Good morning and welcome everyone, and I thank you all for joining us at short notice on this Monday morning. I'll start as usual by acknowledging the traditional owners of the lands on which we meet today and to pay our respects to all elders, past, present, and emerging. Today, as no doubt you're aware, we are announcing the sale of Suncorp Bank to ANZ. Of course, this is a very significant event in the history of the Suncorp Group, and I can assure you that it's a decision that has not been taken lightly and that it's been informed by extensive analysis and consideration. It's a decision we firmly believe is in the best interest of our people, of our customers, our shareholders, and of course the state of Queensland, and we also believe it's a decision that is in the national interest.
Importantly, the sale will result in a simplified Suncorp Group focusing on growing its market-leading insurance businesses both here in Australia and across in New Zealand, will also provide an opportunity to accelerate the growth plans of the bank under the ownership of ANZ. I make the point that the transaction will not impact the delivery of the FY23 strategic targets that we outlined to the market in May last year, which remain well on track, and I'll come back to that at the end of the presentation. To the next slide, and the proposed sale of the bank is the latest step in our efforts to reshape and simplify the business over the past three years. As you know, during this time, we have divested several businesses, including Australian Life and Wealth, our Capital S.M.A.R.T business, and the RACTI joint venture.
We've also exited a number of underperforming portfolios, and we've restructured the group to improve executive accountability and to ensure that the efforts of everyone at Suncorp are directed to improving the services we provide to our insurance and banking customers. This restructure established the bank with end-to-end processes under the leadership of Clive van Horen and a new team of experienced banking executives. This team has improved the bank's performance in a short space of time in an extremely uncertain and a competitive operating environment. Put simply, the bank has become an attractive asset with good momentum, a de-risked book, and a strong alignment to the high-growth state of Queensland. Now to the next slide, which outlines the strategic rationale for the sale, and we believe it to be clear.
Firstly, Suncorp and ANZ share a similar purpose, values, and an ambition to create a brighter future for our customers and the communities that we operate in. Growth ambition that ANZ has outlined is very much aligned to the future potential that we envisage for the bank. The sale positions Suncorp Bank's customers and people for greater success over the medium to longer term. We also believe the sale price maximizes value for Suncorp shareholders, and it fairly values the improvements that Clive and the team have orchestrated and delivered. Going forward, and of course, subject to the regulatory approvals being achieved, Suncorp will be a simpler, growth-focused, trans-Tasman insurance company, protecting what matters for its customers and being at the very forefront of sustainability and advocacy.
The next slide, and in considering the merits of the transaction, it was important to us that any potential acquirer demonstrated a commitment to Queensland and had long-term plans to grow in what you would expect me to parochially call the most important state in the Commonwealth. Demonstrate this, ANZ has committed to no net job losses and no further reductions in branch numbers in the region for at least three years post-completion. Over time, we understand that commitment will extend to lending for projects that support the clean energy transition in the state. Transaction also serves to benefit Suncorp's customers and staff in the region, with customers able to benefit from the many product and technology initiatives that ANZ currently have in development.
Suncorp Bank employees will benefit from additional training and development, and there will be a substantial career progression opportunities that will emerge from being part of one of the Big Four banks in this country. In building on ANZ's commitment to the region, I would reaffirm that Suncorp's head office will remain in Queensland and that we will continue to be located in our new purpose-built facility here at Heritage Lanes, 80 Ann Street, Brisbane. This will also be the location of our new event response center, which will incorporate our market-leading geospatial and claims mapping capabilities and be the employment hub for our flexible event workforce. This will significantly enhance our capability to respond to disasters and will put us in a better position to better support our customers.
At this point, let me hand over to Jeremy to provide you with an overview of the transaction, and I'll come back to finish up the presentation. Jeremy?
Thanks, Steve, and good morning, everyone. I'd firstly like to reiterate what a significant announcement this is for Suncorp. It allows us to bring forward value for our shareholders, and I'll now take you through some of the details. The total consideration is expected to be AUD 4.9 billion, calculated as AUD 1.3 billion above the net tangible assets of the bank at 31 December 2021. There's a simple NTA completion adjustment mechanism, and the NTA at completion are expected to be broadly in line with this. The price represents 1.34 times net tangible assets, which we believe is an attractive premium for the bank.
The transaction is expected to complete in the second half of 2023 and is subject to certain conditions, including ACCC approval from the Treasurer under the FSSA, and amendments to the Metway Merger Act. The sale includes a brand licensing agreement for 5 years, with the potential for it to be extended by a further 2, which allows ANZ to use the Suncorp Bank brand. The fee for this is a minimum AUD 50 million for the first 5 years, and ownership of the brand will remain with the Suncorp Group. We've also entered into a transitional service arrangement for 2-3 years. The stranded costs arising from the sale of the bank are expected to be around AUD 40 million per annum, net of the TSA, across various corporate support functions, including technology.
We're committed to removing these costs and are targeting doing so within three years post-completion. Moving to the next slide. The net proceeds or capital generated are expected to be AUD 4.1 billion after allowing for an estimated AUD 500 million in separation costs, transaction costs, and other divestment related provisions, and capital gains tax of around AUD 300 million. Now, these are indicative estimates which will be firmed up over the period to completion. Consistent with Suncorp's approach to capital management taken in previous divestments, the current intention is for the majority of proceeds to be returned to shareholders. Excess capital is likely to be returned through a combination of a pro rata capital return, a fully franked special dividend, and potentially share buybacks. I note the final approach is particularly subject to agreed tax positions.
Now, before I hand back to Steve, I'd like to give a quick trading update on the bank. The bank's performed strongly, highlighted by growth in the home lending book, which exceeded AUD 4 billion for the year, with just under AUD 3 billion occurring in the second half. Growth had reached 2.5 times system in May and continued to accelerate in June. The quality of this strong growth has been good, with origination LVR decreasing to 66% in the second half from 73% last year, and the proportion of lending with an LVR above 80% halving to 10%. New business with a debt to income ratio above 6 times continues to trend favorably to industry. We are competitively positioned on price but not market-leading.
The net interest margin declined over the half by 7 basis points to the midpoint of our target range at 1.9%. This was driven by the rate environment, competitive market pressures, higher liquid assets, and fixed rate business mix. I note that fixed rate mortgages in June comprised just 2% of new business. We're also pleased that growth has returned to our business banking portfolio, which expanded by over half a billion AUD in the half after contracting in recent periods. In addition to the quality of new business, credit quality across the portfolio has improved, with the dynamic LVR falling to 54% in the second half compared to 59% last year, and arrears are at multi-year lows.
Despite this, we've maintained our collective provision at AUD 180 million, reflecting the improved risk profile of the book and a prudent view on the economic outlook. The reduction in other operating income was driven by mark-to-market losses on economic hedges in the last quarter. The change in the accounting treatment of fixed break fees and lower levels of gains on the liquidity portfolio. Finally, we remain confident in delivering on the 50% cost to income target by the end of FY23, driven by strong balance sheet growth and improving rate environment and the efficiency benefits from our strategic initiatives program of work. On that, I'll now hand back to Steve.
Thanks, Jeremy, to the next slide now, and I'd briefly like to focus on the ongoing Suncorp Group and its insurance operations, assuming, of course, the regulatory approvals are achieved. The post-completion Suncorp Group will operate across Australia and New Zealand, which are two large and established general insurance markets with market sizes of AUD 45.6 billion and AUD 6.7 billion, respectively. Suncorp already holds a strong competitive position in these markets through our extensive portfolio of brands, which is of course led in Australia by AAMI, which is our national brand with the highest brand awareness in the country. Supporting AAMI are our regional champion brands, the Suncorp and GIO, that maintain loyal customer bases here in Queensland and in New South Wales, respectively.
We also have a suite of niche brands led by the rapidly growing motor enthusiast brand Shannons and Apia, which has a significant market share among older Australians. Vero maintains a strong presence in the intermediated commercial market alongside our direct commercial insurance offerings through AAMI and GIO. In New Zealand, our Vero and Asteron Life brands are supplemented by the brand presence of our joint venture, AA Insurance, that continues to perform well. Now, you'd be aware of the priority that we've applied to reinvigorating our brands as part of our FY23 plans and commitments. This has included increased investment, better segmentation, and more effective marketing execution. Our most recent financial results provide evidence that these initiatives are delivering, and I'm confident that the numbers we'll report in a couple of weeks will further underscore the progress that we are making.
Over to the next slide, and this describes the post-completion investment thesis. The Australian and New Zealand general insurance markets are large, profitable, and well-regulated with established participants. Growth rates are forecast to be attractive across all GI portfolios with significant longer-term opportunities for businesses with clear strategies and a track record of execution. Alongside the strength of our brand portfolio, Suncorp's competitive position is supported by the scale advantages that are derived from our leading market share positions in both Australia and New Zealand. Additionally, we've invested heavily in core insurance capabilities such as claims and pricing, alongside more contemporary capabilities in digital data, automation, and AI. The key focus areas of our recent strategic investment program were outlined to the market in May last year, and they continue to track well.
Our scale and market-leading capability are supported by our corporate culture, highly engaged workforce, and has been assessed at the top quartile, versus our peer group. Post-completion of the transaction, the strategy for the business will be more of the same, but faster. We acknowledge the needs of insurance customers are changing, with a preference for seamless digital interactions and products that are designed to recognize personal circumstances and their individual risk profiles. We also acknowledge the changing external environment with an increase in the frequency and severity of natural hazard events, which is interacting with poor planning laws and low levels of government spending on mitigation and adaptation. You've heard about us talk about those points consistently. These external factors are driving increased costs for insurers globally and affordability challenges for consumers.
Suncorp will remain committed to developing a more sustainable and resilient business by continuing to invest in loss prevention and initiatives such as resilient housing, while advocating for governments to invest more through our four-point plan for a more resilient Australia. Going forward, we'll also look for opportunities to increase participation in partnerships across our mobility, home, and commercial portfolios as opportunities emerge. Ultimately, our expectation is that we will increase the group's return on tangible equity and have a business that generates strong organic capital. These outcomes, of course, will benefit all of our stakeholders. Just in concluding, I'd like to reaffirm on the next slide the key FY23 targets that we presented to the market in May last year. First, we targeted cash return on equity above the through-the-cycle return on equity.
Now, while cash ROE has been heavily impacted in FY22 by investment markets and to a lesser extent natural hazards, the improvements in the underlying business have us on track to deliver returns exceeding cost of capital in FY23. In GI, our underlying ITR has been improving steadily over recent periods, and as we disclosed on July 4, is on track to achieve the targeted 10%-12% by FY23, with the tailwinds afforded by increased bond yields partially offset by natural hazard-related headwinds. In the bank, as Jeremy pointed out, lending growth, the rising rate environment, and operational efficiencies are forecast to improve the cost-to-income ratio to an exit point of around 50% by the end of FY23. At that point, we might pause the presentation and hand over to your questions. Thank you very much.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Please note we will be receiving questions from investors and analysts only. Your first question comes from Nigel Pittaway from Citi. Please go ahead.
G ood morning, Steve and Jeremy. Just first of all, a question on the stranded costs, if I may. I mean, why do those take sort of four years from now to remove, and is that sort of a comfortable or an aggressive estimate in terms of that time period?
Thanks, Nigel. I guess some of the complexity around the stranded cost removal is that they go vertically through an organization first. That's the first point to make and need to work through that in a constructive way. The other one is that to some extent they rely on systems, non-FTE related costs, license agreements, and other activities where we simply have to work through the transition of the licenses or the leases or the elements that are associated with that. So I think it's a conservative view. I think we will have plenty of opportunities over the course of the time between today and completion to talk to the market about how our program of work will be mobilized to remove those stranded costs.
I think it does provide an opportunity for us to again look at the efficiency of our business, the standalone focused insurance business and work through a cost base that's absolutely relevant for the future.
Okay, thanks for that. Just, secondly, I mean, obviously, you flagged that, you know, ultimately we should see a range of capital initiatives in terms of returning the capital. I mean, is it your expectation that those will largely be carried out simultaneously or do you think that sort of return of capital will be sort of staged over a sort of longer period?
Yeah, Nigel, Jeremy here. I think the intent would be to, you know, get through completion and work to those conditions precedent. Then once we've done that, it would be the intention to work through those mechanics in reasonably close order to one another. I think as I listed them is the order of preference around that pro rata capital return and then the franked dividend. But obviously, it all depends on where we land with the ATO on the tax cost base. But in terms of those two mechanisms, the intent would be to do those in reasonably short order after we've completed.
Okay, great. Thank you.
Thank you. Your next question comes from Andrew Buncombe from Macquarie. Please go ahead.
Hi guys. Thanks for taking my questions. Just two from me, please. On the first one, just while we're looking at slide 11, and the FY23 targets, you've obviously commented on the cost to income ratio for the bank. But are you reaffirming your cost base guidance, still to drop to AUD 2.7 billion or has that changed? Thanks.
Yeah. No. I mean, embedded within that underlying ITR commitment and the bank cost to income ratio is still the expectation that our cost will be, and we've always said around AUD 2.7 billion, and so we would still expect that to be the case. Now, of course, that will be. The only caveat I'd put on that is some of the separation costs and pre-completion costs will fall into 2023. But you know, they shouldn't impact on that cash ROE metric. There will be some of the transaction costs that come into 2023.
Yeah. My second question was perhaps a bigger picture question. In the past, you've said that the bank has been the diversification factor behind the group, and the primary reason why you haven't bought more reinsurance or whole of account quota shares for the GI business. I wonder now that this business is proposed to be sold, does that change your view on the structure of the reinsurance and the earnings volatility in the GI business? Thanks.
Yeah, Andrew, look, I think it's obviously a good question. Maybe the first point would be that we every year go through a process as we go through our reinsurance renewal, looking at the structure of the program. We look at everything from the existing program, the balance sheet protections, the aggregate covers and the P&L volatility protection, and just see whether that continues to suit us. Then we pivot around what the market's doing. Obviously, as you've seen in our most recent renewal, we've had to move some of the deductibles around and be a bit flexible around the circumstances that are in the market.
I make the point we've always tested things like whole of account quota shares relative to the market circumstances at the time and the construct of the group. As the construct of the group changes to the extent that we're successful in completing this transaction, then we will look at that again and probably will have a slightly different lens of consideration around it. But again, it will have to make sense. It'll have to be accretive to return on capital. And it will have to you know be taken alongside the various elements of our catastrophe and other covers that we purchase. Jeremy, do you want to add anything there?
No, I think that's right, Steve. I mean, we've always said we'll consider them and, you know, we'll continue to do so. I think the approach and sophistication that we're continuing to implement around our underwriting is another key feature around that managing that volatility along with the advocacy program at work that we're looking to accelerate.
That's it from me. Thank you.
Thank you. Your next question comes from Andrei Stadnik from Morgan Stanley. Please go ahead.
Good morning. Can I firstly ask in terms of any potential for one-off investments to improve the insurance operations, you know, given the large return of capital you're receiving here, and, you know, given you've lost almost 3 percentage points of market share in terms of the total premium pool in the last 4-5 years and some of the challenges on claims volatility, does this present an opportunity to make, you know, some one-off investments to make the insurer substantially more competitive going forward?
Well, look, Andrei, I think we're pretty comfortable with our competitive position in insurance at the moment. I think I just want to be a little bit cautious about I don't want to get into a full results preview here. We can go through all of those details in a couple of weeks time. I think as you've seen in our more recent results presentations, we have been building momentum in our motor portfolio from both a average written premium and a unit count perspective. We're very comfortable with the status of that portfolio. Obviously, the home portfolio has been slightly different, and that's been, I think, understandable as we've moved pricing to reflect the inherent input costs that are going through those portfolios, and that has seen us cede some market share.
Again, the longer term view is that's in the best interest of the franchise and we think that as the rest of the market catches up with that pricing, then those unit count market share numbers will improve. Look, I go into this transaction with a very comfortable disposition around the performance of our insurance business, and the strategy doesn't change. We've got to make sure that our brands are positioned in the market appropriately, and then we're executing the marketing positions well. We've got a big digitization program of work. We've made great progress in terms of our digital sales and service and claims lodgment, but there's more to do.
There's opportunities to automate our business, incremental opportunities to automate our business and continue to drive through the best in class claims program, which, you know, has had a material benefit to us in offsetting inflation, over the last two reporting periods. Look, I think I describe it as being, you know, more of the same and to the extent that we can speed that up, through the focus that we will have, that will be a benefit.
Thank you. If I can ask my second question, just around, look, with the catastrophe budget you've recently set for FY23. Now at first glance, AUD 200 million increase is very substantial. You're taking it to AUD 1.16 billion. But at the same time, the aggregate retention will increase by AUD 200 million and possibly more given the deductible events also getting higher. There was a 50% chance of a La Niña for now for FY23 or for the summer for FY23. You know, how should investors think about that in terms of, you know, gaining comfort on, you know, in terms of catastrophe budget volatility, particularly for FY23?
Well, I mean, when we set the budget, Andre, we've made some pretty substantial changes to the modeling over the last few years, including shortening up the return periods over which we look at certain events. You know, it's not just as simple as looking at the absolute retention levels and changes there. We're confident that the AUD 1,160 number reflects the, you know, through the cycle expectation of what we think natural hazard costs are gonna be. As I said, having done that work, quite a lot of work around the models and the way we use those models for the hazard allowance.
The other thing, of course, to note, in that context is with La Niña, obviously no one La Niña year is the same. If we look at last year's experience compared to the year before, you know, it's fair to say that, if we had last year's FY22 experience again in FY23, then, you know, that would put some pressure on the allowance. If we had the previous year's La Niña, then we would be quite comfortable. You just need to be careful around things like La Niña because they're not always, you know, experienced in the same way. We feel pretty confident having done those changes to the model, that the 1160 is the right through the cycle, hazard allowance for us.
In my previous commentary, Andre, I sort of didn't mention the work we're doing to create a more resilient business around underwriting, loss ratio performance more broadly, and that's gonna be a big focus of our activities over the next couple of years.
Thank you.
Thank you. Your next question comes from Kieren Chidgey from Jarden. Please go ahead.
Morning, Steve and Jeremy. A couple of questions. Just starting on the process, just wondering if you can talk about whether or not this was a competitive process with any other sort of parties engaged other than ANZ?
I don't propose, Kieren, to sort of unpick all the elements of how we've gotten to where we've gotten to. I think Jeremy and I and the board sit here today very comfortable that the value that's realized in this transaction is the best value that we can receive in terms of a cash offer at this point in time. You know, we'll be a bit silent as to how we've gotten to that conclusion, but I'm very convinced that that is the outcome.
Okay. Secondly, Jeremy, I think you touched on sort of a range of potential capital management options. Can you provide sort of any very high level comments in terms of the potential mix, you know, and what the capacity is for fully franked special divs?
Yeah. I mean, Kieran, the preference would be the pro rata capital return. We think that's the best mechanism to return capital. I would expect that to be the lion's share of the return, you know, by far the majority of it. But it does come down to where we land with the ATO on the definition of the tax cost base. So we've made an estimate around that. So I think, yeah, the majority would be in that form. I think, you know, based on we're expecting at the moment, it would be a relatively smaller special franked dividend.
At this stage, I'm not seeing the need for buybacks, but I'll just flag that one to the extent that there's a need to do buybacks in terms of capacity generated from those other two. That's the ordering of how we'd look at it, and by far and away, the majority I'd expect to be in the pro rata capital return.
That's great. Third question, just going back to an earlier question on sort of the potential change in appetite for a group quota share. Obviously, sort of the bank has been one factor that has reduced group volatility in the past and sort of, I guess, been a consideration in terms of not doing a whole of account quota share. The other, I think you've mentioned is the Queensland Home 30% quota share that you've got as well. Can you just remind us how long the term on that is? Is that a 12-month quota share on Queensland Home currently? Will you have, you know, full potential to consider the full reinsurance optionality come thirtieth of June next year?
The Queensland quota share, Kieren, has different terms on it. Some of it is 12, some of it goes for another 2 years. Look over the sort of expected period of completion and seeing that through, we would expect to have flexibility around what we wanna do around quota share. Also taking into account who potential counterparties might be around quota shares.
Just make the point, Kieran. I mean, that is, you know, not a consideration you'd walk past, but it's more at the minor end of our consideration around a whole of account quota share. Obviously, our group earning profile was supported by the reduced volatility that the bank provided, but also, I mean, a big consideration is just, you know, what level of exchange commission we needed to make it accretive to ROE. You know, fundamentally, that just hasn't been there in the last couple of years that we've looked at it. You know, the Queensland quota share is relevant, but by no means as relevant as those other two factors.
That's great. Thanks.
Thank you. Your next question comes from Brian Johnson from Jefferies. Please go ahead.
Thank you very much for the opportunity to ask a question. I just wanted to check, when you've got the commitment that there'll be no net losses in Queensland, is that just referring to Suncorp banking staff, or does that also include ANZ staff in Queensland?
You'd probably better pick that up in the next call, Brian, but you know, that's reference to the. I think primarily to the Suncorp Bank, but probably better pick that up in the next session.
Thank you very much.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Scott Russell from UBS. Please go ahead.
Yeah. Good morning, all. 2 questions, please. Firstly, on slide 7, just wanted to understand some of the cost numbers here. AUD half a billion dollars seems to bucket up a number of different items. Over 10% of the consideration, it's surprisingly large. I was just hoping you might be able to decompose some of that, be a bit more specific about why it's so large, particularly relative to ANZ's transaction costs, which appear to be much, much lower than what you'll incur on the deal.
Yeah. Thanks, Scott. With any transaction like this, there is absolutely a range of separation and related costs. You know, the major ones in there are separation. We've benchmarked that to what we've done with other transactions and then had a look at the relative complexity of this one compared to those. You know, we've built quite a degree of experience and capability around separation, so we feel pretty confident around our ability to understand and benchmark those costs. We've also benchmarked them externally with other transactions. There's obviously a range of transaction costs is another reasonable component. We've made some allowance for what we expect to be the cost to exit the stranded costs.
Obviously the stranded cost number I've referenced there is net of the TSA, so we've made some estimate around that. Of course, we've also made some hopefully prudent assessment around what we think other transaction indemnity type provisioning should be. The thing I would specifically add to that, Scott, is that at this stage, those are estimates. You know, it's reasonably early days in a number of those things, and we will firm them up over the next 12 or so months as we get to completion. You know, I acknowledge that they are seemingly high, but I do believe they benchmark reasonably well to what we've done previously, and what other external transactions have cost.
Okay. Okay. Understood. Stepping back a little bit and looking at this from the big picture, you would've been looking at selling the bank here at any time over the past decade. I'm sure there's been an open file. I'm interested in understanding the logic for the timing. Why now? As we go into FY23, you've got what appears to be a very aggressive CTI target, which represents a big step up in earnings. You're on the cusp of a sweet spot in the bank. It appears as we go into FY23 with accelerated home lending as well. Why have you selected now to sell the bank?
I think, let me just sort of talk you through the sort of tiered logic here. Firstly, you know, you do recognize, as you pointed out in your question, that we've made some material movements forward in terms of the progress of the turnaround in the bank. You know, a couple of years ago, the balance sheet was contracting. We had low level of confidence amongst our broker partners in terms of origination. You know, probably an inferior digital offering. Over the past 18 months, we've rebuilt that confidence. We've got momentum back into the book, and that is all true. Every year we have to go through, when you say an open file, I mean, I think it's just normal business practice.
You go through the development of an organic plan and, you know, you have to go through a process of testing that organic plan against a number of different, you know, options and considerations inclusive of inorganic. This time, the particular circumstances meant that we had potential counterparty interests, which meant we took it a step further. Obviously that takes us to a point of going through a process of understanding what value can be realized, and that's top line value in terms of consideration. I think you can see that the transaction benchmarks quite favorably on a price to book basis on a comparison to our regional bank peers. So, you know, you go through that process.
We had to go through what is, you know, non-price value or, you know, culture, purpose, alignment of organizations, the way that our customers would benefit from this transaction, also how our people would feel. Obviously there is the key point that I've made through the course of the presentation around our ability to invest in and focus on the both the businesses, but particularly the GI business that will be a consequence of the successful execution of this program. You know, you need a transaction, you need a counterparty, you need value to be where it needs to be. You need an alignment of culture, purpose, customer, and people.
I think strategically, we feel it's an opportunity for us to really focus in exclusively on our insurance business and drive the sorts of performance that we think we can deliver in that business. That's the sort of, you know, rough rationale for it. It's gotten to us the position where we are today.
Thanks, Steve. If I could just squeeze in just one more quick question. If looking at FY23 with that CTI target of 50%, is there any callback for ANZ to the extent that you don't achieve that?
Well, I mean, Scott, it's Jeremy here. The completion mechanism is a simple NTA completion mechanism. It's just the movement in NTA, and effectively the goodwill is a fixed amount. In that sense, not.
I think, Scott, the only other point to make on that is that, you know, I think this has been a target that we've chased for a number of years, and there's inherent skepticism around our ability to get it. I think what gives us confidence around it, I know what gives us confidence around it is 3 things. Firstly, we did a lot of heavy lifting in the last 12 months on the cost base. You know, as people move to digital, there has been an opportunity for us to rationalize that branch network over that period of time, and we haven't seen the full run rate benefit of that flowing through.
There's been the strategic investment program that we've deliberately put into the bank, which has elevated costs for a period of time, but we're now starting to see the benefits come through. The material difference, I think for our bank and I think for all banks, you know, the steepness of this cash rate, the extent of these cash rate increases, alongside having momentum on your balance sheet, as we've emphatically got now, puts us in a position where, you know, revenue can really do some heavy lifting to get us from where we are today to, you know, around that 50 number. I think we've got, you know, a good degree of confidence about our ability to achieve it for the reasons I've outlined.
I understand there's always been some skepticism around that target. We're on a pathway to achieve it.
Thank you. Appreciate it. Cheers.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. You have another question from Brian Johnson from Jefferies. Please go ahead.
Hi. Thank you very much. I was just wondering, this deal doesn't complete for a while. We're heading into an environment of rising interest rates, as you've just mentioned. More than likely, house prices will fall. The auction clearance numbers coming out of Brisbane seem to be deteriorating faster than it is, say, in Sydney and Melbourne. I'm just keen to understand how much oversight does ANZ have over your balance sheet provisioning as we go into completion of this transaction?
Brian.
Does that impact the net book value?
Yeah, agreed. Brian, you know, as is usual with all these things, there's pre-completion processes in place between ourselves and ANZ as we work through the day-to-day running of the business. The completion mechanism itself is, you know, as I said, a simple NTA mechanism, and it's based on Suncorp's existing accounting policies as we have them today. You know, we all acknowledge that as we sit here, the collective provisioning, in particular, could go up and it could go down, depending on how the economic outlook, you know, pans out. Having said that, we do believe that we've got quite a conservatively set collective provision at the moment.
You know, we've seen the improvement in the credit quality of the portfolio, but we've maintained the CP at AUD 120 million, and that really is a nod to, you know, some uncertainty around the economic outlook. The collective provision will be what it will be in 12 months' time, depending what the economic outlook is, and that'll be calculated in accordance with our existing and BAU policies.
Just to push my luck on that. Presumably you're carrying some overlays over and above, strictly speaking, what your scenarios project. If required or not even required, aren't you kind of motivated to write those back to increase your net book value out in the future?
Brian, as I said, the collective provision, you know, will be calculated on completion in line with our existing policies.
Thank you very much.
Thank you. Your next question comes from Andrei Stadnik from Morgan Stanley. Please go ahead.
Thank you. Just sort of follow up, just in terms of wage pressures that the economy is now starting to see.
Because, you know, you sound very confident on the cost-to-income target in the bank, and I think you've also hinted that, you know, across the whole group, you know, you're not really changing your prior guidance. But you know, how can investors have comfort on that given the real substantial change in terms of the wage and the broad inflationary outlook that's happened in the last 2-3 months? Like, what gives you that confidence despite the broad inflation? Look, Andrei, I think we're sort of drifting into results-type commentary here. Given we are so proximate to the results and you know, we'll be providing a baseline level of financial reporting, which will allow us to talk through these factors more comprehensively.
I think we might defer to that, results presentation in a couple of weeks' time, if you don't mind.
Sure. No worries. Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Johnston for closing remarks.
Thank you very much, everyone. I know it's gonna be a busy day, but thank you for joining us, and we look forward to talking in a couple of weeks' time. Thank you.