post
    There has been talk on another thread about 'What is an adequate capital ratio for a bank?' On 17th September 2015, ANZ pocketed the proceeds of a capital raising to fix their own position. This capital raising was captured in the FY2015 Annual Report , with its 30th September 2015 balance date. So I think it is useful to look at a couple of key statistics before (FY2014 capital position ) and after (FY2015 capital position). That way we shareholders can see in numerical terms, what the changes were in the capital structure that ANZ managment deemed prudent.

    All numbers quoted below are from the FY2015 ANZ Annual Report

    FY2014 FY2015 Reference
    Normalised Profit (A) $7,117m $7,216m p5
    Shareholder Equity 'Tier 1 Capital' (B) $49,284m $57,353m p62 (Balance Sheet)
    Return on Equity (A)/(B) 14.4% 12.6% calculated
    Additional 'Tier 1 Capital' (C) $6,004m $7,423m p101 (Subordinated Debt)
    Total 'Tier 1 Capital' (B)+(C) $55,288m $64,776m calculated
    'Tier 2 Capital' Perpetual Subordinated Notes (D) $1,087m $1,188m p101 (Subordinated Debt)
    'Tier 2 Capital' Dated Subordinated Notes (E) $6,516m $8,398m p101 (Subordinated Debt)
    'Tier 2 Capital' Discount for near dated 2019 notes (F) $0m -$271m calculated at 20%
    'Tier 2 Capital' Total (D)+(E)+(F) $7,603m $9,315m calculated
    Total Capital (Tier+Tier2) (G) $62,891m $74,091m calculated
    Return on Total Capital (Tier+Tier2) (A)/(G) 11.3% 9.7% calculated

    That last line in the table is not one you will find in any ANZ report. Yet it is an interesting measure of how much 'equity', in the widest sense of that word, that ANZ management regard as prudent.

    If, for a comparative example, you take the equivalent ROTC for New Zealand's own Heartland Bank: Net Profit $48.163m (excluding other comprehensive income) Shareholder Equity $480.125m
    (for Heartland ROTC = ROE, because Heartland as yet has no subordinated bond type capital)

    Then ROTC = $48.163m / $480.125m = 10.0%

    This shows that the Heartland assets are being worked pretty hard. Is that just an indication of higher underlying profit margins at Heartland? Or are those Heartland assets being worked rather harder than is prudent?
    Just in case the message has been lost. It is not possible to invest in ANZ (New Zealand) or UDC from a direct equity perspective. It is possible to invest in the ultimate parent though, and this ANZ in Australia. For convenience of NZ investors, ANZ (Australia) is listed on the NZX.

    All FY2016 numbers quoted below are from the FY2016 ANZ Annual Report

    FY2014 FY2015 FY2016 Reference
    Normalised Profit (A) $7,117m $7,216m $5,889m p5 (Financial Highlights)
    Shareholder Equity 'Tier 1 Capital' (B) $49,284m $57,353m $57,924m p64 (Balance Sheet)
    Return on Equity (A)/(B) 14.4% 12.6% 10.2% calculated
    Additional 'Tier 1 Capital' (C) $6,004m $7,423m $9,493m p104 (Subordinated Debt)
    Total 'Tier 1 Capital' (B)+(C) $55,288m $64,776m $67,390m calculated
    'Tier 2 Capital' Perpetual Subordinated Notes (D) $1,087m $1,188m $1,190m p104 (Subordinated Debt)
    'Tier 2 Capital' Dated Subordinated Notes (E) $6,516m $8,398m $11,281m p104 (Subordinated Debt)
    'Tier 2 Capital' Discount for near dated 2019 notes (F) $0m -$271m -$245m 2019 notes calculated at 20%
    'Tier 2 Capital' Total (D)+(E)+(F) $7,603m $9,315m $12,226m calculated
    Total Capital (Tier+Tier2) (G) $62,891m $74,091m $79,616m calculated
    Return on Total Capital (Tier+Tier2) (A)/(G) 11.3% 9.7% 7.4% calculated

    That last line in the table is not one you will find in any ANZ report. Yet it is an interesting measure of how much 'equity', in the widest sense of that word, that ANZ management regard as prudent. Since EOFY2014 ANZ capital of all kinds has increased by nearly 25%!

    If, for a comparative example, you take the equivalent ROTC ('Return On Total Capital') for New Zealand's own 'Heartland Bank': Net Profit $54.164m (excluding other comprehensive income) Shareholder Equity $498.341m (for Heartland ROTC = ROE, because Heartland as yet has no subordinated bond type capital)

    Then ROTC = $54.164m / $498.341m = 10.9%


    SNOOPY
    Last edited by Snoopy; 14-01-2017 at 02:39 PM.
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    Default Bank Operational Efficiency FY2016: ANZ vs Heartland

    Quote Originally Posted by Snoopy View Post

    A return on equity calculation, based on average shareholder equity for the year gives one measure of how well both HBL and ANZ are working their shareholder's funds:

    {Note: I have added the impaired asset expense back into each company's earnings NPAT figures, to try and gain a more normalised picture of earnings.}

    ANZ Group

    [(Declared Normalised Profit) + (Impaired Asset Expense {tax adjusted})] / [Averaged Annual Shareholder Equity]
    = ($7,216m + 0.7($1,179m)) / (0.5 x($57,353m+$49,284m)) = 15.0%

    Heartland Bank

    [(Declared Normalised Profit) + (Impaired Asset Expense {tax adjusted})] / [Averaged Annual Shareholder Equity]
    ($48.163m + 0.72($12.105m)) / (0.5 x($480.125m+$452.622m)) = 12.2%

    By this measure then, it is the ANZ bank that is more efficient.
    A return on equity calculation, based on average shareholder equity for the year gives one measure of how well both HBL and ANZ are working their shareholder's funds:

    {Note: I have added the impaired asset expense back into each company's earnings NPAT figures, to try and gain a more normalised picture of earnings.}

    ANZ Group

    [(Declared Normalised Profit) + (Impaired Asset Expense {tax adjusted})] / [Averaged Annual Shareholder Equity]
    ($5,889m + 0.7($1,929m)) / (0.5 x($57,353m+$57,927m)) = 12.6%

    Heartland Bank

    [(Declared Normalised Profit) + (Impaired Asset Expense {tax adjusted})] / [Averaged Annual Shareholder Equity]
    ($54.164m + 0.72($13.501m)) / (0.5 x($480.125m+$498.341m)) = 13.0%

    Heartland has now overtaken our parent bank of (ANZ Australia) in the operating efficiency stakes!

    SNOOPY
    Last edited by Snoopy; 16-01-2017 at 09:32 AM.
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