Australia and New Zealand
Banking Group Limited
ABN 11 005 357 522

Consolidated Financial Report
Dividend Announcement andAppendix 4D

Half Year
31 March 2006

This Financial Report on the consolidated Group contains the information required by Appendix 4D of the Australian Stock
Exchange Listing Rules, should be read in conjunction with the September 2005 Concise Annual and Financial Reports, and islodged with the Australian Stock Exchange under listing rule 4.2A

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Name of Company:

APPENDIX 4D

Australia and New Zealand Banking Group Limited
ABN 11 005 357 522

Report for the half year ended 31 March 2006
A$ million
Group operating revenue

! 8%*

to

4,963

Operating profit after tax attributable to shareholders

!16%*

to

1,811

Proposed interim dividend per ordinary share, fully franked at 30% tax rate2005 interim dividend per ordinary share, fully franked at 30% tax rate

Record date for the proposed interim dividend

56 cents
51 cents

19 May 2006

The proposed interim dividend will be payable to shareholders registered in the books of the Company at close of business on
19 May 2006. Transfers must be lodged before 5:00 pm on that day to participate.

Payment date for the proposed interim dividend*

3 July 2006

Compared to March 2005

This Financial Report on the consolidated Group contains the information required by Appendix 4D of the Australian Stock Exchange Listing Rules, should be read in
conjunction with the September 2005 Concise Annual and Financial Reports, and is lodged with the Australian Stock Exchange under listing rule 4.2A

Highlights
All figures compared to March 2005 half year unless otherwise indicatedProfit after tax""

Statutory profit $1,811 million
Cash* profit $1,731 million
Cash* profit before provisions

up 16%
up 10%
up 10%

Earnings per share""

EPS 98.4 cents
Cash* EPS 94.0 centsup 18%
up 10%

Dividend"

Interim dividend 56 centsup 10%

Ratios""Return on equity 20.9% (18.3%)
Adjusted common equity ratio stable at 5.0%

Business comment
"
"
"
"
"

Strong performance in Personal Banking, record lead in customer satisfaction
Good momentum in New Zealand and Institutional
Continued frontline investment with 1,231 additional FTE
Provision for credit impairment at cyclical low
Growth and Transformation program on track- Revenue* growth 8%(target range of 7% - 9%)- Cost-Income* ratio 45.8%(1.0% improvement)*

Adjusted for AIFRS 2005 adjustments and non-core items (including significant items, ANZ National Bank incremental integration costs and AIRFS mark tomarket of certain hedge gains /losses)

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

CONSOLIDATED FINANCIAL REPORT, DIVIDEND ANNOUNCEMENT and APPENDIX 4D
Half year ended 31 March 2006

CONTENTSPAGEHIGHLIGHTS

1

FINANCIAL HIGHLIGHTS

5

Net Profit
Profit on a fully comparable AIFRS basis
Cash profit
Earnings per share
Balance Sheet
Financial Ratios
Net profit by business unit

5
5
5
6
6
7
9

CHIEF FINANCIAL OFFICER’S REVIEW

11March 2006 half year compared to September 2005 half year
March 2006 half year compared to March 2005 half year
Non-core items
AIFRS 2005 adjustments
Summary of major AIFRS impacts
Income and expenses
Earnings per share
Dividends
EVA Reconciliation
Credit Risk
Market Risk
Balance Sheet
Capital Management
ANZ National Bank - Integration
ING Australia performance
ING New Zealand joint venture
Deferred acquisition costs and deferred income
Software capitalisation

11
12
13
13
14
16
22
23
23
24
27
28
30
32
33
35
35
36

BUSINESS PERFORMANCE REVIEW37

GEOGRAPHIC SEGMENT PERFORMANCE

51

FOUR YEAR SUMMARY BY HALF YEAR

59

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

62

DIRECTORS’ DECLARATION

116

AUDITORS’ REVIEW REPORT AND INDEPENDENCE STATEMENT

117

SUPPLEMENTARY INFORMATION - AVERAGE BALANCE SHEET118

DEFINITIONS

122

ALPHABETICAL INDEX

124

This Results Announcement has been prepared for Australia and New Zealand Banking Group Limited (the “Company”) together with its
subsidiaries which are variously described as “ANZ”, “Group”, “ANZ Group”, “us”, “we” or “our”.
All amounts are in Australian dollars unless otherwise stated. The Company has a formally constituted Audit Committee of the Board of
Directors. This report was approved by resolution of a Committee of the Board of Directors on 27 April 2006.
When used in this Results Announcement the words “estimate”, “project”, “intend”, “anticipate”, “believe”, “expect”, “should” and similar
expressions, as they relate to ANZ and its management, are intended to identify forward-looking statements. Readers are cautioned not toplace undue reliance on these forward-looking statements, which speak only as of the date hereof. Such statements constitute “forwardlooking statements” for the purposes of the United States Private Securities Litigation Reform Act of 1995. ANZ does not undertake any
obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the datehereof or to reflect the occurrence of unanticipated events.

HIGHLIGHTSFor Release: 27 April 2006

ANZ interim profit $1,811 million
All figures compared to March 2005 half year unless otherwise indicatedProfit after tax•

Statutory profit $1,811 million

up 16%•

Cash* profit $1,731 million

up 10%•

Cash* profit before provisions

up 10%

Earnings per share•

EPS 98.4 centsup 18%•

Cash* EPS 94.0 centsup 10%

Dividend•

Interim dividend 56 centsup 10%

Ratios•Return on equity 20.9% (18.3%)•

Adjusted common equity ratio stable at 5.0%

Business comment*•

Strong performance in Personal Banking, record lead in customer satisfaction•

Good momentum in New Zealand and Institutional•

Continued frontline investment with 1,231 additional FTE•

Provision for credit impairment at cyclical low•

Growth and Transformation program on track- Revenue* growth 8%(target range 7% - 9%)- Cost-Income* ratio 45.8%(1.0% improvement)

Adjusted for AIFRS 2005 adjustments and non-core items (including significant items, ANZ National Bank incremental
integration costs and AIFRS mark to market of certain hedge gains/losses)

1

HIGHLIGHTS (continued)

For Release: 27 April 2006

ANZ interim profit $1,811 million
Australia and New Zealand Banking Group Limited (ANZ) today announced a record profit after tax of$1,811 million for the half-year ended 31 March 2006, up 16%. The headline result included a number of
one-off gains including the National Housing Bank (NHB) insurance settlement and, adjusting for these,
cash* earnings per share were up 10%.
The Interim Dividend was increased by 10% to 56 cents.
ANZ Chief Executive Officer Mr John McFarlane said: “This is a good result based on a strong underlying
business performance.
“Revenue growth at 8% is the highest it has been in recent years and solidly within our target range of
7-9%. The cost to income ratio is down 1%, with expenses contained within our target range. Credit
quality remains at its best level in more than a decade and at a cyclical low. While we remain vigilant topotential risks, we are yet to see any material credit issues emerging.
“In recent years we set out to make ANZ a very different bank. Against the trend we invested to create areal difference that others would find hard to replicate.
“We began a journey to create a distinctive culture and we have achieved high levels of staff
engagement. We added around 4,000 people to serve our customers while others were cutting staff. We
opened and refurbished, and restaffed our branches while others were closing. We invested in Asia at atime the market considered it unfashionable.
“This has been the right agenda but it has been tougher than we anticipated. Only now is the difference
starting to be tangible, and beginning to change the face of banking in Australia and New Zealand.
“This result is good progress but still leaves a great deal to be done. We need to work hard in the years
ahead to build the momentum in our Personal, Institutional and New Zealand divisions, to improve ourcost-income ratio and advance our strategic agenda. Continuing to make ANZ a very different bankremains the core of our agenda,” Mr McFarlane said.

Divisional Performance
Personal continues to deliver very strong growth, with earnings up 16%. We continued our investment
in future growth with the addition of 545 staff, 22 new branches, and 362 ATMs since the March 2005
half. All individual personal businesses recorded double-digit earnings growth, with Mortgages up 21%
and Investment & Insurance Products up 18%. Personal also saw continued improvements in staff
engagement and in customer satisfaction, where we now have a distinct lead over our peers.
Institutional grew 8% over the same period last year, adjusting for discontinued businesses exited toreduce risk. Institutional has invested in its businesses throughout the year, through the retention andrecruitment of high quality staff, and has restructured its business model to recognise the changing
requirements of our customer base. This has helped secure very high revenue growth of 12%. The
performances of Trade and Transaction Services, Markets, Corporate and Structured Finance, and New
Zealand were particularly strong.
* Adjusted for AIFRS 2005 adjustments and non-core items (including significant items, ANZ National Bank incremental integration costs and AIFRS markto market of certain hedge gains/losses)

2

HIGHLIGHTS (continued)

New Zealand Businesses (which excludes Institutional) were up 14% on the same period last year in
NZ dollar terms. On a full geographic basis New Zealand was up 16%. This was assisted by lower credit
provision charges and, adjusting for this, profit before provisions was up 3% and up 5% on the previous
half. The business is showing promising momentum, with robust credit growth and improved credit
quality. Interest margin decline moderated and we are starting to see cost synergies flow from
integration.
Corporate was up 16%, with improved credit quality offsetting the impact of increased competitive
intensity. Lending and deposit growth were both up 11%. Expenses grew 8% from a 5% growth in staff
numbers and the impact of annual salary increases, as we continued to invest in expanding our customer
proposition. We expect expense growth to moderate in the second half, and income growth to improve
as we generate returns from our earlier investment.
Asia Pacific was up 18%. Very strong growth in the Pacific and the network business in Asia were partly
offset by lower equity accounted earnings in Panin Bank. Costs associated with developing ourpartnership business contributed to overall costs increasing 23%. Our Asian cards business had a 47%
growth in earnings over the previous half. We advanced our strategic agenda in Asia, with the planned
acquisition of a 19.9% stake in Tianjin City Commercial Bank. Discussions on other expansion options
continued.
Esanda is receiving increased management attention and was the only division to have a disappointing
half. Earnings were down 20% on the same period last year due to lower margins, the impact of higher
petrol prices, higher credit losses from declining security values, and mark-to-market write-downs ofresidual asset values. UDC continues to be weak, although new management is focused on turning thisaround. Performance in the second half is expected to improve.

Looking forward
Commenting on the outlook for ANZ, Mr McFarlane said: “With a strong first half behind us and good
momentum going into the second half, we are increasingly confident about the year as a whole. 2006 is
expected to be a good year for ANZ.
“We are now seeing returns from the investment we made in recent years and this is likely to result inrevenue growth above the mid-point of our medium term 7-9% target range in 2006. Expense growth isunder control and likely to be towards the bottom end of our 5-7% target range for the year. While thecredit environment remains benign, we envisage a modest increase in credit costs in the second half froma very low base.
“Over the past nine years, shareholders have seen good financial returns, and we are continuing to invest
to underpin our future. Our agenda is to make ANZ a very different bank. This is now showing throughin our relationships with our customers, our people, the community and our shareholders,” Mr McFarlane
said.

For media enquiries, contact:

For analyst enquiries, contact:

Paul Edwards
Head of Corporate Communications
Tel: 03-9273 6955 or 0409-655 550
Email: paul.edwards@anz.com

Stephen Higgins
Head of Investor Relations
Tel: 03-9273 4185 or 0417-379 170
Email: higgins@anz.com

3This page has been left blank intentionally4FINANCIAL HIGHLIGHTSNet Profit
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Net interest income

3,368

2,953

2,865

14%

18%

Other operating income

1,595

1,861

1,717

-14%

-7%

Operating income

4,963

4,814

4,582

3%

8%

Operating expenses(2,185)(2,266)(2,152)-4%

2%

Profit before credit impairment and income tax

2,778

2,548

2,430

9%

14%

Provision for credit impairment

(224)

(296)

(284)

-24%

-21%

Profit before income tax

2,554

2,252

2,146

13%

19%

Income tax expense

(742)

(630)

(590)

18%

26%

Minority interest
Net profit attributable to shareholders of the Company

(1)

(2)

(1)

-50%

0%

1,811

1,620

1,555

12%

16%

Profit on a fully comparable AIFRS basis
Net profit attributable to shareholders of the company has been amended as follows to arrive at profit on a fully comparable
AIFRS basis.

Net profit attributable to shareholders of the Company

AIFRS adjustments to bring prior periods
1
onto a fully comparable basis
Profit on a fully comparable AIFRS basis

1

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Movt
Half
Movt
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%
$M

1,811

1,620

1,555

12%

16%

N/A
1,811

(46)
1,574

15
1,570

n/a
15%

n/a
15%

Cash profit
Profit on a fully comparable AIFRS basis has been adjusted to exclude the following non-core items to arrive at cash profit.
Throughout this document figures and ratios that are calculated on a ‘cash’ basis have been shaded to distinguish them fromfigures calculated on a statutory AIFRS basis.
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%
$M

1,811

1,574

1,570

15%

15%

-

14

-

n/a

n/a

Settlement of NBNZ warranty claims

14

-

-

n/a

n/a

Settlement of NHB insurance claim

79

-

-

n/a

n/a

Profit on a fully comparable AIFRS basis1

Non-core items
Significant items2
Gain on sale of NBNZ Life

Total significant items

2

93

14

-

large

n/a

Fair value hedge gains/losses3

13

12

19

8%

-32%

NBNZ incremental integration costs after tax2,4

(26)

(35)

(17)

-26%

53%

Total non-core items

80

(9)

2

large

large

1,731

1,583

1,568

9%

10%

Cash profit
1.

ANZ has reduced the September 2005 profit after tax by $46 million (Mar 2005: $15 million increase) to bring the result for that period to an AIFRS basis that isfully comparable with March 2006 figures (refer pages 13 to 15), allowing readers to see the impact on 2005 results of accounting standards that have only been
applied from 1 October 2005. No adjustment has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability

2.

In the March 2006 half ANZ has classified the $113 million ($79 million after tax) settlement of the National Housing Bank (NHB) insurance matter and the$14 million after tax settlement of warranty claims on Lloyds TSB plc (tax on warranty settlement: $nil) as significant items. In the September 2005 half ANZclassified $14 million after tax profit on the sale of NBNZ life and funds management businesses as a significant item (tax on gain on sale of NBNZ life and funds
management businesses: $nil). ANZ excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business (referpage 13)

3.

In the March 2006 half ANZ has classified $13 million after tax profit (Sep 2005: $12 million; Mar 2005 $19 million) on derivatives entered into to manage interest
rate and foreign exchange risk on funding instruments, not designated as accounting hedges, ineffective portions of cash flow hedges, profit or loss on disposal ofinvestment securities, and fair value movement in bonds and notes designated at fair valueas a non-core item. ANZ excludes volatility associated with fair value
movements on these transactions to provide a better indication of the core business performance (tax on hedge gains/losses $5 million (Sep 2005: $5 million; Mar
2005: $8 million))4.

In the March 2006 half ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (Sep 2005 half: $35 million; Mar 2005 half:$17 million). Tax on ANZ National Bank incremental integration costs is $13 million (Sep 2005: $18 million; Mar 2005: $8 million). ANZ National Bank
incremental integration costs are excluded to better reflect the core cost base and assist analysis of the cost base following completion of the integration (referpage 13)

5

FINANCIAL HIGHLIGHTS (continued)

Cash profit, cont’d
Analysis of Cash1 profit by key line item:

Net interest income

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Movt
Mar 06v. Sep 05%

Movt
Mar 06v. Mar 05
%

3,368

3,231

3,140

4%

7%

Other operating income

1,563

1,528

1,407

2%

11%

Operating income

4,931

4,759

4,547

4%

8%

Operating expenses(2,259)(2,213)(2,127)

2%

6%

Profit before credit impairment and income tax

2,672

2,546

2,420

5%

10%

Provision for credit impairment

(224)

(325)

(240)

-31%

-7%

Profit before income tax

2,448

2,221

2,180

10%

12%

Income tax expense

(716)

(636)

(611)

13%

17%

Minority interest

(1)

(2)

(1)

-50%

0%

1,731

1,583

1,568

9%

10%

Half
year
Mar 06

Halfyear
Sep 05

Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%

Basic

98.4

86.3

83.2

14%

18%

Diluted

96.1

84.3

80.6

14%

19%

Cash1 (basic adjusted for non-core items)

94.0

86.1

85.7

9%

10%

Cash1 profit

Earnings per share

Earnings per ordinary share (cents)

1.

ANZ has reduced the September 2005 profit after tax by $46 million (Mar 2005: $15 million increase) to bring the result for that period to an AIFRS basis that isfully comparable with March 2006 figures (refer pages 13 to 15), allowing readers to see the impact on 2005 results of accounting standards that have only been
applied from 1 October 2005. No adjustment has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In the March 2006 half ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million after tax settlementof warranty claims on Lloyds TSB plc (tax on warranty settlement: $nil) as significant items. In the September 2005 half ANZ classified $14 million after tax profit
on the sale of NBNZ life and funds management businesses as a significant item (tax on gain on sale of NBNZ life and funds management businesses: $nil). ANZ
excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 13)
In the March 2006 half ANZ has classified $13 million after tax profit (Sep 2005: $12 million; Mar 2005 $19 million) on derivatives entered into to manage interest
rate and foreign exchange risk on funding instruments, not designated as accounting hedges, ineffective portions of cash flow hedges, profit or loss on disposal ofinvestment securities, and fair value movement in bonds and notes designated at fair value as a non-core item. ANZ excludes volatility associated with fair value
movements on these transactions to provide a better indication of the core business performance (tax on hedge gains/losses $5 million (Sep 2005: $5 million; Mar
2005: $8 million))In the March 2006 half ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (Sep 2005 half: $35 million; Mar 2005 half:$17 million). Tax on ANZ National Bank incremental integration costs is $13 million (Sep 2005: $18 million; Mar 2005: $8 million). ANZ National Bank
incremental integration costs are excluded to better reflect the core cost base and assist analysis of the cost base following completion of the integration (referpage 13)

Balance SheetMovt
Mar 06v. Sep 05%

Movt
Mar 06v. Mar 05%

As at
Mar 06As at
Sep 05As at
Mar 05$M$M$M

13,87011,601

8,856

20%

57%

8,336

6,348

6,428

31%

30%
40%

AssetsLiquid assets
Due from other financial institutions
Trading and available for sale assets

22,00816,327

15,69435%

255,238

245,939

233,316

4%

9%

Other

19,911

17,88918,49011%

8%

Total assets

319,363

298,104

282,784

7%

13%

Net loans and advances including acceptances

Liabilities
Due to other financial institutions

13,345

12,027

10,05611%

33%

Deposits and other borrowings

196,850

190,322

185,177

3%

6%

Liability for acceptances

13,692

13,44912,922

2%

6%

Bonds and notes

46,92339,07332,321

20%

45%

Other

29,757

23,69523,38126%

27%

300,567

278,566

263,8578%

14%

18,796

19,53818,927-4%-1%

Total liabilities
Total shareholders' equity

6

FINANCIAL HIGHLIGHTS (continued)

Financial Ratios
Half
year
Mar 06$M
Net profit attributable to shareholders of the Company

Half
year
Sep 05
$M

Half
year
Mar 05
$M

1,811

1,620

1,555

Cash profit

1,731

1,583

1,568

EVA TM 2

1,013

991

920

20.9%

18.3%

18.3%

20.0%

19.0%

19.0%

1

Profitability ratios
Return on:
Average ordinary shareholders' equity3,4
3,4

Average ordinary shareholders' equity

1(cash earnings basis)

Average assets
4

Average risk weighted assets

Average risk weighted assets4 (cash1 earnings basis)

1.15%

1.10%

1.14%

1.60%

1.50%

1.54%

1.53%

1.47%

1.55%

14.5%

14.1%

15.0%

Net interest margin

2.29%

2.26%

2.36%

Net interest margin (cash1 earnings basis)

2.29%

2.36%

2.46%

Profit per average FTE ($)

58,20253,09753,161

Operating expenses to operating income

44.0%

47.1%

47.0%

Operating expenses to average assets

1.39%

1.54%

1.57%

Operating expenses to operating income (cash1 earnings basis)
Operating expenses to average assets (cash1 earnings basis)

45.8%

46.5%

46.8%

1.44%

1.50%

1.55%
133

Total income

4

Efficiency ratios

Credit impairment provisioning
Collective/general provision charge ($M)

36

90

Individual/specific provision charge ($M)

188

206

151

Total provision charge ($M)

224

296

284

Total provision charge (on fully comparable AIFRS basis)

224

325

240

Collective provision charge (fully comparable AIFRS basis)

36

119

89

Individual provision charge (fully comparable AIFRS basis)

188

206

151
51

Ordinary share dividends (cents)
Interim - 100% franked (Mar 05: 100% franked)

56

n/a

Final - 100% franked

N/A

59

n/a

Ordinary share dividend payout ratio5

56.9%

68.4%

61.3%

Cash1 ordinary share dividend payout ratio5

59.6%

68.6%

59.5%

Dividend paid ($M)

12

46

38

Dividend paid ($M)7 (on fully comparable AIFRS basis)

12

12

6

Preference share dividend
61.

Adjusted for AIFRS 2005 adjustments and non-core items. Refer footnote 1 page 6

2.

EVATM refers to Economic Value Added, a measure of shareholder value. See page 23 for a reconciliation of EVATM to reported net profit and a discussion of EVATM
and an explanation of its usefulness as a performance measure

3.

Average ordinary shareholders’ equity excludes minority interest

4.

Excludes preference share dividend

5.

Dividend payout ratio is calculated using the proposed interim dividend as at 31 March 2006 and the 30 September 2005 and 31 March 2005 dividends

6.

2005 includes distributions on ANZ StEPS (Sep 2005: $34 million; Mar 2005: $32 million). Under AIFRS, distributions on ANZ StEPS are reported as interest
expense in March 2006

7.

Represents dividends paid on Euro Hybrid

7

FINANCIAL HIGHLIGHTS (continued)

Financial Ratios, cont’d
As at
Mar 06As at
Sep 05As at
Mar 05Movt
Mar 06v. Sep 05%

Movt
Mar 06v. Mar05%

Net Assets
Net tangible assets1 per ordinary share ($)

8.00

7.77

7.38

3%

8%

Net tangible assets1 attributable to ordinary shareholders ($M)

14,622

14,19913,4433%

9%

Total number of ordinary shares (M)1,828.7

1,826.4

1,822.7

0%

0%

6.8%

6.9%

7.0%

-12%

-9%

1%

8%

13%

Capital adequacy ratio (%)
Tier 1
Tier 2

4.0%

3.9%

3.6%

Total capital ratio
Adjusted common equity ratio2

10.4%

10.5%

10.3%

5.0%

5.1%

5.1%

1,903

2,167

2,080

Collective/general provision as a % of risk weighted assets

0.83%

0.99%

0.99%

Collective/general provision3 on fully comparable AIFRS basis ($M)

1,903

1,879

1,768

Collective/general provision3 on fully comparable AIFRS basis
as a % of risk weighted assets

Impaired assets
Collective/general provision ($M)

0.83%

0.86%

0.84%

Gross impaired loans ($M)

726

642

640

13%

Individual provisions on impaired loans4 ($M)

(305)

(256)

(314)

19%

-3%

Net impaired loans

421

386

326

9%

29%

42.0%

39.9%

49.1%

0%

4%

Individual provision3 as a % of total impaired loans
Gross impaired loans as % of net advances

0.28%

0.26%

0.27%

Net impaired loans as a % of net advances
Net impaired loans as a % of shareholders' equity5

0.16%

0.16%

0.14%

2.2%

2.0%

1.7%

31,06330,976

29,832Other information
Full time equivalent staff (FTEs)
Assets per FTE ($M)
Market capitalisation of ordinary shares ($M)

10.3

9.6

9.5

7%

8%

48,461

43,83437,584

11%

29%

1.

Equals Shareholders’ equity less preference share capital, minority interest and unamortised intangibles

2.

Adjusted common equity is calculated as Tier 1 capital less preference shares at current rates and deductions from total capital. This measure is commonly used
to assess the adequacy of common equity held. See page 30 for a reconciliation to Tier 1 capital

3.

Refer footnote 1 page 6

4.

Excludes individual provision on unproductive facilities

5.

Includes minority interest

8

FINANCIAL HIGHLIGHTS (continued)

Net profit by business unit
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Net profit after income tax
Personal Banking Australia

542

485

468

12%

Institutional

486

461

450

5%

16%
8%

New Zealand Businesses

335

265

295

26%

14%

Corporate Australia

212

194

182

9%

16%

Esanda and UDC

53

55

66

-4%

-20%

Asia Pacific

46

44

39

5%

18%

Non-continuing businesses

30

63

63

-52%

-52%

Group Centre

27

16

5

69%

large

1,731

1,583

1,568

9%

10%

80

37

(13)

large

large

1,811

1,620

1,555

12%

16%

As at
Mar 06$M

As at
Sep 05$M

Personal Banking Australia

112,212

105,681

As at
Movt
Movt
Mar 05
Mar 06
Mar 06$M v. Sep 05 v. Mar 05%%
99,681
6%
13%

Institutional

46,344

43,404

40,168

7%55,441

55,15252,094

1%

6%

Corporate Australia

23,941

22,79321,6555%

11%

Esanda and UDC

14,365

14,186

13,7491%

4%

Asia Pacific

2,069

1,777

1,615

16%

28%

Non-continuing businesses

822

1,584

3,091

-48%

-73%

Group Centre

44

35

428

26%

-90%

255,238

244,612232,481

4%

10%

N/A

1,327

835

n/a

n/a

255,238

245,939

233,3164%

9%

1

Cash profit
1

AIFRS 2005 adjustments and non-core items

1

Net profit
1.

Refer footnote 1 page 6

Net loans and advances including acceptances by business unit

New Zealand Businesses

1

AIFRS 2005 adjustments

2

Net loans and advances including acceptances
1.

New Zealand businesses growth rates in NZD terms were 7% and 14% on September 2005 and March 2005 respectively

2.

Refer pages 13 to 15 for explanation of AIFRS 2005 adjustments

15%

Deposits and other borrowings by business unit
As at
Mar 06$M

As at
Sep 05$M

As at
Mar 05
$M

Movt
Movt
Mar 06
Mar 06v. Sep 05 v. Mar 05
%
%
6%
11%

Personal Banking Australia

46,261

43,77341,750Institutional

36,20532,40331,886

12%

New Zealand Businesses1

42,12746,07846,470-9%-9%Corporate Australia

18,98718,091

17,0705%11%Esanda and UDC

13,40912,907

12,167

4%

10%
14%

14%

Asia Pacific

6,032

5,602

5,305

8%

Other

33,82931,36729,802

8%

14%

-

36

647

-100%

-100%

196,850

190,256

185,097

3%

6%

N/A

65

81

n/a

n/a

196,850

190,322

185,1773%

6%

Non-continuing businesses
AIFRS 2005 adjustments2
Deposits and other borrowings
1.

New Zealand businesses growth rates in NZD terms were -3% and -3% on September 2005 and March 2005 respectively

2.

Refer pages 13 to 15 for explanation of AIFRS 2005 adjustments

9This page has been left blank intentionally10

CHIEF FINANCIAL OFFICER’S REVIEWMarch 2006 half year compared to September 2005 half year
ANZ recorded a profit after tax of $1,811 million for the half year ended 31 March 2006, an increase of 12% over the
September 2005 half year. After adjusting for AIFRS 2005 adjustments1 and non-core items1 referred to on pages 13 to 15,
cash1 profit increased 9% to $1,731 million. Earnings per share increased 14.0% to 98.4 cents over the September 2005
half. After adjusting AIFRS 2005 adjustments and non-core items1 Cash EPS increased 9.2% to 94.0 cents.

Net profit attributable to shareholders of the Company
AIFRS 2005 Adjustments

1

Profit on a fully comparable AIFRS basis
Less: Non-core items

1

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%

1,811

1,620

1,555

12%

16%

N/A

(46)

15

n/a

n/a

1,811

1,574

1,570

15%

15%

(80)

9

(2)

large

large

1,731

1,583

1,568

9%

10%

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Movt
Mar 06v. Sep 05%

Movt
Mar 06v. Mar 05%

Net interest income

3,368

3,231

3,140

4%

7%

Other operating income

1,563

1,528

1,407

2%

11%
8%

1

Cash profit

Cash1 profit

Operating income

4,931

4,759

4,547

4%

Operating expenses(2,259)(2,213)(2,127)

2%

6%

Profit before credit impairment and income tax

2,672

2,546

2,420

5%

10%

Provision for credit impairment

(224)

(325)

(240)

-31%

-7%

Profit before income tax

2,448

2,221

2,180

10%

12%

Income tax expense

(716)

(636)

(611)

13%

17%

(1)

(2)

(1)

-50%

0%

1,731

1,583

1,568

9%

10%

Minority interest
Cash1 profit

Profit growth

Cash profit increased 9% to $1,731 million. Core1 revenue increased 4% with volume growth partly offset by reduced
margins (-7 basis points). Operating expense growth was contained to 2%.
Cash profit in Australia increased 6% over the September 2005 half year with strong growth in Personal (12%) andCorporate (9%). Profit in Esanda reduced 9%.
Cash profit in New Zealand increased 31% (32% in NZD terms) with higher lending volumes, a strong performance in theMarkets business in Institutional, lower provisions in Corporate Banking and increased earnings on additional equity capital.
These increases were partly offset by reduced earnings in UDC and lower earnings in non-continuing businesses from certain
structured finance transactions which have been exited. Profit in Asia Pacific increased 7%, driven by volume growth in Fiji,PNG and the Indonesian cards business being partly offset by lower earnings from PT Panin Bank.
Profit in the UK and US decreased driven by reduced profit in non-continuing businesses with the sale of the London
headquartered project finance business in 2005 and repatriation of capital.
1.

ANZ has reduced the September 2005 profit after tax by $46 million (Mar 2005: $15 million increase) to bring the result for that period to an AIFRS basis that isfully comparable with March 2006 figures (refer page 13), allowing readers to see the impact on 2005 results of accounting standards that have only been applied
from 1 October 2005. No adjustment has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In the March 2006 half ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million after tax settlementof warranty claims on Lloyds TSB plc (tax on warranty settlement: $nil) as significant items. In the September 2005 half ANZ classified $14 million after tax profit
on the sale of NBNZ life and funds management businesses as a significant item (tax on gain on sale of NBNZ life and funds management businesses: $nil). ANZ
excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 13)
In the March 2006 half ANZ has classified $13 million after tax profit (Sep 2005: $12 million; Mar 2005 $19 million) on economic hedges as a non-core item. ANZ
excludes volatility associated with fair value movements on these transactions to provide a better indication of the core business performance (tax on hedge
gains/losses $5 million (Sep 2005: $5 million; Mar 2005: $8 million))In the March 2006 half ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (Sep 2005 half: $35 million; Mar 2005 half:$17 million). Tax on ANZ National Bank incremental integration costs is $13 million (Sep 2005: $18 million; Mar 2005: $8 million). ANZ National Bank
incremental integration costs are excluded to better reflect the core cost base and assist analysis of the cost base following completion of the integration (referpage 13)11

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

March 2006 half year compared to September 2005 half year, cont’dProfit drivers

Profit after tax increased 12% over the September 2005 half year. Cash1 profit increased 9% over the September 2005 half.
For a discussion of the impact of non-core items and AIFRS 2005 adjustments refer pages 13 to 15.
Significant influences on profit are shown below. Explanations are on cash profit adjusted for AIFRS 2005 adjustments andnon-core items:
Net interest !14% - Adjusted for AIFRS 2005 adjustments and non-core items1 !4%:
Net interest income was driven by growth of 6% in interest earning assets, particularly in Institutional (13%), Personal (6%) largelyin Mortgages, New Zealand businesses (5%) and Asia Pacific (29%), and deposit growth in Personal (4%), Corporate (5%) and Asia
Pacific (9%). Volume growth was partly offset by a 7 basis point decline in margin.

Other income #14% - Adjusted for AIFRS 2005 adjustments and non-core items1 !2%:Other income growth was driven by volume-related growth in fees and higher profit on trading securities with a strong March half
result in New Zealand. These increases were partly offset by reduced foreign exchange income, lower equity accounted income in
PT Panin and reduced income in Esanda largely from a reduction in residual values of leased vehicles. Other income is seasonally
weaker in the September half.

Operating expenses #4% - Adjusted for AIFRS 2005 adjustments and non-core items1 !2%:
Operating expenses increased slightly reflecting a 2% increase in average staff numbers, largely in Personal and Institutional, offset
by reduced costs in the Group Centre.

Provision for credit impairment #24% - Adjusted for AIFRS 2005 adjustments and non-core items1 #31%:
The reduction in Provision for credit impairment reflected the Group’s strengthening risk profile. Individual provisions reduced$18 million with a lower number of large single name losses and low levels of default in New Zealand. This was partly offset by the
September 2005 half including several large write-backs and recoveries. Collective provisions reduced $83 million, with a lower
provision for oil price shock risk.

Income tax !18% - Adjusted for AIFRS 2005 adjustments and non-core items1 !13%:
The increase in tax expense is driven by growth in profit before tax and a 0.6% increase in the effective tax rate following the runoff of certain structured financing transactions and higher earnings in higher tax rate jurisdictions.

Exchange rates !1%
The depreciation of the AUD has resulted in a $5 million increase in the contribution from earnings denominated in foreign
currencies, principally New Zealand (net of profit on contracts put in place to hedge USD and NZD revenues). Whilst the average
NZD exchange rate moved by only 1%, the closing rate had depreciated by 6% with a corresponding impact on the balance sheet.
1

Refer footnote 1 on page 11

March 2006 half year compared to March 2005 half year
The Group recorded a profit after tax of $1,811 million for the half year ended 31 March 2006, an increase of 16% over the
March 2005 half. Cash profit increased 10% over the March 2005 half.
Basic earnings per share increased 18% (15.2 cents) to 98.4 cents. Cash earnings per share (refer page 22) increased 10%(8.3 cents) to 94.0 cents.
Revenue increased 8%. After adjusting for AIFRS 2005 adjustments and non-core items, net interest increased 7% with a
14% increase in average interest earning asset volumes partly offset by a 17 basis point reduction in margin. Other
operating income increased 11% with a strong performance in Institutional. Operating costs increased 6% driven by
investment in staff principally in 2005.
After adjusting for AIFRS 2005 adjustments and non-core items, cash profit in Australia increased 9%, driven by 16% growthin Personal and 16% growth in Corporate. Cash profit in New Zealand increased 16% in NZD terms including 8% as a resultof a lower credit impairment charge. Profit increased by 14% in New Zealand Businesses, 8% in Institutional and higher
earnings on capital offset reduced profit in UDC and non-continuing businesses. Cash profit in the Asia Pacific geographies
increased 26% with volume related growth and lower credit impairment provisioning. Other geographies reduced 10%
reflecting the sale of the London headquartered project finance business in 2005.

12

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Non-core items
ANZ has adjusted the income statement for non-core items, as outlined below, to assist readers in understanding the corebusiness performance by removing the volatility in reported results created by one-off significant items, ANZ National Bank
incremental integration costs which will not be incurred going forward, the timing differences in the recognition of fair value
gains in profit on hedging contracts and the move to the Australian equivalents of International Financial Reporting Standards(AIFRS) which has resulted in different recognition criteria in the March 2006 half than used in the 2005 financial year.
Non-core items in the profit and loss

Half
year
Mar 06
$M

Half
year
Sep 05
$M

-

14

-

Settlement of NBNZ warranty claims

14

-

-

n/a

n/a

Settlement of NHB insurance claim

79

-

-

n/a

n/a

Total significant items

93

14

-

large

n/a
-32%

Significant items
Gain on sale of NBNZ Life

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%
-100%

n/a

Fair value hedge gains/losses

13

12

19

8%

NBNZ incremental integration costs after tax

(26)

(35)

(17)

-26%

53%

Non-core items

80

(9)

2

large

large

"

Significant items

Significant items in the profit and loss are those items that management believe do not form part of the core business by
virtue of their magnitude and infrequent nature and, as such, should be removed from profit when analysing the corebusiness performance. The following are considered significant items:- Settlement of the NHB insurance claim (March 2006 half year)
During the March 2006 half ANZ settled its $130 million claim with a number of reinsurers over the 1992 and 2002
National Housing Bank (NHB) matter. ANZ has reported the $113 million ($79 million after tax) cost recovery as asignificant item in 2006. $1 million was received in 2005 and not treated as significant as it was immaterial.
- Settlement of ANZ National Bank warranty claims (March 2006 half year)
As part of the purchase of the National Bank of New Zealand on 1 December 2003, Lloyds TSB provided ANZ withcertain warranties. A claim was made under these warranties in relation to the accounting treatment in the Completion
Accounts of the provision for retirement gratuities. As a result of the mediation of this claim, ANZ National Bank
received in the March 2006 half $14 million pre-tax revenue ($14 million after tax) on final settlement of the claim.
- Sale of NBNZ Life and Funds Management (September 2005 half year)
On 30 September 2005 ANZ National Bank sold NBNZ Life and Funds Management businesses into a joint venture with
ING. Profit after tax on sale of $14 million was recognised.
"

ANZ National Bank incremental integration costs

Expenditure on the integration of ANZ National Bank includes both the reallocation of existing resources to integration andincremental integration costs. Incremental costs are those costs that will not recur once integration is complete and thus
do not form part of the core ongoing cost base. During the March 2006 half year $26 million after tax (Sep 2005 half:$35 million; Mar 2005: $17 million) or $39 million before tax (Sep 2005 half: $53 million; Mar 2005 half: $25 million) ofincremental integration costs were incurred. This program is now complete.
"

Fair Value hedging gains

As at 1 October 2005, the Group has designated certain fair value hedges and financial liabilities as fair value throughprofit and loss. Any hedge ineffectiveness will result in volatility through the Income Statement. ANZ has separately
reported the impact of volatility due to hedge ineffectiveness as a non-core item as the profit reported on hedgetransactions will reverse over time and as such is not part of the core operating performance. During the March 2006 halfyear $13 million (Sep 2005: $12 million; Mar 2005: $19 million) after tax or $18 million (Sep 2005: $17 million; Mar
2005: $27 million) before tax profit has been reported as a non-core item.

AIFRS 2005 adjustments
The Group implemented accounting policies in accordance with AIFRS on 1 October 2004, except for those relating tofinancial instruments and insurance contracts, which were implemented on 1 October 2005. The 2005 comparatives forthese standards have not been restated in the statutory accounts. To assist readers understand the core businessperformance on a comparable basis, ANZ has adjusted the 2005 figures to be comparable with the March 2006 half year
result within the Chief Financial Officer’s and Business Performance Reviews. The major adjustments are to the provision for
credit impairment and recognition of fees as effective yield adjustments to net interest. No adjustment has been made to
retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability and as there is no impact
on cash. Ineffectiveness on these hedges was trivial on the March 2006 half year.
13

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Summary of major AIFRS impacts
The following table reconciles fully comparable AIFRS values with equivalents calculated under previous AGAAP.

Net interest income (previous AGAAP)
Fees recognised as an adjustment to yield
Reclassified hybrid financial instruments

12

Securitisation and SPVs

Movt
Mar 06v. Sep
05
%
4%

Movt
Mar 06v. Mar
05
%
8%

Half
year
Mar 06

Halfyear
Sep 05Halfyear
Mar 05

$M
3,069

$M
2,945

$M
2,853

318

313

309

2%

3%

(33)

(34)

(32)

-3%

3%

16

9

12

78%

33%

(2)

(2)

(2)

0%
4%

0%
7%
10%

Amortisation of StEPS issue costs
Net interest income (fully comparable AIFRS basis)

3,368

3,231

3,140

Other operating income (previous AGAAP)

1,872

1,848

1,704

1%

(300)

(326)

(309)

-8%

-3%

18

17

27

6%

-33%

Notional goodwill amortisation in joint ventures and associates 4

22

22

23

0%

-4%

Securitisation and SPVs

(11)

(8)

(11)

38%

0%

Accounting for INGA
Other operating income (fully comparable AIFRS basis)

(6)
1,595

6
1,559

1,434

large
2%

n/a
11%

Operating income (previous AGAAP)

4,941

4,793

4,557

3%

8%

Total AIFRS income adjustments
Operating income (fully comparable AIFRS basis)

22
4,963

(3)
4,790

17
4,574

large
4%

29%
9%

Operating expenses (previous AGAAP)
Goodwill amortisation 5(2,233)(2,315)(2,200)

-4%

2%

90

92

87

-2%

3%

(38)

(41)

(39)

-7%

-3%

Other
Operating expenses (fully comparable AIFRS basis)(4)(2,185)(2)(2,266)(2,152)

100%
-4%

n/a
2%

Profit before credit impairment and income tax (previous AGAAP)
Total AIFRS adjustments (net total of identified above)

2,708
70

2,478
46

2,357
65

9%
52%

15%
8%

Profit before credit impairment and income tax(fully comparable AIFRS basis)

2,778

2,524

2,422

10%

15%

Provision for credit impairment (previous AGAAP)

(334)

(296)

(284)

13%

18%

110

(29)

44

large

large

Provision for credit impairment (fully comparable AIFRS basis)

(224)

(325)

(240)

-31%

-7%

Profit before income tax (previous AGAAP)

2,374

2,182

2,073

9%

15%

Total AIFRS profit before income tax adjustments
Profit before income tax (fully comparable AIFRS basis)

180
2,554

17
2,199

109
2,182

large
16%

65%
17%

Income tax expense and minority interest (previous AGAAP)Tax on AIFRS adjustments

(709)
(34)

(639)
14

(598)
(14)

11%
large

19%
large

Income tax expense and minority interest(fully comparable AIFRS basis)

(743)

(625)

(612)

19%

21%

Net profit (previous AGAAP)AIFRS net profit adjustments

1,665
146

1,543
31

1,475
95

8%
large

13%
54%

Net profit (fully comparable AIFRS basis)

1,811

1,574

1,570

15%

15%

Fees recognised as an adjustment to yield 1
Derivatives and hedging

3

Share based payments expense6

Movement in credit impairment provisioning

1.

7

Reclassification of fees and commissions against interest income and measured on the effective yield basis

2.

Reclassification of interest expense on reclassification of ANZ StEPS from equity to debt

3.

Measuring derivatives on a fair value basis and the reclassification of interest expense on non-hedged derivatives to other income

4.

Reversal of notional goodwill amortisation reflected in the take-up of equity accounted earnings of associates and joint ventures

5.

Reversal of goodwill amortisation, goodwill now subject to impairment testing

6.

Share based payments expense recognised for the period covering all share based remuneration, including deferred shares and options

7.

Restatement of credit loss provisions from an expected economic loss basis to an incurred basis

14

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Summary of major AIFRS impacts, cont’d
The following table reconciles comparative AIFRS (statutory) numbers with equivalent figures on a fully comparable AIFRS
basis, including the impact of AASB 139.
Half
year
Mar 06

Halfyear
Sep 05Halfyear
Mar 05

$M

$M

$M

3,368

2,953

2,865

Fees recognised as an adjustment to yield1

-

313

309

Reclassified hybrid financial instruments2

-

(34)

(32)

Other

-

(1)

(2)

Net interest income (fully comparable AIFRS basis)

3,368

3,231

3,140

Other operating income (statutory basis)

1,595

1,861

1,717

Fees recognised as an adjustment to yield1

-

(326)

(309)

Derivatives and hedging3

-

17

27

Other

-

7

(1)

Other operating income (fully comparable AIFRS basis)

1,595

1,559

1,434

Operating income (statutory basis)

4,963

4,814

4,582

-

(24)

(8)

Operating income (fully comparable AIFRS basis)

4,963

4,790

4,574

Operating expenses (statutory basis)(2,185)(2,266)(2,152)---

Operating expenses (fully comparable AIFRS basis)(2,185)(2,266)(2,152)

Profit before credit impairment and income tax (statutory basis)

2,778

2,548

2,430

-

(24)

(8)

Profit before credit impairment and income tax (fully comparable AIFRS basis)

2,778

2,524

2,422

Provision for credit impairment (statutory basis)

(224)

(296)

(284)

-

(29)

44

Provision for credit impairment (fully comparable AIFRS basis)

(224)

(325)

(240)

Profit before income tax (statutory basis)

2,554

2,252

2,146

-

(53)

36

Profit before income tax (fully comparable AIFRS basis)

2,554

2,199

2,182

Income tax expense and minority interest (statutory basis)

(743)

(632)

(591)

-

7

(21)

Income tax expense and minority interest (fully comparable AIFRS basis)

(743)

(625)

(612)

Net profit (statutory basis)

1,811

1,620

1,555

-

(46)

15

1,811

1,574

1,570

Net interest income (statutory basis)

Total AIFRS income adjustments

Other

Total AIFRS adjustments (net total of identified above)

Movement in credit impairment provisioning4

Total AIFRS profit before income tax adjustments

Tax on AIFRS adjustments

AIFRS net profit adjustments
Net profit (fully comparable AIFRS basis)
1.

Reclassification of fees and commissions against interest income and measured on the effective yield basis

2.

Reclassification of interest expense on reclassification of ANZ StEPS from equity to debt

3.

Measuring derivatives on a fair value basis and the reclassification of interest expense on non-hedged derivatives to other income

4.

Restatement of credit loss provisions for an ELP basis under previous AGAAP

15CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses
Net Interest
Half
year
Mar 06$M
Net interest income ($M)

Half
year
Sep 05
$M

Half
year
Mar 05$M

Movt
Mar 06v. Sep05%

Movt
Mar 06v. Mar
05
%

3,368

2,953

2,865

14%

18%

294,364

261,414244,906

13%

20%

2.29

2.26

2.36

1%

-3%

3,368

3,231

3,140

4%

7%

Average interest earning assets ($M) (adjusted for AIFRS 2005 adjustments ) 294,364

274,309257,606

7%

14%

2.36

2.46

-3%

-7%

Average interest earning assets ($M)
Net interest margin (%)
1

Net interest income (adjusted for AIFRS 2005 adjustments )2

1

1

Net interest margin (adjusted for AIFRS 2005 adjustments )

2.29

1.

Refer footnote 1 on page 11

2.

AIFRS 2005 adjustments include the reclassification of customers liability for acceptance from non-interest earning to interest earning (Sep 2005: $13.3 billion;
Mar 2005: $13.1 billion) to be consistent with the classification of commercial bill fees as interest. Average balance sheets adjusted for AIFRS 2005 adjustments
are included as Supplementary Information on pages 118 to 121"

March 2006 half year compared to September 2005 half year

Net interest income at $3,368 million was 14% ($415 million) higher than the September 2005 half. After adjusting fornon-core items and AIFRS 2005 adjustments, core net interest was 4% ($137 million) higher than the September 2005
half.
VolumeAverage interest earning assets increased 13%. After adjusting for AIFRS 2005 adjustments, interest earning assets
increased 7%:- Average net advances grew by $12.6 billion (5%). Growth in net advances in Australia was attributable to Personal
Banking Australia ($5.8 billion or 6% with $4.7 billion in Mortgages or 5%) and Corporate Australia ($1.4 billion or6%). New Zealand’s average net advances increased by $3.1 billion (5%) with exchange rate impacts (-$0.3 billion).
Average net advances grew by $0.6 billion (7%) in Overseas Markets.
- Other interest earning assets increased $7.6 billion (23%), driven by higher levels of liquid assets, trading securities,
available-for-sale assets and interbank lending.
Average deposits and other borrowings grew $11.0 billion (6%) with growth in Treasury ($2.3 billion or 13%) to fundasset growth, Personal Banking Australia ($2.2 billion or 5%) and Corporate Australia ($1.3 billion or 7%). Averagedeposits and other borrowings increased in New Zealand ($0.8 billion or 1%) with exchange rate impacts ($0.3 billion).
Average deposits and other borrowings grew ($4.5 billion or 23%) in Overseas Markets, with exchange rate impacts$0.4 billion.
MarginNet interest average margin increased by 3 basis points, however, core net interest margin adjusted for AIFRS 2005
adjustments reduced 7 basis points from the September 2005 half year:- AIFRS 2005 adjustments (+10 basis points)
Changes predominantly reflect the inclusion of certain fees as net interest income, partially offset by interest expenseon Hybrid securities, reported as debt instruments under AIFRS and inclusion of acceptances in average interest
earning assets.
- Funding mix (-4 basis points)
Changes in the funding mix reduced the net interest margin due to substitution of wholesale funding for customer
deposits (2 basis points) and a decrease in net non-interest bearing items (2 basis points).
- Asset mix (-2 basis point)
Movements in the composition of assets in the portfolio negatively impacted the net interest margin by 2 basis points,
reflecting an increase in the proportion of lower yielding non-lending liquid assets in Group Treasury and Institutional.
- Competition (-4 basis points)
Competitive pressures were most marked in Australian Mortgages (1 basis point), Corporate Australia and Institutional(1 basis point), plus migration of customers to lower yielding credit cards and New Zealand fixed rate mortgages(1 basis point) and high yielding deposits (1 basis point).
- Wholesale rates (+2 basis points)
Wholesale rate movements benefited margins from lower basis risk in variable rate mortgages and credit cards plus
increased earnings on the investment of capital and rate insensitive deposits (2 basis points), with minimal changes inTreasury mismatch earnings.

16

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Net Interest, cont’d"March 2006 half year compared to September 2005 half year, cont’d- Other items (+1 basis point) include:"▪

a reduction in retail broker payments and higher earnings from foreign exchange revenue hedging (+1 basis point)▪

release of a provision relating to prior year income in Institutional (+2 basis points)▪

reduced effective yield fee income decreased margins (-1 basis point)▪

other impacts including decreases from change in interest not recognised on impaired loans, discontinued
businesses and cash flow impacts on derivatives (-1 basis point)

March 2006 half year compared to March 2005 half year

Net interest increased $503 million (18%) over the March 2005 half, or $228 million (7%) after adjusting for AIFRS 2005
adjustments.
VolumeAverage interest earning assets increased 20%. After adjusting for AIFRS 2005 adjustments, interest earning assets
increased 14%:- Average net advances grew by $25.3 billion (11%). Growth in net advances in Australia was attributable to Personal
Banking Australia ($12.0 billion or 12% with Mortgages contributing $9.8 billion or 12%), Institutional ($3.3 billion or11%) and Corporate Australia ($2.2 billion or 10%). New Zealand’s average net advances increased by $6.6 billion(11%) with exchange rate impacts (-$0.5 billion). Average net advances increased by $0.1 billion (1%) in Overseas
Markets.
- Other interest earning assets increased $11.6 billion (40%), driven by higher levels of liquid assets, trading securities,
available-for-sale assets and interbank lending.
Average deposits and other borrowings increased $17.3 billion (10%) from growth in Personal Banking Australia($3.5 billion or 9%), Institutional ($1.9 billion or 10%) and Corporate Australia ($1.9 billion or 11%). Average deposits
and other borrowings increased in New Zealand ($1.3 billion or 3%) with exchange rate impacts (-$0.4 billion). Averagedeposits and other borrowings grew ($5.3 billion or 28%) in Overseas Markets with exchange rate impacts $0.3 billion.
MarginNet interest average margin reduced by 7 basis points whilst core net interest margin adjusted for AIFRS 2005
adjustments reduced 17 basis points from the March 2005 half:- AIFRS 2005 adjustments (+10 basis points)
Changes predominantly reflect the inclusion of certain fees as net interest income, partially offset by interest expenseon Hybrid securities, reported as debt instruments under AIFRS and inclusion of acceptances in average interest
earning assets.
- Funding mix (-7 basis points)
Higher proportions of more expensive wholesale and customer liabilities (-4 basis points) within the portfolio and fallinglevels of net non-interest bearing interest items (-3 basis points).
- Asset mix (-4 basis points)
Lower proportions of higher yielding assets in Asset Finance and Corporate and Structured Financing reduced margin
by 2 basis points and an increase in the proportion of lower yielding non-lending liquid assets in Group Treasury andInstitutional (2 basis points)- Competition (-10 basis points)
Competitive pressures reduced margins, with this impact arising mainly in Mortgages (Australian mortgages 2 basis
points, New Zealand mortgages 1 basis points) and Institutional lending with slight margin reductions in Corporate
Banking, Business Banking and Rural portfolios. In addition customer migration to lower yielding credit cards and New
Zealand fixed rate mortgages reduced the net interest margin (-2 basis points), together with migration into highyielding customer deposits (-2 basis points).
- Wholesale rates (+3 basis points)
Increased income on the investment of capital and rate insensitive deposits (+2 basis points) and less basis risk invariable rate mortgages and credit cards (+1 basis point).
- Other items (+1 basis point) include:▪

Funding costs associated with unrealised trading gains increased as a result of movements in the AUD. Thisdecrease in interest income is reflected in the net interest margin, however it is directly offset by an equivalent
increase in trading income (-3 basis points)▪

Release of revenue relating to prior year income in Institutional (+2 basis points)▪

Benefit from mix impacts on discontinued businesses (+2 basis points)
17

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Movt
Mar 06v. Sep 05%

Movt
Mar 06v. Mar 05%

Other operating income
Total fee income

1,029

1,027

953

0%

8%

Foreign exchange earnings

227

233

221

-3%

3%

Profit on trading instruments

144

93

39

55%

large

Other
Core other operating income
AIFRS 2005 adjustments

1

Fair value hedging gains

163

176

194

-7%

-16%

1,563

1,529

1,407

2%

11%

N/A

301

283

n/a

n/a

18

17

27

6%

-33%

1

14

14

-

0%

n/a

Total other income

1,595

1,861

1,717

-14%

-7%

Significant items

1.

Refer footnote 1 on page 11"

March 2006 half year compared to September 2005 half year

Other operating income decreased $266 million (14%). After adjusting for AIFRS 2005 adjustments and non-core items,
core other operating income increased $34 million (2%) (refer pages 13 to 15 for details). The following explanations are
based on core other operating income:- Fee income increased $2 million.
▪

Lending fee income increased $7 million (3%):- Personal Banking Australia increased $5 million (7%) with a seasonal increase and higher volumes in Banking
Products ($3 million or 8%) with a higher number of transaction accounts and Mortgages increasing $2 million(12%) driven by lending growth.
- New Zealand increased $5 million (15%).
- Institutional decreased $4 million (6%) with a $7 million reduction in Corporate and Structured Financing due tolarge deals in the Structured Debt portfolio closing in the second half of 2005 offset by a $4 million increase in
Trade and Transaction Services as a result of an improved performance in Trade Finance.

▪

Non-lending fee income decreased $5 million (1%):- Institutional decreased $18 million with Corporate and Structured Financing decreasing $16 million related to a
reduction in advisory and syndication fees and coming off a particularly strong September 2005 half.
- Personal Banking Australia increased $12 million (4%) with a $7 million (12%) increase in Investment Insurance
Products primarily due to increased volume in commissions from INGA as a result of strong market conditions andfunds under management growth, and Banking Products increasing $2 million (4%) related to the continuing
strong growth in the transaction banking account base.

- Foreign exchange earnings decreased $6 million (3%) entirely in Institutional where lower foreign exchange swap andspot earnings were offset by increased profit on trading instruments ($24 million, see below). In New Zealand, there
was an increase of $28 million in foreign exchange earnings driven by greater currency volatility in the first half of2006.
- Profit on trading instruments increased $51 million with Institutional increasing $35 million driven by strong growth in
New Zealand associated with increased activity and positioning to take advantage of interest rate and currency
volatility as well as the profit offsetting the foreign exchange loss referred to above. In addition the six months to
September 2005 included the $16 million cost from the hedge of capital investment earnings in INGA which ceased in
October 2005.
- Other operating income decreased $13 million (7%):▪

Esanda and UDC decreased $17 million due to a $6 million impact from the fall in second-hand car prices and theinclusion of a $7 million gain in the September 2005 half year resulting from the alignment of revenue recognitionon leases in the New Zealand Fleet business with Group accounting policies.

▪

Group Centre decreased $14 million mainly due to the timing of recognition of gains in ANZ’s share of INGA capital
investment earnings with the move to available-for-sale classification (high level of realisation of gains in the
September 2005 half).

▪

Non-continuing businesses increased $18 million as a result of a $12 million gain from settlement of the salewarranties relating to the sale of the London headquartered project finance business and a $4 million gain on sale ofpower assets.

- Movements in average exchange rates over the September 2005 half year were immaterial.
18

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income, cont’d"March 2006 half year compared to March 2005 half year

Other operating income decreased $122 million (7%). Core other operating income increased $156 million (11%) after
excluding AIFRS 2005 adjustments and non-core items (refer pages 13 to 15 for details). The following explanations
exclude AIFRS 2005 adjustments and non-core items:- Fee income increased $76 million (8%).
▪

Lending fee income increased $18 million (9%). Institutional increased $16 million of which $9 million in Corporate
and Structured Financing was largely in project financing fees and $6 million was driven by Trade and Transaction
Services reflecting an improvement in performance in Trade Finance.

▪

Non-lending fee income increased $58 million (8%):- Personal Banking Australia increased $41 million (13%), of which $17 million in Consumer Finance was driven by
volume growth and cross sell initiatives. Investment & Insurance Products increased $12 million due to anincrease in income generated by financial planners. Banking Products increased $7 million driven by increased
account and transaction numbers.
- New Zealand increased $8 million (4%) driven by card fees and interchange fees from credit card purchases.
- Asia Pacific increased $5 million (21%) primarily due to increased card fees in Indonesia.
- Corporate Australia increased $5 million (13%), which included an increase in advisory fees and ANZ Online fee
income.

- Foreign exchange earnings increased $6 million (3%). Trade and Transaction Services increased as a result ofcontinued growth particularly from international payments revenue. There was also growth in Markets in New Zealanddriven by positioning for currency volatility in the first half of 2006 and a $10 million increase in the Pacific mainly due
to growth in PNG assisted by major mining deals. This was offset by a reduction in Australia where reduced foreignexchange earnings on swap and spot positions were offset in profit on trading instruments.
- Profit on trading instruments increased $105 million:▪

Markets grew by $89 million due primarily to strong growth in New Zealand ($22 million) associated with increased
activity and positioning to take advantage of interest rate and currency volatility and a $28 million increase due torevenue growth underpinned by increased frontline staff and initiatives following the restructure in the first half of2005. Increased profit on swap and spot foreign exchange contracts ($24 million) offset the foreign exchange
reduction referred to above. Total income in Markets increased $58 million.

▪

Group Centre also increased with the March 2005 half including a $16 million cost as a result of the hedge of capital
investment earnings in INGA. Hedging of capital investment earnings ceased in October 2005.

- Other operating income decreased $31 million (16%):▪

Group Centre decreased $18 million due mainly to lower share of INGA capital investment earnings following thecapital repatriation in 2005 and the timing of profit recognition on the available-for-sale accounting basis.

▪

Esanda and UDC decreased $13 million due largely to the impact of a fall in second-hand car prices.

▪

Institutional reduced $10 million with the March 2005 half including a $10 million gain on sale of Sydney Futures
Exchange shares.

▪

Asia Pacific decreased $7 million due to reduced equity accounted earnings from PT Panin Bank as the first half of2006 has seen increased pressure on margins from interest rates, increased costs relating to the branch expansion
project and reduced bond income.

▪

Non-continuing Businesses increased $11 million due to the gain from the settlement of warranties relating to thesale of the London headquartered project finance business as well as the gain on sale of power assets. This wasoffset by the $4 million profit on sale of the London based headquartered project finance business in the first half of
2005.

▪

Personal Banking Australia increased $6 million with Mortgages increasing $4 million as a result of increased
insurance premiums driven by higher sales of LMI loans.

- Movements in average exchange rates over the March 2005 half year were immaterial

19

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses

Halfyear
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%
$M

1,341

1,286

1,207

Operating expenses
Personnel expenses

4%

11%

Premises expenses

205

197

193

4%

6%

Computer expenses

258

281

260

-8%

-1%

Other expenses

433

427

440

1%

-2%

Restructuring costs

22

22

27

0%

-19%

2,259

2,213

2,127

2%

6%

39

53

25

-26%

56%

Core operating expenses
NBNZ incremental integration costs1

(113)

-

-

n/a

n/a

Total operating expenses

Significant items - settlement of NHB insurance claim

2,185

2,266

2,152

-4%

2%

Total employees

31,06330,976

29,8320%

4%

1.

These costs are personnel costs of $22 million (Sep 2005 half: $23 million; Mar 2005 half: $13 million), computer costs of $6 million (Sep 2005 half: $15 million;
Mar 2005 half: $2 million), and other costs of $11 million (Sep 2005 half: $15 million; Mar 2005 half: $10 million).

"

March 2006 half year compared to September 2005 half year

Operating expenses decreased $81 million (4%) over the September 2005 half year due largely to the $113 million pretax settlement of the NHB insurance claim. After adjusting for non-core items, core operating expenses increased$46 million (2%) (refer page 13 for details of non-core items). The following explanations exclude non-core items:- Personnel expenses increased $55 million (4%) as a result of annual salary increases and growth in staff numbers;
especially in the September 2005 half.
- Premises costs increased $8 million (4%) driven largely by rental expense reflecting additional space requirements.
- Computer costs decreased $23 million (8%). The reduction was mainly in Operations, Technology and Shared Services
due to an $11 million reduction in computer contractors resulting from the completion of business systems integrationin New Zealand, a $7 million reduction in depreciation principally as a result of asset write-downs in the second half of2005 and assets fully depreciating. Lower software licence costs also contributed to the reduction ($3 million).
- Other expenses increased $6 million with non-lending losses increasing $14 million in Institutional and New Zealand(the latter including a NZD10 million Commerce Commission settlement impact and NZD5 million cost of operating
relocated domestic systems as part of integration) offset by a $6 million reduction in indirect taxes in Esanda.
- Movements in average exchange rates over the September 2005 half year were immaterial.

20

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses, cont’d"March 2006 half year compared to March 2005 half year

Operating expenses increased $33 million (2%) or $132 million (6%) adjusting for non-core items including the$113 million pre-tax settlement of the NHB insurance claim and ANZ National Bank incremental integration costs (referpage 13 for details). The following explanations exclude non-core items:- Personnel costs were up $134 million (11%) due to annual salary increases and a 4% increase in staff numbers mainlyin the following business units:▪

Personal Banking Australia increased 6%. Retail Banking increased 5% due to frontline increases primarily as aresult of new branch staffing and network initiatives. Consumer Finance increased by 5% following the introductionof the 24 hour call centre in April 2005, increased sales staffing and the introduction of the white-labellingcapability.

▪

Institutional increased 8% mainly due to a 15% increase in Trade and Transaction Services reflecting businessexpansion particularly in the Trade Finance and Custodian Services businesses.

▪

Asia Pacific increased 10% related mainly to the formation of the ANZ Royal Bank joint venture in Cambodia and thebroader partnership agenda as well as business growth and the launch of initiatives in the Pacific mainly in Amerika
Samoa, Solomon Islands and PNG.

- Premises costs increased $12 million (6%) with a $7 million increase in rental expense reflecting additional spacerequirements and a $4 million rise in the cost of security services.
- Computer costs decreased $2 million (1%). A $4 million decrease due to timing of software purchases was offset by a
$5 million increase in computer repairs.
- Other expenses were $7 million (2%) lower. This was due to a reduced charge for non-lending losses ($4 million) as
the first half of 2005 included a $15 million charge for cheque conversion losses. This was offset by a NZD10 million
increase in New Zealand in the first half of 2006 as a result of the Commerce Commission settlement. In addition,
there was a $4 million reduction in professional fees due to a decrease in AIFRS and Sarbanes Oxley project costs anda $6 million decline in indirect taxes in Esanda. These were offset by increased travel costs of $11 million.
- Movements in exchange rates reduced cost growth by $5 million.
Income Tax Expense

Half
year
Mar 06$M
Income tax expense on profit
Effective tax rate
1

Income tax expense on cash profit
1
Effective tax rate (cash profit )1.

Refer footnote 1 on page 11"

March 2006 half year compared to September 2005 half year

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%

742

630

590

29.1%

28.0%

27.5%

716

636

611

29.2%

28.6%

28.0%

18%

26%

13%

17%

The Group’s income tax expense increased by $112 million to $742 million resulting in an effective tax rate of 29.1%, anincrease of 1.1% from the September 2005 half year. The March 2006 half year included the settlement of an ANZ
National Bank warranty claim, which was non-taxable, and the September 2005 half year included the non-taxability ofprofit on sale of NBNZ Life and Funds Management businesses.
Adjusted for AIFRS 2005 adjustment and non-core items, income tax expense increased by $80 million resulting in an
effective tax rate of 29.2% an increase of 0.6% from the September 2005 half year. This increase reflects the run-off ofcertain New Zealand and Australian structured financing transactions and proportionately higher earnings in higher tax
rate jurisdictions, predominately New Zealand.
"

March 2006 half year compared to March 2005 half year

The Group’s effective tax rate for the March 2006 half year increased 1.6% from the March 2005 half year.
Adjusted for AIFRS 2005 adjustment and non-core items, the effective tax rate increased 1.2% from the March 2005 halfyear. This increase reflects the run-off of certain New Zealand and Australia structured financing transactions, lower
equity accounted earnings from INGA and PT Panin Bank and proportionately higher earnings in higher tax rate
jurisdictions, predominantly New Zealand. The March 2005 half year included the non-taxable profit on sale of Sydney
Futures Exchange shares.

21

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Earnings per share
Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%

Half
year
Mar 06

Halfyear
Sep 05

Basic

98.4

86.3

83.2

14%

18%

Diluted

96.1

84.3

80.6

14%

19%

1,811.0

1,620.0

1,555.0

12%

16%
large

1

Earnings per share (cents)

Cash earnings per share
Net profit attributable to shareholders of the Company ($M)
2

Less: non-core items included in profit after tax ($M)
2

AIFRS 2005 Adjustments ($M)
Cash Profit ($M)
3

Preference share adjustments ($M)
Earnings adjusted for non-core items and
AIFRS 2005 adjustments ($M)
Weighted average number of ordinary shares (M)Cash earnings per share (cents)
1.

Refer Note 6 for full calculation

2.

Refer page 11

3.

The EPS calculation excludes the Euro preference shares

(80)

9

(2)

large

N/A

(46)

15

n/a

n/a

1,731

1,583

1,568

9%

10%

(12)

(12)

(6)

0%

100%

1,719

1,571

1,562

9%

10%

1,828.4

1,824.7

1,822.7

0%

0%

94.0

86.1

85.7

9%

10%

Earnings per share increased 14.0% (12.1 cents) to 98.4 cents on the September 2005 half. Cash EPS for the Group
increased 9.2% or 7.9 cents on the September 2005 half. The main drivers of the increase in cash EPS on the September
2005 half are:"Growth in continuing business profit before provisions contributed 5.4%"

Reduction in the continuing businesses provision charge contributed 6.5%"

Partly offset by headwinds, including non-continuing businesses (2.5%) and the dilution by the issuance of shares (-0.2%)

Earnings per share increased 18.3% (15.2 cents) on the March 2005 half. Cash EPS for the Group increased 9.7% or
8.3 cents on the March 2005 half. The main drivers of the increase in cash EPS on the March 2005 half are:"Growth in continuing business profit before provisions contributed 10.3%"

Reduction in the continuing businesses provision charge contributed 2.3%"

Partly offset by headwinds, including non-continuing businesses (2.6%) and the dilution by the issuance of shares (0.3%)

22

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Dividends
Halfyear
Mar 06

Halfyear
Sep 05

Movt
Half
Movt
Mar 06year
Mar 06
Mar 05 v. Sep 05 v. Mar 05%%

Dividend per ordinary share (cents)
Interim (fully franked)

56

n/a

51

n/a

10%

n/a

59

n/a

n/a

n/a

Ordinary share dividend payout ratio (%)

56.9%

68.4%

61.3%

Net profit after tax ($M)

1,811

1,620

1,555

12%

16%

(80)

(37)

13

large

large

1,731

1,583

1,568

9%

10%

59.6%

68.6%

59.5%

-13%

0%

Final (fully franked)

1

Non-core items and AIFRS 2005 adjustments ($M)
1Cash profit ($M)
1

Dividend payout ratio of cash profit (%)
1.

Refer footnote 1 on page 11

The Directors propose that an interim dividend of 56 cents be paid on each ordinary share, up 5 cents (9.8%) on the 2005
interim dividend broadly in line with the growth in Cash EPS (adjusted for non-core items and AIFRS 2005 adjustments). The
proposed interim dividend will be fully franked.
The Group has a dividend reinvestment plan and a bonus option plan. Participation in these plans is limited to 50,000 sharesin each plan. Election notices for these plans must be received by 5.00 pm (AEST) on the record date, namely, 19 May 2006.
It is proposed that the interim dividend will be payable on 3 July 2006. Dividends payable to shareholders with a registeredaddress in Great Britain (including the Channel Islands and the Isle of Man) and New Zealand will be converted to their local
currency at ANZ’s daily forward exchange rate at the close of business on the record date for value on the payment date.
The Group expects current timing differences will generate future franking credits and therefore the Group expects it will beable to maintain full franking for the foreseeable future.
EVA Reconciliation
One measure of shareholder value is EVATM (Economic Value Added) growth relative to prior periods. EVATM for the half year
ended 31 March 2006 at $1,013 million was up $22 million on the half year ended 30 September 2005, and up $93 million on
the March 2005 half.

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%

1,811

1,620

1,555

12%

16%

(80)

(37)

13

large

large

1,731

1,583

1,568

9%

10%

(74)

22

(26)

large

large

1,657

1,605

1,542

3%

7%

TM

EVA

Net profit after tax
1

AIFRS 2005 adjustments and non-core items
Cash Profit
Credit cost adjustment
Economic profit
Imputation credits

313

308

286

2%

9%

Adjusted economic profit

1,970

1,913

1,828

3%

8%

Cost of ordinary capital

(945)

(910)

(902)

4%

5%

Cost of preference share capital

(12)

(12)

(6)

0%

100%

1,013

991

920

2%

10%

TM

EVA
1.

Refer footnote 1 on page 11

EVATM is a measure of risk adjusted accounting profit used for evaluating business unit performance and is a key factor in
determining the variable component of remuneration packages. It is based on operating profit after tax, adjusted for noncore items, credit costs, the cost of capital, and imputation credits (measured at 70% of Australian tax). Of these, the major
component is the cost of capital, which is calculated on the risk adjusted or economic capital at a rate of 11%. At the Grouplevel, total capital is used so the cost of capital reflects the full resources provided by shareholders. The credit costadjustment replaces the credit provision charge with economic loss provision after tax at the rate applicable in the relevant
geography.
At ANZ, economic capital is equity allocated according to a business unit’s inherent risk profile. It is allocated for several risk
categories including: credit risk, operating risk, interest rate risk, basis risk, mismatch risk, investment risk, trading risk
deferred acquisition costs risk and other risk. The methodology used to allocate capital to business units for risk is designed
to help drive appropriate risk management and business strategies.
23

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit Risk
Individual provision charge

The individual provision charge was $188 million, down $18 million over the September 2005 half. This reduction resultsfrom lower single name provisions, especially in New Zealand as well as Esanda and UDC, partially offset by two larger single
name provisions in Institutional. This was a strong result given the September 2005 half benefited from large write-backs in
non-continuing businesses, due to sales and realisations of non-performing ‘Power’ assets.
Half
year
Mar 06$M

Individual provision charge

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Personal Banking Australia

86

87

60

-1%

43%

Institutional

38

11

12

large

large

New Zealand Businesses

6

65

26

-91%

-77%
-13%

Corporate Australia

20

18

23

11%

Esanda and UDC

35

48

24

-27%

46%

Asia Pacific

6

7

17

-14%

-65%

Non-continuing businesses

(3)

(30)

(11)

-90%

-73%
25%

Individual provision charge
AIFRS 2005 adjustments

1

Individual/specific provision charge

188

206

151

-9%

N/A

-

-

n/a

n/a

188

206

151

-9%

25%

Collective (general) provision charge

Collective (general) provision charges were $36 million, down $54 million over the September 2005 half or $83 million on acomparable basis after AIFRS 2005 adjustments. The reduction over the half was largely driven by improved risk profiles in
Institutional, Corporate and New Zealand, a benign credit environment, as well as a partial unwind across all business units
of non-customer specific provisions held for oil price risk. Partially offsetting this was some increase for growth and thestrategic risk mix change in Personal Banking Australia towards lower rate cards and declining secondhand car prices in
Esanda. The increase in the September 2005 half was driven by growth and a $68 million top up for non-customer specificoil price risk, partially offset by a modest improvement in the Group’s overall profile.
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Collective (general) provision charge
Personal Banking Australia

31

46

43

-33%

Institutional

(5)

19

9

large

-28%
large

New Zealand Businesses

(3)

24

26

large

large

Corporate Australia

2

28

22

-93%

-91%

Esanda and UDC

14

19

18

-26%

-22%
-50%

Asia Pacific

2

6

4

-67%

Non-continuing businesses

(5)

(23)

(33)

-78%

-85%

Collective provision charge

36

119

89

-70%

-60%

AIFRS 2005 adjustments

N/A

(29)

44

n/a

n/a

Collective (general) provision charge

36

90

133

-60%

-73%

1

1.

Refer footnote 1 on page 11

Collective (general) provision balance

The collective provision balance at 31 March 2006 was $1,903 million (0.83% of risk weighted assets), a decrease of$264 million from the general provision balance of $2,167 million (0.99% of risk weighted assets) at 30 September 2005.
This represents a surplus of $237 million over the APRA minimum guideline. The reduction in balance results from the firsttime adoption of AIFRS on 1 October 2005.

24

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit Risk, cont’d

Half
year
Mar 06
$M

Half
year
Sep 05$M

Personal Banking Australia

117

133

103

Institutional

33

30

21

10%

57%

New Zealand Businesses

3

89

52

-97%

-94%
-51%

Provision for credit impairment charge

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%
-12%

14%

Corporate Australia

22

46

45

-52%

Esanda and UDC

49

67

42

-27%

17%

Asia Pacific

8

13

21

-38%

-62%
-82%

Non-continuing businesses
Core provision for credit impairment charge
AIFRS 2005 adjustments

1

Provision for credit impairment charge
1.

(8)

(53)

(44)

-85%

224

325

240

-31%

-7%

-

(29)

44

-100%

-100%

224

296

284

-24%

-21%

Refer footnote 1 page 11

Economic loss provisions (ELP)

With effect from 1 October 2005 the Group has adopted an incurred loss approach to credit loss provisioning as required by
AASB 139: ‘Financial Instruments: Recognition and Measurement’. Prior to that date the Group had adopted an economic
loss provisioning (ELP) methodology that recognised an expense for credit losses based on the expected long term loss ratio
for each part of the loan portfolio.
Management believe that disclosure of ELP data will assist readers in determining the longer term expected loss rates on thelending portfolio as ELP removes the volatility in reported earnings created by the use of an incurred loss methodology. ANZ
will continue to use the ELP methodology internally for economic value added (EVA) reporting and as another factor when
determining the dividend payout ratio.
The Group economic loss provision charge (ELP) was $334 million, an increase of $38 million (13%) over the half year to
September 2005. This increase was driven by growth and the strategically planned ‘risk mix’ shift in Consumer Finance andslightly higher expected losses in Esanda due to a decrease in the realisable value of motor vehicles in default.
% ofGroup Net
Advances

Halfyear
Mar 06

Halfyear
Sep 05Halfyear
Mar 05

Personal Banking Australia

44%

0.22%

0.21%

0.19%

Institutional

18%

0.32%

0.30%

0.31%

New Zealand Businesses

22%

0.17%

0.17%

0.18%

Corporate Australia

9%

0.32%

0.32%

0.32%

Esanda and UDC

6%

0.49%

0.44%

0.45%

Asia Pacific

1%

1.58%

1.38%

1.40%

Non-continuing businesses

0%

0.46%

0.18%

0.26%

100%

0.26%

0.25%

0.26%

334

296

284

ELP rates by segment

1

Total
ELP charge ($million)
1.

ELP rate = Annualised economic loss provisioning divided by average net lending assets

25

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit Risk, cont’dGross impaired loans

Gross impaired loans increased to $726 million, up $84 million from $642 million as at 30 September 2005. This increase
was largely driven by two new accounts in Institutional and a small increase in Mortgages. Offsetting this were strong
realisations and a falling exchange rate in New Zealand, plus strong realisations in non-continuing businesses.
The default rate (new impaired loans/average gross lending assets) has increased 1 basis point since September 2005 half.
This increase was also largely the result of higher new impaired loans in Institutional, offset by lower new impaired loans in
New Zealand.
As at
Mar 06As at
Sep 05

$M

$M

Movt
Movt
Mar 06
Mar 06v. Sep 05 v. Mar 05
%
%
$M

As at
Mar 05Gross impaired loans
Personal Banking Australia

57

48

37

19%

54%

Institutional

352

189

215

86%

64%

New Zealand Businesses

116

162

81

-28%

43%

Corporate Australia

90

85

120

6%

-25%

Esanda and UDC

82

79

78

4%

5%

Asia Pacific

21

35

36

-40%

-42%

Non-continuing businesses
Total gross impaired loans

8

44

73

-82%

-89%

726

642

640

13%

13%

Net impaired loans

Net impaired loans are $421 million (Sep 2005: $386 million; Mar 2005: $326 million) representing 2.2% of shareholders’equity as at 31 March 2006 (Sep 2005: 2.0%; Mar 2005: 1.7%). The Group has an individual provision coverage ratio of
42%.

As at
Mar 06As at
Sep 05

$M

$M

As at
Mar 05Movt
Movt
Mar 06
Mar 06v. Sep 05 v. Mar 05$M%%

Net impaired loans
Personal Banking Australia

24

19

15

26%

60%

Institutional

249

123

114

large

large

New Zealand Businesses

64

101

35

-37%

83%
-44%

Corporate Australia

30

38

54

-21%

Esanda and UDC

39

40

43

-3%

-9%

Asia Pacific

8

21

14

-62%

-43%

Non-continuing businesses

7

45

52

-84%

-87%

AIFRS 2005 adjustments

-

(1)

(1)

-100%

-100%

Total net impaired loans

421

386

326

9%

29%

Individual provision coverage

42%

40%

49%

26

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Market Risk
Below are aggregate Value at Risk (VaR) exposures at 97.5% and 99% confidence levels covering both physical andderivatives trading positions for the Bank’s principal trading centres. Figures are converted from USD at closing exchange
rates.

97.5% confidence level 1 day holding period

As at
Mar 06$M

High for
periodMar 06$M

Low forperiodMar 06$M

Ave forperiodMar 06$M

As at
Sep 05High for
period
Sep 051$M

Foreign exchange

1.1

1.9

0.4

0.9

0.8

1.7

0.3

1.0

Interest rate

1.3

2.3

0.5

1.2

1.2

1.8

0.2

0.9

$M

Low forperiod
Sep 051$M

Ave forperiod
Sep 051$M

Value at risk at 97.5% confidence

Credit Spread

1.6

1.7

0.8

1.2

0.8

1.5

0.6

1.0

(2.3)
1.7

n/a
3.2

n/a
0.9

(1.5)
1.8

(1.2)
1.6

n/a
2.7

n/a
0.8

(1.2)
1.7

Low forperiodMar 06$M

Ave forperiodMar 06$M

As at
Sep 05$M

High for
periodMar 06$M

High for
period
Sep 051$M

Low forperiod
Sep 051$M

Ave forperiod
Sep 051$M

Foreign exchange

1.3

2.2

0.3

1.1

0.9

2.1

0.3

1.1

Interest rate

1.7

2.6

0.5

1.4

1.7

2.7

0.2

1.3

Diversification benefit
Total VaR

99% confidence level 1 day holding period

As at
Mar 06$M

Value at risk at 99% confidence

Credit Spread
Diversification benefit
Total VaR
1.

2.9

3.1

1.4

2.3

1.4

2.4

1.0

1.6

(3.5)
2.4

n/a
4.0

n/a
1.2

(2.3)
2.5

(1.8)
2.2

n/a
3.5

n/a
1.0

(1.7)
2.3

Numbers are based on half year period

The table below shows all outstanding revenue hedges, interest income earned and fair value of these hedges.
Revenue related cash flow hedges
31 M arch 2006
N otional
A m ount U nrealised
P rincip al
taken toG ains/(Losses)A m ount
Incom e$M
$M
$M
U SD R evenue H edges
NZD R evenue H edges

1

Total

2

30 Septem b er 2005
N otional
A m ount
U nrealised
P rincip al
taken toG ains/(Losses)A m ount
Incom e
$M
$M
$M

-

-

-

-

8

-

3,776

(3)

204

3,957

(16)

41

3,776

(3)

204

3,957

(8)

41

1.

Notional principal amount for March 2006 is $3,131 million purchased and $645 million sold contracts from partial close out of hedge. The net open position is$2,486 million. Revenue hedges are treated as cash flow hedges

2.

Numbers are based on half year period

The Group uses a variety of derivative instruments to hedge against the adverse impact on future offshore revenue streams
from exchange rate movements. As at 31 March 2006 ANZ had net $2.5 billion (Sep 2005: $4.0 billion; Mar 2005:$3.9 billion) hedge contracts in place.
Movements in average exchange rates resulted in an increase of $5 million in the Group’s profit after tax (net of profit andloss on revenue hedges). Earnings from revenue hedges increased by $5 million (before tax) from the September half.
Hedge revenue is booked in the Group Centre as interest income.

27

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance Sheet
Total assets increased by $21.3 billion (7%) since 30 September 2005 to $319.4 billion. Exchange rate movements
accounted for a net reduction of $3.6 billion consisting of a reduction of $4.7 billion in New Zealand partly offset by a
$1.2 billion increase in Overseas Markets. Excluding the impact of exchange rate movements, total assets increased$17.3 billion (9%) in Australia, $8.3 billion (11%) in New Zealand, $1.2 billion (12%) in Asia Pacific and $0.2 billion (2%) inother geographies.
The explanations in the table below describe movements in the major asset classes.
Liquid assets !20% (Excl Exchange Rates !19%)
Liquid assets increased by $2.3 billion to $13.9 billion at 31 March 2006.
Australia increased $1.1 billion mainly in Group Treasury. New Zealand increased $0.7 billion, despite the weakening NZD, withincreased liquidity held by Treasury. Overseas Markets increased $0.5 billion due to a weakening AUD (+$0.3 billion) and increased
liquid assets in China and the Treasury operations in New York.
Due from other financial institutions !31% (Excl Exchange Rates !31%)
Due from other financial institutions increased by $2.0 billion to $8.3 billion at 31 March 2006 due largely to increase in volume ofinterbank lending, bank overdrafts, securities borrowing volumes in Institutional Australia and interbank lending in the Treasury
operations in Singapore, New Zealand and the United States.
Derivatives !101% (Excl Exchange Rates !104%)
Derivative assets increased $3.8 billion to $7.5 billion at 31 March 2006 driven principally by increased volatility in exchange rates,
notably the significant depreciation in the AUD and NZD during March 2006 and increased trading activity. Derivative liabilities
increased 45%, also driven by exchange rates.
Trading securities !39% (Excl Exchange Rates !40%)
Trading securities volumes increased $2.4 billion to $8.7 billion at 31 March 2006 due largely to more active trading in Institutionalin Australia ($1.8 billion) and New Zealand ($0.5 billion).
Available-for-sale assets !32% (Excl Exchange Rates !31%, excl Exchange Rates and AIFRS 2005 Adjustment !18%)
Available-for-sale assets include assets previously classified as investment securities and loans and advances and other assets thatare available-for-sale. These assets are measured at fair value. Available-for-sale asset volumes increased $3.2 billion to$13.3 billion at 31 March 2006 due to the reclassification of $1.1 billion assets from net loans and advances and other assets on
1 October 2005 on adoption of AIFRS and an increase in available-for-sale loans in Institutional Australia. Increased liquidity
holdings in overseas markets have offset reduced levels of available-for-sale securities in New Zealand where a greater proportion of
the liquidity portfolio were reported as trading securities.
Net loans and advances !4% (Excl Exchange Rates !5%)Net loans and advances increased $9.1 billion since September 2005 to $241.5 billion. Excluding the impact of exchange rate
movements (-$3.2 billion) and the impact of adopting AIFRS (-$1.3 billion resulting from changes in credit provisioning and thereclassification to available-for-sale), the increase was $13.6 billion (6%).
Growth in Australia was 5% ($8.6 billion). After adjusting 2005 to a fully comparable AIFRS basis growth was $9.5 billion (6%)
largely the result of increases in the following businesses:-

Personal Banking Australia (6% or $6.5 billion), predominantly in Mortgages ($5.4 billion) as a result of growth in housing loans.
Consumer Finance increased $0.6 billion, reflecting the success of the low rate MasterCard product, and Regional Commercialand Agribusiness Products grew $0.3 billion.

-

Institutional Australia (6% or $1.5 billion) largely in Corporate and Structured Financing ($0.9 billion) due to increased project
finance and structured debt activity. Debt Products Group increased $0.3 billion driven by increased demand for funding ofmergers and acquisition activity, and volumes in Trade and Transaction Services increased $0.2 billion as a result of growth inoverdrafts.

-

Corporate Australia (5% or $1.1 billion) largely in Business Banking ($0.6 billion) driven by continued investment in frontline
staff and process simplification, the industry specialisation approach to customers and a competitive customer service
proposition, and Corporate banking ($0.5 billion).

-

Esanda (3% or $0.4 billion) with solid new business writings partly offset by the natural run-off of assets.

New Zealand reduced by $0.2 billion; however, after excluding the impact of exchange rates and impact of adopting AIFRS, growth
was $3.7 billion, or 6%, with increases in National Bank Retail ($1.1 billion), ANZ Retail ($1.0 billion), Rural Banking ($0.6 billion),
Institutional ($0.2 billion) and Corporate Banking ($0.9 billion) partly offset by a $0.3 billion reduction in non-continuing businesses.
Overseas Markets grew by $0.6 billion (7%). After excluding the impact of exchange rate movements and the impact of adopting
AIFRS on 1 October 2005 growth was $0.4 billion (5%) in Asia Pacific ($0.2 billion) and the north west Institutional operations($0.2 billion).
Customer’s liability for acceptance !2% (Excl Exchange Rates !2%)
Customer’s liability for acceptance increased by $0.2 billion to $13.7 billion at 31 March 2006 with growth in Institutional Australia($0.1 billion) and Asia ($0.1 billion).
All other assets #12% (Excl Exchange Rates #10%)
Other assets reduced $1.7 billion due mainly to lower trade dated asset volumes in Institutional.

28

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance Sheet, cont’d
Total liabilities increased by $22.0 billion (8%) from 30 September 2005. Exchange rate movements accounted for a net
reduction of $2.6 billion consisting of a $4.1 billion reduction in New Zealand offset by a $1.5 billion reduction in Overseas
Markets.
The explanations in the table below describe movements in the major liability classes.
Due to other financial institutions !11% (Excl Exchange Rates !10%)
Due to other financial institutions increased $1.3 billion to $13.3 billion at 31 March 2006.
Volumes in Australia increased $1.9 billion principally in the Markets business in Institutional with increased interbank repo activity.
Excluding exchange rate movements New Zealand reduced $0.6 billion largely in Structured Finance.
Deposits and other borrowings !3% (Excl Exchange Rates !5%)
Deposits and other borrowings increased $6.5 billion to $196.9 billion at 31 March 2006. Exchange rate movements reduced
deposits and other borrowings by $2.1 billion with a $3.3 billion reduction in New Zealand partly offset by a $1.2 billion reduction inOverseas Markets. Excluding exchange rate movements:
Australia increased $2.7 billion (2%) largely as a result of increases in the following businesses:-

Treasury funding reduced $1.9 billion with a reduced requirement for short-term domestic funding with increased term debt
issuance and higher offshore commercial paper funding.

-

Personal Banking Australia increased $2.6 billion mainly due to growth in high yielding term deposit and cash management
account products.

-

Institutional increased $0.5 billion with increased funding in Markets, Corporate and Structured Financing and Debt Productgroup, partly offset by a slight reduction in corporate deposits in Trade and Transaction Services.

-

Corporate Australia increased $0.9 billion, with strong growth across all segments.

-

Esanda increased $0.6 billion to fund asset growth.

New Zealand increased $1.5 billion (3%), largely in Institutional ($2.7 billion), National Bank retail ($0.6 billion) ANZ Retail($0.4 billion) and Corporate Banking ($0.6 billion) partly offset in Treasury (-$2.8 billion) with increased term funding allowing a
reduction in shorter term commercial paper and certificate of deposit funding.
Overseas Markets increased by $4.9 billion largely due to increased commercial paper issuance by ANZ Delaware ($3.4 billion) andthe requirement to fund balance sheet growth.
Payables and other liabilities !27% (Excl Exchange Rates !30%)
Payables and other liabilities increased $2.1 billion (27%) to $9.7 billion at 31 March 2006 with an increase in securities lending
volumes in Institutional.
Derivatives !45% (Excl Exchange Rates !49%)
Derivative liabilities increased $1.9 billion to $6.1 billion at 31 March 2006. The increase is driven by increased volatility in exchange
rates, principally the significant movement in the NZD during March and increased trading activities. The movement is consistent
with the movement in Derivative assets
Bonds and Notes !20% (Excl Exchange Rates !14%)
Bonds and notes increased $7.9 billion to $46.9 billion at 31 March 2006. Excluding exchange rate movements, bonds and notes
increased by $5.5 billion in response to increased term funding requirements.
Loan Capital !22% (Excl Exchange Rates !18%)
Loan capital increased $2.0 billion to $11.1 billion at 31 March 2006 in response to term funding requirements and thereclassification of ANZ StEPS from equity to debt on adoption of AIFRS on 1 October 2005.

29

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital Management
As at
Mar 06As at
Sep 05As at
Mar 05Tier 1

6.8%

6.9%

7.0%

Tier 2

4.0%

3.9%

3.6%

Deductions(0.4%)(0.3%)(0.3%)

Total

10.4%

10.5%

10.3%

ACE

5.0%

5.1%

5.1%

230,653

219,573

209,524

RWA $m

ACE Ratio

The ACE ratio at 5.0% remains at the upper end of the Group’s targeted capital range. During the period, ACE ratio declined
9 basis points principally due to:"net profit excluding preference share dividends of $1.8 billion (+82 basis points);"

ordinary share dividend commitments of $1.0 billion (-47 basis points);"

buy-back of ordinary equity of $146 million (-7 basis points) being offset by share issues of $179 million (+8 basis points)
through the Bonus Option Plan, Dividend Reinvestment Plan, option conversions and issues to staff;"

increase in risk weighted assets, excluding the impact of exchange rate movements (-30 basis points);"

increase in investment/profit retention in funds management businesses and associates (-12 basis points); and"exchange rate movements and opening AIFRS adjustments had an immaterial impact.

Hybrid Capital and Tier 1 Capital

The Group raises hybrid capital to supplement the Group’s ACE capital to further strengthen the Group’s capital base andensure compliance with APRA’s prudential capital requirements, principally its Tier 1 capital requirements.
At 31 March 2006 the Group had three Hybrid Capital instruments on issue:

Hybrid Capital details

Amount (in issue currency)

ANZ StEPS

US Stapled Trust Security

Euro Hybrid$1,000 million

USD1,100 million€500 million

Accounting classification

Debt

Debt

EquityRegulatory (APRA) classification

Tier 1

Tier 1

Tier 1March 2006 balance$1,000 million$1,536 million$871 million

Interest rate

BBSW +1.00%

Tranche 1 Coupon: 4.48%
Tranche 2 Coupon: 5.36%

Euribor +0.66%

On adoption of AIFRS on 1 October 2005 the ANZ StEPS issue was reclassified from equity to debt, however, it continues to
be classified as Tier 1 capital for regulatory purposes.

Buy-Back of Ordinary Equity

The Group commenced an on-market buy-back of $350 million of ordinary equity on 10 January 2005. The buy-back wascompleted 14 March 2006 with the Group repurchasing 15.7 million shares at an average cost of $22.26 per share. Shares
repurchased for the current half-year was 6.1 million shares at an average cost of $24.02 per share, totalling $146 million.

Prudential Issues – APRA’s proposals on AIFRS changes and Tier 1 hybrid capital

APRA has recently released several announcements concerning the development of the prudential capital standards that will
be adopted on 1 July 2006 post the adoption of AIFRS. The final format and content of these standards are still subject toon-going discussions between APRA and the financial industry.

30

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital Management, cont’d
AIFRS and capital deductions

In November 2005, APRA issued draft prudential standards and guidance notes outlining the proposed prudential capitaltreatment of various adjustments arising from the adoption of AIFRS. This statement was supplemented in March 2006 with
the issue of a statement dealing with Capitalised Software Costs. Based upon these statements and discussions to date with
APRA, the issues that most affect ANZ are:"

APRA introduced transition rules requiring ADIs to report their prudential capital ratios up until 1 July 2006 based upon
AGAAP existing at 30 September 2005, unless otherwise agreed with APRA. ANZ has agreed alternative arrangementswith APRA and is reporting capital ratios based upon its financial statements subject to reversing the impact ofrecognising deferred pension liabilities, deferred fee revenue and cash flow hedge accounting of derivatives. At 1 October2005 the impact on ACE capital of the various AIFRS adjustments, net of the transitional rules, was a reduction of$48 million.

"

Effective 1 July 2006:- The transitional rules agreed with APRA will cease and a deduction for the pension liability ($91 million as at 31 March
2006) will be required to be taken; and- Capitalised Software Costs are classified as an intangible asset under AIFRS and APRA has indicated that they be taken
as a Tier 1 deduction. At 31 March 2006 ANZ had $384 million of capitalised software costs (before tax).

"

APRA introduced further transitional rules in their April 2006 statement on Tier 1 Capital and Securitisation, where ADIs
will calculate the impact of AIFRS on their capital base at 1 July 2006, and this amount, the ‘IFRS transitional
adjustment’, will be added back to an ADIs capital base between 1 July 2006 and 1 January 2008. The ‘IFRS transitional
adjustment’ will effectively defer any adverse impact from adopting AIFRS accounting until introduction of BASEL II. ANZ
is in discussion with APRA on this issue; based upon the items outlined above, ANZ would anticipate an add back tocapital of approximately $500 million as an ‘IFRS transitional adjustment’.

Tier 1 Capital and Securitisation

In April 2006, APRA issued draft prudential standards and guidance notes outlining what instruments and items will qualify
for Tier 1 and Tier 2 capital, including sub-categories therein for hybrid Tier 1, Lower and Upper Tier 2. Material changes
from the existing prudential standards are:"Introduction of a sub-category of Tier 1 capital being ‘Fundamental Tier 1’ which includes most components ofshareholders equity, excluding hybrid Tier 1 instruments. This sub-category must be at least 75% of net Tier 1, which
effectively reduces the level of hybrid Tier 1 capital (‘Residual Tier 1’) to 25% of net Tier 1 – previously it was 25% ofTier 1 before deductions.

"

Splitting hybrid Tier 1 into two sub-categories, ‘Innovative’ and ‘Non-Innovative’ Tier 1, with limits of 15% and 10% of
net Tier 1 respectively. Transition rules will be available to ADI’s up until January 2010 if the ADI is above these limits
when first measured on 1 January 2008 based upon hybrid Tier 1 instruments on issue at 31 August 2005 (subject tocertain conditions being met).

"

The ‘Non-Innovative’ category is a new classification covering instruments that have the characteristics of‘non-cumulative, irredeemable preference shares without innovative capital features’.

"

ANZ believes that its existing hybrid Tier 1 instruments will be classified as ‘Innovative’ and as such ANZ expects that it
will be applying for the transitional relief contemplated in the draft standard.

31

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

ANZ National Bank - Integration
The integration program that began in 2004 has been completed during the half. The key achievements in this half havebeen:"

Transfer from Australia to New Zealand of the location and operation of ANZ Retail and related systems and functions tocomplete compliance with Reserve Bank of New Zealand (RBNZ) Conditions of Registration 13(i)"Completion of the successful migration to ANZ Group systems in Institutional, and Corporate Banking"

Transition of all New Zealand processes and systems to Business-As-Usual management.

The integration objectives have been successfully achieved:"

Business integration is complete. This has delivered integration of organisational and management structures, processes,
systems, and premises for Institutional, Corporate Banking, Rural Banking, Retail Banking support functions, head officeand central support functions which has facilitated:- establishing a common platform for future growth initiatives and further transformation of support services- growing our Institutional businesses under the ANZ brand- maintaining separately branded Retail and Corporate Banking businesses- strengthening our Rural banking business primarily under National Bank brand- merging and rationalising head office and support functions- aligning, to the extent possible, ANZ National and ANZ technology systems and functions.

"

Compliance with RBNZ Conditions of Registration 13(i) relating to location and operation of “domestic” systems in New
Zealand. This delivered the transfer of ANZ Retail, HR/Payroll, and General Ledger systems to New Zealand, theaugmentation of New Zealand-based IT support staff, and establishment of certain “new” New Zealand-based business
functions"Customer satisfaction and retention targets have been achieved – revenue attrition relating to integration activities has
continued to track favourably against estimates"

Staff engagement has been achieved, and a single enterprise agreement has been established"

Realisation of integration synergies has tracked in line with expectations.

Integration has successfully delivered a major program for ANZ National Bank:"

30 workstreams comprising approximately 150 individual projects have progressed successfully in line with plans"

Around 1300 system changes have been successfully implemented"

At its peak over 600 staff were contributing to the program"

126 property relocations were implemented"

Project execution has been completed substantially by the ambitious target of December 2005, with the final majordeliverables completed in February 2006.

The RBNZ finalised its Outsourcing Policy in January 2006. The Policy addresses the location and management of so called
core functions requiring ANZ National Bank to maintain continuity of core functions - settlement, clearance, payment and risk
position management – particularly in a stress or failure situation. Discussions continue with the RBNZ on outlining ANZ
National Bank’s approach to compliance with the Policy.
As the full impact of RBNZ requirements under the Conditions of Registration were clarified, the total cost of integration
increased. The total cost of integration has been NZD239 million, in line with the estimate of NZD240 million advised in
October 2005 and a modest increase on the original estimate of NZD220 million. Of this amount, approximately 5% has
been met by a restructuring charge included in the calculation of goodwill; a further 10% relates to expenditure on
equipment that has been capitalised and 22% relates to the cost of existing resources. Integration costs of NZD9 million
were incurred in 2004, with the majority of integration costs of NZD139 million incurred in 2005. Expenditure of
NZD51 million was incurred in this first half of 2006. These costs related primarily to systems and technology integration andnon-branch expenses, with NZD46 million incurred in meeting RBNZ requirements, NZD19 million expenditure on integrating
essential technology infrastructure and NZD174 million expenditure on the core business program of integration.
Revenue attrition relating to integration activities has continued to track favourably against expectations, with little attrition
evident, and has stabilised at NZD34 million per annum. The cost synergies and revenue benefits, net of NZD12 million cost
increase impact of RBNZ requirements, have increased to an estimated NZD120 million in 2007 (cost synergies
NZD70 million and revenue synergies NZD50 million, with additional cost synergies identified.

32

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

ING Australia performance
The results in the table below show the performance of INGA on a fully comparable AIFRS basis, other than the half year to
March 2005 which adopts AIFRS from 1 January 2005 (i.e. commencement of INGA’s financial year). In addition, the results
have been restated to exclude net profits from the New Zealand business that INGA sold in September 2005; these areincluded in New Zealand Businesses.
Half
year
Mar 06

Halfyear
Sep 05Halfyear
Mar 05$M

Movt
Mar 06v. Sep05%

Movt
Mar 06v. Mar
05
%

$M

$M

208

191

177

9%

18%

89
33
122

85
25
110

83
27
110

5%
32%
11%

7%
22%
11%

330
(136)
(64)
(24)
(18)

301
(125)
(39)
(23)
(32)

287
(128)
(45)
(15)
(15)

10%
9%
64%
4%
-44%

15%
6%
42%
60%
20%

88
28

82
63

84
70

7%
-56%

5%
-60%

116

145

154

-20%

-25%

57

71

76

-20%

-25%

43
14
57
1
58

40
31
71
(10)
61

41
35
76
(11)
2
67

8%
-55%
-20%

5%
-60%
-25%

-5%

-13%

1,407
8.1%
14
34
60%

1,392
10.2%
8
33
58%

1,404
10.8%
12
29
59%

33,731415

31,696216

29,390
259

6%
92%

15%
60%

536
65

482
53
Outflows

8%
5%
Other
Flows

11%
23%

Mar 06

496
62
Inflows

Sep 05

12,861
9,381
2,466
9,023
33,731

1,890
247
249
837
3,223

(1,080)
(837)
(316)
(574)
(2,807)

597
482
108
433
1,620

11,454
9,489
2,426
8,327
31,696

Note
Funds m anagem ent incom e
Life Risk Income- planned m argin- experience variation1

Total Income
Funds m anagem ent expenses
Life risk expenses
Rem ediation Expenses
Tax on operating profit

2
3

Operating profit after tax, before capital investm ent earnings
Capital investm ent earnings after tax
Profit after tax

ANZ's Share of INGA earnings @ 49%
ANZ's Share of INGA earnings @ 49%

JV operating profit
JV capital investm ent earnings
ANZ capital Hedges
Net Funding
Net Return to ANZ
Performance measures
Carrying value of investment ($M)
ANZ return on investment
Available for Sale reserve (ANZ share) ($M)
Value of new business
Cost to Incom e
Funds managem ent
Retail & m ezzanine funds under m anagem ent (c/bal $M)
Net retail & m ezzanine flows ($M)
Life risk
Total in-force ($M)
New premium s ($M)
Funds m anagem ent growth (Retail & mezzanine)
OneAnswer
Other Personal Investment
Mezzanine
Em ployer Super
Total

4
5
5
6
7

8

1.

Experience gains or losses arise where actual outcomes differ from valuation methods and assumptions

2.

Remediation expenses represent costs incurred in rectifying historical unit pricing errors and fully compensating customers

3.

Transitional tax relief for life insurance companies discontinued with effect from 1 July 2005

4.

On 30 September 2005 ING Australia sold its New Zealand based businesses to a joint venture between ING Group and ANZ National Bank (further details arecontained on page 13). As a result, prior period profits relating to the sold operations (Sep 2005: $4 million; Mar 2005: $4 million) are now reflected in the ING
NZ joint venture

5.

ANZ adopts the equity method of accounting for its 49% interest in INGA. The carrying value of the investment in INGA has been tested for impairment bycomparing the carrying value with the recoverable amount of INGA. The Group engaged Ernst & Young ABC Limited (EY ABC) to provide an independent valuationof INGA for 31 March 2006 assessment purposes (the recoverable amount). The independent economic valuation was based on a discounted cash flow approach,with allowance for the cost of capital. Based on the results of this valuation, no change is required to the carrying value of the investment in INGA

6.

Value of new business represents the present value of future profits arising from the new business written over the periods less the present value of the cost ofcapital applying to that new business. Consistent value factors are applied across all reporting periods

7.

Cost to Income ratio is management expenses (excluding Remediation Expenses) / Total Income

8.

Other Flows includes investment income net of taxes, fees and charges

33

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

ING Australia performance, cont’dMarch 2006 half year compared to September 2005 half year

Highlights of the March 2006 half year included the launch of INGA’s new retail risk product, “OneCare” and a marked
improvement in net inflows of retail and mezzanine funds management products, up 92%. The increase was driven bystrong inflows into INGA’s flagship platform product, OneAnswer, and lower outflows across INGA’s wealth management
products. INGA also acquired majority ownership of Oasis Asset Management, a rapidly growing provider of badged platformproducts to non-aligned advisers.
Considerable progress was made in remediation of products and systems. This work is now separated from INGA’s corebusiness and is scheduled for completion by 31 December 2006.
INGA has maintained its market share rankings over the period. In Funds Management the improvement in net flows over
the year has lifted INGA’s ranking to 6th position as reported by Plan For Life. INGA maintained its 3rd place ranking in theemployer super mastertrust segment as measured by DEXX&R. INGA’s rankings in the life risk market for both new business(3rd) and Inforce premiums (4th) as measured by Plan for Life remained unchanged.
A core component of INGA’s strategy is to grow the number of aligned advisers. Following the acquisition of the Synergy
dealer group in December 2005 the total number of INGA ‘aligned advisers’ grew to 1,093. According to the latest Money
Management Survey, INGA would rank 4th in terms of number of advisers, up from 7th position in the previous half.
Profit after tax decreased by 20% on the September 2005 half year. Operating profit after tax was 7% higher, but morethan offset by lower capital investment earnings. Significant factors affecting the result were:"Funds management income increased by 9% based on higher average funds under management underpinned by strong
investment markets, and improved net flows in both personal investments and employer super businesses. The increased
fee revenue driven by these factors was partly offset by reduced margins arising from higher commission payments.

"

Risk income increased by 11%. Operating margins relating to INGA’s life risk business increased by 6% following betterclient retention and improved claims experience.

"

Funds management expenses increased by 9% due to higher spend on customer service. Life risk expenses increased
due to costs incurred in developing the new OneCare product and other non-recurring items. Remediation expenses areat similar levels to the September 2005 half and should be completed by the end of the calendar year.

"

Tax on operating profit decreased 44% due to favourable prior period tax adjustments in the current half, partially offset
by the loss of transitional tax relief for life companies from 1 July 2005.

"

Capital investment earnings after tax declined 56% from the strong September 2005 half due to lower average capital
employed in the business together with lower average yields. In 2005, ANZ partially hedged against volatility in thisincome stream and, as a result, gains in capital investment earnings were partially offset by hedge losses. ANZ ceased
hedging capital investment earnings from 1 October 2005.

Adviser Numbers(by Dealer Group)

ANZ Financial Planners
Retire Invest
TandemMillenium 3
ING Financial Planners
Other
Total

Sales by Channel(12 months)
Mar 06 Mar 05
348
305
214
214
84
79
446
350
21
2
1,113

950

Mvmt
14%
0%
6%
27%
large
17%

ANZ Bank
IFAs aligned to ING
DirectOther
Total

Retail Funds
Management

Life Insurance

Mar 06 Mar 05

Mar 06 Mar 05

47%
17%
7%
29%
100%

50%
18%
7%
25%
100%

12%
8%
49%
31%
100%

10%
9%
41%
39%
100%

March 2006 half year compared to March 2005 half year

Profit after tax decreased by 25% compared to the same period last year. Operating profit after tax was 5% higher, but morethan offset by lower capital investment earnings. Significant factors impacting the result were:"Funds management income increased by 18% based on higher average funds under management underpinned by strong
investment markets, and improved net flows.

"

Risk income increased by 11% due to ongoing favourable claims experience in the March 2006 half, supported bycontinued strong sales of life insurance products through the ANZ network and direct marketing initiatives.

"

Expenses increased due to higher spend on customer service in funds management together with additional costs
associated with the new OneCare product and other non-recurring items in the life risk business. Remediation expenses
increased by 60% as activity increased.

"

Tax on operating profit increased by 20% due to the loss of transitional tax relief for life companies from 1 July 2005, andwas partially offset by lower favourable prior period tax adjustments booked in the current half.

34

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

ING New Zealand joint venture
In September 2005 ANZ National Bank Limited entered into a joint venture with ING Insurance International Limited (INGII).
The joint venture, ING (NZ) Holdings Ltd (INGNZ), is 49% owned by ANZ National Bank Limited and 51% owned by INGII.
The Group adopts the equity method of accounting for its 49% interest in INGNZ. As at 31 March 2006, the equity
accounted value was NZD156 million (Sep 2005: NZD145 million). The change since September 2005 reflects the equity
accounted profit for the half year.
The carrying value is subject to a recoverable amount test to ensure that this does not exceed its recoverable amount at thereporting date. The Group obtained an independent valuation at 31 March 2006 to ensure the carrying value did not exceed
the recoverable amount. The valuation supported the carrying value and accordingly no write-down was made.
In the March 2006 half INGNZ contributed NZD12 million in equity accounted earnings. This was a NZD3.1 million reduction
on the September 2005 half in which a total of NZD15.2 million (Mar 2005: NZD14.1 million) was reported between INGA
(Sep 2005: NZD4 million; Mar 2005: NZD 4 million) and the New Zealand Businesses (Sep 2005: NZD11 million; Mar 2005:
NZD10 million), prior to the establishment of the joint venture.
Deferred acquisition costs and deferred income
The Group recognises assets that represent deferred acquisition costs relating to the acquisition of interest earning assets,
and liabilities that represent deferred income relating to income received in advance of services performed.
Deferred acquisition costs - at 31 March 2006 the Group’s assets included $549 million (Sep 2005: $524 million; Mar 2005:$492 million) in relation to costs incurred in acquiring interest earning assets. During the half year, amortisation of$138 million (Sep 2005 half: $135 million; Mar 2005 half: $123 million) was recognised as an adjustment to the yield earned
on interest earning assets.
Deferred income - at 31 March 2006, the Group’s liabilities included $426 million (Sep 2005: $92 million; Mar 2005:$130 million) in relation to income received in advance. At March 2006, this includes $5 million (Sep 2005: $3 million; Mar2005 $4 million) deferred service type fees. These fees are deferred and will be amortised over the period of service underthe AIFRS standard AASB 118: ‘Revenue’.
At March 2006, fee income of $364 million that is integral to the yield of an originated financial instrument, net of any direct
incremental costs, has been capitalised. This income is deferred and recognised against net loans and advances over the
expected life of the financial instrument under the AIFRS standard AASB 139: ‘Financial Instruments: Recognition andMeasurement’.
The balances of deferred acquisition costs and deferred income at period end were:
Deferred Acquisition Costs
Mar 06$M

Sep 05$M

1

Mar 05$M

Deferred Income
Mar 06$M

Sep 05$M

Mar 05$M
24

Personal Banking Australia

155

153

151

90

32

Esanda

294

284

260

52

-

-

New Zealand Businesses

67

61

49

39

15

26
30

Institutional

5

6

10

162

27

2

28

20

22

83

18

50

549

524

492

426

92

130

Other
Total
1.

Deferred acquisition costs largely include the amounts of brokerage capitalised and amortised in the three Business segments: Personal Banking Australia, Esanda
and the New Zealand businesses. Deferred acquisition costs also include capitalised debt raising expenses

2.

Includes Group Centre, Corporate Australia, INGA and Asia PacificDeferred acquisition costs analysis:
March 2006
Amortisation
Costs

September 2005 half
Capitalised
Costs1

Amortisation
Costs

Capitalised
Costs1

$M

$M

$M

$M

Personal Banking Australia

34

36

31

33

Esanda

87

97

86

110

New Zealand Businesses

13

24

13

23

Institutional

1

-

2

(2)

2

Other

3

11

3

3

Total

138

168

135

167

1.

Costs capitalised during the half exclude brokerage trailer commissions paid, relating to the acquisition of mortgage assets

2.

Includes Group Centre, Corporate Australia, INGA and Asia Pacific35

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Software capitalisation
At March 2006, the Group’s intangibles included $384 million (Sep 2005: $381 million; Mar 2005: $401 million) in relation tocosts incurred in acquiring and developing software. During the March 2006 half year, amortisation expense of $56 million(Sep 2005 half: $64 million; Mar 2005 half: $57 million) was recognised.

Balance at start of period

Half
year
Mar 06
$M

Half
year
Sep 05
$M

381

401

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%
430

-5%

-11%

Software capitalised during the period

60

51

45

18%

33%

Amortisation during the period

(56)

(64)

(57)

-13%

-2%

Software written-off

(1)

(8)

(16)

-88%

-94%

Other

-

1

(1)

-100%

-100%

384

381

401

1%

-4%

Total software capitalisation

36

BUSINESS PERFORMANCE REVIEWProfit and Loss (including effect of movements in foreign currencies)
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05%%$M

Net profit after income tax
Personal Banking Australia

542

485

468

12%

Institutional

486

461

450

5%

16%
8%

New Zealand Businesses

335

265

295

26%

14%

Corporate Australia

212

194

182

9%

16%

Esanda and UDC

53

55

66

-4%

-20%

Asia Pacific

46

44

39

5%

18%

Non-continuing businesses

30

63

63

-52%

-52%

Group Centre

27

16

5

69%

large

Cash1 profit

1,731

1,583

1,568

9%

10%

AIFRS 2005 adjustments and non-core items

1

Net profit

80

37

(13)

large

large

1,811

1,620

1,555

12%

16%

Profit and Loss (prior period figures adjusted to remove the impact of exchange rate movements2)
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Net profit after income tax
Personal Banking Australia

542

485

468

12%

Institutional

486

461

450

5%

16%
8%

New Zealand Businesses

335

263

293

27%

14%

Corporate Australia

212

194

182

9%

16%

Esanda and UDC

53

55

65

-4%

-18%

Asia Pacific

46

45

40

2%

15%

Non-continuing businesses

30

62

64

-52%

-53%

Group Centre
Net profit (adjusted for non-core items
1

1,2

AIFRS 2005 adjustments and non-core items)

2

Net profit
FX impact on reported net profit

2

Reported net profit

27

23

9

17%

large

1,731

1,588

1,571

9%

11%
large

80

37

(13)

large

1,811

1,625

1,558

12%

17%

-

(5)

(3)

-100%

-100%

1,811

1,620

1,555

12%

16%

1.

ANZ has reduced the September 2005 profit after tax by $46 million (Mar 2005: $15 million increase) to bring the result for that period to an AIFRS basis that isfully comparable with March 2006 figures (refer pages 13 to 15), allowing readers to see the impact on 2005 results of accounting standards that have only been
applied from 1 October 2005. No adjustment has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability.
In the March 2006 half ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million after tax settlementof warranty claims on Lloyds TSB plc (tax on warranty settlement: $nil) as significant items. In the September 2005 half ANZ classified $14 million after tax profit
on the sale of NBNZ life and funds management businesses as a significant item (tax on gain on sale of NBNZ life and funds management businesses: $nil). ANZ
excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 13). In the March 2006 half ANZ
has classified $13 million after tax profit (Sep 2005: $12 million; Mar 2005 $19 million) on derivatives entered into to manage interest rate and foreign exchange
risk on funding instruments, not designated as accounting hedges, ineffective portions of cash flow hedges, profit or loss on disposal of investment securities, andfair value movement in bonds and notes designated at fair value as a non-core item. ANZ excludes volatility associated with fair value movements on thesetransactions to provide a better indication of the core business performance (tax on hedge gains/losses $5 million (Sep 2005: $5 million; Mar 2005: $8 million)).
In the March 2006 half ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (Sep 2005 half: $35 million; Mar 2005 half:$17 million). Tax on ANZ National Bank incremental integration costs is $13 million (Sep 2005: $18 million; Mar 2005: $8 million). ANZ National Bank
incremental integration costs are excluded to better reflect the core cost base and assist analysis of the cost base following completion of the integration (referpage 13)2.

ANZ has removed the impact of exchange rate movements to provide readers with a better indication of the business unit performance in local currency terms.
Retranslation is net of revenue hedge earnings

The Group from time to time modifies the organisation of its businesses to enhance the focus on delivery of specialised
products or services to customers. Prior period numbers are adjusted for such organisational changes to allow comparability.
The significant changes since 30 September 2005 have been:"

Non-Continuing Business - The Non-Continuing Business comprising the London headquartered project finance and certain
structured finance transactions that ANZ has exited as part of its de-risking strategy has been removed from Institutionaland reported as a separate business unit.

"

Personal Banking – Within Personal banking Wealth Management has been renamed Investment Insurance Products.

"

There were also a number of minor restatements as a result of customer segmentation, changes to internal transfer
pricing methodologies and the realignment of support functions.

"

ANZ has netted inter-business unit expenses and inter-business unit income and reported as an expense for business unit
profitability purposes.
37

BUSINESS PERFORMANCE REVIEW (continued)

Personal Banking Australia
Brian Hartzer♦ Rural Commercial andAgribusiness Products♦ Banking Products♦ Mortgages♦♦♦

Consumer Finance
Investment Insurance Products
Other 1

Net interest income
Other external operating income

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%

1,177

1,122

1,061

5%

11%

509

483

452

5%

13%

Operating income

1,686

1,605

1,513

5%

11%

External operating expenses

(726)

(705)

(677)

3%

7%

Net inter business unit expenses

(88)

(90)

(82)

-2%

7%

Operating expenses

(814)

(795)

(759)

2%

7%

Profit before credit impairment and income tax

872

810

754

8%

16%

Provision for credit impairment

(117)

(133)

(103)

-12%

14%

Profit before income tax

755

677

651

12%

16%

Income tax expense and minority interest

(213)

(192)

(183)

11%

16%

Net profit attributable to shareholders of the Company

542

485

468

12%

16%

Consisting of:Rural Commercial and Agribusiness Products

55

48

49

15%

12%

Banking Products

138

130

123

6%

12%

Mortgages

177

156

146

13%

21%

Consumer Finance

115

101

103

14%

12%

Investment and Insurance Products

60

52

51

15%

18%

(3)

(2)

(4)

50%

-25%

542

485

468

12%

16%

112,212

105,681

99,681

6%

13%

2,196

1,840

1,979

19%

11%

External assets

114,408

107,521

101,660

6%13%

Deposits and other borrowings

46,261

43,77341,750

6%

11%

2

Other

Balance Sheet
Net loans & advances including acceptances
Other external assets

Other external liabilities

2,500

2,268

2,058

10%

21%

External liabilities

48,761

46,04143,808

6%

11%

Risk Weighted Assets

62,18458,48954,897

6%

13%

2.16%

2.16%

2.19%

26%

60%

2%

6%

Ratios
Net interest margin
Return on assets

0.98%

0.92%

0.95%

Return on risk weighted assets

1.81%

1.69%

1.77%

Operating expenses to operating income

48.3%

49.5%

50.2%

Operating expenses to average assets

1.47%

1.52%

1.54%

(86)

(87)

(60)

0.16%

0.17%

0.12%

24

19

15

Individual provision charge
Individual provision charge as a % of average net advances
Net impaired loans
Net impaired loans as a % of net advances

0.02%

0.02%

0.02%

Total employees

9,799

9,616

9,254

1.

2005 figures include allocations to make them comparable with March 2006

2.

Other includes the branch network, whose costs are fully recovered from product business units, Private Banking and marketing and support costs

38

BUSINESS PERFORMANCE REVIEW (continued)

Personal Banking Australia
Brian Hartzer

March 2006 half year compared to September 2005 half year

Profit after tax increased 12%, underpinned by strong loan and deposit growth (balances increased 6% in both categories)
while maintaining a disciplined approach to pricing. Overall returns on risk adjusted assets increased, with margin growth inhigher risk products offsetting the expected rise in bad debt costs.
Balance sheet growth drove the double digit earnings growth in Mortgages and Consumer Finance, while Rural Commercialand Agribusiness benefited from an improved credit environment. Banking Products continued to grow the deposit bookabove system levels. Investment & Insurance Products experienced strong growth from financial planner sales and other‘direct’ investment businesses and benefited from a 7% increase in INGA income.
Significant aspects to the result were:"

Overall net interest income increased 5%. Mortgages and Rural Commercial and Agribusiness Products net interest
income grew 6% in line with balance sheet growth as margins were held. Consumer Finance net interest income
increased 6% with strong balance sheet growth of 10% partly offset by margin decline driven by strong growth in thelower rate MasterCard product. Banking Products net interest income increased by 3% with good deposit growth of 6%
being partly offset by ongoing migration into lower margin products within the portfolio.

"

Other operating income increased 5%. Mortgages grew other income 28%, while Consumer Finance was relatively flat.
Banking Products grew other income by 5% from higher numbers of transaction accounts. Financial planning income wasup 11% from higher sales volumes. The contribution from the INGA increased following strong funds management andlife risk performances. The underlying momentum in this business remains sound as market conditions are favourable
and the life business continues to experience low levels of claims.

"

Operating costs increased 2% as the footprint expanded with 11 new branches and 134 more ATMs. This contributed to a
5% increase in premises costs and a 5% increase in personnel costs, with the latter also affected by annual salary rises.
Computer costs fell as the previous half included charges for branch software now amortised fully.

"

Credit costs reduced 12% overall as there was a $16 million beneficial adjustment in collective provisions due to arevision to oil price risk. Despite strong balance sheet growth individual provisions were flat reflecting seasonally lower
March half year charges.

March 2006 half year compared to March 2005 half year

Profit after tax increased 16% with double digit profit growth recorded by all Personal businesses driven by a strong income
performance.
Operating income increased 11% driven by strong volume growth across all businesses partly offset by margin contraction as
higher growth was experienced in lower margin business. Double digit income growth was achieved by Mortgages (14%),
Consumer Finance (13%) and Investment & Insurance Products. Sound revenue growth was achieved in Banking Products
revenues (8%) and Rural Commercial and Agribusiness (7%). All businesses benefited from the investment in staff throughthe continued expansion of the footprint.
Operating expenses increased 7%, resulting from higher numbers of front line staff to service increased business volumes
and ongoing investment in the branch network.
Credit impairment rose largely due to increases in overall lending volumes and the planned higher relative growth ofConsumer Finance businesses, partly offset by a lower level of collective provisioning due to a revision to oil price risk.

39

BUSINESS PERFORMANCE REVIEW (continued)

Institutional
Steve Targett♦♦♦♦

Client Relationship Group
Trade and Transaction Services
Markets
Other 1♦♦

Corporate and Structured
Financing
Debt Product Group

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Movt
Mar 06v. Sep 05%

Movt
Mar 06v. Mar 05%

Net interest income

568

509

544

12%

4%

Other external operating income

590

577

493

2%

20%

Operating income

1,158

1,086

1,037

7%

12%

External operating expenses

(339)

(324)

(310)

5%

9%

Net inter business unit expenses

(90)

(78)

(72)

15%

25%

Operating expenses

(429)

(402)

(382)

7%

12%

Profit before credit impairment and income tax

729

684

655

7%

11%

Provision for credit impairment

(33)

(30)

(21)

10%

57%

Profit before income tax

696

654

634

6%

10%

Income tax expense and minority interest

(210)

(193)

(184)

9%

14%

Net profit attributable to shareholders of the Company

486

461

450

5%

8%

Trade & Transaction Services

115

104

101

11%

14%

Markets

144

128

117

13%

23%

Corporate and Structured Financing

79

66

65

20%

22%

Debt Product Group

199

213

218

-7%

-9%

(51)

(50)

(51)

2%

-

486

461

450

5%

8%

Net loans & advances including acceptances

46,344

43,404

40,168

7%

15%

Other external assets

35,65826,43923,67235%

51%

External assets

82,002

69,843

63,84017%28%

Deposits and other borrowings

36,20532,40331,88612%

14%

Consisting of:

1

Other

Balance Sheet

Other external liabilities

31,38922,712

20,66038%

52%

External liabilities

67,594

55,11552,54623%

29%

Risk Weighted Assets

78,691

72,42968,7979%

14%

Net interest margin

1.66%

1.70%

2.02%

Return on assets

1.28%

1.33%

1.50%

Return on risk weighted assets

1.28%

1.33%

1.39%

Operating expenses to operating income

37.0%

37.0%

36.8%

Operating expenses to average assets

1.13%

1.16%

1.27%

(38)

(11)

(12)

large

large

0.17%

0.05%

0.06%

249

123

114

large

large

1%

8%

RatiosIndividual provision charge
Individual provision charge as a % of average net advances
Net impaired loans
Net impaired loans as a % of net advances

0.54%

0.28%

0.28%

Total employees

3,092

3,047

2,864

1.

Other includes Executive, Infrastructure and Client Relationship Group costs, not all of which are allocated to the Institutional businesses

40

BUSINESS PERFORMANCE REVIEW (continued)

Institutional
Steve Targett

March 2006 half year compared to September 2005 half year

Profit after tax increased by $25 million (5%), as growth momentum established in the last half continued to strengthen.
Strategic initiatives, aimed at tightening client focus and increasing solution driven sales, began to deliver improved results
across the Institutional businesses this half.
Non-lending revenue increased reflecting the success of continuing efforts to move the mix of business from the debt productwith disciplined use of capital and strong risk management. The Client Relationship Group actively leads the delivery of ourclient solutions.
Profit from Markets increased by 13% driven by a strong performance in New Zealand where currency and interest rate
moves created favourable trading conditions, compared to the less volatile environment and softer corporate demand in theAustralian market. Trade and Transaction Services increased 11% with high growth in the International Payments andClearing Services business, strong offshore Trade Finance growth and the release of revenue that related to prior years.
Corporate and Structured Financing profit increased 20% with a lower credit impairment charge resulting from the write-backof individual provisions during the half. Asset growth in the Debt Products Group was offset by competitive pressures andtighter credit spreads resulting in reduced margins and a 7% decrease in earnings. Credit quality remains sound.
Significant factors affecting the result were:"

Net interest income grew by $59 million (12%). Trade and Transaction Services increased $29 million including increased
deposit volumes and the release of revenue that related to prior years, partly offset by reduced lending volumes inInternational Trade Finance. Markets increased $11 million, Debt Products Group increased by $7 million, with lending
growth of 2% offset by tighter spreads and competition causing margin erosion and Corporate and Structured Financing
increased $12 million.

"

Overall loan volumes increased 7%, while deposit volumes increased 12%. Net interest margin decreased by 4 basis
points.

"Other operating income increased $13 million (2%). Markets increased $27 million (9%) on the back of a strong New
Zealand result and Trade and Transaction Services increased $5 million. Corporate and Structured Financing otheroperating income reduced $13 million (14%), with strong contributions from structured finance and private equity offset
by reduced advisory fees following the particularly strong September 2005 half. Other operating income reduced by$5 million in Debt Products Group, driven by competitive pricing pressure.

"

Operating expenses have increased by 7%, reflecting the investment being made in new growth initiatives and higher
non-lending losses. Salary expenses increased 4%, and staff numbers increased by 1%. Institutional is building its staff
capabilities to facilitate greater penetration of new business opportunities.

"

Provision for credit impairment increased by $3 million. The individual provision charge was $27 million higher, with twolarge new provisions in the half in Australia and New Zealand offset by recoveries. The collective provision charge
reduced by $24 million with a reduction in the provision held for oil price risk, the impact of the increase in individual
provisions resulting from the down-grade of two large exposures to non-accrual and a stable risk profile on our lending
assets. Net impaired loans have increased by $126 million due largely to two corporate accounts in Australia and New
Zealand.

March 2006 half year compared to March 2005 half year

Profit after tax increased by $36 million (8%).
Operating income increased by 12%. Revenue in Trade and Transaction Services increased $54 million on the back ofstronger trade flows through Asia and the UK, increased International Payments foreign exchange revenue and the prior year
income booked in the March 2006 half. Markets revenue increased $58 million with stronger client and trading activities inAustralia, New Zealand, the Pacific and Asia. Debt Products Group increased 1% with higher revenue and lending volume
growth offset by margin contraction.
Operating expenses increased 12%. Staff costs were higher, due to investment in people, new capabilities and systems.
Provision for credit impairment increased $12 million. Individual provisions increased reflecting the down-grade of two large
accounts during the current half. Collective provision reduced reflecting the factors mentioned above.

41

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses1
Graham Hodges♦ ANZ Retail♦ National Bank Retail♦ Rural Banking♦♦♦

Corporate Banking
Central Support (including Treasury)
Excludes Institutional, UDC,
integration and central funding

Net interest income
Other external operating income

Half
year
Mar 06
NZD M

Half
year
Sep 05
NZD M

811

780

Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%
NZD M
774

4%

5%

268

270

253

-1%

6%

Operating income

1,079

1,050

1,027

3%

5%

External operating expenses

(538)

(533)

(496)

1%

8%

Net inter business unit expenses

3

2

(4)

50%

large

Operating expenses

(535)

(531)

(500)

1%

7%

Profit before credit impairment and income tax

544

519

527

5%

3%

(3)

(97)

(56)

-97%

-95%

Profit before income tax

541

422

471

28%

15%

Income tax expense and minority interest

(175)

(134)

(151)

31%

16%

Net profit attributable to shareholders of the Company (NZD)

366

288

320

27%

14%

Net profit attributable to shareholders of the Company (AUD)

335

265

295

26%

14%

ANZ Retail

98

92

99

7%

-1%

NBNZ Retail

128

109

110

17%

16%

Rural Banking

44

43

42

2%

5%

Corporate Banking

79

32

53

large

49%

Provision for credit impairment

Consisting of:Central Support

17

12

16

42%

6%

366

288

320

27%

14%

Net loans & advances including acceptances

64,86660,656

56,777

7%

14%

Other external assets

6,120

5,290

4,156

16%

47%

External assets

70,98665,94660,9338%

16%

Deposits and other borrowings

49,28850,67650,648-3%-3%

Other external liabilities

10,265

8,083

5,308

27%

93%

External liabilities

59,55358,75955,9561%

6%

Risk Weighted Assets

52,01548,09845,3818%

15%

Net interest margin

2.42%

2.49%

2.68%

Return on assets

1.07%

0.91%

1.09%

Return on risk weighted assets

1.47%

1.27%

1.46%

Operating expenses to operating income

49.6%

50.6%

48.7%

Operating expenses to average assets

1.57%

1.67%

1.71%

(7)

(70)

(28)

-90%

-75%

0.02%

0.24%

0.10%
-32%

97%

-1%

0%

Balance Sheet

RatiosIndividual provision charge
Individual provision charge as a % of average net advances
Net impaired loans

75

111

38

Net impaired loans as a % of net advances

0.12%

0.18%

0.07%

Total employees

8,466

8,580

8,437

1.

For a reconciliation of the New Zealand Businesses results to the New Zealand Geographic results refer page 55

42

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand businesses
Graham Hodges

March 2006 half year compared to September 2005 half year

Profit after tax for the New Zealand Businesses increased NZD78 million (27%) over the September 2005 half, assisted by a
NZD63 million after tax reduction in the Provision for credit impairment. Profit before provisions increased 5%.
ANZ Retail, National Bank Retail and Corporate Banking posted strong profit growth with increases of 7%, 17% and 147%
respectively. Solid asset growth in these businesses was partly offset by lower net interest margins due to price competition,
increased wholesale funding, and continued unfavourable product mix with switching from variable rate to fixed rate
mortgages. Profit before provisions grew by 5% in National Bank Retail and 4% in Corporate Banking. Profit before
provisions in ANZ Retail and Rural Banking was flat, reflecting the competitor-driven net interest margin reduction and aseasonally stronger second half in Rural Banking. The results of the Retail Banks also include the liability for costs andcompensation to customers relating to a Commerce Commission action on disclosure of optional issuer fees (NZD10 million)
and the cost of the operation of domestic systems relocated to New Zealand under the integration program (NZD5 million).
Key influences on the result include the following:"

Net interest income increased 4% (NZD31 million). Lending volumes increased 7% in NZD terms with growth in National
Bank Retail (5%), ANZ Retail (8%), Corporate Banking (11%) and Rural (6%). NZD deposit volumes increased 5% in
customer businesses with solid deposit growth in Corporate Banking (14%) and ANZ Retail (4%), where the On-line Callproduct was particularly successful. Deposits and other borrowings in Treasury reduced with other sources of wholesalefunding increased to fund asset growth across the New Zealand businesses.
Net interest margins have reduced 7 basis points impacted by competition and customer migration from variable rate to
fixed rate mortgages, increased requirement for wholesale funding, changes in deposit mix with growth in lower margin
call (including ANZ On-line Call ) and term deposit products. Lending margins in Rural decreased slightly reflecting
competition. These factors were partially offset by slightly stronger deposit margins.

"

Other operating income reduced marginally. Other income in National Bank Retail increased 12% relating to transactionaland credit card accounts. Other income in Corporate Banking reduced, mainly in fees, with these being ‘lumpy’ andseasonal in nature. Fees in Rural Banking were flat as were fees in ANZ Retail. Treasury other income reduced $2 million
but was offset by an increase in net interest income.

"Operating expenses increased 1%. Salary increases, a small increase in numbers of front-line staff, and the cost of theCommerce Commission settlement (NZD10 million) were largely offset by a 6% reduction in the number of support staff
and control of discretionary spend.

"

Provision for credit impairment reduced by NZD94 million. The collective provision reduced by NZD31 million, withincreased lending volumes being offset by a lower provision for oil price risk, and an improved credit risk profile (anincreased proportion of low risk residential and rural lending). The individual provision charge reduced by NZD63 million
largely as a result of provisioning for two isolated corporate accounts and exposures to the apple and pear export industry
in the preceding September half. Net impaired loans reduced NZD36 million as a result of the generally benign credit
conditions.

March 2006 half year compared to March 2005 half year

Profit after tax increased 14%, with growth in National Bank Retail (16%), Rural Banking (5%), and Corporate
Banking (49%). Profit in ANZ Retail was flat. Profit before provisions grew by 3% overall with growth in National Bank Retail(6%), Corporate Banking (8%) and Rural Banking (5%), partly offset by a reduction in ANZ Retail (-5%).
"

Net interest income increased 5%. Lending volumes increased 14% in NZD terms, with growth in all businesses, whilst
deposits grew 8% in National Bank Retail and ANZ Retail. Interest margin has declined by 26 basis points reflecting theimpact of competition, in particular the ‘mortgage price war’ in the March 2005 half, product switching from variable rate
to fixed rate mortgages, and a change in funding mix to higher rate deposit and wholesale products.

"

Other operating income increased 6%. Other income in National Bank Retail increased 20%, relating to transactional andcredit card accounts. Other income in Corporate Banking reduced, mainly in fees, with these being ‘lumpy’ in nature.
Fees in Rural Banking and ANZ Retail also reduced slightly.

"

Operating expenses increased 7% with salary increases and a small increase in staff numbers reflecting an increased
investment in frontline staff, and the NZD10 million cost associated with the Commerce Commission settlement and
NZD5 million domestic system costs as discussed above.

"

Provision for credit impairment reduced NZD53 million. The individual provision charge reduced as a result of theprovisioning for a number of isolated corporate accounts in the March 2005 half, and recoveries of previously provisioned
corporate accounts in the current half. The collective provision charge reduced as a result of a lower provision for oil pricerisk, and an improved credit risk profile with lending growth mainly in low risk residential mortgages.

43

BUSINESS PERFORMANCE REVIEW (continued)

Corporate Australia
Mark Paton♦♦♦

Corporate Banking Australia
Business Banking Australia
Small Business Banking

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Net interest income

461

447

432

3%

7%

Other external operating income

83

80

76

4%

9%

Operating income

544

527

508

3%

7%

External operating expenses

(137)

(123)

(124)

11%

10%

Net inter business unit expenses

(82)

(80)

(79)

3%

4%

Operating expenses

(219)

(203)

(203)

8%

8%

Profit before credit impairment and income tax

325

324

305

0%

7%

Provision for credit impairment

(22)

(46)

(45)

-52%

-51%

Profit before income tax

303

278

260

9%

17%

Income tax expense and minority interest

(91)

(84)

(78)

8%

17%

Net profit attributable to shareholders of the Company

212

194

182

9%

16%

Business Banking Australia

103

92

89

12%

16%

Corporate Banking Australia

86

80

72

8%

19%

Small Business Banking

23

22

21

5%

10%

212

194

182

9%

16%

23,941

22,79321,6555%

11%

Consisting of:Balance Sheet
Net loans & advances including acceptances
Other external assets

130

109

113

19%

15%

External assets

24,071

22,902

21,7685%

11%

Deposits and other borrowings

18,98718,091

17,070

5%

11%

Other external liabilities

6,822

6,822

6,511

0%

5%

External liabilities

25,80924,913

23,581

4%

9%

Risk Weighted Assets

23,45022,301

21,0075%

12%

Net interest margin

3.60%

3.66%

3.69%

Return on assets

1.66%

1.60%

1.56%

Return on risk weighted assets

1.82%

1.78%

1.75%

Operating expenses to operating income

40.3%

38.5%

40.0%

Operating expenses to average assets

1.72%

1.67%

1.74%

(20)

(18)

(23)

11%

-13%

0.17%

0.16%

0.22%

30

38

54

-21%

-44%

2%

5%

RatiosIndividual provision charge
Net individual provision as a % of average net advances
Net impaired loans
Net impaired loans as a % of net advances

0.12%

0.17%

0.25%

Total employees

2,025

1,987

1,924

44

BUSINESS PERFORMANCE REVIEW (continued)

Corporate Australia
Mark Paton

March 2006 half year compared to September 2005 half year

Profit after tax increased by 9%, driven by strong balance sheet growth and continued improvement in the credit quality of
the lending portfolio, partially offset by the impact of competitive pressures on margins and fees. The business franchiseremains strong with leading levels of customer satisfaction and low propensity to switch, as well as very high levels of
employee engagement. The business model has been further enhanced by the ongoing expansion of the Wall Street to Main
Street (WSTMS) proposition for the Corporate market, the newly created Small Business segment and our industry
specialisation models. ANZ received the CFO Magazine Business Bank of the Year award for 2005.
Significant influences on the result were:"

Net interest income increased 3% driven by growth in both average lending (6%) and average deposits (7%).
The solid growth in average lending (Corporate Banking 7%, Business Banking 6% and Small Business Banking 16%) andaverage deposit volumes (Corporate Banking 7%, Business Banking 7% and Small Business Banking 10%) was the resultof a continued focus on new customer acquisition as well as growth from existing customers. Key factors in achieving
growth were ANZ’s leading customer service proposition, continued investment in people and process simplification, as
well as the industry and local market specialisation approach to customers.
The net interest margin declined by 6 basis points, largely driven by ongoing competitive pressures in the lending book,as well as some moderate compression of margins on the deposit portfolio.

"

Other external operating income increased 4%, largely from continued growth in the WSTMS proposition, including
private equity exit profits, with marginal growth in other fees. The WSTMS proposition continues to grow our portfolio
and future earnings potential, with 13 deals closing this half, bringing the total Corporate Private Equity portfolio value toover $200 million.

"

Operating expenses increased 8% including:- the impact of an expense refund relating to prior periods in the September 2005 half year;- continued investment in front line staff (particularly in Small Business) and the WSTMS proposition and the creation of
new Corporate Banking regions; and- higher branch costs as a result of our increased branch footprint.

After adjusting for these factors Operating expenses, including the impact of annual salary rises and on-goingcommitment to the Graduate program, were well managed at 2%.
"

The benefits of our on-going productivity agenda are reflected in the increase in revenue per average FTE. Productivity
gains in back and middle office operations and shared service areas have been used to partially fund the on-goinginvestment program. The cost to income ratio remains low at 40% in line with last half, allowing for the impact of theexpense refund in September 2005.

"

Credit quality remains sound and the overall quality of our credit portfolio has improved over the period. This reflects thestrong focus on risk management and compliance in both the Business Banking and Corporate Banking segments and theimpact of the continued de-risking of our portfolio, as well as the strength of the economy and business confidence.
Provision for credit impairment decreased by 52% and impaired loans as a percentage of net loans and advances
decreased to 0.12% over the period.

March 2006 half year compared to March 2005 half year

Profit after tax increased 16%, with solid growth in all businesses. Net interest income increased 7% due to growth of 10%
in average lending and 11% growth in average deposit volumes. Net interest margins declined 9 basis points due principally
to competitive pressures. Other external operating income increased by 9% due to an increase in advisory and ANZ Online
fee income. Operating costs increased by 8% mainly due to continued investment in frontline staff and salary increases.
Provision for credit impairment decreased by 51% and net impaired loans as a percentage of net advances reduced by 52%
reflecting the improvement in the quality of the credit portfolio.

45

BUSINESS PERFORMANCE REVIEW (continued)

Esanda and UDC
David Hisco
A leading provider of vehicle and equipment finance, rental services andfixed and at call investments. Operates in Australia as Esanda and Esanda
FleetPartners and in New Zealand as UDC and Esanda FleetPartners

Half
year
Mar 06
$M

Half
year
Sep 05$M

Net interest income

202

207

202

-2%

-

Other external operating income

25

42

37

-40%

-32%

Operating income

227

249

239

-9%

-5%

External operating expenses

(84)

(82)

(82)

2%

2%

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Net inter business unit expenses

(18)

(18)

(20)

0%

-10%

Operating expenses

(102)

(100)

(102)

2%

-

Profit before credit impairment and income tax

125

149

137

-16%

-9%

Provision for credit impairment

(49)

(67)

(42)

-27%

17%

Profit before income tax

76

82

95

-7%

-20%

Income tax expense and minority interest

(23)

(27)

(29)

-15%

-21%

Net profit attributable to shareholders of the Company

53

55

66

-4%

-20%

Net interest margin

2.65%

2.79%

2.82%

Operating expenses to operating income

44.9%

40.2%

42.7%

(35)

(48)

(24)

-27%

46%

Individual provision charge
Net impaired loans
Total employees

39

40

43

-3%

-9%

1,335

1,352

1,349

-1%

-1%

March 2006 half year compared to September 2005 half year

Profit after tax decreased by 4%. Profit growth in Australia of 9% was offset by a 31% profit reduction in New Zealand which
was impacted by structural changes made last year and competitive pressure. Overall the Australian business continues toprovide opportunities for future profit growth. A number of actions are underway in the New Zealand businesses to return toprofitable growth.
Significant influences on the result were:"

Net interest income declined 2%, with a 3% increase in lending volumes in Australia from solid new business writings
offset by an 11% reduction in volumes in New Zealand. A 14 basis point decline in margins resulted from the run-off ofhigher yielding loans during the half which were replaced by lower margin new business. Pricing initiatives have been put
in place to stabilise margins and grow revenue, the impact of which will flow through in the March 2007 half.

"

Other operating income decreased 40%, due to a $6 million impact from a fall in second-hand car prices as well as theinclusion of a $7 million gain in the September 2005 half year resulting from the alignment of revenue recognition onleases in the New Zealand Fleet business with Group accounting policies.

"

Operating expenses increased by 2% due to annual salary increases. These increases were partly offset by a $6 million
reduction in indirect taxes.

"

Provision for credit impairment decreased by 27% despite a 1% increase in lending volumes. Individual provision charge
was lower compared to the 2005 half, largely associated with improvement in the commercial loan portfolio and theexited aircraft lease business ($9 million) in 2005.

March 2006 half year compared to March 2005 half year

Profit after tax decreased by 20%. Net interest income was flat with a 5% increase in lending volumes offset by a 17 basis
point margin reduction. Other operating income decreased 32% due to a $10 million impact from the fall in second-hand car
prices. Operating expenses were flat with an increase in personnel costs due to annual salary increases offset by a $6 million
reduction in indirect taxes. Provision for credit impairment increased 17% and individual provision charge increased$11 million with an individual loss of $5 million in the March 2006 half.

46

BUSINESS PERFORMANCE REVIEW (continued)

Asia Pacific
Bob Edgar
Provision of retail and corporate banking services in the Pacific Region andAsia, including ANZ’s share of PT Panin Bank in Indonesia; this businessexcludes Institutional businesses, which are a ‘matrix’ responsibility andincluded in Institutional business unit results. Geographic results areincluded on page 56

Half
year
Mar 06
$M

Half
year
Sep 05$M

Net interest income

96

89

80

8%

20%

Other external operating income

71

71

70

0%

1%

Operating income

167

160

150

4%

11%

External operating expenses

(103)

(93)

(83)

11%

24%

Net inter business unit expenses

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%

1

1

-

0%

n/a

(102)

(92)

(83)

11%

23%

65

68

67

-4%

-3%

Provision for credit impairment

(8)

(13)

(21)

-38%

-62%

Profit before income tax

57

55

46

4%

24%

Income tax expense and minority interest

(11)

(11)

(7)

0%

57%

Net profit attributable to shareholders of the Company

46

44

39

5%

18%

61.1%

57.5%

55.3%

Operating expenses
Profit before credit impairment and income tax

Operating expenses to operating income
Individual provision charge

(6)

(7)

(17)

-14%

-65%

Net impaired loans

8

21

14

-62%

-43%

2,248

2,196

2,040

2%

10%

Total employees

March 2006 half year compared to September 2005 half year

Profit after tax increased by 5%. Excluding the impact of exchange rate movements profit increased 1%. A strong result in
the Pacific (up 23%) was partly offset by lower equity accounted earnings for PT Panin Bank.
Excluding exchange rate movements the main drivers of the results were:"

Net interest income increased 7% driven by a 12% growth in lending volumes. Growth in lending was particularly strong
in Fiji, Samoa and PNG.

"

Other external operating income reduced 4%. Fee growth of 7% largely in the Cards business in Indonesia was offset bylower equity accounting earnings for PT Panin Bank ($4 million) and a reduction in foreign exchange income($2 million) from the particularly strong September 2005 half.

"

Operating expenses increased 9% as a result of costs associated with building partner relationships in China and Vietnam,
the first full half of operating costs in Cambodia, and additional customer facing staff in the Pacific.

"

Provision for credit impairment reduced by $4 million. The individual provision charge reduced largely as a result of thewrite-back of provisioning in Fiji.

"

Income tax expense was flat.

March 2006 half year compared to March 2005 half year

Profit after tax increased 18%. Net interest increased 20% driven by 28% growth in lending volumes and a 14% growth indeposit volumes. Other operating income increased slightly with strong card and other fee growth and increased foreignexchange revenue being partly offset by reduced equity accounted income from PT Panin. Operating expenses increased
23% largely as a result of advancing the partnership business agenda in Asia and additional customer facing staff in the
Pacific. The impact of exchange rate movements was less than 3%.

47

BUSINESS PERFORMANCE REVIEW (continued)

Non-continuing businesses
Steve Targett
Comprises the London headquartered project finance business, the run-off
of New Zealand conduit transactions and certain structured financetransactions that ANZ has exited as part of its de-risking strategy

Net interest income

Half
year
Mar 06
$M

Half
year
Sep 05
$M

11

36

Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%
$M
26

-69%

-58%

Other external operating income

18

-

7

n/a

large

Operating income

29

36

33

-19%

-12%

External operating expenses

-

-

(6)

n/a

-100%

Net inter business unit expenses

(1)

(8)

(10)

-88%

-90%

Operating expenses

(1)

(8)

(16)

-88%

-94%

Profit before credit impairment and income tax

28

28

17

0%

65%

Provision for credit impairment

8

53

44

-85%

-82%
-41%

Profit before income tax

36

81

61

-56%

Income tax expense and minority interest

(6)

(18)

2

-67%

large

Net profit attributable to shareholders of the Company

30

63

63

-52%

-52%

3.4%

22.2%

48.5%

Individual provision (charge) credit

3

30

11

-90%

-73%

Net impaired loans

7

45

52

-84%

-87%

Total employees

-

5

9

-100%

-100%

Operating expenses to operating income

March 2006 half year compared to September 2005 half year

Profit after tax reduced by $33 million (52%). Significant factors affecting the result were:"

Net interest income reduced by $25 million reflecting a 48% ($0.8 billion) reduction in lending volumes from theSeptember 2005 half.

"

Other operating income of $18 million largely represents a $12 million release of provisions created on the sale of the
London headquartered project finance business following the expiry of certain warranties provided to Standard Chartered
Bank and a $4 million gain on sale of power assets.

"

Operating expenses reduced by $7 million, with the remaining expenses being legal and restructuring costs associatedwith the legacy balances in the London headquartered project finance business.

"

Provision for credit impairment credit decreased by $45 million. The individual provision credit in the September 2005
half reflected the net recovery of $30 million on legacy project finance assets. The remainder of the credit impairment
credit, $23 million credit in the collective provisions resulted from the significant reduction in risk as the legacy assets
matured or were sold.

March 2006 half year compared to March 2005 half year

Profit after tax reduced by $33 million (52%). Operating income reduced by $4 million, with reduced net interest income
resulting from a $2.3 billion reduction in lending volumes partly offset by an $11 million increase in other operating income.
The $18 million other operating income in the current half was largely from the release of provisions created on the sale of
the London headquartered project finance business, whilst the March 2005 half included $4 million profit on the sale of thosebusinesses.
Operating expenses reduced by $15 million with the London headquartered project finance business being sold part way
through the March 2005 half. Provision for credit impairment reduced by $36 million. The March 2005 half included a net
recovery of $11 million in individual provisions and a $33 million credit in the collective provision charge resulting from thesignificant reduction in risk as legacy assets matured or were sold through that half.

48

BUSINESS PERFORMANCE REVIEW (continued)

Group Centre♦♦♦

Group People CapitalGroup Risk Management
Treasury♦♦♦Group Strategic Development
Group Financial Management
Operations, Technology andShared Services

Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%
$M

Half
year
Mar 06
$M

Half
year
Sep 05$M

Net interest income

110

104

81

6%

36%

Other external operating income

22

26

39

-15%

-44%

Operating income

132

130

120

2%

10%

External operating expenses

(377)

(395)

(387)

-5%

-3%

Net inter business unit expenses

275

271

266

1%

3%

Operating expenses

(102)

(124)

(121)

-18%

-16%

30

6

(1)

large

large

-

-

-

n/a

n/a

30

6

(1)

large

large

Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense and minority interest

(3)

10

6

large

large

Net profit attributable to shareholders of the Company

27

16

5

69%

large

Including:Treasury
Total employees

10

10

9

0%

11%

4,098

4,023

3,875

2%

6%

March 2006 half year compared to September 2005 half year

The result for the Group Centre was $27 million profit compared with $16 million in the September 2005 half. Significant
influences on the result were:"Movements in the average NZD exchange rate resulted in a $9 million after tax increase in income on contracts put inplace to hedge NZD denominated earnings. These gains were partly offset in New Zealand Businesses, and the New
Zealand component of the Institutional and Esanda (UDC) businesses. The gains on the NZD contracts were partly offset
by the maturity of contracts put in place to hedge USD revenues, which resulted in a decline of $6 million after tax.

"

Other operating income decreased $4 million with lower capital investment earnings (net of hedge costs) from INGA.
Capital investment hedges were terminated in October 2005.

"

Operating expenses reduced $22 million with lower non-incremental New Zealand businesses System Integration costs
and other project costs.

"

Income tax expense increase reflects a tax benefit booked in the prior half in respect of issue costs for the 2 for 11 rights
issue, and lower INGA non-taxable Capital investment earnings.

March 2006 half year compared to March 2005 half year

The half year profit of $27 million was $22 million higher than the March 2005 half. Revenue increased $12 million withhigher net interest offset by lower capital investment earnings (net of hedge earnings) in INGA following the payment ofdividends. External operating expenses reduced 3% with the inclusion of provisioning for cheque conversion fraud in the
March 2005 half.

49

This page has been left blank intentionally

50

GEOGRAPHIC SEGMENT PERFORMANCE

Geographic performance
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Movt
Half
Movt
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05%%$M

Net profit attributable to shareholders of the company
Australia

1,196

1,105

1,043

8%

15%

New Zealand

422

340

355

24%

19%

Asia Pacific

110

101

84

9%

31%

Other

83

74

73

12%

14%

1,811

1,620

1,555

12%

16%

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%

1

Cash profit
1,108

1,040

1,014

7%

9%

New ZealandAustralia

434

331

377

31%

15%

Asia Pacific

110

103

87

7%

26%

Other

79

109

90

-28%

-12%

1,731

1,583

1,568

9%

10%

1.

ANZ has reduced the September 2005 profit after tax by $46 million (Mar 2005: $15 million increase) to bring the result for that period to an AIFRS basis that isfully comparable with March 2006 figures (refer pages 13 to 15), allowing readers to see the impact on 2005 results of accounting standards that have only been
applied from 1 October 2005. No adjustment has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In the March 2006 half ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million after tax settlementof warranty claims on Lloyds TSB plc (tax on warranty settlement: $nil) as significant items. In the September 2005 half ANZ classified $14 million after tax profit
on the sale of NBNZ life and funds management businesses as a significant item (tax on gain on sale of NBNZ life and funds management businesses: $nil). ANZ
excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 13)
In the March 2006 half ANZ has classified $13 million after tax profit (Sep 2005: $12 million; Mar 2005 $19 million) on derivatives entered into to manage interest
rate and foreign exchange risk on funding instruments, not designated as accounting hedges, ineffective portions of cash flow hedges, profit or loss on disposal ofinvestment securities, and fair value movement in bonds and notes designated at fair value as a non-core item. ANZ excludes volatility associated with fair value
movements on these transactions to provide a better indication of the core business performance (tax on hedge gains/losses $5 million (Sep 2005: $5 million; Mar
2005: $8 million))In the March 2006 half ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (Sep 2005 half: $35 million; Mar 2005 half:$17 million). Tax on ANZ National Bank incremental integration costs is $13 million (Sep 2005: $18 million; Mar 2005: $8 million). ANZ National Bank
incremental integration costs are excluded to better reflect the core cost base and assist analysis of the cost base following completion of the integration (referpage 13)

Cash profit by segment

Personal

542

New
Zealand
208

-

798

Institutional

287

110

57

61

515

Corporate

212

126

12

-

350
53

March 2006 Half

Australia

Asia
Pacific
48

Other

Total

Esanda and UDC

41

12

-

-

Other

26

(22)

(7)

18

15

1,108

434

110

79

1,731

Australia

New
Zealand

Asia
Pacific

Other

Total

September 2005 Half
Personal

485

197

38

-

720

Institutional

299

102

57

66

524

Corporate

194

72

16

-

282

Esanda and UDC

38

17

-

-

55

Other

24

(57)

(8)

43

2

1,040

331

103

109

1,583

Asia
Pacific
29

Other

Total

Personal

468

New
Zealand
203

-

700

Institutional

299

112

49

53

513

Corporate

182

92

21

-

295

Esanda and UDC

50

16

-

-

66

Other

15

(46)

(12)

37

(6)

1,014

377

87

90

1,568

March 2005 Half

Australia

51

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Australia

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%

2,291

2,170

2,092

Fee income

688

689

Other operating income

264

287

Operating income

3,243

Operating expenses
Profit before credit impairment and income tax

Net interest income

6%

10%

622

0%

11%

279

-8%

-5%

3,146

2,993

3%

8%

(1,479)(1,444)(1,403)

2%

5%

1,764

1,702

1,590

4%

11%
12%

Provision for credit impairment

(218)

(257)

(195)

-15%

Profit before income tax

1,546

1,445

1,395

7%

11%

Income tax expense

(438)

(405)

(381)

8%

15%

Minority interest
Cash1 profit
Non-core items1 and AIFRS 2005 adjustments

-

-

-

n/a

n/a

1,108

1,040

1,014

7%

9%

88

65

29

35%

large

Net profit attributable to shareholders of the company

1,196

1,105

1,043

8%

15%

Net interest average margin

2.31%

2.09%

2.16%

12%

67%

53%

39%

1%

5%

Return on risk weighted assets

1.59%

1.54%

1.56%

Operating expenses1 to operating income

42.0%

45.3%

46.3%

Operating expenses1 to average assets

1.29%

1.46%

1.53%

1

Core net interest average margin

2.31%

2.34%

2.41%

Cash1 return on risk weighted assets

1.47%

1.45%

1.51%

Operating expenses1 to operating income (adjusted for non-core items1)

45.6%

45.9%

46.9%

Operating expenses1 to average assets (adjusted for non-core items1)

1.40%

1.46%

1.53%

Individual provision charge

(169)

(151)

(101)

Individual provision charge as a % of average net advances

0.19%

0.18%

0.13%

305

200

220

Net impaired loans
Net impaired loans as a % of net advances

0.17%

0.12%

0.13%

Total employees

18,221

18,043

17,389Lending growth

5.1%

5.5%

n/a

External assets

217,171

199,903

189,774

9%

14%

Risk weighted assets

154,148

145,132

139,243

6%

11%

1.

ANZ has reduced the September 2005 profit after tax by $65 million (Mar 2005: $29 million decrease) to bring the result for that period to an AIFRS basis that isfully comparable with March 2006 figures (refer pages 13 to 15) allowing readers to see the impact on 2005 results of accounting standards that have only been
applied from 1 October 2005. No adjustment has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In the March 2006 half ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter as a significant item. ANZ excludes
significant items to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 13)
In the March 2006 half ANZ has classified $9 million after tax profit (Sep 2005: $12 million; Mar 2005 $19 million) on derivatives entered into to manage interest
rate and foreign exchange risk on funding instruments, not designated as accounting hedges, ineffective portions of cash flow hedges, profit or loss on disposal ofinvestment securities, and fair value movement in bonds and notes designated at fair value as a non-core item. ANZ excludes volatility associated with fair value
movements on these transactions to provide a better indication of the core business performance (tax on hedge gains/losses $3 million (Sep 2005: $5 million; Mar
2005: $8 million))

52

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Australia, cont’dMarch 2006 half year compared to September 2005 half year

Profit after tax increased by 8%. Cash profit increased 7% (refer pages 13 to 15 for an explanation of non-core items and
AIFRS adjustments). Significant influences on cash profit were:"

Net interest income increased by 6%. Average net advances increased 5%, driven by growth in Personal Banking
Australia 6%, Corporate Australia 7% and Institutional 4%. Average deposit and other borrowing volumes increased 5%,
driven by Personal Banking Australia 5%, Corporate Australia 7%, Group Treasury 13% and Esanda 7%. Net interest
margin decreased 3 basis points with a change in the asset mix, increased volumes of wholesale funding and competitive
pressures in the lending books of Mortgages, Institutional and Corporate Banking. Institutional Australia’s marginincreased as Trade and Transactional Services included the release of revenue that related to prior years and Market’s net
interest income increased $22 million due to a reduction in funding costs associated with unrealised trading gains resulted
in a higher proportion of revenue being booked as interest. Personal Banking Australia net interest margin was
unchanged.

"

Fee income decreased by $1 million. Personal Banking Australia increased 4% underpinned by growth in Mortgages,
Banking Products, from higher numbers of transaction accounts, and financial planning fees were up from higher sales
volumes. Institutional Australia decreased $17 million mainly due to reduced advisory fees in Corporate and Structured
Financing following the particularly strong September 2005 half.

"

Other operating income decreased $23 million. Markets decreased $22 million, offset by higher net interest income.
Excluding this impact, other operating income decreased 2% due to a $6 million impact from a fall in the value in secondhand car prices in Esanda and $3 million lower contribution from INGA, net of capital hedges.

"

Operating expenses increased by 2% reflecting an increased investment in frontline staff and the footprint expansion,
with 11 new branches and 134 more ATMs, annual salary increases, and higher non-lending losses in Institutional partly
offset by lower computer expenses in Operations, Technology and Shared Services and Personal Banking Australia and a$6 million reduction in indirect taxes in Esanda.

"

Provision for credit impairment decreased by 15% ($39 million) driven by reduced provisions held for non-customer
specific oil price risk. The impact of volume growth was partly offset by improved credit quality in most portfolios. The
individual provision charge increased $18 million with an increase in Institutional, due to two large new provisions, partly
offset by a lower charge in Esanda largely associated with improvement in the commercial loan portfolio and the exitedaircraft lease business in 2005.

March 2006 half year compared to March 2005 half year

Profit after tax increased 15%. After adjusting for the impact of non-core items and AIFRS 2005 Adjustments (referpages 13 to 15), cash profit increased 9%; net interest income increased 10% as average net advances increased 12% andaverage deposits and other borrowings increased 10% partly offset by an 11 basis point margin contraction. Fee income
increased 11% with growth in Personal Banking Australia (13%), Institutional (14%) and Corporate (10%). Operating
expenses increased 5% reflecting the 5% increase in staff numbers and the ongoing investment in the branch network.
Provision for credit impairment increased 12% as the individual provision charge increased $68 million, due largely torecoveries in the March 2005 half, two large new provisions in Institutional and the planned risk mix shift in Personal
Banking. Collective provision reduced largely as a result of the reduced provisions held for non-customer specific oil price
risk.

53

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

New Zealand

Half
year
Mar 06
NZD M

Half
year
Sep 05
NZD M

Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%
NZD M

Net interest income

943

893

879

6%

7%

Fee income

281

280

273

0%

3%

Other operating income

136

97

81

40%

68%

Operating income

1,360

1,270

1,233

7%

10%

Operating expenses

(644)

(642)

(592)

0%

9%

Profit before credit impairment and income tax

716

628

641

14%

12%

Provision for credit impairment

(14)

(106)

(50)

-87%

-72%

Profit before income tax

702

522

591

34%

19%

Income tax expense

(227)

(162)

(182)

40%

25%

(1)

(1)

-

0%

n/a

474

359

409

32%

16%

Minority interest
Cash1 profit
Non-core items1 and AIFRS 2005 adjustments

(13)

11

(25)

large

-48%

Net profit attributable to shareholders of the company (NZD)

461

370

384

25%

20%

Net profit attributable to shareholders of the company (AUD)

422

340

355

24%

19%

Net interest average margin

2.32%

2.29%

2.43%

Return on risk weighted assets

1.54%

1.35%

1.44%

1

Operating expenses to operating income

47.4%

50.3%

47.9%

Operating expenses1 to average assets

1.45%

1.54%

1.51%

Core1 net interest average margin

2.32%

2.36%

2.50%

Cash1 return on risk weighted assets

1.54%

1.23%

1.46%

Operating expenses1 to operating income (adjusted for non-core items1)

47.4%

50.6%

48.0%

Operating expenses1 to average assets (adjusted for non-core items1)

1.45%

1.54%

1.51%
-73%

-28%

-3%

large

-1%

1%

Individual provision charge
Individual provision charge as a % of average net advances
Net impaired loans

(23)

(84)

(32)

0.06%

0.25%

0.10%

119

123

46

Net impaired loans as a % of net advances

0.16%

0.18%

0.07%

Total employees

9,239

9,345

9,177

Lending growth

6.1%

6.5%

n/a

External assets

93,41286,49780,2828%

16%

Risk weighted assets

65,21861,04158,280

7%

12%

1.

ANZ has reduced the September 2005 profit after tax by NZD11 million (Mar 2005: NZD25 million increase) to bring the result for that period to an AIFRS basisthat is fully comparable with March 2006 figures (refer pages 13 to 15) allowing readers to see the impact on 2005 results of accounting standards that have only
been applied from 1 October 2005. No adjustment has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of
impracticability
In the March 2006 half ANZ has classified the $14 million after tax settlement of warranty claims on Lloyds TSB plc (tax on warranty settlement: $nil) as asignificant item. In the September 2005 half ANZ classified $14 million after tax profit on the sale of NBNZ life and funds management businesses as a significant
item (tax on gain on sale of NBNZ life and funds management businesses: $nil). ANZ excludes significant items to eliminate the distorting effect of one-off
transactions on the results of its core business (refer page 13)
In the March 2006 half ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (Sep 2005 half: $35 million; Mar 2005 half:$17 million). ANZ National Bank incremental integration costs are excluded to better reflect the core cost base following completion of the integration (referpage 13)54

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

New Zealand, cont’d
Reconciliation of Geographic result

M ovt
M ar 0 6
v. Sep
05
%

H alf
year
M ar 06

H alf
year
Sep 05H alf
year
M ar 0 5

NZD M

NZD M

N ZD M

366

288

320

27%

14%

13

19

18

-32%

-28%

M ovt
M ar 0 6
v. M ar05%

N Z B usinessN ew Zealand BusinessesUDC
N Z Institutional

117

92

105

27%

11%

N Z shareholder functions

(25)

(58)

(49)

-57%

-49%
-81%

N on-continuing businesses
N ew Zealand geography cash profit
AIFR S 2005 adjustm ents and non-core item s

1

Total N ew Zealand geography
1.

3

19

16

-84%

474

360

410

32%

16%

(13)

10

(26)

large

-50%

461

370

384

25%

20%

Refer footnote 1 on page 51

March 2006 half year compared to September 2005 half year

Profit after tax increased by 25% in NZD terms. After adjusting for the impact of non-core items and AIFRS 2005
adjustments (refer pages 13 to 15), profit after tax increased 32% (NZD114 million) impacted by a NZD92 million(NZD62 million after tax) reduction in the Provision for credit impairment charge. Profit before provisions increased 14%
after adjusting for the impact of AIFRS 2005 adjustments and non-core items.
Key influences on cash profit include:"

Net interest income increased NZD50 million including an additional NZD39 million resulting from the replacement ofintercompany debt with preference share capital as a result of amendments to thin capitalisation rules.
Lending volumes increased 6% in NZD terms with growth in New Zealand Businesses (7%) and Institutional (9%)
offsetting reductions in UDC (-5%) and non-continuing business (-64%). Customer deposit volumes increased 5% in New
Zealand businesses in NZD terms. Net interest margins declined 4 basis points despite a 9 basis point (approximately$40 million) benefit from the additional capital. After adjusting for this, the 13 basis point reduction was as a result of the
migration of customers from variable to fixed rate loans, higher funding costs from growth in wholesale debt and lower
margin deposits, and margin reductions in Rural and UDC.

"

Fee income was flat with a 3% increase in New Zealand Businesses, offset by lower fees in Institutional with reduced
activity in structured leasing, and in non-continuing businesses.

"

Other operating income was NZD39 million higher, largely due to the strong result in the markets business in
Institutional. This was partly offset by a NZD10 million reduction in UDC, reflecting a one-off benefit (NZD7 million) in the
September half’s result from an accounting policy change.

"

Operating expenses were flat. The cost of the settlement with the Commerce Commission action over disclosure ofoptional issuer fees (NZD10 million), salary increases and a small increase in numbers of front-line staff were offset by a
6% reduction in the number of support staff and tight control over discretionary spend.

"

Provision for credit impairment reduced by NZD92 million. The collective provision reduced NZD31 million, with increased
lending volumes being offset by a lower provision for oil price risk, and an improved credit risk profile (an increased
proportion of low risk residential and rural lending). The individual provision charge reduced by NZD61 million largely asa result of provisioning for two isolated corporate accounts and exposures to the apple and pear export industry in the
September half. Net impaired loans reduced NZD4 million as a result of the generally benign credit conditions.

March 2006 half year compared to March 2005 half year

Profit after tax increased by 20% in NZD terms. After adjusting for the impact of AIFRS 2005 adjustments and non-core
items (refer pages 13 to 15), cash profit increased 16% (NZD65 million) impacted by a NZD24 million after tax reduction in
the Provision for credit impairment charge. Profit before provisions increased 12% after adjusting for the impact of non-core
items. The following explanations exclude the impact of non-core items"

Net interest income increased 7% including 3% as a result of the replacement of intercompany debt with capital as
discussed above. Lending volumes increased 13% in NZD terms. Net interest margins have reduced 18 basis points,
reflecting the impact of competition, in particular the ‘mortgage price war’ in the March 2005 half, product switching fromvariable rate to fixed rate loans, and a change in funding mix to more expensive deposit and wholesale products.

"

Other operating income increased 68% largely due to the strong result in the markets business in Institutional.

"

Operating expenses increased 9% with salary increases, an increase in front line staff, and the cost of the CommerceCommission settlement (NZD10 million), partly offset by reduced support staff.

"

Provision for credit impairment reduced NZD36 million. The individual provision charge reduced as a result ofprovisioning for a number of isolated corporate accounts in the March 2005 half, and recoveries of previously provisioned
corporate accounts received in the current half. The collective provision charge reduced as a result of a lower provision
for oil price risk and an improved credit risk profile, with lending growth mainly in lower risk residential mortgages.
55

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Asia Pacific
Bob Edgar
Halfyear
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Movt
Mar 06v. Sep 05%

Net interest income

143

124

107

15%

34%

Fee income

61

58

49

5%

24%

Movt
Mar 06v. Mar 05%

Other operating income

84

87

79

-3%

6%

Operating income

288

269

235

7%

23%

Operating expenses

(137)

(125)

(114)

10%

20%

Profit before credit impairment and income tax

151

144

121

5%

25%

Provision for credit impairment

(7)

(12)

(12)

-42%

-42%

Profit before income tax

144

132

109

9%

32%

Income tax expense

(33)

(29)

(20)

14%

65%
-50%

Minority interest
Cash profit1
Non-core items1 and AIFRS 2005 adjustments
Net profit attributable to shareholders of the Company
1

(1)

-

(2)

n/a

110

103

87

7%

26%

-

(2)

(3)

-100%

-100%

110

101

84

9%

31%

Operating expenses to operating income

47.6%

45.9%

48.3%

Core operating expenses1 to operating income1

47.6%

46.1%

48.5%

Individual provision charge

(2)

(9)

(15)

-78%

-87%

Net impaired loans

8

27

21

-70%

-62%

2,456

2,432

2,275

1%

8%

Total employees
1.

ANZ has reduced the September 2005 profit after tax by $2 million (Mar 2005: $3 million) to bring the result for that period to an AIFRS basis that is fullycomparable with March 2006 figures (refer pages 13 to 15) allowing readers to see the impact on 2005 results for accounting standards that have only been
applied from 1 October 2005. No adjustment has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability

March 2006 half year compared to September 2005 half year

Profit after tax increased 9%. After adjusting for AIFRS 2005 adjustments (refer pages 13 to 15) profit after tax increased
by 7%. The depreciation of the AUD increased profit growth by 2% ($2 million).
After adjusting for non-core items and exchange rate movements:"

Net interest increased 13% driven by improved Treasury performance in Singapore and growth in lending and deposit
volumes. Growth in lending was particularly strong in Fiji, Samoa and PNG with significant deposit growth achieved in
Asia Markets.

"

Fee income increased 3% due to higher Cards volumes in Indonesia.

"

Other external operating income reduced 3% largely as a result of reduced equity accounted earnings in PT Panin Bank($4 million). Foreign exchange revenue was flat with the strong September 2005 half.

"

Operating expenses increased 8% as a result of costs associated with building partner relationships in China and Vietnam,
the first full half of operating costs in Cambodia and new product specialists in Asia and additional customer facing staff in
the Pacific.

"

Provision for credit impairment reduced by $5 million. The individual provision charge reduced largely as a result of thewrite-back of provisioning on accounts in Fiji and Singapore.

"

Income tax expense increase reflects increased profit.

March 2006 half year compared to March 2005 half year

Profit after tax increased 31%. After adjusting for the impact of non-core items: profit increased 26%; operating income
increased 23% with strong lending and deposit volume growth, higher Treasury earnings in Singapore, improved foreignexchange earnings and increased fee income. These were offset by lower equity accounted earnings from PT Panin Bank;
operating expenses increased by 20% as investments were made to progress partnerships in Cambodia, China and Vietnam,
together with the addition of specialist product skills in Asia and additional customer facing staff in the Pacific. The impact of
exchange rate movements increased profits by 2%.

56

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Other
Includes:United Kingdom
Europe♦♦♦♦United States
Middle East and South Asia
(including Bangalore)

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Movt
Mar 06v. Sep 05%

Movt
Mar 06v. Mar 05%

Net interest income

69

115

129

-40%

-47%

Fee income

22

21

31

5%

-29%

Other operating income

64

38

22

68%

large

Operating income

155

174

182

-11%

-15%

Operating expenses

(54)

(55)

(62)

-2%

-13%

Profit before credit impairment and income tax

101

119

120

-15%

-16%

Provision for credit impairment

15

41

14

-63%

7%
-13%

Profit before income tax

116

160

134

-28%

Income tax expense

(37)

(51)

(42)

-27%

-12%

Cash profit1

79

109

92

-28%

-14%

Non-core items and AIFRS 2005 adjustments

4

(35)

(19)

large

large

Net profit attributable to shareholders of the Company

83

74

73

12%

14%

Operating expenses to operating income

34.0%

32.2%

35.2%

Core operating expenses1 to operating income1

35.0%

31.6%

34.6%

4

32

(5)

-88%

large

Individual provision (charge) credit
Net impaired loans
Total employees
1.

6

46

43

-87%

-86%

1,082

986

913

10%

19%

ANZ has reduced the September 2005 profit after tax by $35 million (Mar 2005: $19 million decrease) to bring the result for that period to an AIFRS basis that isfully comparable with March 2006 figures (refer pages 13 to 15) allowing readers to see the impact on 2005 results for accounting standards that have only been
applied from 1 October 2005. No adjustment has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In the March 2006 half ANZ has classified $4 million after tax profit (Sep 2005: $nil; Mar 2005 $nil) on derivatives entered into to manage interest rate andforeign exchange risk on funding instruments, not designated as accounting hedges, ineffective portions of cash flow hedges, profit or loss on disposal ofinvestment securities, and fair value movement in bonds and notes designated at fair value as a non-core item. ANZ excludes volatility associated with fair value
movements on these transactions to provide a better indication of the core business performance (tax on Fair value hedge gains/losses $2 million (Sep 2005: $nil;
Mar 2005: $nil)

March 2006 half year compared to September 2005 half year

Profit after tax increased 12%. Cash profit reduced 28%. The impact of exchange rates was immaterial. Significant
influences on the core result were:"

Net interest income decreased 40% mainly due to reduced earnings on capital following a change in the New Zealandfunding structure resulting in repayment of intragroup debt and a reduction in the non-continuing business.

"

Fee income increased 5%. Increases in lending fees in Corporate and Structured Financing and Trade and Transaction
Services were offset by a reduction of $5 million in other fees.

"

Other operating income increased $26 million due largely to the profit on the sale of a power asset in the US and thesettlement of warranties on the sale of the London headquartered project and structured finance business.

"

Operating expenses decreased 2%. The rise in staff numbers is attributable to increases in technology staff in India,
however these costs were charged to other businesses.

"

The credit in Provision for credit impairment is due to the reduction in assets following the sale of the project andstructured finance business and debt recoveries. The credit in the individual provisions charge reduced as a result of
lower recoveries in the March 2006 half year. Net impaired loans reduced due to the realisation of a power exposure in
the US.

March 2006 half year compared to March 2005 half year

Profit after tax increased 14%. Cash profit decreased 14%. Core operating income decreased by 15% due largely to
reduced earnings on capital, and lower asset volumes following the sale of the project and structured finance business offset
by profit on the sale of a power asset in the US and the settlement of sale warranties. Operating expenses decreased 13%
due to a reduction in personnel costs following the sale of the project and structured finance business. The credit toindividual provisions is due to the recovery of bad debts previously provided for. Net impaired loans have reduced due to thesale of a power asset in the US.
57

This page has been left blank intentionally58

FOUR YEAR SUMMARY BY HALF YEAR
1

Previous AGAAP
Mar 06$M

Sep 05$M

Mar 05$M

Sep 04$M

Mar 04$M

Sep 03$M

Mar 03$M

Sep 02$M

Net interest income

3,368

3,231

3,140

2,745

2,507

2,171

2,140

2,053

Other operating income

1,563

1,528

1,407

1,694

1,573

1,456

1,352

1,387

Operating expense(2,259)(2,213)(2,127)(2,103)(1,902)(1,626)(1,602)(1,575)

Income Statement

Provision for credit impairment

(224)

(325)

(240)

(319)

(313)

(311)

(303)

(309)

Profit before income tax

2,448

2,221

2,180

2,017

1,865

1,690

1,587

1,556

Income tax expense

(716)

(636)

(611)

(597)

(550)

(482)

(444)

(453)

(1)

(2)

(1)

(1)

(3)

(1)

(2)

(1)

1,731

1,583

1,568

1,419

1,312

1,207

1,141

1,102

80

37

(13)

-

84

-

-

170

1,811

1,620

1,555

1,419

1,396

1,207

1,141

1,272

Assets319,363

298,104

282,784

259,345

247,288

195,591

190,518

183,105

Net assets

18,796

19,53818,927

17,925

16,74813,787

12,485

11,465Return on average ordinary equity

20.9%

18.3%

18.3%

17.3%

19.1%

20.9%

20.3%

24.8%

Return on average assets

1.2%

1.1%

1.1%

1.1%

1.2%

1.2%

1.2%

1.4%

Tier 1 capital ratio

6.8%

6.9%

7.0%

6.9%

7.0%

7.7%

7.7%

7.9%

44.0%

47.1%

47.0%

45.8%

43.9%

44.6%

45.6%

43.3%

45.8%

46.5%

46.8%

45.5%

45.1%

44.6%

45.6%

45.5%

Minority interest
2

Cash profit2

Non-core items

Net profit attributable
to shareholders of the Company
Balance Sheet

Ratios3

4Operating expenses to operating income
4Core operating expenses to operating income
Shareholder value - ordinary shares
Total return to shareholders

13.2%

19.2%

11.3%

3.0%

13.6%

2.5%

4.1%

1.4%

Market capitalisation(share price movement plus dividends)

48,461

43,83437,584

34,58634,28427,314

27,13526,544

Dividend

56 cents

59 cents

51 cents

54 cents

47 cents

51 cents

44 cents

46 cents

100%

100%

100%

100%

100%

100%

100%

100%

- high$26.70$24.45$22.02$19.44$19.40$18.45$18.19$19.70- low$22.70$20.53$19.02$17.45$15.94$16.66$15.01$16.18- closing$26.50$24.00$20.62$19.02$18.96$17.17$17.15$16.88Franked portion
5

Share price

Share information (per fully paid
ordinary share)
5

Earnings per share - basic

98.4

86.3

83.2

76.4c

76.8c

73.3c

69.1c

77.7c

Dividend payout ratio

56.9%

68.4%

61.3%

71.0%

63.8%

67.0%

61.3%

57.0%

Net tangible assets

$8.00

$7.77

$7.38

$7.51

$6.94

$7.49

$7.32

$6.58

1,828.7

1,826.4

1,822.7

1,818.4

1,808.2

1,521.7

1,513.4

1,503.9

Permanent employees (FTE)

29,61729,471

28,38827,383

26,585

21,586

21,21821,380Temporary employees (FTE)

1,446

1,505

1,444

1,372

1,386

1,551

1,265

1,102

Total employees

31,06330,976

29,83228,75527,971

23,13722,48322,482

273,503

263,467

255,655

252,072

245,173

223,545

210,512

198,716

Number of fully paid ordinary shareson issue (millions)
Other information

6

Number of shareholders
1.

An explanation of the differences between accounting under current AGAAP (AIFRS) as opposed to “previous AGAAP” is set out on pages 13 to 15

2.

ANZ has reduced the September 2005 profit after tax by $46 million (Mar 2005: $15 million increase) to bring the result for that period to an AIFRS basis that isfully comparable with March 2006 figures (refer page 6), allowing readers to see the impact on 2005 results of accounting standards that have only been applied
from 1 October 2005. No adjustment has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability. In the
March 2006 half ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million after tax settlement of
warranty claims on Lloyds TSB plc (tax on warranty settlement: $nil) as significant items. In the September 2005 half ANZ classified $14 million after tax profit on
the sale of NBNZ life and funds management businesses as a significant item (tax on gain on sale of NBNZ life and funds management businesses: $nil). ANZ
excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 13). In the March 2006 half ANZ
has classified $13 million after tax profit (Sep 2005: $12 million; Mar 2005 $19 million) on derivatives entered into to manage interest rate and foreign exchange
risk on funding instruments, not designated as accounting hedges, ineffective portions of cash flow hedges, profit or loss on disposal of investment securities, andfair value movement in bonds and notes designated at fair value as a non-core item. ANZ excludes volatility associated with fair value movements on thesetransactions to provide a better indication of the core business performance (tax on hedge gains/losses $5 million (Sep 2005: $4 million; Mar 2005: $8 million)).
In the March 2006 half ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (Sep 2005 half: $35 million; Mar 2005 half:$17 million). Tax on ANZ National Bank incremental integration costs is $13 million (Sep 2005: $18 million; Mar 2005: $8 million). ANZ National Bank
incremental integration costs are excluded to better reflect the core cost base and assist analysis of the cost base following completion of the integration (referpage 13)

3.

Average ordinary shareholders’ equity excludes minority interest

4.

Operating expenses excludes goodwill amortisation of $nil (Sep 2005: $nil; Mar 2005: $nil; Sep 2004: $83 million; Mar 2004: $63 million; Sep 2003: $9 million;
Mar 2003: $9 million; Sep 2002: $10 million). Under AIFRS goodwill is not amortised and therefore was not recognised from the March 2005 period onwards

5.

September 2003 and prior periods adjusted for the bonus element of the rights issue

6.

Excludes employees whose only ANZ shares are held in trust under ANZ employee share schemes

59This page has been left blank intentionally60

Australia and New Zealand Banking Group Limited

CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND OTHER DISCLOSURES

Half year ended
31 March 2006

61

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTSCONTENTS

PAGE

Directors’ Report

63

Consolidated Condensed Income Statement

64

Consolidated Condensed Balance Sheet

65

Consolidated Condensed Statement of Recognised Income and Expense

66

Consolidated Condensed Cash flow statement

67

Notes to Financial Statements

681.

Significant Accounting policies

68

2.

Income74

3.

Operating expenses

75

4.

Income tax expense

76

5.

Dividends

77

6.

Earnings per share

78

7.

Derivative financial instruments

79

8.

Net loans and advances

81

9.

Impaired financial assets

82

10. Provision for credit impairment85

11. Loan capital86

12. Share Capital86

13. Shareholders’ Equity

87

14. Capital Management89

15. Average balance sheet and related interest - statutory basis

91

16. Interest spreads and net interest average margins -- statutory basis

94

17. Segment analysis

95

18. Contingent liabilities and contingent assets

96

19. Note to the Cash Flow Statement98

20. Changes in composition of the Group99

21. Associates, joint venture entities and investments

99

22. Exchange rates

100

23. Significant events since balance date100

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS)

101

Directors’ Declaration

116

Auditors’ Review Report and Independence Statement

117

Supplementary Information - Average Balance Sheet

118

Definitions

122

Alphabetical Index

124

62

DIRECTORS’ REPORTThe directors present their report on the consolidated financial report for the half year ended 31 March 2006.
Directors

The names of the directors of the Company who held office during and since the end of the half year are:
Mr CB Goode, AC - Chairman
Mr J McFarlane - Chief Executive Officer
Dr GJ Clark
Dr RS Deane
Mr JK Ellis
Mr DM Gonski, AO
Ms MA Jackson, AC
Mr DE Meiklejohn
Mr JP Morschel

Director since 24 July 1991, Chairman since 24 August 1995
CEO and director since 1 October 1997
Director since 1 February 2004
Director since 28 September 1994
Director since 1 October 1995
Director since 7 February 2002
Director since 22 March 1994
Director since 1 October 2004
Director since 1 October 2004

Result

The consolidated profit attributable to shareholders of the Company was $1,811 million. Further details are contained in the
Chief Financial Officer’s Review and Business Performance Review on pages 11 to 49 and in the financial report.

Review of operations

A review of the operations of the consolidated entity during the half year and the results of those operations are contained in
the Chief Financial Officer’s Review and Business Performance Review on pages 11 to 49.

Lead auditor’s independence statement

The lead auditor’s independence statement given pursuant to ASIC Class Order 05/910 is set out on page 117 and forms partof the Directors’ Report for the half year ended 31 March 2006.

Rounding of amounts

The Company is a company of the kind referred to in the Australian Securities and Investments Commission class order
98/100 dated 10 July 1998 pursuant to section 341(1) of the Corporations Act 2001 (as amended). Consequently, amounts
in this report and the accompanying financial report have been rounded to the nearest million dollars except where otherwise
indicated.
Signed in accordance with a resolution of the directors.

Charles Goode
ChairmanJohn McFarlane
Director

27 April 2006

63

CONSOLIDATED CONDENSED INCOME STATEMENT

Note
Total income

2

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05%%$M

12,372

11,160

10,137

11%

22%

Interest income

10,777

9,299

8,420

16%

28%

Interest expense(7,409)(6,346)(5,555)17%

33%

Net interest income

2

3,368

2,953

2,865

14%

18%

Other operating income

2

1,595

1,861

1,717

-14%

-7%

4,963

4,814

4,582

3%

8%

3

(2,185)(2,266)(2,152)

-4%

2%

2,778

2,548

2,430

9%

14%

(224)

(296)

(284)

-24%

-21%

2,554

2,252

2,146

13%

19%

Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment

10

Profit before income tax
Income tax expense

4

Profit for the period
Net profit attributable to minority interest
Net profit attributable
to shareholders of the Company

(742)

(630)

(590)

18%

26%

1,812

1,622

1,556

12%

16%

(1)

(2)

(1)

-50%

0%

1,811

1,620

1,555

12%

16%

Earnings per ordinary share (cents)
Basic

6

98.4

86.3

83.2

14%

18%

Diluted

6

96.1

84.3

80.6

14%

19%

Dividend per ordinary share (cents)

5

56

59

51

-5%

10%

8.00

7.77

7.38

3%

8%

Net tangible assets per ordinary share ($)
The notes appearing on pages 68 to 115 form an integral part of these financial statements

64

CONSOLIDATED CONDENSED BALANCE SHEETAs at
Mar 06As at
Sep 05$M$M

13,87011,601

8,856

20%

57%

Due from other financial institutions

8,336

6,348

6,428

31%

30%

1

8,721

6,285

6,108

39%

43%

7,485

3,730

4,002

large

87%

13,287

10,042

9,586

32%

39%

241,546

232,490

220,394

4%

10%

13,692

13,44912,922

2%

6%

214

159

143

35%

50%

Interests in associates and joint venture entities

1,912

1,926

1,796

-1%

6%

Deferred tax assets

1,460

1,389

1,283

5%

14%

3,269

3,454

3,608

-5%

-9%

4,510

6,177

6,583

-27%

-31%

Note

As at
Mar 05Movt
Movt
Mar 06
Mar 06v. Sep 05 v. Mar 05$M%%

AssetsLiquid assets
Trading securities

Derivative financial instruments
Available for sale assets

7

2

Net loans and advances

8

Customers' liability for acceptances
Regulatory deposits

Goodwill and other intangible assets
Other assets

34,5

Premises and equipment

1,061

1,054

1,075

1%

-1%

319,363

298,104

282,784

7%

13%

13,345

12,027

10,05611%

33%

196,850

190,322

185,177

3%

6%

6,134

4,225

4,987

45%

23%

Liability for acceptances

13,692

13,44912,922

2%

6%

Income tax liabilities

1,897

1,801

1,705

5%

11%

9,697

7,618

7,703

27%

26%

Total assets
Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments

Payables and other liabilities

7

5

Provisions
Bonds and notes
Loan capital

6

11

908

914

865

-1%

5%

46,92339,07332,321

20%

45%

11,121

9,137

8,121

22%

37%

Total liabilities

300,567

278,566

263,857

8%

14%

Net assets

18,796

19,53818,927-4%-1%

Shareholders' equity
Ordinary share capital

12,13

8,068

8,053

7,982

0%

1%

Preference share capital

12,13

871

1,858

1,858

-53%

-53%

Reserves

(156)

(46)

102

large

large

Retained profits

13

9,979

9,646

8,967

3%

11%

Share capital and reserves attributable toshareholders of the Company

18,762

19,511

18,909

-4%

-1%

34

27

18

26%

89%

18,796

19,53818,927-4%-1%

Minority interest
Total shareholders' equity
Contingent liabilities and contingent assets
1.

18

Includes bills held in portfolio $1,167 million (Sep 2005: $1,182 million; Mar 2005: $1,395 million)2.

In 2005 available for sale assets were reported as investment securities

3.

Excludes notional goodwill in equity accounted entities

4.

Includes interest revenue receivable $1,468 million (Sep 2005: $1,443 million; Mar 2005: $1,522 million)

5.

Other assets includes life insurance assets of $nil (Sep 2005: $nil; Mar 2005: $50 million). Payables and other liabilities includes policy holder liabilities of $nil
(Sep 2005: $nil; Mar 2005: $31 million)

6.

Includes $1,536 million (Sep 2005: $1,443 million; Mar 2005: $1,425 million) hybrid loan capital that qualifies for Tier 1 capital as defined by the Australian
Prudential Regulation Authority

The notes appearing on pages 68 to 115 form an integral part of these financial statements

65

CONSOLIDATED CONDENSED STATEMENT OF RECOGNISED INCOME AND EXPENSE

Half
year
Mar 06

Halfyear
Sep 05Halfyear
Mar 05

$M

$M

-

$M

Movt
Mar 06v. Sep05%

Movt
Mar 06v. Mar
05
%

-

-

n/a

n/a

(305)

(159)

(284)

92%

7%

-

-

-

n/a

n/a

22

-

-

n/a

n/a

-

-

-

n/a

n/a

Valuation gain (loss) taken to equity

31

-

-

n/a

n/a

Transferred to income statement for the period

(14)

-

-

n/a

n/a

34

27

8

26%

large

Items recognised directly in equity
Revaluation of investments in controlled entities
Currency translation adjustments
Exchange differences taken to equity
Transferred to income statement on sale
Available-for-sale assets
Valuation gain (loss) taken to equity
Cumulative gain (loss) transferred to the income statement on sale
Cash flow hedges

Actuarial gain (loss) on defined benefit plans
Income tax recognised directly in equity

(16)

(9)

(1)

78%

large

Net loss recognised directly in equity

(248)

(141)

(277)

76%

-10%

Profit for the period

1,811

1,620

1,555

12%

16%

Total recognised income and expense for the period

1,563

1,479

1,278

6%

22%

1

2

1

-50%

0%

1,564

1,481

1,279

6%

22%

Total recognised income and expense attributable to minority interest
Total recognised income and expense attributable
to shareholders of the company
The notes appearing on pages 68 to 115 form an integral part of these financial statements

66

CONSOLIDATED CONDENSED CASH FLOW STATEMENT

Note
Cash flows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Recovery from NHB litigation
Income taxes paid
Australia
Overseas
Net Goods and Services Tax received (paid)(Increase) decrease in operating assets:
Liquid assets - greater than three months
Due from other financial institutions
Trading securities
Regulatory deposits
Loans and advances
Increase (decrease) in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Net decrease (increase):
Shares in controlled entities and associates
Available for sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other

19

Net cash (used in) investing activities
Cash flows from financing activities
Net (decrease) increase
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Decrease in minority interests
Dividends paid
Share capital issues
Share capital buyback
Euro Hybrid preference share issue
Euro Hybrid issues costs
Net cash provided by financing activities
Net cash (used in) provided by operating activities
Net cash (used in) investing activities
Net cash provided by financing activities
Net (decrease)increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign currency translation on opening balances
Cash and cash equivalents at end of period

19

The notes appearing on pages 68 to 115 form an integral part of these financial statements

67

Half
year
Mar 06
Inflows(Outflows)
$M

Half
year
Sep 05
Inflows(Outflows)
$M

Half
year
Mar 05
Inflows(Outflows)$M

11,17949
1,016
581(7,299)(1,383)(188)(1,244)
87

9,169
106
1,360
861
(6,003)(1,285)(186)(1,094)
-

8,699
38
943
152
(5,411)(1,213)(181)(1,050)
-

(539)
(82)
(5)

(294)
(305)
24

(278)
(195)
(6)

(1,798)
806
881
(47)
(16,502)

(358)
(358)
(183)
(19)
(13,365)

(370)
(13)
(638)
24
(15,423)

8,729
1,159
119
(4,481)

5,802
2,080
(652)
(4,700)14,054
2,892
(687)
1,337

(62)

(86)

243

(7,657)8,217(7,603)
7,394(9,585)
10,462

-

(149)
144

-

(153)
2
86

(170)
81
255

(155)
5
(1,975)

433

(134)

(1,005)

9,924(4,139)9,649(2,396)

8,319(2,629)

609
2
(989)
75
(146)
-

1,225
(93)
8
(884)
58
(87)
-

(924)
62
(117)
875
(4)

5,336
(4,481)
433
5,336
1,288
13,702
1,855

7,480(4,700)
(134)
7,480
2,646
11,696
(640)

5,582
1,337
(1,005)
5,582
5,914
7,854
(2,072)

16,845

13,702

11,696

NOTES TO FINANCIAL STATEMENTS

1.

Significant Accounting policies(i)Basis of preparation
These consolidated financial statements comprise a general purpose financial report and:"should be read in conjunction with the ANZ Financial Report and the ANZ Concise Annual Report for the year ended
30 September 2005 and any public announcements made by the Parent entity and its controlled entities (the Group)for the half year ended 31 March 2006 in accordance with the continuous disclosure obligations under the
Corporations Act 2001 (as amended) and the ASX Listing Rules"

are presented in Australian dollars in accordance with class order 98/100 dated 10 July 1998 (millions, except wherestated otherwise)"comply with the accounts provisions of the Banking Act 1959, applicable Australian Accounting Standards, theCorporations Act 2001 (as amended), the Corporations Regulations 2001 and other authoritative pronouncements of
the Australian Accounting Standards Board (AASB)"

are condensed financial statements as defined in AASB 134: ‘Interim Financial Reporting’. Compliance with AASB 134
ensures compliance with International Financial Reporting Standard IAS 34: ‘Interim Financial Reporting’. This report
does not include all notes of the type normally included in the annual financial report"

have been prepared in accordance with the historical cost convention except that the following assets and liabilities
are stated at their fair value: derivative financial instruments including the fair value of any applicable underlying
exposure, assets treated as available-for-sale, financial instruments held for trading, term funding instruments
including specific bonds and notes, and defined benefit plans assets and liabilities.

The preparation of the financial report requires the use of management judgement, estimates and assumptions that
affect reported amounts and the application of policies. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be reasonable. Actual results may differ from theseestimates. Such estimates may require review in future periods.
International Financial Reporting Standards (IFRS) form the basis of Australian Accounting Standards issued by the
AASB, being Australian equivalents to IFRS (AIFRS). The Group revised its accounting policies on 1 October 2005 toenable the preparation of financial statements that comply with AIFRS. This is the Group’s first financial report preparedin accordance with AIFRS and AASB 1: ‘First-time Adoption of Australian Equivalents to International Financial ReportingStandards’ has been applied. An explanation of how the transition from superseded policies to AIFRS has impacted theGroup’s reported financial position, financial performance and cash flow, is set out in Note 24.
The accounting policies have been consistently applied by all consolidated entities and to all periods presented in the
consolidated financial report and the opening AIFRS balance sheet as at 1 October 2004, except for those policies
relating to Standards for which comparatives are not restated, as permitted under the first time adoption transitional
provisions. The Standards are AASB 132: ‘Financial Instruments: Presentation and Disclosure’, AASB 139: ‘Financial
Instruments: Recognition and Measurement’, and AASB 4: ‘Insurance Contracts’.
The Group’s key accounting policies that have been amended by the adoption of AIFRS follow.
(ii)

Consolidation
The financial statements consolidate the financial statements of Australia and New Zealand Banking Group Limited (theCompany) and all its subsidiaries where it is determined that there is a capacity to control. Control means the power togovern the financial and operating policies of an entity so as to obtain benefits from its activities.
On adoption of AIFRS certain special purpose entities in which the Group holds less than a majority of voting rights,
were deemed to be controlled entities where:

(iii)

"

in substance, the majority of the risks and rewards from their activities accrue to the Group; or"in substance, the Group controls their decision making powers so as to obtain the majority of the risks and rewards
from their activities.

Interest income and interest expense
Interest income and interest expense are recognised in the income statement as they accrue using the effective interest
method.
Fee income and directly related transaction costs relating to loan origination, financing or restructurings are now
deferred and amortised to interest income over the expected life of the loan using the effective interest method.
Loan commitment fees, together with related direct costs, are deferred and recognised as an adjustment to the interest
yield on the loan once drawn or immediately to the income statement for expired commitments.
Fees and commissions payable to brokers in respect of originating lending business, where these are incremental costs
directly related to the issue of a financial instrument, are included in interest income as part of the effective interest
rate.

68

NOTES TO FINANCIAL STATEMENTS (continued)

1.

Significant Accounting policies, cont’d(iv)

Fee and commission income
Unless included in the effective interest calculation (refer 1(iii)), fees and commissions are brought to account on an
accrual basis.
Fees and commissions that relate to the execution of a significant act (for example, advisory services, placement fees
and underwriting fees) are recognised when the significant act has been completed.
Fees charged for providing ongoing services that represent the recoupment of the costs of providing service (forexample, maintaining and administering existing facilities) are recognised as income over the period the service isprovided.

(v)

Offsetting of income and expenses
Income and expenses are not offset unless required or permitted by an accounting standard. At the Group level, thisgenerally arises in the following circumstances:

(vi)

"

where transaction costs, which are an integral part of the effective interest rate of a financial instrument measured atamortised cost, are offset against the interest income generated by the financial instrument"

where gains and losses relating to fair value hedges are assessed as being effective"

where gains and losses from a group of similar transactions are reported on a net basis, such as foreign exchange
gains and losses, or"where amounts are collected on behalf of third parties, where the Group is acting as an agent.

Cash receipts on impaired loans
Cash receipts on impaired loans are applied as a reduction to principal.

(vii)

Derivative financial instruments
Derivative financial instruments are contracts whose value is derived from one or more underlying financial instruments
or indices.
Derivative financial instruments including swaps, forward rate agreements, futures, options and combinations of these
instruments are entered into by the Group for trading purposes, including customer-related reasons, or for hedging
purposes where the derivative instruments are used to hedge the Group’s exposures to interest rate risk, currency risk,
price risk, credit risk and other exposures relating to non-trading positions.
Derivative financial instruments are recognised initially at fair value with gains or losses from subsequentremeasurement at fair value being recognised in the income statement. Where the derivative is designated andeffective as a hedging instrument, the timing of the recognition of any resultant gain or loss in the income statement isdependent on the hedging designation. These hedging designations and associated accounting treatments are as
follows:"

Fair value hedge
Where the Group hedges the fair value of a recognised asset or liability or firm commitment, changes in the fairvalue of derivatives designated as a fair value hedge are recognised in the income statement. Changes in the fairvalue of the hedged item attributable to the hedged risk are reflected as adjustments to the carrying value of thehedged items, which are also recognised in the income statement.
Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised or no longer
qualifies for hedge accounting. The resulting adjustment to the carrying amount of the hedged item arising from thehedged risk is amortised to the income statement over the period to maturity.
If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in the income
statement.

"

Cash flow hedge
The Group designates derivatives as cash flow hedges where the instrument hedges the variability in cash flows of arecognised asset or liability, a foreign exchange component of a firm commitment or a highly probable forecast
transaction. The effective portion of changes in the fair value of derivatives qualifying and designated as cash flow
hedges is deferred to the cash flow hedging reserve which forms part of shareholders’ equity. Any ineffective portionis recognised immediately in the income statement. Amounts deferred in equity are recognised in the income
statement in the period during which the hedged forecast transactions take place.
When the hedge expires, is sold, terminated, exercised, or no longer qualifies for hedge accounting, the cumulative
amount deferred in equity remains in the cash flow hedging reserve, and is subsequently transferred to the income
statement when the hedged item is recognised in the income statement.
When a forecast transaction is no longer expected to occur, the amount deferred in equity is recognised immediately
in the income statement.

69

NOTES TO FINANCIAL STATEMENTS (continued)

1.

Significant Accounting policies, cont’d(vii)

Derivative financial instruments, cont’d"

Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. The gain or loss
from remeasuring the fair value of the hedging instrument relating to the effective portion of the hedge is deferred inequity and the ineffective portion is recognised immediately in the income statement. Amounts deferred in theforeign currency translation reserve are recognised in the income statement when the foreign operation is disposedof.

All gains and losses from changes in the fair value of derivatives, that are not designated in a hedging relationship but
are entered into to manage the interest rate and foreign exchange risk of funding instruments, are recognised in theincome statement. The component of the fair value change in the derivative and which relates to current period realised
and unrealised interest, is included in net interest income. The remainder of the fair value movement is included inother income.
Embedded derivatives - Derivatives embedded in financial instruments or other host contracts are treated as separate
derivatives when their economic characteristics and risks are not closely related to those of the host contracts, and thehost contracts are not measured at fair value. The embedded derivative is reported at fair value with changes in fairvalue immediately recognised in the income statement.
(viii) Trading Securities and other financial assets at fair value through profit or loss
Trading securities and other financial instruments acquired principally for the purpose of selling in the short-term or
which are part of a portfolio which is managed for short-term gains are recognised in the balance sheet at their fairvalue. Additionally, this valuation basis is used as an alternative to hedge accounting for certain financial instruments.
It is not used for illiquid instruments or those for which the demonstrated variability in the range of fair value estimates
is other than low.
Changes in the fair value (gains or losses) of financial instruments are recognised in the income statement in the period
in which they occur.
(ix)

Available-for-sale assets
Available-for-sale assets comprise non-derivative financial assets which the Group designates as available-for-sale but
which are not deemed to be held principally for trading purposes, and include equity investments, certain loans andadvances and fixed term securities. They are initially recorded at fair value plus transaction costs. Subsequent gains orlosses arising from changes in fair value are included as a separate component of equity, the ‘available-for-salerevaluation reserve’. When an available-for-sale asset is sold, the cumulative gain or loss relating to the asset istransferred from equity to the income statement.
Where there is objective evidence of impairment to an available-for-sale asset, the cumulative loss related to that asset
is removed from equity and recognised in the income statement. If, in a subsequent period, the amount of an
impairment loss relating to an available-for-sale debt instrument decreases and the decrease can be linked objectively toan event occurring after the impairment event, the loss is reversed through the income statement.
Premiums and discounts are included within the calculation of the fair value of the security. Interest and dividend
income is accrued.
Financial assets previously disclosed as investment securities are now predominantly treated as available-for-salesecurities.

(x)

Impairment of loans and advances
Loans and advances are regularly reviewed for impairment loss.
Credit impairment provisions are raised for exposures that are known to be impaired. Loans are impaired andimpairment losses incurred if there is objective evidence of impairment as a result of one or more loss events that
occurred after the initial recognition of the loan and that loss event or events has had a reliably estimable impact on theestimated future cash flows of the individual loan or the collective portfolio of loans.
Impairment is assessed firstly for assets that are individually significant (or on a portfolio basis for small value loans),
and then on a collective basis for those exposures not individually known to be impaired.
For those exposures that are assessed collectively, these are placed in pools of similar assets with similar risk
characteristics. The required provision is estimated on the basis of historical loss experience for assets with credit risk
characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current
observable data.

70

NOTES TO FINANCIAL STATEMENTS (continued)

1.

Significant Accounting policies, cont’d(x)Impairment of loans and advances, cont’d
The estimated impairment loss is measured as the difference between the asset’s carrying amount and the estimatedfuture cash flows discounted to their present value. As this discount unwinds during the period between recognition of
impairment and recovery of the written down amount, it is recognised in net interest income. The process of estimating
the amount and timing of cash flows involves considerable management judgement. These judgements are reviewed
regularly to reduce any differences between loss estimates and actual loss experience.
The provision for impairment loss (individual and collective), referred to as “Provision for credit impairment”, is deductedfrom loans and advances in the balance sheet and the movement in the provision for the reporting period is reflected in
the income statement. When a loan is uncollectible, it is written-off against the related provision for loan impairment.
Subsequent recoveries of amounts previously written off are taken to the income statement.
Where impairment losses recognised in previous periods are subsequently decreased or no longer exist, such
impairments are reversed in the income statement.

(xi)

Goodwill and other intangible assets"

Goodwill
Goodwill, representing the excess of the purchase consideration over the fair value of the identifiable net assets of acontrolled entity at the date of gaining control, is recognised as an asset and not amortised, but tested for
impairment annually and when the goodwill is impaired the difference is charged to the income statement.
Any impairment of goodwill cannot be subsequently reversed.

"

Other intangible assets
Other intangible assets comprise costs incurred in acquiring and building software and computer systems(“software”).
Software is amortised using the straight-line method over its expected useful life to the Group. The period ofamortisation is between 3 and 5 years except for branch front-end applications where 7 years is used.
At each reporting date, software assets are reviewed for impairment. If any such indication exists, the recoverable
amount of the assets are estimated and compared against the existing carrying value. Where the existing carrying
value exceeds the recoverable amount, the difference is charged to the income statement.
Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, are notcapitalised.

(xii)

Premises and equipment impairment assessment
At each reporting date, the carrying amounts of premises and equipment are reviewed for impairment. If any such
indication exists, the recoverable amount of the assets are estimated and compared against the existing carrying value.
Where the existing carrying value exceeds the recoverable amount, the difference is charged to the income statement.
If it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable
amount of the cash generating unit to which the asset belongs.
A previously recognised impairment loss is reversed if there has been a change in the estimates used to determine therecoverable amount.

(xiii) Employee benefits
The directors have elected under s334(5) of the Corporations Act 2001 to early adopt the December 2004 revision ofAustralian Accounting Standard AASB 119: ‘Employee Benefits’.
"

Defined benefit superannuation schemes
The Group operates a number of defined benefit schemes. The liability and expense related to providing benefits toemployees under each defined benefit scheme are calculated by independent actuaries. Initially, a defined benefit
liability is recognised to the extent that the present value of the defined benefit obligation of each scheme, calculatedusing the Projected Unit Credit Method, is greater than the fair value of each scheme’s assets. Where this calculation
results in a benefit to the Group, a defined benefit asset is recognised. In each subsequent reporting period, ongoing
movements in the defined benefit liability or asset carrying value are treated as follows:-

net movement relating to the current period’s service cost, interest cost, expected return on scheme assets, past
service costs and other costs (such as the effects of any curtailments and settlements), is recognised as an
employee expense in the income statement-

movements relating to actuarial gains and losses are recognised directly in retained earnings-

contributions incurred are recognised directly against the net defined benefit position.

71

NOTES TO FINANCIAL STATEMENTS (continued)

1.

Significant Accounting policies, cont’d(xiii) Employee benefits, cont’d"

Share-based compensation
The Group has various equity settled share-based compensation plans. These are described in Note 49 of the 2005
annual financial report and largely comprise the Employee Share Acquisition Plan and the ANZ Share Option Plan.
ANZ ordinary shares

The fair value of ANZ ordinary shares granted under the Employee Share Acquisition Plan is measured at grant date,using the one-day volume weighted average market price of ANZ shares. The fair value is expensed immediately
when shares vest immediately or on a straight-line basis where shares vest over the relevant vesting period. This is
recognised as an employee compensation expense with a corresponding increase in equity.
Share options

The fair value of share options is measured at grant date, using an option pricing model. The fair value is expensed
on a straight-line basis over the relevant vesting period. This is recognised as an employee compensation expensewith a corresponding increase in the share options reserve. The option pricing model takes into account the exercise
price of the option, the risk free interest rate, the expected volatility of ANZ ordinary share price and other factors.
Market vesting conditions are taken into account in estimating the fair value.
Performance rights

From October 2005, ANZ has granted performance Rights to certain employees. A Performance Right is a right toacquire a share at nil cost to the employee, subject to satisfactorily meeting time and performance hurdles. Upon
exercise, each Performance Right entitles the holder to one ordinary share in ANZ. The fair value of Performance
Rights is determined at grant date using an option pricing model, taking into account market conditions. The fairvalue is expensed over the relevant vesting period. This is recognised as an employee expense with a corresponding
increase in equity.
Other adjustments

The amount of expense recognised during the vesting period is adjusted for the number of shares, options or
performance rights expected to vest. Non-market vesting conditions (eg service conditions) are taken into account,so that ultimately the expense recognised in the income statement reflects the number of shares or share options
that actually vest.
(xiv) Offsetting of assets and liabilities
Assets and liabilities are offset and the net amount reported in the balance sheet only where:

(xv)

"

there is a current enforceable legal right to offset the asset and liability, and"there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Income tax"

Income tax expense
Income tax on earnings for the period comprises current and deferred tax and is based on the applicable tax law ineach jurisdiction. It is recognised in the income statement as tax expense, except when it relates to items credited
directly to equity, in which case it is recorded in equity, or where it arises from the initial accounting for a businesscombination, in which case it is included in the determination of goodwill.

"

Current tax
Current tax is the expected tax payable on taxable income for the period, based on tax rates (and tax laws) which
are enacted or substantively enacted by the reporting date, including any adjustment for tax payable in previous
periods. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid(or refundable).

"

Deferred tax
Deferred tax is accounted for using the comprehensive tax balance sheet liability method. It is generated bytemporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and theamounts used for taxation purposes.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when theasset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have beenenacted or substantively enacted by the reporting date. The measurement reflects the tax consequences that would
follow from the manner in which the Group, at the reporting date, recovers or settles the carrying amount of its
assets and liabilities.

72

NOTES TO FINANCIAL STATEMENTS (continued)

1.

Significant Accounting policies, cont’d(xv)

Income tax, cont’dDeferred tax liabilities are recognised for all taxable temporary differences, other than those in relation to taxable
temporary differences arising from goodwill. Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in controlled entities, branches, associates and joint ventures, except where the Group is able
to control the reversal of the temporary differences and it is probable that temporary differences will not reverse in
the foreseeable future. Deferred tax assets associated with these interests are recognised only to the extent that itis probable that the temporary difference will reverse in the foreseeable future and there will be sufficient taxable
profits against which to utilise the benefits of the temporary difference.
Deferred tax assets, including those related to the tax effects of income tax losses and credits available to be carriedforward, are recognised only to the extent that it is probable that future taxable profits will be available against
which the deductible temporary differences or unused tax losses and credits can be utilised.
"

Offsetting
Current and deferred tax assets and liabilities are offset only to the extent that they relate to income taxes imposedby the same taxation authority and there is a legal right and intention to settle on a net basis and it is allowed under
the tax law of the relevant jurisdiction.

(xvi) Change in accounting policy
In the current reporting period the Group has adopted AASB 132: ‘Financial Instruments: Presentation and Disclosure’,AASB 139: ‘Financial Instruments: Recognition and Measurement’ and AASB 4: ‘Insurance Contracts’. This change inaccounting policy has been adopted in accordance with the transitional rules contained in AASB 1, which does not
require the restatement of comparative information for financial instruments within the scope of AASB 132, AASB 139
and AASB 4. The impact of this change in accounting policy in the current reporting period is detailed in Note 24.

73

NOTES TO FINANCIAL STATEMENTS (continued)

2.

IncomeHalfyear
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Net interest income
Interest income

10,777

9,299

8,420

16%

28%

Interest expense(7,409)(6,346)(5,555)17%

33%

Net interest income

3,368

2,953

2,865

14%

18%

215

535

508

-60%

-58%

i) Fee and commission income
Lending fees1
Non-lending fees and commissions

939

931

869

1%

8%

Total fee and commission income

1,154

1,466

1,377

-21%

-16%

Fee and commission expense2

(125)

(115)

(117)

9%

7%

Net fee and commission income

1,029

1,351

1,260

-24%

-18%

Foreign exchange earnings

227

233

222

-3%

2%

Net gains/(losses) from trading securities

17

40

(7)

-58%

large

Net gains/(losses) from trading derivatives

127

54

47

large

large

Other financial instruments

18

-

-

n/a

n/a

Settlement of NBNZ warranty claims

14

-

-

n/a

n/a

ii) Other income

3

1.

Net profit before tax from the sale of NBNZ Life

-

14

-

-100%

n/a

Share of joint venture profit from ING Australia

57

69

80

-17%

-29%

Share of joint venture profit from ING (NZ)4

11

-

-

n/a

n/a

Share of associates profit (net of write-offs)

18

20

27

-10%

-33%

Private Equity and Infrastructure earnings5

10

5

17

100%

-41%

Other

67

75

71

-11%

-6%

Total other income

566

510

457

11%

24%

Total other operating income

1,595

1,861

1,717

-14%

-7%

Total income

12,372

11,160

10,137

11%

22%

Profit before income tax as a % of total income

20.64%

20.18%

21.17%

Lending fees in 2006 excludes fees included as part of the effective yield calculation

2.

Comprises interchange fees paid

3.

Includes any fair value movements (excluding realised and unrealised interest) on derivatives entered into to manage interest rate and foreign exchange
risk on funding instruments, not designated as accounting hedges, ineffective portions of cash flow hedges, profit or loss on disposal of investment
securities, and fair value movement in bonds and notes designated at fair value

4.

A joint venture entity from 30 September 2005

5.

Includes earnings from private equity and infrastructure portfolios. Includes share of associates’ profit $4 million (Sep 2005 half: $4 million; Mar 2005 half:$1 million) not included in share of associates’ profit above

74

NOTES TO FINANCIAL STATEMENTS (continued)

3.

Operating expenses
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Personnel
Employee entitlements and taxes

106

103

87

3%

22%

Salaries and wages

872

832

793

5%

10%

Superannuation costs - defined benefit plans

4

9

7

-56%

-43%

Superannuation costs - defined contribution plans

80

72

71

11%

13%

Equity-settled share-based payments

38

39

41

-3%

-7%

Temporary staff

64

62

49

3%

31%

Other

199

192

171

4%

16%

1,363

1,309

1,219

4%

12%
23%

Total personnel expenses
Premises
Depreciation and amortisation

16

14

13

14%

Rent

113

108

105

5%

8%

Utilities and other outgoings

64

62

60

3%

7%

Other
Total premises expenses

13

16

16

-19%

-19%

206

200

194

3%

6%

ComputerComputer contractors

24

34

19

-29%

26%

Data communications

28

29

31

-3%

-10%

Depreciation and amortisation

104

120

115

-13%

-10%

Rentals and repairs

35

35

23

0%

52%

Software purchased

53

58

57

-9%

-7%

Other

20

19

18

5%

11%

264

295

263

-11%

0%

Advertising and public relations

80

82

79

-2%

1%

Audit fees

3

4

3

-25%

0%

Total computer expenses
Other

Depreciation of furniture and equipment

23

20

23

15%

0%

Freight and cartage

23

23

22

0%

5%
-10%

Non-lending losses, frauds and forgeries
Settlement of NHB insurance claim
Postage and stationery

36

22

40

64%

(113)

-

-

n/a

n/a

57

57

56

0%

2%

Professional fees

61

62

61

-2%

0%

Telephone

28

25

30

12%

-7%

Travel

65

69

55

-6%

18%

Other

61

76

77

-20%

-21%

Total other expenses

324

440

446

-26%

-27%

Restructuring

28

22

30

27%

-7%

2,185

2,266

2,152

-4%

2%

Operating expenses1
1.

Includes ANZ National Bank incremental integration costs $39 million (Sep 2005 half: $53 million; Mar 2005 half: $25 million) refer page 13

75

NOTES TO FINANCIAL STATEMENTS (continued)

4.

Income tax expense
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Movt
Mar 06v. Sep05%

Movt
Mar 06v. Mar
05
%

2,554
766

2,252
676

2,146
644

13%
13%

19%
19%

16
(3)
(5)
(26)
(6)
742
742
474
268
742
29.1%

10
(9)
(17)
(27)
(2)
(1)
630
630
422
208
630
28.0%

12
(14)
(15)
(32)
(3)
592
(2)
590
381
209
590
27.5%

60%
-67%
-71%
-4%
-100%
large
18%
n/a
18%
12%
29%
18%

33%
-79%
-67%
-19%
-100%
n/a
25%
-100%
26%
24%
28%
26%

846
(104)
742

591
39
630

453
137
590

43%
large
18%

87%
large
26%

(a) Reconciliation of the prima facie income tax expense on pretax profit with the income tax expense charged in the Income
Statement

Operating profit before income tax
Prima facie income tax expense at 30%
Tax effect of permanent differences:
Overseas tax rate differential
Rebateable and non-assessable dividends
Other non-assessable income
Profit from associated and joint venture entities
Life insurance accounting
Other
Income tax under/(over) provided in previous years
Total income tax expense on operating profit
Australia
Overseas
Effective Tax Rate - GroupTax expense comprises:
Current tax expense
Deferred tax expense

76

NOTES TO FINANCIAL STATEMENTS (continued)

5.

Dividends
Ordinary Shares

Half
year
Mar 06

Halfyear
Sep 05

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05%%

Dividend per ordinary share1 (cents)
Interim (fully franked)

56

n/a

51

n/a

10%

Final (fully franked)

n/a

59

n/a

n/a

n/a

-

930

-

-100%

n/a

1,078

-

983

n/a

10%

Ordinary share dividend1,2Interim dividend paid
Final dividend paid
Bonus option plan adjustment3

(18)

(17)

(19)

6%

-5%

Total

1,060

913

964

16%

10%

Ordinary share dividend payout ratio4 (%)

56.9%

68.4%

61.3%

1.

Excludes preference share dividend

2.

Dividends recorded when determined

3.

This relates to prior period dividend payments

4.

Dividend payout ratio calculated using proposed interim dividend of $1,024 million not included in the above table. Dividend payout ratio for the September
2005 half year calculated using $1,078 million dividends paid in the March 2006 half. Dividend payout ratio for March 2005 half year calculated using$930 million dividends paid in the September 2005 halfPreference Shares

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Movt
Movt
Half
Mar 06year
Mar 06
Mar 05 v. Sep 05 v. Mar 05%$M%

Preference share dividend
ANZ StEPS1

-

34

32

-100%

-100%

Euro Hybrid

12

12

6

0%

100%

12

46

38

-74%

-68%

Dividend per preference share
ANZ StEPS (AUD)2

-

$3.40

$3.18

n/a

n/a

Euro Hybrid (EUR)€ 14.86€ 14.22€ 7.23

5%

large

1.

Under AIFRS, the ANZ StEPS issue is treated as debt, with distributions being reported as an interest expense in the half year ended 31 March 2006

2.

Represents the equivalent dividend per share on distributions made77

NOTES TO FINANCIAL STATEMENTS (continued)

6.

Earnings per share

Number of fully paid ordinary shares on issue (M)Movt
Mar 06v. Sep
05
%
0%

Movt
Mar 06v. Mar
05
%
0%

Half
year
Mar 06

Halfyear
Sep 05Halfyear
Mar 05

1,828.7

1,826.4

1,822.7

1,811

1,620

1,555

12%

16%

12

46

38

-74%

-68%
19%

Basic
Net profit attributable to shareholders of the Company ($M)
Less Preference share dividends ($M)
Net profit excluding preference share dividends ($M)
Weighted average number of ordinary shares (M)Basic earnings per share (cents)

1,799

1,574

1,517

14%

1,828.4

1,824.7

1,822.7

0%

0%

98.4

86.3

83.2

14%

18%

1,799

1,574

1,517

14%

19%

29

25

23

16%

26%

DilutedNet profit excluding preference share dividends ($M)
Interest on US Trust securities1($M)
Interest on ANZ StEPS2($M)
Net profit attributable to shareholders of the Company excludinginterest on US Trust securities and ANZ StEPS($M)
Adjusted weighted average number of shares on issue (M)Weighted average number of convertible options (M)

33

34

32

-3%

3%

1,861

1,633

1,572

14%

18%

1,828.4

1,824.7

1,822.7

0%

0%

11.9

9.3

7.7

28%

55%

58.0

60.1

69.1

-3%

-16%

38.7

42.7

49.7

-9%

-22%

1,937.0

1,936.8

1,949.2

0%

-1%

96.1

84.3

80.6

14%

19%

Weighted average number of convertible US Trust securities
at current market price1 (M)Weighted average number of convertible ANZ StEPS securities2 (M)Adjusted weighted average number of shares - diluted (M)Diluted earnings per share (cents)
1.

The US Stapled Trust securities issued on 27 November 2003 mandatorily convert to ordinary shares in 2053 unless redeemed or bought back prior to that
date. The US Stapled Trust Security issue can be de-stapled and the investor left with coupon paying preference shares at ANZ’s discretion at any time, orat the investor’s discretion under certain circumstances. AASB 133 requires that potential ordinary shares for which conversion to ordinary share capital ismandatory must be included in the calculation of diluted EPS. The inclusion of this issue in EPS increased the diluted number of shares by 58.0 million

2.

ANZ StEPS (issued on 23 September 2003) converts to either $100 for each ANZ StEPS share or a number of ordinary shares calculated at the market priceof ANZ ordinary shares less 2.5%. ANZ StEPS has been included for the first time in dilutive EPS in 2005 due to the adoption of AIFRS. The inclusion of thisissue in EPS increased the dilutive number of shares by 38.7 million

78

NOTES TO FINANCIAL STATEMENTS (continued)

7.

Derivative financial instruments
Derivatives

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments orindices. They include swaps, forward rate contracts, futures, options and combinations of these instruments. The use ofderivatives and their sale to customers as risk management products is an integral part of the Group’s trading activities.
Derivatives are also used to manage the Group’s own exposure to fluctuations in exchange and interest rates as part ofits asset and liability management activities. Derivatives are subject to the same types of credit and market risk asother financial instruments, and the Group manages these risks in a consistent manner.
The following table provides an overview of the Group’s exchange rate, interest rate, commodity and credit derivatives.
It includes all contracts, both trading and hedging.
Notional principal amount is the face value of the contract and represents the volume of outstanding transactions. Credit
equivalent amount is calculated in accordance with the APRA capital adequacy guidelines and combines the aggregate
value of all contracts in a positive market position plus an allowance for the potential increase in value over theremaining term of the transaction. Fair value is the net position of contracts with positive market values and negative
market values.

As at 31 March 2006
Fair Value
Notional
Principal
amount$M

Total fair value ofCreditHedging
derivatives
Trading6
equivalent
Assets Liabilities Assets Liabilities Assets Liabilities
amount
$M
$M
$M
$M
$M
$M
$M

Foreign exchange andcommodities contracts
Spot and forward contracts

239,291

5,406

3,405

(2,743)

216

(10)

3,621

(2,753)

100,384

5,938

2,375

(156)

177

(270)

2,552

(426)

1

Futures contracts

466

n/a

18

(28)

-

-

18

(28)

Options purchased

11,635

373

229

-

-

-

229

-

15,671

n/a

-

(198)

-

-

-

(198)

7,723

1,283

926

(823)

-

-

926

(823)

4

Swap agreements

Options sold2

Other contracts
5

Collateral--(1,942)543--(1,942)

543

375,170

13,0005,011(3,405)

393

(280)

5,404

(3,685)Interest rate contracts
Forward rate agreements

71,743

8

3

(4)

-

-

3

(4)

Swap agreements

4481,229

4,394

1,601

(1,687)

105

(433)

1,706

(2,120)Futures contracts

1

78,404

n/a

168

(165)

2

-

170

(165)

Options purchased

21,021

106

78

-

-

-

78

-

44,136

n/a

-

(33)

-

-

-

(33)

696,533

4,508

1,850

(1,889)

107

(433)

1,957

(2,322)

Options sold2

Credit Contracts
3

Credit default swaps
Total

19,873

2,845

121

(124)

3

(3)

124

(127)

1,091,576

20,353

6,982(5,418)

503

(716)

7,485

(6,134)1.

Credit equivalent amounts have not been included as there is minimal credit risk associated with exchange traded futures where the clearing house is thecounterparty

2.

Options sold have no credit exposures as they represent obligations rather than assets

3.

Credit default swaps include structured transactions that expose the Group to the performance of certain assets. The total investment of the Group in thesetransactions is USD 250 million (Sep 2005:USD 500 million)

4.

The fair value of swap agreements includes internal allocations between Trading and Hedging

5.

Collateral relates predominantly to Foreign Exchange contracts

6.

Includes derivatives entered into to manage interest rate and foreign exchange risk on funding instruments, not designated as accounting hedges

79

NOTES TO FINANCIAL STATEMENTS (continued)

7.

Derivative financial instruments, cont’d
The following table excludes the impact of AASB 132 and AASB 139. As such the data in the table is not on acomparable basis to 31 March 2006 data. This data has been adjusted to reflect the impact of derivatives insecuritisation vehicles that were consolidated from 1 October 2004 on adoption of AIFRS.
As at 30 September 2005

Notional
Principal
amount$M

Creditequivalentamount$M

Assets$M

Fair value
Liabilities$M

Foreign exchange andcommodities contracts
Spot and forward contracts

184,958

3,082

1,416

(1,829)

Swap agreements4
Futures contracts1

69,212
256

3,820

864
18

(1,610)(14)

Options purchased
Options sold2

9,340
14,925

n/a

186
-

(174)

Other contracts

4,963

573

377

(379)

283,654

7,790

(499)
2,362

1,085
(2,921)

Collateral5

n/a
315

Interest rate contracts
Forward rate agreements

47,7348

5(4)

Swap agreements
Futures contracts1

405,152
35,111

3,443

1,624
152

(1,193)(144)

Options purchased
Options sold2

12,81016,715517,522

3,547

62
1,843

(42)
(1,383)

15,437
816,613

2,929
14,266

117
4,322

(118)
(4,422)

n/a
96

n/a

Credit Contracts
Credit default swaps3
Total
1-5.

Refer footnotes on page 79

80

NOTES TO FINANCIAL STATEMENTS (continued)

8.

Net loans and advances
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Overdrafts

5,780

5,276

5,101

10%

Credit card outstandings

5,904

5,434

4,853

9%

22%

Term loans - housing

96,846

91,19686,421

6%

12%

Term loans - non-housing

50,87348,893

46,2994%

10%

Lease finance

2,774

2,854

2,737

-3%

1%

9,795
171,972

9,636
163,289

9,118
154,529

2%
5%

7%
11%

1,677

1,647

1,683

2%

0%

Australia

Other

13%

New Zealand
Overdrafts
Credit card outstandings

1,033

1,026

1,043

1%

-1%

Term loans - housing

34,961

34,85933,1230%

6%

Term loans - non-housing

25,10325,012

23,549

0%

7%

361

639

508

-44%

-29%

Lease finance
Other

901

1,207

1,150

-25%

-22%

64,03664,39061,056-1%

5%

Overdrafts

434

303

339

43%

28%

Credit card outstandings

184

134

126

37%

46%

Term loans - housing

693

592

519

17%

34%

8,051

7,510

7,219

7%

12%

217

217

201

0%

8%

156
9,735

69
8,825

303
8,707

large
10%

-49%
12%
10%

Overseas markets

Term loans - non-housing
Lease financeOther245,743

236,504

224,292

4%

Less provisions for credit impairment (refer note 10)2

Total gross loans and advances(2,219)(2,440)(2,401)-9%-8%

Less Income yet to mature1(1,978)(4,197)(1,574)(4,014)(1,497)(3,898)

26%
5%

32%
8%

241,546

232,490

220,394

4%

10%

1

Total net loans and advances
1.

Includes fees and expenses capitalised and amortised using the effective interest method of $364 million (Sep 2005: $nil; Mar 2005: $nil)2.

The provisions for credit impairment were recalculated under AIFRS for 31 March 2006. Refer to Note 24 for discussion of change

The following table shows gross loans and advances for New Zealand in NZD terms.
Half
year
Mar 06
NZD M

Half
year
Sep 05
NZD M

Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%
NZD M

Overdrafts

1,962

1,811

1,834

8%

Credit card outstandings

1,209

1,128

1,137

7%

6%

Term loans - housing

40,90438,33936,101

7%

13%

Term loans - non-housing

29,371

27,50925,666

7%

14%

422

703

554

-40%

-24%

New Zealand

Lease finance
Other

81

7%

1,054

1,326

1,253

-21%

-16%

74,92270,816

66,545

6%

13%

NOTES TO FINANCIAL STATEMENTS (continued)

9.

Impaired financial assets
Impaired loan data in 2005 in the following table includes loans that were classified as non-accrual loans.
Movt
Movt
Mar 06
Mar 06v. Sep 05 v. Mar 05
%
%
$M

As at
Mar 06As at
Sep 05As at
Mar 05

$M

$M

726

642

640

13%

13%

Summary of impaired financial assets
Impaired loans
Restructured loans

-

28

30

-100%

-100%

Unproductive facilities

76

43

77

77%

-1%

Gross impaired financial assets

802

713

747

12%

7%

Impaired loans

(305)

(256)

(314)

19%

-3%

Unproductive facilities

(11)

(17)

(7)

-35%

57%

Net impaired financial assets

486

440

426

10%

14%

Impaired loans

726

642

640

13%

13%

Individual provisions

(305)

(256)

(314)

19%

-3%

Total net impaired loans

421

386

326

9%

29%

Australia

516

355

408

45%

26%

New Zealand

177

194

105

-9%

69%

Less individual provisions:

Impaired loans

Before individual provisions

Overseas markets

33

93

127

-65%

-74%

Total impaired loans

726

642

640

13%

13%

Australia

304

202

220

50%

38%

New Zealand

102

111

42

-8%

large

After individual provisions

Overseas markets

15

73

64

-79%

-77%

Total net impaired loans

421

386

326

9%

29%

Half
year
Mar 06
$M

Half
year
Sep 05$M

Australia

513

303

282

69%

New Zealand

102

204

78

-50%

31%

Overseas markets

15

69

27

-78%

-44%

Total new impaired loans

630

576

387

9%

63%

Movt
Movt
Half
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05%%$M

New and increased impaired loans

82

82%

NOTES TO FINANCIAL STATEMENTS (continued)

9.

Impaired financial assets, cont’d
Further analysis on impaired loans at 31 March 2006 and interest and/or other income recognised during the period is asfollows:

Gross balance
outstanding$M

Individual
Provision$M

Interest
and / orother income
recognised$M

Impaired loans
Without provisions
Australia

31

-

1

New Zealand

7

-

-

Overseas markets

4

-

-

42

-

1

Australia

369

178

7

New Zealand

60

40

-

With provisions and no, or partial, performance1

Overseas markets

28

17

-

457

235

7

Australia

116

34

2

New Zealand

110

35

3

1

1

-

227

70

5
13

With provisions and full performance1

Overseas markets
Total impaired loans

726

305

Unproductive facilities

76

11

-

Total

802

316

13

1.

A loan’s performance is assessed against its contractual repayment schedule

As at
Mar 06As at
Sep 05

$M

$M

Movt
Movt
Mar 06
Mar 06v. Sep 05 v. Mar 05%%$M

Australia

63

29

66

large

New Zealand

6

7

-

-14%

n/a

Overseas markets

7

7

11

0%

-36%

Gross unproductive facilities

76

43

77

77%

-1%

Australia

9

7

3

29%

large

New Zealand

-

7

-

-100%

n/a

Overseas markets

2

3

4

-33%

-50%

Individual provision

11

17

7

-35%

57%

Net unproductive facilities

65

26

70

large

-7%

As at
Mar 05

Unproductive facilities-5%

Individual provision

The following amounts are not classified as individually impaired financial assets and therefore are not included within
the summary on page 82.
Movt
Movt
As at
Mar 06
Mar 06
Mar 05$M v. Sep 05 v. Mar 05
%
%

As at
Mar 06$M

As at
Sep 05$M

Australia

339

282

262

20%

29%

New Zealand

74

66

90

12%

-18%

Overseas markets

15
428

33
381

32
384

-55%
12%

-53%
11%

Accruing loans past due 90 days or more

83

NOTES TO FINANCIAL STATEMENTS (continued)

9.

Impaired financial assets, cont’dInterest and other income not recognised on impaired financial assets

The following table shows the estimated amount of interest and other income not recognised, net of interest recoveries
and unwind of discount, on average impaired financial assets during the period.
Movt
Half
Movt
Mar 06
Mar 06year
Mar 05 v. Sep 05 v. Mar 05
%
%
$M

Half
year
Mar 06
$M

Half
year
Sep 05$M

Australia

14

14

12

0%

17%

New Zealand

9

5

4

80%

large

Overseas markets

4

8

8

-50%

-50%

27

27

24

0%

13%

Australia

(10)

(7)

(3)

43%

large

New Zealand

(3)

(3)

(2)

0%

50%

Gross interest and other income receivable on impairedloans, restructured loans and unproductive facilities

Total gross interest and other income receivableon impaired financial assets
1

Interest recognised

Overseas markets

-

(7)

(3)

-100%

-100%

Total interest recognised

(13)

(17)

(8)

-24%

63%

4

7

9

-43%

-56%

Net interest and other income not recognised
Australia
New Zealand

6

2

2

large

large

Overseas markets

4

1

5

large

-20%

14

10

16

40%

-13%

Total net interest and other income not recognised
1.

Under AIFRS, from 1 October 2005 the impairment loss on an impaired loan is calculated as the difference between the asset’s carrying amount and theestimated future cash flows discounted to their present value. As this discount unwinds during the period it is recognised as interest. The comparatives do
not reflect this change and represent interest and other income received (refer Note 1 (vi))

In the event of customer default, any loan security is held as mortgagee in possession and therefore the Group does nothold any other real estate owned assets.

84

NOTES TO FINANCIAL STATEMENTS (continued)

10. Provision for credit impairment
1

Previous AGAAP
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05
$M
%
%

2,167

2,080

1,992

4%

(288)

-

-

n/a

n/a

-

-

(13)

n/a

-100%

Adjustment for exchange rate fluctuations

(12)

(3)

(32)

large

-63%

Charge to income statement

36

296

284

-88%

-87%

-

(266)

(205)

-100%

-100%

Collective provision
Balance at start of period
Adjustment due to adoption of accounting standard AASB 139

2

Provisions acquired (disposed)

Transfer to individual provision3
Recoveries3
Total collective provision

9%

-

60

54

-100%

-100%

1,903

2,167

2,080

-12%

-9%

273

321

384

-15%

-29%

(1)

-

-

n/a

n/a

188

-

-

n/a

n/a
-57%

Individual provision
Balance at start of period
Adjustment due to adoption of accounting standard AASB 1392
Charge to income statement
Adjustment for exchange rate fluctuations

(3)

(4)

(7)

-25%

Discount unwind

(13)

-

-

n/a

n/a

Bad debts written off

(182)

(310)

(261)

-41%

-30%

Recoveries of amounts previously written off

54

-

-

n/a

n/a

-

266

205

-100%

-100%

316

273

321

16%

-2%

2,219

2,440

2,401

-9%

-8%

3

Transfer from collective provision
Total individual provision

Total provision for credit impairment

Previous AGAAP
Half
year
Mar 06
$M

Half
year
Sep 05$M

Australia

255

216

162

18%

57%

New Zealand

40

99

47

-60%

-15%
-72%

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Provision movement analysis
New and increased provisions

Overseas m arkets
Provision releases

12

37

43

-68%

307

352

252

-13%

22%

(65)

(86)

(47)

-24%

38%
18%

242

266

205

-9%

Recoveries of am ounts previously written off

(54)

(60)

(54)

-10%

0%

Individual provision charge

188

206

151

-9%

25%

Net credit to collective provision

36

90

133

-60%

-73%

Charge to Income Statement

224

296

284

-24%

-21%

As at
Mar 06$M

As at
Sep 05$M

Australia

221

160

191

38%

16%

New Zealand

75

90

63

-17%

19%

Domestic markets

296

250

254

18%

17%

Movt
Movt
As at
Mar 06
Mar 06
Mar 05$M v. Sep 05 v. Mar 05%%

Individual provision balance

Overseas markets

20

23

67

-13%

-70%

Total individual provision

316

273

321

16%

-2%

1.

2005 figures represent general provision and specific provision2.

Refer Note 24

3.

Under AIFRS, the impairment calculation results in a nil amount for this line from 1 October 2005

85

NOTES TO FINANCIAL STATEMENTS (continued)

11. Loan capitalMovt
Mar 06v. Mar
05
%

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
year
Mar 06
Mar 05 v. Sep 05$M%

US stapled trust security issue1

1,536

1,443

1,425

6%

8%

ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)2

1,000

-

-

n/a

n/a

Hybrid loan capital

Perpetual subordinated notes

419

394

389

6%

8%

Subordinated notes

8,166

7,300

6,307

12%

29%

Total Loan Capital

11,121

9,137

8,121

22%

37%

1.

Loan capital of USD1.1 billion is subordinated in right of payment to the claims of depositors and all other creditors of the parent entity and its controlled
entities which have issued the notes. Hybrid loan capital constitutes Tier 1 capital as defined by the Australian Prudential Regulation Authority for capital
adequacy purposes

2.

ANZ StEPS securities are classified as Loan Capital instead of share capital under AIFRS financial reporting

12. Share Capital
Issued and quoted securities

Number quoted

Issue priceper share

Amount paid
up per share€ 1,000€ 1,000

Ordinary shares
As at 31 March 2006

1,828,674,133

Issued during the half year

8,316,739

Bought back during half year

6,092,086

Preference shares
As at 31 March 2006
Euro Hybrid1
1.

500,000

On 13 December 2004 the Group issued €500 million hybrid capital into the European market. The instruments consist of a coupon paying note issued by
ANZ Jackson Funding PLC stapled to a fully paid up €1,000 preference share issued by Australia and New Zealand Banking Group Limited

Net profit as a % of shareholders' equity
including preference shares at end of period

86

Half
year
Mar 06

Halfyear
Sep 05Halfyear
Mar 05

19.3%

16.6%

16.4%

NOTES TO FINANCIAL STATEMENTS (continued)

13. Shareholders’ Equity

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Movt
Mar 06v. Sep 05%

Balance at start of period

9,911

9,840

8,992

1%

10%

Adjustment due to adoption of AIFRS

(987)

-

(62)

n/a

large

Movt
Mar 06v. Mar 05%

Share capital

Ordinary share capital
-

-

-

n/a

n/a

Dividend reinvestment plan

85

75

78

13%

9%

Group employee share acquisition scheme

37

27

30

37%

23%

Group share option scheme

39

56

48

-30%

-19%

(146)

(87)

(117)

68%

25%

-

-

871

n/a

-100%

9,840

-10%

-9%

Rights issue

Group Share Buyback
Preference share capital
New preference share issues
Total share capital

8,939

9,911

Asset revaluation reserve
Balance at start of period

-

-

31

n/a

-100%

Adjustment due to adoption of AIFRS1

-

-

(31)

n/a

-100%

Total asset revaluation reserve

-

-

-

n/a

n/a

(443)

(284)

218

56%

large

-

-

(218)

n/a

-100%

Restated balance at beginning of period

(443)

(284)

-

56%

n/a

Currency translation adjustments net of hedges after tax

(305)

(159)

(284)

92%

7%

Foreign currency translation reserve
Balance at start of period
Adjustment due to adoption of AIFRS2

Transfer from general reserve

-

-

-

n/a

n/a

(748)

(443)

(284)

69%

large

Balance at start of period

67

56

-

20%

n/a

Adjustment on adoption of AIFRS
Restated balance at beginning of period

67

56

44
44

n/a

-100%

20%

52%

Share-based payments

11

11

12

0%

-8%

Total foreign currency translation reserve
Share option reserve3

Transfer to share capital

-

-

-

n/a

n/a

Total share option reserve

78

67

56

16%

39%

-

-

-

Available-for-sale revaluation reserve4
Balance at start of period
Adjustments on adoption of accounting policies
specified by AASB 132 & AASB 1395
Restated balance at beginning of period

(10)
(10)

-

-

Valuation gain (loss) recognised after tax

18

-

-

Cumulative (gain) loss transferred to the income
statement on sale of financial assets

-

-

-

Cumulative (gain) loss transferred to the income
statement on impairment of financial assets
Total available-for-sale revaluation reserve

n/a

n/a

n/a

n/a

n/a
n/a

n/a
n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

-

-

-

n/a

n/a

8

-

-

n/a

n/a

1.

Includes a $20 million increase in the opening asset revaluation reserve balance relating to reclassification of legacy balances. The asset revaluation reserve
has been transferred to retained earnings on adoption of AIFRS, refer Note 24 (vi)2.

Includes a $19 million increase in the opening foreign currency translation reserve balance relating to reclassification of legacy balances. The foreign
currency translation reserve has been transferred to retained earnings on adoption of AIFRS, refer Note 24 (v)3.

The share option reserve arises on the grant of share options to selected employees under the ANZ share option plan. Amounts are transferred out of thereserve and into share capital when the options are exercised. Further information about share based payments to employees is disclosed in Note 24 (iii) tothe financial statements

4.

The available-for-sale revaluation reserve arises on the revaluation of available-for-sale financial assets. Where a revalued financial asset is sold, that
portion of the reserve which relates to that financial asset, is realised and recognised in the profit or loss (refer Note 1 (ix)). Where a revalued financial
asset is impaired, that portion of the reserve which relates to that financial asset is recognised in the profit or loss (refer Note 1 (ix))

5.

ANZ has taken the election, pursuant to accounting standard AASB 1 (36A), to not comply with accounting standards AASB 132 and AASB 139 in thecomparative information in its first AIFRS financial report. Therefore the 2005 year is nil for this line item87

NOTES TO FINANCIAL STATEMENTS (continued)

13. Shareholders’ Equity, cont’d
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05
$M

n/a

n/a

Movt
Mar 06v. Sep 05%

Movt
Mar 06v. Mar 05%

Hedging reserve6
Balance at start of periodn/aAdjustments on adoption of accounting policies
specified by AASB 132 & AASB 1395

162

n/a

n/a

Restated balance at beginning of period

162

n/a

n/a

Gain (loss) recognised after tax

28

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Transferred to income statement

(14)

n/a

n/a

n/a

n/a

Total hedging reserve

176

n/a

n/a

n/a

n/a

181

181

181

0%

0%

General reserve
Balance at start of period
Transfer (to) from retained profits/FCTR

-

-

-

n/a

n/a

Total general reserve

181

181

181

0%

0%

Capital reserve

149

149

149

0%

0%

Total reserves

(156)

(46)

102

large

large

Balance at start of period

9,646

8,967

8,336

8%

16%

Adjustment on adoption of AIFRS7

(431)

-

71

n/a

large

Restated balance at beginning of period

9,215

8,967

8,407

3%

10%

Retained profits

Net profit attributable to shareholders of the Company

1,811

1,620

1,555

12%

16%

Total available for appropriation

11,026

10,587

9,962

4%

11%

-

-

-

n/a

n/a
large

Transfers from (to) reserves
Actuarial gain (loss) on defined benefit plans after tax8

25

18

7

39%

(1,060)

(913)

(964)

16%

10%

Preference share dividends paid

(12)

(46)

(38)

-74%

-68%

Retained profits at end of period

9,979

9,646

8,967

3%

11%

18,762

19,511

18,909

-4%

-1%

34

27

18

26%

89%

18,796

19,53818,927-4%-1%

Ordinary share dividends paid

Share capital and reserves attributable toto shareholders' of the Company
Minority interest
Total shareholders' equity
6.

The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain or loss on
the hedge is recognised in the profit or loss when the hedged transaction impacts profit or loss, consistent with the applicable accounting policy as detailedin Note 1 (vii)7.

Comprises- Remeasurement of the carrying value of the Group’s investment in INGA as at 1 October 2005
- Adjustment in respect of hedging derivative financial instruments as at 1 October 2005
- Recognition of the fair value of derivatives relating to securitisation and structured finance transactions as at 1 October 2005
- Deferral of previously recognised fees now treated as an adjustment to yield on 1 October 2005
- Recalculation of the loan impairment provision on 1 October 2005 resulting from the change to use of the incurred loss approach from the Economic
Loss Provisioning approach8.

ANZ has taken the option available under AASB 119 to recognise actuarial gains/losses on defined benefit superannuation plans directly in retained profits(refer Note 1 (xiii) and Note 24 (ii))

88

NOTES TO FINANCIAL STATEMENTS (continued)

14. Capital Management
As at
Mar 06As at
Sep 05 1$M$M

18,796

19,53818,927

-4%

-1%

(50)

81

-100%

-100%

As at
Mar 05 1

Movt
Movt
Mar 06
Mar 06v. Sep 05 v. Mar 05%%$M

Qualifying capital
Tier 1
Total shareholders' equity and outside equity interests
Adjustments following adoption of AIFRS 2APRA transitional reporting adjustments
Deferred fee revenue and expenses

258

-

-

n/a

n/a

Pension fund deficiency charge

91

-

-

n/a

n/a

Cash flow hedging reserve

(176)

-

-

n/a

n/a

(5)

-

-

n/a

n/a

Adjusted Total Shareholders' equity and outside equity interests

18,964

19,48819,008-3%0%Loan capital (StEPS)3

1,000

Hybrid loan capital4

1,536

1,443

1,425

6%

8%

-

(31)

(31)

-100%

-100%

(1,024)(1,077)

(930)

-5%

10%

Other adjustments

Less:

Asset revaluation reserve
Dividend 5
Accumulated retained profits and reserves of insurance,
funds management and securitisation entities

(161)

(213)

(266)

-24%

-39%

(3,943)(3,902)(4,007)1%-2%

Capitalised expenses 6

(534)

(524)

(492)

2%

9%

Investment in ANZ Lenders Mortgage Insurance

(27)

(27)

(27)

0%

0%

15,811

15,157

14,680

4%

8%
-100%

Intangibles

Tier 1 capital
Tier 2
Asset revaluation reserve
Perpetual subordinated notes
General reserve for impairment of financial assets7

-

31

31

-100%

419

394

389

6%

8%

1,318

1,448

1,390

-9%

-5%

1,737

1,873

1,810

-7%

-4%

Subordinated notes 8

7,416

6,701

5,769

11%

29%

Tier 2 capital

9,153

8,574

7,579

7%

21%

Deductions
Investment in funds management and securitisation entities

86

84

106

2%

-19%

Investment in joint ventures with ING 9

525

528

478

-1%

10%

Other

334

172

183

94%

83%

Total deductions

945

784

767

21%

23%

24,01922,947

21,492

5%

12%

Tier 1 capital

15,811

15,157

14,680

4%

8%

Less:

3,385

3,233

3,263

5%

4%

Total qualifying capital
Adjusted common equity (ACE)
Preference share capital
Deductions

945

784

767

21%

23%

11,481

11,14010,6503%

8%

Tier 1

6.8%

6.9%

7.0%

Tier 2

4.0%

3.9%

3.6%

10.8%

10.8%

10.6%

Adjusted common equity 10 (ACE)
Ratios (%)

Less:

Deductions

Total
Adjusted common equity
Risk weighted assets(0.4%)(0.3%)(0.3%)

10.4%

10.5%

10.3%

5.0%

5.1%

5.1%

230,653

219,573

209,5241.

2005 figures are calculated based on the Australian Prudential Regulatory Authority requirements. These have not been retrospectively adjusted

2.

Refer Note 24

3.

Treated as preference share capital under AGAAP. Associated costs are deducted from capital

4.

Represents the US Stapled Trust Security Issue approved by APRA as qualifying for Tier 1 status. Refer Note 11

5.

Relates to dividend not provided for

6.

Comprises loan and lease origination fees, capitalised securitisation establishment costs and costs associated with debt raisings

7.

Net of attributable future income tax benefit

8.

For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of the original amount over the last four years to maturity

9.

Joint ventures with ING in Australia and New Zealand

10.

Tier 1 capital, less preference share capital (converted at 31 March 2006 rates), less deductions

89

NOTES TO FINANCIAL STATEMENTS (continued)

14. Capital management, cont’dAssetsRisk Weighted
Assets
Sep
Mar
2005
2006
$M
$M

Mar
2006
$M

Sep
2005
$M

Zero risk weighted assets

31,77923,160--Claims on approved banks and local governments

19,75916,054

3,952

3,211

Advances secured by mortgages eligible for 50% risk weighting

123,998

118,895

61,99959,448Other assets - credit risk

133,529

127,204

133,529

127,204

Total statement of financial position assets - credit risk

309,065

285,313

199,480

189,863

Trading assets - market risk

10,298

7,872

n/a

n/a

Balance Sheet
1

2

Impact of adoption of AIFRS
Total balance sheet

Notional Amount
Mar
2006
$M

Sep
2005
$M

-

4,919

-

-

319,363

298,104

199,480

189,863

Credit Equivalent
Mar
2006
$M

Sep
2005
$M

Risk Weighted
Assets
Mar
Sep
2006
2005
$M
$M

Off-balance sheet exposures3

Direct credit substitutes

9,193

9,657

9,193

9,657

6,732

7,337

Trade and performance related items

14,534

13,175

6,170

5,683

5,451

4,953

Commitments

89,23687,31913,352

14,017

11,983

12,249Foreign exchange, interest rate and other market
related transactions

1,029,803

782,380

19,116

12,309

5,354

3,681

Total off balance sheet exposures - credit risk

1,142,766

892,53147,831

41,66629,52028,220Total risk weighted assets - credit risk

229,000

218,083

Risk weighted assets - market risk

1,653
230,653

1,490
219,573

Total risk weighted assets
1.

Includes $5,086 million in assets excluded for risk weighting calculations for Australian Prudential Regulation Authority reporting purposes

2.

Refer Note 24

3.

Excludes off balance sheet exposures in subsidiaries consolidated on adoption of AIFRS from 1 October 2004 as required by Australian Prudential Regulation
Authority

90

NOTES TO FINANCIAL STATEMENTS (continued)

15. Average balance sheet and related interest - statutory basis
Averages used in the following tables are predominantly daily averages. Interest income figures are presented on a taxequivalent basis. Impaired loans are included under the interest earning asset category, “loans, advances and bills
discounted”. Intragroup interest earning assets and interest bearing liabilities are treated as external assets andliabilities for the geographic segments.
Proforma average balance sheets adjusted to bring prior period data onto a fully comparable basis are included as
supplementary information on pages 118 to 121. These are not subject to review by Auditors.

Half year Mar 06
Ave bal
Int
Rate
$M
$M
%
Interest earning assets
Due from other financial institutions
Australia
New ZealandOverseas markets

Half year Sep 05
Ave bal
Int
Rate
$M
$M
%

Half year Mar 05
Ave bal
Int
Rate
$M
$M
%

1,320
2,131
4,586

32
69
99

4.9%
6.5%
4.3%

880
2,092
3,108

24
63
58

5.4%
6.0%
3.7%

733
2,392
2,218

19
63
32

5.2%
5.3%
2.9%

Trading and available for sale and other assets
Australia
15,255
New Zealand
2,292Overseas markets
2,687

433
83
57

5.7%
7.3%
4.3%

11,300
2,052
2,805

309
63
49

5.5%
6.1%
3.5%

10,296
2,401
3,179

280
70
51

5.5%
5.8%
3.2%

157,694
62,829
8,770

5,590
2,648
244

7.1%
8.4%
5.5%

148,104
59,230
9,352

5,081
2,423
217

6.9%
8.2%
4.7%

Loans and advances
Australia
New ZealandOverseas markets

165,103
65,866
9,172

5,987
2,849
308

7.3%
8.7%
6.7%

Acceptances1
Australia
Overseas markets

13,725
170

464
4

6.8%
4.7%

Other assets
Australia
New ZealandOverseas markets

3,337
4,417
4,303

128
133
131

7.7%
6.0%
6.1%

2,533
3,340
4,011

61
91
109

4.8%
5.4%
5.4%

1,897
2,481
2,623

47
71
81

5.0%
5.7%
6.2%

12,046272
306,410 11,049(12,046)(272)
294,364 10,777

4.5%

9,242
270,656(9,242)
261,414

179
9,488
(179)
9,309

3.9%

9,706
254,612(9,706)244,906

151
8,586
(151)
8,435

3.1%

Intragroup assets
Overseas markets
Intragroup elimination

7.3%

7.1%

Non-interest earning assets
Derivatives
Australia
New ZealandOverseas markets

6,708
2,180
(564)

6,134
1,584
(364)

4,024
1,707
(445)

Premises and equipment

1,078

1,155

1,033

13,25886

13,073
61

13,794

13,516

12,683(1,499)(432)(185)
21,080315,444(1,852)(621)
232,898294,312(1,792)(594)(32)
29,718274,624

Acceptances
Australia
Overseas markets
Other assets
Provisions for credit impairment
Australia
New ZealandOverseas markets
Total average assets
1.

6.9%

Acceptances have been classified as interest earning assets following adoption of AIFRS on 1 October 2005. This is consistent with the reclassification ofcommercial bill margins from fees to net interest. Refer Note 24

91

NOTES TO FINANCIAL STATEMENTS (continued)

15. Average Balance Sheet and related interest - statutory basis, cont’d
H a lf ye a r M a r 0 6
A ve b a l
In t
R a te$M$M%

H a lf y ea r S ep 0 5
A ve b a l
In t
R a te$M$M%

H a lf y ea r M a r 0 5
A ve b a l
In t
R a te$M$M%

In teres t b e a rin g lia b ilities
T im e dep osits
A u stralia
N ew Z ealan dO v e rseas m ark e ts

4 1 ,3 2 3
2 6 ,8 6 8
1 2 ,8 0 2

1 ,1 5 1
927
283

5 .6 %
6 .9 %
4 .4 %

4 0 ,1 2 2
2 5 ,5 3 7
1 1 ,1 8 5

1 ,1 0 6847
210

5 .5 %
6 .6 %
3 .7 %

3 8 ,6 5 0
2 5 ,6 2 6
1 0 ,9 6 5

1 ,0 2 0813
173

5 .3 %
6 .4 %
3 .2 %

S av in gs depo sits
A u stralia
N ew Z ealan dO v e rseas m ark e ts

1 4 ,7 6 5
7 ,0 2 1
502

228
151
3

3 .1 %
4 .3 %
1 .2 %

1 4 ,0 9 2
7 ,2 6 4
419

215
151
1

3 .0 %
4 .1 %
0 .5 %

1 3 ,6 9 9
7 ,1 5 5
415

199
140
1

2 .9 %
3 .9 %
0 .5 %O th er dem an d dep osits
A u stralia
N ew Z ealan dO v e rseas m ark e ts

3 7 ,3 8 4
8 ,3 7 5
968

812
242
9

4 .4 %
5 .8 %
1 .9 %

3 5 ,4 4 3
8 ,1 6 5
805

765
219
7

4 .3 %
5 .3 %
1 .7 %

3 2 ,4 4 8
7 ,8 1 8
783

666
193
6

4 .1 %
5 .0 %
1 .5 %

D u e to oth er fin an cial in stitu tio n s
A u stralia
N ew Z ealan dO v e rseas m ark e ts

3 ,0 1 2
2 ,1 2 8
6 ,6 0 2

78
58
164

5 .2 %
5 .5 %
5 .0 %

1 ,5 1 5
1 ,5 6 7
5 ,0 7 3

47
47
101

6 .2 %
6 .0 %
4 .0 %

1 ,3 9 7
1 ,7 9 3
4 ,2 0 9

39
45
64

5 .6 %
5 .0 %
3 .0 %

C o m m ercial paperA u stralia
N ew Z ealan dO v e rseas m ark e ts

9 ,6 0 5
6 ,8 7 9
8 ,6 2 6

275
253
180

5 .7 %
7 .4 %
4 .2 %

7 ,7 7 0
7 ,7 6 9
6 ,4 2 1

226
268
103

5 .8 %
6 .9 %
3 .2 %

7 ,9 8 8
7 ,6 6 4
6 ,0 9 9

218
253
69

5 .5 %
6 .6 %
2 .3 %

B orrow in g co rporation s' deb t
A u stralia
N ew Z ealan d

9 ,1 2 4
1 ,9 6 2257
67

5 .6 %
6 .8 %

9 ,2 7 6
1 ,9 2 7264
64

5 .7 %
6 .6 %

9 ,3 9 6
1 ,9 8 1254
62

5 .4 %
6 .3 %

A cceptan ces
A u stralia
O v erseas m ark ets

1 3 ,7 2 5
170

384
4

5 .6 %
4 .7 %

Loan cap ital, b on d s an d n otes
A u stralia
N ew Z ealan dO v e rseas m ark e ts

4 3 ,5 9 3
8 ,8 9 1
137

1 ,2 5 2331
3

5 .8 %
7 .5 %
4 .4 %

4 1 ,2 8 1
5 ,9 0 6
136

1 ,1 7 6211
2

5 .7 %
7 .1 %
2 .9 %

3 5 ,3 1 2
3 ,6 0 1
139

962
124
2

5 .5 %
6 .9 %
2 .9 %

4 ,8 4 7
234
469

233
50
14

n /a
n /a
n /a

4 ,7 2 9
150
95

243
66
7

n /a
n /a
n /a

4 ,4 6 0
64
86

206
35
11

n /a
n /a
n /a

5 ,7 2 4
6 ,3 2 2
2 8 2 ,0 5 8(1 2 ,0 4 6 )
2 7 0 ,0 1 2

82
190
7 ,6 8 1(2 7 2 )7 ,4 0 9

2 .9 %
6 .0 %

3 ,1 0 0
6 ,1 4 2
2 4 5 ,8 8 9(9 ,2 4 2 )2 3 6 ,6 4 7

(6 )
185
6 ,5 2 5(1 7 9 )6 ,3 4 6-0 .4 %
6 .0 %

4 ,1 9 0
5 ,5 1 6
2 3 1 ,4 5 4(9 ,7 0 6 )2 2 1 ,7 4 8

(8 )
159
5 ,7 0 6(1 5 1 )5 ,5 5 5-0 .4 %
5 .8 %

1

2

O th er liab ilities
A u stralia
N ew Z ealan dO v e rseas m ark e ts
In tragro u p liabilities
A u stralia
N ew Z ealan d
In tragro u p elim in ation

N o n -in te res t b ea rin g lia b ilitie s
D ep osits
A u stralia
N ew Z ealan dO v e rseas m ark e ts

5 .5 %

4 ,3 8 7
3 ,8 5 8
1 ,1 0 4

A cceptan ces
A u stralia
O v erseas m ark ets
D eriv ativ e s
A u stralia
N ew Z ealan dO v e rseas m ark e ts
O th e r liab ilities
T o ta l a v era g e lia b ilities

6 ,8 2 1
2 ,1 3 9(9 7 5 )9 ,9 6 4
2 7 ,2 9 8
2 9 7 ,3 1 0

5 .3 %

4 ,1 7 3
3 ,7 7 1
1 ,0 7 1

4 ,1 2 1
3 ,2 9 8881

1 3 ,2 5 886

1 3 ,0 7 3
61

5 ,9 3 8
1 ,8 2 3(8 3 2 )9 ,3 0 1
3 8 ,5 8 9
2 7 5 ,2 3 6

3 ,0 9 2
2 ,3 8 6(1 3 3 )7 ,9 1 1
3 4 ,6 9 0
2 5 6 ,4 3 8

5 .0 %

1.

Acceptances have been classified as interest bearing liabilities following adoption of AIFRS on 1 October 2005. This is consistent with the reclassification ofcommercial bill margins from fees to net interest. Refer Note 24

2.

Includes foreign exchange swap costs

92

NOTES TO FINANCIAL STATEMENTS (continued)

15. Average Balance Sheet and related interest - - statutory basis, cont’d
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Australia

211,498

197,692

183,465

New Zealand

81,73676,47072,463

Overseas markets

34,25629,392

28,402

Total average assets

less intragroup elimination(12,046)(9,242)(9,706)315,444294,312274,624

33.0%

32.8%

33.2%

Australia

198,740

172,407

161,030

New Zealand

74,70670,313

66,50427,078% of total average assets attributable
to overseas activities
Average interest earning assets

Overseas markets

32,96427,936(12,046)(9,242)(9,706)294,364

261,414244,906

Australia

201,742

187,111

173,496

New Zealand

75,83871,91068,16424,484less intragroup elimination

Total average liabilities

Overseas markets
less intragroup elimination

31,77625,457(12,046)(9,242)(9,706)297,310275,236

256,438

17,263

17,218

16,677

871

1,858

1,509

18,134

19,07618,186315,444294,312274,624

34.1%

33.1%

34.0%

Total average shareholders' equity
Ordinary share capitalPreference share capital
Total average liabilities and shareholders' equity% of total average liabilities attributable to overseas activities

93

NOTES TO FINANCIAL STATEMENTS (continued)

16. Interest spreads and net interest average margins -- statutory basis
Intragroup interest earning assets and interest bearing liabilities are treated as external assets and liabilities for thegeographic segments.
Half
year
Mar 06%

Halfyear
Sep 05%Halfyear
Mar 05%

1

Gross earnings rate
Australia

7.11

6.92

6.76

New Zealand

8.41

8.13

7.92

Overseas markets

5.30

4.56

3.93

Total Group

7.34

7.10

6.91

Gross interest spread

1.91

1.81

1.94

Interest not recognised on impaired assets(0.00)(0.01)(0.01)Net interest spread

1.91

1.80

1.93

Interest attributable to net non-interest bearing items

0.40

0.45

0.40

Net interest average margin - Australia

2.31

2.25

2.33

Interest spread and net interest average margin may be analysed as follows:

Australia

New ZealandGross interest spread

1.80

1.76

1.96

Interest not recognised on impaired assets(0.02)(0.00)(0.01)Net interest spread

1.78

1.76

1.95

Interest attributable to net non-interest bearing items

0.54

0.53

0.48

Net interest average margin - New Zealand

2.32

2.29

2.43

Gross interest spread

0.95

1.00

1.09

Interest not recognised on impaired assets(0.02)(0.01)(0.04)

Overseas markets

Net interest spread

0.93

0.99

1.05

Interest attributable to net non-interest bearing items

0.36

0.49

0.47

Net interest average margin - Overseas markets

1.29

1.48

1.52

Gross interest spread

1.85

1.76

1.90

Interest not recognised on impaired assets(0.01)(0.01)(0.01)Net interest spread

1.84

1.75

1.89

Interest attributable to net non-interest bearing items

0.45

0.51

0.47

Net interest average margin

2.29

2.26

2.36

Group

1.

Average interest rate received on interest earning assets

94

NOTES TO THE FINANCIAL STATEMENTS (continued)

17. Segment analysis
The following analysis shows segment revenue, total assets and result for each business segment.
Industry

Halfyear
Mar 06
$M

Half
year
Sep 05
$M

Half
Movt
Movt
year
Mar 06
Mar 06
Mar 05 v. Sep 05 v. Mar 05$M%%

Personal Banking Australia

4,371

4,153

3,794

5%

15%

Institutional

2,908

2,317

2,520

26%

15%

New Zealand Businesses

2,883

2,693

2,384

7%

21%

Corporate Australia

1,073

855

804

25%

33%

Esanda and UDC

637

645

616

-1%

3%

Asia Pacific

266

246

227

8%

17%

Income1,2

Non-continuing businesses
Group Centre

3

59

166

135

-64%

-56%

2,634

2,065

1,317

28%

100%

Intragroup eliminations(2,459)(1,980)(1,660)24%

48%

Income12,372

11,160

10,137

11%

22%

542

485

468

12%

16%

Net profit after income tax2
Personal Banking Australia
Institutional

486

461

450

5%

8%

New Zealand Businesses

335

265

295

26%

14%

Corporate Australia

212

194

182

9%

16%

Esanda and UDC

53

55

66

-4%

-20%

Asia Pacific

46

44

39

5%

18%

Non-continuing businesses

30

63

63

-52%

-52%

Group Centre

3

107

53

(8)

Large

Large

Net profit

1,811

1,620

1,555

12%

16%

Personal Banking Australia

114,408

107,521

101,660

6%

13%

Institutional

82,002

69,843

63,840

17%

28%

New Zealand Businesses

60,672

59,962

55,9071%

9%Corporate Australia

24,071

22,902

21,7685%

11%Esanda and UDC

15,583

15,342

14,7292%

6%

Total assets

Asia Pacific

3,281

2,888

2,521

14%

30%

Non-continuing businesses

1,260

2,122

4,871

-41%

-74%

Group Centre3

18,086

17,524

17,4883%

3%

Total assets

319,363

298,104

282,784

7%

13%

1.

Refer definitions on pages 122 to 123

2.

Equity standardised. Refer definitions on pages 122 to 123

3.

Group Centre includes Treasury, Operations, Technology and Shared Services and allocations required to report business units on a comparable basis

95

NOTES TO FINANCIAL STATEMENTS (continued)

18. Contingent liabilities and contingent assets
Contingent liabilities"

GeneralThere are outstanding court proceedings, claims and possible claims against the Group, the aggregate amount of
which cannot readily be quantified. Appropriate legal advice has been obtained and, in the light of such advice,provisions as deemed necessary have been made. In some instances we have not disclosed the estimated financial
impact as this may prejudice the interests of the Group.

"

Sale of Grindlays businesses

On 31 July 2000, ANZ completed the sale to Standard Chartered Bank (SCB) of ANZ Grindlays Bank Limited and theprivate banking business of ANZ in the United Kingdom and Jersey, together with ANZ Grindlays (Jersey) Holdings
Limited and its subsidiaries, for USD1.3 billion in cash. ANZ provided warranties and certain indemnities relating tothose businesses and, where it is anticipated that payments would be likely under the warranties or indemnities,
made provisions to cover the anticipated liability. The issues below have not impacted our reported results. All
settlements and costs have been covered within the provisions established at the time. ANZ may be held liable inrelation to the following:- FERAIn 1991 certain amounts were transferred from non-convertible Indian Rupee accounts maintained with Grindlays
in India. These transactions may not have complied with the provisions of the Foreign Exchange Regulation Act,
1973. Grindlays, on its own initiative, brought these transactions to the attention of the Reserve Bank of India.
The Indian authorities have served notices on Grindlays and certain of its officers in India that could lead topossible penalties. Criminal prosecutions have also been foreshadowed and, in the case of two former officers andthe bank, commenced. Grindlays is contesting the validity of these prosecutions.
- Differential Cheques

In June 2003, Grindlays was successful in its appeal against orders to repay, with interest, two payments it
received from a stockbroker in 1991 in connection with securities transactions. These orders had directed
repayment of Indian Rupees 24 million (plus interest accruing at 24% since 1991). Since the appeal decision was
handed down, no further action has been taken against Grindlays in relation to notices in respect of a further
eleven payments received by it in 1991 in similar circumstances totalling Indian Rupees 225 million.
In addition, ANZ provided an indemnity relating to tax liabilities of Grindlays (and its subsidiaries) and the Jersey
Sub-Group to the extent to which such liabilities were not provided for in the Grindlays accounts as at 31 July 2000.
Claims have been made under this indemnity with no material impact on the Group expected.

"

Contingent tax liability

The Group in Australia was during 2005 subjected to client risk reviews by the Australian Taxation Office (ATO)
across a broad spectrum of matters, as part of normal ATO procedures. The reviews mainly covered years up to
2003. Matters listed by the ATO for further investigation remain outstanding.
The ATO is also reviewing the taxation treatment of certain other transactions undertaken by the Group in the courseof normal business activities.
In addition, at the Company’s request the ATO is reviewing the taxation treatment of the sale of Grindlays in 2000. It
is also reviewing the transfer of the life and funds management businesses into the joint venture with ING in 2002.
The Group in New Zealand is being audited by the Inland Revenue Department (IRD) as part of normal revenue
authority procedures, with a particular focus on certain kinds of structured finance transactions. The IRD has issued
Notices of Proposed Adjustment (the ‘Notices’) in respect of some of those structured finance transactions. The
Notices are not tax assessments and do not establish a tax liability, but are the first step in a formal disputes
process. In addition, some tax assessments have been received. Should the same position be adopted by the IRD
on the remaining transactions of that kind as reflected in the Notices and tax assessments received, the maximum
potential tax liability would be approximately NZD451 million (including interest tax effected) for the period to
31 March 2006. Of that maximum potential liability, approximately NZD129 million is subject to tax indemnities
provided by Lloyds TSB Bank PLC under the agreement by which ANZ acquired the National Bank of New Zealand andwhich relate to transactions undertaken by the National Bank of New Zealand before December 2003.
General or issue-specific audits and other investigations are being undertaken by revenue authorities in the UnitedStates, the United Kingdom and in other jurisdictions as part of normal revenue authority activity in those countries.
The Company has assessed these and other taxation claims arising in Australia, New Zealand and elsewhere,
including seeking independent advice where appropriate, and believes that it holds appropriate provisions.

96

NOTES TO FINANCIAL STATEMENTS (continued)

18. Contingent liabilities and contingent assets, cont’d"Interbank Deposit Agreement

ANZ has entered into an Interbank Deposit Agreement with the major banks in the payments system. Thisagreement is a payment system support facility certified by the Australian Prudential Regulation Authority, where theterms are such that if any bank is experiencing liquidity problems, the other participants are required to deposit equalamounts of up to $2 billion for a period of 30 days. At the end of 30 days the deposit holder has the option to repay
the deposit in cash or by way of assignment of mortgages to the value of the deposit.

"

Clearing and Settlement Obligations

In accordance with the clearing and settlement arrangements set out:-in the Australian Payments Clearing Association Limited (APCA) Regulations for the Australian Paper Clearing
System, the Bulk Electronic Clearing System, the Consumer Electronic Clearing System and the High Value
Clearing System (HVCS), the Company has a commitment to rules which could result in a bilateral exposure andloss in the event of a failure to settle by a member institution; and-in the Austraclear System Regulations and the CLS Bank International Rules, the Company has a commitment toparticipate in loss-sharing arrangements in the event of a failure to settle by a member institution.

For both the APCA HVCS and Austraclear, the obligation arises only in limited circumstances.

Contingent asset matters"

National Housing Bank

In 1992, Grindlays received a claim aggregating to approximately Indian Rupees 5.06 billion from the National
Housing Bank (NHB) in India. The claim arose out of cheques drawn by NHB in favour of Grindlays, the proceeds ofwhich were credited to the account of a Grindlays customer.
Grindlays won an arbitration award in March 1997, under which NHB paid Grindlays an award of Indian Rupees
9.12 billion. NHB subsequently won an appeal to the Special Court of Mumbai, after which Grindlays filed an appeal
with the Supreme Court of India. Grindlays paid the disputed money including interest into court. Ultimately, theparties settled the matter and agreed to share the moneys paid into court which by then totalled Indian Rupees
16.45 billion (AUD 661 million at 19 January 2002 exchange rates), with Grindlays receiving Indian Rupees
6.20 billion (AUD 248 million at 19 January 2002 exchange rates) of the disputed monies. ANZ in turn received apayment of USD124 million (USD equivalent of the Indian Rupees received by Grindlays) from Standard Chartered
Bank under the terms of an indemnity given in connection with the sale of Grindlays to Standard Chartered Bank.
ANZ Claims

ANZ has pursued two separate actions arising from the above.
-

A $130 million plus interest claim against its insurers. $130 million being the balance of the limit of indemnity
under ANZ’s insurance arrangements for the 1991-92 policy year.
ANZ has settled the claim for $114.3 million which has been recognised in these accounts, less an amount of$0.9 million which was recognised in the accounts at 30 September 2005.

-

ANZ is entitled to share with NHB in the proceeds of any recovery from the estate of the customer whose account
was credited with the cheques drawn by NHB. However, the Indian Taxation Department is claiming a statutory
priority to all of the funds available for distribution to creditors of that customer. Proceedings are currently onfoot in the Special Court, Mumbai to determine these issues.

97

NOTES TO FINANCIAL STATEMENTS (continued)

19. Note to the Cash Flow Statement(a) Reconciliation of profit after income tax to net cash provided by operating activities

Half

Half

Half

year

year

year

Mar 06

Sep 05

Mar 05

Inflows

Inflows

Inflows(Outflows)(Outflows)(Outflows)

$M

$M

$M

1,811

1,620

1,555

Provision for credit impairment

224

296

284

Depreciation and amortisation

145

244

240

Provision for restructuring and other provisions

78

261

295

(102)

(218)

(280)

3

5

17

881

(183)

(638)

(1,798)

(358)

(370)

806

(358)

(13)

(Increase) decrease in loans and advances(16,502)(13,365)(15,423)(Increase) decrease in regulatory deposits

(47)

(19)

24

Decrease (increase) in interest receivable

(22)

67

21

Reconciliation of profit after income tax tonet cash provided by operating activities
Profit after income tax
Adjustments to reconcile to net cash
provided by operating activities

Payments from provisions(Profit) loss on property disposals(Increase) decrease in trading securities(Increase) decrease in Liquid assets - greater than 3 months(Increase) decrease in Due from other banks-more than 90 days

Increase (decrease) in deposits and other borrowings

8,729

5,802

14,054

Increase (decrease) in due to other financial insititutions

1,159

2,080

2,892

Increase (decrease) in payables and other liabilities

119

(652)

(687)

(Decrease) increase in interest payable

110

202

12

(Increase) decrease in net tax assets

121

38

124

Other
Net cash provided by operating activities

(196)

(162)

(770)

(4,481)(4,700)1,337(b) Reconciliation of cash and cash equivalents

Cash at the end of the period is as follows
Liquid assets - less than 3 months

9,943

9,600

7,180

Due from other financial institutions - less than 3 months

6,902

4,102

4,516

16,845

13,702

11,69685

75

78

Non-cash financing and investment activities
Share capital issues
Dividend reinvestment plan98

NOTES TO FINANCIAL STATEMENTS (continued)

20. Changes in composition of the Group
Newly controlled entities

The following securitisation special purpose entities were consolidated as part of the Group from 1 October 2004 becauseof the application of new AASB UIG Interpretation 112: ‘Consolidation - Special Purpose Entities’. The entities were notincluded in the previous year’s financial statements because AASB UIG 112 became operative on 1 October 2005.

"

Arc Funding Pty Ltd"

Kingfisher Trust No. 2"

Omeros II Trust"

Aurora Securitisation"

Kingfisher Trust 2001-1G"

Orion Funding Pty Ltd"

Echo Funding Pty Ltd"

Kingfisher Trust 2004-1G"

Solera Trust"

Eos Trust"Kingfisher Securitisation Pty Ltd"

Stellar Funding Pty Ltd"

Kingfisher Trust No. 1"

Omeros Trust"

Coral Finance Ltd

The impact of the consolidation of these entities is explained in Note 24.

Disposal of controlled entities

There were no material controlled entities disposed of during the half year to 31 March 2006. On 30 September 2005,
the controlled entities NBNZ Life Insurance Limited and NBNZ Investment Services Limited were sold. The profit before
tax on disposal was $14 million ($14 million after tax). The after tax contribution prior to disposal was $9 million in the
September 2005 half (Mar 2005 half: $9 million).

21. Associates, joint venture entities and investments
Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Operating profit

90

93

108

Profit after income tax

90

93

108

Aggregate associates and joint venture entities

Material contributions to profit

Contribution toGroup pre-tax profit

Ownership interest
held by Group
As at
Mar 06As at
Sep 05As at
Mar 05

%

%

%

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

PT Panin Indonesia Bank

12

16

21

29

29

29

E*Trade

3

3

3

34

34

35

ING Australia Limited

57

69

80

49

49

49

ING (NZ) Holdings Limited1

11

-

-

49

49

n/a

Associates

Joint ventures

1.

A joint venture entity from 30 September 2005.

99

NOTES TO FINANCIAL STATEMENTS (continued)

22. Exchange rates
Major exchange rates used in translation of results of offshore controlled entities and branches into the Group accounts
for each reporting period were as follows:

Balance Sheet
As at
As at
Mar 06
Sep 05As at
Mar 05

Profit and Loss Average
Half
Half
Half
year
year
year
Mar 06
Sep 05
Mar 05Euro

0.58900.63250.59700.62020.6164

Great British pound

0.41040.43250.41070.42370.41990.4085

New Zealand dollar

1.17001.09981.08991.09211.0862

1.0832

United States dollar

0.71620.76230.77190.74180.76430.7671

23. Significant events since balance date
There have been no significant events from 31 March 2006 to the date of this report.

100

0.5883NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS)The Group implemented accounting policies in accordance with Australian Equivalents to International Financial
Reporting Standards (AIFRS) on 1 October 2004, except for those relating to financial instruments and insurance
contracts, which were implemented on 1 October 2005.
The transition was accounted for in accordance with Accounting Standard AASB 1: ‘First time adoption of Australianequivalents to International Financial Reporting Standards’.
The impacts set out below are separated between those applicable from 1 October 2004 (and impacting the comparative
periods) and those applicable from 1 October 2005. All amounts are stated on a before tax basis, unless otherwise
noted. The reconciliation tables set out in pages 106 to 115 reconcile previous AGAAP to AIFRS and cross reference tothe notes below.
AIFRS adjustments with effect from 1 October 2004
(i)

Goodwill
Initial reduction in retained earnings.

Potential volatility in future earnings.

The adoption of AIFRS reduced the carrying amount of goodwill on transition by $5 million at 1 October 2004 (refer
Table 1) and $15 million at 1 October 2005 (refer Table 6) related to the acquisition of assets and liabilities that did notmeet the AIFRS definition of a business combination. The Group elected not to restate the classification and accounting
treatment of past business combinations that occurred prior to 1 October 2004.
Under AIFRS, the past practice of systematically amortising goodwill over the expected period of benefit ceased and was
replaced by impairment testing annually or more frequently if events or circumstances indicate that goodwill might be
impaired.
This change in accounting policy resulted in:

(ii)

"

a decrease in the amortisation expense of $224 million for the year to 30 September 2005 (31 March 2005:$110 million), including notional INGA and associates’ goodwill of $45 million (31 March 2005: $23 million) (refer
Tables 2 and 3); and"a corresponding increase in the carrying value of goodwill, associates and joint venture entities (refer Tables 4
and 5).

Defined benefit superannuation schemes
Initial reduction in retained earnings. Actuarial movements recognised in retained earnings.
On adoption of AASB 119: ‘Employee Benefits’, surpluses (assets) and/or deficits (liabilities) that arise within defined
benefit superannuation schemes are recognised on the Balance Sheet.
Under previous AGAAP, the Group accounted for the defined benefit superannuation schemes on a cash basis and did
not recognise an asset or liability for the net position of the defined benefit superannuation schemes.
The Group elected to apply the option available under AASB 119 to recognise actuarial gains and losses in the Balance
Sheet (i.e. the ‘direct to retained earnings’ approach). The non-cash expense reflecting the notional cost of the benefits
accruing to members of the defined benefit schemes in respect of service provided over the reporting period is charged
to the Income Statement. All transitional adjustments were, and ongoing movements reported for each scheme are,actuarially determined in accordance with AASB 119. Contributions to the schemes are made in accordance with thegoverning rules of the relevant schemes and there is no present liability to fund any deficits.
At 1 October 2004, the Group recognised a liability position of $200 million, an asset of $2 million, and a deferred tax
asset of $57 million, resulting in a $141 million decrease in retained earnings (refer Table 1).
For the AIFRS comparative year ended 30 September 2005, the Group recognised a decrease in the liability of$34 million (31 March 2005: $10 million) and an increase in the asset of $6 million (31 March 2005: $2 million) largely
representing an actuarial gain and a deferred tax adjustment of $16 million (31 March 2005: $4 million). The actuarial
gain of $25 million after tax (31 March 2005: $7 million after tax) was adjusted against retained earnings (refer Tables 4
and 5).

(iii)

Share based payments
Initial reduction in shareholders’ equity.

Higher ongoing expenses.

Under previous AGAAP, the Group recognised an expense equal to the full fair value of all deferred shares issued as partof the short term and long term incentive arrangements. The deferred shares vest over one to three years and may be
forfeited under certain conditions. The Group did not recognise an expense for options issued to staff or for sharesissued under the $1,000 employee share plan. On adoption of AASB 2: ‘Share-based Payment’, the Group recognised
an expense for all share based remuneration, including deferred shares and options, and recognises this expense over
the relevant vesting period.
The Group elected to retrospectively apply AASB 2 to share based payments granted prior to 7 November 2002.

101

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d
AIFRS adjustments with effect from 1 October 2004, cont’d(iii)

Share based payments, cont’d.
On 1 October 2004, this change in accounting policy resulted in:"

the establishment of a share options reserve of $44 million to reflect the fair value of options granted to employees;"

a reduction in paid up capital of $64 million representing the fair value of unvested shares;"

recognition of a deferred tax liability of $24 million; and" a net decrease to retained earnings of $4 million after tax(refer Table 1).

For the AIFRS comparative year ended 30 September 2005, the impact of the change was:"an increase in the share options reserve of $23 million (31 March 2005: $12 million);"

an increase in paid up capital of $41 million (31 March 2005: $16 million);"an accrual for $1,000 shares of $16 million (31 March 2005: $11 million);"a reduction in deferred tax of $17 million (31 March 2005: $7 million); and" a decrease in profit after tax of $63 million (31 March 2005: $32 million)(refer Tables 4 and 5).

(iv)

Securitisation
Additional assets/liabilities recognised. Immaterial impact on net profit.
AIFRS has introduced new requirements for the recognition of financial assets, including those transferred to a special
purpose entity for securitisation. The accounting treatment of existing securitisations has been reassessed.
Consequently, some vehicles, which were previously not consolidated, are being consolidated by the Group. This
resulted in an increase in assets and liabilities recorded within the Balance Sheet of $5 billion as at 1 October 2004 for
the Group (refer Table 1). For the comparative AIFRS year ended 30 September 2005, the Group recognised a decreaseof $388 million in both assets and liabilities (31 March 2005: $268 million in assets and $269 million in liabilities),
reflecting the net impact of repayment and securitisation of new assets during the year (refer Tables 4 and 5).
The impact on the Income Statement is that income and expenses increased to recognise the income and expense items
recorded within these vehicles, with the overall impact on net profit being immaterial.

(v)

Foreign currency translation reserve
Initial increase in retained earnings, no change to shareholders’ equity.
The Group has elected to apply the option under AASB 121: ‘The Effects of Changes in Foreign Exchange Rates’, to reset
amounts recorded within the foreign currency translation reserve to zero. On 1 October 2004, adopting this election
resulted in an increase in retained earnings of $218 million (refer Table 1).

(vi)

Asset revaluation reserve – balance relating to land and buildings
Initial increase in retained earnings, no change to shareholders’ equity.
The Group has elected to apply the option under AASB 1: ‘First time Adoption of Australian Equivalents to International
Financial Reporting Standards’, to recognise the value of Land and Buildings at deemed cost. As a result, the Group’s
asset revaluation reserve of $31 million relating to Land and Buildings was reset to zero as at 1 October 2004 andadjusted against retained earnings (refer Table 1).

(vii)

Taxation
Change in methodology. Immaterial impacts.
Under AASB 112: ‘Income Taxes’, a balance sheet method of tax effect accounting has been adopted, replacing the‘Income Statement’ approach previously used by the Group.
Income tax expense comprises current and deferred taxes, with income tax expense recognised in the Income
Statement, or recognised in equity to the extent that it relates to items recognised directly in equity.
Deferred tax is calculated using the balance sheet method by determining temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the tax base of those assets and liabilities as used
for taxation purposes.
At 1 October 2004, a reduction to deferred tax liabilities of $18 million was recognised with a corresponding increase of$16 million after tax to retained earnings and an increase to Share Capital of $2 million representing share issue costs
previously offset against Share Capital (refer Table 1).

102

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d
AIFRS adjustments with effect from 1 October 2004, cont’d(viii) Software reclassification
Reclassification only.
On transition to AIFRS, capitalised software assets were reclassified from Premises and Equipment to a separately
identifiable intangible asset. This resulted in a reclassification of $435 million as at 1 October 2004 (refer Table 1). The
amount reclassified decreased by $29 million and $48 million as at 31 March 2005 and 30 September 2005 respectively(refer Tables 4 and 5).
(ix)

Derivatives reclassification
Reclassification only.
At 1 October 2004, there was a reclassification of $4.5 billion from Other Assets and $5.7 billion from Payables andOther Liabilities, to the new AIFRS Balance Sheet line items of Derivative Financial Assets and Derivative Financial
Liabilities respectively (refer Table 1).
The amount reclassified from Other Assets decreased by $706 million at 30 September 2005 (31 March 2005:$434 million), and the amount reclassified from Other Liabilities decreased by $1.43 billion at 30 September 2005
(31 March 2005: $669 million) (refer Tables 4 and 5).

(x)

Other
The comparative AIFRS year ended 30 September 2005 and half year ended 31 March 2005 income statements contains
minor leasing and tax remeasurement adjustments together with the impact of securitisation and defined benefit planadjustments (refer Tables 2 and 3).
The balance sheets, as reflected in Tables 1, 4 and 5 also contain other minor remeasurements.

103

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d
AIFRS adjustments with effect from 1 October 2005(a)Credit loss provisioning
Initial increase in retained earnings. Volatility in future earnings.
AASB 139: ‘Financial Instruments: Recognition and Measurement’ adopts an incurred loss approach for credit loss
provisioning and provides guidance on the measurement of incurred losses. Provisions are raised for losses that havealready been incurred for exposures that are known to be impaired. The estimated losses on these impaired exposures
are then discounted to their present value using the original effective interest rate. As this discount unwinds during theperiod between recognition of impairment and recovery of the written down amount, it is recognised in the Income
Statement as interest income.
The General Provision in the Balance Sheet was replaced on adoption of AIFRS by a Collective Provision.
Exposures not individually known to be impaired are placed into pools of similar assets with similar risk characteristics tobe collectively assessed for losses that have been incurred, but not identified yet. The required provision is estimatedon the basis of historical loss experience for assets with credit risk characteristics similar to those in the collective pool.
The historical loss experience is adjusted based on current observable data.
The Collective Provision under AIFRS shares the same underlying measurement objectives as the previous AGAAP
General Provision. However, as a result of the application of a new estimation methodology, certain judgemental risk
measures have changed.
The Group believes that the resulting Collective Provision, while lower than the previous General Provision, comfortably
falls within the probable range of losses that have been incurred but not identified in our portfolio.
On adoption of AIFRS, the previous Economic Loss Provisioning (ELP) charge to profit was replaced by a charge forindividual provisions on impaired exposures together with a charge for movements in the Collective Provision.
As a result of these changes:(b)"

at 1 October 2005, there was an increase of $1 million to retained earnings relating to individual provisions on
impaired exposures as a result of the net impact of including expected interest cash flows in the calculation of theindividual provision and discounting estimated future cash flows;"

at 1 October 2005, the Collective Provision was $288 million less than the AGAAP General Provision. After tax, thisresulted in an increase to retained earnings of $207 million and a decrease in the foreign currency translation reserveof $23 million at 1 October 2005;"individual provisions and movements in the Collective Provision are charged direct to the Income Statement, driving
increased earnings volatility; and"movements in the Collective Provision are driven by changes in portfolio size, portfolio mix, credit risk and economic
cycles.

Fee revenue - financial service fees recognised as an adjustment to yield
Initial reduction in retained earnings.
Under AASB 139: ‘Financial Instruments: Recognition and Measurement’, fee income (such as loan approval fees)
integral to the yield of an originated financial instrument (such as loans and advances measured at amortised cost), netof any direct incremental costs, are capitalised and deferred over the expected life of the financial instrument.
On 1 October 2005, certain fees that have previously been recognised in the Income Statement, were deferred andrecognised against net loans and advances in the Balance Sheet with a corresponding reduction to retained earnings of$276 million after tax. The annual impact on net profit from this change is not material. However, there was anincrease in interest income (offset by a reduction in fee income) and a reclassification to interest earning assets ofcustomers’ liabilities for acceptances of $13.4 billion.

(c)

Derivative financial instruments, including hedging
Initial reduction in retained earnings. Volatility in future earnings. New assets and liabilities recognised.
At 1 October 2005, recognition of the fair value of derivatives relating to securitisation vehicles and structured financetransactions reduced retained earnings by $78 million. The Group continues to evaluate hedging relationships andeffectiveness for certain structured finance transactions, which introduces volatility within the Income Statement.
AIFRS permits hedge accounting (if certain criteria are met) for fair value hedges, cash flow hedges and hedges ofinvestments in foreign operations. Fair value and cash flow hedge accounting can only be considered where prospective
and retrospective effectiveness tests are met and the hedge relationship has been adequately documented.
Ineffectiveness precludes the use of hedge accounting.

104

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d
AIFRS adjustments with effect from 1 October 2005, cont’d(c)Derivative financial instruments, including hedging, cont’d
At 1 October 2005, the Group designated certain fair value and cash flow hedges and financial liabilities as fair value
through other income in the profit and loss, resulting in an increase in net assets of $86 million represented by adecrease in retained earnings of $75 million, and an increase in reserves of $161 million.

(d)Financial instruments classification and measurement
Certain assets reclassified and measured at fair value. Initial decrease in retained earnings.
Under AIFRS, certain financial assets of the Group previously carried at amortised cost were either:"reclassified as available-for-sale assets, resulting in measurement at fair value with movements being taken to anavailable-for-sale equity reserve (1 October 2005: $17 million); or"

reclassified as financial assets held at fair value through the profit and loss, with movements in fair value throughother income in the profit and loss resulting in a decrease in retained earnings (1 October 2005: $3 million).

All derivative financial instruments, including those used as hedging instruments, are measured at fair value andrecognised in the Balance Sheet. This requires an adjustment to reflect the market value of counterparty risk in the fairvalue of derivatives, which resulted in a decrease in retained earnings of $29 million at 1 October 2005. (Under AGAAP,
counterparty risk was notionally allowed for as part of the General Provision.)
Financial instruments are measured under AIFRS at ‘bid’ or ‘offer’ prices rather than the previous AGAAP use of ‘mid’
prices. On 1 October 2005, this change in measurement resulted in a decrease to retained earnings of $5 million.
(e)Classification of hybrid financial instruments
Reclassification of ANZ StEPS from equity to debt.
Under AASB 132: ‘Financial Instruments: Presentation’, ANZ StEPS, a hybrid Tier 1 instrument treated as equity underprevious AGAAP, was reclassified as debt. Prepaid issue costs, offset against the preference share capital balance underprevious AGAAP, were capitalised and amortised to interest over a 5 year period from the date of issue.
At 1 October 2005, loan Capital increased to $1 billion representing the transfer of $987 million from Preference Share
Capital to Loan Capital, capitalised prepaid issue costs of $11 million, deferred tax liability of $4 million and a decrease
in retained earnings after tax of $6 million representing amortisation of prepaid issue costs. Ongoing distributions to theholders of ANZ StEPS will be treated as an interest expense in the Income Statement rather than as dividends underprevious AGAAP.

(f)

Accounting for INGA
Initial reduction in retained earnings and increase in notional goodwill.
Under AASB 131: ‘Interests in Joint Ventures’, and in line with previous AGAAP, the Group is required to equity accountfor its interest in INGA. The adoption of AIFRS by INGA resulted in the following significant measurement andrecognition differences to previous AGAAP:"

reclassification and measurement of shareholder investments as available-for-sale assets. This change inmeasurement results in a reduction in investment return volatility experienced by INGA, as only realised gains andlosses are reported in its net profit;"

increased policy liabilities resulting from a change in the discount rates applied in the actuarial calculation of policy
liabilities and the separate presentation and change in basis of deferred acquisition costs (largely commissions)previously included within net policy liabilities (total impact is a decrease to retained earnings of $107 million);"

initial entry fee income previously taken upfront is deferred and amortised to income over time (total impact is adecrease to retained earnings of $23 million); and"other sundry items (total impact is a decrease to retained earnings of $16 million)

Under AIFRS, the excess of the market value over net assets (EMVONA) for INGA’s life insurance controlled entities is nolonger recognised. Accordingly, an adjustment for this amount has been made to notional goodwill of $72 million.
The Group’s 49% share of INGA’s net AIFRS adjustment is a decrease of $146 million to retained earnings and anincrease of $8 million to the available-for-sale reserve, resulting in a reduction in the carrying value of the Group’s
interest in INGA of $138 million as at 1 October 2005.

Explanation of material AIFRS adjustments to the AGAAP cash flow statement for 31 March 2005 and 30 September
2005
Various assets and liabilities (principally loans and advances and deposits and other borrowings) which were classified as investing or
financing cash flows, are now reclassified as operating cash flows under AIFRS. The Group’s net cash position has not changed.
There are no other material differences between the cash flow statement presented under AIFRS and that presented under previous
AGAAP.

105

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d
Reconciliation tables

References are to the notes on pages 101 to 105.
Table 1: Balance sheet as at 1 October 2004

AGAAP

1

D efined B enefit
Superannuation
S ch em es

S h areB asedP a ym ents

S ecuritisation
V ehicles(note (ii)) (note (iii))(note (iv))

$M

$M

$M

$M

Liquid assets

6,363

-

-

2

D ue from other financial institutions

4,781

-

-

-

Trading securities

5,478

-

-

-

A ssets

D erivative financial instrum ents
Investm ent securities
N et loans and advances
Custom er's liability for acceptances

-

-

-

(8)

7,746

-

-

2,797

204,962

-

-

2,144

12,466

-

-

-

176

-

-

-

R egulatory deposits
Shares in associates and joint venture entities

1,960

-

-

-

D eferred tax assets

1,454

57

-

2

G oodw ill and other intangible assets

3,269

-

-

-

O ther assets

9,158

2

-

89

Prem ises and equipm ent
Total assets

1,532

-

-

-

259,34559-

5 ,026

Liabilities
D ue to other financial institutions
D eposits and other borrow ings

7,349

-

-

-

168,557

-

-

5,037

-

-

-

(2)
-

D erivative financial instrum ents
Liability for acceptances
Incom e tax liabilities
Payables and other liabilities

12,466

-

-

1,914

-

24

-

14,212

200

-

(6)
-

Provisions
Bonds and notes
Loan capital
Total liabilities

845

-

-

27,602

-

-

-

8,475

-

-

-

2 4 1 ,4 2 0

2 00

24

5 ,0 2 9

1 7 ,9 2 5(1 41 )

(2 4 )(3)

O rdinary share capital

8,005

-

(64)

-

Preference share capital

987

-

-

-

N et a ssets
Shareholders' equity

R eserves- Foreign currency translation reserve- Asset revaluation reserve- Share options reserve

218

-

-

-

31

-

-

-

-

-

44

- O ther reserves

330

-

-

-

Total reserves

579

-

44

-

R etained profits
Share capital and reserves attributable toshareholders of the Com pany

8,336

(141)

(4)

(3)

17,907

(141)

(24)

(3)

M inority interest
Total shareholders' equity

18
17,925

(141)

(24)

(3)

1.

Reported financial position as at 30 September 2004

2.

Other includes $39 million relating to the reclassification of legacy foreign currency translation and asset revaluation balances at 1 October 2004

106

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’dEffe ct o f tran sition to A IF R S
T a x a tio n

S o ftw a reR ecla ssifica tio n

D eriva tives
R ecla ssifica tio n(n o tes (v)& (vi)) (n o te (vii))(n o te (viii))(n o te (ix ))R esettin g

O th er2

T o ta l A IFR S
A d ju stm en ts

A IFR S

$M

$M

$M

$M

$M

$M

$M

-

-

-

-

-

2

6,365

-

-

-

-

-

-

4,781

-

-

-

-

-

-

5,478

-

-

-

4,456

-

4,448

4,448

-

-

-

-

-

2,797

10,543

-

-

-

-

-

2,144

207,106

-

-

-

-

-

-

12,466

-

-

-

-

-

-

176

-

-

-

-

9

9

1,969

-

-

-

-

1

60

1,514

-

-

435

-

(5)

430

3,699

-

-

-

(4,456)-(4,365)

4,793

-

-

(435)

-

-

(435)

1,097

-

-

-

-

5

5 ,0 9 0

2 6 4 ,4 3 5

-

-

-

-

-

-

7,349

-

-

-

-

-

5,037

173,594

-

-

-

5,656

-

5,654

5,654

-

-

-

-

-

-

12,466

-

(18)

-

-

1

7

1,921

-

-

-

(5,656)50(5,412)

8,800

-

-

-

-

-

-

845

-

-

-

-

-

-

27,602

-

-

-

-

-

-

8,475

-

(1 8 )--

51

5 ,2 8 6

2 4 6 ,7 0 6

-

18

-

-

(4 6 )(1 9 6 )

1 7 ,7 2 9

-

2

-

-

-

(62)

7,943

-

-

-

-

-

-

987

(218)

-

-

-

-

(218)

-

(31)

-

-

-

-

(31)

-

-

-

-

-

-

44

44
330

-

-

-

-

-

-

(249)

-

-

-

-

(205)

374

249

16

-

-

(46)

71

8,407

-

18

-

-

(46)

(196)

17,711

-

18

-

-

(4 6 )(1 9 6 )18
1 7 ,7 2 9107

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d
Table 2: Income statement for the half year ended 31 March 2005

Effect of transition to AIFRS

1

AGAAP

Goodwill
Amortisation

Share
Based
Payments

2

Other

Total AIFRS
Adjustments

AIFRS(note (i)) (note (iii))

Reference
$M

$M

$M

$M

$M

$M
10,137

Total income

9,981

23

-

133

156

Interest income

8,277

-

-

143

143

8,420

Interest expense(5,424)

-

-

(131)

(131)

(5,555)

Net interest income

2,853

-

-

12

12

2,865

Profit from disposal of investments-

Other operating income

1,704

23

-

(10)

13

1,717

Operating income

4,557

23

-

2

25

4,582

Operating expenses(2,200)

87

(39)

-

48

(2,152)

Profit before doubtful debts
and income tax

2,357

110

(39)

2

73

2,430

Provision for doubtful debts

(284)

-

-

-

-

(284)

Profit before income tax

2,073

110

(39)

2

73

2,146

Income tax expense

(597)

-

7

-

7

(590)

Profit after income tax

1,476

110

(32)

2

80

1,556

(1)

-

-

-

-

(1)

1,475

110

(32)

2

80

1,555

Net profit attributable to minority interest
Net profit attributable toshareholders of the Company
1.

Reported performance for the period ended 31 March 2005

2.

Mainly relates to the impact of additional securitisation vehicles brought onto balance sheet

108

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d
Table 3: Income statement for the year ended 30 September 2005

AGAAP1

Effect of transition to AIFRS
Share
Based
Goodwill
Total AIFRS
Payments
Other2 Adjustments
Amortisation(note (i))

Reference
$M

AIFRS

(note (iii))
$M

$M

$M

$M

Total income

20,979

$M
45

-

273

318

21,297

Interest income

17,427

-

-

292

292

17,719Interest expense(11,629)

-

-

(272)

(272)

(11,901)

Net interest income

5,798

-

-

20

20

5,818

Other operating income

3,552

45

-

(19)

26

3,578

Operating income

9,350

45

-

1

46

9,396

Operating expenses
Profit before doubtful debts
and income tax(4,515)

179

(80)

(2)

97

(4,418)

4,835

224

(80)

(1)

143

4,978

Provision for doubtful debts

(580)

-

-

-

-

(580)

Profit before income tax

4,255

224

(80)

(1)

143

4,398

Income tax expense(1,234)

-

17

(3)

14

(1,220)

Profit after income tax

3,021

224

(63)

(4)

157

3,178

(3)

-

-

-

-

(3)

3,018

224

(63)

(4)

157

3,175

Net profit attributable tominority interest
Net profit attributable toshareholders of the Company
1.

Reported performance for the year ended 30 September 2005

2.

Mainly relates to the impact of additional securitisation vehicles brought onto balance sheet

109

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d

Table 4: Balance sheet as at 31 March 2005

1 October 2004
AIFRS
AGAAP 1
Adjustments

Goodwill

DefinedBenefitSuperannuation
Schemes(from Table 1)(note (i))(note (ii))

$M

$M

$M

$M

Liquid assets

8,855

2

-

-

Due from other financial institutions

6,428

-

-

-

Trading securities

6,108

-

-

-

Reference

AssetsDerivative financial instruments

4,448

-

-

Investment securities

6,745

-

2,797

-

-

Net loans and advances

218,558

2,144

-

-

Customer's liability for acceptances

12,922

-

-

-

143

-

-

-

Regulatory deposits
Shares in associates and joint venture entities

1,764

9

23

-

Deferred tax assets

1,234

60

-

(3)

Goodwill and other intangible assets
Other assets

3,118
10,493430(4,365)87-

2Premises and equipment

1,481

(435)

-

-

277,849

5,090

110

(1)

Due to other financial institutions

10,056---

Deposits and other borrowings

180,410

5,037

-

-

Derivative financial instruments

-

5,654

-

-

Total assets
Liabilities

Liability for acceptances

12,922---

Income tax liabilities

1,715

7

-

1

Payables and other liabilities

12,431(5,412)

-

(10)

865

-

-

-

Bonds and notes

32,321---

Loan capital

8,121

-

-

-

258,841

5,286

-

(9)

19,008

(196)

110

8

Ordinary share capital

8,028

(62)

-

-

Preference share capital

1,858

-

-

-

- Foreign currency translation reserve

(66)

(218)

-

-

- Asset revaluation reserve

31

(31)

-

-

Provisions

Total liabilities
Net assets
Shareholders' equity

Reserves- Share options reserve

-

44

-

-

330

-

-

-

Total reserves

295

(205)

-

-

Retained profits

8,809

71

110

1

- Other reserves

-

-

-

7

Total retained profits- Actuarial gain/loss on defined benefit plans

8,809

71

110

8

Share capital and reserves attributable toshareholders of the Company

18,990

(196)

110

8

Minority interest
Total shareholders' equity

18
19,008

(196)

110

8

1.

Reported financial position for the period ended 31 March 2005

110

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d

Effect of transition to AIFRS

Share Based
Payments

Securitisation
VehiclesSoftw areReclassification

Derivatives
Reclassification(note (iii))(note (iv))(note (viii))(note (ix))

$M

$M

$M

$M

-

(1)

-

-

-

1

8,856

-

-

-

-

-

-

6,428

-

-

-

-

-

-

6,108

-

(12)

-

(434)

-

4,002

4,002

-

44

-

-

-

2,841

9,586

-

(308)

-

-

-

1,836

220,394

-

-

-

-

-

-

12,922

-

-

-

-

-

-

143

-

-

-

-

-

32

1,796

2

(10)

-

-

-

49

1,283

-

19

(29)
-

434

2
-

490
(3,910)

3,608
6,583

-

-

29

-

-

(406)

1,075

2

(268)

-

-

2

4,935

282,784

-

-

-

-

-

-

10,056

-

(270)

-

-

-

4,767

185,177

Other

Total AIFRS
Adjustments

AIFRS

$M

$M

-

2

-

(669)

-

4,987

4,987

-

-

-

-

-

-

12,922

(5)

(13)

-

-

-

(10)

1,705

11

12

-

669

2

(4,728)

7,703

-

-

-

-

-

-

865

-

-

-

-

-

-

32,321

-

-

-

-

-

-

8,121

6

(269)

-

-

2

5,016

263,857

(4)

1

-

-

-

(81)

18,927

16

-

-

-

-

(46)

7,982

-

-

-

-

-

-

1,858

-

-

-

-

-

(218)

(284)

-

-

-

-

-

(31)

-

12

-

-

-

-

56

56

-

-

-

-

-

-

330

12

-

-

-

-

(193)

102

(32)

1

-

-

-

151

8,960

-

-

-

-

-

7

7

(32)

1

-

-

-

158

8,967

(4)

1

-

-

-

(81)

18,909

(4)

1

-

-

-

(81)

18
18,927111

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d
Table 5: Balance sheet as at 30 September 2005

1 October2004 AIFRS
Adjustments

Goodwill

Defined Benefit
Superannuation
Schemes(from Table
1)(note (i))(note (ii))

$M

$M

$M

$M

Liquid assets

11,6002--

Due from other financial institutions

6,348

-

-

-

Trading securities

6,285

-

-

-

-

4,448

-

-

Investment securities

6,941

2,797

-

-

Net loans and advances

230,952

2,144

-

-

Customer's liability for acceptances

13,449---AGAAP1

Reference

AssetsDerivative financial instruments

Regulatory deposits
Shares in associates and joint venture entities

159

-

-

-

1,872

9

45

(13)

Deferred tax assets

1,337

60

-

Goodwill and other intangible assets

2,898

430

179

-

Other assets

9,903(4,365)-

6

Premises and equipment
Total assets

1,441

(435)

-

-

293,185

5,090

224

(7)

Liabilities
Due to other financial institutions

12,027---

Deposits and other borrowings

185,693

5,037

-

-

-

5,654

-

-

13,449---Derivative financial instruments
Liability for acceptances
Income tax liabilities

1,797

7

-

3

Payables and other liabilities

11,607(5,412)-(34)-

Provisions

914

-

-

Bonds and notes

39,073---

Loan capital

9,137

-

-

-

273,697

5,286

-

(31)

19,488

(196)

224

24

Ordinary share capital

8,074

(62)

-

-

Preference share capital

1,858

-

-

-

(225)

(218)

-

-

31

(31)

-

-

-

44

-

-

Total liabilities
Net assets
Shareholders' equity

Reserves- Foreign currency translation reserve- Asset revaluation reserve- Share options reserve- Other reserves

330

-

-

-

Total reserves

136

(205)

-

-

Retained profits

9,393

71

224

(1)

-

-

-

25

Total retained profits

9,393

71

224

24

Share capital and reserves attributable toshareholders of the Company

19,461

(196)

224

24

Minority interest
Total shareholders' equity

27
19,488

(196)

224

24

- Actuarial gain/loss on defined benefit plans

1.

Reported financial position for the financial year ended 30 September 2005112

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d

Effect of transition to AIFRS
Share
Based
Payments

Securitisation
VehiclesSoftwareReclassification

Derivatives
Reclassification(note (iii))(note (iv))(note (viii))(note (ix))

$M

$M

$M

-

(1)

-

Other

Total AIFRS
Adjustments

AIFRS

$M

$M

$M

$M

-

-

-

1

11,601

-

-

-

-

-

6,348

-

-

-

-

-

6,285

-

(12)

-

(706)

-

3,730

3,730

-

304

-

-

-

3,101

10,042

-

(606)

-

-

-

1,538

232,490

-

-

-

-

-

-

13,449

-

-

-

-

-

-

159

-

-

-

-

-

54

1,926

5

-

-

-

-

52

1,389

-

-

(48)

-

(5)

556

3,454

-

(73)

-

706

-

(3,726)

6,177

-

-

48

-

-

(387)

1,054

5

(388)

-

-

(5)

4,919

298,104

-

-

-

-

-

-

12,027

-

(408)

-

-

-

4,629

190,322---(1,429)

-

4,225

4,225

-

-

-

-

-

-

13,449

(12)

4

-

-

2

4

1,801

16

16

-

1,429

(4)

(3,989)

7,618

-

-

-

-

-

-

914

-

-

-

-

-

-

39,073

-

-

-

-

-

-

9,137

4

(388)

-

-

(2)

4,869

278,566

1

-

-

-

(3)

50

19,538

41

-

-

-

-

(21)

8,053

-

-

-

-

-

-

1,858

-

-

-

-

-

(218)

(443)

-

-

-

-

-

(31)

-

23

-

-

-

-

67

67

-

-

-

-

-

-

330

23

-

-

-

-

(182)

(46)

(63)

-

-

-

(3)

228

9,621

-

-

-

-

25

25

(63)

-

-

-

(3)

253

9,646

1

-

-

-

(3)

50

19,511

1

-

-

-

(3)

50

27
19,538113

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d
Table 6: Balance sheet as at 1 October 2005

30 Septem ber
2005 AIFRSAGAAP 1 Adjustm ents(from Table
5)

Reference
AssetsLiquid assets

Credit Loss
Provisioning

Fee
Revenue(note (a)) (note (b))

$M

$M

$M

$M
-

11,6001-

Due from other financial institutions

6,348

-

-

-

Trading securities

6,285

-

-

-

-

3,730

-

-

Derivative financial instrum ents
Available for sale assets

-

-

-

Investm ent securities

6,941

3,101

-

-

Net loans and advances

230,952

1,538

289

(382)

Custom er's liability for acceptances

13,449

-

-

-

159

-

-

-

Shares in associates and joint venture entities

1,872

54

-

-

Deferred tax assets

1,337

52

(105)

121

Goodwill and other intangible assets
Other assets

2,898
9,903

556
(3,726)-(15)

Regulatory deposits

Prem ises and equipm ent
Total assets

1,441

(387)

-

-

293,185

4,919

184

(276)

Liabilities
Due to other financial institutions

12,027---

Deposits and other borrowings

185,693

4,629

-

-

-

4,225

-

-

13,449---Derivative financial instrum ents
Liability for acceptances
Incom e tax liabilities
Payables and other liabilities
Provisions

1,797

4

-

-

11,607(3,989)

-

-

914

-

-

-

39,073

-

-

-

9,137

-

-

-

273,697

4,869

-

-

19,488

50

184

(276)

Ordinary share capital

8,074

(21)

-

-

Preference share capital

1,858

-

-

-

(225)

(218)

(23)

-

31

(31)

-

-

Bonds and notes
Loan capital
Total liabilities
Net assets
Shareholders' equity

Reserves- Foreign currency translation reserve- Asset revaluation reserve- Share options reserve

-

67

-

- Cashflow hedging reserve

-

-

-

- Available for sale reserve

-

-

330

-

- Other reserves-

Total reserves

136

(182)

(23)

-

Retained profits

9,393

228

207

(276)

- Actuarial gain/loss on defined benefit plans
Total retained profits

-

25

-

-

9,393

253

207

(276)

Share capital and reserves attributable toshareholders of the Com pany

19,461

50

184

(276)

M inority interest
Total shareholders' equity

27
19,488

50

184

(276)

1.

Reported financial position for the financial year ended 30 September 2005

114

NOTES TO FINANCIAL STATEMENTS (continued)

24. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS), cont’d

Effect of transition to AIFR S
D erivative
Accounting
Including
H edging

Financial
Instrum ents
R em easurem ent

R eclassificationof StEPS

Accounting
for IN G A(note (c))(note (d))(note (e))(note (f))

$M

$M

$M

-

-

-

-

-

O therTotal AIFR S
Adjustm ents

AIFR S

$M

$M

$M

$M

-

-

-

1

11,601

-

-

-

-

6,348

(112)

-

-

-

(112)

6,173

275

(42)

-

-

-

3,963

3,963

1

11,153---

11,154

11,154(11)(10,031)---(6,941)-(214)(1,129)

-

-

-

102

231,054

-

-

-

-

-

-

13,449

-

-

-

-

-

-

159

-

-

-

(138)

-

(84)

1,788

49

-

(4)

-

3

116

1,453

(11)

(38)

11

-

(15)
(2)

541
(3,781)

3,439
6,122

-

-

-

-

-

(387)

1,054

89

(199)

7

(138)

(14)

4,572

297,757

-

-

-

-

-

-

12,027

(70)

-

-

-

-

4,559

190,252

35

6

-

-

-

4,266

4,266

-

-

-

-

-

-

13,449

54

(20)

-

-

(9)

29

1,826

4

(131)

-

-

(1)

(4,117)

7,490

-

-

-

-

16

16

930

(7)

-

-

-

-

(7)

39,066

65

-

1,000

-

-

1,065

10,202

81

(145)

1,000

-

6

5,811

279,508

8

(54)

(993)

(138)

(20)

(1,239)18,249

-

-

-

-

-

(21)

8,053

-

-

(987)

-

-

(987)

871

-

-

-

-

-

(241)

(466)

-

-

-

-

-

(31)

-

-

-

-

-

-

67

67

162

-

-

-

-

162

162

(1)

(17)

-

8

-

(10)

(10)

-

-

-

-

-

-

330

161

(17)

-

8

-

(53)

83

(153)

(37)

(6)

(146)

(20)

(203)

9,190

-

-

-

-

-

25

25

(153)

(37)

(6)

(146)

(20)

(178)

9,215

8

(54)

(993)

(138)

(20)

(1,239)18,222

8

(54)

(993)

(138)

(20)

(1,239)27
18,249115

DIRECTORS’ DECLARATION

The directors of Australia and New Zealand Banking Group Limited declare that:
1. in the directors’ opinion the financial statements and notes of the consolidated entity set out on pages 61 to 115 are inaccordance with the Corporations Act 2001 (as amended), including:(a) that they comply with Australian Accounting Standard AASB 134: ‘Interim Financial Reporting’, and the Corporations
Regulations 2001, and(b) that they give a true and fair view of the financial position of the consolidated entity as at 31 March 2006 and of its
performance for the half year ended on that date; and2. in the directors’ opinion at the date of this declaration there are reasonable grounds to believe that the Company will beable to pay its debts as and when they become due and payable.
Signed in accordance with a resolution of the directors.

Charles Goode
ChairmanJohn McFarlane
Director

27 April 2006

116

AUDITORS’ REVIEW REPORT AND INDEPENDENCE STATEMENT

Independent review report to the members of Australia and New Zealand Banking Group Limited
Scope

We have reviewed the financial report of Australia and New Zealand Banking Group Limited (“the Company”) for the half year
ended 31 March 2006, consisting of the consolidated condensed interim statements of income, balance sheet, recognised
income and expense, cash flows, accompanying notes 1 to 24 and the Directors’ Declaration set out on pages 64 to 116. The
financial report includes the consolidated condensed financial statements of the consolidated entity comprising the Company
and the entities it controlled at the end of the half year or from time to time during the half year. The Company’s directors
are responsible for the financial report including the relevant reconciling information regarding adjustments required underthe Australian Accounting Standard AASB 1: ‘First-time Adoption of Australian equivalents to International Financial ReportingStandards’.
We have performed an independent review of the financial report in order to state whether, on the basis of the procedures
described, anything has come to our attention that would indicate that the financial report is not presented fairly inaccordance with Australian Accounting Standard AASB 134: ‘Interim Financial Reporting’ and other mandatory financial
reporting requirements in Australia and statutory requirements, so as to present a view which is consistent with ourunderstanding of the consolidated entity’s financial position, and performance as represented by the results of its operations
and its cash flows and in order for the Company to lodge the financial report with the Australian Securities and Investments
Commission.
Our review has been conducted in accordance with Australian Auditing Standards applicable to review engagements. A
review is limited primarily to inquiries of Company personnel and analytical procedures applied to the financial data. These
procedures do not provide all the evidence that would be required in an audit, thus the level of assurance is less than given
in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.
Statement

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the halfyear financial report of Australia and New Zealand Banking Group Limited is not in accordance with:(a) the Corporations Act 2001, including:(i)giving a true and fair view of the consolidated entity financial position as at 31 March 2006 and of its performancefor the half year ended on that date; and(ii) complying with Australian Accounting Standard AASB 134: ‘Interim Financial Reporting’ and the Corporations
Regulations 2001; and(b) other mandatory financial reporting requirements in Australia.

KPMG
Melbourne

Mitch Craig
Partner

27 April 2006

Lead Auditor’s Independence Statement to the directors of Australia and New Zealand Banking Group Limited

I state that, to the best of my knowledge and belief in relation to the review for the half year ended 31 March 2006 there
have been:(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review, otherthan contraventions (relating to minor matters rectified within 7 days and reported to the directors) covered by ASICClass Order 05/910; and(b) no contraventions of any applicable code of professional conduct in relation to the review.

KPMG
Melbourne

Mitch Craig
Partner

27 April 2006

117

SUPPLEMENTARY INFORMATION - AVERAGE BALANCE SHEET

Average Balance Sheet on a fully comparable AIFRS basis1

Half year Mar 06
Ave bal
Int
Rate
$M
$M
%
Interest earning assets
Due from other financial institutions
Australia
New ZealandOverseas markets

Half year Mar 05
Ave bal
Int
Rate
$M
$M
%

32
69
99

4.9%
6.5%
4.3%

880
2,092
3,108

24
63
58

5.4%
6.0%
3.7%

733
2,392
2,218

19
63
32

5.2%
5.3%
2.9%

Investments in available for sale and other assets
Australia
15,255433
New Zealand
2,292
83
Overseas markets
2,687
57

5.7%
7.3%
4.3%

12,041
2,052
2,805

336
63
49

5.6%
6.1%
3.5%

10,920
2,401
3,179

302
70
51

5.5%
5.8%
3.2%

Loans and advances
Australia
New ZealandOverseas markets

165,103
65,866
9,172

5,987
2,849
308

7.3%
8.7%
6.7%

156,62262,779
8,700

5,739
2,670
276

7.3%
8.5%
6.3%

147,149
59,197
9,282

5,232
2,445
248

7.1%
8.3%
5.4%

Acceptances2
Australia
Overseas markets

13,725
170

464
4

6.8%
4.7%

13,258
86

459
1

6.9%
2.3%

13,073
61

434
1

6.7%
3.3%

Other assets
Australia
New ZealandOverseas markets

3,337
4,417
4,303

128
133
131

7.7%
6.0%
6.1%

2,535
3,340
4,011

61
93
109

4.9%
5.6%
5.4%

1,896
2,481
2,624

48
72
81

5.1%
5.8%
6.2%

12,046272
306,410 11,049(12,046)(272)
294,364 10,777

4.5%

9,247
179
283,556 10,180(9,247)(179)
274,309 10,001

3.9%

9,707
267,313(9,707)
257,606

151
9,249
(151)
9,098

3.1%

Intragroup assets
Overseas markets
Intragroup elimination

1,320
2,131
4,586

Half year Sep 05
Ave bal
Int
Rate
$M
$M
%

7.3%

7.3%

Non-interest earning assets
Derivatives
Australia
New ZealandOverseas markets

6,708
2,180
(564)

5,937
1,564
(226)

3,932
1,728
(308)

Premises and equipment

1,078

1,155

1,033

Other assets

13,794

13,49012,564(1,499)(432)(185)
21,080315,444(1,495)(439)(219)
19,767
294,076(1,408)(403)(291)
16,847274,453

Provisions for credit impairment
Australia
New ZealandOverseas markets
Total average assets

7.1%

1.

See definition on page 122

2.

Acceptances have been classified as interest earning assets following adoption of AIFRS on 1 October 2005. This is consistent with the reclassification ofcommercial bill margins from fees to net interest.

118

SUPPLEMENTARY INFORMATION - AVERAGE BALANCE SHEET

Average Balance Sheet on a fully comparable AIFRS basis1
Half year Mar 06
Ave bal
Int
Rate
$M
$M
%

Half year Sep 05
Ave bal
Int
Rate
$M
$M
%

Half year Mar 05
Ave bal
Int
Rate
$M
$M
%

Interest bearing liabilities
Time deposits
Australia
New ZealandOverseas markets

41,323
26,86812,802

1,151
927
283

5.6%
6.9%
4.4%

40,122
25,537
11,185

1,106
847
210

5.5%
6.6%
3.7%

38,65025,626
10,965

1,020
813
173

5.3%
6.4%
3.2%

Savings deposits
Australia
New ZealandOverseas markets

14,765
7,021
502

228
151
3

3.1%
4.3%
1.2%

14,092
7,264
419

215
151
1

3.0%
4.1%
0.5%

13,699
7,155
415

199
140
1

2.9%
3.9%
0.5%

Other demand deposits
Australia
New ZealandOverseas markets

37,384
8,375
968

812
242
9

4.4%
5.8%
1.9%

35,443
8,165
805

765
219
7

4.3%
5.3%
1.7%

32,448
7,818
783

666
193
6

4.1%
5.0%
1.5%

Due to other financial institutions
Australia
New ZealandOverseas markets

3,012
2,128
6,602

78
58
164

5.2%
5.5%
5.0%

1,515
1,567
5,073

47
47
101

6.2%
6.0%
4.0%

1,397
1,793
4,209

39
45
64

5.6%
5.0%
3.0%

Commercial paper
Australia
New ZealandOverseas markets

9,605
6,879
8,626

275
253
180

5.7%
7.4%
4.2%

7,770
7,769
6,421

226
268
103

5.8%
6.9%
3.2%

7,988
7,664
6,099

218
253
69

5.5%
6.6%
2.3%

Borrowing corporations' debt
Australia
New Zealand

9,124
1,962

257
67

5.6%
6.8%

9,201
1,927

264
64

5.7%
6.6%

9,316
1,981

254
62

5.5%
6.3%

Acceptances
Australia
Overseas markets

13,725
170

384
4

5.6%
4.7%

13,258
86

377
1

5.7%
2.3%

13,073
61

353
1

5.4%
3.3%

Loan capital, bonds and notes
Australia
New ZealandOverseas markets

43,593
8,891
137

1,252
331
3

5.8%
7.5%
4.4%

42,281
5,906
136

1,212
211
2

5.7%
7.1%
2.9%

36,312
3,601
139

996
124
2

5.5%
6.9%
2.9%

4,847
234
469

233
50
14

n/a
n/a
n/a

4,730
150
95

244
66
6

n/a
n/a
n/a

4,458
64
87

208
35
9

n/a
n/a
n/a

5,724
82
6,322
190
282,058 7,681(12,046) (272)270,012 7,409

2.9%
6.0%

3,105
(6)
6,142
185
260,164 6,939(9,247) (179)
250,917 6,760

-0.4%
6.0%

4,191
(8)
5,516
159
245,508 6,094(9,707) (151)
235,801 5,943

-0.4%
5.8%

2

3

Other liabilities
Australia
New ZealandOverseas markets
Intragroup liabilities
Australia
New Zealand
Intragroup elimination

Non-interest bearing liabilities
Deposits
Australia
New ZealandOverseas markets
Derivatives
Australia
New ZealandOverseas markets
Other liabilities
Total average liabilities

5.5%

5.4%

4,387
3,858
1,104

4,173
3,771
1,071

4,121
3,298
881

6,821
2,139
(975)
9,964
27,298297,310

5,992
1,826
(819)
9,771
25,785
276,702

3,532
2,387
(99)
7,540
21,660257,461

5.1%

1.

See definition on page 122

2.

Acceptances have been classified as interest bearing liabilities following adoption of AIFRS on 1 October 2005. This is consistent with the reclassification ofcommercial bill margins from fees to net interest.

3.

Includes foreign exchange swap costs

119

SUPPLEMENTARY INFORMATION - AVERAGE BALANCE SHEET

Average Balance Sheet on a fully comparable AIFRS basis1

Half
year
Mar 06
$M

Half
year
Sep 05
$M

Half
year
Mar 05$M

Total average assets
Australia

211,498

197,608

183,434

New Zealand

81,73676,54372,571

Overseas markets

34,25629,17228,155less intragroup elimination(12,046)(9,247)(9,707)315,444

294,076

274,453

33.0%

32.8%

33.2%

Australia

198,740

185,336

173,772

New Zealand

74,70670,263

66,471% of total average assets attributable
to overseas activities
Average interest earning assets

Overseas markets

32,96427,957

27,070(12,046)(9,247)(9,707)294,364

274,309257,606

Australia

201,742

188,590

174,506

New Zealand

75,83871,89068,168less intragroup elimination

Total average liabilities

Overseas markets
less intragroup elimination

31,77625,46924,494(12,046)(9,247)(9,707)297,310

276,702257,461

17,263

16,503

16,470

871

871

522

Total average shareholders' equity
Ordinary share capitalPreference share capital
Total average liabilities and shareholders' equity% of total average liabilities attributable to overseas activities
1.

See definition on page 122

2.

Excludes Treasury shares held within the Group

120

18,134

17,374

16,992

315,444

294,076

274,453

34.1%

33.0%

33.8%

SUPPLEMENTARY INFORMATION - AVERAGE BALANCE SHEET

Average Balance Sheet on a fully comparable AIFRS basis1
Half
year
Mar 06%

Halfyear
Sep 05%Halfyear
Mar 05%Australia

7.11

7.12

6.97

New Zealand

8.41

8.20

8.00

Overseas markets

5.30

4.79

4.17

Total Group

7.34

7.27

7.08

2

Gross earnings rate

Interest spread and net interest average margin may be analysed as follows:

Australia
Gross interest spread

1.91

1.96

2.08

Interest not recognised on impaired assets(0.00)(0.01)(0.01)Net interest spread

1.91

1.95

2.07

Interest attributable to net non-interest bearing items

0.40

0.39

0.34

Net interest average margin - Australia

2.31

2.34

2.41

Gross interest spread

1.80

1.84

2.03

Interest not recognised on impaired assets(0.02)(0.00)(0.01)Net interest spread

1.78

1.84

2.02

Interest attributable to net non-interest bearing items

0.54

0.52

0.48

Net interest average margin - New Zealand

2.32

2.36

2.50

Gross interest spread

0.95

1.24

1.33

Interest not recognised on impaired assets(0.02)(0.01)(0.04)Net interest spread

0.93

1.23

1.29

Interest attributable to net non-interest bearing items

0.36

0.48

0.46

Net interest average margin - Overseas markets

1.29

1.71

1.75

New ZealandOverseas markets

Group
Gross interest spread

1.85

1.91

2.04

Interest not recognised on impaired assets(0.01)(0.01)(0.01)Net interest spread

1.84

1.90

2.03

Interest attributable to net non-interest bearing items

0.45

0.46

0.43

Net interest average margin

2.29

2.36

2.46

1.

See definition on page 122

2.

Average interest rate received on interest earning assets

121

DEFINITIONS

Adjusted common equity (ACE) is Tier 1 capital less preference shares and other Hybrid Capital at current rates and regulatory
deductions from total capital.
AIFRS - Australian Equivalents of International Accounting Standards
Business Unit description:
Personal Banking Australia-

Banking Products manufactures deposit, transaction account and margin lending products.

-

Consumer Finance provides consumer and commercial credit cards, ePayment products, personal loans, and merchant payment
and ATM facilities.

-

Mortgages provides mortgage finance secured by residential real estate in Australia.

-

Rural Commercial and Agribusiness Products provides a full range of banking services to personal customers acrossAustralia, and to small business and agricultural customers in rural Australia.

-

Investment & Insurance Products comprises the equity accounted earnings from INGA's core business operations (excludes
investment earnings), the Financial Planning distribution business, margin lending, the trustee business and E*Trade.

-

Other includes the branch network, whose costs are fully recovered from product business units, Private Banking and marketingand support costs.

Institutional-

Client Relationship Group manages customer relationships and develops financial services solutions and strategies for large
businesses with a turnover greater than $100 million in Australia and New Zealand and, through corporate clients where theGroup has an existing customer relationship, in the United Kingdom, United States and Asia.

-

Corporate and Structured Financing provides complex financing and advisory services, structured financial products, leasing,private equity, project and leveraged finance and infrastructure investment to ANZ’s Institutional, Corporate and Small Businesscustomers.

-

Debt Product Group manages Institutional’s balance sheet with particular focus on credit quality, diversification and maximisingrisk adjusted returns.

-

Markets provides origination, underwriting, structuring, risk management, advice and sale of credit and derivative products,
foreign exchange and commodity trading and sales-related services globally.

-

Trade and Transaction Services provides cash management, trade finance, international payments, clearing and custodian
services principally to institutional and corporate customers.

New Zealand Businesses-

ANZ Retail operating under the ANZ brand in New Zealand provides a full range of banking service to personal and businessbanking customers.

-

Corporate Banking in New Zealand incorporates the ANZ and NBNZ brands, and provides financial solutions through arelationship management model for medium-sized businesses with a turnover up to NZD100 million.

-

National Bank Retail operating under the National Bank brand in New Zealand, provides a full range of banking services topersonal customers from youth through to private banking, and business banking customers with turnover up to NZD5 million.

-

NBNZ refers to the operations of the National Bank of New Zealand Limited purchased on 1 December 2003. These operations
were amalgamated with ANZ Banking Group (New Zealand) Limited on 26 June 2004 to form ANZ National Bank Limited(ANZ NB). NBNZ was reported as a separate business unit until 30 September 2004.

-

Rural Banking in New Zealand provides a full range of banking services to rural and agribusiness customers.

Corporate Australia-

Business Banking in Australia provides a full range of banking services to metropolitan-based small to medium businesses, withturnover up to $10 million and business banking funds under management of more than $50,000.

-

Corporate Banking Australia manages customer relationships and develops financial solutions for medium-sized businesses witha turnover of $10 million to $150 million.

-

Small Business Banking in Australia provides business banking services to metropolitan-based small businesses, with businessbanking funds under management of up to $50,000.

Non-continuing Businesses comprises the London headquartered project finance business the run-off of New Zealand conduit
transactions and certain structured finance transactions that ANZ has exited as part of its de-risking strategy.
Group Centre-

Treasury is the banker to all ANZ businesses charged with providing cashflow support, ensuring liquidity, managing interest raterisk and providing capital to the businesses.

‘

Economic loss provisioning (ELP) charge is determined based on the expected average annual loss of principal over the economic
cycle for the current risk profile of the lending portfolio.

122

DEFINITIONS (continued)

Equity standardisation Economic Value Added (EVATM) principles are in use throughout the Group, whereby risk adjusted capital isallocated and charged against business units. Equity standardised profit is determined by eliminating the impact of earnings on eachbusiness unit’s book capital and attributing earnings on the business unit’s risk adjusted capital. This enhances comparability ofbusiness unit performance. Geographic results are not equity standardised.
Impaired assets are those whose carrying value was greater than the amount expected to be recovered over its life. Morespecifically, in relation to loans or other credit facilities, impairment may arise where there is reasonable doubt about thecollectability of interest, fees (past and future) or principal outstanding, or where concessional terms have been provided because of
the financial difficulties of the customer.
Income includes external interest income, other external operating income, and if positive and net intersegment interest income.
Individual provision charge is the amount of impairment on those loans and advances assessed for impairment on an individual
basis (as opposed to on a collective basis). It takes into account expected cash flow over the lives of those loans and advances.
Liquid assets are cash and cash equivalent assets. Cash equivalent assets are highly liquid investments with short periods tomaturity, are readily convertible to cash at ANZ’s option and are subject to an insignificant risk of changes in value.
Net advances include gross loans and advances and acceptances less income yet to mature and provisions (for both as at andaverage volumes).
Net inter business unit expenses - consists of the charges made between business units for the provision of support services.
Both payments and receipts by business units are shown as net inter business unit expenses.
Net interest margin is net interest income as a percentage of average interest earning assets. Non-assessable interest income isgrossed up to the equivalent before tax amount for the purpose of these calculations.
Net interest spread is the average interest rate received on interest earning assets less the average interest rate paid on interest
bearing liabilities. Non-assessable interest income is grossed up to the equivalent before tax amount for the purpose of thesecalculations.
Net non-interest bearing items, referred to in the analysis of interest spread and net interest average margin, includes
shareholders’ equity, impairment of loans and advances, and deposits not bearing interest and other liabilities not bearing interest,
offset by premises and equipment and other non-interest earning assets. Impaired loans are included within interest bearing loans,advances and bills discounted.
Net tangible assets equals share capital and reserves attributable to shareholders of the company less preference share capital andunamortised intangible assets (including software).
Operating expenses exclude the provision for impairment of loans and advances charge.
Operating income in business segments includes equity standardised net interest and other operating income.
Overseas Markets includes all operations outside of Australia and New Zealand. The Group’s geographic segments are Australia,
New Zealand and Overseas Markets.
Profit on a fully comparable AIFRS basis is management’s estimate of prior year results adjusted for the impact of those AIFRS
standards, principally financial instrument and insurance related, which became effective from 1 October 2005. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability.
Return on asset ratios include net intra group assets which are risk weighted at 0% for return on risk weighted assets calculations.
Significant items are items that have a material impact (typically >$10 million) on profit after tax, or the earnings used in theearnings per share calculation. Significant items also do not arise in the normal course of business and are infrequent in nature.
Divestments are typically defined as significant items.
Total advances include gross loans and advances and acceptances less income yet to mature (for both as at and average volumes).
Loans and advances classified as available-for-sale are excluded from total advances.
Unproductive facilities comprise facilities (such as standby letters of credit, bill endorsements, documentary letters of credit,
guarantees to third parties, undrawn facilities to which the Group is irrevocably committed and market related exposures) where thecustomer status is non-accrual.

123

ALPHABETICAL INDEX

PAGE
Associates, joint venture entities and investments.......................................................................................................99
Auditors’ Review Report and Independence Statement...............................................................................................117
Average balance sheet and related interest ................................................................................................................91
Business Performance Review ...................................................................................................................................37
Capital management................................................................................................................................................89
Chief Financial Officer’s Review .................................................................................................................................11
Changes in the composition of the Group ...................................................................................................................99
Contingent liabilities and contingent assets.................................................................................................................96
Consolidated Condensed Cash flow statement.............................................................................................................67
Consolidated Condensed Income Statement ...............................................................................................................64
Consolidated Condensed Balance Sheet .....................................................................................................................65
Consolidated Condensed Statement of recognised income and expense .........................................................................66
Definitions............................................................................................................................................................122
Derivative financial instruments ................................................................................................................................79
Directors’ Declaration ............................................................................................................................................116
Directors’ Report .....................................................................................................................................................63
Dividends ...............................................................................................................................................................77
Earnings per share ..................................................................................................................................................78
Exchange rates .....................................................................................................................................................100
Financial Highlights .................................................................................................................................................. 5
Four year summary by half year ...............................................................................................................................59
Geographic Segment Performance.............................................................................................................................51
Highlights................................................................................................................................................................ 1
Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) ..................................101
Impaired financial assets..........................................................................................................................................82
Income ..................................................................................................................................................................74
Income tax expense ................................................................................................................................................76
Interest spreads and net interest average margins ......................................................................................................94
Loan capital............................................................................................................................................................86
Net loans and advances ...........................................................................................................................................81
Note to the Cash Flow Statement ..............................................................................................................................98
Operating expenses.................................................................................................................................................75
Provision for credit impairment .................................................................................................................................85
Segment analysis ....................................................................................................................................................95
Share Capital..........................................................................................................................................................86
Shareholders’ Equity................................................................................................................................................87
Significant accounting policies...................................................................................................................................68
Significant events since balance date .......................................................................................................................100
Supplementary information - Average Balance Sheet.................................................................................................118124