ANZ Group Holdings Limited (ANZ) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to ANZ's third ESG market briefing. My name is Tony Warren, and I look after the communications and public affairs function here at ANZ. Firstly, let me acknowledge the traditional owners of the land on which we meet and pay my respects to the elders past and present. Now within the comms and public affairs function, we have a specialist team responsible for managing our group-wide ESG work. This includes our disclosures, our customer assessments as well as helping to ensure we are strategic in our approach and are responding to current and emerging ESG risks and opportunities. But of course, management of ESG issues is embedded right across the organization, including in our risk, strategy, property and sustainable finance teams. So now to today's briefing, which will be led by our CEO, Shayne Elliott. Shayne will give an update on how we're performing against our ESG commitments, including those relating to carbon. We'll then provide some insights into how our purpose is helping us navigate the COVID-19 pandemic. Mark Hand, our Group Executive Retail and Commercial for Australia will then cover our COVID support measures in more detail and also discuss the ways we're managing some key nonfinancial risks such as cybersecurity. Now we will have plenty of time for questions right at the end. With that, I'll hand over to Shayne.

Okay. Thanks, Tony, and good afternoon, everybody, and thank you for joining us. As Tony mentioned, this is our third ESG briefing. And while it is a little different logistically, I hope you'll find it just as useful. 2020 has been a challenging year. Our customers and communities have faced significant uncertainty and loss initially for some brought about by the bushfires and now, of course, COVID-19. Our thoughts with those who have lost loved ones and been directly impacted. For those who joined us at this briefing last year, you may recall, we focused on our governance framework as well as our response to the Royal Commission. So if you like, the focus was on the G within the ESG. Today, I'll largely be focused on the S and how our purpose has guided our response to COVID-19, particularly how we're supporting our customers. Mark, our Group Executive, Retail and Commercial Australia, will cover the specific support measures for customers and staff and the risks being amplified by the pandemic including cybersecurity. We'll then open it up for questions. So to begin with, I'd like to discuss our ESG framework, our priorities and the progress we're making. We have a clear sense of purpose at ANZ to shape a world where people and communities thrive. Our purpose guides our decisions about who we bank, how we behave and what we care about most. We've done a lot of work over the last few years to embed our purpose and build a values-driven culture and ensuring that we have the capacity to deliver it. These foundations have meant we're in a strong position to meet the current challenges in a fair, ethical and sensitive way for our customers, employees and the community while still delivering decent returns to shareholders. And we believe those interests are aligned and not trade-offs. And while we've had to adapt our business in the current environment, we haven't lost focus on our strategy and our priorities of improving the availability and of suitable and affordable housing options for all Australians and new Zealanders, supporting household, business and financial practices that improve environmental sustainability and on financial well-being, helping our customers, employees and the community, make the most of their money throughout their lives. Fundamental to our approach is a commitment to fair and responsible banking, maintaining high standards of conduct and keeping pace with the rising expectations of our customers, employees and the community. Now a brief update on our ESG targets, many of which are aligned with the UN sustainable development goals. We're making good progress with over 80% on track. Now while progress in some areas has been less than we would have aspired to, I think it's important that we do set ambitious goals. The management of climate-related risks and opportunities clearly remains a priority issue for the bank. Now our own footprint is relatively small, but not irrelevant, and we have made progress. More importantly, we can influence the impacts of our customers. Our target to fund and facilitate at least $50 billion in sustainable financing by 2025 is on track and progressing well. And an example of this is the green loan we provided to Walker Corporation for the development of Parramatta Square, a great amenity for the people of New South Wales. And the first labeled green loan executed by a private company in Australia, which means proceeds are allocated towards qualifying green projects. We also have a target to encourage and support 100 of our largest emitting customers in the energy, transport, buildings, food, beverage and agricultural sectors in their public commitments to transition to a net 0 economy. We've already reviewed the carbon disclosures of more than 90 of these customers and engaged with more than 60 to support the strengthening of their plans. And we will announce an updated carbon policy at our full year results in October. We also know we have a role to play as a borrower, and our own group treasury team is now systematically including the issuance of sustainable development goal or SDG bonds into our annual capital and funding needs. A couple of key highlights relating to our other priority areas of housing and financial well-being include that we've jointly led 3 social bonds for the National Housing, Finance and Investment corporation in the past 18 months. Their most recent issue in June was for $562 million and will support 10 community housing providers with access to more than 2,700 affordable homes. Our match saving and financial education program Saver Plus has helped more than 46,000 lower income Australians save over $24 million to support their own and their children's educational needs. More recently, we've directed about $12 million to our key community partners to, amongst other things, help expand their programs online. And this is particularly important as our partners witness increased demands at a time their traditional face-to-face channels are challenged. And we've also partnered with the UN Development Programme to deliver our financial education programs in the Pacific. So overall, we're making good progress, but we know we can always do more. Now let me talk specifically about our approach to COVID. Put simply, it's about protecting what matters adapting to the changing environment, increasing engagement and preparing for the future. Our decisions in responding to the crisis have had a very real short-term financial impact on earnings and profitability and of course on shareholder value. But our focus remains on the long term, a healthy and sustainable community is in the long-term interest of ANZ. Throughout, we've tried to make fair and appropriate decisions, seeking to balance the needs of all stakeholders. And here today, we are issuing a statement of intent to provide clarity on our commitment to support customers, and we expect to be held to account against this, and we will report on our progress. As you know, in March, we commenced offering new assistance to customers who are current with their repayments but needed support in the form of a payment deferral due to the impact of COVID. And by current, I mean they were up to date or no more than 1 month overdue on their payments. We figured that there will always be good reasons when people have been overwhelmed why they might be a week or so behind on their repayments, and we shouldn't penalize them for that. For those receiving the support but are unable to resume full repayments at the end of the initial deferral, the statement of intent outlines the following that we will listen to the customer to understand their current and near-term financial position that we will adjust facilities where possible, for example, provide a period of interest-only for those able to resume repayments only if the loan is restructured. We'll extend the deferral period for those who are unable to resume repayments but are likely to have an improved financial position in the medium term. And we'll assist those customers likely to experience ongoing financial hardship to find an appropriate solution for them. Sadly, we know that there will be difficult situations where we need to help customers wind up their debts. And when this happens, we'll be ethical and sensitive in our actions. In short, through the statement of intent, we're seeking to give customers and other stakeholders greater certainty at what is an uncertain and stressful time for many. Now moving to how we are managing the impacts of the pandemic. Our first step was to protect our ability to operate as well as protecting our customers and our people. In March, we announced our initial support package for small business and home loan customers. And since then, we've supported around 200,000 customers in Australia and New Zealand with measures such as payment deferrals, and temporary overdraft facilities. The COVID pandemic has also meant we've needed to do some things differently in the way we support our customers. And a good example of this is how we've worked to protect the health and safety of our vulnerable and elderly customers, so they don't have to physically come into a branch. When the pandemic first started, we still had around 7,000 customers who had a passbook account, which they used to withdraw money face to face from a teller. And we've developed a new process, so they can open a Visa debit account from their home, over the phone and we've been in contact with the majority of these customers to assist with it. Our other immediate priority was looking after our staff, we transitioned as quickly as possible to enable most of our staff to work from home. And since March, we've had approximately 90% of our people doing just that. Now Mark will touch on this later, but it's important to note the responsibility we have in terms of protecting our people, and this includes their mental and physical well-being. Our people have adapted faster than we could have imagined and have been remarkably flexible and making sure we continue to provide services to our customers. How we've adapted to the crisis in many ways demonstrates the success of our efforts in recent years to strengthen our governance processes. A key element to this was reviewing our response to the pandemic and deepening Board oversight of the business through an ESG lens. Fortunately, we've also had the benefit of a consistent and cohesive management team. Our management, Ethics and Responsible Business Committee, which I chair, is a leadership and decision-making body. It considers the social and environmental impacts of the industries we finance, our treatment of customers and the communities that ANZ serves. The Board's Ethics and Environmental, Social and Governance Committee is responsible for overseeing and reviewing our approach. For instance, our work to improve our policies, processes and disclosures on our approach to human rights has been a focus this year. We've committed to review and strengthen our human rights policies, including our customer's social and environmental screening processes and are developing a grievance mechanism using the UN guiding principles on business and human rights. The Board has also overseen our work to upgrade our climate commitments. COVID-19 pandemic has also seen our Board in particular, actively engage and oversee a number of key decisions, especially responsibly allocating capital. Our third area of focus is how we've engaged with stakeholders. In a time of crisis, people need clarity and certainty, and we've stepped up our engagement with all stakeholders for this reason. We've worked closely with government and regulators to ensure that the support measures in the form of deferrals and extensions were appropriate. In addition, our senior executives engage weekly with NGOs, consumer advocates and financial counselors to discuss what they're seeing on the ground to ensure that we're acting responsibly and responsively to real-world conditions. Now just before I hand over to Mark, I want to touch on a few key points as we prepare for the future. As mentioned, our strategy and priority areas are largely unchanged, but we do have some forward-looking objectives, which are: to maintain strong risk discipline, focused on good customer and regulatory outcomes, improve the financial well-being and experience of our customers such as improving the decision times for home loans and business lending in Australia, building a diverse and adaptable team and running our core businesses well and delivering sustainable operational improvements. These areas build on our goal to be simpler, more efficient and better managed, and they'll set us up even more strongly for the future. Now with that, let me hand over to Mark, who will discuss our nonfinancial risk management work. Mark?

Thanks, Shayne. So let me go into a bit more detail on what's changed for us during the pandemic. Responding to the needs of our customers was a top priority, as Shayne has mentioned. In the peak months of March and April, we saw customers who are current on their lending arrangements, needing access to support measures. This is in addition to some who have already been provided with assistance through our hardship team. Since then, we've developed formal and regular check-in and processes to transition those customers who can of support measures. At the 3-month mark, we checked in with customers on their progress and have just this week commenced engaging with them again prior to their deferrals ending to prepare and plan ahead. We believe most will resume paying down their loan as deferrals finish. And encouragingly, we've already seen a number of customers make some kind of repayment. However, some will need further help. And for those who remain impacted and unable to return to full repayments, we are working through this sensitively and on an individual basis, trying to give them as much breathing room as we can to help get them back on their feet. But it's good news for some business customers, and we are seeing some positive signs from those who are in a good position, who've been able to proactively manage costs, be conservative with capital and innovate during the crisis. Our response has also been about how our contact centers have helped support and serve our customers. For many who needed assistance, English wasn't their first language, and so we had 22 languages covered from our contact center staff. And in August, we hired an additional 250 full-time employees to work in our customer hardship team as demand in our contact center has seen an increase of more than 65%. Operationally, the other most significant piece of work was around how we were able to adapt and support our staff to work from home. This was a big task as we had to increase our capacity very quickly, but we already had the right systems in place to do this. We've also planned for the return of a limited number of our employees to the workplace in line with government advice. During June and July, a small number of our staff in some locations such as South Australia and Western Australia returned to the office, with other locations on hold due to further stay-at-home restrictions being in place. With this significant change in our work life, our approach to culture and employee well-being became another top priority for us. It wasn't just about ensuring our people could work at their best, but more so, how they managed and were they okay. Early on, we focused on how we would help our people build resilience to steer through this crisis. For instance, we launched a healthy meat digital app offering bite-sized pieces of content on topics of health and well-being. The aim was to help our staff develop the skills to boost resilience and deal with challenging situations. And we increased communication about our employee assistance program, which provides short-term well-being support services for employees and family members. Interestingly, during the COVID situation, periods of isolation, a utilization of the program remains stable compared to previous quarters which possibly reflects the impacts of the well-being measures that we did put in place. Pleasingly, the results from our global employee survey conducted in July told us that 93% of our staff feel that ANZ is supporting employees during the COVID pandemic. From an overall business perspective, we wanted to confirm we have the right strategies in place while also strengthening the integrity of our risk management system. We started to look more closely at everything based on a heightened risk appetite, including our assumptions on how we do business, how we work together and how we manage risks and capability. Our policies are designed to ensure we have the right boundaries and guidelines in place for how we operate. In a time of crisis, we've needed to adjust our thinking on these. This has included reviews of how we model risk in our portfolios on how we view high-risk sectors, how we grade customers and stress test them and understand the capital and provision implications of it all. Another element to this crisis has been the increase in cybersecurity threats. The threat of cybercrime and fraud is not new, but in the current environment, it's become more prolific. We have seen a significant increase of cyber attacks since COVID began. For example, early in the crisis, we were blocking around 550,000 COVID-related phishing e-mails per month, which is now reduced. But to put this in context, we block over 7 million e-mails every month. Our 24/7 sophisticated security operations centers defenses and mitigation capabilities which analyze millions of data events every day, help keep the bank and its staff and customers safe online. We've also increased staff and customer communications to ensure people are protecting themselves by being able to spot a suspicious e-mail or a website, recognize a ransomware scam and by having the latest software and hardware to block the traffic. This is in addition to our mandatory security training for all staff. So we're well prepared and managing well, but we're not complacent and continue to take this risk seriously. Before I hand back to Shayne, I want to talk to the effects of the bushfires that devastated parts of Australia earlier this year and our work to help support the communities affected. The bushfires was some of the worst in our history and impacted well-being and livelihoods of so many with effects still being felt in locations such as Gippsland and Victoria. In January, we activated a financial relief package for customers. We also donated more than $1 million to support customers and communities that were impacted. And we extended special paid leave for employees who volunteer in emergency services to ensure they were supported while helping the communities. I was also able to spend time visiting a number of regions across Australia in the weeks following the fires and saw firsthand the impact on local communities. Sadly, COVID is also now hitting them as most of the regions affected rely on tourism for income. We will continue to support our customers as best we can to get through this time. For instance, we are planning to direct a portion of our sustainable finance target of $50 billion towards supporting customers and communities impacted by disasters. For example, capital will be allocated to fund or facilitate weather event resilience initiatives or to build resilience against non weather-related disasters such as pandemics. With that, let me hand back to Shayne.

Okay. Thanks, Mark. Now before we take questions, there are a couple of important pieces of work I'd like to mention briefly. The Royal Commission and the APRA self-assessment work. On the Royal Commission, as you would know, we announced 16 commitments that responded to the final report. We made significant changes to how we reward and recognize our people, making sure it encourages collaboration, team performance and long-term thinking but also reduces the risk of having outcomes that may not always be in customers' best interest. We replaced individual performance-based bonuses, with a group performance-based bonus for approximately 80% of employees, and we reduced variable remuneration. We strengthened ANZ Group Board and management oversight particularly in relation to accountability and governance. And we introduced new accountability and consequence principles. And we acknowledge the importance of fixing the mistakes of the past and returning money owed to customers as quickly as possible. To date, our retail and commercial responsible banking team has remediated over 1.5 million customer accounts and issued refunds of $134 million. In response to our self-assessment and commitments to improve areas such as governance and accountability, simplification and culture, we've taken action to simplify our business, which included the sale of ANZ's Life and general insurance businesses, pensions and investments business and of course, UDC finance. There is more to be done, but I feel we're on the right track and making the necessary changes. So in closing, I hope today has helped explain how we've responded to the pandemic and how our approach has been informed by our purpose. I see this time as difficult as it is, is a real opportunity for us to prove the value we provide to the community. I also hope we've given you a sense of where we're focusing our efforts with respect to ESG issues and that this work remains a priority despite the pandemic. So thank you, Tony, over to you to set up for questions, please.

Thanks, Shayne. Thanks, Mark. And the operator will walk you through a moment just how to do the questions. [Operator Instructions] The other thing is just to remind to our media friends who are online, we really do want to hear from you on this issue so if you do have questions please reach out to the media team, but this briefing itself is for the market analysts, and we'll go through and hear the questions from them. So operator, over to you, please.

[Operator Instructions] Your first question today comes from James Ellis with Bank of America.

Look, just on the issue of foreclosure. Look, acknowledge your statement that where this needs to happen, it will be ethical and sensitive in the way it's conducted. But can you talk through how you avoid ESG issues on how you select and execute on foreclosure, given it is particularly sensitive? And then related to that in terms of political interference, how would you deal with the potential situation where a politician might expect endless forbearance to be provided even in circumstances where it's clearly in nobody's interest to do so. So the ESG risks of foreclosure and political interference on it.

So thanks for the question. I guess it's a bit of a statement of the obvious, James. But I mean, we have to deal with these issues every day with or without a pandemic. In fact, sadly, we are having to deal with foreclosures. The good news is that in normal times, it's very, very low numbers. It's sad for every one of those, but it's a few hundred in any given year. And we make sure that we deal with each one of those sensitively and ethically as well. So we do actually have those skills. We do understand how to deal with customers who are going through emotional and all sorts of financial stressed situations. Now you're quite right that the point is here, we're talking about having to be able to do that at scale. So what we've already been doing is leveraging our teams who have that experience so that they're already gearing up for -- we hope we don't need to. But for the gearing up in terms of numbers, they're training people, they're sharing their experiences, making sure that when and if this does come to be a bigger issue for us, we can do so in a well-managed way. I'll get Mark to talk a little bit about it because it is in his business. The only thing I would say there is we do have another benefit in this particular crisis as opposed to many other ones that we've been through, and that is that interest rates are low. And I don't want to dismiss that because that basically says the time value of money is very, very low. And so they actually -- there is value, and sometimes we can afford to buy time. We can afford to be a bit more sensitive than we might not otherwise be and so I think that is another tool that we have that extending a deferral, buying time, being thoughtful, listening to people. We can actually contemplate that pretty seriously. In terms of your question about political risk, and again, that is always the case. It doesn't always reach the media. It may not reach people's attention. I mean, as I said, it's a sad reality of the business we're in that sometimes we do have to wind people up. And locally [ in patient ] that do reach out to us from time to time. And again, I think we're pretty well attuned to all that. We understand our business is about balance. We know we can't keep everybody happy. It is our job to sometimes make some hard decisions with customers. And I believe we have the resilience to be able to continue to do that. But it will be our early actions, the way we approach this, the sense of purpose, the sense of ethics, et cetera, that will set us up well to deal with this. But undoubtedly, you're right, and then there's going to be a much more -- there's going to be a much higher degree of oversight and interrogation about the way we go about our business, and we are prepared for that. But Mark, do you want to talk a little bit about the foreclosure process itself?

Yes. I think the 2 key things to remember that's different this time. One is, even with the GFC, the cost of funds was significantly elevated. And so we've made some blanket decisions about repricing customers. And that was, I guess, a mass approach to a lot of customers. The interest rates this time are considerably different. So you do have more options available, whether that be extending the term of loans for customers to lower their repayments, moving them to interest-only which can, in fact, lessen the burden for a couple of years while they get back on their feet. So we generally have more options, and we have considerably more, I guess, experience and capability to have a lot more individual one-on-one conversations. And I think that will be the biggest change this time that we are able to have, I guess, those conversations about the customers, individual circumstances. We've also got the option with agreement with the regulators that, in some cases, we can extend deferrals by further 4 months, so up to 10 months for some customers, particularly is what we're seeing here with the second lockdown in Victoria, that is another lever that we have opened to us in the coming months, if that's needed. So I think the individual conversations, low rates and well resourced and also learning the lessons from the past will put us in a good space.

Your next question comes from Kylie Molinaro with LUCRF Super.

Shayne, I guess my question for you is in terms of providing this additional one-on-one approach for customers and supporting them through their difficulties. Just knowing what you know now, do you have a handle on how long it will take the core business to work through the impacts of what COVID's created here.

In terms of -- you're talking about the deferral population in particular, Kylie? Or is that...

Well, yes, we can use that as a good case study. But the other question I had for you is the 2-part is -- and if you you're able to just give a bit more color on how to COVID has also impacted the capital allocation decisions?

Sure. I can do that. So Mark can give you some of the data, and I think it's been really interesting to some extent. So we've seen, in a really short period of time, an amazing shift in consumer behavior, right? So we've suddenly seen us collapse in people -- for obvious reasons, collapse and people coming to branches. We've seen a collapse in people using cash transactions. We've seen a skyrocketing of people using credit cards and using any sort of digital device to pay for things, point-of-sale transactions, those sorts of things. And what -- and the reason I mentioned -- and by the way, that goes all the way up through even into our institutional bank and the sort of activity we're seeing more and more hedging activity, et cetera, et cetera. What that allows us to do -- and I think to be fair, we probably -- we did surprise ourselves. And I think part of our work on implementing agile ways of working and some of the technology investments have allowed us to reorient and pivot our resources much faster than we would have been able to do in the past. So as you know, we've got about 500-odd branches across the country. Well, many of them have been shut temporarily. And what we've been able to do because there was nobody going to them. What we've been able to do I just redirect all those people and putting them in collections teams, contact center, hardship because these people are really well trained at dealing with people. That's their job. They really -- they are naturally empathetic. They listen. They're good at that. And so I think that sort of -- that pivot that ability to move literally hundreds of people quickly into new areas where demand has gone up because we've freed up and other areas has really helped us. And so as you know, in the deferrals world, just using that, we've got about 84,000 home loan customers in Australia on a deferral, we've had to check in or at least contact sometimes on the phone, sometimes by tech, sometimes and writing, sometimes by an e-mail, but we've contacted every single one of them at the 3 months check in right, and we're essentially doing that all again now as they come up to the maturity of their 6 months to see where do we go from here. So I think we've proven our ability to do that pretty well actually. And I don't think we've really stumbled too, I mean, and we had to put a lot of thought into it. The teams are there to -- well, I think they've done a really good job. I'll just comment on the capital allocation and get Mark to talk about how we think about it from here in terms of those numbers. Our capital -- we haven't changed our risk appetite at the highest level. We haven't really changed it as a result of COVID. So we haven't said, oh, we don't want a bank, small business. We don't want to do this. We don't want to do that. No. We stayed on the front foot. We have to be more thoughtful about taking on risk, particularly for customers who we don't know. So customers who are new to the bank, we have to ask more questions. We have to be -- reassure ourselves about the character and the sustainability of their business and et cetera. But we haven't really changed our risk appetite. But what you're seeing is a natural rebalancing in terms of resources. So despite us being open for business for small business, as a general observation, most -- there is not a lot of demand that we see. Now our business is different than the other banks, and we have different sectors we good at about. We're not really seeing a lot of demand for borrowing from the small business community. And what we do know is though for those that do apply, our approval rates are about the same. So we're still approving the same number of applications. We're just not seeing that. So there's a lot of shifting happening in there. But from a capital allocation, if it was just about COVID, we haven't really amended that. In the broader -- I mentioned in my speech, we have the Board -- we have been looking at from an ESG perspective, it's broader than COVID, we have been making capital allocation decisions, and that's more to do with the industries that we want to bank because we think their values are aligned with ours for the long term. So that's more sustainable finance as we talked about, less into sort of the carbon heavy industries. In fact, we've been reducing that pretty heavily. And there are some other examples of that, which I'm happy to go into more detail. But Mark, I just want to talk about the resourcing because that's been a big demand on your team.

Yes. So if you think, Kylie, I've been around for a while, I remember in the '90s, about -- we went into a technical recession in late 1990, it was about October our 1992 financial year was where those losses showed up effectively because in those days, you didn't provide upfront, you recognize the loss as it occurred. So it was about sort of 8 to 10 months through to all about 18 months post the actual event, post the recession, that we started to see businesses start to liquidate, if you like, and really, I guess, to materialize the problems that they were facing. So we've recognized what we believe is the size of the issue through our provisions today, but we think we'll be very busy into mid-2021 and through the end of 2021, facing into this challenge. So whilst we have resourced up now, we've not seen a flow of customers into our lending services division, for instance. We're not seeing the customers come forward or being forced into receivership yet, but we expect that to accelerate particularly into next year as people get through what will hopefully be for much of Australia a more buoyant trading season through Christmas. But then post-Christmas, I think we'll really start to see what customers can generally trade out of this and which customers are going to be in trouble going forward. So we've sort of set up our resourcing to get through the peak of the deferrals, customers having the 3-month check in coming off the deferrals, but we expect our small business to come in a second wave effectively where we need to have those in-depth conversations next year.

I think it's a really important point that Mark mentioned, it's good triggering your question at Kylie, which is as of right now today, if you came into ANZ and say what are people do? We don't have a lot of demand for those collections activities, the foreclosure, that sort of stuff that we've been talking about because actually, the good news is that the coordinated effort from governments of various flavors throughout the country, the banks, regulators, et cetera, has really bought time. And so people -- we're not seeing companies fall over, people get into really difficult positions today. And that's buying time. And so -- but we know sadly that -- some of that will come. Our guess based on experience and a bit of modeling is that that's probably middle of next year. And JobKeeper, all these things start to come away or start to reduce, the bank deferrals might be there quite at the same degree, et cetera. That's when we -- so we're using as time as best we can to gear up our resources, put them in the right place and be prepared for that. And of course, hoping that we don't have to use them.

Your next question comes from Mike Hart with ACSI. Your next question comes from Brian Johnson with Jefferies.

Good morning, everyone, and thank you very much for the opportunity to listen to the presentation, ask questions. Shayne, three quick ones. The first one is on the record, ANZ is quoted as saying you expect housing prices to decline 15% in Melbourne. Can I ask that, that mean that you won't do LVRs above 85% on the home lending at the moment? The second one is, I'm just intrigued on a comment that was reported that you made in the press where you said we're going through our core customers name by name and asking how is this customer behave, how did they treat their employees? How do they treat their supplies how have they treated the community? Can I ask, does that mean that if you don't get a satisfactory answer that you shed that person as a customer? And then the final one, I'm just wondering, should we extrapolate the same higher standards across the AmBank that you have a substantial holding in and that you also have a Board representation and a lot of management representation as well.

Yes, I'll answer the last two, and I'll ask Mark to answer the first one. So I think with respect, I think your question on AmBank is a bit cheeky, Brian. We don't have any control of AmBank. We're a minority shareholder. We're just a shareholder like anybody else in the company. We express our views. We have a director who's appointed there whose job is to do the right things for AmBank, and it's not our -- it's not solely there to represent ANZ's interest. But we would expect and we would certainly be influencing any company we're associated with to hold themselves to high standards. In terms of the second question, yes, look, yes, I mean I think that we've got this amazing opportunity, and we've stressed it across the board with our people. As dreadful as the situation is, it is an incredible learning opportunity. We are going to see our customers put through all sorts of stress and true character will emerge, and we should be very attuned to that. So we're asking our relationship managers. And I would just stress here, for those who are not familiar with my comments, we're talking about the sort of corporate world, the bigger end of town, not little, very small business. If we're talking about businesses, yes, we're going to see. And I think it is obstructive. I think that people have treated their suppliers, employees, banks and others well. And demonstrated good character people we should back for the long term. People have innovated. People have adapted quickly. People have read the leagues well and get on with things. Those that do the wrong thing, yes, we need to be -- not forget that. And we need to sit down. Now we're not going to throw them under a bus. We're not going to walk away tomorrow morning because they are our customers. And rightly or wrongly, we're with them today and we'll back them. But over time, we're going to have to think twice about sticking with some of those customers. Yes, that is absolutely the intent of that, but we won't be walking away in the short term. Mark, do you want to talk about the 15% house price? It's a fair question.

Yes. I guess, a couple of things. When Shayne called that out, that was a worst-case scenario that our economics department had called out at that time. To some extent, some of that's already played out, so prices have already come off from our numbers across the country in different pockets. And what we will do is we do have post-codes where we won't exceed certain LVRs. So there are parts of Australia, and we've seen this in WA in the past where we've considered WA prices to be lower than what the market probably considered them, and we had more conservative lending appetite in those geographies. So it's not a blanket approach to the whole of Australia, but there are pockets where we won't lend beyond an 80% LVR. And there are pockets where have certain property types, potentially at the top end of luxury properties, where we have more conservative appetite, sub-70% in some cases. So you're absolutely right. There are pockets of the country where we won't go beyond that.

Your next question comes from Mike [Hart] with ACFI.

Quick question regarding the Royal Commission and ANZ's progress. So I guess, notwithstanding what you've outlined in the presentation, ANZ, I guess, has it disclosed its full APRA self-assessment compared to some peers. And also, I could be wrong here, but I think there's no ongoing sort of independent review of how you're progressing. So obviously, there's the Board review and so forth. But I know that others like CBA, for example, have I guess, an independent view on those. And I guess in that context, there's also the capital overlay in place from APRA for ANZ and peers, I guess, stemming from the Royal Commission. Given this situation, I guess, two questions. Firstly, is it fair to understand that the overlay is a measure of whether APRA is satisfied with ANZ's and performance on these matters? So I suppose what are your expectations? Or what is APRA [ seeing of ] the process is and the timing for potentially over the longer term, removing it? And do you anticipate that APRA will look at all the banks together in removing this over time? Or will it be each bank separately?

It's a really good question, Mike, and the way that I would think about the overlay is the overlay there is essentially is a recognition that says as a result of learning through the Royal Commission, APRA has assessed the risk profile of ANZ and some other banks to be a little higher than it had before. And there, from an operational risk point of view or a nonfinancial risk point of view and therefore, requires us to hold more capital until we can assure APRA or convince APRA we've made sufficient progress to de-risk the organization. So I see it as no different than any other overlay we would have in terms of capital. I think in this particular area, it's almost by nature -- the nature of nonfinancial risk overlays is they're not as mathematical. So it's very -- it's not as simple as saying, well, if you achieve x, it will disappear. And if you hit some ratio, so there's always going to be an element of judgment here. So we do have a plan. We're very aware of that overlay. Obviously, we'd like it to be removed. It's not a significant financial burden. But I think it's not a good thing either for us. And so we want it removed. We do have an action plan. In fact, it's funny so I was just before this meeting was treating that there's a board paper going this week to the Board, exactly on met exactly to sort of update the Board about, well, what steps have we taken and how are we progressing. I don't know what APRA's approach would be. All I can say is I would hope -- and again, I would hope that they would take a bank by bank approach to that. I don't think it would be I think there would be unintended consequences of saying, well, the only way it gets removed, if it gets removed for everybody. I don't think that is the -- an incentive for individual banks like us to take these things seriously and do them as quickly as possible. So I think the -- I would hope that they would look at on a bank-by-bank basis. That is my understanding, although to be fair to APRA I can't recall that they've explicitly said one way or the other to me or to the Board. And I would -- just one other thing. On the 16 things for the Royal Commission, you mentioned we don't provide -- we haven't given a public disclosure on our APRA self-assessment, and we've -- I think we've made it clear why we didn't think that was the right thing to do. But in terms of the 16 items, the recommendation of the Royal Commission that we had largely within our control. The 11 that we could do on our own, we're done. There were 4 that require legislation from the government, and we await that legislation. And there's one, which is really to do with culture improvements, which I'm not sure you can ever claim victory on. I think it's an ongoing process. So we feel we're in a really good shape. And we'll continue to work with the government to get the appropriate legislation through so that we can close out the remaining items there.

Our next question comes from Alison Ewings with Regnan.

Shayne, it was good to hear you emphasize that in addition to the environmental financing target you have in place that you're also working with high-emitting clients on the risk exposure side. Can you provide a bit more detail similar to the earlier question actually with regard to what the process is, should it be identified the clients unlikely to meet the net 0 targets that you've set out within a reasonable time frame if indeed there even in a sector where that's possible and how credit policies are being adjusted beyond the already announced energy generation requirements?

Yes, it's really a fair question. So first of all, I sort of gave you a bit of a laundry list of the industries there as sort of transport and logistics and agriculture, food and beverage, et cetera. So we started with those areas that have been identified as the highest emitting sectors and customers that we have. So we sort of -- rather than try to tackle everything, we've gone with the big 100. We then ask them to share with us their transition plans. Now, they will all be in various stages of maturity. You can imagine that group of customers is quite a broad group of customers with all sorts of things that they do. We haven't prescribed "oh, your plan must look like this. It must have this target. It must achieve these things." We're also learning in this. But what we've said is it's really as much about the process as it is about the plan. So we said we want to enter into a dialogue with those customers. And we've already engaged with 60 of them. We want to hear and engage in a dialogue, how are you thinking about this? How do you think about these risks? How actively engaged are you? What plans do you have? Are they reasonable? Do they align with our values and our ambitions? And if not, then we engage and we give feedback. And we have been able to give -- I know from talking to the team, we've ended up in constructive dialogue. I have to say what's been really encouraging about this is that the vast bulk of those people have actually welcomed the engagement as a way for them to learn as well because we are sharing with our plans. And so they see it as a mutually beneficial engagement. But if we get to a point -- and we haven't yet, I'm glad to say. If we get to a point with the customer, we just don't think they're taking it seriously. Or we don't think they get it, right? That to us is a massive red flag in terms of their own risk awareness and their own risk management framework. And while it wouldn't be black and white to say, therefore, just again, we'll exit them, there would be a huge red flag that we would have to sit down at a relationship level and says, this is a kind of customer that we really want to bank for the long term. And I would say, again, if we really don't see an alignment of values, we would move to exit that customer over time. And the reason for that is it's a red flag about good old-fashioned risk management. If you're in one of those industries and you're not even thinking about that or you're dismissive and again, I'm not sitting here telling them, we know what the answers are. But if you're not even considerate it of it or thoughtful, we would have massive concerns about the viability of that business. And therefore, I think good old fashioned prudent banking says we should find a way to move away from that customer, and that's what we're willing to do.

Your next question comes from David Humphreys with Telstra Super.

Across the financial services sector at the moment, you're seeing, I guess, expense creep through annual lead balances rising fairly dramatically as people are at all at home. There's been a fair amount of commentary from the FSU and others on ANZ actively managing annual leave amongst its staff. And Mark, today, you put up a very impressive staff engagement score of 85%. Can you talk about the importance of taking annual leave at the moment from a staff well-being perspective and how ANZ thinks about that?

Sure. So first of, yes, thanks for the question. So really early on, actually, in March, when this thing all started happening. The strong feedback we got from our staff, unsurprisingly, and which continues to this day, as people are seeking as much security as they can, including job security, so high-end importance, and we all can understand that. So we treat our people as adults. We had a grown up conversation really early on. And I remember we had this on multiple occasions. And we basically laid it out and explained that the best that we can protect as many jobs as possible in terms of providing that security is that we have the capacity to do so, the financial capacity to do so. And the more that we can manage our costs and keep them tight, the better position we're in. What we don't want to do is get forced into making bad decisions. And when we looked at our forecast, annual leave for ANZ, it is $130 million -- was $130 million issue for us, i.e., if people did not take their normal leave, just their normal, just what they normally take in any period in the second half, we would have had $130 million cost problem. And of course, that -- and then that starts pushing you into that really uncomfortable area as a management team or what else -- what do we do to offset it. And sadly, sometimes that can mean jobs. So we had that very grown up conversation with our people. And we asked them to do the right thing. We asked them to do the right thing for them colleagues themselves. But we also said -- we never said we were forcing anybody. It was never there. There was no coercion. We asked strongly, and we pointed out the benefits. And we also said actually, in a time like this, it's even more important that people have time out and have breaks from work, particularly when you're working from home. And so we put a bit of a campaign together, and I have to say, the people of ANZ have stood up so magnificently. We have now essentially -- our people have taken their full entitlements to leave. So we don't have a problem on the cost side. And it's through the collective action of 40,000 people across 33 countries doing the right thing that is really, I think, one of the best sort of culture indicators that we have and maintain our engagement incredibly highly. I've taken my leave, Mark's taken his leave. We've all done right across, and I think it's a really good sign. But we did so through having an active engagement of why it was important, what it meant, but that mental break, and we've also said to people, by the way, David, "hey, it's not okay to say I'm on holiday and working home, but I'm still actually working." That was not the intention here. The deal was, no, you need to take time out. And you know from a bank's perspective, we have good reasons for compliance leave that require people to take at least 2, 4 weeks back-to-back away from work. We're still insisting on those things and making sure that doesn't mean you're logging in, doesn't mean you can still secretly doing your work or getting up early in the morning before the kids are up or something. It is about breaks. And so we've done that. And I know it's not your question, but we've also engaged. We have a company psychologist, and we've had people -- we've been doing webcast and others. Just how do people balance that very gray line now between work and home when physically, it's all the same. And just trying to give people tools to be able to manage through that. But it's an important point, and I said it's going to continue to be an important point, particularly for those in Victoria.

[Operator Instructions] Your next question comes from Brian Johnson with Jefferies. My apologies, there are no further questions at this time. I'll now hand back to Mr. Elliott for closing remark.

I just wondered on the record, I didn't cut Brian off at all. I was -- thank you very much for your time, and it was a great pleasure to be able to go through our ESG work today. As I said, look, I think it's important to say, at a time like this, it is totally understandable when companies become very internally focused and very focused on the short term. And we're working really hard at ANZ to make sure that it's not the case. We have not lost our focus on ESG. COVID is not an excuse for us to walk away or to dampen our enthusiasm for the work we're doing on who we bank, how we behave and what we care about most. In fact, it's actually a reason to sort of double down on it. And I'm really -- it might sound naïve, but I believe, actually, the work we've done around purpose and the ESG work over the last few years has actually set us up incredibly well to deal with this. And it's even more important when people are -- we essentially have 40,000 offices today because everybody is sitting at home. We've got 40,000 distributed offices and we can't be sitting over people's shoulders and neither should we. And so we are asking those people to make decisions, and we're asking more of them than we've asked in the past and to do so based on a sense of purpose and values. And as I mentioned in terms of the leave, our people have stood up magnificently around that. It doesn't mean we won't make mistakes. It doesn't mean we will get everything right, but I think we're in a really good spot. We're very mindful of our role in coming out of this crisis. We're mindful that the impact on the bank to Mark's earlier point will be will lag. Things will open up before the economic area is finished, and we're going to have a lot of work to do for the next couple of years. And we're going to use this time wisely to prepare ourselves for it. So thanks for your questions, and thanks for your listening today.