Commercial Bank Mamangment: Explan The Business Model Of ANZ Bank,analyse Profitability,asset - Assignment Example

COMMERCIAL BANK MANAGEMENT: ANZ’S MODEL ANALYSIS By (student’s name) Course Name + Code Professor’s Name Date of Submission Commercial Bank Management: ANZ’S Model Analysis a) Explanation Of The ANZ Business Model ANZ developed a new business model that is customer focused in its quest to support performance and growth of the bank. The model works in the three geographies where the bank operates; Australia, New Zealand and Asia Pacific. The model has a focus on two customer segments; both the retail and commercial segments. It is aimed at coordinating the entire businesses globally (ANZ Bank 2012). The model has responded to the ever changing financial services and the ANZ’s super strategies regionally. This has affected the model by the way of shifting of the model to larger business structures that are simple in nature and, which are aligned to suit the customers that they serve and the geography of the region from both the old stand-alone collections as well as customer-oriented business. The business model crested by the bank is aimed at creating a super regional bank. It has simplified the bank by concentrating its entire structures into serving its customers and eliminating any of the management barriers that previously existed between the staff, the management and the customers of this bank. This model also enables functions that are progressively consolidated within the structures of the bank. They might include technology and divisional operations that lies within the shared services of ANZ (ANZ Bank 2012). This, in its quest, has increased both the level of operations-scale and efficiency of the bank. Notably, the model has three board representatives that embody the geographical segments of the bank. These segments include; Australia, New Zealand and Asia Pacific sections, which are headed by a single Chief Executive Officer. In regards, each segment of the bank, through the model, has been divided into retail and commercial divisions retrospectively. Model Summary The model possesses a wealth division that needs to be created over time. This division, which covers all the three geographical regions, is tasked with the management of higher worth individuals within the already set ripe markets. Consequently, the Australian segment has two substantial businesses, that is retail and commercial, which are relatively managed independently. They all report through the Bank head of Australia. The retail customers are considered to be the affluent customers since they are managed as local businesses. The New Zealand segment is managed as an integrated unit of the business. This is because of its enormous size and the regulatory and competitive business environment. Asia Pacific businesses are managed under a product matrix both geographically and regionally and also, it has a strong link to the wholesale businesses. The commercial division, for all the segments, conducts all of the businesses both from the smaller and medium sized enterprises through small corporate that are managed locally. The entire group has a corporate centre that is tasked with functions of maintaining the group strategy as well as the setting of policies and the management of active performance. This model has, also, been tasked with the responsibility of maintaining the overall governance of the IT section that includes ownership management, infrastructural management and the specific customer systems. Retrospectively, other key business functions have been placed in Bangalore and New Zealand. They include the IT, Finance and Human resources sections. Lastly, there is an institutional office that deals with multinationals and other sophisticated multiple needs and relationships that are conducted globally. b). Analysis of the profitability, total assets, liabilities, balance sheet items and the book value and market value of the financial institution Profitability; Profitability 2012 2011 2010 2009 2008 Amount of profit attributable to the company shareholders in ($m) 5,661 5,355 5,233 5,211 5,123 The underlying profit 6,011 5,652 5,327 5,335 5,201 Return on equity on ordinary shareholders 14.6 15.3 Return on the average return on equities of ordinary shareholders on the basis of the underlying profit 15.6 16.2 Average assets 0.90 0.94 0.96 0.99 1.01 Net interest margin 2.31 2.42 2.51 2.57 2.61 Net interest margin without including the global markets 2.71 2.80 2.91 3.01 4.2 Underlying average FTE profit in $m 122,681 116,546 110,242 109,733 106,373 Analysis; It should be noted that the financial institution has continuously operated on profits that have been increasing over the years. The increased profits are attributed to the increased customer base, effective and increased levels of promotion campaigns and increased levels of sales. Balance Sheet Items Analysis; 2012 2011 2010 2009 2008 Assets $m 642,127 604,213 603,223 599,972 578,923 Liabilities $m 600,907 566,259 562,320 563,320 566,830 Derivative financial instruments 48,928 58,338 59,125 57,203 60,201 The assets of the financial institution have been increasing, consistently, over the past five years. This level of increase can be attributed to the expansion of the institution and in its quest to serve more customers due the increased client base. The liabilities have, as well, increased although at an average low rate of 5 %, as compared to the rate at which assets are increasing; (6 %). The reasons for this trend would be that the loans have been acquired in order to purchase more assets to be used in the increased ANZ bank segments within its operating regions. b). Five Risks Which the Financial Institution Is Facing First, there is the liability risk, which the company faces whenever it advances loans to clients hence being left with collateral assets. These assets might cause such risks to ANZ bank that might include penalties and legal obligations, which are needed in addressing issues that might result from third parties concerning the management of the collateral property. Second, there are the financial risks, which are risks that stem from the operations of the investee’s operations. This means that should a client fail to repay ANZ supported transactions, the financial institutional will face liquidity problems as the bank will be forced to exhaust its internal cash to clear its reputation and in the case that the collateral used is contaminated, then, it must use money to purify such a collateral before it can be sold. Third, the company faces reputation risk. ANZ bank works with both small and medium sized enterprises as well as the multinationals. If these companies engage in activities that will portray them negatively, then the financial organization also suffers negative publicity. Fourth, the company faces possibility of credit risks. ANZ bank will be exposed to this risk in the case that the clients, it supports, fail to comply with the contract terms occasioned by social issues. This might include increased costs associated with environmental-like penalties from excessive carbon emissions whose state penalty will affect even those institutions that support the affected client. Fifth, the company is likely to be affected by the market risk. ANZ bank will be exposed to the market risk due to possible reduction in the value of the collaterals it uses. A good example would be a contamination in the production site that is used as overall collateral. Problem 2 Bank’s Duration Gap The duration gap is used by financial institutions to measure the amount of risks that they are exposed to as a result of the interest rate changes. These mismatches are caused by unexpected interest rate changes, which are categorized into asset liability mismatches. The bank duration gap will measure the time duration between outflows as money given to the investees and the cash inflows from the clients as repayments both the principal amount and its interest earnings that will have accrued on that amount. The duration gap is well matched and positive when that of assets that is cash inflows is larger than that of liabilities; cash outflows. If the banks interest rates rise, the liabilities will lose more value than the assets, this act to increase the value of the bank’s equity. On the other hand, if the interest rates decline, then the liabilities will gain a much more value, as compared to the assets. This, in turn, will act to decline the value of the ANZ’s equity. The bank combats this by matching the duration gap to zero; this ensures that the bank is immunized against the risk of interest rates. Banks face the following limitations with regards to the interest rate risks. First, there is the problem, which is associated with finding assets that have a matching set of liabilities. Some assets and liabilities contain cash flow patterns that have not been well defined. Thus, it becomes problematic for the bank to match them, the repayments from the customers made in advance distorts the already established pattern and the duration of cash inflow. Finally, customers who default to pay as and when their liabilities fall due also cause a distortion in cash inflow patterns of the bank. In this case; The Duration gap = the asset earnings duration – duration of paying the liabilities x amount of liabilities / earning assets. 0 = 2 – 3 x (2,000,000 / 3, 000,000) b). Expected Absolute Change In The Assets Liabilities And Equity Assets Liabilities Equity 642,127 600,907 59,125 D = 0.75 % x 624, 127 =$4,680 0.75 % x 600,907 =$4,506.8 0.75 % x 59,125 =$443.43 c) Reasons Why The Realized Equity Value Change Might Be Different From The Answers Given Above; First, the estimate of the expected absolute value is only appropriate whenever t is ascertained that the values of both the assets and incomes have a unique normal distribution, which might be difficult to provide. In this case, the ANZ bank list of assets and liabilities do not display such a distribution. It also requires that the investors within the institution to exhibit quadratic preferences. This means that the assets and liabilities of the financial institution should be able to demonstrate a normalized distribution. Second, the method used is expected to assume that the owners and the stakeholders of the organization only focus on a single horizon of time and will not increase their assets and liabilities once it has been determined, however; this might not be the case in this scenario. In reality the assets and liabilities of the organization keeps on changing over time. In the case of the financial institution; ANZ bank, the assets have been on the increase for the past five years and the liabilities have exhibited an increasing trend. Reference List ANZ Bank. 2012 Annual report, Retrieved from. http://media.corporate-ir.net/media_files/IROL/96/96910/2012AnnualReport.pdf Read More