Federation Uni - BUMGT5921: ANZ Bank Structure and Behavior

This report provides a detailed analysis of the behavior and structure of ANZ Bank, focusing on the challenges posed by lending demand. It explores the observable symptoms of this issue, including low motivation levels among potential borrowers, high worker turnover, and increased client complaints. The report also delves into the theoretical underpinnings of lending demand, examining the credit creation and fractional reserve approaches of banking. Furthermore, it identifies the deterioration of service quality as another symptom. The report then proposes an intervention strategy centered on modifying the remuneration approach, aligning incentives, and strengthening protections for clients. The analysis considers the implications of the "Banking Code of Practice" and the development of a "Vulnerable Customer mandatory learning module" to address the identified issues. The report concludes by emphasizing the need for ANZ Bank to adapt its strategies to overcome the challenges in lending demand and maintain a strong financial performance.

Running head: BEHAVIOR AND STURCUTURE OF ANZ BANK 1
Behavior and Structure of ANZ Bank
Student’s Name
Institutional Affiliation

BEHAVIOR AND STRUCTURE OF ANZ BANK 2
Behavior and Structure of ANZ Bank
1.1 Introduction
The ANZ Bank has a great commercial and retail business in both Australia and New Zealand.
The financial institution continues to deliver a rigid financial performance depending on the
market share it gains, and tight cost management with their small and retail enterprise franchises.
In 2016, ANZ serviced over 168,000 individuals, making it the country’s third-largest local
lender. In Australia, the bank supports its small enterprises by providing over two billion dollars
in lending to assist Australians begin new businesses. In New Zealand, ANZ maintained its
position as the largest lender for businesses and housing. The behavior and structure of the
former depend on its Code of Conduct, which requires all contractors and employees to comply
with them. This is because it provides a set of standards and guiding principles that govern
ANZ’s operation. The enterprise is structured across several divisions. In Australia, it comprises
the retail, business, and private bank business units, which provide various banking services.
Institutionally, ANZ business structure focuses on providing services to corporate clients and
global institutions located in New Zealand, Australia, Europe, America, and the Middle East. In
New Zealand, the business structure comprises commercial and retail business units, which focus
on offering multiple banking services. This article identifies the lending demand as the major
challenge facing ANZ Bank, and the multiple measurable symptoms and concepts related to it;
these occasionally affects the business structure.
1.2 Purpose
The purpose of the paper is to focus on lending demand as the major problem affecting the
business structure of ANZ, which can be described in either measurable or observable symptoms

BEHAVIOR AND STRUCTURE OF ANZ BANK 3
it manifests. Additionally, two concepts have been considering the analysis of the lending
demand issue facing ANZ.
1.3 Problem Statement
The main problem facing ANZ is lending demand, which is currently more subdued after a
period of high credit and development costs that are elevating locally and globally from a
cyclical low. Besides, the financial industry faces strain in cost development connected to
compliance and higher technology costs.
LITERATURE REVIEW
2.1 Observable and Measurable Symptoms of ANZ Bank’s Lending Demand
2.1.1 Low Motivation Levels
In spite of ANZ’s efforts in encouraging lending to small businesses, there is still
restriction put forward that discourage low-income earners from taking loans. For instance, the
least individual loan amounts range from 3,000 to 5,000 dollars, which is occasionally more than
what low-income earners need. Conversely, the repayments for such amounts may be
unaffordable based on their expenses. As a result, if the latter is eligible for such a loan, he or she
is encouraged to utilize credit cards, which due to their unstructured nature can intensify
financial challenges. Therefore, low-income earners have low motivation when it comes to
taking loans.
At least 50 percent of low-income earners that inquire about ANZ’s lending programs
have products on their credit records. Due to this fact, most credit scoring structures lead to
automatic declines if there are items on a credit record regardless of the amount. These items

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may include mobile contracts, unpaid bills, personal loans from finance firms, and unpaid credit
cards. Normally, mobile contracts get misinterpreted by low-income earners as they do not
understand terms and conditions of such loans, which leads to automated declines when seeking
loans. Hence, the former become less interested and motivated in taking loans.
2.1.2 High Worker Turnover
ANZ Bank stated on May 2019 that its staff cut would help in regaining its profit by two
percent, although the interest margins fell to their lowest level. The margin squeeze suggests that
the escalation in home loan rates by most Australia’s premium banks such as ANZ had failed to
stabilize a decline in profitability. This had been exacerbated by increasing costs coming from a
public inquiry into financial sector wrongdoing (Duran 2019). Consequently, the drastic fall in
property values combined with higher regulatory scrutiny surrounding lending standards makes
it more challenging for Australian banks to create new home loans. This squeezes its main
mortgage business.
According to ANZ, it was evading taking higher risks to elevate margins, and expected
principal pressures such as slow loan development and competition. The bank’s CEO mentioned
that the demand for a home loan in Australia declined significantly, which led to high worker
turnover. The former further said that ANZ’s decision to step back from specific segments
influenced the high employee turnover.
2.1.3 Increased Client Complaints
Most Australian lenders were criticized in 2019 by their customers for elevating home
loan interest rates. ANZ Bank increased the interest rates on most of its mortgage items on three
occasions, which were outside the official interest setting rates of RBA. In spite of the customer

BEHAVIOR AND STRUCTURE OF ANZ BANK 5
complaints, the bank stated that the global financial crisis led to such drastic changes, which
required swift decisions to be made regardless of their opinions. Eyers (2019) mentioned that the
house values were down more than ten percent in 2018 in Melbourne and Sydney, as investors
left the market after financial institutions increased interest rates and made it challenging to
acquire loans. According to Shayne Elliott, ANZ’s CEO, the sentiments of consumers remained
subdued as they were uncertain of the surrounding house prices and regulations, which affects
their confidence in taking home loans.
2.1.4 Deteriorating Service Quality
Debt-servicing calculation of ANZ incorporated an interest rate margin combined with
the standard variable interest rates, which increased future interest rates. Although the margin
ensures that the clients can meet repayments on borrowings, the interest rates were bound to rise
(ANZ Submission 2007). Notably, the clients need to exhibit a surplus monthly income after
meeting the debt-servicing and living costs to be legible for mortgage loans.
2.2 Theories of Lending Demand
2.2.1 The Credit Creation Approach of Banking
This theory suggests that individual financial institutions can create capital, and they do
not solely lend out deposits that have been offered to it. Thus, the latter creates bank deposits as a
consequence of bank lending (Starkey 2018). Nevertheless, the amount of capital that the
financial bank can develop is not constrained by their ability to take deposits; the act of bank
lending results to new purchasing power, which did not exist previously (Werner 2016).
Therefore, the repayment of current debt destroys money due to declining bank loans and
customer deposits.

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Importantly, banks do not lend money, but loan credit. Hence, the ability of the bank to
credit money is due to its exemption from the customer money rules. These regulations prevent
non-bank organizations from credit money creation as they are needed to keep customers’ money
separate from its liabilities and assets on their balance sheet.
Nitisha (2019) argues that the credit creation affected by ANZ Bank. Notably, the higher
the cash of commercial banks in public deposit forms results in more credit creation. Contrary,
the cash amount held by commercial banks is controlled by the central bank, which manages to
sell and to purchase government securities. Hence, the capacity of credit creation depends on the
rate of decrease, or increase in CRR by the central bank. Alternatively, the lending demand of
ANZ Bank is affected by this approach through leakages that arise from cash outflow. For
instance, the currency drains suggests that the clients may hold the cash with them, which affects
the credit creation of ANZ. Hence, the bank’s capacity to credit reduces.
2.2.2 The Fractional Reserve Approach of Banking
The theory suggests that each financial institution is a financial intermediary has a
banking system that creates money through the “multiple deposit expansion” process. Thus, the
system acts as a fraction of bank deposits in which they are backed by cash on hand and
accessible for withdrawal (Kagan 2019). Although the approach enables financial institutions to
use deposits to generate returns in the form of interest rates on lending, it may catch the bank
short in the self-perpetuating pacing during a bank run. If ANZ Bank is caught in such a
situation, it may lead to losses that the bank may not comprehend.
The nature of the theory presents a major problem for banks during lending. For instance,
all the deposit liabilities of the financial institution mature on a day-to-day basis as it promises to

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cash them on demand, although only a small fraction of its properties are accessible at any given
moment to meet these liabilities. Consequently, the inherent issue is revealed when deposit
withdrawals exceed the bank’s current cash reserves (Salerno 2012). As a result, the bank may
not have any other choice but to sell some of its longer-term properties, though this may not be
readily saleable leading to massive losses.
INTERVENTION OF LENDING DEMAND BY ANZ BANK
The most effective intervention that ANZ Bank may incorporate is changing its
remuneration approach. The firm may apply all recommendations provided by Stephen
Sedgwick’s “Retail Banking Remuneration Review,” which focuses on strengthening the
alignment of retail bank practices, incentives, and improving customer output. Besides, the bank
has made significant progress in changing employee incentives, and eradicating the volume-
based incentive payments. Therefore, the intervention seeks to resolve the lending demand issues
that ANZ encounters.
The bank may also strengthen protections for clients and small enterprise consumers
coming from the new “Banking Code of Practice.” Notably, this code is revised to reflect the
Australian and New Zealand community standards. These changes mainly focus on encouraging
low-income earners to borrow more. For instance, the loan contracts for small enterprises need to
be documented in plain English, which makes it easier for such business owners to understand
the terms and conditions of the loan. Hence, simplifying the contract for such clients may
increase customer safeguarding, which boosts their confidence in taking loans.
The active promotion of affordable banking items, particularly assisting low-income
earners to pick suitable items may improve the lending capacity of ANZ. As a result, the latter

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may access loans depending on their ability to pay back as the interest rate will be favorable,
which leads to more lending on the bank’s side. Alternatively, the latter may focus on helping
potentially fragile clients by developing a new “Vulnerable Customer mandatory learning
module” (Australia and New Zealand Bank 2018). The module seeks to assist employees in
identifying and assisting clients experiencing vulnerability. The CRM may further help in
processing individual loan applications as it provides a knowledge management system that
enables effective decision making and problem-solving (Chung and Hu 2015). This would help
ANZ’s loan officers in identifying any potential defaults, and high-risk clients who may affect
the productivity of the firm.
Conclusion
ANZ focuses on delivering a rigid financial performance depending on its market share,
and tightening the cost management with their small and retail enterprise franchises.
Unfortunately, the firm’s lending demand has affected the provision of mortgage loans as the
interest rates are high, which has discouraged customers from taking such loans. As a result,
ANZ has received numerous complaints due to its decision to increase its interest rates.
Fortunately, the bank had a conclusive response to its drastic changes on home loans, and
downsizing of clients. According to ANZ, it was dodging taking higher risks to elevate margins,
and expected principal pressures such as slow loan development and competition.

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References
ANZ Submission (2007). Inquiry into home loan lending practices and processes. ANZ.
Retrieved from
file:///C:/Users/hp/Downloads/http___www.aphref.aph.gov.au_house_committee_efpa_b
anklending_subs_sub012.pdf
Australia and New Zealand Bank (2018). 2018 sustainability review. Australian and New
Zealand Bank. Retrieved from
https://www.anz.com/content/dam/anzcom/shareholder/au22289_anz_sustainability_revi
ew_2018_fa_online.pdf
Chuang, C. C., & Hu, F. L. (2015). Technology strategy-innovating for growth of ANZ
Bank. International Review of Management and Business Research, 4(3), 682.
Duran, P. (2019). Australia’s ANZ first-half profit rises on staff cuts, though margins shrink.
Reuters. Retrieved from https://www.reuters.com/article/us-anz-bank-results/australias-
anz-first-half-profit-rises-on-staff-cuts-though-margins-shrink-idUSKCN1S62QJ
Eyers, J. (2019). ANZ wants to boost home-loan lending to investors. Financial Review.
Retrieved from https://www.afr.com/companies/financial-services/anz-wants-to-boost-
home-loan-lending-to-investors-20190219-h1bfki
Kagan, J. (2019). Fractional reserve banking. Investopedia. Retrieved
fromhttps://www.investopedia.com/terms/f/fractionalreservebanking.asp

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Nitisha, L. (2019). Credit creation by commercial banks and its limitations. Economic
Discussion. Retrieved from http://www.economicsdiscussion.net/banks/credit-creation-
by-commercial-banks-and-its-limitations/4155
Salerno, J.T. (2012). Fractional reserves and the fed. Mises Institute. Retrieved
fromhttps://mises.org/library/fractional-reserves-and-fed
Starkey, M. (2018). Credit creation theory of banking. Economics Network. Retrieved from
https://www.economicsnetwork.ac.uk/archive/starkey_banking
Werner, R. A. (2016). A lost century in economics: Three theories of banking and the conclusive
evidence. International Review of Financial Analysis, 46, 361-379.