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ANZ.700.008.0060

EXHIBIT #4.206 - BRANCH OPTIONS FINAL RECOMMENDATION

 ANZ.700.008.0060

Branch Options
Final recommendation

Catriona Noble, MD Retail Distribution

Nick Freeman, CFO Australia Division

March 2017

FOR DISCUSSION

Restricted
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Executive Summary

To ensure alignment between ANZ's purpose and our branch optimisation objectives, we have recently explored the
viability of selling a package of regional, rural and remote branches as an alternative to closures. This sought to:
• Improve continuity of banking services for customers
• Provide ongoing employment options for local workers
• Minimise broader impacts on regional and remote communities, recognising the commercial and social role of bank branches

The outcomes of this work are as follows:

• A possible sale package of. re ional, rural and remote branches was identified, based on future opportunity, com
customer relationships, .a. risk ad ·usted revenue, "' p.a. in direct costs, in deposits and in loans
• The most logical buyer would be however the expected sale price represents rvl-2x annual cash
earnings and they would need to e e ma nding gap
• The transaction appears to be feasible from a technical, legal, and possible from a regulatory perspective
• However, the separation would be complex, capacity to execute challenging, and the modelled financial outcomes for ANZ
shareholders suggests we should not pursue a sale option

A potential sale would have adverse financial outcomes for ANZ shareholders
• In regional, rural and remote areas, we historically experience remarkably low customer attrition when closing a branch. rv6
months either side of a closure we typically see a 5% annualised increase in attrition, before reversion to the mean
• The sale option has a NPV of vs a closure option at Confidential
• There is a relatively low level of extractable costs associated with exiting these branches. Although we could expect to save
p.a. in direct costs, our ability to reduce shared costs (e.g. digital channels, contact centre) is limited
• A review of transaction multiples suggests a sale price in the range of . This represents a Price/Earnings multiple of 3.3
times, which is well below the implied valuation multiple of over 12 times for our Retail & Commercial business
• This combination of low attrition, low extractable costs, and a low likely sale price renders a transaction of this nature commercially
unattractive, relative to the alternative option of continuing with branch closures

Furthermore, there is a level of execution risk inherent in a sale pathway

This is in contrast to the execution risk profile of closures, where we now have in place a credible alternative servicing model for
exited locations, including Bank@Post, and a proven methodology for managing such exits. Even if we were to proceed with a sale,
we would still need to close a significant number of branches to achieve an optimal branch network

Based on these facts, we recommend to continue with the current plans for branch closures Page 1
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A possible sale package of regional, remote and rural

branches was considered. ANZ is last major bank in town in

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Historically, we experience remarkably low customer attrition

when closing a branch in regional, rural and remote areas

Commercial (monthly) regional attrition2 spikes Retail (quarterly) regional attrition2 spikes at
at ~14% if closest ANZ branch is > 50 km away ~4% during if closest ANZ branch is >50km away

Retail attrition based on sample

of ~700k customers – need to
Monthly attrition, % Quarterly attrition, % be validated in 2017

16 6
distance to the distance to the
nearest ANZ branch1 nearest ANZ branch
14
>50 km >50 km Additional attrition
Additional attrition
10-50 km over a 3-month 10-50 km over a 12-month
12 period of ~4.2%
0-10 km period of ~5% 0-10 km
4
10

6
2

0.83%
2
~3.3% pa
0.74%
~8.5% pa
0 0
-25 -20 -15 -10 -5 0 5 10 15 20 25 -24 -21 -18 -15 -12 -9 -6 -3 0 3 6 9 12 15 18 21 24

Time since closure, months Time since closure, months

- 'Natural' attrition estimate (regional closures only)

1. Analysis of proximity of a nearest non-ANZ Big 4 branch suggests similar insights; 2, Based on a sample of 25 regional closures over the past five years (>50km: 3
observations only, 10-50km: 16 observations, <10km: 6 branches) Page 5
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A sale price significantly higher than estimated would be

needed to deliver a better financial outcome than closures

Reduce opening hours Sell branches Close branches

Confrdentral
Sale price
• Reduction of variable costs • Full savings of Opex • Full savings of Opex
Opex implications (salaries, rent) in line with opening
------------------------------------ hours reduction 2
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
• Risk of increased attrition 3 in year • Revenue attributed to current books • High risk of increased attrition 3
1 (2-10%) through reduced service sold to acquiring party ( rv10%) through reduced service
levels levels
Financial
considerations • NPAT on current revenue assumed • NPAT on current revenue assumed
to stay stable at 0% per year due to reduce by 2-8% per year due to
(current customer to low growth outlook for these reduced growth outlook without
base) branches branches in area

• 10 year horizon, including terminal • 10 year horizon, including terminal

value value

• Branch costs unlikely to be covered • Future marketing rights to • Future sales volumes via direct
by new future sales customers sold in package to channels and retained branches in
Network acquirer region /area
considerations • Branches not part of profit
maximising network • Branches in area capture profit
maximising share

Implementation _ ($ 3 0-SOm) -
----------~-C?-~-~~--(!Il_________ -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Implementation
($5-10m) ($20m) 4
_______ f~~~~ -tC?_~!!~rJ ______ _ Confrdentral
Overall cash flow
implication
(NPV 5 )

1. Based on high-level valuation of financial assets using P/B multiples; 2. Assumed that opening times affect total personnel cost base and a reduction of
30-50% in opening times; 3. Increased attrition affects year 1 only; 4. Exit costs including retrenchments, lease tail payouts, asset write-offs; 5. NPV
calculation includes terminal value estimate for options 1 and 3 with declining growth rate as indication of declining books
Note: All NPV calculations use 9% discount factor; Tax rate of 30% assumed throughout calculations
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There is also a level of execution risk associated with a sale,

whereas an established, credible pathway exists for closures

Reduce opening hours Sell branches Close branches

• LOW: Low likelihood of publicity
regarding reduced opening hours
Reputational risk
• MED: Likelihood of publicity in
towns where branches are sold
• HIGH: Likelihood of negative
publicity in towns where ANZ has
last branch
• HIGH: Likelihood of response
from unions, politicians

• LOW: Requires managing FTE • HIGH: Requires finding buyer, • LOW: Necessitates managing
reductions and rescheduling of agreeing on deal, gaining redundancies and branch closures,
employees regulatory and legal approval but we have a well developed
Executional
process for this now
complexity
• MED: Requires managing
transition of employees and
property to acquirer

• MED: Requires customers to do
banking during reduced hours
Customer effort
• MED: Requires customers to • MED: Leads to longer travel time
migrate to other bank but we will or requires switch to other bank
assist but we will assist through
alternative options

• MED: Leads to reduction in FTEs • MED: Requires employees to • HIGH: Leads to larger number of
Employee effort
and possible redundancies adapt to working for new employer redundancies

• HIGH: Requires system • LOW: Requires migration of

IT complexity integrations with other bank, incl. accounts to closest branch
bank account migrations

Misalignment to • MEDIUM: Continuity under • HIGH: no continuity w/o

• LOW: Partial continuity
purpose acquirer mitigation

Notwithstanding the modelled branch sale, further branch closures would be required
to achieve a network of less than conflden' b r a n c h e s

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There are no compelling reasons to prefer a sale option when

considering a broader set of financial and non-financial aspects
sale worse sale better comments
------------------~

IIIII
NPAT reduction post with low incremental extractable costs
financial
outcome
Sale price of 'P'ffi implies a low 3-4 times multiple, 50-66% lower than implied multiple of Retail business

II II alignment with strategy

(e.g. Agri, FX)
CCB is focused on growing Regional and agri business in many of the towns/regions affected
Potential buyers may not offer sophisticated agri industry expertise or Markets products (e.g . foreign exchange)
Many CCB 'sale' customers are strongly profitable due to cross-sell beyond standard loans and deposits

II II market share
impact
Loans & deposits identified for sale represent ~2% of ANZ's total loans, ~4% of deposits
Impact could be higher from contagion to non-affected regionaljagri customers (reputation impacts)
(~12

Impact may be mitigated by customer 'stickiness'- historically closed branches only lose 2-10% of customers*
months growth)

Ill short-term
capability to execute
Significant effort required for data room/due diligence on loan assets, negotiation, regulatory/legal requirements
Significantly higher IT effort required to transfer accounts, customer-by-customer
Somewhat mitigated by less management time/focus associated with some of our 'noisier' closure locations

till of sale locations)

I I
• Customers would not be left without a local bank branch (ANZ is 'last bank in town' in
impact on
• Positive impact diminished by complexity of change and sale value impact if customers choose to stay with ANZ
customers NB : not all 'sale ' customers will switch- ~40% don't use branches, ~30% also use non-sale branches

impact of
media
II Very negative impact likely to be short-lived
Likely calls of "abandoning the bush" would damage ANZ's reputation but be contained to one fixed time period
Recent benign impacts from closures may not persist, with potential for protracted negative brand impact

impact of
government
Ill Benefit enhanced by lower potential for disaffection in a growing number of political hot-spots
Could enable increased support for customers in Regional centres where we remain represented
(see impact of media above)

longer-term impact
on management
Ill • Sale accelerates right-sizing of the physical network in rural locations, relative to a 5 to 10 year organic process
• Removes management distraction from less productive channels, staff redundancies, union impacts
NB : proposed sale locations are solely based on growth opportunity, without appropriate subjective considerations

rural community
Impact
II II Transferring responsibility for certain regional communities to a third-party is preferable to closure/exiting
Potentially mitigates rural job losses, economic decline in some locations
Both options enable more focussed support to a smaller set of communities

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Proposed next steps

• Continue with current program of 50 branch closures during FY'17

Conftdenttal
• Leverage the current process to continue closures and achieve a network of within five years - determine
appropriate pace (refer appendix 1)
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APPENDIX 1: Continued Branch closures could deliver a network with

fewer than branches within five years, including a broader range
of formats to better align with customers' needs

• 320 digital branches will be delivered by FY22

751
• 40% will be 'cashless', including ANZ home and business transaction centres

--...............
- - - - '-.1 7
..._-...-... u-r-~- -

...... ...... ---- ----

......
......
......
...... ......
...... ...... flagship
......
asian banking centre
ANZ home
business txn centres

cashless

digital
branch
formats

full service

non-digital
full service

2015 2016 2017

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APPENDIX 4: progressing towards a more comprehensive

solution after branch closures

bank@post ATMs
Banking • Offered via ~3,600 Australia Post outlets • Only traditional (not Smart) ATMs are currently be
services deployed offsite
• Used by >70 other financial Australian institutions,
offered including the other majors • Basic cash withdrawals
• Card-based transactions available are: • Basic account services
– balance enquiry + Assisted Service
– cash deposit (up to $5,000/day cash, up to $1m ATM
• card withdrawal
+ Smart ATM
• card deposit (notes &
– Consumer Cash
• card deposit - coin,
total) • balance enquiry cheques) CACHE
– cheque Deposits (99 cheques per deposit) • account transfer • no card deposit (notes & • no card deposit -coin,
• pin change cheques) CACHE
– cash withdrawals ($1,000/day) • card withdraw
– bar-coded deposits (CACHE only) denomination choice
• pre-staged ‘goMoney’ no
card withdrawal

Limitation • Whilst transaction volume is higher than • Offsite ATMs cannot be manually cleared daily on a
expected (24k vs 14k/wk), hence annualised cost cost effective basis
$3.6m vs. $1.5m
• Smart ATMs capture but do not transmit details on
• Work is underway to solve for bar-coded deposits for cheques deposited for clearance
CAP customers and deposit-only card for multi-
• To avoid different service levels for different ATMs,
signatory accounts
Smart ATMs are not being deployed offsite
• Costs paid to Australia Post are not fully recouped
from customers

Solution • Work is underway to solve for bar-coded deposits for • FY’17 investment has been secured to electronically
being CAP customers and deposit-only card for multi- clear cheques deposited to Smart ATMs
signatory accounts
developed • This will enable aligned cheque clearance times and
• Prioritising funding and resourcing for this work is remote deployment of Smart ATMs
challenging
• Geospatial is mapping high use of bank@post where
ANZ branches should be servicing1

1. 40% of transactions are in urban locations. 40,600 individuals with 65k transactions, 6,800 small biz/25k transactions, 359 regional business bank/1,258 transactions
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APPENDIX 5: notes on current approach to network

optimisation

• 34 branches were closed in FY16 and we are on track for a further 50 closures in FY17. Productivity benefits from these
closures have been incorporated into our Plan (FY17 $22m, FY18 . This will reduce the network to 677 branches by
September 2017.

• A 5 year plan to reduce branch numbers to - would reduce annual run costs by . Should we continue to open
"'3 new destinational branches each year this benefit reduces to

• 5 new branches will open in NSW during FY17

• 55 branches already have the new digital branch design. By the end of FY17 there will be 90.

• The digital branch design introduced several new formats, including ANZ home, flagships and cashless

• We now have 2 'ANZ Home' branches, both located in Sydney

• Our first Asian Banking Centre bringing our Asian specialists together in one location will open at Haymarket in July 2017

• Planning is underway for the opening of our second flagship branch in Melbourne in 1Q18

• A new 'conversion' format from May 2017 at "'30-50°/o of the cost of a full digital branch refurbishment will enable
operating model changes in areas of lower market opportunity

• The development of the next design iteration (Digital Branch 2.0) is also underway for a 4Q17 pilot, introducing 24/7
access to all Smart ATMs and new business cash devices, smaller telling footprints, smaller ATM bunkers and true
modularity

• Our advanced geospatial analytics data model is better enabling optimal network decisions, albeit constrained by slower
than expected development of the necessary data models

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APPENDIX 6: FY17 Retail Distribution Branch Closure List

Branch State Branch State
Tannum Sands QLD Uni of NSW NSW
Gayndah
-~~~-------------------------------------------~~~~-~~~-~--(~~~_L_ _________________ ~!~----------------
-~~-~?-~~~~-------------------------------s-~~-------------------------------------------~~-?-~-Q~-~~-~!!~_______________________ :t!_~----------------·
Morphett Vale North SA Newman WA
Jerilderie NSW Town Hall WA

-~~~~~~-~~-~-----------------------------~~~------------------------------------------~~-~~~~~P_?! __________________________ :!!_~----------------·

-~~~-------------------------------------------~~?~?~P-~~--------------------------~!~----------------
Middlemount
Junee Nsw Rockingham Beach WA
----------------------------------------------------------------------------------------------------------------·
Pittsworth QLD Newington NSW
----------------------------------------------------------------------------------------------------------------·
-~~~-~~~~-~------------------------------s-~~-------------------------------------------~~-~?~!~-~-~P-~~~Q~___________________ :t!_~----------------·
-~~~-~~~::~~~~------------------------------~~~------------------------------------------~EP_~~-~~~-~~~~~--~-~!~y_____________ :!!_~----------------·
Lameroo SA Noosa Heads QLD
Penola SA Melville WA
Booleroo Centre
-~~---------------------------------------------~-~~~-~!.:l-~~!.:1-~L----------------------~~yy______________ _
Zeehan TAS New Lambton NSW
New Norfolk TAS Koroit VIC
Dandenong VIC Chancellor Park QLD

_:_~--~~~~~-~-~~-------------------------~~~--------------------------------------------~-~!~-~y- _______________________________ _9_~~---------------·

115 Pitt St NSW Glen Innes NSW
Alexandria NSW Narooma NSW
Barrack & Clarence NSW North Cairns QLD
Fyshwick
-~~~-------------------------------------------~p~i-~9-~~~~---------------------------g~~---------------
An gaston
-~~---------------------------------------------------------------------~~-----------------·
Braeside VIC Bankstown NSW
North Parramatta NSW Mount Gravatt QLD

-~~-~~-~~~-~~-~~-~9--~~~~-~Y------------~~----------------------------------------------------------------------------------------------------------·
Ashburton VIC
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