Discuss about the Financial System Within Australia.
The financial system within Australia is presently in a good economic condition. Banks have increased resilience to adverse conditions as they have maintained capital ratios above regulatory minimums. The high capital generation within the banks of the country is supported by high level of aggregate profit due to good performance of the banks in the current and past period of time. Also, there is less evidence in relation to occurrence of bad and doubtful debts in the banks and also the non-performing assets have stabilized over the period of six months. The credit growth rate of the banks is good and there is also increase in the foreign lending by the banking sector of Australia (Financial Stability Review, 2017).
Banks operating within Australian banking sector are regulated and monitored by the Australian Prudential Regulation Authority (APRA). APRA directs banks over maintaining the adequate capital ratios and also works actively to increase their resilience. The monetary policy directing the banking functions is developed by the Reserve Bank of Australia (RBA) (Financial Stability Review, 2017).
The level of competition with the Australian banking sector is moderate as the banking operations are controlled b the big four banks within the country (Competition, Efficiency and Innovation in Banking, 2014).
The four major banks within the country possessing high level of competition are National Australia Bank (NAB), Commonwealth Bank (CBA), Australia and New Zealand Banking Group (ANZ) and Westpac (WBC).
The banking institutions within Australia are largely supported by the government. The recent Financial System Stability Assessment is developed by the government to provide its four major banks a funding subsidy (The Australian Government Guarantee Scheme: 2008–15, 2016).
The wide range of products and services provided by the bank is in high demand by the Australian consumers and businesses. For example, bank lending is a major source of external financing for small and medium sized businesses within Australia. The counseling services of the bank are in high demand by the retail customers for gaining advice on related financial needs and investment.
The current barriers of entry to Australian banking industry are high capital requirements, license laws and strict regulatory compliance. The potential barriers of entry are increased level of competition by the big four banks of Australia (Financial Stability Review, 2017).
Its operations
ANZ provides diverse type of financial products and services to the consumers. These include internet banking, bank accounts, credit cards, home loans, personal loans, travel and international, investment and insurance.
The major customers of the bank are Australian consumers and businesses.
Specific Class of Customers
ANZ provides it’s banking products and services within 34 countries but its specific class of customers include Australian and New Zealand consumers.
Major suppliers
The major suppliers are Telco Company for landlines and internet services, printers and suppliers of office related products, packing material suppliers, courier, transport and shipping services suppliers (ANZ Group: Supplier Code of Practice, 2018).
ANZ ownership structure can be defined through its executive committee, including Chief Executive Officer and other members working as Group Executive in the bank. There is presence of an effective structure of Board of Directors, audit committee risk and remuneration committee for ensuring the presence of sound corporate governance policies within the bank.
Business structure comprises of several distinct segments such as retail and corporate & commercial banking unit, institutional division, investment, insurance and counseling services.
ANZ develop its financial statements as per AASB standards and Corporations Act 2001. The valuation of financial instrument by the bank is carried out at fair value that is quotes in relation to the market process in an active market. The goodwill and other intangible asset are also valued at fair value by the banking group.
Changes in the year compared to prior years
Here has been significant changes in the financial report of the bank in relation to the presentation of credit risk. For example, industry classification is shown separately for New Zealand residents.
ANZ Banking group has replaced accounting standard of AASB 139 BY AASB 9 in relation to the recognition and measurement of financial instruments.
As per IAS 24 there is requirement to disclose the related parties of the reporting entity. The related parties can be controlled or non controlled entities. Controlled entities refer to the entities that are in control with any reporting entity and it is mandatory to include the controlled entities in the consolidated financial statements. Reporting entity has the power to control the all the activities and management at the controlled entities. On the non controlled entities are those entities that are not the controlled entities and has no control of reporting entities. Non controlled entities are not included in the consolidated financial statements.
Preliminary analytical procedures
|
Financial Data |
Year 2016 |
Year 2017 |
|
AUD in million |
AUD in million |
|
|
Net Profit |
$ 5,720.00 |
$ 6,421.00 |
|
Revenue |
$ 29,951.00 |
$ 29,120.00 |
|
Total Assets |
$ 914,869.00 |
$ 897,326.00 |
|
Total Equity |
$ 57,818.00 |
$ 58,959.00 |
|
Financial Ratios |
||
|
Ratios |
Year 2016 |
Year 2017 |
|
Net Profit Ratio |
19.10% |
22.05% |
|
Return on Assets |
0.63% |
0.72% |
|
Return on Equity |
9.89% |
10.89% |
Net profit ratio: Net profit ratio shows the percentage of net return that company earns in one reporting period. This ratio is very significant from the investor’s point of view as well as management point of view. It is essential to compute this ratio perfectly so that profitability position of the company can be ascertained. The net profit ratio of ANZ Bank was 19.10% in year 2016 and it got increased to 22.05% in year 2017. It means there has been significant increase in this ratio in the current reporting period. It is duty of the Auditor to verify the increase in net profit in the current year is true and represents correct position on the reporting date (Damodaran, 2011).
Return on Assets: Return on assets ratio provide the percentage of net return earned by the company through using the assets of the company. This ratio is important as it shows how efficiently the assets of the company are used to earn one dollar net profit. The return on asset ratio of ANZ in year 2016 was 0.63 % and it got increased to 0.72% in year 2017. It shows that company does use the assets in most efficient way as return on assets was less than 1 % (Davies and Crawford, 2011).
Return on Equity: Return on equity shows amount of one dollar earned by the entity using the equity as reported in the financial year. This ratio is expressed in terms of percentage and it is very essential form the management point of view. The return on equity was 9.89% in year 2016 and it got increased to 10.89% in year 2017, reflecting a growth of exact 1% in the current financial year as compare to previous year (Annual Report, 2017)
The main objective or strategies of the ANZ is to use the strong Australian and New Zealand Foundation, market lending service and insights and distinctive geographic locations to meet the needs of the customer and to capture and opportunities in more better way. There are many business related risks that ANZ bank has to go through and make strategies to overcome them. Some of important business related risks that company has to face are capital adequacy risk, compliance risks, credit risk, insurance risk, liquidity and funding risk, market risk, operational risk, reinsurance risk, reputation risk, and strategic risk (About ANZ, 2018).
On the basis of remuneration report, it has been found that management assesses the performance of CEO, groups and each disclosed entities at the end of each financial year. In this performance assessments there has been review based on annual target and progress that has been made by each official towards the long term goals of the company (Annual Report, 2017)
References
About ANZ. 2018. ANZ: Profile. [Online]. Available at: https://shareholder.anz.com/our-company/profile?_ga=2.163307964.104543023.1524536263-724484881.1524536263 [Assessed on: 23 April, 2017].
Annual Report. 2017. ANZ. [Online]. Available at: https://shareholder.anz.com/sites/default/files/2017_anz_annual_report.pdf [Assessed on: 23 April, 2017].
ANZ Group: Supplier Code of Practice. 2018. [Online]. Available at: https://www.anz.com/about-us/corporate-sustainability/supply-chain/supplier-code-practice/ [Accessed on: 24 April 2018].
Competition, Efficiency and Innovation in Banking. 2014. [Online]. Available at: https://www.rba.gov.au/publications/submissions/financial-sector/financial-system-inquiry-2014-03/competition-efficiency-and-innovation.html [Accessed on: 24 April 2018].
Damodaran, A, 2011. Applied corporate finance. John Wiley & sons.
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Financial Stability Review – April 2017. 2017. [Online]. Available at: https://www.rba.gov.au/publications/fsr/2017/apr/aus-fin-sys.html [Accessed on: 24 April 2018].
IFRS. 2018. IAS 24 Related Party Disclosures. [Online]. Available at: https://www.ifrs.org/issued-standards/list-of-standards/ias-24-related-party-disclosures/#about [Assessed on: 23 April, 2017].
The Australian Government Guarantee Scheme: 2008–15. 2016. [Online]. Available at: https://www.rba.gov.au/publications/bulletin/2016/mar/5.html [Accessed on: 24 April 2018].
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