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Comparative Performance Analysis Of Cba And Anz Banks
Introduction
This report gives a comparative analysis of the financial performance of Australia's two biggest banks, the Commonwealth Bank of Australia (CBA) and the Australia and New Zealand Banking Group (ANZ). This analysis depends on financial indicators calculated using the bank's 2023 annual report.
The fundamental ratios calculated incorporate profitability ratios like return on equity, return on assets, and equity multiplier. Efficiency Ratio, Like Expenses Ratio, Asset Utilization Ratio, Interest expense Ratio. Valuation quality indicators like allowance for loan losses. Ratios like internal income ratio, and non-internal income ratio. Risk and stability ratios like internal margins, exposures, and exposure ratios.
The analysis aims to assess the comparative profitability, efficiency, asset quality, risk assessment and risk profile of CBA and ANZ. This analysis gives an understanding of the bank's essential position and financial well-being. This will be valuable to different financial backers, including financial backers, controllers and experts working in the Australian banking sector.
Background of the Banks
CBA is Australia's biggest bank with more than $1.1 trillion in assets. It offers an exhaustive scope of banking, protection and an abundance the board items and administrations (Le, et al. 2020). CBA has areas of strength for a banking establishment in the country, as well as institutional, business and individual banking operations.
ANZ is Australia's third-biggest bank with more than $1 trillion in assets. It gives banking, an abundance the executives and protection administrations (Van Ha, et al. 2023). ANZ has large domestic retail operations in Australia, New Zealand, Asia and the Pacific, as well as commercial, institutional and international banking operations.
Profitability Analysis
The profitability ratio is a bank's ability to generate profits compared to its revenue, assets, or capital. A higher ratio indicates higher profitability.
Return on Equity (ROE)
CBA's ROE is 14%, while ANZ's is 10%. This shows that CBA is making a lot of money from the stock. CBA's high ROE results in a high net profit margin and low utility.
Return on Assets (ROA)
CBA's ROA is 0.79% vs ANZ's 0.64%. Although the return on assets (ROA) of both banks is low, CBA easily generates high returns from its asset base (Putri, et al. 2022). This may indicate that CBA has a better asset structure or is managing its assets more effectively.
Equity Multiplier
CBA has a higher equity multiple of 18.26x compared to ANZ's 15.78x times. This shows that CBA is using more financial instruments in its capital structure to increase its ROE. The higher the CBA ratio, the higher the financial risk.
Overall, CBA has earned more equity and assets compared to ANZ. However, CBA uses more financial instruments to increase ROE.
Efficiency Analysis
Efficiency indicators indicate how a bank manages and uses its resources (Hoang, et al. 2020). A lower index means better efficiency and cost control.
Expense Ratio
CBA's Expense ratio is higher at 27% compared to ANZ's 20%. This indicates that CBA has a high operational rating. ANZ offers better cost control and is more efficient.
Asset Utilization Ratio
ANZ has a high asset utilization rate of 5% compared to CBA's 3%. ANZ has released a new assessment for its employees, which suggests they should be utilized as quickly as possible.
Interest Expense Ratio
CBA's interest expense ratio is 0.63, while ANZ is 0.30. This means a lower rate of return for CBA contracting parties, which means efficient liability management (Zhao, 2021). ANZ has full control over the funding costs.
Overall, ANZ has better cost control and resource usage efficiency compared to CBA.
Asset Quality Analysis
Asset quality indicators measure the credit risk of a bank's loan portfolio. A lower ratio indicates better ace quality.
Provision for Loan Losses
CBA and ANZ have similar allowances for credit losses of 0.0035% and 0.0024% (Sikder, and Allen, 2023). This suggests that both banks have high-quality loan books with low credit default risk.
Revenue Analysis
The revenue ratio measures a bank's ability to generate internal and external income. The higher the ratio, the better
The Interest Income Ratio
ANZ's International Earnings Ratio is 3.32, which is significantly higher compared to CBA's 1.89. This indicator ANZ represents a significantly higher Interest bearing ability of internal debt
Non-Interest Income Ratio
CBA has a higher Non-International Earnings Ratio of 1.09 compared to ANZ's -0.78. This means that the CBA Council represents non-internal income relationships to generate non-internal income (Parker, and Sheedy-Reinhard, 2022). CBA has a more diverse mix of music.
Overall, ANZ focuses on foreign revenue, while CBA has a wide diversification between domestic and foreign revenue sources.
Risk and Stability Analysis
Key risk and stability indicators assess a bank's financial strength and risk profile. High net profit margins and advertising rates are advantageous, while low load and efficiency rates are advantageous.
Net Interest Margin
The net negative intensity range for CBA is -4207.80% vs ANZ margin -1.19%. These negative increases indicate that both banks have higher investment risk than asset investment risk (Jain, 2022). CBA's negative profit margin indicates significant instability in its financial activities.
Spread
CBA's spread is higher at 1.07 compared to ANZ's 0.54. This means that the financial activities that CBA corresponds to are more profitable compared to the cost of financing.
Burden Ratio
CBA and ANZ have similar burden rates of 0.005 per cent and 0.006 per cent (Higgins, et al. 2020). Comparative metrics suggest that both banks have similar non-internal risk-to-total assets ratios.
Efficiency Ratio
The efficiency of both banks is similar at 27% for CBA and 20% for ANZ. This shows that operating expenses is part of the bank's comparable value.
Although CBA and ANZ are broadly similar in terms of overall stability and risk profile, CBA's higher margins suggest some concerns.
Conclusion
Based on a comparative analysis of performance, CBA has high profitability in terms of return on equity and return on assets. However, ANZ achieves greater efficiency through cost control and resource utilization. Both banks have high asset quality, but ANZ relies on external income, while CBA is more diversified. In terms of risk profile, CBA and ANZ are broadly similar, but CBA's lower return on investment suggests funding instability.
Overall, CBA has strong profits, but ANZ appears to have a better operating model with greater efficiency and better diversification. High-risk factors for CBA also increase the risk. Although CBA currently generates high returns, ANZ's operating fundamentals are more sustainable for investors and regulators. This analysis provides important insights into the operating dynamics and strategic positioning of Australia's leading banks.
