ANZ is producing the benchmark cost story in Australian banking, one slashing the bank's payroll in the domestic market.
FTEs for ANZ fell by exactly 1000 to 12,885 in Australia over the year to September 2018, a period in which technology spending explained most of a two per cent rise in core expenses.
The bank reported a flat profit for FY18 of A$6.4 billion. The cash profit of $6.5 billion was five per cent lower than in 2017.
A declining market share in its consumer business and all the royal commission backwash means 2019 "will be another messy year for the Australian division … as we remediate the bank,' Shayne Elliot, ANZ's CEO told an investor briefing yesterday.
"We want to tell you next year we fixed more systems and closed more products."
On that front, 2018 was a productive one for the bank, with 90 products decommissioned.
The bank is "simplifying our business [and] readjusting our operating methods," Elliott said.
"And we're a safer bank in terms of our capital levels and we think we're a better quality bank in terms of the outcomes that we're delivering for our shareholders."
For now, delivering ANZ's version of quality is one that is producing no growth at all in its mortgage book (over the last three months at least, on the latest APRA data), even if Elliott could point to above system growth in owner-occupied lending over the full year.
Offsetting this is the bank's institutional division, the standout performer of ANZ's 2018 full year.
Elliott said the simplification of the institutional business is now three years down the track.
"The work we began in 2016 to simplify our business, better focus on customers, improve our cost base and significantly improve our capital position, along with our exposure to international trade, puts us in a good position to manage any challenges ahead," he said.
"The cost of running institutional has fallen each half for five consecutive halves."
"There are 24 per cent less people, serving 39 per cent less customers, with 21 per cent less credit risk weighted assets; and gross impaired assets are down 54 per cent.
"Institutional is in the third year of its own transformation, and it is delivering results. Risk adjusted margins improved 21 per cent, risk adjusted returns improved 14 per cent and credit quality continued to improve," Elliott said.
Constraining the capital allocated to institutional has been the key, forcing greater discipline throughout the business, he said.
CFO Michelle Jablko called the result "another strong outcome on costs, with innovations such as automation in trade starting to make a real difference here, and also on customer experience."
"This cost outcome was particularly commendable as the division had to carry an extra $156 million in extra costs after the sale of ANZ Asia retail businesses," she said.
Another major contributor to the ANZ Group's unexpectedly healthy profit this year was its big step down in impairment charges.
The loan provision charge of $688 million is 43 per cent lower than last year's $1.2 billion. Two years ago that number was almost three times this at just under $2 billion, with a loss rate that was just 12 basis points.
Individual provision loss rates are at the lowest rate they've been since 1996.
And mindful of the optics around precipitating farm failures during a prolonged drought, as well as the balance sheet implications, ANZ has developed significant support package for Australian farmers impacted by drought including reducing business rates by 1 per cent annually, donating $1 million and offering $130 million in discounted loans to support impacted farmers.
"In the Australia division, provisions were down partly reflecting the strategic decision about the balance sheet. However we did increase economic overlays in the second half due to the drought," Elliott said.