Financial Ratio Analysis
Griffith University, Gold Coast | Group Assignment for 2204AFE Financial Institutions Management | Comparative Analysis of ANZ and Westpac | | s2758329, s2762895, s2773847, s2784238Diamond, E., Dong, G., Huang, Y. & Lin, B.Due: 5th April 2012Tutor: Sonja Kobinger | |
The following report is a brief comparative analysis of two of Australia’s largest deposit-taking financial institutions (FI), Australia and New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corporation (Westpac). This report seeks to identify which of the FIs has a greater aggregate return per dollar of equity and thus establish the highest performer, or most profitable, of the two. The Return on Equity Model (ROE) (Koch & MacDonald,
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ANZ’s AU was also outperformed by Westpac at 6.36% versus 6.68% (Appendix A), highlighting the discrepancy between the yields earned from Westpac’s interest-bearing assets and ANZ’s interest-bearing assets during 2011. Although ANZ’s Non-Interest Income (OI) was considerably higher than Westpac’s at 0.97% and 0.76% (Appendix A) respectively, it was not enough to compensate for the lower II. The higher OI was partly cancelled out by ANZ’s higher OE at 1.42% against Westpac’s 1.15% (Appendix A) (Koch & MacDonald, 2010, pg. 125). The above decomposition of the Return on Equity Model indicates ANZ was outperformed by Westpac for the financial year 2011; however, further analysis of the Earning Base (EB) ratio, Net Income Margin (NIM), Spread (SPRD), Burden (Burden) ratio and the Efficiency (Efficiency) ratio must be conducted for full conclusion.
ANZ’s EB is significantly lower than Westpac’s at 72.89% and 86.86% (Appendix A) respectively, this is due, in part, to Westpac’s substantially higher levels of net loans and advances. Less earning assets and loans contributed to ANZ’s lower NIM of 2.8% compared with Westpac’s 2.14% (Appendix A) indicating that ANZ’s lower IE did not insulate the bank from the effects of low II (Koch & MacDonald, 2010, pg. 126). Interestingly, ANZ’s SPRD is distinctly higher than Westpac’s at 2.92% compared with Westpac’s 1.88% (Appendix A);