Banking and Finance ANZ Bank †Free Samples to Students

Question: Discuss about the Banking and Finance ANZ Bank. Answer: Introduction: ANZ Bank was fined with a penalty of $212,500 because they have breached the laws through its overdraft facility. In the 2016 financial statement of ANZ Bank both interest income and expenses were reported in the income statement. Loans which were made to the NEDs and other disclosed executives, were made in the ordinary course of business on commercial terms and conditions. These were not much favorable other than those given to employees, including the term loan. As per paragraph 18 of AASB 7 Financial Instruments if a company is having any loans payable then it has to disclose the following: (AASB, 2017) All the details relating to any default during the period of interest, principal and sinking fund of those loans payable. Amount of the loans which were payable in default during the end of the period. Whether the terms of the loans were renegotiated or the default was remedied. As per paragraph 19 of the AASB 7 if there is a breach during the period relating to the loan other than those mentioned in paragraph 18, then it has to be disclosed in the financial statement. All these information has to be given in the financial statements if there is a breach or default in loan. ANZ Bank had breached the lending laws due to which a hefty amount of penalty was charged. ANZ Bank has shown loan origination expenses as a part of the financial asset and such expenses are amortized on the basis of the effective yield of the financial asset. Such loans and advances are initially recognized at fair value plus the transaction costs. These costs are directly attributable to the issue of loans and advance. The main problem with ANZ Bank was that they havent disclosed the breaches and defaults of loans at the end of the reporting period in its financial statements. This was the fault committed by them which was against the accounting policy. BBSW rate is the mid-rate of the market which is having a maturity of between one and six months. This rate is issued by the AFMA Prime eligible securities. It is an interest rate which also includes credit premium representative of the market trades Prime Ban paper. Apart from this it also represents T+0 settlement and also the modified half month value date convention. (AFMA, 2017) It is a rate which is the average of all the NBBO midpoint samples. Whatever the rate comes after the calculation it has to be shown in four decimals. This rate is published by Thomson Reuters every day at 10:15 a.m. apart from this page it is also being shown in the Bloomberg LLP page AFMB as the benchmark rate which is for each tenor. These rates are available so that it can be easily used by the general public. (FIIG, 2017) Now when a bank is using this rate for its calculation then as per ASIC regulations it has to be shown in the financial statements. As per para 28 of the AASB 7, all the lending rates which are being used by the end at the end of the period has to be reported in the financial statement. It is the basic requirement of the accounting standard that all the closing rates needs to be disclosed in the financial statements. This closing rate has to be disclosed by ANZ Bank in their notes to financial statement. They must have used the BBSW rate for their interest on loan calculation, so interest outstanding should be based on this rate. Hence ANZ Bank has to disclose this BBSW rate on their notes to financial statements. The value of financial assets in ANZ would get impacted after the introduction of IFRS. The two factors which would impact the financial assets of the banking sector are given below: It would impact the credit losses of the bank. All the credit losses which were reported would increase and would become more volatile under the new credit model. Apart from this the number of complexity of judgments would also increase. As per this banks are required to make robust estimates and also need to establish when the changes in the credit risk would occur. In this way financial asset of ANZ would get affected. It would also impact the hedge accounting business of the ANZ Bank. Bank has to adapt to the new hedge accounting model which would get aligned more towards the risk management. This would allow more hedging strategies and some of the current strategies would also get restricted. All these laws now are more principle based as per the IAS 39. For ANZ Bank, a more judgmental approach would be required in the assessment of qualifying, discontinuing and rebalancing hedge accounting. This is the principle which ANZ Bank has to follow. (SydneyMorningHerald, 2017) ANZ had breached the lending law and had also done some market manipulations due to which ASIC had raised a penalty of $212,500. This penalty was levied mainly due to ANZ assured offered overdraft to the customers. This was not as per the Australian Accounting Standard due to which penalty was levied. As per AASB 101 Presentation of Financial Statements all the extra ordinary gains and losses in addition to the normal income and expenses has to be reported separately. Firstly a normal Income statement is prepared and on the basis of this statement profit is calculated. After this statement, other comprehensive statement needs to be prepared. All such extra-ordinary items has to be shown in this statement. Now since penalty paid by ANZ Bank is an extra-ordinary expense, it has to be shown in other comprehensive statement. All the expenses which are not recurring in nature and are abnormal in nature, then such items are to be shown in other comprehensive income statement. In the given case ANZ Bank had paid a penalty of amount $212,500 due to the breach of pending law. As per the para 15 of the AASB 101, such penalties has to be shown the other comprehensive income statement of the financial statements. (AASB101, 2017) While calculation of income tax of the Bank all the fine and penalties has to be disallowed by the tax authorities. All these expenses has to be added back for calculating income tax payable. These expenses are not allowed since the company has breached the laws of Australia. If a company has breached Australian laws then how penalty on such amount can can be allowed. The given penalty has to be recorded in the other comprehensive statement of the company and as per the income tax authorities this penalty cannot be allowed as deduction. (AASB101, 2017) ANZ Bank had to pay penalty amounting to $212,500 in relation to the breach of lending law and manipulation of methods by them. An investigation was also performed by the ASIC team on this matter. The investigation conducted by ASIC has to be reported in the notes of the financial statements. It should be shown in the other contingent liabilities and assets portion of the notes to accounts. During March there was a legal proceeding conducted against the Bank by ASIC. They had to pay penalties for all the market manipulations, misleading conduct and breaches by them. Similar proceedings were raised by ASIC against another two Australian banks as well. The legal proceedings conducted by ASIC against the bank was for the period March 2010 to May 2012. ANZ was defending the proceedings because of which they had to pay penalty of $212,500. Again in August 2016 there were complaints registered against 17 banks including the ANZ Bank in the United States District Court. All these actions we re taken by the US based investment funds and some other individual derivatives trader. All these actions taken by the Court mainly applied to the person and entities who were engaged in US-based transactions in the financial instruments. All these financial instruments were benchmarked, priced and were based on BBSW from 1st January 2013. The claimants seek penalties to be paid to them for the breach of the law. Penalties were paid by the bank to all the claimants claiming the money back. The main reason behind all this was the violation of US anti-trust laws, the Commodity Exchange Act, anti-racketeering laws and even the unjust enrichment principles. Hence the penalty was paid by ANZ Bank to ASIC for breaching the law. This is the way investigation has to be shown in the financial statement. (Legilation, 2017) As per Australian Accounting Standard if a company is sure that it would not receive money from any of its customers, then the amount has to be written off as bad debts. Every year there must be provision for bad debts provided by the company in the financial statements. Provision has to be provided based on the assumption of future defaulters by banks customers. When the bad debt actually happens, then bank has to write it off in its profit and loss statement and then the provision for bad diet charged has to be reversed. There may be chances that after certain efforts by the bank, it had received the amount which was treated as bad debt. Now for this first the bad debt charged off in the profit and loss statement has to be reversed and then bad debt recovery income has to be booked in the profit and loss statement as income. (SydneyMorningHerald, 2017) The amount of bad debt written off by the bank in the year ended 2016 was $920m and in 2015 it was $918m. Bad debt for banks are generally very high. They are dealing with all kind of customers, whether its small or large customers there are chances that small customers might not pay back money to the back at the end of their loan term. Then all these amounts has to be treated as bad debts by the bank. This is the reason why banks are having separate teams for getting back the amount from the customers which were treated as bad debts. When they are unable to get the money back from their customers, then the amount has to written off in the profit and loss statement as bad debt. (AASB, 2017) As per the article ANZ had $1.18 billion of high yield debt in exploration and production companies. Apart from this a further $1.23 billion of debts were outstanding to national oil companies with loans worth $20 billion in resources sector. It was expected that energy companies would default up to $90 billion in high yield debt by 2019. (ASX, 2017) This shows that the bank is badly suffering from non-repayment of loans. If a bank is having high risk for non-repayment of loan then there are huge chances in future that the bank would become bankrupt. Especially the energy companies are not able to make payment to the bank due to which there are high chances that all the amounts given to them would be treated as bad debt. The future of ANZ Bank looks very bad since most of the loan given are being written off as bad debt. It would require the help of the government to intervene and help them to get the money from its high end customers. If the bank is not getting any help from the government then it would be very difficult for the bank to run its business. Bank would become bankrupt and it would impact the share marker of Australia. This would in return impact the economy of Australia. Now since Australian economy had gone down, it would even impact the world economy as well. Such a high amount of bad debt is a threat to the entir e world as well. Hence it is necessary that back should take necessary actions to get back the amount of loans from the companies. (Australia, 2017) References AASB101, 2017. dlsweb.rmit.edu.au/. [Online] Available at: https://www.dlsweb.rmit.edu.au/toolbox/balanceact/toolbox11_06/units/assets_inventory/html/legis_aasb101.htm [Accessed 9th May 2017]. AASB101, 2017. johnwiley.com. [Online] Available at: https://www.johnwiley.com.au/highered/aas2e/content029/fact_sheets/AASB101_ch19.pdf [Accessed 9th May 2017]. AASB, 2017. aasb.gov.au. [Online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB7_08-15.pdf [Accessed 9th May 2017]. AASB, 2017. aasb.gov.au. [Online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB1049_10-07_COMPdec12_07-12.pdf [Accessed 9th May 2017]. AFMA, 2017. afma.com. [Online] Available at: https://www.afma.com.au/data/BBSW [Accessed 9th May 2017]. ASX, 2017. asx.com.au. [Online] Available at: https://www.asx.com.au/asxpdf/20161107/pdf/43cq2ptbywqxht.pdf [Accessed 9th May 2017]. Australia, D. R., 2017. debtrecoveries.com.au. [Online] Available at: https://www.debtrecoveries.com.au/how-to-write-off-bad-debts/ [Accessed 9th May 2017]. FIIG, 2017. fiig.com.au. [Online] Available at: https://www.fiig.com.au/research-and-education/fiig-research/2016/11/23/what-is-the-bank-bill-swap-rate-(bbsw)- [Accessed 9th May 2017]. Legilation, F. R. o., 2017. legislation.gov.au. [Online] Available at: https://www.legislation.gov.au/Details/F2009C00140 [Accessed 9th May 2017]. SydneyMorningHerald, 2017. smh.com.au. [Online] Available at: https://www.smh.com.au/business/anz-pays-212500-fine-for-breaching-lending-laws20160307-gncbi7.html [Accessed May 9th 2017]. SydneyMorningHerald, 2017. smh.com.au. [Online] Available at: https://www.smh.com.au/business/banking-and-finance/anz-warns-on-100m-bad-debt-blowout-20160323-gnpxzo [Accessed 9th May 2017].