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

Good morning, everyone. I'm Jill Campbell, ANZ's Head of Investor Relations. Thank you for joining us for the presentation of our 2021 full year results. I'm welcoming you from ANZ's head office on the banks of the Boon Wurrung in Docklands, which is on Wurrundjeri Country. I pay my respects to elders past, present and emerging. And I also extend my respects to any Aboriginal and Torres Strait Islander people who are joining us for today's presentation. Our results presentation and the other materials was lodged with the ASX earlier this morning, and all of those lodgements are available also on the ANZ website in the Shareholder Centre. A replay of this session, including the Q&A, will be available on our website as well from about midafternoon. The presentation materials and the presentation being broadcast today may contain forward-looking statements or opinions. And in that regard, I draw your attention to the disclaimer on Page 1 of the slide deck. I'll talk more about Q&A procedure when we get to that point, but just a reminder that if you do want to ask a question, you need to do that via the telephone. Our CEO, Shayne Elliott, is presenting from Melbourne; and our CFO, Farhan Faruqui, is presenting from Hong Kong, which I think is really taking COVID social distancing a little bit too far, but there you have it. They'll present for around 35 minutes or so, and then I'll go to Q&A, and I'll remind you of the procedure at that point. And with that, Shayne?

Thanks, Jill, and thank you all for attending this morning. As Jill mentioned, I'm joined here today by Farhan, who started as our new Chief Financial Officer just earlier this month. He is, of course, no stranger, having joined ANZ in 2014 and being a member of my executive team for more than 5 years. Now along with Mark Whelan, Farhan has played an important role in the turnaround of our Institutional business, and I'll be looking to him to have the same impact in the next phase of our group transformation. Now a few comments about the environment before I turn to the result. Now frankly, in terms of tone, this has been one of the more difficult results speeches to write. On one hand, we share the optimism as lockdowns end, but on the other hand, we accept that there's still many uncertainties. In the short term, we're benefiting from the economic rebound and government support for customers, but in the longer term, we still face significant disruption as an industry. The challenges of the transition to a digital and low-carbon future are reshaping our own industry, our customers, and they present both a risk and an opportunity. But in summary, I believe ANZ is better positioned than ever. We're well capitalized and provisioned to handle any risks, and we're well prepared to take advantage of opportunity. But let me walk through that in a bit more detail. First, regarding the impact of COVID, there are good reasons to be optimistic. Vaccination rates in Australia and New Zealand are approaching global highs, and history suggests that the economy will bounce back quickly from lockdown. Combined with the normal summer trading spike, we're likely to see a substantial economic bounce in the coming months. But while the initial damage of COVID is receding, a range of challenges remain. COVID is still mutating. Governments are grappling to get the balance right between safety and freedom. Inflation is increasing. The transition to a low carbon future is gathering pace. And the impact of technology disruption, labor shortages and supply chain bottlenecks impact our businesses and our customers every day. Now as we know, when confronted with rapid change, many customers will adapt and thrive, but some will struggle. We stand ready to support customers in need, but thankfully, we're also increasingly being asked to help customers position for opportunity, and we're well positioned to do so with ample capital and liquidity. Our own portfolio is also well positioned. We're well diversified with the Markets business positively correlated to volatility and higher interest rates and a strong position in sustainable finance. Our costs are well managed, providing the capacity for us to accelerate investment at a time of opportunity and with strong relationships with many of the global firms leading digital and low carbon transitions. Now let's move to the result. This is a good outcome with all parts of our diversified portfolio contributing. Statutory profit increased 72%. Our return on equity came in just shy of 10% despite elevated capital levels. Earnings per share, up 65%; and net tangible assets, up 5% per share. Now given our strength and readiness for the future, the Board declared a final dividend of $0.72 per share, taking the total to $1.42 for the year. Now Farhan will take you through divisional performance, but let me just share a few observations. In Australia, Retail & Commercial delivered a good margin performance and grew pre-provision and after-tax profit. Home loan revenue grew more than 10%. However, the total home loan book fell a little in the second half, with customers paying down loans faster and our own issues processing increasing numbers of applications. Now there's no excuse for the processing issues, and you'll want to know what we've done about it. Over several months, we've materially increased assessment capacity by hiring more assessors and simplifying our processes. And there's a time lag between applications and asset growth, but we are already seeing improvement. Australian home loan assets fell 1.1 billion in July, but momentum has improved each consecutive month. And for October, assets are only marginally down. Our expectation is that the improving trend will continue. And all else being equal, we forecast home loan assets to grow during the first half. And at some point in the second half, we should be growing in line with our major bank peers. But we continue to act. And this week, we announced that my exco colleague, Emma Gray, will temporarily lead the Australian operations team. Her experience in automation is ideal, and she'll work with Mark Hand on further improvement. Now while restoring momentum remains a top priority, we're also focused on the rebuild of our proposition, including home loans, which will reposition us for long-term growth, and I'm going to share some of that later. But staying in Australia, a quick update on the SME lending platform, GoBiz. Launched recently, this allows customers, including those not yet with ANZ, to receive real-time conditional approvals for unsecured loans by providing direct access to their accounting package. Now it's still in soft launch, but it's generating an average of 2,900 applications every month, and it's timed perfectly for the emerging rebound in the small business segment. Turning to New Zealand. We've had one of our strongest performances ever. Revenue was up 8% and cash profit, up 41%. In our New Zealand funds business, the total funds under management, including KiwiSaver, grew 11% to NZD 39 billion. Now the investment to comply with the Reserve Bank of New Zealand's BS11 regulation will finish this year well ahead of schedule, and the bank is already positioned to absorb the capital changes which take effect through to 2028. Now this leads me to Institutional. We have built a high-performing business delivering well above the group cost of capital and are well positioned to capitalize on the structural tailwinds arising for the sector. For example, right across our network, Institutional's customers are rapidly increasing activity, M&A, digitization, restructuring supply chains. Trade and capital flows are growing. Interest rates are rising and yield curve steepening, and some of our major competitors are reducing their presence in the market. We also expect APRA's proposed capital reforms, which take hold in 2023, to be a net positive for Institutional. And we just have access to Institutional growth opportunities that aren't available to others, for example, platforms, where we provide core banking services to other banks. This is a significant strength of ours, and we are the market leader by some margin. Underlying volume growth is strong, and we're gaining market share. At the revenue line, this has been offset a little by falling interest rates, but positive operating leverage, low capital intensity and ongoing growth will see this emerge strongly and contribute to better returns. And one of the best examples is the new payments platform, or NPP, where we've dominated mandates to service other banks. It's fee-driven. The platform is already in place and scalable. So the marginal cost of transactions is almost 0. Now growth has been exceptional with transactions more than doubling this year, and we're only at the early stages of adoption. Now we're also well positioned for the rapid transformation of how the world produces, distributes and consumes energy, which will drive trillions of dollars in global investment. Now thinking about the capabilities required to participate in this flow, many of them are in our toolkit. We are the largest institutional bank at home and Australia's most international bank. We're a leader in banking resource extraction, arranging finance for large-scale infrastructure, connecting buyers and sellers across Asia, distributing debt and hedging market risk. Based on Bloomberg's data, we estimate we participated in around 5% of global sustainable finance flow in 2021, which increased our sustainable finance revenues more than 60%. Now it's just the beginning, and opportunities include the electrification of transport, the commercialization of hydrogen and financing energy-efficient buildings. No other Australian commercial bank has the skill set, customer relationships or the track record to participate as seriously in this global super cycle. Now as mentioned, I wanted to share our progress in building a better retail and commercial bank here in Australia. Longer term, forces shaping the industry are leading to structurally lower returns, lower growth and driving an unbundling of traditional banking. Now to remain relevant and to succeed, we are building a more agile, open and more focused business, centered around financial well-being to deliver higher lifetime value per customer. It's an exciting opportunity to reposition ANZ for the long term, but our technology was a major inhibitor. Its complexity and its age make it hard to change, prone to error and less resilient than required. Now patching it up made no sense and moving to a greenfield stack wasn't practical given our scale and breadth. So we looked at a range of alternatives, but based on our starting point and the experience of European banks in particular, the best path for ANZ was to progressively rebuild our technology, starting with sales and service. So under Maile's leadership and the ANZx banner, we've built a team of over 800 people. More than half are engineers and many joining from leading technology companies like Apple, Amazon and Square. And we're using this talent to completely rebuild our capability and integrate a raft of contemporary technology. Now the work is challenging and it's mostly unseen, but this year, we made significant progress building a platform for low-cost, scalable, resilient growth. Now the first task was to introduce a range of new platforms, and we've already integrated 11, including Salesforce for CRM, ForgeRock for identity and access management, Zafin to manage products and Twilio for contact centers. We've also built 9 major assets from scratch, but it's a bit like building a skyscraper. All the hard work is beneath the ground. But once it emerges, if it's well-engineered, it does grow quickly. And with the foundations complete, we're now building a range of new customer propositions based around our 9 principles of financial well-being. We're currently testing our first proposition with staff, and we'll be ready to launch with new customers early in '22 under a new brand, ANZ Plus. This will become the cornerstone of how our retail and small business customers bank with us in the future. It will allow us to deliver nonbank services and deepen engagement with our customers. And much of this will be delivered by the strategic partnerships we're building through our ventures and incubator business, 1835i. Through 1825i, we only invest where we see a path to acquire more customers, deepen relationships or codevelop new propositions that we couldn't develop on our own. So for example, last week, we announced that we entered into a deed to take over Cashrewards, Australia's leader in the "buy now, save now" sector. It's a great fit with our customer proposition of financial well-being, and it brings over 1 million customers into the ANZ family while driving additional value to our retail and hospitality customers. In addition, we have invested in 8 fintechs, like Linde and Airwallex, and launched 3 start-ups, each intended to drive customer acquisition and deepen engagement. Now to date, we've been pretty quiet about ANZx, but you'll be hearing a lot more about this, particularly as we launch ANZ Plus and prepare to test digitized home lending. Now this is an important investment in our future, but we've largely funded it within our existing expense envelope and capitalized only 5% of the investment, and we wouldn't have had that capacity without the ongoing success simplifying the bank. We always knew that a simpler, more focused bank would be lower risk and lower cost. And our work indicated that we could run the bank well and continue to invest appropriately for around $8 billion, and we retain that view. At the half, I clarified the expected shape of the $8 billion, specifically differentiating between the cost of running the bank, which we target at $7 billion, and around $1 billion for ongoing investment. This year, we reduced the cost of running the bank a further 3% on a constant currency basis to $7.4 billion. So we're well on the way to exit 2023 at our $7 billion ambition. With respect to the $1 billion in operating expense for that annual investment, with some assumptions on capitalization levels, that should allow a cash investment per annum of around $1.4 billion. And to give that context, it's about the same as today if we exclude the remediation work, which is coming to an end, and the one-off BS11 investment in New Zealand, which is also coming to an end. We will not under-invest in the business to meet the target. But with the current outlook, the peak and regulatory and remediation spend, we're confident in our $8 billion aspiration. So in summary, look, 2021 was challenging and we didn't get everything right. But we stood by our people, we supported customers as best we could, we managed our balance sheet prudently, and we increased investment to drive long-term value while delivering strong returns to shareholders. So with that, I'll now pass to Farhan to run through the results in a bit more detail.

Thank you, Shayne, and hello, everyone. I am new to the CFO role but not to ANZ. And many of you, I already know well. And I'm looking forward to seeing all of you once I'm in Melbourne. My 3 decades in banking span a wide variety of roles and geographies, and it is that commercial lens I'm bringing to this role. In partnership with our business heads, my focus is squarely on the pace and quality of the delivery of the next phase of our strategy execution with a view to ensuring that our capital and resource allocation is delivering value for our stakeholders. There's no question banking is changing dramatically. And while there are challenges ahead, we see opportunities in the change as well. And I'm confident we have the team, the culture, the corporate foundations and the diversity of businesses to capitalize on those opportunities. Yes, sustainable and profitable growth requires disciplined execution. At ANZ, we have successfully demonstrated that skill set, including in the Institutional business, where I was fortunate enough to be part of a successful transformation. Our financial year '21 results highlight the benefit of our diverse portfolio of businesses and geographies. New Zealand capitalized on its scale and a rebalanced business to produce very strong results. Institutional continued to dominate in Australia and New Zealand and efficiently navigated COVID-related challenges in the international business to grow in non-markets banking. Our Markets business delivered a solid revenue outcome despite a less conducive macro environment. Australia Retail & Commercial delivered income growth year-on-year and half-on-half, notwithstanding the challenges in home lending, which Shayne referred to and I'll discuss more later. Our cash profit, EPS and ROE outcomes for the full year again reflect our diversification and continued focus on building a more efficient, more resilient business. Looking forward, I feel we are well positioned given capital, liquidity and funding are robust. The credit quality of our portfolio is strong. And importantly, we are delivering for our shareholders with stronger dividends year-on-year, a share buyback and a TSR performance of 70% for the year. So to my agenda. Today, I'll focus on our strong corporate foundations, then turn to our financial performance and, finally, to our investment agenda before concluding with my focus areas as we move into financial year '22. On the topic of corporate strength, I'll begin with capital. Our CET1 ratio at 12.3% sits approximately $6 billion above APRA's unquestionably strong benchmark. It reflects strong organic capital generation, along with ongoing capital allocation discipline. We have supported our customers profitably and increased our dividend year-on-year with the final dividend of $0.72 per share, within the target range of 60% to 65% of cash profit, excluding large notable items. And as you know, we did not need to dilute shareholders with equity raisings during the pandemic. We're almost halfway through our $1.5 billion share buyback, and we'll continue to consider the best use of any surplus capital. By the end of the current buyback, we will have reduced our share count by 5% over a 5-year period. In terms of liquidity and funding, our key ratios are all well in excess of regulatory minimums as well as management targets. Turning now to our portfolio credit quality, which reflects 5 years of management action to reshape the portfolio. Coupled with ongoing customer selection discipline, this provides greater predictability and stability in our earnings profile. Generally, customers have managed well through the pandemic. Our gross impaired assets are at historic lows, and the long-run internal loss rate sits at 22 basis points. Now moving on to our financial performance. Cash profit was up 65% for the year, a solid result against a challenging backdrop. This outcome required well-executed management action to offset margin headwinds, heightened competitive intensity, a challenged environment for our Markets business, and housing lending growth challenges for our Australian business. Lower credit provisions provided a tailwind, and disciplined run-the-bank cost management ensured that we created investment capacity. We released information regarding 2 second half large notable items last week. I would note these had a limited impact in the half. And as is customary, from this point forward, my references will be to cash profit excluding large notable items. In my opinion, the key factors which drove the result were: One, core banking income increased 1%, benefiting from disciplined margin management. Two, Markets income at $1.94 billion, while strong was lower following outperformance last year. Thirdly, costs were up 1.9% FX adjusted for the year, in line with the guidance we provided at the half. However, our run-the-bank costs decreased 3% off the back of over $300 million of productivity savings this year. This enabled a record level of investment, the details of which I'll speak to a little later. And finally, a significant decrease in credit provisions, reflecting an improved economic outlook. Our margin outcome was a highlight. The headline margin improved 2 basis points in the half, while underlying margins were down 2 basis points. Disciplined margin management largely offset the impact of industry headwinds. Now there are a number of structural trends impacting sector margins in both Australia and in New Zealand. Ongoing customer preference for fixed rate home loans in the low interest rate environment drove a significant mix shift in our mortgage flows with fixed rate volumes up $22 billion and standard variable loans down $16 billion. House price growth saw increased sector home lending activity, higher refinancing levels and intense price competition. For example, about 30% of our home loan portfolios reset this half. System liquidity continues to expand with average customer deposits increasing $17 billion in the half, outpacing growth in customer lending. This, coupled with our transition off the RBA's committed liquidity facility, increased liquid assets, which was negative for margins but positive for returns. Collectively, these structural headwinds compressed group NIM by 8 basis points. Partially offsetting this was a net $40 billion shift in term versus at-call deposits as customers favored flexibility in a low rate environment. In addition to a shift in deposit mix, more expensive term wholesale deposit debt -- sorry, wholesale debt matured and our teams actively managed the pricing of our deposits. Overall, macro factors, along with management actions, resulted in 6 basis point benefit to margin this half. Now turning to the outlook and consistent with long-run sector trends, there is downside risk to margins in financial year '22. The negative impact of higher liquids, along with asset price competition and customer preference for fixed rate home loans, is expected to persist. However, you should expect that as in financial year '21, we will undertake management actions to mitigate market conditions wherever possible. We will continue to optimize funding costs, albeit the opportunity for further repricing is becoming limited. However, rate rises and further steepening in yield curves will provide a tailwind, but it will depend on global macroeconomic settings and the inflation outlook in the markets in which we operate. Now let me turn to our divisional performance, firstly to our Australian Retail & Commercial division, which recorded a solid result year-on-year with higher revenues, flat expenses and lower provisions. However, our balance sheet performance in the second half was more challenging with home loan volumes declining $3 billion half-on-half. Against this backdrop, margins have performed well with NIM higher half-on-half and risk-adjusted NIM improving 15 basis points, the highest it has been since first half '18. This, in turn, allowed for revenue to be higher half-on-half. The commercial bank grew revenue during the half despite commercial lending continuing to be impacted by weaker demand as a result of economic uncertainty. Unsecured lending volumes were adversely affected by ongoing lockdowns and travel restrictions. Now turning to the topic of momentum in the Australian housing portfolio that I mentioned earlier. On a spot basis, the home loan book grew $3 billion for the year with growth in the first half followed by a decline in the second half. Available operational processing capacity in financial year '21, while 30% higher than that of 3 years ago, was simply not sufficient to match system growth. In fact, simply put, the strength of the Australian property market well exceeded our expectations with sector activity both from new lending and refinancing elevated. Now growth for growth's sake is, of course, not our focus. Improving the performance of our Australian home loan portfolio in a sustainable and profitable way is our highest priority. Our efforts have been focused on creating additional sustainable processing capacity and improving assessment turnaround times. While there has been a circa 40% improvement in processing times across the entire portfolio in the last 6 months, we are clearly not back to where we want to be. But good progress is being made on this front. We have a firm handle on the issues that we need to address. And over a number of months, we have been working on operational and process enhancements, including increasing operations resources to support assessment activity, streamlining our origination processes and progressing work on digitization and automation to create capacity. As a result, as Shayne mentioned, our balance sheet momentum has shifted, and we expect to continue to see improvements as we move through financial year '22. Moving to Institutional, which today is a simpler, more resilient and well-diversified business, which again delivered returns well above our cost of capital. Revenue, excluding markets, was up 2% in the second half as economic conditions continue to improve. Pleasingly, risk-adjusted margin increased 6 basis points, reflecting appropriate pricing for risk and strong capital discipline in the business. Corporate finance revenue increased 3%, driven by a strong margin outcome and better momentum in customer activity, particularly in our FIG business. Cash management revenue was flat despite ongoing impacts from the low rate environment. We have had strong market share growth and are well positioned to benefit from improving market conditions. Markets revenues at $1.94 billion normalized closer to our long-run average after the exceptional volatility seen in 2020 and with returns well above the group cost of capital. Importantly, this half marked the 11th consecutive half of absolute cost reduction in our Institutional business. We see structural tailwinds for this business over time, arising from future rate rises, the significant potential in sustainability financing and the growing momentum of the platform businesses that Shayne talked to earlier. Also, upcoming capital reforms, while expected to be neutral at a system level, may favor institutional businesses like ours that further improves the attractiveness of our portfolio. Now to the New Zealand result, which is a testament to efficiently leveraging the benefits of scale. In financial year '21, the division delivered one of its strongest performances for many years, with revenues up 8% year-on-year and 5% up half-on-half, resulting in cash profit increasing 41% despite a high level of regulatory investment required for BS11. We're on track to deliver BS11 well ahead of the required RBNZ deadline, and we are through the majority of spend on this project. Home loan volumes grew 11% year-on-year. Risk-adjusted margins further improved in the second half and were up 15 basis points as we continued our focus on improving returns in our business division to reflect the changing capital environment. Now turning to provisions. Credit conditions remained benign in the second half. Individual provisions were at historic lows, and delinquency rates trended downwards. The modest $145 million release from the collective provision was largely driven by volume reductions and an improved portfolio risk profile. But while increasing vaccination rates is a positive for the economic outlook, we will maintain a cautious approach to provisioning given the uncertainty of the implications arising from extended lockdowns in a number of our major cities. We believe our collective provision balance and coverage ratio of 122 basis points remains appropriate at this time. Now let's consider expenses. We do have a strong track record of disciplined expense management since 2016, and that has continued this year. Adjusted for FX, our run-the-bank costs decreased 3% with productivity initiatives offsetting inflationary impacts, and that allowed us to continue to invest in the business at record levels. Our accelerated strategy initiatives contributed $308 million of run-the-bank benefits this year. Savings came from across the entire business including: one, greater use of digital technologies and customer self-service. For example, digital sales as a percentage of total sales rose to 41% in New Zealand and to 49% in Australia, up from 26% and 30%, respectively, only 2 years ago. Secondly, creating efficiencies via process automation and simplification in our contact centers and our back office. Thirdly, the rationalization of our property footprint and lower operating costs. And finally, network and vendor contract optimization. We expect to continue to see run-the-bank costs reduce over time with productivity benefits offsetting inflationary uplifts and higher technology costs as we digitize the business. The trend, however, may not be linear each half. Our investment spend. We are investing more than ever before to build a simpler, more resilient business and in a variety of platforms for future growth. Our investment spend has increased by $600 million over the past 2 years and was up 23% to $1.8 billion this year. We continued our discipline on capitalization with the investment expense rate increasing to 79% and our capitalized software balance falling to below $1 billion. Almost half of our investment spend this year was on growth and simplification initiatives, including key strategic initiatives like ANZx, GoBiz, and sustainability finance, along with our transition to cloud-based technology. In financial year '21, we reached the peak of our spend on the current regulatory projects, which when complete will deliver a greater level of operational resilience and a stronger base for future growth. We remain committed to investing to grow and to simplifying the business with investment spend in financial year '22 expected to be slightly higher than this year with a higher investment expense rate. Year-on-year total expenses are expected to increase slightly from the financial year '21 base of $8.67 billion, and that will be an outcome of lower run-the-bank expenses and higher investment spend. So to conclude a few words on my key areas of focus. One, we must rebuild our home loan momentum. Mark Hand and his team, along with the entire executive committee, is sharply focused on this. Two, our simplification agenda remains central to our cost targets. We must fund essential growth, and we can only do that effectively by managing productivity and efficiency, and my team and I will relentlessly pursue that objective. We have done this the last 5 years, and I'm confident we can continue to do it consistently. Three, we have to maintain our resource management and allocation discipline, which is a key agenda for me. Our investment governance framework is aligned with our strategic priorities to ensure that investment is well managed and rewards strong execution, which produces the promised cost and revenue benefits. Four, the growth initiatives, some of which were outlined by Shayne, are important priorities and will also operate under the governance framework I just mentioned. And finally, all of this will require strong execution and a critical focus on returns. We have a proven track record and an embedded culture that is clear about return expectations. We will continue to build on that culture. I thank you very much for your attention, and I certainly look forward to meeting all of you in person soon. In the meantime, I am contending with a very important task of picking a footy team. Unsurprisingly, Jill is pressuring me to pick Richmond. With that, I'll hand back to Shayne.

Okay. Thanks, Farhan. As I said, it wasn't an easy year but it was a good result overall. We could have been quicker to address challenges processing Australian home loans, but I'm confident we've had that under control. Looking ahead, the immediate impact of COVID is receding, but there will continue to be challenges, including long-term industry disruption. Now given the repositioning of ANZ, our strong balance sheet, the investments made and benefits of simplification, we are well capitalized and well provisioned should things deteriorate, and we are well positioned as growth emerges. Put simply, the headwinds will persist but structural tailwinds are emerging for us. Now Farhan shared his priorities, and I'm very clear on what's important at a group level: first, restoring momentum in Australian home loans; second, launching ANZ Plus successfully; third, seed profitable, high-return growth in Institutional with a focus on the platforms and sustainability areas; fourth, in New Zealand, finish BS11 and continue to recycle capital to improve returns; and lastly, across the group, continue our work on simplification, capitalizing on the investments made in automation, cloud migration and digitization to enable low-cost, high-resilient customer growth. But whatever eventuates, we'll continue to be prudent and methodical. We will be guided by our purpose and balance the need of all stakeholders, and we'll do what's right. This is going to be another big year of change and transformation, and I'm confident that we have the team to deliver. And I'd like to acknowledge our 40,000 people who've been unwavering in their support of customers, colleagues and the community in a challenging and, at times, emotional environment. They continue to be true to our purpose, and they embody the best of our culture, and I thank them for their ongoing commitment. Now finally, it would be remiss of me not to mention that 70 years ago this month, the modern ANZ was born with the merger of the Bank of Australasia and the Union Bank of Australia. It also launched a new motto, tenacious of purpose, which resonates as strongly today as it did in 1951. Our purpose, to shape a world where people and communities thrive, has guided us through recent challenges, and we will continue to pursue it with the tenacity it deserves. So with that, we'll open for questions.

Thanks, Shayne. I know that you've all done this a million times, but just in case, we want to get through as many questions as we can. So if you could keep it to no more than 2 questions each and try to resist the urge to have 27 sub-questions, that would be great. If you can work the words, go Tigers or Dustin Martin, into any of the questions, we might let you go longer. With that, operator, if you can open up the lines, I believe the first question is from Andrew Triggs from JPMorgan. Thanks.

Thanks, Jill. Can you hear me?

Yes.

Excellent. Just a few related questions on costs, please. In terms of the sort of the reiteration of the $8 billion cost aspiration, can you just -- Shayne, just clarify that excludes restructuring costs? That's been a -- it's listed as a notable item, but it's been an ongoing trend of relatively high restructuring costs and was $127 million this year. A couple of other questions sticking on costs. FTEs are up 5% in the second half, and all divisions saw growth. So just interested in any sort of explanations on this given the productivity savings that we saw outlined on Slide 23. And just the final one if I could push my luck, sticking to Slide 23. That cost inflation bar looks relatively low at about $53 million or about 0.6% of the starting cost base. So just interested -- I would have thought it would be a lot higher than that given a lot of your people sit in offshore markets.

Yes. Sure. No. They're very reasonable questions, and I'll get Farhan here to go through the detail. Just a highlight from me though. Look, restructuring, yes, look, the $8 billion, I think it's fair to say there's sort of normal restructuring that we should probably -- will be part of the $8 billion. What we're going through at the moment in terms of transition is some sort of higher levels of restructuring required in terms of that productivity outcome, but we can -- Farhan can comment a little bit on that. And on the FTE, before I hand to Farhan because he'll have a bit more of the detail, I think it's important, Andrew, to stand back and think about over the year -- and I know your question was on the half, but over the year, the FTE is up about 2,000. About half of that is explained by some sort of transitory things. So for example, we are moving a significant amount of work from our base, our operational center in Chengdu. We're migrating that to Bangalore. But as we do that, we end up with a bit of a double count. So we've got about 400 roles moving as we speak. So we hire 400 people in Bangalore ready to take the work, but we still have 400 people in China. And so that's a big part of that. And then for example, we've got about -- we're closing a product in New Zealand, a product called Bonus Bonds, which was -- we can go into what it is. It's an old product we inherited from when we bought PostBank. There's about 150 people sitting, just contracting in to manage through that transition. So there are some unusual things in the FTE, which we're confident are transitory. But Farhan, you'll have some more comments to make on those questions.

Yes. No. Thank you, Shayne. I think there are 2 drivers of the exit rate. One, of course, is there is a small increase in our BAU FTE. But as Shayne said, a large part of it is transitory, things like Bonus Bonds; the Chengdu service center exit, which will slowly reduce over the course of next year. Investment in ANZx, in cloud, in things like GoBiz was obviously part of the reason why the FTE was higher. And inflation, we expect next year, will be slightly higher than financial year '21. We've also, as we've said, delivered $308 million of productivity saves, and there are many more initiatives in flight, which will continue to reduce our BAU or run-the-bank costs. Overall, our view is that bank BAU will trend lower over the year. Investment will be up, as I said earlier, but we will fall in financial year '23 as we complete major programs like BS11 and some remediation. And that impact is -- was about $300 million alone in financial year '21 but will start to come off in '23. So that's sort of our view on FTE. We'll see some transitory rise, which we have seen. We'll see that reducing as some of the regulatory projects complete. We'll see the impact of that coming off, and we'll continue to invest in the key initiatives that Shayne talked to earlier.

What should we assume as a normal restructuring cost line ex this period of extreme productivity focus?

That's a good question.

Well, I think...

Go on. No. Go on, Farhan.

Yes. Shayne?

No. You go ahead.

No. Look, I mean I think it is a good question. We have factored in some numbers in anticipation of that restructuring. I can't share the details with you just yet, but I'll be happy to discuss those with you later.

Operator, we can move to the next question -- thank you, which is, I think, Andrew Lyons.

I just wanted to ask a question, Shayne, just about the expense target. You've spoken to an exit rate in FY '23 of $8 billion, and yet costs are going to grow again incrementally in FY '22. Just in light of that, I'm wondering if you can maybe just help us with a bit more detail around exactly what an FY '23 exit rate on costs of $8 billion actually means the reported number will look like. I think particularly given you're going to grow costs in '22, I think the market would really appreciate any guidance as to what that exit rate of $8 billion actually means for the reported number in FY '23. And then just a second question on market income. You've just delivered about $2 billion of market revenue, which is about in line with what you've previously spoken to as being normal. Against this, all your major bank peers are talking to this line item as being under significant pressure so much so that we've actually seen one of your peers write down assets within the Institutional business, somewhat related to this. Can you perhaps talk to maybe why you are seeing some divergence against the major bank peers on this line?

Yes. No, I'll start with that. I mean, I guess the glib answer was we're better at it than our peers. But the reality is, as you know, Andrew, our business is just more diversified than our peers. And I think it's really important to note the diversity of our Markets business in 2 factors. One is the geographic diversification. So more than half of our business sits outside Australia, and that's really the big difference when you compare us to, certainly, our domestic peers. So we have a great franchise across Asia, et cetera, and so that geographic diversification really comes through at a time like this. And I think the other point that we've done within that business is also the diversification. When you think about -- and there's some detail in there about just how we generate value in that business in terms of our customer base, and so we have a much bigger institutional business to begin with than our peer group. And remember, again, Institutional for us, where we really dominate and do extraordinarily well, is with the multinational segment. And so that multinational segment -- and yes, many of them operate here in Australia and that's the core to our relationship, but it means we're servicing them in multiple markets around the world. And so we just have a broader customer diversification in terms of flow and opportunity, and we have that geographic diversification. So I think that's why our business -- we feel pretty good about that result. And I take your point. I think it is better than what we're certainly hearing from many of our peers, but that's why we're confident in that. In terms of the expense target, look, we don't give guidance for FY '23. I understand the nature of your question. And I understand sitting here today, it looks like a big move from sort of $8.6 billion, $8.7-ish billion down to $8 billion. And there -- and it's clearly not going to be a straight line. But as I mentioned, I think we've given pretty decent guidance around that exit rate. What it essentially means is we exit the fourth quarter of '23 at about $2 billion in total. And I've kind of talked to the -- how the $7 billion plus $1 billion and how we get there. What's difficult about answering your question, to be perfectly frank, is there's a lot of moving parts in there. So we've got really strong momentum on BAU, but the real difficulty is really on the project side. So I think I'm more confident in that it won't be a straight line, but I'm more confident in the BAU trajectory and timing. It's a little bit harder on the project side to know exactly, for example, when something or the equivalent of a BS11 or the cloud migration or some of the remediation in which quarter that will actually finish, whether it's first quarter of '23, fourth quarter of '22, fourth quarter of '23. So that's why I'm a bit reluctant to go into that. Farhan, I don't know if you want to add anything on those questions.

No. I think you've covered it, Shayne. I mean I think it's just to -- as Shayne said, I think on the BAU expenses, I think we have a much greater degree of confidence in terms of the run into FY '23 exit. And as Shayne said, we have a very clear strategy around our productivity initiatives, which will offset inflation and will deliver to the $7 billion target that we are hoping to achieve by then. The -- on the investment, I think the only thing I would say at this point is that, as Shayne said, the -- and as I mentioned earlier, there's $300 million simply from BS11 and remediation, which will be elevated this year but will slowly reduce in FY '23. So therefore, if you think about our slate, which is about $1.8 billion now, it drops to $1.5 billion just on the basis of those 2 projects. And then of course, we'll have to decide on the pacing and the timing exactly of when they come on and come off. So I think we have a plan. It's -- but the timing remains a little bit uncertain, as Shayne said.

So just on the BAU, $7.4 billion down to $7 billion, would you expect that should be more linear? And go Cats, to get that question.

It will be more linear. It won't be perfectly linear, but you would expect so. There will be a little bit of a tail-end impact there. You would expect the same to accelerate at the end. I'll give you an example and reason why. If we think about some of the -- that BAU is not easy and it comes out of investments we're making. So I think it's something like the cloud migration. Just -- and again, I know you guys know this, but you have to invest a lot. You build capability to migrate to the cloud. You've still got to run your data centers and run your new services in the cloud. So it's, again, a bit like the example I gave with Chengdu and Bengaluru. It's a little bit of a double-up, and then it's only towards the end of the program and the migration that you can start to release the cost of your owned data centers. So -- and that's obviously -- and that release would come through in the BAU costs. So it will be straighter and more linear but not perfectly so. There'll still be a bit of a tail-end impact. I would say just -- sorry, just one thing on that. I mean I think it's worth -- you go back and look at the productivity that we've got, and Farhan mentioned the $308 million. What's really interesting about that -- and I don't know when we first started and had the ambition around the $8 billion. There was a lot of skepticism, and I understand that. And we talked about -- when we first started delivering into that, there was a sense how you're doing the easy stuff first and it's going to get harder, and there's an element of truth to that. But we're also getting better, and I think that's important. That $308 million actually is higher than it has been historically. So actually, we are generating more productivity saves as we go through the program. It's not slowing. It's actually accelerating because if you look back over the 3-year prior -- the 3-year average prior to that, I think it was about $260 million per annum. So we're actually -- we're getting better surprisingly in terms of our execution on productivity benefits.

Next question is from Ed Henning with CLSA.

Look, you've talked about improved mortgage outlook, firm handle on the issues. Speaking to a number of brokers, you're still around 6 weeks to pick up a self-employed deal, 3 to 4 weeks of PAYG, which is still well out of market and has recently got worse. Firstly, can you just run through a little bit more detail why it's taking so long to fix the issues and why that won't happen again? And secondly, given your improving outlook for credit growth expectations, do you need to pull the price lever? And with that, do you see increasing front book pressure and also fixed rate migration coming through in your '22 NIM?

Yes. So fair questions. I'll get Mark Hand here, who runs Australia business, to make some comments on that in terms of the turnaround times at hand. But -- so why it takes time? Because -- so let's understand what the issue is. We do not have an issue today of people wanting to choose ANZ for a home loan solution. We -- in fact in a funny way, that's part of the problem. We've got lots. Actually, the application volumes we are experiencing today are extremely elevated relative to history. So we don't have a problem at the front end. Where we've had the problem is in processing. And if you go to -- and Mark will talk about it more articulately than me. But in terms of our branch network, we don't have a problem at all in terms of turnaround times. People going in to a branch get a turnaround really, really quickly and very, very competitively. It has been in the broker space for -- without going into all of sort of details, some years ago, we made a risk-based decision that we would manually assess all broker applications, yes, and that was a reasonable thing at the time. So basically, we have a very extremely manual process sitting in behind broker applications. So the reason it takes time to ramp up, it is difficult to hire and train people and get them to be really productive in terms of home loan assessment. And that was particularly true during COVID, where we were more restricted in terms of being able to get people into a building to train them, et cetera and get them on the tools quickly. But Mark can talk more sort of with up-to-date data in terms of turnaround times. Mark?

Yes. So firstly, look, I'm the first to admit that I didn't pick the boom that we saw coming in home loans this year. So in terms of our preparedness for that, we weren't ready. But what we have done is constantly improve the business. So our ability to write home loans today is more than double what it was 18 months ago. And we're in the process of doubling that again, but that takes time. To automate processes, you need to change systems, you need to retrain staff and you do need to put new stuff on. So we've redeployed a lot of staff from other parts of the bank to help with his problem. But the technology solutions, the automation solutions that we need to put in place just simply take time. Now the turnaround times, we do have a little bit of a bias. So we have a mobile network, which accounts for about 15% to 20% of our volumes. They are treated similarly to the way we treat our brokers. So we do a full check of those deals the same as we do for broker deals. So we have a bigger piece of our pie that goes through, I guess, the slower process compared to the branch deals, where 60% of customers will walk out the door with a decision within about an hour of entering the branch. So we do have a lot of work to improve that process. We've got a lot of work underway. But we also have a bias towards, because we have the best offer in market, for self-employed. So we bet very strongly in that part of the market, and those does deals take longer. So you won't get an approval in 24 hours for a self-employed customer from any bank. You -- it does take longer. There is much more intensive checks to be done. And the fact that a lot of those come through broker add to those. So our bias plays towards a little bit of a longer turnaround time. But if you look at our turnaround time for a straightforward deal that is comparable to the deals that Macquarie, for instance, might be writing and we're still slower. But the difference is in a few days, not in weeks.

In terms of your question, Ed, on -- you asked a question about margin. You're right. There's been a big mix shift across the market and certainly for us in terms of customers choosing fixed rate over variable. And of course, that does have an impact on margin. That's already sitting in our book today. And it's already, if you will, within the exit rate. I don't know, Farhan, if you wanted to comment a little bit more just broadly about the margin trends.

Yes. Look, I think we've -- and I tried to cover that in the speech earlier that obviously, we have a combination of headwinds and tailwinds coming into FY '22. I think the headwinds are likely to persist around competition, the continued shift from variable to fixed and sort of other back book-related margin pressures, et cetera, in the mix. But we do have tailwinds. We have the ability to reprice. We still think we have some ability to reprice deposits. We are waiting to see how rates perform in the course of the next few months. And hopefully, that's going to give us some tailwind as well. The deposit mix is something that continues to change and provides -- and our teams are working hard at to make sure that we get some tailwinds as a result of those. And of course, the wholesale funding costs are relatively lower in the debt markets. And of course, as those roll off, we'll be able to refinance cheaper through the deposit liquidity that we have. So to some extent, we have several tailwinds. Net-net, we think that there are obviously net headwinds. But again, depending on what happens with rates and depending on how we are able to take appropriate management actions to offset some of those headwinds. But I think it's fair to assume that in general, there is a headwind pressure going into next -- going into this year.

And just if you think about your credit growth expectations, do you need to pull the price...

Yes. Good. Yes.

Accelerate those headwinds?

Yes. No. Good question. No. Look, we -- I don't know what the market is going to look like. I don't know what's going to happen with rates or in terms of competition. But I think, again, when you stand back from a simple level, as I said, the issue to that we have today is not that people do not want to choose ANZ, that we don't have a compelling, competitive position in the marketplace. It's really just our ability to sort of churn through the volumes. So our view is just where we're putting our resources is really to build the capacity. Mark talked about the doubling we've already seen and the expected doubling we're going to get. That's our focus, and we know actually from history that what's really important in terms of growing volume is just being competitive in terms of turnaround times. And that is our strategy, to be in the mix, to be highly competitive through this in terms of the broker channel. And as Mark said, on the branch channel, we're already very, very effective there.

And sorry, just one other follow-up. Just on the broker, you fully reassessed the loans. Do peers do that? So if you do see another spike in volume, you will get the same issue again for ANZ?

I can't speak for peers. That's for them. We -- today, we manually assess what -- part of the changes we're making is to reduce our reliance on total 100% manual assessments through the broker channel. So there is part of the work. And what Emma will lead and is already underway is how can we automate, streamline some parts of that process. So that's already underway, and we're confident we can do that. But I think the point here -- and Mark, I think, spoke clearly about this. We are aiming -- we've already doubled our capacity. And if you look in the data, it's not that we're processing less home loans than we used to. We're actually processing more. It's just not enough. And we are building that capacity to double again. Now who can say what the volume outlook will look over the next year? But that should be more than sufficient for us to meet the objectives we talked about, getting asset growth back into the home loan book in the first half and being back towards the average of our major peers in the -- at some point in the second half.

Your next question comes from Matthew Wilson with E&P.

I presume you can hear me okay.

Yes. Good to hear from you, Matt. Yes.

You mentioned it in your opening remarks, and I think it's a good point. Your Institutional franchise isn't well appreciated. You can tell that by the questions today, everyone's focusing on home loans. We think we'd be talking to a building society. But there is $150 trillion that needs to be invested in net zero emissions over the next 30 years. Perhaps just a question for Mark Whelan. But can he sort of provide more color how your franchise is front and center, well placed to deal with the opportunities that will arise across the capital stack, across the assets that need to be created, financed and managed long term?

Yes. And I'm glad you raised it because I totally agree with you. And that was part of the -- and so I'll get Mark to come up in a sec. And while he's getting ready, this is a massive opportunity and there's is no doubt -- we're talking enormous amounts of money. And as I sort of try to cover -- Mark will give you a bit more detail about the work we're doing here. You stand back and think about that transition and what would you need to do to be part of it. A lot of those things, if not all of them, we're really, really good at. And for example, just good, old-fashioned resource extraction and banking that, yes, okay, the underlying will shift. It won't be coal. It will be lithium or something else. But the fact is -- or hydrogen and all those. It's still got to be around -- we're good at that. We're #1 at that, and we've been good at that for a long time. We're really, really good at banking large-scale industrial projects in terms of the conversion of things. We're really, really good at moving and financing the movement of goods, whether that today might be gas or iron ore and then the future might be hydrogen or something else. We're good at knowing how to do those things, and we have the customer base that actually will drive a lot of that. I mean the reality is that transition is going to be driven by large, multinational organizations, many of which, if not most of whom, are core clients of ours today, not fringe clients, like core. We had this discussion yesterday with our Board going through -- if you go through and think through who's going to drive that transition -- I'm talking about the names. These are people we know and have banked for a long time and are very, very closely working with. So I think there's a lot, but we are excited about the opportunity. It's really, really early days, but Mark can talk a little bit more about the various ways we can participate in it because it's not just going to be lending, yes, far from it. Mark?

Yes. Thanks, Shayne. Thanks, Matt, for the question. We've spent the last probably 6 months doing a real deep dive into what we're seeing in the sustainability area globally, some strategic work with around 75 of our people working with McKinsey. And we've got a pretty good picture on where we see the opportunities, but it effectively starts with what Shayne talked about. I mean the quality of our customer base, both domestically and internationally are the -- they're the customers that are going to drive this transition to net zero by 2050. Many of them are already well progressed on their own plans. And so our intention is to follow them and to work with them on their own transition. So that customer base plus our geographic footprint really puts us in a strong position to be at the forefront of this based on what our customers are telling us and what they want to do and where we think this will move. Second point I'd make is don't forget our financial institutions business. A lot of what you're seeing drive and pressure and move to net zero is coming through from our fund managers and our investors and -- who take both our equity and our debt, but also, they do that with many of these companies that are obviously looking to transition. We have an exceptionally strong FI business, very deep business across multiple parts of our product offering, and we're working with a number of them now around what we can do to improve our product capability. So when you roll all that together, there's areas we'll need to develop. We do a little bit in advisory today. We're thinking about what we need to do there. We're looking at the product range. We offer green bonds, green lines. It's going to be much broader than that. Supply chains are going to shift on the back of this, and we've got very good trade businesses with these multinationals, and we're actually reshaping them today to focus on where these opportunities will be. And there's obviously -- with the fund managers and the FI business that we have, we're talking to many of them around how we participate in other parts of the business. We've been in equity and how we structure that up. So it's multifaceted. I think we're pretty well prepared. We've got a very strong starting position and a very strong reputation in the marketplace and very well coordinated across the bank as well, which is quite important here because it's going to touch many, many, many industries.

Just to add quickly, Shayne, if I could, and Mark -- to what Mark said, Matt, that we have the relationships in our international business alongside our relationships in Australia that we will leverage together to deliver the outcomes on sustainability, as Mark said. But I think it's worth pointing out that we have market-leading businesses in this region in terms of debt capital markets, syndicated loans, project financing, export credit. Many of those are going to be critical in terms of the financial engineering that will be required as many of these projects are taken on. So we have the network, we have the relationships, and we have the product capability to actually bring this to realization, which I think sets us apart a little bit from some of our competitors.

And again, I'm over-speaking because you probably tell we are excited about this opportunity. The reality is because of that customer base and because of that capability, this is going to happen naturally anyway. Like we are going to -- our business is going to shift because our customers are going to take us there. What we're talking about is doing more than that, like not just being -- moving because our customers are shifting but actually how do we position to have even a greater participation in this, and that's going to require investment. Now the good news from a shareholder's point of view, that investment we're talking about is largely people and capability. It's not about -- we don't need new, big systems or technology or big-dollar investments. It's really about the intellectual investment around people. And under Mark's leadership, we've already hired in some really thoughtful people from the whole sustainability spectrum to augment that team because we need to be at the forefront of the thinking as much as just in terms of delivery. So it is an exciting area.

Thanks, guys. And Farhan, you are well-advised with respect to Jill's recommendation for a football team. Thank you.

Thanks, Matt.

Next question comes from Jonathan Mott with Barrenjoey.

Yes. And probably staying a bit more on that Institutional side. You talked a lot about the benefits from the steepening yield curve and potentially rate rises. So could you just elaborate on that, just the leverage that you get across the Institutional side in the market that we have the volatility that's been going on in recent times? Shouldn't we be a pretty good environment for markets for the next little while? And also for the rate rises, do we actually need to see effectively the RBA rate rise kick in before you really start to get the leverage through widening spreads as well? Can you talk about that leverage to rates?

Yes. Yes, good. And I'll get Mark Whelan to talk a little bit more about because you're specifically talking about markets in particular there. But I think if you could just stand back a little bit, and again, I don't want to sound preachy because you guys all know this. But as we know, higher rates and steeper curves are generally a good thing for banks overall. They -- borrow short lend long argument, and that is undoubtedly true. What we're suggesting here is not only does ANZ benefit from that like others. Because of the shape of our business, in particular, our strength in Institutional, we think we see that as more of a tailwind for us, yes. And so -- and Mark can talk that through. And the other point there, I think, is in terms of volatility, in general. As rates rise, it tends to come with a little bit more market volatility. And what's interesting at the moment is there's quite significant debate happening, not just here in Australia but around the world about inflation. Is it transitory? Is it permanent or not? And we saw even yesterday with the data, some reasonable moves in the shape of the curve. And that sort of environment is, my view, is there's going to be a lot more of that debate. It's not going to get settled anytime soon, and there will be market flip-flopping around on that decisioning. And so that's an ideal -- and that means our customers are increasing their activity, more hedging, more positioning, et cetera, and that's generally a good thing for us. But Mark, you're in a better position to just talk through about the impact and the opportunity we see in our Markets business.

Yes, I think that's a good backdrop to it though, Shayne, because we do -- the business is built around the customer flows. And so Jonathan, I think the issue for us is more following what we're seeing with customers. I think in the last few months, we've seen -- or the last 6 to 12 months, we saw customer activity actually drop a bit because they did a lot of prehedging. As you know, last year when volatility was up, spreads were wide, yield curves were uncertain, et cetera. And then when all the liquidity came into the market, what happened is that really suppressed volatility and you'd already had a lot of prehedging from customers you put in place. So it was a tougher year this year. However, when you look forward, I don't think it's an issue of if things will get better for that environment for markets and it's more a question of when. So we do think that rates will rise. Now because we've got more a global business in our Markets business, we've already seen New Zealand rates rise, so we'll benefit from that. Already there's talk in the U.S. about when the U.S. rates will rise, and also it's an issue of when does Australian rates rise. But we're sort of exposed to all 3 of those, and we can leverage them at different times. Yield curves are already starting to move. Spreads are already starting to move out. It's an issue of how quickly that will happen and whether it's a continual factor and when it feeds into volatility, which then attracts back in the customers to take more action around their positions going forward. So as I said, I think it's more an issue of when it will hit than if. And at the moment, it's still -- volatility is still pretty low, but we're starting to see more activity in M&A, customers starting to borrow more money. That's usually a good precursor to starting to see some of these market conditions hit, which are really good for our financial Markets business.

Yes. And just to go into your question, Jonathan, about the RBA. Look, clearly, with rates so low here in Australia, essentially at 0, any sort of increase, yes, would be of benefit, but the greater benefit to a business shaped like ours is the steepness of the curve as opposed to just the position of the cash rate. So in a funny way, the longer the RBA keeps rates low, the more likely it is that we get a steeper curve as those sort of expectations of rates rise start to get built in. So I know there's a lot to unpack in there. But basically, what we're saying is our business is well positioned for higher rates, but more importantly, steeper curves both from a market positioning business, just leaning -- borrowing short lending long, but actually also in terms of driving customer activity.

And I would just add, Shayne, to your point that it is absolutely right. And Jonathan, to your question, away from the markets impact that Mark spoke about. And Shayne touched on the fact, obviously, cash rates going up is obviously helpful, but we want to see the rate structure rise. And that would impact not just the Markets business, but it would also impact favorably the [indiscernible] and replicated portfolio as well.

The next question comes from Brian Johnson with Jefferies.

I was just wondering who this Jon Mott character is. Shayne, congratulations on a great result. But just something I wanted to understand is on Slide 10, you actually say consumer lending is becoming more capital intensive and less profitable, which I would agree with. But when we go back to what you said in 2016 when you took on the gig, you basically said that you'd written down on an envelope that basically ANZ product too much in Asia, too much Institutional, more in housing. And when we actually have a look at the housing market share over and above what we've seen just of late, the market share is down in housing from 2016 to basically now. I just really want to understand is, are you saying that Institutional is better than SME lending is better than housing? I just wondered, are you happy with basically the current mix? Because it's the great unknown. I'd just like to find out that one first.

It's a great question. It is a very reasonable question. Thank you, Brian. So I think when we -- so again, just standing back a little bit, there is no doubt that consumer lending -- the returns are under pressure for all sorts of reasons we've talked about, partly to do is pricing, partly to do with capital intensity and also partly to do with just opening up of that market and unbundling of a new competition, right, but it's still very attractive. So the point there, again, it's getting lower, but it's still when you think about our stack of alternatives, it's still -- and again, we're using broad terms here, it's still one of the most attractive. So if we just stand back today and think about the relative attractiveness of ROE, and again, being pretty blunt or think about the economic profit generation of the various businesses just as a spot -- on a spot basis, parts of SME are the highest, not all of it. So the parts of SME are the highest. Consumer, including home loans, is there. Institutional is still a lot lower than those 2. Now then you got to think about, but what's the change happening both from an industry perspective in terms of -- and as a result of our own management, and what we're suggesting is that retail is getting harder, and so returns are falling structurally. Institutional is actually getting better. So the gap is closing. And so now we've got an Institutional business that is comfortably above our group cost of capital, and we're not done yet. We -- partly because of the tailwinds we've talked about, partly because of the work we're doing to restructure that business, we think that continues to get better. The APRA, the proposed capital changes from APRA and you know they're not done yet, but as they proposed at the moment, that coming in '23, they are a pretty reasonable boost to Institutional, might be neutral overall. But again, it will help start to close the gap. So that's our view. And by the way, just to finish that, SME not really changing too much, a little bit of pressure there from some of the capital changes. So that's the way we think about it. Now we are a diversified business, and we want to be great in all 3 of those, and we think our mix at the moment is about right in terms of about 2/3, 1/3 is sort of our mix, it's about right. I don't want anybody to walk away thinking that we deliberately, and I know you didn't mean that, but we didn't deliberately reduce share in our retail business in Australia, far from it. We do want to increase share. We want to increase the right share at the right price. And that is why we're investing really, really heavily through ANZx, but also just in general in terms of really trying to craft a position where we've got a compelling proposition that is sustainable for the long term.

So Shayne, just on that, sorry. This is part of the first question. If we go back to APRA's last pronouncement on this, they said that when the amended Basel III come through, basically, it's just a change in the way you measure something, but housing capital intensity goes up, but they specifically referenced SME falling. Are you saying that's not the way it looks at this moment?

No. That's -- you're right. I'm -- again, I think it's taxonomy here about SME. So when we think about our SME base, SME for us is a pretty broad church of things. So at the very -- so it depends -- when we -- I'm talking about sort of more of some of the larger parts and the more capital-intensive parts of SME. And again, the impacts as we -- as articulated by broadly neutral letter bank or industry level, but they do sort of level the playing field for a little bit between and so insti will get a benefit and other businesses will have a small reduction in terms of attractiveness or ROE. So it's a relative -- but it's relatively neutral. But again, within our portfolio, Institutional will look relatively more attractive than it does today.

Shayne, second one if I may, just on the housing pricing going back to Ed's question. If we go back to basically March 2020 when the RBA cut. ANZ, you cut your front book, back book housing variable rate far more than your peers and we had an uplift in your market share. So you basically hurt the back book, but you've got a gross in share. If we go back to November when the RBA cut from 25% to 10%, the other banks cut more aggressively their fixed rates, you guys didn't. And basically, you basically appear to have lost fixed share. But if we look at it now, your fixed rates look to be pretty punchy relative to your peers, but we still got this higher back book variable rate. Does that feel to you like basically ANZ gets more front book, back book pressure or less going forward than your peers as you go back to market share growth? I apologize, it's a lot to unpack.

Yes, I was just about to say there's a lot to think through in that one. I don't want to give a glib answer, I'd have to think that one through. I'm not debating anything you've said there, Brian. I think your assertion here is probably not unrealistic, but I'd have to really, honestly, sit down and work that through. I can't say. I mean, I think the point here is...

Shayne, can I probably just...

No, go on.

Shayne, your fixed rates are low relative to your peers.

No, I understand the question, yes.

so that creates more front book, back book pressure, but your benchmark variable rate is well below your peers, which grades less. How should we add the 2 together?

And as I said, I need to work that through because we also need to understand the relative weight of the business today and the relative flow. And clearly, the issue is -- so all else being equal, you're correct, that will create more of a headwind for us. But all else isn't equal, and the point being that we -- pricing shifts. And also importantly, as we've said, we're not achieving the kind of volumes that we want today. And while we talked about in aggregate about the fact that we want to get our book back to growth in the first half and back towards sort of peers at some point in the second half, clearly, the mix of that will be very, very important in terms of where that growth comes from. So again, you're right, but I don't know that you can necessarily just extrapolate that too far given we've got some of our -- the processing challenges we have in making sure we get back into the volume that we need. But I think what's important here is what we're saying, is we don't believe -- I don't want people walking away here and saying, "Hey, our plan as we get our process, and we're going to use price as a lever." We have to be competitive. We understand that. But that's not the issue today. That is not our issue about people wanting to choose ANZ. We've got a pretty -- as I said, we're in the mix when it comes to pricing. We'll be a little bit better here, a little bit worse there. But we're in the mix, it's really about the processing capacity that we need to fix.

Your next question comes from Azib Khan with Morgans Financial.

You've covered pretty well the sensitivity and the leverage of the Markets business to the shape of the yield curve and rising rates. I would like to understand the same sensitivity to another part of the Institutional business being the payment and cash management business. If we go back to 2018 and 2019, the PCM business was delivering revenue of somewhere between $1.2 billion and $1.3 billion per annum. It is still trend -- it has since trended down such that it's now delivering about $900 million per annum. Firstly, to what extent has that downtrend being driven by lower rates globally? And secondly, I now note that, that revenue -- the PCM revenue has stabilized from the first half to the second half. So do you believe that, that downtrend has now come to a halt in this cycle? And Mark mentioned earlier that we're already starting to see yield curves move in many of the geographies that you operate in. Is that starting to bode well for the outlook of PCM revenue?

Yes. Look, it's a great question. And just don't forget you're talking to an old cash management person, so going back a bit. So we love this business. Azib, you're right. So actually, the decline in revenue is more than explained by lower rates, yes? Because actually, what we've seen at that time is actually an increase in volume, and the increase in volume comes twofold. We've been increasing share. So we're acquiring new customers and mandates and our customers are increasing volumes. I think -- so we've had this odd sort of -- well, it's not odd, we've had the situation where despite the fact we've been winning more business and getting more transactions and putting sort of more through the pipe, if you will. The way that market works in terms of generating value and revenue for us was heavily skewed towards NIM, i.e., the amount we made on balances and less reliant on fees, yes? And so when a lowering rate environment, yes, it did. And so in some ways, we've had to pedal really, really fast to actually reduce the reduction in total revenue. What we're signaling and talking about here -- well, signal is not the right word. But what we're talking about in the result is, look, for what we see now, and remember, this business is not just in Australia and New Zealand, it's an array of currencies across an array of markets and pretty well diversified, but broadly, yes, we think that business has bottomed in terms of the drag of interest rates, yes? So -- and actually, as we start to see rising rates, and we've started to see them in New Zealand and other parts of the world, and there's more talk of that happening, that will absolutely be a net positive for that business, yes? And we've got higher operating leverage in that business today because it's got bigger balances and bigger transaction volumes than it used to. The other thing that I referred to in there is it's small but important. Increasingly, the services we provide through that business are more fee-driven, and so the business model is shifting a little bit, and the best example is NPP. So on the NPP services, the way we generate revenue there is a fee per transaction, yes? And so it's not a NIM business at all. And so as the business mixes and we become more of the sort of processing shop, processing payments for people. We see -- again, we see a tailwind coming through in that business. So yes, we see that as an upside. Rates will benefit, steeper yield curves will benefit, but also the changing nature of the business and the underlying growth that we're seeing there, which is really pretty powerful.

So Shayne, putting all of that together, so the outlook for the PCM business is looking quite rosy. The Markets business, we understand the sensitivity there to rising rates in the shape of the yield curve. And on balance, that's looking pretty good for the next couple of years. Your outlook for corporate finance and trade is looking good in light of what you're looking to do with the transition to the low carbon economy. So putting all that together, are you expecting cash earnings for the Institutional division to outperform other divisions over the next 2 to 3 years?

So I think it's about -- so all of the factors you talked about, you should do my job. Come and sell that. You did a good job of explaining the positives there. So we do see those things as structurally tailwinds. The question we have here is really about timing. And so to your point, over the coming years, yes, absolutely, we see those things as positives. Now what we've got to do is keep our heads around. And we've -- I have, Farhan has, Mark. We've been in institutional banking and that for a long time. We know what to do here, I think, in terms of really strongly managing risk. It's all about getting the risk settings right, and it's also making sure we keep on top of our cost base, yes? So we are in a great position. We have more structural tailwinds than we've had for a long time that I can certainly remember in terms of institutional banking. And we'll keep a very, very disciplined approach around execution. But over the medium to longer term, yes, there are some real positives here that are exciting. Now you still have to win the business with customers and get your stuff together to take advantage of it, but we're feeling a lot more positive about that, that is certainly the case.

And if I can just add a quick point on that, Shayne, because I think you've covered it really, really well. Also, I think it's fair to say that you're an Institutional business person yourself, but I think the -- I think while the tailwinds are absolutely accurate. I think we've got to make sure that we continue to keep our eye in terms of margin and the competitive intensity that the Institutional business, alongside other businesses, is going to be phasing into. And -- but the good news is that Mark has driven incredible discipline in the Institutional business in terms of capital and return orientation. But we shouldn't be -- we are not going to be looking at Institutional growth for growth's sake. It's going to come on at a profitable level.

Yes. Well said.

The next question comes from Victor German with Macquarie.

Shayne, I'm interested just to go back to mortgages and expenses actually. I was a little bit surprised with the comments from Farhan and Mark that you underestimated growth in the market, and it would make sense if you grew by 4%, 5% and the market grew at 8%. But surely, when you're not growing, you're going backwards. It's not just underestimating the market. So just be interested in a little bit more color in terms of what's going on. And why do you think your mortgage processing is less scalable than your peers? So that's question one. And then second question on expenses. I guess, Farhan, if you could perhaps maybe provide us a little bit more color. I mean you've mentioned that next year, you expect expenses to be up. If we look at your second half expense rate, you're effectively averaging $8.9 billion based on second half number. I appreciate there's high investment spend in there, but just be interested in kind of how we should reach that $8.9 billion number to $8.6 billion base and where you expect those sort of potential reduction in spending to come from, particularly in the context of presumably, you will need to continue to invest to fix some of the mortgage issues that we spoke about earlier. And lastly, I'll take Jill on her offer of bringing in her favorite club. If we look at the favorite player, there's some speculation that might -- they might not be coming back and retiring. Shayne, how committed are you to actually delivering on that $8 billion target in 2023? It's not that far away. Are you actually thinking about delivering that? Or are you really putting together sort of structure in place for someone else to take that and deliver on that number?

Okay. No, look, I'm committed. Let's just remember on the -- we'll do them in reverse order, Victor, a little bit. Hey, let's not forget where the $8 billion came from, right? So I'm not walking away from it. I made comments about the fact that we needed a simpler bank. That we're way too complicated. We're doing way too many things and some of them we weren't doing very well, yes? And we wanted to derisk the business, and we wanted to make it a better bank for customers. Yes, we wanted our processing, and home loans is a great example. It's too manual, it's too slow, it's too clunky. We wanted to build scalable, better, compelling propositions, and we wanted our business to be really centered around things that we did well, yes? So that was the objective. Now when we sat back and did the work and said, well, what would that look like and what would the organization, what would the shape of it be? What were the things we'd be doing? Where would we be doing them and how would we be doing them? We back solved that and said, actually, that comes out about $8 billion. So the $8 billion was an outcome as much as it was. It wasn't just a target. It wasn't just a number we made up. Now and I know it's become a target, and I know that target is on my head. I understand that, but it's important to understand why we have that number. So yes, I'm committed. But I'm committed to the simpler, better bank proposition. And I still believe, and I went through, that $8 billion is about right. We're not going to do anything stupid to get there, and I know I've said this probably every half recently. Actually, we can get there now. It's not that difficult. You've seen the numbers. Our run-the-bank costs are at $7.4 million, right? All I have to do to get there now is finish BS11, shut down ANZx, yes? I'm basically there. Now there's a bit of noise in there, but that's all I have to do. That would be the wrong thing to do, right? We want to invest for the future. So yes, I'm committed to it. No, I am not setting it up for -- well, that's up to the Board, I guess. But no, I'm not setting it up to hand that task on to somebody else. And I think that simpler, better bank that we want at the end of '23 is absolutely within our grasp, and it's not going to be easy on a few areas, but we're committed to doing it. In terms of the home loan piece, why did we call it? That's a good question and it's a fair question. Again, it's really important and there's some charts here to look at the moving parts, yes? It's not just about system growth. The other thing that we just -- we did not see because what actually drives that work isn't just system growth, it's the churn, right? And what we saw is massive levels of churn in terms of refinancing. And so the level of refinancing activity in the market has gone to an extraordinary level. Now we did not foresee that coming. So even to hold still in volume, we would have had to have significantly higher levels of processing capacity. So I think it's a little bit broader than just saying, our system growth was 8, and we sort of was going to be 5. It's a little bit more than that because what drives it is actually the turnover. Why are we less scalable? We're less scalable because we're more manual. So most of the banks today, despite what people say they're largely manual, but we are even more manual than our peer group. And in a time when, frankly, hiring and training people has been more difficult, that makes it harder for us to scale. And that's why 2 things. We're dealing with it in the short term. We've put the resources, we've repositioned literally hundreds of people in our network. We have people in our branches who were underutilized, who we could put on to this. I said it, we've hired people, literally hundreds of people to come in. They're being trained. Every week, more and more people are getting into actually being an assessor and being able to chip into that. We're investing in some of the technology solutions that Mark sort of alluded to in terms of simplifying this, that and the other. For example, the way we ingest applications from people. We've put [ MRN ] an expert and got a lot of skills around data and automation. So we're doing the short to medium term things and I don't want to underestimate those. Those are having an impact. Absolutely having an impact today. Our capacity today is higher than it was last week and the week before. It's literally going up, and we measure it literally to the deal number and the dollar we know what our capacity is and getting ready for that. And then on the other hand, we're also investing for the long term because I don't think that, that is the solution. The solution cannot be that the answer to this is just keep throwing people at this and tinkering around at the edges. That's why we talk today about the fundamental rebuild of ANZx. I know it's hard to sit and listen and I throw a bunch of names at you and a bunch of numbers to what the hell does it all mean. What it means is essentially a whole new stack or a whole bunch of new technology and processes that initially are around helping people join the bank and start and have a savings and transaction account with us and that we will then be able to plug in all the other sort of ancillary services, including home loans at some point. So we've got the short-, medium-term strategy, yes? Which we've talked to death on. And we've got the longer-term strategy, which we think means will put us -- we will have a proposition that is far more compelling, which will make us far more competitive, not just -- we won't be talking with us moving our capacity a little bit, but really have a scalable, compelling, low-cost resilient platform to really grow in the market. And that's why we're doing the hard yards on x. So that's sort of those questions. Somewhere in there, there was a question for Farhan, which I've forgotten, but it was about costs, I think, Farhan.

Yes. And sort of related to this sort of -- I mean out of that investment, the manual -- both manual and automated stuff, I mean how much of that has already been kind of captured in your second half cost base versus what's carrying through into the next half?

Yes, good question. Yes, good question. So in terms of the short and medium, the stuff we're doing to fix the now, a big chunk of that cost is in our second half. Now not all of it because -- so the exit rate of those expenses will be higher than the average, if you will, because some of those people only got hired in the last 2 or 3 months. So there's a little bit of that, and we haven't finished. So there's a little bit of a headwind from a cost perspective in the Australia division on home loan processing. But let's not get carried away here. We're not talking hundreds of millions of dollars. We're talking relatively modest amounts in terms of the scheme of things. So we've got that. In terms of the longer-term investments in x and the rebrand with Plus and the new opportunities there, by and large, those -- they're in our run rate on the investment slate. Now there's going to be an uplift in the investment in x. So the work that Maile saying that I talked about, that will be higher cost in FY '22 than it is in FY '21. But that was -- but there are some other things coming off the slate, and that was what Farhan sort of referred to. There's a mix shift in there. It is going to be slightly up, the total investment, but a lot of it -- there is a mix shift in there. So ANZx, up a little bit, some other things down to offset some of that.

Yes. And I think, Victor, maybe the best way to think about it is that we -- as Shayne said, we have some BAU uplifts and we have some investment uplift towards the back half of the year. As we've indicated, investment spend for the full year next year is likely to be slightly higher. Now that's going to take different shapes and forms as investments go in and other projects roll off in particularly some of the regulatory projects start to reduce. So we'll probably see a nonlinear sort of event in '22, uplift in first half with a reduction in second half. And also, I should say that the OpEx rate is also up due to the mix of projects. So the way we are expensing those projects is also going to be a little bit higher next year than this year. So investment spend will go up overall, but will probably be slightly higher than first half and then start to trend down in the second half in terms of the pattern it will follow. BAU cost is, as Shayne said, is up exiting because we've hired people in home loan processing. We have some transitory uplifts due to things like Chengdu and our Bonus Bonds business, et cetera. And we also recognize, of course, that we'll have inflation headwinds in '22. But the productivity saves that we have in plan for next year will largely offset that, and we will see BAU expenses trend down in '22. So that's sort of the mix, Victor, if that helps to sort of give you a sense of the travel, if you like, into '22.

So annualizing second half cost base is overly conservative, it sounds like. If I add up everything you say, annualized cost base of $8.9 billion, it sounds like it's too high.

So the question, Farhan, I'm not sure you could hear. The question was -- so if I -- he's taken -- he's annualized the second half and said $8.9 billion. So he says, so that sounds like a little high for FY '22. He's trying to figure out the FY '22 number. That's really -- I think that's up to you, Victor.

Yes. Entirely your call, Victor, how you want to add those numbers up. But I think what we are sort of indicating is that we expect total expense slightly higher than this year. Higher on investment, lower on BAU, and I've told you sort of what the travel looks like between first half and second half next year.

The next question comes from Richard Wiles with Morgan Stanley.

I have a couple of questions. First one relates to funding and the second one relates to some of these structural tailwinds you're talking about. On the funding, Slide 84 shows that you've got the $21 billion of term debt maturities next year, but you're also going to have to run down the CLF, and I think this seems to have taken the banks a little bit by surprise, the timing of that CLF rundown. So my question on the funding is, how much term debt do you think you'll need to issue next year? And what are your expectations for the cost of funding? Do you think we've seen the best and the cost of funding is going to go up?

Yes, that's a fair question. And Farhan, I'll get you to make some comments on that. I think the first thing just to note is in terms of the CLF, Richard, as you probably know, we have, by far, the smallest CLF, and that was because we made some decisions early on and when we looked at cost benefit and the structure of our funding, which is different to our peers, partly because of our strong -- our FIG business and Institutional, et cetera. We didn't have the same need for it. So we have less of a replacement challenge, if you will, on CLF. But Farhan, did you just want to answer Richard's question?

Yes. So look, I think from a -- so CLF, Shayne has already covered. It's a small number. We think it's very manageable. In fact, I think it's the smallest CLF of our major bank peers. Now whether we need to issue next year or not in terms of term debt, I think, Richard, it's going to be a function of a lot of things, right? It's going to be a function of what the system deposit growth looks like, how deposit has changed their behavior in a post-lockdown period in terms of deposit mix and the level of liquidity that we have sitting with us. And that will then drive our decision whether we need to issue. There is a possibility that we may issue term debt next year, but we're not at the point where we are clear whether that is a requirement because we have to wait and see how the deposit and liquidity situation plays out over the next few months. And I think CLF, as Shayne said, is not really a challenge. We acted faster on that relative to some of our competitors. We're down to about $10 billion or thereabouts of CLF, and that will go to pretty much 0 by the end of next calendar year. And that, by the way, is a positive for returns as we save the fee on the CLF.

Yes. And I think just a broader -- I mean I was thinking about it preparing for this, Richard, and looking at some of the -- I mean it's an extraordinary shift when you look at the loan-to-deposit ratios, essentially in the banks and for somebody like ANZ, to see the massive shift of that in a relatively short period of time with these extraordinary levels of amounts of liquidity and a lot of it obviously sitting on our balance sheet. So that has structurally changed. Well, it gives us more options in terms of -- so we think about issuance. And I think what the team under our treasurer's, Adrian's leadership has been -- it's given them more options and really focusing on getting the best sort of cost and also maximizing return while maintaining diversity and all those other things that we need in terms of funding. So it's given us way more options than we've ever had before. Now you wanted to ask a question about structure. Sorry, go on.

I just wanted to add to that point around...

Yes, I wanted to ask about some of those stuff that you're referring to. You've mentioned sustainable finance several times in your initial comments. Shayne, you talked about platforms, and I think you mentioned the new payments platform and your -- it seems like you're dominating in that space. I just want to get an idea of how material these structural tailwinds and initiatives are for the group's revenue. You've got about $17 billion of revenue. How much you're generating from sustainable finance at the moment? And how much are you -- what fees are you generating from the NPP? Are they meaningful to the group?

Yes. Good. It's a totally fair question. So remember, I'm talking about the longer term here, so I'm not talking about next year, although they will be there, but you're right to point out they're probably not going to be material in the base of a $17 billion, $18 billion kind of revenue base. So I understand that. So sustainable finance is certainly not in the hundreds of millions of dollars, not yet, but we think that it can be. And I think that's the important thing, and it will grow pretty materially. NPP, I use as an example, it is relatively modest in terms of the total fee today. But the reality -- the point is the growth rate is high, and so I just use that as an example. But if I think it's something like clearing, so an Australian dollar clearing and New Zealand dollar clearing, we have more than 50% market share of those businesses, right? So that is basically clearing Aussie and Kiwi payments for international banks. So it's a great business. We're good at it. Those things have actually, again, got structural tailwinds in terms of we benefit from higher rates as that comes through, and we're actually also continuing to see strong volumes in those areas. So those business -- the cash management business goes to, I think it was -- I can't remember who it was the question before there, Richard. If you think about payments overall, of which NPP I accept is a small part, the tailwinds there are more and more volume, yes? So that there is underlying volume growth, and we use some of the data in the pack. Two, more of that volume is being -- and benefiting to us is being driven by fees than margins, so the changing shape, which is positive from a return profile perspective and opportunity there. And in the parts that are related to NIM, a steeper yield curve, higher rates also benefit. So there's sort of a multiplication effect in there. The cash management business is a $1 billion business of the $17 billion. That has more tailwinds -- we've had, gosh, I can't remember, probably at least 5 years of tailwinds in that business with rates falling. And now it seems to be bottoming out, and we're going to start to see some benefit in there. So if you think of that base, the $1 billion had some real positives, and that's an important mix issue for the institutional bank overall because that really drives a lot of the return sort of benefit into Institutional going forward.

Your last question comes from Brendan Sproules with Citi.

I've got a couple of questions, one on SME and then one on the institutional lending book. So just quickly on SME. I've noticed you talked earlier about the returns -- the attractive returns you're getting on SME, and also that the capital intensity is probably coming down. I just noticed on Page 61 of your 4E today that the commercial private bank was actually the biggest drag on the performance of the Australian region, bigger drag than retail, and we saw similar results last year. Just what's the outlook for this business? A couple of your larger competitors are spending a lot of money in hiring bankers and trying to win business here. But when you sort of went through your 5 priorities, you're focusing on other parts of the business. What are you sort of -- how are you seeing this business, I guess, going forward and maybe how this can turn around?

Yes. Good question, Brendan. And now my team are going to say, I told you so. Because they said to me, you should put the SME and make it a sixth priority, but I like the #5 more than I like 6. But anyway, you're right. So let me answer your question. First of all, there's a mix issue in that commercial -- actually, our private bank is doing extraordinarily well, and the commercial bank is a very broad array of businesses in there. So our small business banking is doing extremely well. That is their high-return, highly diversified, growing business. And we love it, and it's great, and that's going to be an important part of that ANZx proposition, yes? Because small businesses want to be able to deal with banks equally in a digital fashion, et cetera. So that business is really good. But at the other end of the spectrum, there's a whole bunch of other things in there, including some businesses that are much more heavily in the sort of asset finance area, yes? Financing bulldozers and whatever. That stuff, actually, in a funny way, looks a lot more like institutional. It's really hard. It's hard to get the returns, right? It's asset and capital heavy, very competitive, broker-driven, all sorts of things. We had made some decisions to exit parts of that business, yes? For return -- 2 reasons. We don't think we can generate competitive returns. So it was a drag. So returns were well below group cost of capital. And secondly, the nature of that business was not relationship-driven. These were transactional. They were broker-driven. We finance you a truck or something, you didn't really care about ANZ, you didn't give us any more other business, and it was just a balance sheet thing. So we've exited some parts of that. It's not immaterial in the balance sheet, and that business is essentially rolling off. So that's sort of what's driving the outcome here. You're seeing the roll off in that business has sort of masked other benefits there. If I stand back and think about the commercial bank, you're right, others have gone out and say they're going to go and hire and have people knocking on doors. When we stand back and we've talked to our team, we can do that, too, and we don't have a constraint. We've asked the team if we need more people there. We actually don't see that as being, what, customers, our customers, and what we do well actually want. And we are actually much more interested in building a digital capability, and that's why we put our money into -- and our thinking behind GoBiz, which again, I don't want to overstate. It's a small but important part of our proposition, which is -- allows you to go in. You give us access to MYOB or Xero or Insured, whatever it might be in terms of your accounting platform. And literally in real time, we can approve and it's completely automated, yes? We can approve unsecured lending up to $0.25 million today, and we can do that now. And that was what I mentioned. That's going really well. Soft launch. We're getting almost 3,000 applications a month, and we approve what we can during that channel, automated. And the ones that don't, that kind of pop out do go to a specialist team to see if we can -- if they need a bit more work. So we think the future is more digital, and that's what we want to put our efforts. So it is a priority. It just didn't make my 5 cut, and I think I've explained what's going on in those numbers. So we will expect to see the roll-off starting to -- it'll pretty much be finished, I would imagine, over '22. And so that won't be a drag on the business. In fact, it will be a positive for returns.

And just secondly, on the Institutional business. Obviously, you've had the lending grow again in this half. I think it's up 5% ex currency. But noticeably, the risk-weighted asset growth is obviously a lot weaker and you've had a slide showing us how the average risk weight has been coming down. So my question is, what effect is this going to have on the net interest margin ex markets, which has obviously gone up 2 halves in a row? Are we now going to see that start to reverse? And are you going to really get a lot of revenue benefits, I guess, from these loans given just where spreads are being priced at the moment?

Yes, it's a good question. I'll get Farhan to comment on that, but I'll just make some broader comments first. The Institutional is a -- we're in a much better position in terms of our institutional bank in terms of discipline. That business is completely focused on risk-adjusted returns, yes? We know it's not that difficult to grow revenue in an institutional bank. It's difficult though to grow quality revenue above our cost of capital. And so that is -- they have a ruthless focus on returns, and we won't go -- but the way they assess customers, the way they assess transactions, et cetera, is pretty ruthless in terms of making sure we get paid appropriately for the risk that we are taking. So I can assure you of that. But Farhan, there is some mix issues happening in terms of the reasons why they've got asset growth but RWA actually improving, that is worth just talking through for Brendan's sake. Yes.

Yes. So I think there are 2 aspects to that. One is that there has been risk re-ratings as a result of the improving economic outlook. So that's helped in terms of reducing RWA intensity in the business. And I think some of the fairly large part of the growth that has occurred in the Institutional business on the loan side or on the lending side has actually come in the financial institutions business that Mark had spoken about earlier. So -- and the financial institution business, as you know, is much lower risk-weight intensity as well. So we've seen loan growth basically outpacing what's been happening on the risk-weighted asset side, partly because of the risk ratings -- sorry, the risk re-rating and partly because it's low risk intensity growth on the loan book.

Yes. And the only other thing I would add to that, Brendan, which is really positive again for Institutional. If you look at the equivalent -- the sort of front book pricing, if you will, like we might think about in home loans, it's held up a lot better than any of us thought it might. Understandably, with all this liquidity in the world, where there is a very real prospect of front book institutional pricing being under pressure. And while it's not at its peak levels, it certainly has held up a lot better and certainly for our business and our mix of customers, which again is much more diverse than our peer group. We're actually pretty pleased about the outlook for where we sit today in terms of margins.

Okay, that's it.

So I think we're done. Thanks, everybody, for the questions. I didn't have any prepared remarks, but just really quickly. It's great to have Farhan on board. And obviously, you'll get to speak to him, but hopefully meet him when he moves to Melbourne early in the new year. So he's got his place in quarantine all set up. This was -- this has been a really interesting time for us, but we are, and hopefully get from tone, we're feeling for the medium term, really positive about the position of ANZ. For the first time in a long time, Institutional is really positioned for tailwinds and to be a net contributor, and we are feeling really positive. While we've got challenges in Australian home loans, we're feeling positive. We've got the momentum back into that business. And that again, we will resolve that -- we're resolving that as we speak. And so we've got, I think, the prospects of having Institutional with the tailwinds, Australia being restored back into momentum and some really exciting things with ANZPlus coming soon, which will fundamentally transform our long-term business, and the New Zealand business doing extremely well, and that's a great position to be in as we enter into '22. So thanks, everybody, for your time.

Thanks, everyone. And if you didn't get to ask a question, the IR team are obviously around to help you with that. So give Cameron, myself or Hersh a call, and we'll take that question from you. Thanks, everyone.