Analysis of ANZ and BOQ Financial Performance in Australian Banking Industry

The paper presented the top-down as well as bottom-up analysis of ANZ and BOQ financial performance in the Australian banking industry. The top-down analysis showed that Australia is the most developed nation worldwide with a low inflation rate, increased GDP growth rate, and decreased interest rate. The bottom-up analysis included a comparison of their profitability, liquidity, and financial leverage ratios.

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PRINCIPALS OF FINANCIAL MARKETS
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Executive Summary
The paper presented the top-down as well as bottom-up analysis. As per the top-down
analysis, Australia was found to be the most developed nations worldwide. In fact, it was
found out that the country is the most developed in terms of low inflation rate, increased GDP
growth rate as well as decreased interest rate. Further, it was established that the increased
economic outlook in Australia is the key contributor to the country banking industry being
amongst the most competitive and principled industry across the globe. In fact, it is found out
that ANZ had restively higher profitability ratios in comparison with the BOQ.

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Introductions
The Australian banking sector is considered as one of the most competitive sector in the
country history. The industry is dominated by various financial institutions with the most
prominent one being BOQ, ANZ, NAB, Westpac and Commonwealth among others.
Basically, the banking sector is the most profitable and competitive sectors within Australia
(Focus Economics 2018). Its four major banks are amongst the global largest financial
institutions by the market capitalization and are all ranked top 25 worldwide for the safest
financial institutions. Besides, the banking industry is one of the main contributor to
Australian economy contributing approximately $140 billion in the country gross domestic
product every year. In essence, Australian banking industry is the chief driver of the country
economic growth and employs approximately 450,000 personnel.
ANZ also referred to as Australian and New Zealand Banking Group is amongst the five
largest financial institution operating in Australia and first bank across New Zealand with a
total of market cap of around AU$ 93.4 billion (Investing.com 2018). The company was
founded in 1977 with headquarter is in Melbourne. It offers a wide range of the financial
services and products mostly including private, commercial and retail banking, as well as
wealth management to small businesses, institutional customers, corporate and retail clients.
The company operates across 1,337 points including representative offices, agencies, offices
and branches across over 34 nations. The bank operates through international and
institutional banking Australia segment private and global wealth banking. The Australian
segment comprises of commercial and retail sections with retail section offering housing
finances to different clients across Australia while the commercial section offers banking
services to small business, agribusiness clients and personal clients in both regional and rural
Australia (ADVFN 2018). The institutional and international banking segment mostly
operates vial transaction banking, global loans, global institutional, retail as well as Asia

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partnership all offering different financial services and products. It was ranked as one of the
most suitable financial institution worldwide in 2008 Dow Jones sustainability Index being its
second year the bank was granted this title.
Bank of Queensland also referred to as BOQ is the Australian retail financial institutions
whose headquarter is in Brisbane. It is amongst the oldest banks in Queensland with over 252
financial branches across Australia including 166 owner managed and 78 corporate managed
branches. It was founded in the year 1863 but later collapsed in the year 1866 as a result of
the severe financial crisis experienced this year (Bank of Queensland 2017). Over its
operations, the bank has acquired several banks among them the Stowe Electronic Switching
Limited leading it to rename to Queensland Electronic Switching Ltd in the year 1991. It also
acquired UFJ Bank in the Australia and New Zealand and also acquired the ATM solutions in
the year 2003. The bank has easy-to-understand banking services that assist or offer support
to its clients’ financial requirements. In essence, BOQ is amongst the top 100 Australian
firms ranked in term of market cap on ASX. It operates under three segment; that is BOQ
specialists, BOQ Finance as well as ST Andrew’s Insurance (Reuters.com 2018). The BOQ
Specialist usually delivers different banking solutions to a wide range of market including
dental, accounting and medical professionals. St. Andrew’s Insurance on the other hand, is
the leading Australian providers of the insurance both life and personal insurance. Further,
BOQ Finance is a wholly owned branch specializing in cash flow, structured finance and
asset solutions.
The Top-Down Analysis
This form of analysis comprises of the assessment of the large picture and then analysing
details of the smaller components. In this case, anyone utilizing the top-down analysis starts
with analysis of the global economy and then assesses some of the macro aspects or trends
taking place within the country which is believed to have relatively better opportunities for

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any sector. In this case, the analysis section would start with analysis of overall economy then
analysis of specific macroeconomic aspects such as inflation rate, exchange rate, interest rate
and GDP growth rate among others.
Australia is 21st most competitive nation across the world. It was ranked fourth in 2016 but in
2017 it was ranked fourth place lower than the 2016 study. The result in 2017 indicates a
decrease in its global competitiveness based on three major economic aspects; that is,
government efficiency to position 18 from 14, business efficiency from position seventeen to
position twenty seven and economic performance from the position one to position twenty
five (Focus Economics 2018).
According to Focus Economics (2018), Australian economy is expected to continue
developing at a high speed rate of around 3%. In essence, business investment is projected to
pick up with the level of exports being boosted as the new the new resource industry aptitude
is accomplished. In fact, public infrastructure with Australia is also expected to support this
growth. The rising household yield as well as stronger labour market is projected to sustain
the private consumption within the country (RBA 2018). Basically, Australian GDP is
projected to expand to 3% by end of 2018 and to around 2.8% by 2019, which is up with
0.1% from previous month’s forecasts. As at 4th September Australian interest rate was at it
all-low level of around 1.5%. This value was in consistent with the market projections. This
decision was made amid the moderate inflationary pressure as well as the slow private
consumption growth in spite of the solid labour market as well as the slight pick in the wages.
With increased economic growth rate, the banking sector is more probable to enjoy relatively
high income as it would mean that more customers are willing and have money to accesses
services and products offered by various organizations operating in the banking industry
(Export.gov 2018).

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Inflation in Australia on the other hand, is said was 2.1% in second quarter of 2018 and
remained close to lower bound of RBA target of between 2% and 3%. Furthermore, the
inflation rate is expected to drop further to below 2% by the end of this month due to the one-
off decease in administered prices within the country. The decrease in inflation is attributable
to the moderately growing wages which is projected to continue keeping inflation rate in
check and offering RBA a room of maintaining its losses monetary policy. Decrease in
inflation would have significantly positive impact on various sectors within the country and
in particular to the banking industry which is more dependent on the inflation rate to
determine the rate to be used in lending money to its customers (Focus Economics 2018).
Australian dollar on the other hand is found to have decreased to 0.69 against the USD on 7th
September this year bringing its value to a level never experienced since the year 2009. This
marked 25.9% annual fluctuation and 6% weakening from similar day the previous month.
Nonetheless, since 8th September 2018, Australian dollar has levelled and has even stabilized
to about 0.71. Basically, the value of Australian dollar is found to have been decreasing over
the last year, and has been in consistent with winding down of the commodity prices which
are said to have started in the mid-2014 (Focus Economics 2018). This devaluation of
Australia currency has been supported by the RBA, which had requested for weaker dollar in
stimulating the economic growth of Australia which had slowed down. Australian monetary
policies are suitably supportive with country’s central banking projecting to gradually tighten
in 2018 when pick-up in prices and wages gain the pace. These aspects would have some
positive impact to different sectors and in particular to the banking sector since it would
result in increased income collected from the customers as increase in value of the currency
result in more cash being paid by the debtors for money owed to the bank.
The Bottom-Up Analysis BOQ and ANZ Current Financial Situation

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Bottom-up analysis is usually considered as investing technique that focuses on analysis of a
particular company or stock. In this form of analysis, an investor mostly place more focus on
particular firm instead of industry in which it operates. This comprises of financial ratio and
financial report analysis of particular companies. Therefore, in our case, bottom-up analysis
of the two banks would entail financial ratio analysis of the two firms as well as their
financial statement analysis over the past five years.
Ratio Analysis
Ratios are the widely employed fundamental analysis approach. Basically, ratio analysis is
the process of taking financial information and then organising them into a specific form that
shows organization’s weaknesses or strengths. Through ratios, users of the financial data
could make a more informed decision regarding an entity. The analysis assists in linking
three financial statements all together and offering values which are comparable in between
organization and across sectors. Ratios fall into five major categories which would be useful
in analysing financial performance and position of ANZ and BOQ; these are, activity or
efficiency ratios, solvency ratios, market value ratios, liquidity as well as profitability ratios.
Profitability Ratios
Such ratios are widely utilized in investment analysis. They comprises of net margin, ROE
and ROA. They help in measuring organization’s capacity in earning or generating enough
return from its operations.
Net margin
Such ratio compares organization’s net profit with the total sales. In essence, the ratio
examines organization’s capacity in translating revenues into income.
2016 2017
ANZ 27.02 29.47
BOQ 31.44 33.59

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Table 1: Comparison of net margin between the two companies
As per Table 1 ANZ net margin decreased from 27.02 to 29.47 in 2017 while BOQ net
margin increased from 31.44 to 33.59 in 2017. The two banks seem to have enjoyed
relatively high net margin over the last two years meaning that they were relatively
profitable.
Return on Equity
In this case, the ratio measures or determines level of the net income that is attributable to the
shareholder’s equity. It is gotten by dividing organization’s net income with its total equity.
2016 2017
ANZ 9.92 10.97
BOQ 9.58 9.55
Table 2: Comparison of ROE between the two companies
Based on the table, ANZ seemed to have enjoyed increased ROE over the last two years
unlike its counterpart that is said to experience a slight decrease from 9.58 to 9.55 in 2017.
The increase is a clear sign that ANZ was efficient in utilizing its equity to create some
income for its shareholders.
Return on Assets
This form of the ratio is gotten by dividing net income with organization’s total equity. It
helps in examining how effectively an organization employs its assets in generating income.
2016 2017
ANZ 0.63 0.71
BOQ 0.68 0.69
Table 3: Comparison of ROA between the two companies

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As per Table 3 it is evident that ANZ ROA increased from 0.63 to 0.71 in 2017 similarly,
BOQ ROA also increased from 0.68 to 0.69 in 2017. The increase is a sign of improved
efficiency of both banks on how they use their assets in generating some income.
Liquidity Ratios
These financial ratios are the most widely utilized in assessing liquidity of an organization.
They measures capacity of an organization or entity in settling or paying of all its short-term
debt commitments. The most important ratios in this case would be current and acid test
ratios.
Current ratio
It measures organization’s capacity to settle its short-term debts using its current assets. In
other words, the ratio shows how an organization settles most of its short-run obligations in
case of emergency through liquidation of the current assets. It is gotten by dividing total
current assets with total current liabilities.
2016 2017
ANZ 0 0
BOQ 0 0
Table 4: Comparison of current ratio between the two companies
The two firms had zero or no current assets resulting into zero current assets.
Quick ratio
It is a form of ratio that compares cash, account receivables and short-term investments to the
total current liabilities with the aim of determining organization’s capacity to pay its short-
run debts using the most liquid assets.
2016 2017
ANZ 0 0
BOQ 0 0

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Table 5: Comparison of quick ratio between the two companies
From Table 5 above, it is clear that both banks had no current assets nor current liabilities;
hence, no probability of quick ratio.
Financial Leverage Ratios
These ratios help in measuring entity’s capacity in settling most of its long-term debts. This
form of analysis offers some insights on an entity’s capital or resource structure and its level
of financial leverage. The ratios permits investors in determining whether an entity has
sufficient cash to settle off its interest expenses as well as other charges. In this case, the
debt/equity as well as debt/asset ratios would be utilized.
Debt/equity ratios
The ratio helps in measuring amount of the debt an organization utilized in comparison to
amount of the equity an organization utilizes. It is gotten by dividing total debts with the total
equity.
2016 2017
ANZ 1.96 0.3
BOQ 0.07 0.13
Table 6: Comparison of debt/equity between the two companies
As per Table 6, ANZ seemed to experience a significant decrease in its debt/equity over the
past two years while BOQ seemed to experience slight increase in the ratio. The trend and
figures shows that both firms were relying on their shareholder’s equity in funding their daily
operations over the period.
Debt/asset ratio
It helps in estimating level of the financial leverage that in turn increases the financial risk of
an organization. It is gotten by dividing organization’s total debts with its total assets.
2016 2017

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ANZ 15.82 15.22
BOQ 14.17 13.64
Table 7: Comparison of debt/assets between the two companies
As per Table 7 above, it is evident that ANZ debt/asset for the past two years decreased from
15.82 in 2016 to about 15.22 in 2017 while that one of BOQ decreased from 14.17 to 13.64.
The decrease in their debt/assets signifies their reduction in financial risk over the years.
Efficiency Ratios
These forms of ratios are crucial in financial analysis and are utilized in evaluating how
effectively an organization utilizes its total assets. They usually offer existing and potential
investors a rough idea on the overall or entire operational performance of an organization.
They help in measuring rate at which an organization is turning over the total liabilities or
assets. In this case, inventory turnover, asset turnover and receivable turnover are applied in
assessing efficiency of BOQ and CBA in replenishing their inventories and collecting their
receivables.
Asset turnover
The ratio assists in evaluating or examining how effectively an organization utilizes total
assets. It is computed by dividing sales with average assets. Low turnover in this case implies
that the company is inefficient on how it utilizes is assets.
2016 2017
ANZ 0.02 0.02
BOQ 0.02 0.02
Table 8: Comparison of assets turnover between the two companies
As per Table 8 above, both AZN and BOQ seemed to enjoy relatively constant and similar
asset turnover in the last two years. This is a clear view that both firms were inefficient in
utilizing their assets to generate some revenues.

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Market Value Ratios
EPS
The ratio is a portion of an organization’s or entity’s profit allotted to every outstanding
share. It serves as the main indicator of an organization’s market value and is gotten by
dividing net income with outstanding shares.
2016 2017
ANZ 1.89 2.11
BOQ 0.85 0.88
Table 9: Comparison of EPS between the two companies
Based on Table 9 above, it is evident that ANZ EPS ratio increased over the last two years
from 1.89 to approximate 2.11 in 2017. On the other hand, BOQ EPS increased from 0.85 to
0.88 in the year 2017. In this case, over the last two years, ANZ seems to have paid relatively
huge amount of dividends for each share compared to BOQ.
Summary and Recommendations
To conclude, it is evident that ANZ and BOQ are amongst the largest financial institutions
operating in Australia. Besides, based on the top-down analysis, Australia appears to be the
most developed countries worldwide. In fact, it is the most developed in terms of low
inflation rate, increased GDP growth rate as well as decreased interest rate. In essence, given
the fact that the country inflation ranged between the RBA ranges, it can be indicated that the
country is doing well economically. With such views, it is also evident that the increased
economic outlook in Australia is the key contributor to the country banking industry being
amongst the most competitive and principled industry across the globe. Further, based on the
bottom-up analysis, it is evident that ANZ is doing relatively better in comparison to BOQ. In
fact, it is found out that ANZ had restively higher profitability ratios in comparison with the
BOQ.

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As such, it could be recommended that that for existing and potential investors, it would be
advisable to invest in ANZ especially for those individuals willing to get relatively high
returns. Besides, it can be recommended that ANZ offers a better investment opportunity
compared to the BOQ. Thus, anybody willing to invest in a competitive stock should venture
in the shares of this firm.

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Reference Lists
ADVFN 2018, ANZ Financial Data; Viewed at: https://au.advfn.com/stock-market/ASX/anz-
ANZ/financials (Accessed 6th September 2018).
Bank of Queensland 2017, Bank of Queensland annual report 2017: Viewed from:
https://www.boq.com.au/content/dam/boq/files/reports/annual-report/annual-report-2017.pdf
(Accessed 22nd September 2018)
Export.gov 2018, Australia-Banking Systems: Viewed from: https://www.export.gov/article?
id=Australia-banking-systems (Accessed 22nd September 2018)
Focus Economics 2018, Australia Economic Outlook: Viewed at: https://www.focus-
economics.com/country-indicator/australia/gdp-usd-bn (Accessed 22nd September 2018)
Focus Economics 2018, Inflation in Australia: Viewed at: https://www.focus-
economics.com/country-indicator/australia/inflation (Accessed 22nd September 2018)
Investing.com 2018, ANZ Banking Group (ANZ) Company profile: Viewed at:
https://www.investing.com/equities/australia---nz-banking-grp-ltd-company-profile
(Accessed 6th September 2018)
Morningstar 2018, Bank of Queensland (BOQ): Viewed from:
http://financials.morningstar.com/balance-sheet/bs.html?t=BOQ&region=aus&culture=en-
US (Accessed 22nd September 2018)
Morningstar 2018, Bank of Queensland (BOQ): Viewed from:
http://financials.morningstar.com/ratios/r.html?t=BOQ&region=aus&culture=en-US
(Accessed 22nd September 2018)

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Morningstar 2018, Bank of Queensland (BOQ): Viewed from:
http://financials.morningstar.com/income-statement/is.html?
t=BOQ&region=aus&culture=en-US (Accessed 22nd September 2018)
RBA 2018, Interest rate decisions 2018: Viewed at: https://www.rba.gov.au/monetary-
policy/int-rate-decisions/2018/ (Accessed 22nd September 2018)
Reuters.com 2018, Bank of Queensland annual report 2017: Viewed from:
https://www.reuters.com/finance/stocks/companyProfile/BOQ.AX (Accessed 22nd
September 2018)