Large Australian Banks: Preparing for Climate-Related Risk Issues
In this commentary, we review how the large Australian banks (the Australian banks or the banks) rated by DBRS Morningstar are tackling climate-related risk issues.Key highlights:
• We consider the large Australian banks’ commitments to a wide range of global environmental initiatives underpin their long-term strategies.
• Similar to other large banks operating in resource rich countries, the Australian banks are facing shareholder criticism and negative coverage by the press. However, we view these factors as unlikely to affect their franchise strength.
• Meanwhile, the banks are making progress in developing climate-related lending practices and stress-testing capabilities, which we view positively in terms of risk management.
“Australia is prone to experiencing severe bush fires, droughts, loss of biodiversity and flooding. The current climate vulnerability assessment run by the Australian Prudential Regulation Authority (APRA) will provide additional insight to the banks as to how they need to further adjust their business models and implement risk management strategies in response to the two different climate scenarios assessed. To date, climate-related risk factors have had no impact on the credit assessment of banks rated by DBRS Morningstar. However, physical, transition, and legal risks arising from climate change will become more important in the credit assessment of banks’ credit profiles over time, especially for banks located in countries where climate change is more immediate” said Vitaline Yeterian, Senior Vice President, Global FIG.
Australia and New Zealand Banking Group provides a range of banking and financial products and services to retail, small business, corporate and institutional clients. Co. operates on a divisional structure with six divisions: Australia, Institutional, New Zealand, Wealth Australia, Asia Retail & Pacific and Technology Services & Operations and Group Centre. Co.'s core products offered include deposits, credit cards, loans, investments and insurance, retail products provided to consumers, and banking and financial solutions provided to business customers through managers, among others. As of Sept 30 2015, Co. had total assets of A$914,869,000,000 and total deposits of A$566,847,000,000.
Commonwealth Bank of Australia provides integrated financial services including retail, business and institutional banking, funds management, superannuation, life insurance, general insurance, broking services and finance company activities. Co. operates in seven segments, Retail banking Services, Business and Private Banking, Institutional Banking and Markets, Wealth Management, New Zealand, Bankwest, as well as International Financial Services and Other Divisions. As of June 30 2016, Co. had total assets of A$933.1 million and total deposits of A$588.0 million.
National Australia Bank provides banking services, credit and access card facilities, leasing, housing and general finance, international banking, investment banking, wealth management, funds management, life insurance and custodian, trustee and nominee services. Co.'s division include: Australian Banking, which provides products and services to retail and business customers; National Australia Bank Limited Wealth, which provides superannuation, investment and insurance solutions; and New Zealand Banking, which comprises the Retail, Business, Agribusiness, Corporate and Institutional and Insurance franchises in New Zealand. As of Sept 30 2016, Co. had total assets of A$777.62 billion.
Westpac Banking is a banking organization with branches, affiliates and controlled entities throughout Australia, New Zealand, Asia and in the Pacific region. Co. provides a range of banking and financial services in these markets, including consumer, business and institutional banking and wealth management services. Co. is engaged in the provision of financial services including lending, deposit taking, payments services, investment portfolio management and advice, superannuation and funds management, insurance services, leasing finance, general finance, interest rate risk management and foreign exchange services. As of Sep 30 2017, Co. had total assets of A$851,875,000,000.
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