Key material risks
The material risks facing the group (as per the Group’s Risk Management Statement) and how these risks are managed, are summarised below:
Material risk type
Capital Adequacy Risk
The risk of loss arising from the Group failing to maintain the level of capital required by prudential regulators and other key stakeholders (shareholders, debt investors, depositors, rating agencies, etc.) to support ANZ’s consolidated operations and risk appetite.
management of material risks
We pursue an active approach to Capital Management through ongoing review, and Board approval, of the level and composition of our capital base against key
policy objectives.
most material issues
Material risk type
Compliance risk
The risk of failure to act in accordance with laws, regulations, industry standards and codes, internal policies and procedures and principles of good governance as applicable to the Group’s businesses.
management of material risks
Key features of how we manage Compliance Risk as part of our Operational Risk framework include:
- centralised management of key obligations, and emphasis
on identifying changes in regulations and the business environment, so as to enable us to proactively assess emerging compliance risks and implement robust reporting and certi cation processes. - recognition of incident management as a separate element to enhance ANZ’s ability to identify, manage and report on incidents/breaches in a timely manner.
- the Whistleblower Protection Policy allowing employees and contractors to make confidential, anonymous submissions regarding concerns relating to accounting, internal control, compliance, audit and other matters.
most material issues
Material risk type
Credit Risk
The risk of financial loss resulting from:
- a counterparty failing to fulfil its obligations; or
- a decrease in credit quality of a counterparty resulting in a financial loss.
Credit Risk incorporates the risks associated with us lending to customers who could be impacted by climate change or by changes to laws, regulations, or other policies adopted by governments or regulatory authorities, including carbon pricing and climate change adaptation or mitigation policies.
management of material risks
Our Credit Risk framework is top down, being defined by credit principles and policies. Credit Policies, requirements and procedures cover all aspects of the credit life cycle – for example: transaction structuring, risk grading, initial approval, ongoing management and problem debt management, as well as specialist policy topics.
most material issues
Material risk type
Liquidity and Funding Risk
The risk that the Group is unable to meet its payment obligations as they fall due, including:
- repaying depositors or maturing wholesale debt; or
- the Group having insufficient capacity to fund increases in assets.
management of material risks
Key principles in managing our Liquidity and Funding Risk include:
- maintaining our ability to meet liquidity ‘survival horizons’ under a range of stress scenarios to meet cash
flow obligations over a short to medium-term horizon; - maintaining a strong structural funding profile; and
- maintaining a portfolio of high-quality liquid assets to act as a source of liquidity in times of stress.
most material issues
Material risk type
Market Risk
The risk to the Group’s earnings arising from:
- changes in any interest rates, foreign exchange rates, credit spreads, volatility and correlations; or
- from fluctuations in bond, commodity or equity prices.
management of material risks
Our risk management and control framework for Market Risk involves us quantifying the magnitude of market risk within the trading and balance sheet portfolios through independent risk measurement. This identifies the range of possible outcomes, the likely timeframe and the likelihood of the outcome occurring. Then we allocate an appropriate amount of capital to support these activities.
most material issues
Material risk type
Operational Risk
The risk of loss and/or non-compliance with laws resulting from inadequate or failed internal processes, people and/or systems, or from external events. This definition includes legal risk, and the risk of reputation loss, or damage arising from inadequate or failed internal processes, people and systems, but excludes strategic risk.
management of material risks
We operate a Three-Lines-of-Defence Model to manage Operational Risk, with each Line of Defence having defined roles, responsibilities and escalation paths to support effective communication and effective management of our operational risk. We also have ongoing review mechanisms to ensure our Operational Risk framework continues to meet organisational needs and regulatory requirements.
most material issues
Material risk type
Reputation Risk
The risk of loss that directly or indirectly impacts earnings, capital adequacy or value, that is caused by:
- adverse perceptions of the Group held by any of customers, the community, shareholders, investors, regulators, or rating agencies;
- conduct risk associated with the Group’s employees or contractors (or both); or
- the social and/or environmental impacts of our lending decisions.
management of material risks
We manage Reputation Risk by maintaining a positive and dynamic culture that:
- ensures we act with integrity; and
- enables us to build strong and trusted relationships
with customers and clients, with colleagues, and with the broader society.
We have well established decision-making frameworks and policies to ensure our business decisions are guided by sound social and environmental standards that take into account Reputation Risk.
most material issues
Material risk type
Strategic Risk
The risk that the Group’s business strategy and strategic objectives may lead to an increase in other key Material Risks — for example: Credit Risk, Market Risk and Operational Risk.
management of material risks
We consider and manage strategic risks through our
annual strategic planning process, managed by the Executive Committee and approved by the Board. Any increase to our Key Material Risks is managed in accordance with the risk management specified above.
most material issues
Material risk type
Technology Risk
The risk of loss and/or non-compliance with laws resulting from inadequate or failed internal processes, people and systems or from external events impacting on IT assets, including the compromise of an IT asset’s confidentiality, integrity or availability.
management of material risks
Consistent with the management of Operational Risk, we operate a Three-Lines-of-Defence model to manage Technology Risk, with each Line of Defence having defined roles, responsibilities and escalation paths to support effective communication and effective management of our technology risk. We also have ongoing review mechanisms to ensure our Operational Risk framework, which is also used to manage Technology Risk, continues to meet organisational needs and regulatory requirements.
most material issues