24 January 2003 04:33
Fitch affirms ANZ's long term AA-minus rating
SYDNEY, Jan 24 AAP - Fitch Ratings, the international rating agency, affirms its ratings for ANZ Banking Group Ltd at
long-term AA-minus and short-term F1-plus. The ratings affirmation follows Fitch's annual review of the bank and
reflects ANZ's solid capitalisation and earnings profile and presently sound asset quality. The ratings outlook is
stable, although Fitch is concerned about a string of credit quality issues experienced by ANZ, which individually have
not resulted in changes to the bank's ratings, but collectively suggests that the bank adopts a somewhat less
rigorous approach to risk management than may be desirable. Fitch notes, that since 1997, when ANZ was the Australian
bank most severely affected by the Asian crisis, a series of credit issues have arisen: the Russian bond crisis wiped
$69 million from ANZ's financial year 1998 after tax profit; an incorrectly calibrated personal loan scoring model
caused modest losses in financial year 2000; and more recently the bank has been more affected than other Australian
banks by downturns in the world's telecommunications and energy sectors. In financial year 2002, losses incurred on
Enron and Marconi and some lower profile corporate failures prompted ANZ to replenish its loan loss reserves by $250
million, but ANZ has also added a further $72 million because of the possibility of more credit issues in its offshore
structured finance portfolio. Nonetheless, the bank's asset quality remains sound; its ratio of impaired assets to
gross loans (0.93 per cent), though it is the highest of the four major Australian banks, is low by international
standards. Reserve coverage is satisfactory, with loan loss reserves equating to 165 per cent of gross impaired assets.
Despite these ongoing credit issues, ANZ's recent financial performance has been strong, but like other Australian
banks it is facing a more challenging external environment, with Australia experiencing a widespread drought and a
likely slowing in demand for housing finance. ANZ has diversified its presence through a joint venture with ING
Australia Pty Ltd to provide funds management and life insurance services. Nonetheless, the JV appears to be
underperforming and ANZ has surrendered a degree of control by choosing to operate this business as a joint venture.
ANZ's Tier 1 ratio of 7.9 per cent is at the higher end of its peer group. Fitch notes, however, that the JV
contains goodwill, which effectively underpins part of the value of ANZ's investment. Under equity accounting rules
ANZ deducts its JV investment from total capital, whereas goodwill is usually deducted from Tier 1. If this goodwill
were to be deducted from ANZ's financial year 2002 Tier 1 capital, the ratio is still higher than seven per cent.
On an adjusted common equity basis - ordinary equity less investments in subsidiaries (including the JV) and other Tier
1 deductions - ANZ's ratio of 5.75 per cent is at the top end of its target range, but it is possible that it will
reduce this ratio through share buy backs. ANZ is Australia's fourth largest bank, although its geographic presence
extends beyond its core markets of Australia and New Zealand (87 per cent of total assets) to parts of Asia and the
Pacific. In New Zealand, the PostBank/ANZ combined group is one of four large banks, ranking third largest by assets.
AAP
[AIW [Asia Africa Intelligence Wire]] |
RUSSIA IN FACTS
