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

Financial Results
Dividend Announcement andAppendix 4E

Full Year
30 September 2004

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

CONSOLIDATED RESULTS, DIVIDEND ANNOUNCEMENT and APPENDIX 4E
Full year ended 30 September 2004

CONTENTSPAGEHIGHLIGHTS

1

FINANCIAL HIGHLIGHTSNet Profit
Significant items in the profit and loss
Profit excluding significant items in the profit and loss
Statement of Financial Position
Financial Ratios

5
5
5
5
8
9

RESULTS COMMENTARY
Full year result
Comparison with March 2004 half
Significant items in the profit and loss
Income and expenses
Earnings per share
EVA Reconciliation
Dividends
Credit Risk
Market Risk
Statement of Financial Position
Capital Management
Major Acquisitions
Critical Accounting Policies
International Financial Reporting Standards

11
11
12
12
12
20
21
21
22
24
25
27
28
30
33

BUSINESS PERFORMANCE REVIEW35

GEOGRAPHIC SEGMENT PERFORMANCE

49

FIVE YEAR SUMMARY

57

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS60

APPENDIX 4E STATEMENT

92

DEFINITIONS

93

ALPHABETICAL INDEX95

All amounts are in Australian dollars unless otherwise stated. The information on which this announcement is basedis in the process of being audited by the Group’s auditors, KPMG. 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 25 October, 2004.
This Consolidated Results and Dividend Announcement constitutes the Appendix 4E required by the Australian Stock
Exchange, and should be read in conjunction with the September 2004 Annual and Financial Reports.

HIGHLIGHTSFor Release: 26 October 2004

ANZ cash earnings per share up 10.1%
Profit after tax•$2,815 million - up 19.9%•

Excluding significant items $2,731 million - up 16.3%

Earnings per share•

EPS 153.1 cents - up 7.5%•

Cash EPS 161.1 cents - up 10.1% (excluding significant items)•

Total Shareholder Return 17%•

NBNZ acquisition 2.3 cents cash EPS accretive

Dividend•

Full year 101 cents fully franked - up 10.8% (adjusted for rights)•

Final 54 cents fully franked

Capital•Adjusted Common Equity ratio 5.1%•

Sale announced of international Project Finance business•

Planned on-market share buyback of at least $350 million

Ratios•Cost-income ratio 45.3% (from 45.1%) (excluding significant items)•

Return on equity 18.1% (from 20.6%)•

Net specific provisions $443 million - down 16%•

Net non-accrual loans $451 million - down 14%•

Offshore exposure now 4.6% of total lending•

NBNZ integration risk substantially reduced

Risk

1

HIGHLIGHTS (continued)

For Release: 26 October 2004

ANZ cash earnings per share up 10.1%
ANZ today announced a record operating profit after tax of $2,815 million for the year ended 30 September
2004, up 19.9%. Cash earnings per share were 161.1 cents, up 10.1% (excluding significant items).
ANZ announced it has signed a Memorandum of Understanding for the transfer of the majority of ANZ'sLondon-headquartered Project Finance business to Standard Chartered Bank.
ANZ also announced a planned on-market share buyback of at least $350 million.
Total Shareholder Return over the financial year was 17%, which exceeded that of other major Australianbanks over the same period. ANZ has delivered similar relative out-performance over both five and ten years.
ANZ’s 2004 earnings include 10 months’ contribution from the acquisition of The National Bank of New Zealand(NBNZ), which was 2.3 cents accretive to cash earnings per share in the year.
The final dividend is 54 cents fully franked, bringing the full year dividend to 101 cents. This is an increase of
10.8% on the previous year, adjusted for the recent discounted rights issue, and is comparable to the increasein cash earnings per share.
ANZ Chief Executive Officer Mr John McFarlane said: "ANZ has come a long way in 2004 while at the same timedelivering another good financial performance.
“The benefit to shareholders is reflected in strong Total Shareholder Return of 17% despite a significant capitalraising during the year.
“Our results were assisted by good economic conditions in Australia and New Zealand and the momentum thathas developed in our Personal and Corporate businesses in Australia through increased investment andmanagement focus.
“The acquisition of The National Bank of New Zealand has now made us the leading bank in New Zealand. We
are now focused on organic expansion in Australia, selective investments in Asia-Pacific and on consolidating
our position in New Zealand.
“The sale of our international Project Finance business largely completes the withdrawal from non-core
activities that previously included the sale of Grindlays and the refocusing of our Asian business around ourcore strengths,” he said.
Business Performance
Despite intense competition throughout the year, underlying asset growth was particularly strong, withadvances growing by 13%, excluding the effect of consolidating NBNZ. The funding of this asset growth was
the major contributor to a decline in net interest margins of 18 basis points over the year and 8 basis points inthe second half.
As previously announced, ANZ continued to increase the rate of organic investment in its Australian franchise
to increase market share, particularly in Personal Banking and Corporate Banking. As a consequence ofinvesting for growth and increased compliance requirements, Australian expenses rose by 8% in 2004. Despite
this the Group cost-income ratio remained broadly stable at 45.3%.
Commenting on each of the business divisions, Mr McFarlane said:“Personal was one of the highlights, with better than expected results in Consumer Finance where changes tocredit card programs following Reserve Bank reforms were well-managed, and in Personal Banking Distribution
and Banking Products, which benefited from the rising interest rate environment and 11% deposit growth.
Mortgages had strong volumes with asset growth up 18%, offset by continued margin squeeze mainly
associated with increased funding costs.

2

HIGHLIGHTS (continued)“Institutional was subdued, reflecting a softer overall market, adverse exchange rate movements and astrategic decision to reduce risk and sacrifice earnings. Nevertheless, we have now established a moresustainable foundation for Institutional, having increased economic value added through more efficient use ofcapital and lower risk. This positions Institutional to build sustainable shareholder value in future years.
“Corporate produced a good performance with earnings up 11%, driven by strong lending and deposit growthin both the Corporate and Business Banking segments. For 2005, we have created three new managing
director positions, to give greater weight and focus to the three specialised businesses of Corporate Banking,Business Banking and Small Business.
“Financial performance in the New Zealand business was acceptable in the face of significant competitive attack
and the uncertainties associated with a major acquisition.
“Esanda has also performed well and ING Australia has continued to show improvement. Our Pacific businesses
performed well but Asia was subdued,” he said.
New Zealand Integration
With respect to New Zealand, ANZ recently decided to reduce the scope of integration and to accelerate its
completion. This substantially reduces the risk and complexity of the program and enables greater
management emphasis to be placed on stabilisation of market share, future growth and financial performance.
ANZ now expects to complete the formal integration by the end of calendar 2005. This will consist of
integrating head office activities, operational and functional support areas and the Institutional, Corporate andRural businesses. International systems are part of ANZ’s global Institutional franchise and will continue to be
run from Australia, with disaster recovery capability in New Zealand. ANZ is well advanced with this program.
ANZ no longer plans to integrate the retail banking platforms as the payback is not compelling. This avoids thecost and risk of combining very different legacy platforms that will not advance the business strategically. The
personal and small business segments in New Zealand now operate under two brands, ANZ and NBNZ. These
are under separate management to enhance active competition in the market place and are headquartered indifferent cities. At some time in the future, ANZ may merge the technology and operational support for thesesegments, however the costs and benefits of this will be taken as business as usual and the development costsof any new platform will be spread across both Australia and New Zealand.
“The revised plans for New Zealand integration substantially reduce the management challenge and integration
risk and allow management to focus on customer retention, growth and financial performance,” Mr McFarlane
said.
“Legal amalgamation and non-systems integration is largely completed, and we are confident that integrationand systems transfers to New Zealand to meet regulatory requirements, will all be completed in 2005. We
therefore expect to see the benefits of integration beginning in 2006, with the first full year benefit in 2007,” hesaid.
ANZ now expects the core cost of integration to be NZ$175 million, including NZ$49 million taken in 2004.
Synergies expected in 2007 consist of cost savings of NZ$75 million and revenue benefits of NZ$47 million,
offset by revenue attrition of NZ$34 million.
Over and above the core integration costs, there have been some unanticipated additional costs in New
Zealand, mainly associated with regulatory changes. The conditions of registration from the Reserve Bank of
New Zealand require ANZ to move certain systems and operations, which support the ANZ retail brand,enterprise systems, and disaster recovery facilities from Australia to New Zealand. This will result in
restructuring investment in 2005 of NZ$31 million, and ongoing running costs of NZ$12 million. Additionally an
investment of NZ$14 million is anticipated in 2005 for essential infrastructure including Basel II and payments.
Taking all of these costs into account, the total cost of integration is expected to be NZ$220 million, with net
synergies of NZ$76 million, consisting of cost savings of NZ$63 million and revenue benefits of $NZ47 million,
offset by revenue attrition of $NZ34 million. This compares with original estimates of NZ$265 million
integration costs, and net synergies of NZ$69 million, consisting of cost savings of NZ$126 million and revenue
benefits of $NZ31 million, offset by revenue attrition of $NZ88 million.
“As anticipated, we have experienced some revenue attrition with the consequent loss of market share,
particularly in Institutional, as large customers rebalance their lines with the merged entity, and where
substantial price competition has taken place. Notwithstanding this, the overall level of revenue attrition is lessthan half of that anticipated at the time of acquisition,” Mr McFarlane said.

3

HIGHLIGHTS (continued)
Strategic Risk Reduction
During the past seven years ANZ has been actively reducing the overall risk profile of the Group and the effectsof this were particularly evident this year. Net specific provisions of $443 million were down 16%. This waswell below the amount accrued for doubtful debts in the income statement of $632 million. Net non-accruals of$451 million are now down to the lowest level in recent years at 2.5% of ordinary shareholders’ equity.
“ANZ is comfortable with its overall risk profile, which is now comparable with other major Australian banks,”
Mr McFarlane said.
Capital Position
ANZ’s capital position with an adjusted common equity ratio of 5.1% is above the Group’s target range. ANZ
has also submitted an application for a new offshore hybrid equity transaction, which, together with theplanned sale of around US$1.5 billion of international project finance assets would increase its capital position.
ANZ therefore intends to undertake an on-market share buyback of at least $350 million, subject to regulatory
approvals for the hybrid.
Community and Staff initiatives“We have also taken further steps this year to advance our community programs through the expansion of ourmatched savings program, Saver Plus, and in expanding financial literacy through the launch of MoneyMinded,”
Mr McFarlane said.
“Staff satisfaction is now at a record 85% across the group. How people feel about working in the organisationand how passionate and engaged they are with our agenda, is what makes the difference between a good anda great company. Over the past few years, we have been transforming ANZ from a traditional banking typeculture into a modern, vibrant organisation through a range of initiatives which emphasise leadership, diversity,
coaching and development and creates a shared vision of an exciting organisation. Our achievements in thisarea have received recognition both here and internationally.
Outlook“Over the next few years we will have a greater emphasis on superior revenue growth and increased
investment to achieve this. While we recognise that cost reduction opportunities are becoming more limited,
we intend to continue reducing our cost-income ratio but more moderately than in previous years.
“For 2005, we believe the external environment will remain favourable and expect continued good underlying
business performance. We intend to continue with higher expense growth to build our core franchise inAustralia, particularly in Personal Banking, which is now gaining momentum after some years of nurturing.
“A number of one-off factors in the year will however impact earnings, which on balance will have a negative
impact. These include the loss of earnings arising from the sale of London-headquartered project financeactivities, reduced earnings from Panin Bank and Group Treasury, more subdued investment earnings at ING
Australia, and measures in New Zealand to arrest customer attrition in ANZ's retail arm, together with theroll-off of historical tax structured transactions.
“For 2005, we have adopted an internal stretch target of 8% cash earnings per share, however taking into
account these one-off factors, a guidance level of 7% cash earnings per share would be more realistic,”
Mr McFarlane said.

For media enquiries contact:

For analyst enquiries contact:

Paul Edwards
Head of Media Relations
Tel: 03-92736955 or 0409-655 550
Email: paul.edwards@anz.com

Simon Fraser
Head of Investor Relations
Tel: 03-9273 4185 or 0412-823 721
Email: simon.fraser@anz.com

4FINANCIAL HIGHLIGHTSNet Profit
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Net interest income

2,745

2,509

9%

5,254

4,311

22%

Other operating income

1,708

1,683

1%

3,391

2,808

21%

Operating income

4,453

4,192

6%

8,645

7,119

21%

Operating expenses(2,124)(1,902)

12%(4,026)(3,228)25%

Profit before debt provision

2,329

2,290

2%

4,619

3,891

19%

Provision for doubtful debts

(319)

(313)

2%

(632)

(614)

3%

Profit before income tax

2,010

1,977

2%

3,987

3,277

22%

Income tax expense

(590)

(578)

2%

(1,168)

(926)

26%

Outside equity interests
Net profit attributable to shareholders of the Company

(1)

(3)

-67%

(4)

(3)

33%

1,419

1,396

2%

2,815

2,348

20%

Half
year
Sep 04
$M

Movt
Half
Sep 04year
Mar 04 v. Mar 04
$M
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

110

-

n/a

Significant items in the profit and loss1

TrUEPrS
Swap income

-

110

-100%

Interest
Income tax expense

-

2

-100%

2

-

n/a

-

(28)

-100%

(28)

-

n/a

-

-

n/a

-

-

n/a

Gain on finalising INGA completion accounts after tax

14

-

n/a

14

-

n/a

Incremental NBNZ integration costs after tax3

(14)

-

n/a

(14)

-

n/a

-

84

-100%

84

-

n/a

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Net interest income

2,745

2,507

9%

5,252

4,311

22%

Other operating income

1,694

1,573

8%

3,267

2,808

16%

Cash dividends2
3

Net profit attributable to shareholders of the Company

Profit excluding significant items in the profit and loss1

Operating income

4,439

4,080

9%

8,519

7,119

20%

Operating expenses(2,103)(1,902)11%(4,005)(3,228)

24%

Profit before debt provision

2,336

2,178

7%

4,514

3,891

16%

Provision for doubtful debts

(319)

(313)

2%

(632)

(614)

3%

Profit before income tax

2,017

1,865

8%

3,882

3,277

18%

Income tax expense

(597)

(550)

9%

(1,147)

(926)

24%

(1)

(3)

-67%

(4)

(3)

33%

1,419

1,312

8%

2,731

2,348

16%

Outside equity interests
Net profit excluding significant items
1.
2.
3.

See page 12 for an explanation of significant items
Dividends on TrUEPrS preference shares ($36 million) do not impact net profit
Tax on gain on INGA completion accounts: nil. Tax on incremental NBNZ integration costs: $7 million

5

FINANCIAL HIGHLIGHTS (continued)
Profit and Loss (including effect of movements in foreign currencies)
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

417

385

8%

802

693

16%

Net profit after income tax
Personal Banking Australia
Institutional

392

396

-1%

788

802

-2%

New Zealand Business

336

248

35%

584

211

large

Corporate Australia

176

168

5%

344

311

11%

Esanda and UDC

74

69

7%

143

129

11%

Asia Pacific

60

51

18%

111

100

11%

ING Australia

61

47

30%

108

82

32%

(97)

(52)

87%

(149)

20

large

1,419

1,312

8%

2,731

2,348

16%

-

84

-100%

84

-

n/a

1,419

1,396

2%

2,815

2,348

20%

Group Centre1
Net profit (excl Significant items)
Significant items

2

Net profit
1.
2.

Group Centre includes the operations of Treasury.
ANZ has classified the $14 million profit after tax on final settlement of the INGA completion accounts, $14 million after tax incremental integration costs,$84 million net profit after tax and $36 million dividends arising from the TrUEPrS transaction as significant items (refer page 12). ANZ excludes significant items
to eliminate the distorting effect of one-off transactions on the results of its core businessNet loans and advances including acceptances
As at
Sep 04As at
Mar 04As at
Sep 03$M

Movt
Sep 04v. Mar 04%

Movt
Sep 04v. Sep 03
%

$M

$M

Net advances
Personal Banking Australia

91,76785,37877,991

7%

18%

Institutional

40,99039,28540,911

4%

0%

New Zealand Business

50,38545,232

13,92611%

large

Corporate Australia

18,94017,635

15,9377%

19%

Esanda and UDC

13,58813,043

12,5794%

8%Asia Pacific

1,528

1,340

1,336

14%

14%

ING Australia

24

24

24

0%

0%

Group Centre

206

279

(61)

-26%

large

Net advances

217,428202,216

162,643

8%

34%

less Customers' liabilities for acceptances(12,466)(13,358)(13,178)-7%-5%

Net loans and advances

204,962

188,858

149,465

9%

37%

6

FINANCIAL HIGHLIGHTS (continued)
Impact of National Bank of New Zealand acquisition (excluding significant items)
Full Year September 2004

Group exsignificant
items

NBNZ1

Group ex
NBNZ &
sig items

Acquisition &funding2

$M

$M

$M

$M

Net interest income

5,252

786

(78)

4,544

Other operating income

3,267

259

-

3,008

Operating income

8,519

1,045

(78)

7,552

Operating expenses(4,005)

(443)

(129)

(3,433)

Profit before debt provision

4,514

602

(207)

4,119

Provision for doubtful debts

(632)

(62)

-

(570)

Profit before income tax

3,882

540

(207)

3,549

Income tax expense(1,147)(164)

27(1,010)Outside equity interests
Net profit

(4)

(1)

-

(3)

2,731

375

(180)

2,536

The internal funding of the NBNZ acquisition was provided to New Zealand by way of equity and interest bearing debt
from Australia and interest bearing debt from the UK. The following table shows the geographic distribution of theacquisition and funding costs shown above.

Acquisition &funding3

Goodwill

Tax

Profit

$M

$M

$M

$M
(227)

(146)

(129)

48

Australia

New Zealand

19

-

(6)

13

United Kingdom

49

-

(15)

34

(78)

(129)

27

(180)

Group excluding NBNZ and significant items4
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Net interest income

2,310

2,234

3%

4,544

4,311

5%

Other operating income

1,541

1,467

5%

3,008

2,808

7%

Operating income

3,851

3,701

4%

7,552

7,119

6%
6%

Operating expenses(1,753)(1,680)4%(3,433)(3,228)

Profit before debt provision

2,098

2,021

4%

4,119

3,891

6%

Provision for doubtful debts

(284)

(286)

-1%

(570)

(614)

-7%

Profit before income tax

1,814

1,735

5%

3,549

3,277

8%

Income tax expense

(513)

(497)

3%

(1,010)

(926)

9%

(1)

(2)

-50%

(3)

(3)

0%

1,300

1,236

5%

2,536

2,348

8%

Outside equity interests
Net profit
1.
2.
3.
4.

Ten months profit since acquisition on 1 December 2003
Includes goodwill amortisation of $129 million
Includes employee share acquisition scheme costs of $4 million in New Zealand offset in Australia
Refer page 12 for discussion of significant items

7

FINANCIAL HIGHLIGHTS (continued)
Statement of Financial PositionMovt
Sep 04v. Mar 04%

Movt
Sep 04v. Sep 03%

As at
Sep 04As at
Mar 04As at
Sep 03$M$M$M

Liquid assets

6,363

5,732

6,592

11%

-3%

Due from other financial institutions

4,781

7,093

2,427

-33%

97%

AssetsTrading and investment securities

13,224

13,062

8,980

1%

47%

Net loans and advances including acceptances

217,428202,216

162,643

8%

34%

Other

17,54919,185

14,949-9%17%

Total assets

259,345

247,288

195,5915%

33%

Liabilities
Due to other financial institutions

7,349

7,143

6,467

3%

14%

Deposits and other borrowings

168,557

163,208

124,4943%

35%

Liability for acceptances

12,466

13,35813,178-7%-5%

Bonds and notes

27,602

21,245

16,572

30%

67%

Other

25,44625,58621,093-1%

21%

Total liabilities

241,420

230,540

181,804

5%

33%

Total shareholders' equity

17,925

16,74813,787

7%

30%

Group
$M

NBNZ
$M

6,363

603

Due from other financial institutions

4,781

1,818

Trading and investment securities

13,224659

As at September 2004

AssetsLiquid assets

Net loans and advances including acceptances

217,428

34,151

Other

17,5491,846

Total assets

259,345

39,077

Due to other financial institutions

7,349

1,152

Deposits and other borrowings

168,557

28,399Liability for acceptances

12,466-

Liabilities
1

Bonds and notes

27,602

2,149

Other225,446

4,687

Total liabilities

241,420

36,387

Total shareholders' equity

17,925

2,690

1.
2.

NBNZ includes wholesale funding of $9.3 billion
NBNZ includes balances with related entities of $2.4 billion

8

FINANCIAL HIGHLIGHTS (continued)
Financial Ratios
Half
year
Sep 04
$M

Half
year
Mar 04
$M

Full
year
Sep 04
$M

Full
year
Sep 03
$M

880

870

1,750

1,572

Average ordinary shareholders' equity2

17.3%

19.1%

18.1%

20.6%

Average ordinary shareholders' equity2 (excluding significant items)3

17.3%

18.4%

17.8%

20.6%

Average ordinary shareholders' equity (excluding significant items and goodwill amortisation)

18.3%

19.3%

18.8%

20.7%

Average assets

1.11%

1.21%

1.16%

1.23%

Average risk weighted assets

1.48%

1.60%

1.54%

1.59%

Total income

14.9%

16.2%

15.5%

17.2%

EVA TM1
Profitability ratios
Return on:

3

2

Net interest average margin

2.45%

2.53%

2.49%

2.67%

Profit per average FTE ($)

51,88753,226

102,933

103,779

Operating expenses to operating income (excluding significant items3)

45.5%

45.1%

45.3%

45.1%

Operating expenses to operating income

45.8%

43.9%

44.9%

45.1%

Operating expenses (excluding significant items3) to average assets

1.6%

1.6%

1.6%

1.7%

Operating expenses to average assets

1.6%

1.6%

1.6%

1.7%

Economic loss provisioning ($M)

319

313

632

614

Net specific provisions ($M)

247

196

443

527

Efficiency ratios4

Debt provisioning

Earnings per ordinary share (cents)5
Earnings per ordinary share (basic)

76.4

76.8

153.1

142.4

Earnings per ordinary share (diluted)

74.4

75.3

149.7

141.7

Earnings per ordinary share (basic) excluding significant items3

76.4

74.0

150.4

142.4

82.1

78.9

161.1

146.3

44

Earnings per ordinary share (basic) excluding significant items
and goodwill amortisation6
Ordinary share dividends (cents)
Interim - 100% franked (Mar 03: 100% franked)

n/a

47

47

Final - 100% franked (Sep 03: 100% franked)

54

n/a

54

51

71.0%

63.8%

67.5%

64.2%

34

64

98

102

Dividend payout ratio7
Preference share dividend
Dividend paid ($M)8
1.
2.
3.
4.
5.
6.

7.
8.

EVATM refers to Economic Value Added, a measure of shareholder value. See page 21 for a reconciliation of EVATM to reported net profit and a discussion of EVATM
and an explanation of its usefulness as a performance measure
Average ordinary shareholders’ equity excludes outside equity interests
Refer footnote 2 on page 6 for an explanation of the usefulness of adjusting profit to remove the impact of significant items. For a reconciliation to net profit, seepage 5
Excludes goodwill amortisation
Prior period EPS measures have been adjusted for the rights issue in November 2003. Refer page 70 for details
Earnings used in ratio of $2,858 million (full year 2003: $2,308 million; Sep 2004 half: $1,490 million; Mar 2004 half: $1,368 million; excludes significant items$nil (full year 2003: $nil; Sep 2004 half: $nil; Mar 2004 half: $84 million) and goodwill and notional goodwill amortisation $189 million (full year 2003:$62 million; Sep 2004 half: $104 million; Mar 2004 half: $85 million) and deducts $36 million (full year 2003: $nil; Sep 2004 half: $1 million; Mar 2004 half:$35 million) of preference share dividends
Dividend payout ratio is calculated using the proposed dividend as at 30 September 2004, 31 March 2004 and 30 September 2003
Includes $36 million treated as significant items (Sep 2004 half: $1 million; Mar 2004 half: $35 million)

9

FINANCIAL HIGHLIGHTS (continued)
Financial Ratios, cont’d
As at
Sep 04As at
Mar 04As at
Sep 03Movt
Sep 04v. Mar 04%

Movt
Sep 04v. Sep 03%

Net Assets
Net tangible assets1 per ordinary share ($)

7.51

6.94

7.49

8%

0%

Net tangible assets1 attributable to ordinary shareholders ($M)

13,651

12,542

11,3989%20%

Total number of ordinary shares (M)1,818.4

1,808.2

1,521.7

1%

19%

Tier 1

6.9%

7.0%

7.7%

Tier 2

4.0%

3.7%

4.0%

10.4%

10.2%

11.1%

5.1%

5.2%

5.7%

General provision ($M)

1,992

1,828

1,534

9%

30%

General provision as a % of risk weighted assets

Capital adequacy ratio (%)

Total capital ratio
Adjusted common equity ratio2
Impaired assets

1.01%

0.98%

1.01%

3%

0%

Gross non-accrual loans ($M)

829

931

1,007

-11%

-18%

Specific provisions ($M)

(378)

(414)

(482)

-9%

-22%

Net non-accrual loans

451

517

525

-13%

-14%

45.6%

44.5%

47.9%

2%

-5%

Total provisions3 as a % of non-accrual loans

285.9%

240.8%

200.2%

19%

43%

Gross non-accrual loans as % of net advances

0.4%

0.5%

0.6%

-20%

-33%

Net non-accrual loans as a % of net advances

0.2%

0.3%

0.3%

-33%

-33%

Net non-accrual loans as a % of shareholders' equity4

2.5%

3.1%

3.8%

-19%

-34%

28,75527,971

23,137

3%

24%

9.0

8.8

8.5

2%

6%

34,58634,28427,314

1%

27%

Specific provision as a % of total non-accrual loans

Other information
Full time equivalent staff (FTE's)
Assets per FTE ($M)
Market capitalisation of ordinary shares ($M)
1.
2.
3.
4.

Equals Shareholders equity less preference share capital and unamortised goodwill
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 77 for a reconciliation to Tier 1 capital
General provision plus specific provision on non-accrual loans
Includes outside equity interest

10

RESULTS COMMENTARY
Full year result
Australia and New Zealand Banking Group Limited (ANZ, or the Group) recorded a profit after tax of $2,815 million
for the full year ended 30 September 2004, an increase of 20% over the September 2003 full year. However,excluding the significant items referred to on page 12, profit increased 16% to $2,731 million. Basic earnings per
share increased 8% (10.7 cents) to 153.1 cents.
EPS excluding significant items and goodwill amortisation increased 10.1% to 161.1 cents affected by:-

Growth in existing ANZ businesses (+14.3 cents).

-

Accretion from the NBNZ purchase, and its capital funding (+2.3 cents). Refer page 52 for commentary on NBNZ
results.

-

The issuance of shares under the dividend reinvestment and bonus option plans and employee share option
schemes (-1.8 cents).

The result was driven by strong performances across most business segments with:-New Zealand Businesses up $373 million after tax following the acquisition of the NBNZ.

-

Personal Banking Australia up 16% as a result of growth in consumer deposits, lending growth, an increased
proportion of card balances paying interest and 2003 being impacted by the $27 million after tax under-accrual ofCard loyalty points. The contribution from mortgages reduced 2% with lending growth offset by reduced net
interest margin.

-

Corporate up 11% driven by strong lending and deposit growth in both the Corporate and Business Banking
segments.

-

Esanda and UDC up 11% with continued strong new business writings and increased fleet management fee
revenues.

-

Asia Pacific up 11% with significant growth in the Indonesian cards business and increased trade flows.

-

ING Australia (INGA) up 32% with improved equity market performances and growth in funds under management.

-

Institutional reduced 2% reflecting the de-risking of the offshore portfolio and the impact of an appreciating AUD
on offshore USD denominated earnings.

-

Group Centre profit reduced with lower Treasury earnings following an extended period of low and flat yield curves,a reduction in profit associated with the TrUEPrS transaction and the additional funding and goodwill amortisation
costs associated with the acquisition of NBNZ.

Net profit
Less Significant items
Net profit excluding significant items
Less NBNZ, Acquisition & Funding
Net profit excluding significant items & NBNZ1
1.

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

1,419

1,396

2%

2,815

2,348

20%

-

84

-100%

84

-

n/a

1,419

1,312

8%

2,731

2,348

16%

119

76

57%

195

-

n/a

1,300

1,236

5%

2,536

2,348

8%

Refer pages 5 and 7 for reconciliation

Profit excluding significant items and NBNZ increased by 8% to $2,536 million:-

Net interest increased by 5% with solid lending growth particularly in Mortgages and deposit growth in Personal
Banking Australia and Corporate. This growth was suppressed by reduced asset margins.

-

Other income increased 7% driven by growth in non-lending fees based on higher business volumes, theunder-accrual of card loyalty points in 2003 and an increased contribution from INGA. The reduction in swap
income from TrUEPrS is offset in EPS by lower dividends but has reduced reported profit by 1%.

-

Operating expenses increased 6% driven by a 4% increase in staff numbers as the focus turns to income growth.

-

The combined effect of the replacement of TrUEPrS with StEPS is a reduction in net profit after tax of $35 million
or 1% of reported profit.

-

Asset quality continued to improve with the ELP rate down 6 basis points. This has largely been driven by thegrowth in Personal Banking Australia and continued de-risking which has also enabled the additional charge takenin the corporate centre for unexpected offshore losses to be reduced.

-

The appreciation of the AUD over 2003 has resulted in a $32 million (1%) reduction in the contribution from
earnings denominated in foreign currencies (net of an $18 million increase in profit after tax income on contracts
put in place to hedge USD and NZD revenues).

11

RESULTS COMMENTARY (continued)
Comparison with March 2004 half
Australia and New Zealand Banking Group Limited recorded a profit after tax of $1,419 million for the half year ended
30 September 2004, an increase of 2% over the March half.
Profit excluding significant items and NBNZ increased 5% to $1,300 million:- Net interest increased by 3% with solid lending growth particularly in Mortgages and deposit growth in Personal
Banking Australia and Corporate. This growth was suppressed by reduced asset margins.
- Other income increased 5% driven by increased fee income from higher business volumes in Personal Banking andCorporate.
- Operating expenses increased 4% driven by a 3% increase in staff numbers.
- Asset quality was stable with gross non-accrual loans reducing and ELP reducing 3 basis points to 30 basis points.
Significant items in the profit and loss
Significant items in the profit and loss are those items that management believe do not form part of the corebusiness, and as such, should be removed from profit when analysing the core business performance. The following
are considered significant items in 2004:-

TrUEPrS
During the March half, the Group bought back TrUEPrS, a hybrid Tier 1 instrument. Previously deferred incomethat was earned on close out of interest rate swaps that had been hedging the TrUEPrS distributions wasrecognised in profit. The impact of TrUEPrS on the current year, being the release of deferred swap income of$108 million before tax, $2 million other swap income, the periodic and final cash dividends paid to holders of
TrUEPrS ($36 million), and the funding benefit from holding TrUEPrS for part of the year, have been classified as
significant items.

-

INGA completion account profit
In the September half ANZ finalised the completion accounts on the sale of ANZ funds management and insurance
businesses to INGA. This sale occurred in 2002. The final settlement of this transaction resulted in a $14 million
after tax profit.

-

Incremental NBNZ integration costs
Expenditure on the integration of NBNZ includes both the reallocation of existing resources and incurring
incremental 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 2004 $14 million after tax of incremental integration costs
were incurred.

Income and expenses
Net Interest
Half

Half

Movt

Full

Full

Movt

year

year

Sep 04year

year

Sep 04

Mar 04 v. Mar 04

Sep 04

Sep 03v.Sep 03

Sep 04%%

Net interest income ($M)1

2,745

2,509

9%

5,254

4,311

22%

Net interest average margin (%)

2.45

2.53

n/a

2.49

2.67

n/a

225,220

199,086

13% 212,153

162,154

31%

Average interest earning assets ($M)
1.

Includes $2 million significant items in March 2004 half-2004 result

Net interest income at $5,254 million was 22% ($943 million) higher than the September 2003 year. Excluding
significant items and NBNZ, net interest increased 5% ($233 million) to $4,544 million.
VolumeAverage net loans and advances grew by $44.8 billion (32%) overall with growth attributable to the acquisition of
NBNZ ($26.4 billion), Personal Banking Australia ($14.4 billion or 22% with $13.0 billion in Mortgages), Corporate($2.3 billion or 22%) and Institutional Australia ($1.8 billion or 10%). Average net loans and advances reduced by$2.4 billion (20%) in overseas markets as a result of the strategy to reduce higher risk exposures ($1.1 billion)
and the exchange rate impact of a stronger Australian dollar ($1.3 billion).
Average deposits and other borrowings grew $37.2 billion (31%), with growth from the NBNZ acquisition($25.3 billion), Treasury ($3.4 billion) to fund asset growth, Personal Banking Australia ($3.4 billion or 10%), andCorporate ($1.7 billion or 13%). Average deposits and other borrowings were flat in overseas markets, withincreases resulting from greater commercial paper issuance in the US offset by a $2.6 billion reduction resulting
from exchange rate movements.

12

RESULTS COMMENTARY (continued)
Income and expenses, cont’d
Net Interest, cont’dMarginNet interest average margin contracted by 18 basis points for the full year:- Changes in the composition of the portfolio negatively impacted the net interest margin by 6 basis points, with ahigher proportion of mortgages (1 basis point), and changes in the funding mix, from substitution of wholesalefunding for customer deposits, together with transfer from higher margin retail deposits to lower margin retaildeposits such as cash management, term deposits and V2 plus (3.5 basis points) and a reduction in net
non-bearing interest items (1.5 basis points).
- Competitive pressures reduced margins by 3 basis points with this impact arising mainly in mortgages andinstitutional.
- Wholesale rate movements had a significant impact, reducing the net interest margin by 6 basis points.
Variable rate mortgages, funded by short term liabilities, cost 3 basis points as the yield curve steepened
following the RBA’s move to a tightening bias, plus the relatively low level of term interest rates during 2004, asinterest rates reached the bottom of the cycle, reduced mismatch earnings (3 basis points).
- Other items include increases in retail broker payments (-2 basis points), offset by increased earnings fromforeign exchange revenue hedging (+2 basis points), higher levels of credit card balances becoming interest
earning in the 2004 year (+1 basis point), falling levels of interest foregone (+1 basis point), together with
impacts from the replacement of TrUEPrS (+2 basis points)- Funding costs associated with unrealised trading gains increased as a result of the appreciation in the AUD.
Whilst this 4 basis point decline is reflected in the net interest margin, it is directly offset by an equivalent gain
in trading income.
- The acquisition of NBNZ resulted in a 3 basis point decline in the Group’s interest margin as a result of thepartial funding of the transaction with term wholesale issuances.

Net interest average margin (%)

-

2004

2003

2002

2001

2000

1999

1998

2.49

2.67

2.77

2.77

2.87

3.05

2.97

Comparison with March 2004 half

Net interest increased $236 million (9%).
VolumeAverage net loans and advances grew by $22.8 billion (13%) overall with growth attributable to the acquisition of
NBNZ ($12.3 billion), Personal Banking Australia ($6.8 billion with Mortgages contributing $5.9 billion), Corporate($1.2 billion) and Institutional ($1.0 billion). Average net loans and advances increased by $0.4 billion (4%) in
overseas markets with this growth attributable to exchange rate movements.
Average deposits and other borrowings grew $18.6 billion (13%), with growth from NBNZ ($10.6 billion), Treasury($3.0 billion) due to increases in time deposits and commercial paper, ANZ New Zealand ($1.5 billion) andPersonal Banking ($1.7 billion). Average deposits and other borrowings decreased $0.5 billion (2%) in overseas
markets as a result of reductions in UK and Europe and Americas ($1.7 billion) offset by favourable exchange ratevariances.
MarginNet interest average margin contracted by 8 basis points:- Higher proportions of more expensive wholesale and retail liabilities within the portfolio reduced the net interest
margin (2 basis points).
- Wholesale rate impacts from the funding of variable rate mortgages were unchanged during the half toSeptember 2004 due to a constant official cash rate and a relatively stable short end of the yield curve.
- Lower mismatch earnings, from a flatter yield curve and limited investment opportunities in the current interest
rate environment, impacted margins (4 basis points).
- The acquisition of NBNZ resulted in a further 2 basis point decline in the Group’s interest margin.

13

RESULTS COMMENTARY (continued)
Income and expenses, cont’d
Other Operating Income

Movt
Sep 04v. Sep 03
%

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03
$M

1,260

1,161

9%

2,421

2,048

18%

213

198

8%

411

348

18%
37%

Other operating income
Total fee income
Foreign exchange earnings
Profit on trading instruments

71

80

-11%

151

110

Other

150

134

12%

284

302

-6%

1,694

1,573

8%

3,267

2,808

16%

14

110

-87%

124

-

n/a

1,708

1,683

1%

3,391

2,808

21%

Total other income excluding significant items
Significant items1
Total other income
1.

Refer page 12-2004 result

Other operating income, at $3,391 million, was $583 million (21%) higher than the September 2003 year.
Excluding $124 million significant items (refer page 12 for details), other operating income increased $459 million(16%).
Other operating income excluding significant items and NBNZ increased 7% ($200 million). The following
explanations exclude NBNZ and significant items:- Fee income increased $183 million (9%)
Lending fee income increased $18 million (2%):· Corporate Banking Australia increased $15 million (8%) with $4 million higher loan approval fees withincreased lending volumes arising from an increased investment in front line staff and $7 million additionalcommercial bill fees.
· Personal Banking Australia increased $9 million (5%) with Banking Products up $5 million (9%) driven by
growth in “Breakfree” package fees (banking products package for home buyers and residential property
investors) with stronger marketing of this offer in 2004. There was also an increase in Cards and MerchantServices ($3 million) due to the popularity of the Premier Select product (packaged fee for mortgage andcard products).
· Esanda and UDC increased $8 million (23%) due primarily to changes in the fee structure for business
lending and higher new business writings.
· Institutional reduced $16 million (3%) due to a $17 million (25%) reduction in Corporate and Structured
Financing reflecting our offshore risk reduction strategy but offset with increased non-lending fees($21 million).
Non-lending fee income increased $165 million (15%):· Personal Banking Australia increased $112 million (23%) due largely to the $38 million under-accrual ofloyalty points on co-branded cards which reduced income in 2003, higher merchant revenue and improved
business conditions generally. In addition there was a $13 million increase in Banking Products, with growthin fees from core deposit transaction products, higher volume related non-ANZ ATM fees and Executor andTrustee management fees, $3 million increase in insurance commissions and $6 million increase fromfinancial planners driven by an improving Funds Management industry outlook and changes to the pension
rules.
· Institutional increased $39 million (14%) largely due to Corporate and Structured Financing increasing$21 million (39%) reflecting strong performance in the leasing business and a shift in revenue mix awayfrom net interest and lending fee income with a reduction in balance sheet risk. Trade and Transaction
Services increased $16 million (9%) due to strong performance in structured commodity trade transactions
and improved revenue from international payments.
· Esanda and UDC grew $9 million (27%) with an emphasis on generating revenue through the provision ofvalue-added fleet management services.
The appreciation of the AUD over 2003 suppressed fee income growth by 2%.

14

RESULTS COMMENTARY (continued)
Income and expenses, cont’d
Other Operating Income - 2004 result, cont’d- Foreign exchange earnings increased $16 million (4%)· Earnings in Markets increased $12 million (5%) with increased commodity and structured product sales anda book structured to take advantage of the strengthening USD.
· Trade and Transaction Services increased $6 million (14%) reflecting improved foreign exchange spreads
and volumes.
· A strengthening of the AUD against the NZD and USD since 2003 suppressed foreign exchange earnings
growth by $12 million (3%).
- Profit on trading instruments increased $31 million (28%)· Markets increased $46 million (38%) where a lower proportion of revenue was booked as interest due tofunding of cash flows. Total income in Markets was up $11 million (5%) despite difficult market conditions
with reduced corporate hedging activity and tightening credit spreads.
· Treasury increased $5 million with 2003 impacted by the downward revaluation of the liquidity portfolio(trading securities and allocated hedges).
· Income on the hedge of capital investment earnings in INGA reduced $10 million, reflecting stronger equity
markets in 2004.
· Corporate and Structured Financing decreased $5 million as profit on sale of available for sale securities in2003 was not repeated.
- Other operating income decreased $30 million (10%)· A reduction in swap income on the TrUEPrS transaction that contributed $71 million in 2003. This reduction
has suppressed growth in profit after tax by 2% with the offset being lower preference share coupons.
· Equity accounted income increased $39 million. ANZ’s share of the joint venture profit from INGA increased
by $42 million (76%) driven by stronger investment markets with the first half of 2003 impacted by global
uncertainty.
· Mortgages contributed an additional $12 million (37%) with an increase in Lenders Mortgage Insurance(LMI) sales driven by strong lending volume growth and the favourable impact of a change in recognition of
LMI insurance revenues in March 2004.
· In the Group Centre the release of ING warranty provisions was largely offset by a provision for loss on saleof the Martin Place property.
· Institutional Banking reduced with a $27 million profit before tax on the sale of development properties in
2003.

-

Comparison with March 2004 half

Other operating income increased $25 million (1%), or $121 million (8%) after excluding significant items (referpage 12).
Excluding significant items and NBNZ (which together reduced other income by a net $47 million) other operating
income increased $74 million (5%) as a result of the following factors:- Fee income increased $58 million (5%)
Lending fee income was flat:· Institutional reduced $8 million (3%) with Corporate and Structured Financing reducing $8 million.
· There were offsetting increases of $5 million in Corporate and $2 million in both New Zealand and Esanda.
Non-lending fee income increased $58 million (9%):· Personal Banking Australia increased $28 million (10%) with Cards and Merchant Services up $12 million(6%) driven by a 4% growth in card outstandings, a decreased proportion of “transactor” volumes andincreased Merchant activity. Personal Distribution increased $8 million (20%) and Banking Products$5 million (9%) due to higher insurance product sales and increased deposit volumes reflecting the successof the flat fee account and higher volumes of non-ANZ ATM fees.
· Institutional increased $18 million (12%) with Corporate and Structured Financing up $9 million (28%)
reflecting strong performance in the leasing business and Trade and Transaction Services up $6 million (6%)
with increased trade flows through Asia and increased international payments.

15

RESULTS COMMENTARY (continued)
Income and expenses, cont’d
Other Operating Income - Comparison with March 2004 half, cont’d- Foreign exchange earnings increased $14 million (8%). Markets increased $10 million (7%) with increased
customer activity and a book structured to take advantage of the strengthening USD, partly offset by reduced
profit on trading securities (refer below). Total revenue in Markets increased $3 million (1%). Trade andTransaction Services increased $4 million (20%) reflecting improved foreign exchange spreads.
- Profit on trading instruments decreased $14 million (18%), impacted by reduced corporate demand for interest
rate products and tightening credit spreads.
- Other operating income increased $15 million (12%):· The release of ING warranty provisions in the Group Centre was largely offset by a provision for loss on saleof the Martin Place Property.
· Equity accounted income increased $11 million (16%) with increased profit from INGA ($17 million) and$2 million higher equity accounted income in Corporate and Structured Financing offset by lower equity
accounted profits from PT Panin Bank ($7 million) due to the one off withholding tax credit in the March halfof $11 million.
· Mortgage insurance premiums reduced largely as a result of the change in recognition of LMI insurance
revenues which increased income in the March 2004 half by $6 million.
· Institutional Banking increased $6 million due to the release of income from the sale of development
properties relating to the 2003 year previously held back to cover outstanding issues which were recognisedin tax expense.
- A weakening of the AUD against the NZD and USD over the half contributed an additional $8 million (1%) tototal other income.

16

RESULTS COMMENTARY (continued)
Income and expenses, cont’dExpenses
Halfyear
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

1,110

1,012

10%

2,122

1,750

21%
20%

Operating expenses
Personnel expenses
Premises expenses

186

167

11%

353

295

Computer expenses

278

274

1%

552

465

19%

Goodwill amortisation

83

63

32%

146

18

large

Other expenses

417

355

17%

772

640

21%

Restructuring costs

29

31

-6%

60

60

0%

NBNZ incremental integration costs

21

-

n/a

21

-

n/a

Total operating expenses

2,124

1,902

12%

4,026

3,228

25%

Total employees

28,75527,971

3%

28,755

23,13724%-

2004 result

Operating expenses increased $798 million (25%) with a $572 million increase (including $128 million goodwill
amortisation) largely as a result of the NBNZ acquisition and $21 million NBNZ incremental integration costs.
Excluding these factors operating costs increased $205 million (6%) driven by:- Personnel expenses increased $110 million (6%) as a result of annual salary increases together with an increasein staff of 775 (3%) mainly in the following business units:· New Zealand Businesses staff increased by 205 (7%) largely in New Zealand Banking with increased frontline staff to cope with increased business volumes and improving service standards.
· Institutional staff increased by 131 (5%) with further investment in Foreign Exchange capability in London
and Asia, together with an increased Capital Markets and Trade Finance presence in Asia.
· Personal Banking Australia increased by 138 (2%) with an increased number of financial planners in PersonalDistribution, front line staff in Rural Banking, and operations staff in Mortgages to service continued highlevels of customer activity offset by a reduction in Cards and Merchant Services following the wind down of
temporary staff in the customer service team to handle a higher level of calls associated with the RBA
interchange reform project has reduced.
· Group Centre up 155 (4%) with Central Functions staff numbers increasing by 96 driven principally by theescalating focus on compliance and an additional 54 staff in Operations, Technology and Shared Services
largely due to technology resources and project related activity.
- Premises costs increased $17 million (6%):· Personal Banking Australia increased $10 million (6%) with an increased investment in the branch network
including 3 new branches, 9 branch relocations and associated refurbishments and 37 completed branch
refurbishments.
· Operations, Technology and Shared Services increased $6 million (17%) reflecting the impact of a change inthe method of accounting for rental costs in 2003.
- Computer costs increased $44 million (9%):· Personal Banking Australia increased $37 million (23%) largely due to costs associated with the rollout of the
new telling platform and increased depreciation associated with investments in technology.
· Operations, Technology and Shared Services increased $5 million (3%) as a result of lower capitalisation ofproject work.
- Other expenses increased by $36 million (6%):· Marketing expenses increased $14 million (15%) mainly in Personal Banking Australia due to expenditure on
campaigns including the “ANZ Now”, “ANZ Bank of the Year” and the low rate MasterCard campaigns.
· Travel costs increased $10 million across business units.
· Insurance costs increased $10 million as a result of a market wide increase in insurance premiums and therenewal of ANZ’s long term insurance contract.
- Restructuring expenses were flat. The main components were the write-off of capitalised software on the Next
Generation Switching project following the decision to consolidate the ATM and EFTPOS networks for ANZ and
NBNZ on the Tandem platform and the write-down of hardware and software developed to significantly increase
the functionality of ATM’s.
- The appreciation of the AUD suppressed cost growth by $39 million (1%).

17

RESULTS COMMENTARY (continued)
Income and expenses, cont’d-Comparison with March 2004 half

Operating expenses increased $222 million (12%) primarily due to the additional costs and goodwill amortisationof $128 million from NBNZ for the full six months compared to the four month impact in the first half and$21 million NBNZ incremental integration costs booked in the second half (these are treated as significant items).
Excluding NBNZ and significant items operating expenses increased $73 million (4%) with:- Personnel costs up $35 million (4%) reflecting an approximately 4% increase in most salaries in July 2004 and a
720 (3%) increase in staff numbers mainly in the following business units:· Personal Banking Australia increased 232 (3%) with an increased number of financial planners in PersonalDistribution, front line staff in Rural Banking, and operations staff in Mortgages to service continued highlevels of customer activity.
· New Zealand Businesses staff increased by 140 (5%) largely in New Zealand Banking with increased frontline staff to cope with increased business volumes and raise service standards.
· Group Centre up 133 (3%) with an additional 82 (2%) staff in Operations, Technology and Shared Services,largely due to technology resources and project related activity. Central Functions staff numbers increased
by 51 (9%) driven by the escalating focus on compliance.
- Premises costs increased $9 million (6%) as a result of higher repairs and maintenance costs and increased
security costs and our branch expansion and refurbishment program.
- Computer costs reduced $2 million (1%) as a result of lower repairs, data communication costs and softwarepurchases offset by increases in depreciation and computer contractors.
- Other expenses were $38 million (12%) higher mainly due to a higher advertising spend ($12 million) on
marketing campaigns including the “ANZ Now” and “ANZ Bank of the Year” campaigns, increased travel($5 million) and increased use of consultants on compliance activities including Sarbanes Oxley, GST and APRA
compliance.
- The depreciation of the AUD against the USD and NZD over the half increased overseas cost growth by$19 million.

18

RESULTS COMMENTARY (continued)
Income and expenses, cont’d
Income Tax Expense

Half
year
Sep 04$M

Total income tax expense on profit
Effective tax rate

-

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

590

578

2%

1,168

926

26%

29.4%

29.2%

1%

29.3%

28.3%

4%

2004 result

The Group’s income tax expense increased by $242 million to $1,168 million resulting in an effective tax rate of
29.3%, an increase of 1.0% from 30 September 2003. The increase in the effective tax rate was largely due to anincrease in goodwill amortisation expense, which is non-deductible, and a higher overseas tax rate differential due
to higher earnings in New Zealand, where the statutory tax rate is 33%, partly offset by an increase in nonassessable equity accounted income.
-Comparison with March 2004 half

The Group’s effective tax rate for the half year ending 30 September 2004 increased 0.2% from March 2004. The
increase was due to a $20 million increase in goodwill amortisation expense, which is non-deductible, whilst the
March half included a $4 million tax benefit from the issue of shares under the employee share scheme. Thesetransactions were partially offset by a $6 million tax benefit, booked in the September half, which arose from therepayment of foreign currency loans upon the exercise of options in PT Panin Bank.

19

RESULTS COMMENTARY (continued)
Earnings per share
EPS excluding goodwill and significant items for the Group (“Cash EPS”) increased to 161.1 cents, up 10.1% or
14.8 cents on the September 2003 year. EPS excluding goodwill and significant items for the September 2004 half at
82.1 cents increased 3.2 cents (4%) on the March 2004 half. Prior period EPS measures have been recalculated forthe rights issue in November 2003 (refer below).
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

Basic

76.4

76.8

-1%

153.1

142.4

8%

Cash (excluding goodwill and significant items)

82.1

78.9

4%

161.1

146.3

10%

Earnings per share

Growth in Cash EPS was affected by:
Increased earnings in the existing ANZ businesses increasing EPS by 14.3 cents.
Impact of NBNZ purchase, and its capital funding structure resulted in an accretion in EPS by 2.3 cents
The issuance of shares under the dividend reinvestment and bonus option plans and employee share option
schemes reducing EPS by 1.8 cents.
The EPS figures in the above table are different to those published at September 2003, having been adjusted for thebonus element of the two for eleven rights issue. AASB 1027 “Earnings per Share” requires restatement of priorperiod Basic EPS and Diluted EPS for the bonus element included in the rights issue. In a rights issue, if the exercise
price is less than the market price of the shares, the rights issue includes a bonus element. EPS for all reporting
periods have been adjusted by the following factor:
Theoretical ex-rights value per share
Market price per share immediately prior to exercise of rights
The theoretical ex-rights value per share is:Aggregate market price per share immediately prior to exercise of rights+ proceeds from exercise of rights
Number of shares outstanding after exercise of rights
Calculation of discount factors is as follows:
The last date existing shares traded cum rights prior to rights issue: 28 October 2003
The date rights shares allotted: 28 November 2003
Eleven existing shares received two rights share

Calculation

Market price (ex dividend) on 28 October 2003
Theoretical ex rights price
Discount factor for prior years
Discount factor for current year

$17.63$16.920.9597
0.9933($17.63 x 5.5 + $13.00) / 6.5$16.92 / $17.63
1(1 / 0.9597) (59 / 366) + (307 / 366)

Dilution effect of US stapled Trust Security Issue

The US Stapled Trust securities issued on 27 November 2003 mandatorily convert to ordinary shares in 2053 unlessredeemed 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, or at the investor’s discretion under certain
circumstances.
AASB 1027 requires that potential ordinary shares for which conversion to ordinary share capital is mandatory must
be included in the calculation of diluted EPS. The inclusion of this issue in EPS increased the diluted number of sharesby 64.5 million and reduced diluted EPS by 3 cents.

20

RESULTS COMMENTARY (continued)
EVA Reconciliation
One measure of shareholder value is EVATM (Economic Value Added) growth relative to prior periods. EVATM for theyear ended 30 September 2004 at $1,750 million was up from $1,572 million in the prior year. EVATM for the
September half was $880 million, up from $870 million in the first half.
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

20%

EVATM
Net profit after tax

1,419

1,396

2%

2,815

2,348

Goodwill amortisation - NBNZ

75

54

39%

129

-

n/a

Goodwill amortisation (excluding NBNZ)1

29

31

-6%

60

62

large

Significant items2

-

(84)

-100%

(84)

-

n/a

Imputation credits

271

269

1%

540

464

16%

Risk adjusted profit

1,794

1,666

8%

3,460

2,874

22%

Cost of ordinary capital

(881)

(767)

15%

(1,648)(1,200)43%

Cost of preference share capital

(33)

(29)

14%

(62)

(102)

-39%

EVATM

880

870

1%

1,750

1,572

11%

1.
2.

Includes notional amortisation on INGA
Refer page 12

EVATM is a measure of risk adjusted accounting profit. It is based on operating profit after tax, adjusted for significant
items, 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 theGroup level, total capital is used so the cost of capital reflects the full resources provided by shareholders.
At ANZ, economic capital is the equity allocated according to a business unit’s inherent risk profile. It is allocated forseveral risk categories including: credit risk, operating risk, interest rate risk, basis risk, mismatch risk, investment
risk, trading risk and other risk. The methodology used to allocate capital to business units for risk is designed tohelp drive appropriate risk management and business strategies.
At ANZ, EVATM is a key measure for evaluating business unit performance and correspondingly is a key factor in
determining the variable component of remuneration packages. Business unit results are equity standardised, by
eliminating the impact of earnings on each business unit’s book capital and attributing earnings on the business unit’s
risk adjusted or economic capital.
Dividends
Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

Half
year
Sep 04
$M

Half
year
Mar 04$M

Interim (fully franked)

n/a

47

n/a

47

44

7%

Final (fully franked)

54

n/a

n/a

54

51

6%

D ividend per ordinary share (cents)

Ordinary share dividend payout ratio (%)

71.0%

63.8%

11%

67.5 %

64.2%

5%

C ash earnings dividend payout ratio (%)

66.0%

62.1%

6%

64.1 %

62.5%

3%

The Directors propose that a final dividend of 54 cents be paid on each ordinary share. The 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
shares in each plan. Election notices for these plans must be received by 12 November 2004. The final dividend will
be payable on 17 December 2004. Dividends payable to shareholders resident in the United Kingdom and New
Zealand will be converted to their local currency at ANZ’s daily forward exchange rate at the close of business on therecord date for value on the payment date.
The proposed fully franked final dividend of 54 cents is up 6% from 51 cents in 2003, however, after adjusting for thebonus element of the rights issue, this represents a 10% increase. The Annual dividends of $1.01 are up 6% from2003, or 11% after adjusting for the bonus element of the rights issue.
The dividend payout ratio for the September 2004 half increased to 71.0% from 63.8% in the March 2004 half, withthe annual payout ratio increasing to 67.5% in 2004 compared to 64.2% in 2003.

21

RESULTS COMMENTARY (continued)
Dividends, cont’d
Proposed amendments to New Zealand thin capitalisation rules from July 2005 will require some internal debt funding
to that country being replaced with equity funding. This will have a marginal adverse impact on the Group’s franking
capacity. In addition, the change in the geographic mix of the Group’s earnings following the acquisition of the
National Bank of New Zealand Group further limits the Group’s franking capacity. However, the Group expects timing
differences will generate future franking credits and therefore it will be able to maintain full franking for theforeseeable future.

Credit Risk
Economic loss provisions (ELP)The Group economic loss provision charge (ELP) was $632 million, an increase of $18 million (3%). ELP excluding
NBNZ reduced $44 million (7%) to $570 million due largely to a lower Group Centre charge for unexpected offshore
losses. The ELP charge to operating segments (excluding NBNZ) increased $16 million (3%) with volume growth
partly offset by lower risk.
The ELP rate decreased 8 basis points over the year in line with the Group’s improving risk profile. This is a result ofsound growth in low risk domestic assets (principally mortgages), the acquisition of the low risk NBNZ franchise, thecontinued de-risking of offshore and high-risk assets, and a lower Group Centre charge reflecting lower unexpected
offshore losses.
H a lfyear
Sep 04$M

H a lfyear
M ar 04$M

F u llyear
Sep 04$M

F u llyear
Sep 03$M

P e r s o n a l B a n k in g A u s tr a lia

0 .2 1 %0 .2 2 %0 .2 1 %0 .2 4 %I n s titu t io n a l

0 .3 5 %0 .4 1 %0 .3 8 %0 .3 8 %N e w Z e a la n d B u s in e s s

0 .2 2 %0 .2 6 %0 .2 4 %0 .2 7 %C o r p o r a t e A u s t r a lia

0 .3 4 %0 .3 2 %0 .3 3 %0 .3 7 %Esanda and U D C

0 .5 1 %0 .5 2 %0 .5 1 %0 .5 1 %A s ia P a c if ic

1 .6 8 %1 .5 8 %1 .6 4 %1 .4 3 %O p e ra t in g s e g m e n ts t o ta l

0 .2 8 %0 .3 1 %0 .2 9 %0 .3 3 %G ro u p C e n tre

0 .0 2 %0 .0 2 %0 .0 2 %0 .0 6 %T o ta l

0 .3 0 %0 .3 3 %0 .3 1 %0 .3 9 %

319

313

632

614

E L P ra te s b y s e g m e n t1

E L P c h a r g e ( $ m il li o n )1.

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

Net specific provisions

Net specific provisions (NSP) were $443 million, down $84 million from the year to September 2003. The reduction inlosses is principally in the international operations of Institutional, which fell $121 million over the year. NSP in theAustralian and NZ portfolios increased over the year by 11% and 56% respectively. The increase in Australia is
primarily due to Reach ($87 million), whilst in NZ the acquisition of NBNZ added an additional $14 million over theyear. As a percentage of average net lending assets, NSP reduced to 22 basis points, down from 34 basis points in
September 2003.
Half
year
Sep 04$M

Net specific provisions

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Personal Banking Australia

66

72

-8%

138

131

5%

Institutional

109

62

76%

171

217

-21%

New Zealand Business

19

11

73%

30

20

50%

Corporate Australia

23

20

15%

43

63

-32%

Esanda and UDC

23

24

-4%

47

72

-35%

Asia Pacific

7

7

0%

14

1

large

247

196

26%

443

504

-12%

Operating segments total
Group Centre
Total net specific provisions

22

-

-

n/a

-

23

-100%

247

196

26%

443

527

-16%

RESULTS COMMENTARY (continued)
Credit Risk, cont’dGeneral provision balance

The general provision balance at 30 September 2004 was $1,992 million (1.01% of risk weighted assets) an increaseof $458 million from $1,534 million (1.01% of risk weighted assets) at 30 September 2003. NBNZ contributed$282 million of the increase and has a ratio of general provision to risk weighted assets of 0.98%. Excluding NBNZ
the general provision balance increased $176 million. This represents a surplus of $532 million over the APRA
minimum guideline.
Gross non-accrual loans

Gross non-accrual loans decreased to $829 million, down from $1,007 million as at September 2003 (notwithstanding
the inclusion of $81 million of NBNZ non-accruals). The overall reduction in non-accruals was primarily the result of
realisations, upgrades and write-off’s of a number of large outstanding balances in the Institutional portfolios.
The default rate (new non accruals/average gross lending assets) has decreased since September 2003 by 10 basis
points, from 63 basis points to 53 basis points in the year to September 2004. The principal sources of new
non-accrual loans in 2004 were four “legacy” customers in the power and telecommunication sectors, two in Australia
and two in the USA, and two resource customers one in the Australia and one in the UK.
The Group has a specific provision coverage ratio of 46%.
As at
Sep 04As at
Mar 04As at
Sep 03M ovt
Sep 04v. Mar 04%

M ovt
Sep 04v. Sep 03%

Gross non-accrual loans

$M

$M

$M

Personal Banking Australia

40

43

50

-7%

-20%

478

571

670

-16%

-29%

Institutional
New Zealand Business

87

84

14

4%

large

112

94

148

19%

-24%

Esanda and UD C

73

93

74

-22%

-1%

Asia Pacific

39

44

41

-11%

-5%

829

929

997

-11%

-17%

Corporate Australia

Operating segm ents total
Group Centre
Total gross non-accrual loans

-

2

10

-100%

-100%

829

931

1,007

-11%

-18%

Net non-accrual loans

Net non-accruals are $451 million (September 2003: $525 million) representing 2.5% of shareholders’ equity as at
September 2004.
As at
S ep 0 4

A s atMar 04A s atS ep 0 3

M ovt
Sep 0 4v. Mar 04%

M ovt
Sep 0 4v. Sep 0 3%

N et n on -a ccru a l loa n s

$M

$M

$M

Personal Banking Australia

17

14

23

21%

-26 %

299

360

352

-17%

-15%

New Z ealand B usiness

30

25

8

20%

larg eC orporate Australia

51

42

77

21%

-34%

Esanda and UD C

37

59

49

-37%

-24%

Asia Pacific

17

17

17

0%

0%

451

517

526

-13%

-14%

Institutional

O pera tin g seg m en ts total
G roup C entre

-

-

(1)

n/a

-100%

Total n et n on -accru al loan s

451

517

525

-13%

-14%

S pecific provision cov erage

46%

44%

48%

5%

-4%

23

RESULTS COMMENTARY (continued)
Market Risk
Below are aggregate VaR exposures at 97.5% and 99% confidence levels covering both physical and derivatives
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
Sep 04

Low forperiod
Sep 04$M

Ave forperiod
Sep 04$M

As at
Sep 03$M

High for
period
Sep 04$M$M

High for
period
Sep 03$M

Low forperiod
Sep 03$M

Ave forperiod
Sep 03$M

Foreign exchange

0.5

2.0

0.3

Interest rate

1.5

2.1

0.6

0.7

1.4

2.0

0.3

0.8

1.1

1.1

2.1

0.5

Diversification benefit

(0.7)

(1.6)

1.0

(0.1)

(0.4)

(0.8)

(1.5)

(0.1)

(0.5)

1.3

2.5

0.8

1.4

1.7

2.6

0.7

1.3

Low forperiod
Sep 04$M

Ave forperiod
Sep 04$M

As at
Sep 03$M

High for
period
Sep 04$M$M

High for
period
Sep 03$M

Low forperiod
Sep 03$M

Ave forperiod
Sep 03$M

Foreign exchange

0.9

2.8

0.4

1.0

1.6

3.2

0.5

1.3

Interest rate

1.8

2.8

0.8

1.5

1.4

3.0

0.9

1.7

Diversification benefit

(0.9)

(2.2)

(0.2)

(0.6)

(0.8)

(2.6)

(0.4)

(0.9)

1.8

3.4

1.0

1.9

2.2

3.6

1.0

2.1

Value at risk at 97.5% confidence

Total VaR

99% confidence level 1 day holding period
As at
Sep 04

Value at risk at 99% confidence

Total VaR

The table below shows all outstanding revenue hedges, interest income earned and fair value of these hedges.
Revenue related hedges
30 September 2004
Notional Amount taken to
IncomePrincipal Amount

USD & GBP Revenue Hedges$M$M

30 September 2003
Unrealised
Gains/(Losses)$M

Notional Amount taken to
IncomePrincipal Amount

Unrealised
Gains/(Losses)

$M

$M

$M

36

31

14

151

12

37

NZD Revenue Hedges

3,450

14

(58)

1,126

8

53

Total

3,486

45

(44)

1,277

20

90

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 30 September 2004 ANZ had $3.5 billion (Sep 2003: $1.3 billion)
NZD and USD contracts in place. This amount is hedging approximately $1.1 billion of NZD revenue in each of the2005, 2006 and 2007 years.
During the year the AUD strengthened against the NZD, USD and GBP, which together constitute the majority ofoffshore earnings. This appreciation resulted in a reduction of 2% ($50 million) in the Group’s profit after tax.
Earnings from revenue hedges increased $25 million over 2004 to $45 million to partly offset this reduction. Hedge
revenue is booked in the Group Centre as interest income.

24

RESULTS COMMENTARY (continued)
Statement of Financial Position
Total assets increased by $63.8 billion since 30 September 2003, with National Bank of New Zealand contributing$47.1 billion. Exchange rate movements accounted for a net increase of $1.3 billion consisting of an increase of$1.8 billion in New Zealand and a reduction of $0.5 billion in overseas markets.
The explanations in the table below describe movements in the major asset classes.

Liquid assets

3%

Excl NBNZ & Exchange
Rates 14%

Due from otherfinancial institutions
97%
Excl NBNZ & Exchange
Rates 25%

Trading securities
30%
Excl NBNZ & Exchange
Rates 19%

Investment
securities 64%
Excl NBNZ & Exchange
Rates 56%

Liquid assets reduced by $0.2 billion (3%) to $6.4 billion at 30 September 2004. Excluding
NBNZ ($0.6 billion) and the impact of exchange rate movements ($0.1 billion) liquid assets
decreased by $0.9 billion (14%) due largely to a reduction in liquidity levels in New Zealand
where the 2003 balance had been built up in expectation of the purchase of NBNZ and also
included holdings of NBNZ certificates of deposit, which have been eliminated on consolidation
following the acquisition.
Due from other financial institutions increased by $2.4 billion to $4.8 billion at September
2004. The increase was driven by an additional $1.8 billion resulting from the acquisition of
NBNZ and the investment of surplus liquidity in the interbank market in New Zealand andAsia. This was partly offset by customer driven reductions in vostro balances in Australia. The
appreciation of the AUD resulted in a 2% reduction in Due from other financial institutions.
Trading security volumes increased $1.3 billion (30%) to $5.5 billion at September 2004.
Excluding NBNZ ($0.4 billion) and exchange rate movements trading securities increased by$0.8 billion due to:- Treasury increasing the minimum level of assets held in the liquidity portfolio following theacquisition of NBNZ ($0.3 billion)- An increase in the volume of securities held for trading purposes in Institutional Financial
Services ($0.7 billion)
Investment security volumes increased $3.0 billion to $7.7 billion at September 2004.
Excluding NBNZ ($0.3 billion) and exchange rate movements investment securities increased
by $2.7 billion (56%) due largely to Treasury increasing liquidity levels following theacquisition of NBNZ leading to higher volumes in Australia ($2.0 billion), New Zealand($0.2 billion) and Overseas ($0.5 billion).

Net loans andadvances 37%

Net loans and advances increased 37% ($55.5 billion) since September 2003. Excluding theacquisition of NBNZ, growth was 14% ($21.3 billion).

Excl NBNZ & Exchange
Rates 13%Growth in Australia of 16% ($19.0 billion) was largely the result of increases in the following
businesses:- Personal Banking Australia ($13.6 billion or 18%), predominantly in Mortgages($12.0 billion) as a result of growth in housing and equity loans, Rural Banking($0.9 billion) and Banking Products ($0.3 billion) with growth in margin lending.
During the second half of 2004, the Group issued $1.5 billion of notes backed by mortgage
loans. Including the value of the securitised loans as at 30 September 2004, growth in
Personal Banking was $14.9 billion.
- Corporate ($2.5 billion or 23%) mainly in Business Banking ($1.8 billion) from increased
activity with existing customers and new customer acquisition through a very competitive
customer service proposition and footprint growth.
- Institutional ($2.1 billion) largely in Institutional Banking.
- Esanda ($0.9 billion) with strong growth in equipment financing.
Excluding NBNZ, New Zealand increased by $2.7 billion largely in Mortgages ($0.8 billion),
ANZ New Zealand Banking ($0.5 billion) and the impact of a stronger New Zealand dollar($1.4 billion).
Overseas Markets declined by $0.4 billion largely due to reduction in exposures of the US and
UK markets (-$0.3 billion) and exchange rate movements (-$0.2 billion).

Customers liability
Customers liability for acceptance reduced $0.7 billion to $12.5 billion at 30 September 2004
for acceptance 5% with growth in Corporate ($0.5 billion) being offset by a $1.1 billion increase in bills held in the
trading portfolio (which are reported as trading securities).
Other Assets

10%

Excl NBNZ & Exchange
Rates 25%

Other assets decreased $1.1 billion (10%) to $9.2 billion as at September 2004. Excluding$1.5 billion in NBNZ other assets decreased by $2.5 billion (25%) due largely to a reduction in
the gross revaluation gains on derivative instruments assisted by increased use of collateralarrangements.

25

RESULTS COMMENTARY (continued)
Statement of Financial Position, cont’d
Total Group liabilities increased by $59.6 billion (33%) from September 2003 with NBNZ contributing $34.0 billion ofthis growth. Exchange rate movement accounted for a net increase of $0.7 billion consisting of a $1.5 billion increase
in New Zealand and a $0.8 billion reduction in overseas markets.
The explanations in the table below describe movements in the major asset classes.
Due to other financial
institutions 14%
Excl NBNZ & Exchange
Rates 4%Due to other financial institutions increased $0.9 billion (14%) to $7.3 billion at September
2004. An increase of $1.2 billion resulting from the acquisition of NBNZ and increased
interbank funding in Asia, largely due to changes to thin capitalisation rules in Korea, wereoffset by reduced call funding in ANZ New Zealand.
The exchange rate impact was negligible.

Deposits and otherborrowings 35%
Excl NBNZ & Exchange
Rates 12%

Deposits and other borrowings increased $44.1 billion (35%) to $168.6 billion, at September
2004 including $28 billion resulting from the acquisition of the NBNZ. Exchange rate
movements contributed $0.5 billion to the increase with an increase of $1.2 billion due thestrengthening of the NZD partly offset by appreciation of the AUD against other currencies.
Excluding NBNZ and exchange rate movements deposits and other borrowings increased by$15.2 billion (12%) due to:-Treasury funding increasing $5.4 billion with higher certificates of deposit ($6.7 billion)
offset by lower commercial paper issuance ($1.3 billion) to meet the Group’s increased
short term funding requirements
Institutional volumes increasing $2.0 billion with an increase in Trade related deposits
and higher cash management account volumes with the acquisition of a number of newlarge customer accounts during 2004

Payables and otherliabilities 4%
Excl NBNZ & Exchange
Rates 10%

Bonds and
Notes 67%
Excl NBNZ & Exchange
Rates 55%

Loan Capital

51%

Excl NBNZ & Exchange
Rates 45%%-

Personal Banking Australia volumes increasing $4.0 billion. Term deposit volumes
increased $1.4 billion with increased marketing and competitive pricing. Other interest
bearing deposit volumes increased $1.7 billion reflecting strong growth in the V2 Plus,
Access, Mortgage offset, E*Trade and business transaction products account products-

Corporate increasing $1.4 billion with increased interest rates and competitive pricing onterm deposits.

-

Esanda and UDC volumes increasing $1.4 billion with increased commercial paper($0.9 billion) and debentures ($0.5 billion) to fund asset growth and reduce the relianceon internal funding.

Payables and other liabilities increased $0.6 billion (4%) to $14.2 billion as at September
2004. Excluding $1.9 billion in NBNZ and a 1% increase from exchange rate movements,
payables and other liabilities decreased by $1.4 billion (10%) with a reduction in therevaluation of derivative instruments ($3.0 billion) partly offset by growth in securities
lending cash collateral ($1.5 billion)
Bonds and notes increased $11 billion (67%) to $27.6 billion, at September 2004. Excluding
the $2.1 billion in NBNZ, bonds and notes increased by $9.1 billion (55%) in response toincreased funding requirements.
Loan capital increased $2.8 billion (51%) to $8.5 billion, at September 2004 including$0.3 billion in NBNZ. The main drivers for the increase were:-

The US$1.1 billion stapled securities issued in November 2003 to support the capital andfunding base of the Group following the decision to acquire NBNZ. The issue was madein two tranches:
USD750 million tranche with a coupon of 5.36%
USD350 million tranche with a coupon of 4.484%
If the Trust Securities are not redeemed or bought back prior to 15 December 2053 they
will convert into preference shares, which in turn will mandatorily convert into a numberof ordinary shares, based on the formula in the offering memorandum.
The US Stapled Trust Securities qualify as Tier 1 capital as defined by the Australian
Prudential Regulation Authority, however, the securities are reported as debt under
Australian International and US Accounting Standards, with the coupon payments
classified as interest expense-

New issues of $1.2 billion to meet funding and capital adequacy requirements

26

RESULTS COMMENTARY (continued)
Capital Management
The Group’s capital ratios declined during the year principally due to the acquisition of NBNZ and the buy back of the
TrUEPrS hybrid. Adjusted Common Equity (ACE) reduced from 5.7% to 5.1%, Tier 1 from 7.7% to 6.9% and Total
Capital from 11.1% to 10.4%
As at
Sep 04As at
Mar 04As at
Sep 03Movt
Sep 04v. Mar 04%

Movt
Sep 04v. Sep 0 3%

Tier 1

6.9%

7.0%

7.7%

-1%

-10 %

Tier 2

4.0%

3.7%

4.0%

8%

0%

Deductions(0 .5%)(0.5%)(0.6%)

0%

-17%

Total

10.4%

10.2%

11.1%

2%

-6%

ACE
RWA $m

5.1%

5.2%

5.7%

-2%

-11%

196,664

186,157

152,164

6%29 %ACE Ratio

The ACE ratio remains the Group’s principal capital benchmark. During the year the following significant eventsaffected the ACE ratio:
NBNZ acquisition resulted in a reduction of 58 basis points due to the net of:- Rights Issue of ordinary equity in November 2003, which raised $3,562 million (net of issue costs).
- Goodwill deductions increasing by $3.1 billion- Risk weighted assets increasing by $28 billion
Capitalised Expenses – From 1 July 2004 APRA required the deduction of capitalised costs from Tier 1, andconsequently from ACE. Capitalised costs include loan origination fees, commissions paid to originators andbrokers, securitisation establishment costs, and costs associated with debt and capital raisings. At 30 September
2004 the Group’s deduction was $0.5 billion.
The APRA changes requiring the deduction of capitalised expenses from Tier 1 have reduced our capital ratios by
23 basis points, however, there has been no change to the substance of the Group’s financial position. As a result,and after consultation with the rating agencies, the target ACE range has been reduced by 25 basis points to a rangeof 4.5%-5.0%. This reduction was in addition to a lowering of the target range by 25 basis points in December 2003
in recognition of the Group’s reduced risk profile following the acquisition of NBNZ.
At 5.1%, the ratio is above the Group’s target range and provides capacity to pursue capital management initiatives
in the next half, including a share buyback of at least $350 million, whilst providing a buffer against potential adverse
impacts on the Group’s capital base arising out of the implementation of International Accounting Standards on
1 October 2005. This buyback is conditional upon APRA approval of this and an offshore hybrid equity raising.
The Group generated 68 basis points of capital from earnings (net of dividend payments) and share issues to
employees and shareholders through established share issue plans (19 basis points). This capital growth supported
risk weighted asset growth of 11% excluding the initial risk weighted assets of NBNZ and increases in capital
deployed in the Group’s Funds Management, Securitisation and Insurance businesses.
Hybrid Capital

The Group raises hybrid capital to supplement the Group’s ACE capital base to ensure that the Group complies with
APRA’s prudential capital requirements.
In addition to the items noted above, the Group’s Tier 1 capital ratio was affected by the following hybrid capitalissues during the year:
On 27 November 2003 ANZ raised USD1.1 billion via the issue of 1.1 million stapled securities comprising aninterest paying note issued by a wholly owned subsidiary of ANZ and a preference share on which dividends will
not be paid whilst it is stapled to a note. The notes are due on 15 December 2053 at which date the issue will
mandatorily convert to ordinary shares unless redeemed or bought back prior to that date. The hybrid loan capitalis classified as debt on ANZ’s balance sheet under Australian and US GAAP with distributions on the stapled
securities classified as interest expense.
On 12 December 2003, the Group bought back its TrUEPrS preference shares that were issued for USD775 million
in 1998. Income, expenses and dividends relating to the TrUEPrS transaction including $77 million profit after tax
from the close out of interest rate swaps have been recorded as significant items.

27

RESULTS COMMENTARY (continued)
Major Acquisitions
National Bank of New ZealandPrice1

ActualProspectus

Price paid AUD million2

5,112

4,940

Less NTA purchased

2,037

1,790

191

133

3,266

3,283

Add Net fair value adjustments
Goodwill1.
2.

Price converted to AUD at 30 September 2004 exchange rates; subject to finalisation of completion accounts
Includes acquisition costs and the impact of the NZD/AUD exchange rate moving to 1.0700

Since the half year, there has been a $68 million refund received on the price paid to Lloyds. However, due tostrengthening of the New Zealand Dollar, the values for purchase price, and NTA when translated into Australian
dollars have increased from the amounts disclosed in the half year results release. The purchase price at the originalexchange rates on date of acquisition was $4,842 million. With the strengthening of the New Zealand dollar, thepurchase price at the 30 September 2004 exchange rate increased by $270 million to $5,112 million.

Integration

Integration of the two New Zealand registered banks has successfully progressed through a number of key
milestones. The most important of these was completion of legal amalgamation on 26 June 2004. This involved an
extensive logistical exercise and a widespread internal and external communication program. On 28 June 2004, theamalgamated registered bank in New Zealand changed its name from ANZ Banking Group (New Zealand) Limited to
ANZ National Bank Limited (‘ANZ National’).
Amalgamation provided the essential platform to initiate the achievement of the overall integration objectives. To
date, the integration program has delivered the following major successes:
The completion of merged organisation structures for all the business segments
Alignment of People Capital policy and processes
Implementation of the Rural Integration Plan
Integration programs completed for most central support areas
The merging of Institutional Markets operations, including the restructuring of dealing rooms
Integration costs incurred to 30 September 2004 totalled NZD49 million. Of this, NZD24 million is incremental to theGroup, with the remainder being non-incremental as they relate to existing resources that will continue after
completion of the integration. There have also been initial cost synergies and revenue benefits from theamalgamation and integration activities completed to date. As expected, there has been minimal loss of revenue andcustomer growth, with these losses primarily caused by lending and transaction concentration in the merged
Institutional and Markets businesses.
Over the last six months, there has been a continuation of effort to finalise plans for an integrated technology
systems solutions for the combined entity. As a result of this work, a revised retail systems strategy has been
defined which will support the separate New Zealand Retail businesses over the longer term. The two-brand retailstrategy will be supported by the two existing technology systems and by retaining separate Retail Banking head
offices for ANZ (Auckland) and National Bank (Wellington). The establishment of the two retail banking teams
emphasises our commitment to each brand particularly in respect of customer retention and the development of eachfranchise. The retention of the two existing technology systems for each respective brand whilst reducing potential
cost synergies, removes technology risk from the success of the retail strategy, lowers integration cost as well as
reducing risk for the overall process of integration.
As part of the Reserve Bank of New Zealand (‘RBNZ’) approval for amalgamation, additional requirements for thelocation and ownership of key technology systems were imposed. These additional requirements increase integration
costs (NZD31 million) and result in additional operating costs (NZD12 million) which have not been included inpreviously reported integration financials.
The combined impact of the above is a reduction in the overall cost of integration by NZD45 million to
NZD220 million. These costs relate primarily to property co-location, restructuring and non-retail systems
integration, with the majority of integration cost investment expected to occur in 2005. By 2007, the integration costsynergies are forecast to be NZD75 million and revenue synergies are forecast to be NZD47 million, excluding the
RBNZ impact described above. Customer attrition of NZD34 million has been estimated, mainly in the Institutionaland Capital Markets businesses.

28

RESULTS COMMENTARY (continued)
Major Acquisitions, cont’dComparison with October 2003 Pro-forma result

N et interest incom e
O ther o p erating incom e

M o v t S ep 0 4
v . P ro fo rm a

N BN Z1
1 0 m o n th s

NBNZ
P ro fo rm a 2

N Z$M

N Z$M

%

885

841

5%
0%

291

290

O p erating inco m e

1 ,1 7 6

1 ,1 3 1

4%

O p erating ex p en ses(4 9 8 )(4 8 7 )2%

P ro fit b efo re d eb t p ro v isio n

678

644

5%

Pr o vision fo r do ub tful d eb ts(7 0 )(7 4 )-5 %P ro fit b efo re in co m e ta x

608

570

7%

Incom e tax exp ense & O utsid e eq uity interest(1 8 6 )(1 6 3 )14%

N et p ro fit

422

407

4%

1.
2.

NBNZ result for ten months to 30 September 2004
Proforma results for the year to 30 June 2003 as published in the Renounceable Rights issue prospectus: converted from AUD to NZD at 1.1139 representing the
average exchange rate for the year ended 30 September 2003 and converted to ten month equivalent result. Excludes goodwill amortisation.

Profit after tax for the 10 months to 30 September 2004 was 4% higher than the pro-forma results published in therights issue prospectus. Several one-off items impact the comparison of the NBNZ business after acquisition withresults of that business in the year prior to acquisition. These one-off items include:
Two significant one-off structured finance transactions increased 2003 pro-forma net profit after tax by
NZD18 million compared to 2004.
Adoption of ANZ accounting policies, including the capitalisation of mortgage brokerage costs, improved the NBNZ
2004 result by NZD9 million after tax.
The amalgamation and integration of NBNZ has resulted in cost savings, revenue benefits and revenue attrition.
Taken together these impacts have reduced NBNZ 2004 net profit by approximately NZD7 million after tax
compared to 2003. In addition, since amalgamation, approximately NZD3 million of NBNZ markets transactions
have been booked in ANZ.
Adjusting for these one-off items, the underlying growth in NBNZ during the 10 months since acquisition is 8%,
compared to the June 2003 pro-forma.
Specific influences on the result include:
Net interest income increased 5% with 8% growth in lending and 3% growth in deposit volumes. The lending
growth was mainly in home loans (8%), although there has been some market share erosion; and in Rural (8%),
supported by the positive industry performance and outlook. The impact of volume growth has been partly offset
by lower net interest margins in the lending-based businesses, and the increased switching to fixed rate loan
products as customers respond to increases in the official cash rate during 2004. During the year Institutional
lending volumes reduced, with an increased number of new deals being booked under the ANZ brand.
Other operating income was in line with the pro-forma adjusted for the one-off impacts mentioned above.
Operating expenses have increased 2%, reflecting higher personnel and related costs, including the cost of salaryrate rises effective 1 April 2004 for non-managerial staff.
The provision for doubtful debts charge reduced, with ELP factors revised following a detailed post acquisition
review and increased repayments.
The effective tax rate increased due to the impact of the roll-off of corporate structured finance transactions.

Goodwill

On 26 June 2004, The National Bank of New Zealand Limited was amalgamated with ANZ Banking Group (New
Zealand) Limited (the Bank), and the Bank changed its name to ANZ National Bank Limited with effect from 28 June
2004. The directors obtained an assessment of the carrying value of NBNZ from an external investment bank prior toamalgamation. Based on this valuation, and management’s assessment of the activities of the bank to determine if
there were any subsequent impairment indicators, the directors have determined that the carrying value of goodwill is
supported.

29

RESULTS COMMENTARY (continued)
Critical Accounting Policies
The Group prepares its consolidated financial statements in accordance with Australian Accounting Standards andother authoritative accounting pronouncements. However, notwithstanding the existence of relevant accounting
standards, there are a number of critical accounting treatments, which include complex or subjective decisions orassessments. The Group requires all such applications of judgement to be reviewed and agreed by Group Finance,
and where the impact is material, the accounting treatment be reviewed during the audit process by the Group’s
external auditors. All material changes to accounting policy are approved by the Audit Committee of the Board.
No change has been made to any of the critical accounting policies or their related methodologies over the last
3 years.
A brief discussion of critical accounting policies, and their impact on the Group, follows:a)Economic Loss Provisioning
Each month the Group recognises an expense for credit losses (provision for doubtful debts) based on the average one
year loss expected to be incurred if the same loan portfolio was held over an economic cycle. The provision for doubtful
debts is booked to the General Provision which is maintained to cover the losses inherent in the Group’s existing loan
portfolio. The method used by the Group for determining the expense charge is referred to as Economic Loss
Provisioning (ELP).
The average charge to profit for ELP was 0.31% of average net lending assets or $632 million (Sep 2003: 0.39% or$614 million). During the same period, specifically identified credit losses net of recoveries during the year were$443 million (Sep 2003: $527 million).
As at September 2004, the balance of the General Provision of $1,992 million (Sep 2003: $1,534 million) represents
1.01% (Sep 2003: 1.01%) of risk weighted assets.

b)

Specific provisioning
The Group maintains a specific provision for doubtful debts arising from its exposure to organisations and credit
counterparties.
Once a specific doubtful debt loss is identified as being probable, its value is transferred from the General Provision to
the Specific Provision.
The recognition of losses has an impact on the size of the General Provision rather than directly impacting profit.
However, to the extent that the General Provision is drawn down beyond a prudent amount it will be restored through atransfer from the current year’s earnings. The amount of net transfer from the General Provision to the Specific
Provision, net of recoveries, during the year was $443 million (Sep 2003: $527 million).

c)Deferred acquisition costs and deferred income
Deferred acquisition costs - at 30 September, the Group’s assets included $465 million (Sep 2003: $360 million) in
relation to costs incurred in acquiring interest earning assets. During the year, amortisation of $218 million (Sep 2003:$178 million) was recognised as an adjustment to the yield earned on interest earning assets.
The deferred acquisition costs at 30 September were:
Brokerage
amortised$m

2004
Brokerage
paid1$mPersonal Banking Australia

64

Esanda and UDC
New Zealand Business

Balance2$m

Brokerage
amortised$m

2003
Brokerage
paid1$mBalance2
$m

89

145

41

70

109

147

177

250

133

175

227

7

11

36

4

8

15

Institutional

n/a

n/a

10

n/a

n/a

9

Other3

n/a

n/a

24

n/a

n/a

-

Total

218

277

465

178

253

360

1.
2.
3.

Brokerage paid includes brokerage trailer commissions paid relating to the acquisition of mortgages assets that are not capitalised
Includes capitalised debt raising expenses
Includes INGA, Group Centre, Treasury, Corporate Australia, Asia Pacific and Operations, Technology and Shared Services

Deferred income - at 30 September, the Group’s liabilities included $149 million (Sep 2003: $280 million) in relation to
income received in advance.

30

RESULTS COMMENTARY (continued)
Critical Accounting Policies, cont’dd)Derivatives and Hedging
The Group buys and sells derivatives as part of its trading operations and to hedge its interest rate risk, foreignexchange risk and the equity risk in INGA. Derivative instruments entered into for the purpose of hedging are accounted
for on the same basis as the underlying exposures or risks. The Group classifies derivatives into two types according to
the purpose they are entered into: trading or hedging.
Income and loss relating to trading derivatives is reported in the statement of financial performance as other operating
income. The fair value of trading derivatives is recorded on a gross basis as other assets or other liabilities asappropriate unless there is a legal right of set off. The fair value of a derivative financial instrument is the net present
value of future expected cash flows arising from that instrument.
In order to be classified as a hedging derivative the hedging relationship must be expected to be effective. Hedging
derivatives are accounted for in the same manner as the underlying asset or liability they are hedging. For example, if
the hedged instrument is accounted for using the accrual method, the hedging instrument will also be accounted forusing the accrual method.
Movements in the value of foreign exchange contracts that are hedging overseas operations are not recognised asincome or expenses. Instead these movements are recognised in the Foreign Currency Translation Reserve together
with the net difference arising from the translation of the overseas operation.
Derivatives entered into as part of the Group’s trading operations are carried at their fair values with any change in fairvalue being immediately recognised as part of trading income.

e)Special purpose and off balance sheet vehicles
The Group may invest in or establish special purpose companies, or vehicles (SPVs), to enable it to undertake specifictypes of transactions. Where the Group has established certain special purpose companies or vehicles which arecontrolled by the Group in order to facilitate transactions undertaken for Group purposes, these are consolidated into theGroup’s financial statements. These special purpose companies or vehicles have been established as part of the Group’s
funding activities, for example, the StEPS structure, and as part of lending activities undertaken in the normal course ofbusiness, where assets of the vehicles are recorded as part of the Group’s Net Loans and Advances.
The main type of SPVs that are not consolidated into the Group can be summarised as follows:- Securitisation vehicles - Assets are transferred to a SPV which funds the purchase by issuing securities. ANZ canprovide specific services to the SPV, including management and servicing of assets and/or providing liquidity support,
swaps, credit guarantees. ANZ earns fees at a commercial rate for providing these services.
- Structured finance entities - These entities are set up to assist with the structuring of client financing. ANZ may
provide liquidity support to the vehicle and may also manage these vehicles.
- Managed funds - These funds invest in specified investments on behalf of clients. INGA and ANZ National Bank
Limited, as managers of the funds expose ANZ to operational risk and reputational risk.

f)Valuation of investment in INGA
The Group adopts the equity method of accounting for its 49% interest in INGA. As of 30 September 2004, the Group’s
carrying value is $1,697 million (Sep 2003: $1,648 million).
The carrying value is subject to a recoverable amount test, to ensure that this does not exceed its recoverable amount at
the reporting date. The Group obtained an independent valuation at 31 March 2004 and at that time the carrying value
did not exceed the recoverable amount. At 30 September 2004 a management review was conducted to determine
whether there were any indicators of impairment of the value of the investment. This assessment did not indicate theexistence of impairment indicators, and accordingly no writedown was made.

g)

Valuation of goodwill in ANZ National Bank Ltd
On 26 June 2004, The National Bank of New Zealand Limited was amalgamated with ANZ Banking Group (New Zealand)
Limited (the Bank), and the Bank changed its name to ANZ National Bank Limited with effect from 28 June 2004. The
directors obtained an assessment of the carrying value of NBNZ from an external investment bank prior toamalgamation. Based on this valuation, and management’s assessment of the activities of the bank to determine if
there were any subsequent impairment indicators, the directors have determined that the carrying value of goodwill is
supported.

31

RESULTS COMMENTARY (continued)
Critical Accounting Policies, cont’dh)Tax Consolidations
The Company, Australia and New Zealand Banking Group Limited, is the head entity in the tax-consolidated group
comprising all the Australian wholly-owned subsidiaries, trusts and partnerships. The implementation date for the taxconsolidated group is 1 October 2003. Under tax consolidations, the head entity recognises all of the current anddeferred tax assets and liabilities of the tax-consolidated group, adjusted for the impact of arrangements made withother members of the tax-consolidated group.
Members of the tax-consolidated group have entered into a tax sharing agreement which provides for the allocation ofincome tax liabilities between the entities should the head entity default on its income tax payment obligations.
The tax-consolidated group has also entered into a tax funding agreement that requires wholly-owned subsidiaries toreceive/make contributions from/to the head entity for:- deferred tax balances recognised by the head entity on implementation date, including the impact of any relevant
reset tax cost bases; and- current tax assets and liabilities and deferred tax balances which have been calculated as if the wholly-owned
subsidiaries were taxed on a “stand-alone” basis.
The contributions are payable as set out in the tax funding agreement and reflect the timing of the head entity’s
obligations to make payments for tax liabilities to the relevant tax authorities. The assets and liabilities arising under thetax funding agreement are recognised as intercompany assets and liabilities which are equivalent to deferred tax
balances.
Calculations at 30 September 2004 have been based on legislation enacted to that date. These calculations haveresulted in no material adjustment to the consolidated tax expense or consolidated deferred tax balances for the year
ended 30 September 2004.

i)

Software capitalisation
At 30 September 2004, the Group’s fixed assets included $430 million (Sep 2003: $465 million) in relation to costs
incurred in acquiring and developing software. During the year, amortisation expense of $129 million (Sep 2003:$83 million) was recognised.
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Balance at start of period

447

465

-4%

465

419

11%

Software capitalised during the period

55

59

-7%

114

116

-2%

Amortisation during the period

(66)

(63)

5%

(129)

(83)

55%

Software written-off

(10)

(31)

-68%

(41)

(10)

large

2

15

-87%

17

25

-32%

Acquisitions
Other
Total software capitalisation

2

2

0%

4

(2)

large

430

447

-4%

430

465

-8%

32

RESULTS COMMENTARY (continued)
International Financial Reporting Standards
For reporting periods beginning on or after 1 January 2005, the Group will be required to prepare financial statements
using Australian Standards that have been revised to satisfy the requirements of International Financial ReportingStandards (IFRS) as issued by the International Accounting Standards Board. The Group will report for the first timein compliance with Australian equivalents to IFRS when the results for the half-year ended 31 March 2006 and theyear ended 30 September 2006 are released.
The Group is required to prepare an opening balance sheet in accordance with Australian equivalents to IFRS as at
1 October 2004. Most accounting policy adjustments to retrospectively apply Australian equivalents to IFRS will bemade against retained earnings in this opening balance sheet. However, transitional adjustments relating to thosestandards for which comparatives are not required will only be made on 1 October 2005. Comparatives are notrequired for AASB 132: Financial Instruments: Disclosure and Presentation, AASB 139: Financial Instruments:
Recognition and Measurement and AASB 4: Insurance Contracts.
A Steering Committee is monitoring the adoption of IFRS as per the Group’s implementation plan. This Committee
has been following developments in IFRS and the likely impact that these standards will have on our products and ourcustomers, and on our own financial reports and accounting policies. Dedicated workstreams are responsible for
evaluating the impact of a specific group of accounting changes. Each workstream is progressing through multiple
phases of work: technical evaluation, design, development and implementation. The Group has largely completed thetechnical evaluation phases of each work-stream, and is moving into design, development and implementation. The
program is achieving scheduled milestones.
The following areas have been identified as significant for the Group:

Credit Loss Provisioning
Initial impact on retained
earnings at 1 October 2005
Volatility in future earnings
Lower general provision

IFRS adopts an approach known as ‘incurred losses’ for credit loss provisioning andprovides guidance on measurement of incurred losses. Provisions are raised forlosses that have already been incurred for exposures that are known to be impaired.
The estimated losses on these impaired exposures are then discounted to theirpresent value. As this discount unwinds, there is a resulting recognition of interestin the statement of financial performance during the period between recognition of
impairment and recovery of the written down amount.
Exposures found not to be impaired are placed into pools of similar assets withsimilar risk characteristics to be collectively assessed for losses that have been
incurred, but not identified yet. The required provision is estimated on the basis ofhistorical 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 current ELP charge to profit will be replaced, on adoption of IFRS, by a charge
for specific provisions on impaired exposures, plus a charge for movements in theprovision that is held for exposures that are being collectively assessed for
impairment.
It is anticipated that the proposed changes will result in a reduction in the level ofprovisioning which the bank holds against its credit exposures.

Debt v Equity
classification
Initial impact on statementof financial position at
1 October 2005

The Group has issued a number of hybrid tier one instruments. The ANZ StEPS
issue, which is currently treated as equity, will be reclassified as debt. Distributions
on ANZ StEPS will be treated as interest rather than dividends.

New liabilities recognised
Fee Revenue
Initial impact on retained
earnings at 1 October 2005
for yield adjusted fees and1 October 2004 for otherfinancial service fees
Increased deferral of fee
incomeRevised rules governing the accounting for fee income will result in more fees being
deferred on initial payment, and recognised either as an adjustment to yield or overthe period of service. Fees required to be treated as an adjustment to yield will berecognised in interest income rather than fee income. On initial application, certain
fees that have previously been recognised in the statement of financial performance
will be recognised in the statement of financial position, with a corresponding
reduction to retained earnings. The annual impact on net profit from this change is
not expected to be material.

33

RESULTS COMMENTARY (continued)
International Financial Reporting Standards, cont’d
Goodwill
Initial impact on retained
earnings at 1 October 2004
Volatility in future earnings
Hedging
Initial impact on retained
earnings at 1 October 2005
Volatility in future earnings
New assets/liabilities
recognised

The current Group policy of amortising goodwill over the expected period of benefit
will cease. Instead, goodwill will be subject to impairment testing annually, or more
frequently if events or circumstances indicate that it might be impaired. This change
in policy may result in increased volatility of future earnings where impairment
losses may occur.
All derivatives contracts, whether used as hedging instruments or otherwise, will be
carried at fair value on the Group’s statement of financial position. IFRS recognise
fair value hedge accounting, cash flow hedge accounting, and hedges ofinvestments in foreign operations. Fair value and cash flow hedge accounting canonly be considered where effectiveness tests are met.
Ineffectiveness outside the prescribed range precludes the use of hedge accounting
and can result in significant volatility in the statement of financial performance. The
Group expects to predominantly use cash flow hedging in respect of its interest raterisk hedges, which will create volatility in equity reserve balances.
The hedging rules will impact the way the Group accounts for hedges of its funding
and for hedges of its statement of financial position. Customer trading, where allderivatives are currently marked to market, will not be impacted.

Post Employment
Benefits
Initial impact on retained
earnings at 1 October 2004
Volatility in future earnings

Securitisation
Initial impact on retained
earnings at 1 October 2004
New assets/liabilities
recognised

Share-Based Payments
Initial impact on retained
earnings at 1 October 2004
Higher expenses

Taxation
Initial impact on retained
earnings at 1 October 2004
New assets/liabilities
recognised

The Group does not currently recognise an asset or liability for the net position of
the defined benefit superannuation schemes including those which operate inAustralia, New Zealand and the United Kingdom. On adoption of AASB 119:
Employee Benefits, the Group will recognise the net position of each scheme on thestatement of financial position, with a corresponding entry to the statement offinancial performance. The initial adjustment will be made, retrospectively, against
opening retained earnings as at 1 October 2004, and will be based on actuariallydetermined valuations of each scheme made at that date in accordance withAASB 119. After the transitional adjustment, further movements in the net positionof each scheme will be recognised in the statement of financial performance.
IFRS introduces new requirements for the recognition of financial assets, including
those transferred to a special purpose vehicle for securitisation. Existing
securitisations, both of our own assets and of our customers’ assets, require an
assessment of the accounting treatment that will be required under IFRS. Further,a different interpretation of the consolidation rules applicable to special purpose
vehicles may result in some vehicles, which were previously not consolidated, being
consolidated by the Group. Securitisations commenced on or after 1 January 2004
have been assessed in accordance with IFRS and current Australian GAAP.
The Group currently recognises immediately an expense equal to the full fair valueof all deferred shares issued as part of the short and long term incentive
arrangements. The deferred shares vest over one to three years, and may be
forfeited under certain conditions. The Group does not currently recognise an
expense for options issued to staff, shares issued under the $1,000 employee shareplan, nor for the 5% discount applicable to the ANZ Share Save Scheme. On
adoption of AASB 2: Share-based Payment, the Group will recognise an expense forall share-based remuneration, including deferred shares and options, and willamortise those expenses over the relevant vesting periods. The Group will also
recognise an expense for shares issued under the $1,000 employee share plan, andfor the 5% discount on shares granted under the ANZ Share Save Scheme. On
transition, this change in accounting policy will result in a reduction in retained
earnings at 1 October 2004.
Under AASB 112: Income Taxes, a "balance sheet" approach will be adopted,
replacing the "statement of financial performance" approach currently used. Thismethod recognises deferred tax balances when there is a difference between the
carrying value of an asset or liability, and its tax base. It is expected that thestandard may require the Group to carry a slightly higher level of deferred tax
assets and liabilities.

Capital measurement - The Australian Prudential Regulation Authority (APRA) has announced that it intends torevise its capital adequacy requirements to take account of the impact of IFRS. This will be achieved through theprogressive release of a series of discussion papers. Priority areas for review by APRA include the treatment ofinnovative capital instruments for capital adequacy purposes and the treatment of superannuation fund surpluses anddeficits. APRA has stated that it will not make any IFRS-related changes to the existing prudential framework until it
has completed relevant consultations, and not before 1 July 2005 at the earliest. In the interim, existing prudential
standards will continue to apply.

34

BUSINESS PERFORMANCE REVIEWProfit and Loss (including effect of movements in foreign currencies)
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

417

385

8%

802

693

16%

Institutional

392

396

-1%

788

802

-2%

New Zealand Business

336

248

35%

584

211

large

Corporate Australia

176

168

5%

344

311

11%

Esanda and UDC

74

69

7%

143

129

11%

Asia Pacific

60

51

18%

111

100

11%

ING Australia

61

47

30%

108

82

32%

(97)

(52)

87%

(149)

20

large

1,419

1,312

8%

2,731

2,348

16%

-

84

-100%

84

-

n/a

1,419

1,396

2%

2,815

2,348

20%

Net profit after income tax
Personal Banking Australia

Group Centre1
Net profit (excl Significant items)
Significant items

2

Net profit

Profit and Loss (prior period figures adjusted to remove the impact of exchange rate movements3)
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Personal Banking Australia

417

385

8%

802

693

16%

Institutional

392

399

-2%

788

785

0%

New Zealand Business

336

254

32%

584

209

large

Corporate Australia

176

169

4%

344

311

11%

Esanda and UDC

74

70

6%

143

129

11%

Asia Pacific

60

52

15%

111

97

14%

ING Australia

61

47

30%

108

82

32%

Group Centre

(97)

(62)

56%

(149)

10

large

1,419

1,314

8%

2,731

2,316

18%

-

84

-100%

84

-

n/a

1,419

1,398

2%

2,815

2,316

22%

-

(2)

-100%

-

32

-100%

1,419

1,396

2%

2,815

2,348

20%

Net profit after income tax

1

Net profit (excl Significant items)
Significant items2
Net profit
FX impact on reported Net Profit
Reported net profit
1.
2.

3.

Group Centre includes the operations of Treasury.
ANZ has classified the $14 million profit after tax on final settlement of the INGA completion accounts, $14 million after tax incremental integration costs,$84 million net profit after tax and $36 million dividends arising from the TrUEPrS transaction as significant items (refer page 12). ANZ excludes significant items
to eliminate the distorting effect of one-off transactions on the results of its core business
ANZ has removed the impact of exchange rate movements to provide investors 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 toallow comparability. During the half ended 30 September 2004 the significant changes were:
Personal Banking Australia. Mr Brian Hartzer has become Group Managing Director Personal Banking, to head a
new division, which clusters all of ANZ’s specialised businesses primarily serving personal customers in Australia.
Corporate comprises Corporate Banking, Business Banking, and now includes Small Business Banking which waspreviously part of Personal Banking Australia.
Institutional. Mr Steve Targett has become Group Managing Director Institutional. Pacific Foreign Exchange which
was previously reported in Asia Pacific is now reported in Institutional.
New Zealand Businesses now includes New Zealand Consumer Finance which was previously reported in Cards andMerchant Services.
Asia Pacific. Mr Elmer Funke Kupper has become Group Managing Director Asia-Pacific.

35

BUSINESS PERFORMANCE REVIEW (continued)
Personal Banking Australia
Brian Hartzer
Personal Banking Distribution (incl. Rural and Private Banking)
Banking Products♦ Cards and Merchant Services♦ Mortgages
♦
♦

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Net interest income

982

933

5%

1,915

1,771

8%

Other external operating income

427

405

5%

832

701

19%

Net inter business unit fees

66

66

0%

132

121

9%

Operating income

1,475

1,404

5%

2,879

2,593

11%

External operating expenses

(641)

(622)

3%

(1,263)(1,144)

10%

Net inter business unit expenses

(145)

(143)

1%

(288)

(295)

-2%

Operating expenses

(786)

(765)

3%

(1,551)(1,439)

8%

Profit before debt provision

689

639

8%

1,328

1,154

15%

Provision for doubtful debts

(94)

(89)

6%

(183)

(169)

8%

Profit before income tax

595

550

8%

1,145

985

16%

Income tax expense and outside equity interests

(178)

(165)

8%

(343)

(292)

17%

Net profit attributable to members of the Company

417

385

8%

802

693

16%

Consisting of:
Personal Banking Distribution (including Private Bank)

106

105

1%

211

199

6%

Banking Products

92

82

12%

174

143

22%

Mortgages

113

111

2%

224

229

-2%

Cards and Merchant Services

106

87

22%

193

122

58%

417

385

8%

802

693

16%

Net loans & advances including acceptances

91,76785,378

7%

91,767

77,99118%

Other external assets

1,971

2,067

-5%

1,971

1,838

7%

External assets

93,73887,445

7%

93,73879,82917%

Deposits and other borrowings

38,00435,8186%

38,00433,980

12%

Other external liabilities

2,032

1,940

5%

2,032

1,680

21%

External liabilities

40,03637,7586%

40,03635,66012%

Balance Sheet

Ratios
Net interest average margin

2.22%

2.29%

-3%

2.26%

2.52%

-10%

Return on assets

0.92%

0.92%

0%

0.92%

0.96%

-4%

Return on risk weighted assets

1.67%

1.66%

1%

1.67%

1.74%

-4%

Operating expenses to operating income

53.3%

54.5%

-2%

53.9%

55.5%

-3%

Operating expenses to average assets

1.74%

1.83%

-5%

1.78%

1.98%

-10%

(66)

(72)

-8%

(138)

(131)

5%

0.15%

0.18%

-17%

0.16%

0.19%

-16%

Net specific provisions
Net specific provision as a % of average net advances

17

14

21%

17

23

-26%

Net non-accrual loans as a % of net advances

Net non-accrual loans

0.02%

0.02%

0%

0.02%

0.03%

-33%

Total employees

8,934

8,701

3%

8,934

8,795

2%

36

BUSINESS PERFORMANCE REVIEW (continued)
Personal Banking Australia
Brian Hartzer
2004 result

Profit after tax increased by 16% with strong momentum in each of the core businesses. Mortgage lending increased
18% and deposits grew 12% delivering increases in market share. Staff satisfaction was at record levels andcustomer satisfaction was up 7 points to 73.6%, the highest of the major Australian banks. After adjusting for the$27 million after tax effect of the under-accrual of card loyalty points in the March 2003 half year, which is notindicative of the core business performance, profit after tax increased 11% in Personal Banking and by 30% in Cards
and Merchant Services.
Significant factors affecting the result were:
Net interest income increased 8%.
Mortgage lending grew 18% over the year (or 19% excluding the impact of securitisation). Rural Banking volumes
increased 18% reflecting ANZ’s focus on this market and increased investment by rural businesses. Cards andMerchant Services lending grew 6%.
Deposit volumes increased 12% as a result of successful campaigns throughout the year targeted at growing V2Plus and term deposits. Mortgage offset deposit volumes increased 16%.
Average net interest margin reduced by 26 basis points. Mortgages margin was down 14 basis points mainly due
to higher funding costs following increases in the cash rate and market rates rising in anticipation of further cashrate rises which did not eventuate. The average net interest margin was also adversely impacted by the mix effectof relatively higher growth in the Mortgage business than in higher margin Cards and Merchant Services andBanking Products businesses. Margin in Cards and Merchant Services increased 16 basis points due to a reductionin the proportion of “transactor” volumes following product changes consequent to the Reserve Bank of Australia’s(RBA) interchange reforms. Banking Products margin was 2 basis points higher with the benefit of increases in the
cash rate on deposit margins largely offset by higher growth in lower margin cash management and term deposits.
Other external operating income increased $131 million (19%). Of this, $38 million related to the under-accrual ofcard loyalty points in 2003. Excluding this amount other income increased 13%.
Mortgages contributed $14 million of the increase driven by a strong performance from the mortgage insurance
business and lending volume growth.
Banking Products fees were up 12%, mainly due to growth in account numbers, while sales and retention
payments from INGA were up 7%, reflecting a strong sales performance and improvement in the equity markets.
Operating costs increased $112 million (8%). Personnel costs were up $44 million due to annual salary increases
together with a 3% increase in staff in Mortgages to service continued high levels of customer activity, atemporary increase in Cards and Merchant Services staff in the first quarter to handle the higher level of calls
associated with the RBA interchange reform project, increased financial planners and increased staffing in Rural
Banking. Computer expenses increased $37 million following the rollout of the new telling platform in Personal
Banking Distribution and increased depreciation associated with investments in technology. Premises and othercost increases reflect investment in the branch network, growth in the business and an increased marketing spend.
Provision for doubtful debts increased 8%, driven by lending volume growth. Non-accrual loans and net specificprovisions remained low reflecting sound credit quality.
Comparison with March 2004 half

Profit after tax increased 8%. Cards and Merchant Services grew 23% reflecting 8% revenue growth and flat costs.
Banking Products profit increased 12% driven by deposit growth. Mortgages grew 2% with strong volume growth
offset by further margin contraction.
Operating income increased 5% driven by 8% growth in Cards and Merchant Services resulting from a 4% growth incard outstandings, a decreased proportion of “transactor” volumes and increased merchant activity. Mortgages
revenue grew 3% with volume growth partly offset by margin contraction. Revenue in Banking Products grew 5%
with increased deposit volumes following successful campaigns to grow V2 Plus and term deposits.
Operating costs increased by 3%, driven by the impact of approximately 4% salary increases and increased staff in
Mortgages and Personal Banking Distribution to service increased customer activity levels and continuing investment
in our branch network, including additional financial planners. Cards and Merchant Services costs were flat - volume
related increases offset the first half impact of increased FTEs and marketing spend relating to the RBA interchange
reform project.
Provision for doubtful debts increased 6% due largely to the 7% increase in lending volumes. Credit quality wasstable across all businesses.

37

BUSINESS PERFORMANCE REVIEW (continued)
Institutional
Steve Targett
Institutional Banking
Markets (formerly Foreign Exchange and Capital Markets)♦ Trade and Transaction Services♦ Corporate and Structured Financing
♦
♦

Half
year
Sep 04
$M

Half
year
Mar 04$M

Net interest income

330

322

2%

Other external operating income

658

641

3%

Net inter business unit fees

(14)

(10)

40%

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

652

703

-7%

1,299

1,245

4%

(24)

(26)

-8%

Operating income

974

953

2%

1,927

1,922

0%

External operating expenses

(300)

(278)

8%

(578)

(551)

5%

Net inter business unit expenses

(61)

(62)

-2%

(123)

(124)

-1%

Operating expenses

(361)

(340)

6%

(701)

(675)

4%

Profit before debt provision

613

613

-

1,226

1,247

-2%

Provision for doubtful debts

(73)

(86)

-15%

(159)

(165)

-4%

Profit before income tax

540

527

2%

1,067

1,082

-1%

Income tax expense and outside equity interests

(148)

(131)

13%

(279)

(280)

0%

Net profit attributable to members of the Company

392

396

-1%

788

802

-2%

Institutional Banking

145

151

-4%

296

302

-2%

Transaction Services

94

87

8%

181

164

10%

Markets

91

94

-3%

185

189

-2%

Consisting of:Corporate and Stuctured Financing

62

64

-3%

126

147

-14%

392

396

-1%

788

802

-2%

Net loans & advances including acceptances

40,99039,285

4%

40,99040,9110%

Other external assets

14,746

15,821-7%

14,746

16,066-8%

Balance Sheet

External assets

55,73655,106

1%

55,73656,977-2%

Deposits and other borrowings

29,18328,583

2%

29,183

27,1707%

Other external liabilities

19,877

20,188-2%

19,877

20,835-5%External liabilities

49,06048,771

1%

49,06048,0052%

Net interest average margin

1.59%

1.62%

-2%

1.60%

1.68%

-5%

Return on assets

1.33%

1.40%

-5%

1.36%

1.34%

2%

Return on risk weighted assets

1.19%

1.21%

-2%

1.20%

1.22%

-2%

Operating expenses to operating income

37.1%

35.6%

4%

36.4%

35.1%

4%

Operating expenses to average assets

1.22%

1.20%

2%

1.21%

1.13%

7%

Net specific provisions

(109)

(62)

76%

(171)

(217)

-21%

Net specific provision as a % of average net advances

0.54%

0.31%

74%

0.43%

0.52%

-17%

299

360

-17%

299

352

-15%

RatiosNet non-accrual loans
Net non-accrual loans as a % of net advances

0.73%

0.92%

-21%

0.73%

0.86%

-15%

Total employees

2,926

2,872

2%

2,926

2,795

5%

38

BUSINESS PERFORMANCE REVIEW (continued)
Institutional
Steve Targett
2004 result

Profit after tax reduced by 2%. After adjusting for the impact of the appreciating AUD on translation of offshore
earnings, profit after tax was flat.
This result was also affected by the substantial progress made in refocusing the business to lower risk sectors. This
strategy has contributed to reduced earnings in Institutional Banking (-2%), Corporate and Structured Financing(-14%) and Markets (-2%) through the exit of higher risk offshore assets and non-core complex structured
transactions, and through the flow on impact to the Markets business of lower levels of structured finance activity.
Profit increased 10% in Trade and Transaction Services where focus has been given to investing in growth initiatives.
Significant factors affecting the result were:
Net interest income decreased 7% due to a $52 million reduction in Markets, where a lower proportion of revenue
was booked as interest due to funding costs associated with unrealised trading gains, largely as a consequence of
the appreciation of the AUD during the period. This is offset by an equivalent gain in Other Operating Income.
Adjusted for this, net interest income was flat. Trade and Transaction Services increased 12%, driven byincreased custody and cash management deposit volumes. Institutional Banking decreased 1% due to asset
reductions offshore, partly offset by loan volumes being 3% higher in Australia. Corporate and Structured
Financing reduced 13%, where offshore lending assets have been substantially reduced as part of the strategy tolower risk.
Overall loan volumes were flat, deposit volumes increased 7% and net interest margin was 8 basis points lower
largely reflecting mix changes in deposits and competitive pressures.
Other operating income increased 4%. Excluding a $27 million profit before tax on the final sale of development
properties in 2003, and the $52 million increase described above, other operating income increased 2%.
Non-interest income increased 8% in Trade and Transaction Services, reflecting improved trade volumes, higher
revenue from international payments, and strong growth in Custody and Cash management revenue. Corporate
and Structured Financing increased 2%, reflecting continued progress in shifting the revenue mix away from net
interest income. Fee revenue in Institutional Banking was flat. Total revenue in Markets increased 1%, reflecting
difficult market conditions, with lower levels of corporate hedging activity and tightening credit spreads.
Operating expenses were 4% higher due to increased pension funding costs in the United Kingdom ($8 million),
the impact of a full years cost related to the consolidation of the TradeCentrix processing hub in the September
2003 half, increased technology investments in Markets and Transaction Services, and higher staff costs, withfurther investment in Markets capability in London and Asia, growth in Custody, Commodity Trade Finance in Asia,
and International Payments.
Provision for doubtful debts (economic loss provision) was 4% lower reflecting lower offshore exposures andmodest asset growth in Australia. Net specific provisions were 21% lower, with new specific provisions of$171 million relating largely to further provisioning against the power, telecommunications and mining sectors inAustralia and offshore.
Comparison with March 2004 half

Profit after tax was 1% lower. After adjusting for the impact on translation of offshore earnings, profit after tax was
2% lower.
Profit increased in Trade and Transaction Services (8%), offset by lower profits in Institutional Banking (-4%),
Corporate and Structured Financing (-3%) and Markets (-3%).
Operating income increased 2%. Trade and Transaction Services revenue increased 8% with increased trade flows
through Asia, strong growth in Custody and increased international payments revenue. Markets increased 1% withstronger foreign exchange customer activity offset by weaker corporate demand for interest rate products, tightening
credit spreads and lower margins on derivatives products. Institutional Banking reduced 1% with lower net interestand fee income and flat margins. Corporate and Structured Financing revenue increased 1% reflecting the continuing
impact of refocusing the business to lower risk sectors.
Operating expenses increased 6%. The weaker average AUD through the September half increased costs by 2%.
Staff costs were higher due to investment in growth in Trade and Transaction Services, and an increase in costs
related to delivering critical compliance initiatives. Technology costs were 13% higher for the half, reflecting
investment in a new core processing system in Markets, and technology investment in the Transaction Services
business.
Provision for doubtful debts (economic loss provision) reduced 15% due to a reduction in credit exposures offshore.
Net specific provisions increased $47 million largely reflecting provisioning for Reach. Net non-accrual loans
decreased by 17% reflecting lower new non-accruals and net write-offs.

39

BUSINESS PERFORMANCE REVIEW (continued)
New Zealand Business1
Sir John Anderson♦♦

ANZ New Zealand Banking♦ National Bank of New Zealand
ANZ New Zealand Mortgages ♦ ANZ New ZealandConsumer Finance

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Net interest income

746

548

36%

1,294

497

large

Other external operating income

286

232

23%

518

254

large

Net inter business unit fees

2

3

-33%

5

5

0%

Operating income

1,034

783

32%

1,817

756

large

External operating expenses

(420)

(316)

33%

(736)

(280)

large

Net inter business unit expenses

(69)

(61)

13%

(130)

(122)

7%

Operating expenses

(489)

(377)

30%

(866)

(402)

large

Profit before debt provision

545

406

34%

951

354

large

Provision for doubtful debts

(54)

(45)

20%

(99)

(37)

large

Profit before income tax

491

361

36%

852

317

large

Income tax expense and outside equity interests

(155)

(113)

37%

(268)

(106)

large

Net profit attributable to members of the Company

336

248

35%

584

211

large

50,38545,232

11%

50,385

13,926large

Balance Sheet
Net loans & advances including acceptances
Other external assets

5,485

8,823

-38%

5,485

453

large

External assets

55,87054,055

3%

55,87014,379large

Deposits and other borrowings

41,34343,322-5%

41,343

11,708large

Other external liabilities

5,932

4,765

24%

5,932

308

large

External liabilities

47,27548,087-2%

47,27512,016large

Net interest average margin

2.81%

2.85%

-1%

2.83%

3.57%

-21%

Return on assets

1.27%

1.23%

3%

1.25%

1.49%

-16%

RatiosReturn on risk weighted assets

1.69%

1.74%

-3%

1.71%

2.15%

-20%

Operating expenses to operating income

47.3%

48.2%

-2%

47.7%

53.2%

-10%

Operating expenses to average assets

1.84%

1.87%

-2%

1.85%

2.84%

-35%

Net specific provisions
Net specific provision as a % of average net advances

(19)

(11)

73%

(30)

(20)

50%

0.08%

0.06%

33%

0.07%

0.15%

-53%

30

25

20%

30

8

large

Net non-accrual loans
Net non-accrual loans as a % of net advances

0.06%

0.06%

-

0.06%

0.06%

0%

Total employees

7,988

7,784

3%

7,988

2,939

large

1.

For a reconciliation of the New Zealand Business results to the New Zealand Geographic results refer pages 51 to 54

40

BUSINESS PERFORMANCE REVIEW (continued)
New Zealand Business
Sir John Anderson
2004 result

Profit after tax increased $373 million, with the National Bank of New Zealand (NBNZ) contributing $375 million(excluding incremental integration costs) since acquisition on 1 December 2003 (refer page 29 for a discussion of theperformance of NBNZ compared to the proforma results published in the Rights Issue prospectus). Profit after tax in
ANZ New Zealand businesses increased $9 million (4%), despite a $3 million reduction resulting from the depreciationin the average NZD exchange rate. Integration and other costs for the year were $11 million. Of this result, theCards business increased $9 million, ANZ New Zealand Banking increased $3 million, whilst Mortgages reduced$4 million.
Key influences on the result include the following:
Net interest income increased $797 million. Excluding the contribution of NBNZ of $789 million and the effect ofthe depreciation in the New Zealand dollar, net interest income increased $17 million. Lending volumes increased
9% in the ANZ businesses driven by growth in Mortgages (8%), Cards (8%), Corporate (12%) and Business andRural (11%). Lending in NBNZ has increased 8% since acquisition, including an 8% increase in both home loans
and rural lending. These were partly offset by repayments in Corporate and Institutional lending which were
expected at the time of acquisition.
Both ANZ New Zealand Banking and NBNZ retail deposits increased 3%.
Net interest margins have reduced in asset based businesses, particularly in Mortgages as a result of the rises inwholesale market rates, partly offsetting the growth in lending, deposit volumes and deposit margins.
The NBNZ contribution to other operating income was $259 million in the 10 months to September 2004. Other
operating income in the ANZ New Zealand businesses increased 4% with a 10% increase in Cards and flat fees in
Mortgages with competitor driven fee discounting offsetting volume growth. Fee growth in ANZ New Zealand
Banking was flat. The ANZ result also benefited from NBNZ capital markets customers transacting through ANZ
systems.
Operating expenses increased $464 million, of which $443 million related to the inclusion of NBNZ.
Non-incremental integration costs of $9 million have been incurred to date. Cost growth in ANZ New Zealandbusinesses have been contained to $4 million (1%) despite increases in staff numbers in ANZ New Zealand
Banking (frontline) and Mortgages (support) to cope with increased business volumes, and increased brand spend
and sales training.
Credit quality remains sound with the increase in the provision for doubtful debts charge in ANZ New Zealandbeing driven by lending volumes. Economic loss provisioning methodologies have been implemented in NBNZ anda $62 million charge recognised in the ten months to September 2004. The NBNZ businesses added $81 million to
non-accrual loan volumes with non-accruals in the ANZ New Zealand businesses reducing.
Comparison with March 2004 half

Profit after tax increased $88 million with NBNZ contributing growth of $75 million in the six months to 30 September
2004 compared with the four months to 31 March 2004. The ANZ businesses’ profit increased $13 million in the half,
which included $3 million as a result of the strengthening New Zealand dollar. After adjusting for the additional twomonths contribution, profit in NBNZ was flat with a 4% increase in net interest income that is mainly volume-driven(lending growth of 4%). Reduced asset margins have been largely offset by increased deposit margins. Profit in the
ANZ businesses was driven by a 12% increase in ANZ New Zealand Banking with increased deposit margins andmodest deposit growth (2% in NZD terms); and a 14% increase in Cards. Excluding the favourable impact of an
accounting policy change, profit in Mortgages was flat with 3% lending growth (in NZD terms) offset by reduced
margins. Operating costs were well contained.

41

BUSINESS PERFORMANCE REVIEW (continued)
Corporate Australia
Graham Hodges
Corporate Banking Australia
Business Banking Australia♦ Small Business Banking
♦
♦

Half
year
Sep 04
$M

Half
year
Mar 04$M

Net interest income

325

Other external operating income

138

Net inter business unit feesMovt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

313

4%

638

574

11%

132

5%

270

251

8%

(49)

(49)

-

(98)

(92)

7%

Operating income

414

396

5%

810

733

11%

External operating expenses

(103)

(98)

5%

(201)

(180)

12%

Net inter business unit expenses

(29)

(29)

-

(58)

(54)

7%

Operating expenses

(132)

(127)

4%

(259)

(234)

11%

Profit before debt provision

282

269

5%

551

499

10%

Provision for doubtful debts

(31)

(28)

11%

(59)

(55)

7%

Profit before income tax

251

241

4%

492

444

11%

Income tax expense and outside equity interests

(75)

(73)

3%

(148)

(133)

11%

Net profit attributable to members of the Company

176

168

5%

344

311

11%

91

86

6%

177

159

11%

Consisting of:Business Banking Australia
Corporate Banking Australia

61

57

7%

118

106

11%

Small Business Banking

24

25

-4%

49

46

7%

176

168

5%

344

311

11%

18,94017,635

7%

18,94015,937

19%

Balance Sheet
Net loans & advances including acceptances
Other external assets

52

63

-17%

52

56

-7%

External assets

18,992

17,698

7%

18,992

15,99319%

Deposits and other borrowings

15,791

15,0805%

15,791

14,408

10%

Other external liabilities

5,606

5,397

4%

5,606

5,100

10%

External liabilities

21,397

20,477

4%

21,397

19,508

10%

Ratios
Net interest average margin

4.00%

4.01%

-0%

4.00%

4.05%

-1%

Return on assets

1.68%

1.67%

1%

1.67%

1.72%

-3%

Return on risk weighted assets

1.95%

1.97%

-1%

1.96%

2.09%

-6%

Operating expenses to operating income

31.9%

32.1%

-1%

32.0%

31.9%

0%

Operating expenses to average assets

1.26%

1.26%

-

1.26%

1.29%

-2%

(23)

(20)

15%

(43)

(63)

-32%

0.25%

0.24%

4%

0.24%

0.43%

-44%

51

42

21%

51

77

-34%

Net specific provisions
Net specific provision as a % of average net advances
Net non-accrual loans
Net non-accrual loans as a % of net advances

0.27%

0.24%

13%

0.27%

0.48%

-44%

Total employees

1,671

1,635

2%

1,671

1,596

5%

42

BUSINESS PERFORMANCE REVIEW (continued)
Corporate Australia
Graham Hodges
2004 result

Profit after tax increased by 11%. Significant influences on the result were:
Net interest income increased 11% driven largely by growth in both average lending (21%) and average deposits(13%).
The strong growth in average lending (Corporate Banking +17%, Business Banking +27%) and average deposit(Corporate Banking +13%, Business Banking +13%) volumes resulted from increased activity with existingcustomers and new customer acquisition. Key factors in achieving growth were our very competitive customer
service proposition, expansion of our geographic footprint and success in specialised business segments.
Net interest margins reduced by 5 basis points. Margins in both Corporate and Business Banking declined
primarily due to changes in product mix reflecting a combination of faster growth in lending than deposits in
Business Banking and also higher growth rates in lower margin products in both businesses. Underlying productmargins remained relatively stable, albeit slightly down.
Other external operating income increased 8%, driven by higher lending and bill fees from growth in businessvolumes.
Net inter-business unit fees, which represents net payments made to the branch network, were 7% higher withincreased commissions paid on Small Business Banking deposits, increased investment in the branch network andincreased transaction volumes associated with customer growth.
Operating expenses increased 11% as a result of business growth. Personnel costs accounted for the largest partof this increase with annual salary increases and the investment in around 70 new frontline staff. Non-lending
losses increased from a low base in 2003. Cost to income ratio remained low at 32.0%.
Provision for doubtful debts has increased $4 million (7%). Credit quality in both the Business Banking andCorporate segments remains sound with the portfolio quality reviewed regularly to detect any early adverse
trends.
Net specific provisions, at $43 million, are down 32%. Provision levels in 2003 were inflated by charges against
two large corporate customer exposures. The reduction in net non-accrual loans has predominantly been driven
by the successful management of the non-accrual loan portfolio.
Comparison with March 2004 half

Profit after tax increased 5%, with growth in Corporate Banking of 7% and Business Banking of 6%. Net interest
income increased 4% from growth in both average lending and average deposit volumes (8% and 5% respectively).
Net interest margins remained flat for the half. Net specific provisions increased slightly to remain low relative to thesize of the asset book. The net interest margin position for the second half was consistent with that for the full year refer above for further discussion.
Operating costs increased by 4% driven by a 2% increase in staff numbers. Non-lending losses also increased withhigher levels of internet phishing and cheque fraud in the half. Cost to income ratio remained low at 31.9%.
Provision for doubtful debts increased by 11% in the half reflecting growth in lending volumes.

43

BUSINESS PERFORMANCE REVIEW (continued)
Esanda and UDC
Elizabeth Proust
Provides vehicle and equipment finance and rental services.
Operates in Australia as Esanda and Esanda FleetPartners and in
New Zealand as UDC and Esanda FleetPartners

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Net interest income

182

179

2%

361

350

3%

Other external operating income

56

48

17%

104

86

21%

Net inter business unit fees

(5)

(5)

-

(10)

(8)

25%

Operating income

233

222

5%

455

428

6%

External operating expenses

(83)

(75)

11%

(158)

(155)

2%

Net inter business unit expenses

(14)

(14)

-

(28)

(24)

17%

Operating expenses

(97)

(89)

9%

(186)

(179)

4%

Profit before debt provision

136

133

2%

269

249

8%

Provision for doubtful debts

(34)

(33)

3%

(67)

(63)

6%

Profit before income tax

102

100

2%

202

186

9%

Income tax expense and outside equity interests

(28)

(31)

-10%

(59)

(57)

4%

Net profit attributable to members of the Company

74

69

7%

143

129

11%

41.6%

40.1%

4%

40.9%

41.8%

-2%

Net specific provisions

(23)

(24)

-4%

(47)

(72)

-35%

Net non-accrual loans

37

59

-37%

37

49

-24%

1,292

1,247

4%

1,292

1,311

-1%

Operating expenses to operating income

Total employees

2004 result

Profit after tax increased by 11%. Significant influences on the result were:
Net interest income grew by 3% with an 8% increase in lending volumes reflecting continued strong new businesswritings. This was partly offset by a 12 basis point decline in margins brought about by the run off of higher
yielding loans during the year and increasing new business from better credit quality, high growth segments thatare lower margin.
Other operating income increased by 21% due primarily to changes in the fee structure for business lending, feeson higher new business writings and increased fees from value-added fleet management services.
External operating expenses increased by 2% as a result of annual salary increases and increased indirect taxes,
partly offset by back office efficiency gains. Internal charges increased 17% reflecting growth in the business andincreasing compliance costs. The continued control of expenses and growth in income has resulted in the cost to
income ratio falling to 40.9% from 41.8% in 2003.
Provision for doubtful debts increased by 6% driven by an 8% increase in lending volumes. Net specific provisions
were $25 million lower than last year, reflecting the $20 million write-down associated with residual value losses
on aircraft in the 2003 year and continued improvement in the underlying credit quality of the loan book.
Comparison with March 2004 half

Profit after tax grew by 7%. New business writings continued to be strong, which flowed through to a 4% increase inboth lending volumes and a 17% improvement in other operating income. Operating expenses increased by 9% as aresult of higher staff numbers, the impact of the 4% Enterprise bargaining agreement in July and increased indirect
taxes. Provision for doubtful debts were slightly higher than last half as a result of growth in the Lending bookhowever net specific provisions declined by 4% reflecting the overall improvement in credit quality.

44

BUSINESS PERFORMANCE REVIEW (continued)
Asia Pacific
Elmer Funke Kupper
Provision of primarily retail banking services in the Pacific Region andAsia, including ANZ’s share of PT Panin Bank in Indonesia; thisbusiness unit excludes Institutional and Corporate transactions
included in the geographic results for Asia Pacific which are included in
Institutional results

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Net interest income

78

72

8%

150

140

7%

Other external operating income

73

72

1%

145

149

-3%

Net inter business unit fees

-

-

n/a

-

-

n/a

Operating income

151

144

5%

295

289

2%

External operating expenses

(56)

(53)

6%

(109)

(111)

-2%

Net inter business unit expenses

(15)

(14)

7%

(29)

(31)

-6%

Operating expenses

(71)

(67)

6%

(138)

(142)

-3%

Profit before debt provision

80

77

4%

157

147

7%

Provision for doubtful debts

(12)

(11)

9%

(23)

(19)

21%

Profit before income tax

68

66

3%

134

128

5%

Income tax expense and outside equity interests

(8)

(15)

-47%

(23)

(28)

-18%

Net profit attributable to members of the Company

60

51

18%

111

100

11%

47.0%

46.5%

1%

46.8%

49.1%

-5%

Operating expenses to operating income
Net specific provisions

(7)

(7)

0%

(14)

(1)

large

Net non-accrual loans

17

17

0%

17

17

0%

1,711

1,632

5%

1,711

1,624

5%

Total employees

2004 result

Profit after tax increased by 11%. Excluding the impact of exchange rate movements, profit increased 15%.
Significant influences on the result, excluding exchange rate movements, were:
Net interest income increased 16% as external assets increased 18%. Lending volumes in Fiji increased 13% due
to continued economic growth, particularly in the tourism industry. Net interest income increased 76% in theIndonesian Cards business reflecting strong volume growth.
Other operating income increased 3% with fee income increasing 20% driven by a 16% increase in loan volumes
and higher transaction volumes in the Indonesian Cards business. Foreign exchange earnings increased 4%,
however these were offset by lower profits from PT Panin Bank predominantly as a result of a $16 million reduction
in bond sales, partly offset by an $11 million withholding tax credit in 2004.
Operating expenses increased 5% as capability building in Quest continued to increase the level of support to the
Pacific operations.
Credit quality remains sound with the provision for doubtful debts increasing due to growth in credit card volumes
in Indonesia. The increase in net specific provision results from a number of recoveries and provision
reassessments in 2003.
Income tax expense decreased $5 million largely due to a tax credit, arising from the repayment of foreign
currency loans upon the exercise of options in PT Panin.
Comparison with March 2004 half

Profit after tax increased 18%. Excluding the impact of exchange rates profit increased by 16%. Operating income
increased 2% driven by net interest income increasing 6% on a 8% increase in lending volumes, offset by a decline of$12 million in equity accounted profit from PT Panin due to one-off withholding tax credit in the previous half.
Operating expenses decreased 1% as previous half accounted for a one-off VAT catch up for PNG. Income tax
expense decreased $7 million mainly due to a tax credit, arising from the repayment of foreign currency loans upon
the exercise of options in PT Panin.

45

BUSINESS PERFORMANCE REVIEW (continued)
ING Australia
Paul Bedbrook
INGA, the joint venture between ANZ and ING Group, provides
integrated manufacture and distribution of wealth creation,
management and protection products and services aligned to ANZ
distribution and the open market

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Funds management income

237

206

15%

443

392

13%

Risk income

101

80

26%

181

158

15%

338

286

18%

624

550

13%

Costs (excl goodwill on purchase of ANZ business)

(251)

(198)

27%

(449)

(403)

11%

87

88

-1%

175

147

19%

Capital investment earnings
Net income

99

65

52%

164

85

93%

186

153

22%

339

232

46%

Income tax expense

(30)

(27)

11%

(57)

(29)

97%

Profit after tax

156

126

24%

282

203

39%

76

62

23%

138

99

39%

ANZ share
ANZ share of INGA earnings @ 49%
ANZ capital hedges

(7)

(6)

17%

(13)

(6)

large

Net funding cost

(8)

(9)

-11%

(17)

(11)

55%

Net return to ANZ 1

61

47

30%

108

82

32%

1.

Notional Goodwill amortisation of $19 million (Mar 04: $22 million; Sep 03: $22 million) is reported in the Group Centre. Lower amortisation reflects goodwill
reduction of $25 million from finalisation of completion accounts

2004 result

Profit after tax increased by 39%. Significant influences on the result were:Funds management income increased 13%, driven by strong investment markets. INGA maintained its number 4
position in Retail Funds under Management as measured by ASSIRT, with total net inflows in the top 10.
Risk income increased by 15% with increased sales of life insurance products through the ANZ network andcontinued favourable claims experience being the major contributors.
Capital investment earnings increased by 93% due to strong investment markets, with the first half of 2003
impacted by the global uncertainty at that time. ANZ continues to partially hedge against volatility in this income
stream; as a result, gains in capital investment earnings were partially offset by hedge losses.
Costs increased 11% due to insourcing of investment management services, the costs of which were previouslyclassified in net income. In addition, increased investment was made in product systems and process
improvements - the majority of these costs are non-recurring.
Tax expense increased due to the increased capital investment earnings and operating profit.
Comparison with March 2004 half

Profit after tax increased 24%. Funds management income increased by 15% due to strong investment markets andhigher Funds under Management. Life risk income increased driven by favourable claims experience and increased
insurance sales. Costs increased by 27% due to the insourcing of investment management services, increased
investment in product systems and process improvements, and restructuring expense. Capital investment earnings
have increased over the March 2004 half with higher fixed interest and equity returns. These gains were partly offset
by losses on ANZ’s hedges. Tax expense increased due to the higher operating profit and capital investment
earnings.

46

BUSINESS PERFORMANCE REVIEW (continued)
Group Centre
Group People Capital♦ Group Strategic Development
Group Risk Management ♦ Group Financial Management♦ Treasury♦ Operations, Technology andShared Services
♦
♦

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

113

152

(8)
-

Operating income

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

-26%

265

292

-9%

(10)

-20%

(18)

32

large

(5)

-100%

(5)

-

n/a

105

137

-23%

242

324

-25%

External operating expenses

(500)

(461)

8%

(961)

(809)

19%

Net inter business unit expenses

334

324

3%

658

652

1%

Operating expenses

Net interest income
Other external operating income
Net inter business unit fees

(166)

(137)

21%

(303)

(157)

93%

Profit before debt provision

(61)

-

n/a

(61)

167

large

Provision for doubtful debts

(21)

(21)

-

(42)

(106)

-60%

Profit before incom e tax

(82)

(21)

large

(103)

61

large

Income tax expense and outside equity interests

(15)

(31)

-52%

(46)

(41)

12%

Net profit attributable to members of the Com pany

(97)

(52)

87%

(149)

20

large

19

45

-58%

64

95

-33%

4,232

4,100

3%

4,232

4,077

4%

Including:Treasury
T otal employees

2004 result

The result for the Group Centre was a loss of $149 million compared with a profit of $20 million in 2003. Significant
influences on the result were:
The level of the Group’s surplus capital reduced as a result of the acquisition of NBNZ partly offset by growth inretained earnings and further de-risking of offshore credit portfolios.
Income in 2003 benefited from $71 million earnings on an interest rate swap that hedged the distributions to
TrUEPrS investors.
The combined effect of the replacement of TrUEPrS with StEPS is a reduction in net profit after tax of $35 million
or 1% or reported profit.
The strengthening of the AUD over the year resulted in gains on contracts put in place to hedge NZD and USD
denominated offshore earnings.
Group Treasury mismatch profit reduced $31 million following an extended period of low and flat interest rates as
higher yielding investments matured.
Settlement of the INGA warranties enabled the release of provisions held against potential claims; this was largely
offset by a provision for loss on the proposed sale of ANZ’s Sydney headquarters in Martin Place.
Goodwill amortisation increased $128 million largely as a result of the NBNZ acquisition - all goodwill amortisation
is booked in the Group Centre. Other external operating expenses increased as a result of a higher technology
spend, and additional spend on compliance requirements including: Basel II, GST, International AccountingStandards and the US Sarbanes Oxley legislation.
Provision for doubtful debts reduced $64 million. De-risking of the offshore lending portfolio and reduced defaults
have allowed a reduction in the charge that was taken in the last two years. This charge is based on uncertainty inoffshore portfolios.
Comparison with March 2004 half

The half year loss of $97 million compared with a loss of $52 million in the March 2004 half. Revenue reduced 23%
as a result of lower earnings on surplus capital following the acquisition of NBNZ and lower mismatch earnings inTreasury ($18 million). Operating costs increased largely as a result of an additional $21 million goodwill amortisationon the NBNZ acquisition.

47

This page has been left blank intentionally48

GEOGRAPHIC SEGMENT PERFORMANCE
Geographic performance
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Australia

984

New Zealand

268

Asia Pacific

99

Other

68

Movt
Sep 04v. Sep 03
%

1,000

-2%

1,984

1,699

17%

227

18%

495

348

42%

92

8%

191

184

4%

77

-12%

145

117

24%

1,419

1,396

2%

2,815

2,348

20%

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Australia

970

916

6%

1,886

1,699

11%
46%

Net profit attributable to shareholders of the company

Excluding significant items

Net profit attributable to shareholders of the company

New Zealand

282

227

24%

509

348

Asia Pacific

99

92

8%

191

184

4%

Other

68

77

-12%

145

117

24%

1,419

1,312

8%

2,731

2,348

16%

Other

Total

Full year 2004

Australia

New
Zealand 1

Asia Pacific

Personal

802

350

87

-

1,239

Institutional

520

123

53

77

773

Corporate

344

217

49

-

610

Esanda and UDC

106

37

-

-

143

ING Australia

108

-

-

-

108

Group Centre

104

(232)

2

68

(58)

1,984

495

191

145

2,815

Net profit after income tax

Full year 2003

Australia

New
Zealand2 Asia Pacific

Other

Total

Net profit after income tax
Personal

693

172

74

-

939

Institutional

526

113

54

79

772

Corporate

311

39

56

-

406

Esanda and UDC

93

36

-

-

129

ING Australia

82

-

-

-

82

Group Centre

(6)

(12)

-

38

20

1,699

348

184

117

2,348

1.
2.

The results of NBNZ are for the 10 months since acquisition
The results in New Zealand in 2003 exclude the operations on NBNZ which was acquired on 1 December 2003.

49

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
Australia

Net interest income

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

1,749

1,701

3%

3,450

3,211

7%

Fee income

862

818

5%

1,680

1,497

12%

Other operating income

293

357

-18%

650

486

34%

Operating income

2,904

2,876

1%

5,780

5,194

11%

Operating expenses(1,305)(1,246)

5%(2,551)(2,352)

8%

Profit before debt provision

1,599

1,630

-2%

3,229

2,842

14%

Provision for doubtful debts

(224)

(220)

2%

(444)

(471)

-6%

Income tax expense

(392)

(410)

-4%

(802)

(672)

19%

Outside equity interest

1

-

n/a

1

-

n/a

984

1,000

-2%

1,984

1,699

17%

Net interest average margin

2.43%

2.54%

-4%

2.48%

2.71%

-8%

Return on risk weighted assets

1.56%

1.65%

-5%

1.61%

1.54%

5%

Operating expenses1 to operating income

44.8%

43.2%

4%

44.0%

45.1%

-2%

Operating expenses1 to average assets

1.54%

1.58%

-3%

1.56%

1.64%

-5%

Net specific provision

(196)

(165)

19%

(361)

(324)

11%

Net specific provision as a % of average net advances

0.27%

0.24%

13%

0.26%

0.27%

-4%

213

275

-23%

213

256

-17%

Net non-accrual loans as a % of net advances

0.14%

0.19%

-26%

0.14%

0.19%

-26%

Total employees

16,815

16,411

2%

16,815

16,4003%

Lending growth

6.2%

7.2%

-14%

13.8%

14.8%

-7%

External assets

170,455

161,5426%

170,455

151,538

12%

Risk weighted assets

129,764

122,9826%

129,764

117,018

11%

Net profit attributable to members of the Company

Net non-accrual loans

1.

This excludes goodwill amortisation of $8 million (full year 2003: $8 million; Sep 2004 half: $4 million; Mar 2004 half: $4 million)

2004 result

Profit after tax increased by 17%. Significant influences on the result were:
Net interest income increased by 7% as higher lending volumes offset a decline in net interest margin of 23 basis
points including a $72 million reduction from Capital Markets where a lower proportion of revenue was booked asinterest. The growth in net interest income was mainly due to Corporate Banking ($60 million), Mortgages($32 million) and Consumer Finance ($26 million).
Fee income increased by 12%. Lending fee income increased 4% driven by Corporate Banking ($14 million) andPersonal Banking ($11 million) on higher lending volumes. Non lending fees increased 13% driven by Cards andMerchant Services with the $38 million under accrual of loyalty points that reduced income in 2003, reduced
loyalty costs and increased merchant revenues, and by Trade and Transaction Services from increased
international payments revenue.
Other operating income increased largely as a result of the TrUEPrS swap income, and in Capital Markets where a$72 million increase was offset by an increased cost of funding cash flows booked in net interest. This was partly
offset by a reduction in Institutional Banking where $27 million profit on the final sale of development properties
was booked in 2003.
Operating expenses increased by 8% mainly due to higher personnel expenses ($112 million) from annual salary
increases and increased staff numbers, an increase in computer expenses ($56 million) with the rollout of the new
telling platform and increased premises costs ($20 million) from investment in the branch network.
Provision for doubtful debts decreased by 6% reflecting the stable credit quality of the portfolio and the de-riskingof the offshore portfolios allowing a reduction in the charge taken in prior periods. Net specific provisions
increased $37 million as a result of an $87 million provision on Reach exposure.
Excluding the Australian component of significant items ($98 million profit in 2004) profit increased by 12%.
Comparison with March 2004 half

Profit after tax decreased 2%. Net interest income increased 3% due to higher lending volumes offset by 11 basis
point margin contraction. Fee income increased 5% mainly due to a $12 million increase in Cards and MerchantServices. Operating expenses increased 5% mainly due to a $30 million increase in personnel costs.
Excluding the Australian component of significant items, ($84 million profit in March half and $14 million in Septemberhalf) profit increased by 6%.
50

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
New Zealand
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Net interest income

771

600

29%

1,371

675

large

Fee income

277

230

20%

507

314

61%

Other operating income

70

61

15%

131

80

64%

Operating income

1,118

891

25%

2,009

1,069

88%

Operating expenses

(640)

(488)

31%

(1,128)

(519)

large

Profit before debt provision

478

403

19%

881

550

60%

Provision for doubtful debts

(63)

(55)

15%

(118)

(55)

large

Income tax expense

(147)

(119)

24%

(266)

(147)

81%

-

(2)

-100%

(2)

-

n/a

268

227

18%

495

348

42%

2.49%

2.52%

-1%

2.50%

2.92%

-14%
-41%

Outside equity interests
Net profit attributable to members of the Company
Net interest average margin
Return on risk weighted assets

1.11%

1.22%

-9%

1.15%

1.94%

Operating expenses1 to operating income

50.4%

48.4%

4%

49.4%

48.0%

3%

Operating expenses1 to average assets

1.66%

1.59%

4%

1.63%

2.03%

-20%

(25)

(19)

32%

(44)

(28)

57%

0.09%

0.09%

0%

0.09%

0.14%

-36%
large

Net specific provision
Net specific provision as a % of average net advances
Net non-accrual loans

47

41

15%

47

13

Net non-accrual loans as a % of net advances

0.08%

0.08%

0%

0.08%

0.06%

33%

Total employees

8,816

8,596

3%

8,816

3,822

large

Lending growth (including FX impact)

10.7%

162.4%-93%

180.3%

7.7%

large

Lending growth (excluding FX impact)

3.2%

163.3%-98%

162.4%

6.3%

large

External assets

69,801

67,921

3%

69,801

25,696large

Risk weighted assets

49,863

46,9006%

49,86318,605large

1.

This excludes goodwill amortisation of $135 million (full year 2003: $6 million; Sep 2004 half: $77 million; Mar 2004 half: $58 million)

The following table represents the New Zealand geography in local currency (NZD).
Half
year
Sep 04
NZ$M

Half
year
Mar 04
NZ$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
NZ$M

Full
year
Sep 03
NZ$M

Movt
Sep 04v. Sep 03%

large

Net interest income

859

684

26%

1,543

752

Fee income

308

263

17%

571

350

63%

Other operating income

78

69

13%

147

89

65%

Operating income

1,245

1,016

23%

2,261

1,191

90%

Operating expenses

(713)

(557)

28%

(1,270)

(578)

large

Profit before debt provision

532

459

16%

991

613

62%

Provision for doubtful debts

(71)

(62)

15%

(133)

(61)

large

Income tax expense

(163)

(136)

20%

(299)

(164)

82%

Outside equity interests

-

(2)

-100%

(2)

-

n/a

298

259

15%

557

388

44%

External assets

74,68777,885-4%

74,687

29,373large

Risk weighted assets

53,35353,781-1%

53,353

21,267large

Net profit attributable to members of the Company

51

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
New Zealand, cont’d
National Bank of New Zealand (NBNZ)

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Personal

74

48

54%

122

-

n/a

Rural

33

21

57%

54

-

n/a

Business Banking

50

28

79%

78

-

n/a

Corporate and Commercial

60

38

58%

98

-

n/a

Financial Markets

8

7

14%

15

-

n/a

-

8

-100%

8

225

150

50%

375

NBNZ

Infrastructure

n/a
-

n/a

2004 result

NBNZ contributed $375 million profit (excluding goodwill amortisation, incremental integration costs and employee
share plan costs) in the ten months since acquisition on 1 December 2003 (refer page 29 for comparison withproforma results published in the rights issue prospectus).
- The National Bank has experienced 8% annualised growth in lending volumes since 1 December 2003 withstrong growth in the residential housing market and in rural lending partly offset by institutional repayments.
Retail deposits have grown 3% since acquisition.
- Other operating income for the 10 months reflects a slightly lower trend than prior to acquisition, with lower fee
income from the corporate and capital markets businesses and certain structured finance transactions.
- Operating expenses were well contained with continued focus on integration activities.
- Economic loss provisioning methodologies have been implemented in NBNZ with a $62 million charge in the tenmonths to 30 September 2004 representing an annualised charge of 0.23% of net lending assets.
Comparison with the four months to 31 March 2004

NBNZ contributed $225 million in the six months to 30 September 2004 compared with $150 million in the fourmonths to 31 March 2004. After adjusting for the additional two months in the second half, NBNZ profit was flat.
Net interest income increased 6% driven by 4% lending growth, particularly home and rural lending and 4%
deposit growth. Reduced asset margins have been largely offset by increased deposit margins. Other income, in
NZD terms, was 5% lower reflecting reduced Financial Markets earnings. Costs increased 7% primarily inpersonnel and other staff-related costs, in particular, as a result of the annual salary increases for award staff on
1 April 2004. This was partly offset by a lower ELP charge following a detailed post acquisition review of ELP
factors.
Acquisition and funding costs

The National Bank of New Zealand was purchased by ANZ Banking Group (New Zealand) Limited on 1 December
2003. The acquisition was internally funded by three main sources: $1.0 billion ordinary shares, $1.3 billion
redeemable preference shares and $2.6 billion intra-group interest bearing debt. The pre-tax cost of this funding was$140 million for the ten months ($58 million in the four months to 31 March 2004).
The purchase price of $5,112 million differed from the $4,940 million published in the prospectus due to exchange
rate movements, the impact of hedging and reduced acquisition costs. The resulting goodwill of $3,266 million is
being amortised in accordance with Australian Accounting Standards over 20 years with a charge of $129 million in
the ten months since acquisition ($54 million in the four months to 31 March 2004).
Integration costs

Incremental integration costs of $22 million after tax have been incurred by New Zealand. Of this, $14 million wasincremental to the Group. Non-incremental integration costs are $14 million after tax, of which $2 million after tax isin NBNZ. Following integration these resources will be allocated to other projects. Further details on integration areprovided on page 28 of the results commentary.

52

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
New Zealand, cont’d
ANZ New Zealand results
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

ANZ NZ Banking

77

68

13%

145

141

3%

ANZ Mortgages

17

15

13%

32

36

-11%

ANZ NZ businesses

ANZ Consumer Finance

23

20

15%

43

34

26%

Institutional

56

55

2%

111

113

-2%

UDC

19

18

6%

37

36

3%

Group Treasury, other and integration costs

5

(1)

large

4

(13)

large

197

175

13%

372

347

7%

2004 result

Profit after tax increased 7% in ANZ New Zealand, or 9% after allowing for the negative impact of a weaker New
Zealand Dollar. Profit growth was driven mainly by the retail businesses with deposit margins widening as interest
rates rose. There was a lower contribution from Institutional with lower lending volumes and higher repayments.
This result also includes $12 million (post tax) of non-incremental integration costs. Following completion of
integration, these resources will be dedicated to other Group projects. Key influences on the result include:- Net interest income increased 7% with lending volumes increasing 3% driven by growth in Mortgages (5%) andBusiness and Rural (5%). Deposit volumes increased 5%, assisted by strong growth in Trade and Transaction
Services. The result was also assisted by a reduction in the cost of term funding.
Reduced asset margins, including a 5 basis point reduction in mortgage margins as a result of a reduction in
spread between the cash rate and 90 day funding rates, have been offset by increased deposit margins.
- Other operating income reduced 4% with volume related lending fee growth in Consumer Finance (10%) andCorporate (12%) offset by reduced revenue in Institutional with lower trading revenue in Financial Markets,
reduced activity in the private equity business, and run off of certain structured financing activities.
- Operating expenses were flat with annual salary increases, an increased number of frontline staff, and anincreased spend on brand image and sales training being offset by cost savings in support areas.
- Credit quality remains sound with economic loss provisions well in excess of net specific provisions.

Comparison with March 2004 half
Profit after tax at $197 million was up 13% on the March 2004 half, or 10% after allowing for the favourable
impact of a stronger New Zealand dollar in the second half. The strong profit growth was driven by the retailbusinesses with strong volume growth and margins particularly from retail deposits offset by lower contributions
from institutional businesses due to lower lending volumes, transactional activity and higher repayments. This
result has been driven by revenue growth and cost containment. Revenue increased 3% with growth in Consumer
Finance (4%), ANZ New Zealand Banking (7%), and Trade and Transaction Services (9%). Revenue inInstitutional was flat while Treasury revenues reduced as a result of the rising rate environment. The revenue
result was also assisted by the reduced cost of term funding, and benefits from capital growth in the second half
(impact of paying dividends annually). Costs in NZD were 3% lower, with savings in support areas more thanoffsetting the cost of investment in initiatives.

53

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
New Zealand, cont’d
ANZ New Zealand results

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

77

68

13%

145

142

2%

NZ Business
ANZ NZ Banking
ANZ Mortgages

17

15

13%

32

36

-11%

ANZ Consumer Finance

23

20

15%

43

34

26%

NBNZ

225

150

50%

375

-

n/a

(6)

(5)

20%

(11)

-

n/a

336

248

35%

584

212

large

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

NZ Business

336

248

35%

584

212

large

Other previous ANZ NZ business

80

72

11%

152

136

12%

Acquisition and funding

(134)

(93)

44%

(227)

-

n/a

Incremental integration costs

(14)

-

n/a

(14)

-

n/a

268

227

18%

495

348

42%

Integration costs and otherTotal NZ Geography

54

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
Asia Pacific
Half
year
Sep 04
$M

Half
year
Mar 04$M

Net interest income

115

Fee income

59

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

109

6%

224

220

2%

51

16%

110

106

4%

Other operating income

70

80

-13%

150

161

-7%

Operating income

244

240

2%

484

487

-1%

Operating expenses

(107)

(102)

5%

(209)

(217)

-4%

Profit before debt provision

137

138

-1%

275

270

2%

Provision for doubtful debts

(16)

(18)

-11%

(34)

(35)

-3%

Income tax expense

(20)

(27)

-26%

(47)

(49)

-4%

Outside equity interests

(2)

(1)

100%

(3)

(2)

50%

Net profit attributable to members of the Company

8%

191

184

4%

99

92

1

43.0%

42.1%

2%

42.6%

43.7%

-3%

Net specific provision

(9)

(10)

-10%

(19)

(8)

large

22

24

-8%

22

31

-29%

2,221

2,131

4%

2,221

2,096

6%

Operating expenses to operating income

Net non-accrual loans
Total employees
1.

This excludes goodwill amortisation of $3 million (full year 2003: $4 million; Sep 2004 half: $2 million; Mar 2004 half: $1 million)

2004 result

Profit after tax increased 4% despite the impact of an appreciation in the AUD. Excluding the impact of exchange rate
movements, profit increased by 11% as a result of:
Net interest income increased 14% driven by continued growth in the Indonesian Cards business, increased
mortgage lending by Personal Banking in Singapore and a 13% increase in Fiji lending volumes as economic
conditions, particularly in the tourism industry, continued to improve.
Fee income increased 16%, driven by the growth in Indonesian Cards business, and growth in lending fees in Fijiwith the draw-down of several large corporate deals. The Trade Finance focus on trade flows between Australia
and Asia also contributed to this improvement.
Other operating income reduced 18% as a result of a $12 million reduction in equity-accounted profit fromPT Panin. This was partially offset by a withholding tax credit in PT Panin in the current year, a $2 million
contribution from the newly-acquired stake in Metrobank Card Corporation in Philippines, increased foreignexchange earnings and a $2 million gain on surplus property sales in Fiji, Vanuatu and Papua New Guinea.
Operating expenses increased by 6% as the Institutional business invested in frontline staff in Asia, capacity wasbuilt in Quest to support the centralisation of regional operations in Fiji and promotional spend was increased in
the Indonesian Cards business. These cost increases were partially offset by lower technology expenditure due tothe rationalisation of non-core projects.
Provision for doubtful debts increased by 15%, largely due to the growth in the volume of Cards business. The
overall quality of the Asian corporate loan book continues to improve, reflecting a much more focused approach to
the regional Asian strategy.
Comparison with March 2004 half

Profit after tax increased 8% including a 3% benefit from exchange rate movements. Revenue was stable withincreased lending fees in Fiji and growth in Cards and Trade Finance businesses offsetting the reduction in equityaccounted profits from PT Panin. Operating expenses increased 5% due to the investment in front line resources andincreased marketing activity by Indonesian Cards. Income tax expense decreased by $7 million largely due to a tax
credit, arising from the repayment of foreign currency loans upon the exercise of options in PT Panin, an overprovision of regional tax in prior periods and a one off tax credit, for the current period, in Fiji.

55

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
Other
Half
year
Sep 04$M

Net interest income

110

Movt
Half
Sep 04year
Mar 04 v. Mar 04
$M
%

99

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

11%

209

205

2%

Fee income

62

62

0%

124

131

-5%

Other operating income

15

24

-38%

39

33

18%

Operating income

187

185

1%

372

369

1%

Operating expenses

(72)

(66)

9%

(138)

(140)

-1%

Profit before debt provision

115

119

-3%

234

229

2%

Provision for doubtful debts

(16)

(20)

-20%

(36)

(53)

-32%

Income tax expense

(31)

(22)

41%

(53)

(58)

-9%

-

-

n/a

-

(1)

-100%

68

77

-12%

145

117

24%

38.5%

35.7%

8%

37.1%

37.9%

-2%

Outside equity interests
Net profit attributable to members of the Company
Operating expenses to operating income
Net specific provision

(17)

(2)

large

(19)

(162)

-88%

Net non-accrual loans

169

177

-5%

169

223

-24%

Total employees

903

833

8%

903

821

10%

2004 result

Profit after tax increased by 24%. Excluding the impact of exchange rates profit increased by 42%. Significant
influences on the result excluding the impact of exchange rates were:
Net interest income increased 18% driven by an additional $49 million of interest earnings in the UK on increased
capital levels associated with funding of the acquisition of NBNZ. This increase was partly offset by a reduction in
Corporate and Structured Financing in the UK and US, reflecting the strategy to de-risk offshore portfolios and areduction in Treasury mismatch earnings with the run-off of higher yielding assets following an extended period of
low and flat USD and GBP interest rates.
Fee income increased 9% with increases in non-lending fees in Corporate and Structured Finance and Institutional
Banking in the UK partly offset by a reduction in lending fee income reflecting the impact of the de-risking strategy
on lending volumes and the push for non-lending income.
Other operating income increased by 15% mainly due to a $12 million increase in foreign exchange earnings in the
UK driven by higher customer demand.
Operating expenses increased 8% driven by a 14% increase in personnel expenses (which constituteapproximately 75% of expenses) with an additional 67 technology staff and an additional $8 million funding for the
UK defined benefit pension plan.
Provision for doubtful debts decreased 17% reflecting the reduction in lending volumes, particularly the US and UK
Power and Telecommunications sectors. Net specific provisions decreased 86% due to a reduction in large
provisions required against the remaining US and UK Power and Telecommunications exposures.
Comparison with March 2004 half

Profit after tax decreased 12%. After adjusting for the impact of exchange rate movements, profit decreased 18%. A
2% increase in net interest income with an additional $11 million contribution from the capital earnings relating to the
NBNZ acquisition was offset by a 4% decrease in fee income and a $4 million decrease in foreign exchange earnings.
Operating expenses increased 3% with an increased number of technology staff in India. Provision for doubtful debts
decreased 22% as a result of the strategy to de-risk offshore portfolios. Income tax expense increased $9 million
from the March half which included the release of a $7 million tax provision relating to prior year tax expense in the
US.

56

FIVE YEAR SUMMARY

2004
$M

2003
$M

2002
$M

2001
$M

2000
$M

Net interest income

5,254

4,311

4,018

3,833

3,801

Other operating income

3,391

2,808

2,970

2,573

3,790

Operating expense(4,300)Statement of Financial Performance(4,026)(3,228)(2,905)(3,092)

Provision for doubtful debts

(632)

(614)

(860)

(531)

(502)

Profit before income tax

3,987

3,277

3,223

2,783

2,789

Income tax expense(1,168)

(926)

(898)

(911)

(1,040)

(4)

(3)

(3)

(2)

(2)

2,815

2,348

2,322

1,870

1,747

259,345

195,591

183,105

185,493

172,467

17,925

13,787

11,465

10,551

9,807

18.1%

20.6%

23.2%

20.2%

19.3%

1.2%

1.2%

1.3%

1.1%

1.1%

Outside equity interest
Net profit attributable
to members of the Company
Statement of Financial Position
AssetsNet assets
RatiosReturn on average ordinary equity 1
Return on average assets
Tier 1 capital ratio
Operating expenses 2 to operating income

6.9%

7.7%

7.9%

7.5%

7.4%

45.3%

45.1%

46.0%

48.0%

56.5%

17.0%

6.7%

15.3%

26.2%

36.3%

S hareholder value - ordinary shares
Total return to shareholders(share price movement plus dividends)
Market capitalisation

34,58627,31426,54423,78320,002101 cents

95 cents

85 cents

73 cents

64 cents- interim

100%

100%

100%

100%

100%

- final

100%

100%

100%

100%

100%

- high

$19.44$18.45$19.70$16.71$12.87- low$15.94$15.01$15.23$12.63$9.18- closing$19.02$17.17$16.88$15.28$12.70Ear nings per share - basic 3

153.1c142.4c141.4c112.7c102.5cDividend payout ratio

67.5%

64.2%

57.8%

62.0%

59.1%

Net tangible assets

$7.51

$7.49

$6.58

$5.96

$5.49

1,818.4

1,521.7

1,503.9

1,488.3

1,506.2

Permanent employees (FTE's)

27,383

21,586

21,38021,403

21,774

Temporary employees (FTE's)

1,372

1,551

1,102

1,098

1,360

28,755

23,13722,48222,501

23,134

Dividend
Fra nked portion

Share price 3

Sh are information (per fully paid
ordinary share)

Nu mber of fully paid ordinary shareson issue (m illions)
Other information

Total employees
Point of representation
Number of shareholders 4
1.
2.
3.
4.

1,190

1,019

1,018

1,056

1,087

257,072

223,545

198,716

181,667

179,8 29

Average ordinary shareholders’ equity excludes outside equity interests
Operating expenses $3,859 million (2003: $3,210 million; 2002: $3,133 million; 2001: $3,075 million; 2000: $4,288 million) excludes goodwill amortisation of$146 million (2003: $18 million; 2002: $20 million; 2001: $17 million; 2000: $12 million) and significant items in 2004 and 2002.
Prior periods adjusted for the bonus element of the rights issue
Excludes employees whose only ANZ shares are held in trust under ANZ employee share schemes

57This page has been left blank intentionally58

Australia and New Zealand Banking Group Limited

CONSOLIDATED FINANCIAL STATEMENTS AND OTHER DISCLOSURES

Full year ended
30 September 2004

59

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

PAGE

Consolidated Statement of Financial Performance

61

Consolidated Statement of Financial Position

62

Statement of Changes in Equity

63

Consolidated Statement of Cash Flows

64

Notes to the Financial Statements

65

1.

Accounting policies

65

2.

Income66

3.

Operating Expenses

67

4.

Income tax expense

68

5.

Dividends

69

6.

Earnings per share

70

7.

Net loans and advances

71

8.

Impaired assets

72

9.

Provision for doubtful debts

75

10. Loan capital76

11. Share Capital76

12. Capital adequacy

77

13. Average Balance Sheet and related interest

79

14. Interest spreads and net interest average margins

82

15. Derivative financial instruments

83

16. Contingent liabilities and contingent assets

85

17. Note to the Statement of Cash Flows87

18. Changes in composition of the Group89

19. Associates, joint venture entities and investments

89

20. US GAAP reconciliation90

21. Exchange rates

91

22. Significant events since balance date91

Appendix 4E Statement

92

Definitions

93

Alphabetical Index

95

60

CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE

Note

Total income

2

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

9,282

8,226

13%

17,50813,02334%
38%

Interest income

7,574

6,543

16%

14,117

10,215Interest expense(4,829)(4,034)20%(8,863)(5,904)50%

Net interest income

2,745

2,509

9%

5,254

4,311

22%

1,708

1,683

1%

3,391

2,808

21%

4,453

4,192

6%

8,645

7,119

21%

(2,124)(1,902)

12%(4,026)(3,228)

25%

2,329

2,290

2%

4,619

3,891

19%

(319)

(313)

2%

(632)

(614)

3%

2,010

1,977

2%

3,987

3,277

22%
26%

Other operating income

2

Operating income
Operating expenses

3

Profit before debt provision
Provision for doubtful debts

9

Profit before income tax
Income tax expense

4

Profit after income tax

(590)

(578)

2%

(1,168)

(926)

1,420

1,399

2%

2,819

2,351

20%

(1)

(3)

-67%

(4)

(3)

33%

1,419

1,396

2%

2,815

2,348

20%

487

(254)

large

233

(356)

large

487

(254)

large

233

(356)

large

1,906

1,142

67%

3,048

1,992

53%

Net profit attributable to outside equity interest
Net profit attributable
to shareholders of the Company

Currency translation adjustments, net of hedges after tax
Total adjustments attributable to shareholdersof the company recognised directly into equity
Total changes in equity other than those resulting
from transactions with shareholders as owners
Earnings per ordinary share (cents)
Basic

6

DilutedDividend per ordinary share (cents)

5

Net tangible assets per ordinary share ($)

76.4

76.8

-1%

153.1

142.4

8%

74.4

75.3

-1%

149.7

141.7

6%

54

47

15%

101

95

6%

7.51

6.94

8%

7.51

7.49

0%

The notes appearing on pages 65 to 91 form an integral part of these financial statements

Equity instruments issued to employees
Under existing Australian Accounting Standards, certain equity instruments issued to employees are not required to
be expensed. The impact of expensing options, and shares issued under the $1,000 employee share plan, has been
calculated and is disclosed below.

Net profit attributable to shareholders of the Company

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

1,419

1,396

2%

2,815

2,348

20%

(4)

(4)

0%

(8)

(8)

0%

(11)

(12)

-8%

(23)

(24)

-4%

-

(22)

-100%

(22)

(18)

22%

1,404

1,358

3%

2,762

2,298

20%

Expenses attributable to:
Options issued to Group Heads1
Options issued to general management

1

Shares issued under $1,000 employee share plan
Total
1.

Based on fair values estimated at grant date in accordance with the fair value measurement provisions of AASB 1046. Value of options amortised on a straightline basis over the vesting period.

61

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Note

As at
Sep 04As at
Mar 04As at
Sep 03$M

Movt
Sep 04v. Mar 04%

Movt
Sep 04v. Sep 03
%

$M

$M

6,363

5,732

6,592

11%

-3%

AssetsLiquid assets
Due from other financial institutions

4,781

7,093

2,427

-33%

97%

Trading securities1

5,478

6,393

4,213

-14%

30%

Investment securities
Net loans and advances

7

Customer's liability for acceptances
Regulatory deposits

7,746

6,669

4,767

16%

62%

204,962

188,858

149,4659%37%

12,466

13,35813,178

-7%

-5%

176

107

101

64%

74%

Shares in associates and joint venture entities

1,960

1,905

1,814

3%

8%

Deferred tax assets

1,454

1,319

1,165

10%

25%

Goodwill2

3,269

3,202

160

2%

large

Other assets3, 4

9,158

11,117

10,224-18%-10%

Premises and equipment
Total assets

1,532

1,535

1,485

0%

3%

259,345

247,288

195,5915%

33%

Liabilities
Due to other financial institutions

7,349

7,143

6,467

3%

14%

Deposits and other borrowings

168,557

163,208

124,4943%

35%

Liability for acceptances

12,466

13,35813,178-7%-5%

Income tax liabilities

1,914

1,454

1,083

32%

77%

Payables and other liabilities4

14,212

15,918

13,611

-11%

4%

845

857

769

-1%

10%

27,602

21,245

16,572

30%

67%
51%

Provisions
Bonds and notes
Loan capital

8,475

7,357

5,630

15%

Total liabilities

241,420

230,540

181,804

5%

33%

Net assets

17,925

16,74813,7877%30%

Ordinary share capital

8,005

7,865

4,175

2%

92%

Preference share capital

987

987

2,212

0%

-55%

Reserves

579

106

180

large

large

8,336

7,773

7,203

7%

16%

17,907

16,731

13,770

7%

30%

18

17

17

6%

6%

17,925

16,74813,787

7%

30%

5

10

Shareholders' equity

Retained profits
Share capital and reserves attributable toshareholders of the Company
Outside equity interests
Total shareholders' equity

Derivative financial instruments

15

Contingent liabilities and contingent assets

16

1.
2.
3.
4.
5.

Includes bills held in portfolio $1,875 million (Mar 2004: $1,387 million; Sep 2003: $820 million) which are part of net advances
Excludes notional goodwill in equity accounted entities, mainly $754 million included in the net carrying value of INGA (Mar 2004: $799 million; Sep 2003:$821 million)
Includes interest revenue receivable $1,568 million (Mar 2004: $1,310 million; Sep 2003: $1,085 million)
Other assets includes life insurance assets of $65 million (Mar 2004: $52 million; Sep 2003: nil). Payables and other liabilities includes policy holder liabilities of$30 million (Mar 2004: $25 million; Sep 2003: nil)
Includes $1,535 million (Mar 2004: $1,450 million; 2003: nil) hybrid loan capital that qualifies for Tier 1 capital as defined by the Australian Prudential Regulation
Authority

The notes appearing on pages 65 to 91 form an integral part of these financial statements

62

STATEMENT OF CHANGES IN EQUITY

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

8,852

6,387

39%

6,387

5,314

20%

Rights issue

(10)

3,572

large

3,562

-

n/a

Dividend reinvestment plan1

70

65

8%

135

115

17%

Share capital
Balance at start of period
Ordinary sharesGroup employee share acquisition scheme

23

24

-4%

47

48

-2%

Group share option scheme

57

29

97%

86

73

18%

-100%

Preference shares
New preference share issues

-

-

n/a

-

987

Redemption of preference shares-(1,225)-100%(1,225)-n/aRetranslation of preference shares

-

-

n/a

-

(150)

-100%

8,992

8,852

2%

8,992

6,387

41%

(269)

(239)

13%

(239)

117

large

487

(254)

large

233

(356)

large

-

224

-100%

224

-

n/a

218

(269)

large

218

(239)

large

Total share capital
Foreign currency translation reserve
Balance at start of period
Currency translation adjustments
net of hedges after tax
Transfer from general reserve

General reserve
Balance at start of period

195

239

-18%

239

237

1%

-

180

-100%

180

-

n/a

TrUEPrs preference share gain on buy backTransfer (to) from retained profits/FCTR

(14)

(224)

-94%

(238)

2

large

181

195

-7%

181

239

-24%

Asset revaluation reserve

31

31

0%

31

31

0%

Capital reserve

149

149

0%

149

149

0%

Total reserves

579

106

large

579

180

large

7,773

7,203

8%

7,203

5,600

29%

20%

Retained profits
Balance at start of period
Net profit attributable
to shareholders of the Company

1,419

1,396

2%

2,815

2,348

9,192

8,599

7%

10,018

7,948

26%

14

-

n/a

14

(2)

large

Ordinary share dividends provided for or paid

(836)

(762)

10%

(1,598)

(641)

large

Preference share dividends paid

(34)

(64)

-47%

(98)

(102)

-4%

8,336

7,773

7%

8,336

7,203

16%

17,907

16,731

7%

17,907

13,77030%

Total available for appropriation
Transfers from (to) reserves

Retained profits at end of period
Total shareholders' equity attributable toshareholders of the Company
1.

Ordinary shares are also issued under the ANZ Bonus Option Plan

The notes appearing on pages 65 to 91 form an integral part of these financial statements

63

CONSOLIDATED STATEMENT OF CASH FLOWSCash flows from operating activities

Note

Interest received
Dividends received

Half

Half

Full

Full

year

year

year

year

Sep 04

Mar 04

Sep 04

Sep 03

Inflows

Inflows

Inflows

Inflows(Outflows)(Outflows)(Outflows)(Outflows)

$M

$M

$M

$M

7,783

6,732

14,515

10,8872

1

3

7Fees and other income received

2,022

1,235

3,257

3,170

Interest paid

(4,529)(3,729)(8,258)(5,724)

Personnel expenses paid

(1,120)(990)(2,110)(1,848)Premises expenses paid

(156)

(156)

(312)

(279)

(1,141)(952)(2,093)(1,952)Other operating expenses paid
Income taxes paid
Australia

(50)

79

29

(1,146)

Overseas

(164)

(112)

(276)

(166)

Net GST paid

(8)

(11)

(19)

1

1,070

(556)

514

1,669

3,709

1,541

5,250

4,619

Net (increase) decrease in trading securities
Net cash provided by operating activities

17

Cash flows from investing activities
Net decrease(increase)
Liquid assets - greater than three months

(7)

(318)

(325)

1,113

1,151

(629)

522

(44)

Regulatory deposits

(63)

(13)

(76)

52

Loans and advances(12,201)(10,556)(22,757)(19,944)

(14)

(21)

(35)

(2)

Purchases(3,382)(4,178)(7,560)(3,871)

Proceeds from sale or maturity

2,495

2,355

4,850

2,445

68

(3,292)(3,224)

-

(155)

(145)

(300)

(368)

23

30

53

51

593

1,142

1,735

1,401

(11,492)(15,625)(27,117)(19,167)

Due from other financial institutions

Shares in controlled entities and associates
Investment securities

Controlled entities and associates
Purchased (net of cash acquired)
Premises and equipment
Purchases
Proceeds from sale
Other
Net cash (used in) investing activities
Cash flows from financing activities
Net (decrease)increase
Due to other financial institutions(1,257)

985

(272)

(2,946)

Deposits and other borrowings

3,167

8,049

11,21613,995

Payables and other liabilities

(431)

(630)

(1,061)

1,000

Bonds and notes
Issue proceeds

6,550

7,631

14,181

8,255

Redemptions(2,408)(1,692)(4,100)(4,095)

685

2,009

2,694

3,380

-

(368)

(368)

(437)

-

(1)

(1)

(1)

(800)

(761)

(1,561)(1,322)

Loan capital
Issue proceeds
Redemptions
Decrease in outside equity interests
Dividends paid

70

3,625

3,695

120

StEPs preference share issue

Share capital issues

-

-

-

1,000

StEPs issues costs

-

-

-

(13)

Preference share buyback-(1,045)(1,045)-

5,576

17,802

23,37818,936

Net cash provided by financing activities
Net cash provided by operating activities

3,709

1,541

5,250

4,619

(11,492)(15,625)(27,117)(19,167)

Net cash provided by financing activities

5,576

17,802

23,37818,936

Net (decrease)increase in cash and cash equivalents(2,207)

3,718

1,511

4,388

Cash and cash equivalents at beginning of period

8,454

7,315

7,315

7,925

1,607

(2,579)(972)(4,998)

7,854

8,454

7,854

7,315

Net cash (used in) investing activities

Foreign currency translation on opening balances
Cash and cash equivalents at end of period

17

The notes appearing on pages 65 to 91 form an integral part of these financial statements

64

NOTES TO THE FINANCIAL STATEMENTS
1.

Accounting policies

These consolidated financial statements:
should be read in conjunction with any public announcements made by the Parent Entity and its controlled entities(the Group) for the year ended 30 September 2004 in accordance with the continuous disclosure obligations under
the Corporations Act 2001.
are made out in accordance with the Corporations Act 2001, ASX listing rules, applicable Accounting Standards,
Urgent Issues Group Concensus Views and other mandatory reporting requirements.
do not include all notes of the type normally included in the annual financial report.
have been prepared in accordance with the historical cost convention, as modified by the revaluation of trading
instruments and the deemed cost of properties.
Where necessary, amounts shown for previous periods have been reclassified to facilitate comparison.
The accounting policies followed in preparing these consolidated financial statements are the same as those to be
applied in the 30 September 2004 Annual and Financial Reports. The accounting policies are consistent with those of
the previous financial year.
Details of critical accounting policies are shown on pages 30 to 32.

65

NOTES TO THE FINANCIAL STATEMENTS (continued)
2.

IncomeNet interest income
Half

Half

Movt

Full

Full

Movt

year

year

Sep 04year

year

Sep 04

Sep 04

Mar 04v. Mar 04

Sep 04

Sep 03v.Sep 03

$M

$M

%

$M

$M

%

Interest income

7,574

6,543

16%

14,117

10,21538%

Interest expense(4,829)(4,034)20%(8,863)(5,904)50%

Net interest income

2,745

2,509

9%

5,254

4,311

22%

Lending

506

496

2%

1,002

933

7%

Other

754

665

13%

1,419

1,115

27%

1,260

1,161

9%

2,421

2,048

18%

Foreign exchange earnings

213

198

8%

411

348

18%

Profit on trading instruments

71

80

-11%

151

110

37%

-

108

-100%

108

-

n/a

-

2

-100%

2

71

-97%

Other Operating Income
Fee income

Total fee income
Other income

Net profit before tax from the close out of the
TrUEPrs swap1
Hedge of TrUEPrS cash flows
INGA completion account profit1

14

-

n/a

14

-

n/a

Share of joint venture: Profit from INGA joint venture

57

40

43%

97

55

76%

Share of associates profit (net of writeoffs)

21

27

-22%

48

51

-6%

Other

72

67

7%

139

125

11%

448

522

-14%

970

760

28%

Total other operating income

1,708

1,683

1%

3,391

2,808

21%

Total income

9,282

8,226

13%

17,50813,023

34%

Profit before income tax as a % of total income

21.7%

24.0%

-10%

22.8%

25.2%

-10%

Total other income

1.

Significant transaction, refer page 12Interest spread and net interest average margin (%)
Gross interest spread

2.02

2.14

n/a

2.08

2.28

n/a

Interest forgone on impaired assets(0.02)(0.03)

n/a(0.02)(0.03)

n/a

Net interest spread

2.00

2.11

n/a

2.06

2.25

n/a

Interest attributable to net non-interest bearing items

0.45

0.42

n/a

0.43

0.42

n/a

Net interest average margin

2.45

2.53

n/a

2.49

2.67

n/a

225,220

199,086

13%

212,153

162,154

31%

Average interest earning assets ($M)

66

NOTES TO THE FINANCIAL STATEMENTS (continued)
3.

Operating Expenses
Half
year
Sep 04
$M

Half
Movt
year
Sep 04
Mar 04 v. Mar 04
%
$M

Full
year
Sep 04
$M

Full
Movt
year
Sep 04
Sep 03 v. Sep 03%$M

Personnel
Pension fund

76

69

10%

145

109

33%

Employee entitlements & taxes

73

71

3%

144

122

18%

Salaries and wages

747

684

9%

1,431

1,177

22%

Other

223

188

19%

411

342

20%

1,119

1,012

11%

2,131

1,750

22%

-19%

Total personnel expenses
Premises
Amortisation & depreciation

13

12

8%

25

31

Rent

101

96

5%

197

154

28%

Utilities and other outgoings

59

50

18%

109

88

24%

Other
Total premises expenses

13

9

44%

22

22

0%

186

167

11%

353

295

20%

15

10

50%

25

18

39%
36%

ComputerComputer contractors
Data communications

41

42

-2%

83

61

Depreciation and amortisation

123

117

5%

240

183

31%

Rentals and repairs

27

32

-16%

59

70

-16%

Software purchased

46

55

-16%

101

103

-2%

Other

27

18

50%

45

30

50%

279

274

2%

553

465

19%

Advertising and public relations

73

57

28%

130

91

43%

Amortisation of goodwill

83

63

32%

146

18

large

Audit fees

2

2

0%

4

3

33%

Depreciation of furniture and equipment

25

19

32%

44

33

33%

Freight and cartage

21

20

5%

41

35

17%

Loss on disposal of premises and equipment

5

1

large

6

7

-14%

Total computer expenses
Other

Non-lending losses, frauds and forgeries

25

24

4%

49

48

2%

Postage & stationery

61

50

22%

111

92

21%

Professional fees

63

50

26%

113

102

11%

Telephone

29

28

4%

57

49

16%

Travel

56

44

27%

100

78

28%

Other

68

60

13%

128

102

25%

Total other expenses

511

418

22%

929

658

41%

Restructuring

29

31

-6%

60

60

0%

Operating expenses

2,124

1,902

12%

4,026

3,228

25%

Employees (FTE) - Permanent

27,383

26,585

3%

27,383

21,58627%

Employees (FTE) - Temporary

1,372

1,386

-1%

1,372

1,551

-12%

Total employees

28,75527,971

3%

28,755

23,137

24%

67

NOTES TO THE FINANCIAL STATEMENTS (continued)
4.

Income tax expense

Operating profit before income tax
Prima facie income tax at 30%

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

2,010

1,977

2%

3,987

3,277

22%

603

593

2%

1,196

983

22%

Tax effect of permanent differences
Overseas tax rate differential

11

9

22%

20

15

33%

Rebateable and non-assessable dividends

(10)

(10)

0%

(20)

(16)

25%

Other non-assessable income

(17)

(15)

13%

(32)

(31)

3%

Profit from associated entities and joint venture entities

(23)

(20)

15%

(43)

(32)

34%

Life insurance accounting

(2)

(2)

0%

(4)

-

n/a

Goodwill amortisation

27

19

42%

46

5

large

Other

2

5

-60%

7

5

40%

591

579

2%

1,170

929

26%

(1)

(1)

0%

(2)

(3)

-33%

Total income tax expense on profit

590

578

2%

1,168

926

26%

Australia

392

410

-4%

802

672

19%

Overseas

198

168

18%

366

254

44%

590

578

2%

1,168

926

26%

29.4%

29.2%

1%

29.3%

28.3%

4%

Income tax (over) under provided in prior years

Effective tax rate

68

NOTES TO THE FINANCIAL STATEMENTS (continued)
5.

Dividends
Halfyear
Sep 04
$M

Half
Movt
year
Sep 04
Mar 04 v. Mar 04
%
$M

Full
year
Sep 04
$M

Full
Movt
year
Sep 04
Sep 03 v. Sep 03%$M

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

n/a

47

n/a

47

44

7%

Final (fully franked)

54

n/a

n/a

54

51

6%

Ordinary share dividend1, 2Interim dividend paid

850

-

n/a

850

666

28%

Final dividend paid

-

777

-100%

777

-

n/a

Bonus option plan adjustment

3

Total
Ordinary share dividend payout ratio (%)4
1.
2.
3.
4.

(14)

(15)

-7%

(29)

(25)

16%

836

762

10%

1,598

641

large

71.0%

63.8%

11%

67.5%

64.2%

5%

Excludes preference share dividend
Change in accounting standard in 2003. Dividends no longer accrued and recorded when declared.
This relates to prior period and interim dividend payment
Dividend payout ratio calculated using proposed full year dividend of $983 million not included in the above table. Dividend payout ratio for March 2004 calculatedusing $850 million dividends paid in the September 2004 half. Dividend payout ratio for September 2003 calculated using $777 million dividends paid in the
March 2004 half

Half
year
Sep 04
$M

Half
Movt
year
Sep 04
Mar 04 v. Mar 04
%
$M

Full
year
Sep 04
$M

Full
Movt
year
Sep 04
Sep 03 v. Sep 03%$M

Preference share dividend
TrUEPrS1

1

ANZ StEPS

35

-97%

36

102

-65%

33

29

14%

62

-

n/a

34

64

-47%

98

102

-4%

0

20.7

-100%

20.7

50.2

-59%

$3.46

$2.94

18%

$6.40

$0.00

n/a

Dividend per preference share
TrUEPrS (USD cents)
ANZ StEPS (AUD)1.

The 2004 dividend on TrUEPrS is included in significant items. Refer page 12. The $1 million impact in the September half results from the retranslation of the
TrUEPrS dividend at the closing exchange rate.

69

NOTES TO THE FINANCIAL STATEMENTS (continued)
6.

Earnings per share

Number of fully paid ordinary shares on issue ($)

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

1,818.4

1,808.2

1%

1,818.4

1,521.7

19%

1,419

1,396

2%

2,815

2,348

20%

34

64

-47%

98

102

-4%

1,385

1,332

4%

2,717

2,246

21%

Basic
Net profit attributable to members of the Company1 ($M)
Preference Share dividends
Net profit excluding preference share dividends

Weighted average number of ordinary shares prior to rights issue (M)1,813.9

1,521.8

19%

1,521.8

1,514.2

1%

Weighted average number of ordinary shares issued post rights issue (M)

-

4.7

-100%

10.0

-

n/a

Weighted average number of ordinary shares issued under rights issue (M)

-

187.1

-100%

232.0

-

n/a

1,813.9

1,713.6

6%

1,763.8

1,514.2

16%

Discount factor based on Theoretical Rights2-

0.9866

0.99330.9597

Adjustment for the impact of rights issue (M)

-

20.7

10.3

63.6

1,813.9

1,734.3

1,774.1

1,577.8

76.4

76.8

-1%

153.1

142.4

8%

1,411

1,350

5%

2,761

2,246

23%

1,813.9

1,734.3

5%

1,774.1

1,577.8

12%

5.4

6.6

-18%

6.2

7.2

-14%

Weighted average number of shares prior to dilution for rights issue (M)Adjusted weighted average number of shares (M)Basic earnings per share (cents)3

DilutedNet profit attributable to members of the company excluding interest
on Hybrid securities4 ($M)

Adjusted weighted average number of shares on issue (M)Weighted average number of Options outstanding (M)Weighted average number of convertible US Hybrid securities
at current market price4 (M)

76.1

52.2

46%

64.5

-

n/a

1,895.4

1,793.1

6%

1,844.8

1,585.0

16%

74.4

75.3

-1%

149.7

141.7

6%

1,385

1,332

4%

2,717

2,246

21%

-

(84)

-100%

(84)

-

n/a

1

35

-97%

36

-

n/a

Earnings excluding significant items

1,386

1,283

8%

2,669

2,246

19%

Earnings per share (cents) excluding significant items

76.4

74.0

3%

150.4

142.4

6%

Net profit attributable to members of the Company1 ($M)

1,385

1,332

4%

2,717

2,246

21%

-

(84)

-100%

(84)

-

n/a

1

35

-97%

36

-

n/a

29

31

-6%

60

62

-3%

Adjusted weighted average number of shares - diluted (M)Diluted earnings per share (cents)

Adjusted Basic
Net profit attributable to members of the company1 ($M)
Significant items - included in profit after tax5
- preference dividend5 for TrUEPrS

Significant items - included in profit after tax- preference dividend5 for TrUEPrS
Goodwill amortisation (excluding NBNZ)6
Goodwill amortisation - NBNZ
Earnings excluding significant items and goodwill amortisation

75

54

39%

129

-

n/a

1,490

1,368

9%

2,858

2,308

24%

82.1

78.9

4%

161.1

146.3

10%

Earnings per share (cents) excluding significant items
and goodwill amortisation3
1.
2.
3.
4.
5.
6.

Adjusted for preference share dividend
Refer page 20 for calculation details
Discounted for rights issue
Interest expense on US Hybrid securities was $37 million (Mar 2004: $26 million). Share price $20.07 at 30 September 2004. Refer Note 10 for details on US
HybridRefer page 12 for an explanation
Includes INGA notional goodwill amortisation

70

NOTES TO THE FINANCIAL STATEMENTS (continued)
7.

Net loans and advances
As at
Sep 04As at
Mar 04As at
Sep 03$M

Movt
Sep 04v. Mar 04%

Movt
Sep 04v. Sep 03
%

$M

$M

71,49967,74562,482

6%

14%

49,21744,186

41,133

11%

20%

9,760

9,178

8,740

6%

12%

Australia
Term loans - housing3
Term loans - non housing

1

Lease finance / hire purchase
Overdrafts

4,390

4,149

3,915

6%

12%

Credit cards outstanding

4,523

4,348

4,265

4%

6%

Other

1,091

1,018

785

7%

39%

140,480

130,624

121,3208%

16%

31,51928,243

10,551

12%large

New ZealandTerm loans - housing
Term loans - non housing

22,472

20,143

7,425

12%

large

Lease finance / hire purchase

1,010

872

866

16%

17%

Overdrafts

1,604

1,540

611

4%

large

Credit cards outstanding

1,032

983

491

5%

large

584

827

985

-29%

-41%

58,22152,60820,929

11%

large

1

Other

Overseas markets
Term loans - housing
Term loans - non housing1

464

385

361

21%

29%

8,730

7,986

8,984

9%

-3%

Lease finance / hire purchase

111

87

239

28%

-54%

Overdrafts

558

554

740

1%

-25%

Credit cards outstanding

128

117

134

9%

-4%

Other

122

109

80

12%

53%

10,113

9,238

10,5389%-4%208,814

192,470

152,7878%

37%

Total gross loans and advances

2, 3

Less:
Provision for doubtful debts(2,376)(2,247)(2,018)

6%

18%

Income yet to mature(1,476)(1,365)(1,304)8%

13%

204,962

188,858

149,465

9%37%

Total net loans and advances2, 3
1.
2.
3.

Includes Equity Loans which are reported in Mortgages
Bills held in portfolio, $1,875 million (Mar 2004: $1,387 million; Sep 2003: $820 million) are included in trading securities
Securitised mortgages outstanding $2,272 million(Mar 2004: $1,066 million; Sep 2003: $1,295 million) not included in net loans and advances

71

NOTES TO THE FINANCIAL STATEMENTS (continued)
8.

Impaired assets
As at
Sep 04As at
Mar 04As at
Sep 03

$M

$M

829

931

$M

Movt
Sep 04v. Mar 04%

Movt
Sep 04v. Sep 03
%

1,007

-11%

-18%

Summary of impaired assets
Non-accrual loans
Restructured loans

32

-

-

n/a

n/a

Unproductive facilities

29

44

39

-34%

-26%

Gross impaired assets

890

975

1,046

-9%

-15%

Less specific provisions:Non-accrual loans

(378)

(414)

(482)

-9%

-22%

Unproductive facilities

(6)

(5)

(2)

20%

large

Net impaired assets

506

556

562

-9%

-10%

Non-accrual loans
Non-accrual loans

829

931

1,007

-11%

-18%

Specific provisions

(378)

(414)

(482)

-9%

-22%

Total net non-accrual loans

451

517

525

-13%

-14%

Australia

422

516

522

-18%

-19%

New Zealand

115

109

22

6%

large

Before specific provisions

Overseas markets

292

306

463

-5%

-37%

Total non-accrual loans

829

931

1,007

-11%

-18%

213

275

256

-23%

-17%

After specific provisions
Australia
New Zealand

47

41

13

15%

large

Overseas markets

191

201

256

-5%

-25%

Total net non-accrual loans

451

517

525

-13%

-14%

Full
year
Sep 04
$M

Movt
Full
Sep 04year
Sep 03 v. Sep 03
$M
%

Half
year
Sep 04
$M

Movt
Half
Sep 04year
Mar 04 v. Mar 04$M%

New and increased non accrual loans
Australia

323

329

-2%

652

538

21%

New Zealand

101

73

38%

174

98

78%

Overseas markets

55

194

-72%

249

352

-29%

Total new non accrual loans

479

596

-20%

1,075

988

9%

72

NOTES TO THE FINANCIAL STATEMENTS (continued)
8.

Impaired Assets, cont’d

Further analysis on non-accrual loans at 30 September 2004 and interest and/or other income received during theperiod is as follows:

Gross balance
outstanding$M

Specific
Provision$M

Interest
and / orother income
received
$M

82

-

3

New Zealand

6

-

-

Overseas markets

27

-

7

115

-

10

Australia

338

208

3

New Zealand

109

69

1

Overseas markets

265

100

5

712

377

9

Australia

11-Overseas markets

1

-

-

2

1

-

Total non-accrual loans

829

378

19

Non-accrual loans
Without provisions
Australia

With provisions and no, or partial, performance1

With provisions and full performance1

Unproductive facilities

29

6

-

Total

858

384

19

1.

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

As at
Sep 04A s atM ar 04

As at
Sep 03

$M

$M

$M

M ovt
Sep 04v. M ar 04%

M ovt
Sep 04v. Sep 03%

U nproductive facilities
Au stralia
O verseas m arkets
G ross unproductive facilities

22

27

23

-19%

-4%

7

17

16

-59%

-56%

29

44

39

-34%

-26%

Specific provision
Australia

-

-

1

n/a

-100%

Overseas m arkets

6

5

1

20%

large

Specific provision

6

5

2

20%

large

23

39

37

-41%

-38%

N et unproductive facilities

The following amounts are not classified as impaired assets and therefore are not included within the summary on
page 72.
Movt
Sep 04v. Mar 04%

Movt
Sep 04v. Sep 03%

As at
Sep 04As at
Mar 04As at
Sep 03$M$M$M

Australia

188

170

175

11%

7%

New Zealand

77

65

18

18%

large

Accruing loans past due 90 days or more

Overseas markets

73

28

21

20

33%

40%

293

256

213

14%

38%

NOTES TO THE FINANCIAL STATEMENTS (continued)
8.

Impaired Assets, cont’dInterest and other income forgone on impaired assets

The following table shows the estimated amount of interest and other income forgone, net of interest recoveries, on
average impaired assets during the period.
Half
year
Sep 04
$M

Half
Movt
year
Sep 04
Mar 04 v. Mar 04
%
$M

Full
year
Sep 04
$M

Full
Movt
year
Sep 04
Sep 03 v. Sep 03%$M

Gross interest and other income receivable on non-accrualloans, restructured loans and unproductive facilities
Australia

12

17

-29%

29

36

-19%

New Zealand

4

4

0%

8

2

large

Overseas markets

11

14

-21%

25

31

-19%

27

35

-23%

62

69

-10%

Australia

(3)

(3)

0%

(6)

(10)

-40%

New Zealand

(1)

-

n/a

(1)

(1)

0%

Overseas markets

(4)

(8)

-50%

(12)

(12)

0%

(8)

(11)

-27%

(19)

(23)

-17%

Australia

9

14

-36%

23

26

-12%

New Zealand

3

4

-25%

7

1

large

Total gross interest and other income receivableon impaired assets
Interest and other income received

Total interest income and other income received
Net interest and other income forgone

Overseas markets
Total net interest and other income forgone

7

6

17%

13

19

-32%

19

24

-21%

43

46

-7%

In the event of customer default, any loan security is held as mortgagee in possession and therefore the Group does
not hold any other real estate owned assets.

74

NOTES TO THE FINANCIAL STATEMENTS (continued)
9.

Provision for doubtful debts

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

1,828

1,534

19%

1,534

1,496

3%

-

216

-100%

216

-

n/a

92

(39)

large

53

(49)

large

General provision
Balance at start of period
Acquisition of provisions
Adjustment for exchange rate fluctuations
Charge to statement of financial performance

319

313

2%

632

614

3%

Transfer to specific provision

(297)

(228)

30%

(525)

(588)

-11%

Recoveries
Total general provision

50

32

56%

82

61

34%

1,992

1,828

9%

1,992

1,534

30%

419

484

-13%

484

585

-17%

Specific provision
Balance at start of period
Acquisition of provisions

-

57

-100%

57

-

n/a

Adjustment for exchange rate fluctuations

9

(11)

large

(2)

(49)

-96%

Bad debts written off

(341)

(339)

1%

(680)

(640)

6%

Transfer from general provision

297

228

30%

525

588

-11%

Total specific provision

384

419

-8%

384

484

-21%

2,376

2,247

6%

2,376

2,018

18%

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Australia

247

212

17%

459

418

10%

New Zealand

40

40

0%

80

45

78%

Overseas markets

51

35

46%

86

212

-59%

338

287

18%

625

675

-7%

(41)

(59)

-31%

(100)

(87)

15%

297

228

30%

525

588

-11%

Total provisions for doubtful debts

Provision movement analysis
New and increased provisions

Provision releases

Recoveries of amounts previously written off

(50)

(32)

56%

(82)

(61)

34%

Net specific provisions

247

196

26%

443

527

-16%

Net credit to general provision

72

117

-38%

189

87

large

Charge to statement of financial performance

319

313

2%

632

614

3%

Movt
Sep 04v. Sep 03%

As at
Sep 04As at
Mar 04As at
Sep 03

$M

$M

$M

Movt
Sep 04v. Mar 04
%

209

243

267

-14%

-22%

68

68

9

0%

large

Dom estic m arkets

277

311

276

-11%

0%

Overseas m arkets

107

108

208

-1%

-49%

Total specific provision

384

419

484

-8%

-21%

General provision

1,992

1,828

1,534

9%

30%

Total provisions for doubtful debts

2,376

2,247

2,018

6%

18%

Specific provision balance
Australia
New Zealand

75

NOTES TO THE FINANCIAL STATEMENTS (continued)
10. Loan capital
Half
year
Sep 04
$M

Movt
Half
Sep 04year
Mar 04 v. Mar 04
$M
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

1,535

1,450

1,535

-

n/a

Hybrid loan capital
US stapled trust security issue1
Perpetual subordinated notes

6%

419

396

6%

419

442

-5%

Subordinated notes

6,521

5,511

18%

6,521

5,188

26%

Total Loan Capital

8,475

7,357

15%

8,475

5,630

51%

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. For discussion of major movements refer page 27

11. Share Capital
Issued and quoted securities

Number quoted

Issue price Amount paid
per share up per share

Ordinary shares
As at 30 September 2004

1,818,401,807

Issued during year
Rights Issue1

276,847,766

Other

19,867,481

Preference shares
As at 30 September 2004

1.

ANZ StEPS1

10,000,000

$100

$100

Bought back during year TrUEPrS1

124,032,000

US$6.25

US$6.25

Refer page 27

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

15.8%

16.7%

-5%

15.7%

17.1%

-8%

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

76

NOTES TO THE FINANCIAL STATEMENTS (continued)
12. Capital adequacy
Movt
Sep 04v. Mar 04%

Movt
Sep 04v. Sep 03%

13,787

7%

30%

-

6%

n/a

As at
Sep 04As at
Mar 04As at
Sep 03$M$M$M

Total shareholders' equity and outside equity interests

17,925

16,748H ybrid loan capital1

1,535

1,450

Qualifying capital
Tier 1

Less:

Asset revaluation reserve

(31)

(31)

(31)

0%

0%

Dividend

(983)

(850)

(777)

16%

27%

Accumulated retained profits and reserves of insurance,
funds management and securitisation entities
Unamortised goodwill and other intangibles2

(218)

(169)

(168)

29%

30%

(4,170)(4,096)(1,044)2%

large

Capitalised expenses3

(465)

-

-

n/a

n/a

Investment in AN Z Lenders Mortgage Insurance

(27)

(27)

(27)

0%

0%

13,566

13,025

11,740

4%

16%

31

31

31

0%

0%

Tier 1 capital
Tier 2
Asset revaluation reserve
Perpetual subordinated notes
General provision for doubtful debts

419

396

442

6%

-5%

1,342

1,232

1,029

9%

30%
19%

1,792

1,659

1,502

8%

Subordinated notes

6,052

5,198

4,563

16%

33%

Tier 2 capital

7,844

6,857

6,065

14%

29%

107

78

56

37%

91%

Deductions
Investment in funds management and securitisation entities
Investment in joint venture with INGA

708

708

708

0%

0%

Other

204

190

156

7%

31%

Total deductions

1,019

976

920

4%

11%

Total qualifying capital

20,391

18,906

16,8858%

21%

13,566

13,025

11,7404%

16%Adjusted common equity
Tier 1 capital
Less:

Preference share capital

2,535

2,450

2,141

3%

18%

Deductions

1,019

976

920

4%

11%

Ad justed common equity

10,012

9,599

8,679

4%

15%

6.9%

7.0%

7.7%

-1%

-10%

Ratios (%)
Tier 1
Tier 2Less:

Deductions

4.0%

3.7%

4.0%

8%

0%

10.9%

10.7%

11.7%

2%

-7%
-17%

(0.5%)(0.5%)(0.6%)

0%

To tal

10.4%

10.2%

11.1%

2%

-6%

Adjusted common equity

5.1%

5.2%

5.7%

-2%

-11%

196,664

186,157

152,164

6%

29%

Risk weighted assets
1.
2.
3.

Represents the US Stapled Trust Security Issue approved by APRA as qualifying for Tier 1 status. Refer Note 10
From 1 July 2003 the intangible component of investments is deducted from Tier 1 Capital, prior to this the deduction was from total capital
From 1 July 2004, APRA requires certain capitalised expenses to be deducted from Tier 1 Capital.

77

NOTES TO THE FINANCIAL STATEMENTS (continued)
12. Capital adequacy, cont’dAssetsRisk Weighted Assets

Sep
2004
$M

Sep
2003
$M

Sep
2004
$M

Sep
2003
$M

Zero risk weighted assets

24,467

19,817--

Claims on approved banks and local governments

12,593

8,350

2,519

1,670

Statement of financial position

Advances secured by mortgages eligible for 50% risk weighting

106,01376,71153,00738,355

Other assets - credit risk

113,218

88,042

113,218

88,042

Total statement of financial position assets - credit risk

256,291

192,920

168,744

128,067

Trading assets - market risk
Total statement of financial position assets

Notional Amount
Sep
2004
$M

3,054

2,671

n/a

n/a

259,345

195,591

168,744

128,067

Credit Equivalent

Risk Weighted Assets

Sep
2003
$M

Sep
2004
$M

Sep
2003
$M

Sep
2004
$M

Sep
2003
$M

Off-balance sheet exposures
Direct credit substitutes

10,262

9,771

10,262

9,771

8,173

8,115

Trade and performance related items

11,887

10,782

5,265

4,864

4,728

4,502

Commitments

78,91465,396

12,385

7,632

10,2397,422

Foreign exchange, interest rate and other market
related transactions
Total off balance sheet exposures - credit risk

672,500

516,773

11,692

11,469

3,790

3,387

773,563

602,722

39,60433,736

26,93023,426

195,674

151,493

Total risk weighted assets - credit risk
Risk weighted assets - market risk
Total risk weighted assets - credit risk

78

990

671

196,664

152,164

NOTES TO THE FINANCIAL STATEMENTS (continued)
13. Average Balance Sheet and related interest
Averages used in the following tables are predominantly daily averages. Interest income figures are presented on a
tax-equivalent basis. Non-accrual loans are included under the interest earning asset category, “loans, advances andbills discounted”. Intragroup interest earning assets and interest bearing liabilities are treated as external assets andliabilities for the geographic segments.

Full year Sep 04

Full year Sep 03

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

Interest earning assets
Due from other financial institutions
Australia

578

29

5.0%

432

21

4.9%

New Zealand

2,728

137

5.0%

582

23

4.0%

Overseas markets

2,322

43

1.9%

2,046

48

2.3%

Investments in public securities
Australia

7,231

389

5.4%

6,390

301

4.7%

New Zealand

3,038

150

4.9%

1,642

73

4.4%

Overseas markets

3,175

95

3.0%

1,870

78

4.2%

129,658

8,893

6.9%

110,260

7,263

6.6%

48,346

3,701

7.7%

20,365

1,637

8.0%

9,810

421

4.3%

12,213503

4.1%

Loans, advances and bills discounted
Australia
New ZealandOverseas markets
Other assets
Australia

1,524

127

8.3%

1,606

105

6.5%

New Zealand

1,808

36

2.0%

1,353

46

3.4%

Overseas markets

1,935

127

6.6%

3,395

140

4.1%

10,670

225

2.1%

9,858

200

2.0%

222,823

14,373172,012

10,438Intragroup assets
Overseas markets
Intragroup elimination(10,670)(225)

212,153

14,1486.7%(9,858)(200)

162,154

10,238Non-interest earning assets
Acceptances
Australia
Overseas markets
Premises and equipment
Other assets

13,39813,492

54

88

1,460

1,436

18,224

15,781(1,762)(1,838)

(481)

(211)

Provisions for doubtful debts
Australia
New ZealandOverseas markets

(66)

(75)

Average assets total

30,827
242,980

28,673
190,827

79

6.3%

NOTES TO THE FINANCIAL STATEMENTS (continued)
13. Average Balance Sheet and related interest, cont’d
F u ll y ea r S ep 0 4
A ve b al
In t
R ate
$M
$M
%
I n terest bearin g lia b ilities
Tim e deposits
A ustralia
N ew Zealand
O verseas m arkets
S avings deposits
A ustralia
N ew Zealand
O verseas m arkets
O ther dem and deposits
A ustralia
N ew Zealand
O verseas m arkets
D ue to other financial institutions
A ustralia
N ew Zealand
O verseas m arkets
C om m ercial paper
A ustralia
N ew Zealand
O verseas m arkets
B orrow ing corporations' debt
A ustralia
N ew Zealand
Loan capital, bonds and notes
A ustralia
N ew Zealand
O verseas m arkets
O ther liabilities 1
A ustralia
N ew Zealand
O verseas m arkets
Intragroup liabilities
A ustralia
N ew Zealand
Intragroup elim ination

N o n -interest b ea ring liab ilities
D eposits
A ustralia
N ew Zealand
O verseas m arkets
A cceptances
A ustralia
O verseas m arkets
O ther liabilities
A v erag e to tal lia bilities
1.

Fu ll year S ep 0 3
A v e ba l
Int
R a te$M$M%

3 0 ,8 3 9
2 0 ,9 1 0
1 2 ,7 7 2

1 ,5 8 9
1 ,1 3 8296

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

25 ,1 71
10 ,6 66
14 ,7 38

1,165
570
336

4.6%
5.3%
2.3%

1 3 ,0 1 7
6 ,4 6 3
386

352
212
3

2 .7 %
3 .3 %
0 .8 %

11 ,9 59
3 ,2 85
4 05

279
79
3

2.3%
2.4%
0.7%

2 9 ,7 3 7
6 ,4 2 8662

1 ,1 8 2256
94 .0 %
4 .0 %
1 .4 %

26 ,7 18
2 ,1 08
6 42

963
98
9

3.6%
4.6%
1.4%

1 ,4 5 2
1 ,6 0 8
3 ,7 3 685
7677

5 .9 %
4 .7 %
2 .1 %

9 57
6 31
6 ,4 46

49
23
111

5.1%
3.6%
1.7%

5 ,8 2 4
6 ,7 6 4
6 ,4 8 5

308
383
74

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

5 ,2 16
4 ,7 40

252
58

4.8%
0.0%
1.2%

7 ,0 9 2
1 ,9 2 5371
110

5 .2 %
5 .7 %

6 ,6 26
1 ,8 24

337
108

5.1%
5.9%

2 9 ,6 3 1
2 ,0 0 9
150

1 ,5 7 5121
3

5 .3 %
6 .0 %
2 .0 %

19 ,7 83
5 21
1 84

1,011
37
4

5.1%
7.1%
2.2%

4 ,2 3 2
40
82

543
83
17

n/a
n/a
n/a

2 ,7 14
96
33

292
97
23

n/a
n/a
n/a

5 ,6 4 4
5 ,0 2 6
2 0 2 ,9 1 4(1 0 ,6 7 0 )1 9 2 ,2 4 4(1 9 )
244
9 ,0 8 8(2 2 5 )8 ,8 6 3-0 .3 %
4 .9 %

7 ,9 26
1 ,9 32
155 ,3 21(9 ,8 58)
145 ,4 63

134
66
6,104
(200 )
5,904

1.7%
3.4%

3 ,9 5 8
2 ,6 1 9867
1 3 ,3 9 854
1 3 ,6 1 1
3 4 ,5 0 7
2 2 6 ,7 5 1

4 .6 %

3 ,6 56
1 ,1 59
6 83
13 ,4 92
88
14 ,1 13
33 ,1 91
178 ,6 54

Includes foreign exchange swap costs

80

4.1%

NOTES TO THE FINANCIAL STATEMENTS (continued)
13. Average Balance Sheet and related interest, cont’d
Half
year
Sep 04
$M

Half
year
Mar 04
$M

Full
year
Sep 04
$M

Full
year
Sep 03$M

Australia

168,841

157,048

162,944

142,491

New Zealand

67,96454,08961,02725,333

Overseas markets

29,53529,822

29,67932,861

Total average assets

less intragroup elimination(10,281)(11,059)(10,670)(9,858)

256,059

229,900

242,980

190,827

34.1%

31.7%

32.9%

25.3%
134,462% of total average assets attributable
to overseas activities
Total average liabilities
Australia

159,956

147,897

153,927

New Zealand

63,886

51,21657,55024,071

Overseas markets

25,47826,41025,94429,979less intragroup elimination(10,281)(11,059)(10,670)(9,858)239,039

214,464

226,751

178,654

16,033

13,96615,00010,929

987

1,470

1,229

1,244

17,02015,436

16,22912,173

256,059

229,900

242,980

190,827

35.1%

34.1%

34.6%

29.2%

Australia

144,305

133,679

138,991

118,688

New Zealand

63,016

48,82555,92023,942

Overseas markets

28,18027,641

27,912

29,382

Total average shareholders' equity
Ordinary share capitalPreference share capital
Total average liabilities andshareholders' equity% of total average liabilities attributable
to overseas activities
Average interest earning assets

less intragroup elimination81(10,281)(11,059)(10,670)(9,858)225,220

199,086

212,153

162,154NOTES TO THE FINANCIAL STATEMENTS (continued)
14. Interest spreads and net interest average margins
Intragroup interest earning assets and interest bearing liabilities are treated as external assets and liabilities for thegeographic segments.
Half
year
Sep 04%Halfyear
Mar 04%

Full
year
Sep 04%

Full
year
Sep 03%Australia

6.83

6.74

6.79

6.48

New Zealand

7.33

7.03

7.20

7.43

Overseas markets

3.32

3.21

3.27

3.30

Total Group

6.74

6.59

6.67

6.31

Gross interest spread

2.06

2.16

2.11

2.31

Interest forgone on impaired assets(0.01)(0.02)(0.02)(0.02)Net interest spread

2.05

2.14

2.09

2.29

Interest attributable to net non-interest bearing items

0.38

0.40

0.39

0.41

Net interest average margin - Australia

2.43

2.54

2.48

2.70

1

Gross earnings rate

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

Australia

New ZealandGross interest spread

2.05

2.12

2.08

2.30

Interest forgone on impaired assets(0.01)(0.01)(0.01)(0.00)Net interest spread

2.04

2.11

2.07

2.30

Interest attributable to net non-interest bearing items

0.45

0.41

0.43

0.62

Net interest average margin - New Zealand

2.49

2.52

2.50

2.92

Gross interest spread

1.32

1.36

1.34

1.37

Interest forgone on impaired assets(0.04)(0.05)(0.04)(0.07)Net interest spread

1.28

1.31

1.30

1.30

Overseas markets

Interest attributable to net non-interest bearing items

0.32

0.19

0.25

0.15

Net interest average margin - Overseas markets

1.60

1.50

1.55

1.45

Group
Gross interest spread

2.02

2.14

2.08

2.28

Interest forgone on impaired assets(0.02)(0.03)(0.02)(0.03)Net interest spread

2.00

2.11

2.06

2.25

Interest attributable to net non-interest bearing items

0.45

0.42

0.43

0.42

Net interest average margin

2.45

2.53

2.49

2.67

1.

Average interest rate received on interest earning assets

82

NOTES TO THE FINANCIAL STATEMENTS (continued)
15. 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 agreements, futures, options and combinations of these instruments. The
use of derivatives 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 of its asset and liability management activities. Derivatives are subject to the same types of credit andmarket risk as other financial instruments, and the Group manages these risks in a consistent manner.
The following table provides an overview of the Group’s exchange rate and interest rate derivatives. It includes all
contracts, both trading and other than trading.
30 September 2004
Notional

CreditPrincipal

Equivalent

Amount$M

30 September 2003
Notional

CreditFair

Principal

Equivalent

Fair

AmountValue

AmountAmount

Value

$M

$M

$M

$M

$M

Foreign exchange and commodities contracts
Spot and forward contracts

183,825

3,216(1,411)

144,687

3,717

(683)

Swap agreements4

51,437

3,095

(25)

42,528

3,124

(121)

Futures contracts1

251

n/a

2

353

n/a

-

Options purchased

13,288398

224

10,971

433

395

Options sold2

18,852n/a(226)

15,889n/a(451)

Other contracts

2,686

436

115

3,818

408

112

270,339

7,145(1,321)

218,246

7,682

(748)

Interest rate agreements
Forward rate agreements

39,5729

547,617

10

11

Swap agreements

321,585

3,682

424

236,083

3,232

487

Futures contracts1

38,270n/a

413,458n/a

3

Options purchased

12,810111

64

11,961

117

61

Options sold2

15,214n/a(35)

13,987n/a(23)

427,451

3,802

462

323,106

3,359

539

11,743

3,381

31

8,520

2,836

73

709,533

14,328(828)

549,872

13,877(136)

Credit contracts
Credit default swaps3

1.
2.
3.
4.

Credit equivalent amounts have not been included as there is minimal credit risk associated with the exchange traded futures, where the clearing house is thecounterparty
Options sold have no credit exposures as they represent obligations rather than assets
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 750 million (Sep 2003:USD 750 million)
The fair value of foreign exchange swap agreements has been reduced by $519 million in respect of cash collateral received under credit support agreements

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 theaggregate value of all contracts in a positive market position plus an allowance for the potential increase in value over
the remaining term of the transaction. Fair value is the net position of contracts with positive market values andnegative market values.

83NOTES TO THE FINANCIAL STATEMENTS (continued)
15. Derivative financial instruments, cont’d
Hedging

In addition to customer and trading activities, the Group uses, interalia, derivatives to manage the risk associatedwith its balance sheet and future revenue streams. Revenue related hedges are separately listed in the table below.
The table below shows the notional principal amount, credit equivalent amount and fair value of derivatives held by
the Group, split between those entered into for customer-related and trading purposes and those entered into forother than trading purposes.

30 September 2004

External

Notional

CreditPrincipal

Equivalent

Amount$M

30 September 2003
Notional

CreditFair

Principal

Equivalent

Fair

AmountValue

AmountAmount

Value

$M

$M

$M

$M

$M

Foreign exchange and commodities contracts
Customer-related and trading purposes

210,8144,511

94

179,609

5,795

1,019

Balance sheet hedging purposes

56,0392,585(1,371)37,3601,784(1,857)

Revenue related hedging

3,486

49

(44)

1,277

103

90

270,339

7,145(1,321)

218,246

7,682

(748)

Customer-related and trading purposes

340,108

3,163

166

268,930

2,931

365

Balance sheet hedging purposes

87,343639

296

54,176428

174

427,451

3,802

462

323,106

3,359

539

Interest rate contracts

Credit derivatives
Customer-related and trading purposes

8,775

745

(5)

5,298

427

(1)

Balance sheet hedging purposes

2,968

2,636

36

3,222

2,409

74

Total

11,743

3,381

31

8,520

2,836

73

709,533

14,328(828)

549,872

13,877(136)

84

NOTES TO THE FINANCIAL STATEMENTS (continued)
16. Contingent liabilities and contingent assets
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.
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 anticipated that payments would be likely under the warranties or indemnities, madeprovisions 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 remains liable in relation to theForeign Exchange Regulation Act and differential cheques matters described below.
National Housing Bank

In 1992, Grindlays received a claim aggregating 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. While that appeal was pending, the parties settled the matter, with Grindlays
receiving Indian Rupees 6.20 billion of disputed monies that Grindlays had lodged with the court, and NHB
receiving the balance. ANZ in turn received a payment of USD124 million from Standard Chartered Bank under
the terms of the Indian Indemnity, and is separately pursuing a $130 million claim against its insurers in respect of
the loss Grindlays suffered in the dispute. ANZ’s claim against its insurers is being litigated in the VictorianSupreme Court, with a trial unlikely to be held until early 2006. No amounts receivable under this action havebeen recognised in these accounts.
FERA

In 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. Grindlays has commenced proceedings in the court contesting the validity of these notices.
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 a further twelve proceedings
received by it in 1991 in similar circumstances totalling Indian Rupees 277 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.
A claim has been made under this indemnity also, with no material impact on the Group expected.
Contingent tax liability

The Group in Australia is being audited by the Australian Taxation Office (ATO) as part of normal ATO procedures.
The Group has received various assessments that are being disputed and may receive further assessments.
At the Company’s request the ATO is reviewing the taxation treatment of the sale of Grindlays in 2000.
During the year the Company and the ATO settled the dispute over the taxation treatment of lease assignments
undertaken in 1991 and 1992. The settlement was within existing provisions.

85

NOTES TO THE FINANCIAL STATEMENTS (continued)
16. Contingent liabilities and contingent assets, cont’dContingent tax liability, cont’d

The Group in New Zealand is being audited by local revenue authorities as part of normal revenue authority
procedures, with a particular focus on certain kinds of structured finance transactions. On 30 September 2004, theGroup in New Zealand received Notices of Proposed Adjustment (the ‘Notice’) in respect of one of those structured
finance transactions undertaken in the 2000 financial year. The Notice is formal advice that the New Zealand Inland
Revenue Department (IRD) is proposing to amend tax assessments. The Notice is not a tax assessment and does notestablish a tax liability, but it is the first step in a formal disputes process. Should the same position be adopted by
the IRD on the remaining transactions of that kind, the maximum potential tax liability would be approximately
NZD348 million (including interest tax effected) for the period to 30 September 2004. Of that maximum potential
liability, approximately NZD116 million is subject to tax indemnities provided by Lloyds TSB Bank PLC under theagreement by which ANZ acquired the National Bank of New Zealand and which relate to transactions undertaken by
National Bank of New Zealand before December 2003.
Based on external advice, the Company has assessed the likely progress of these and other issues, and believes that
it holds appropriate provisions.
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, the Company has a commitment to participate 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

On 14 October 2003, ANZ issued proceedings in the Victorian Supreme Court against its captive insurance company
ANZcover Insurance Pty. Ltd regarding its $130 million insurance claim consequent upon settlement of its former
subsidiary ANZ Grindlays Bank Limited’s 1992 dispute with India’s National Housing Bank (NHB). ANZcover is anauthorised general insurer restricted to insuring the interests of ANZ and its subsidiaries. ANZcover in turn purchases
reinsurance from global reinsurers, primarily in the London reinsurance market. ANZcover has no retained exposure
to the NHB claim, which is fully reinsured.
The January 2002 settlement of the NHB litigation saw Grindlays recover Rupees 6.2 billion ($248 million at
19 January 2002 rates) of the disputed monies that Grindlays Bank had lodged with the Court, which by that time
totalled Rupees 16.45 billion ($661 million at 19 January 2002 rates), including interest, with NHB receiving thebalance. ANZ in turn received a payment of USD 124 million from SCB under the terms of the Indian Indemnity. The
claim of $130 million is for the balance of the limit of indemnity under ANZcover’s reinsurance arrangements for the
1991-92 policy year. The proceedings remain on foot.

86

NOTES TO THE FINANCIAL STATEMENTS (continued)
17. Note to the Statement of Cash Flows(a)

Reconciliation of profit after income tax to net cash provided by operating activities

Profit after income tax

Half
year
Sep 04
Inflows(Outflows)
$M

Half
year
Mar 04
Inflows(Outflows)
$M

Full
year
Sep 04
Inflows(Outflows)
$M

Full
yea r
Sep 03
Inflows(Outflows)
$M

1,419

1,396

2,815

2,34 8

319

313

632

614
265

Adjustments to reconcile to net cash
provided by operating activities
Provision for doubtful debts
Depreciation and amortisation

244

211

455

Expense provisions

221

208

429

219

Payments from provisions

(245)

(150)

(395)

(349)

Provision for surplus lease spa ce

7

-

7

(11)

(Profit) loss on property disposals

15

(10)

5

5

Decrease (increase) in interest receivable

(233)

(245)

(478)

(189)

(Decrease) increase in interest payable

301

304

605

180

(Increase) decrease in trading securities

1,070

(556)

514

1,669

(Increase) decrease in net tax assets

376

545

921

(386)

Unrealised (gain) loss on revaluation of treasury instruments

261

(430)

(169)

262

Other

(46)

(45)

(91)

(8)

3,709

1,541

5,250

4,619

Liquid assets - less than 3 months

4,998

4,427

4,998

5,508

Due from other financial institutions - less than 3 months

2,856

4,027

2,856

1,807

7,85 4

8,454

7,854

7,315

70

65

135

115

N et cash provided by operating activiti es
Reconciliation of cash and cash equivalents
C a sh at the end of the period as shown in thestatement of cash flows is reconciled to therelated items in the balance sheet as follows

Non-cash financing and investment activities
S hare capital issues
Dividend reinvestment plan87

NOTES TO THE FINANCIAL STATEMENTS (continued)
17. Note to the Statement of Cash Flows, cont’d(b)Acquisition of National Bank of New Zealand

Sep 04$M
Consideration paid
Cash paid at 1 December 2003

4,842

Foreign exchange movement

270

Consideration including acquisition costs at 30 September 2004 rates

5,112

Fair value of net assets acquired
AssetsLiquid assets

842

Due from other financial institutions

2,737

Trading securities

1,742

Investment securities

225

Net loans and advances

32,215

Other assets

1,815

Premises and equipment

169

Total assets

39,745

Liabilities
Due to other financial institutions

1,151

Deposits and borrowings

32,352

Provisions

115

Creditor and other liabilities

2,588

Unsubordinated Debt

1,179

Loan capital

514

Total liabilities

37,899Net assets acquired at fair value

1,846

Goodwill on acquisition

3,266

Cash paid

4,842

Cash acquired

1,618

Cash outflow on acquisition

3,224

88

NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Changes in composition of the GroupAcquisition of controlled entities

On 1 December 2003, the Company acquired NBNZ Holdings Limited and its controlled entities (NBNZ). The
contribution of these entities (excluding integration costs) to the Group's profit after tax for the 10 months to
30 September 2004 was NZD422 million (AUD375 million). The NBNZ profit after tax for the 12 months to
September 2003 was NZD528 million (AUD475 million). The two periods are not comparable due to pre-acquisition
dividends, and upon acquisition NBNZ adopted ANZ’s accounting policies. Legal amalgamation of NBNZ into ANZ
Banking Group (New Zealand) Limited was completed on 26 June 2004. ANZ Banking Group (New Zealand) Limitedchanged its name to ANZ National Bank Limited on 28 June 2004.
Disposal of controlled entities

There were no material controlled entities disposed of during the year to 30 September 2004. Refer Note 22
Significant events since balance date.

19. Associates, joint venture entities and investments
Half
year
Sep 04
$M

Half
Movt
year
Sep 04
Mar 04 v. Mar 04
$M
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03%

Aggregate associates and joint venture entities
Operating profit

78

67

16%

145

106

37%

Profit after income tax

78

67

16%

145

106

37%

Material contributions to profit
Contribution toGroup pre-tax profit

Ownership interest
held by Group
As at
As at
As at
Sep 04
Mar 04
Sep 03

Halfyear
Sep 04
$M

Half
year
Mar 04
$M

Full
year
Sep 04
$M

Full
year
Sep 03$M

PT Panin Indonesia Bank1

18

25

43

55

29

29

11

E*Trade2

1

1

2

(6)

35

35

35

57

40

97

55

49

49

49

%

%

%

Associates

Joint ventures
ING Australia Limited3
1.
2.
3.

The Group exercised options over 18% of PT Panin in 2004
The value of the investment in E*Trade was written down by $6 million in 2003
After charging notional goodwill of $41 million (full year 2003: $44 million; Sep 2004 half: $19 million; Mar 2004 half: $22 million). Lower amortisation reflects
goodwill reduction of $25 million from finalisation of completion accounts.

89

NOTES TO THE FINANCIAL STATEMENTS (continued)
20. US GAAP reconciliation
The consolidated financial statements of the Group are prepared in accordance with Generally Accepted Accounting
Principles applicable in Australia (Australian GAAP) which differ in some respects from Generally Accepted Accounting
Principles in the United States (US GAAP).
The following is a reconciliation of the profit from ordinary activities after income tax applying US GAAP instead ofAustralian GAAP.
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Sep 04v. Mar 04
%

Full
year
Sep 04
$M

Full
year
Sep 03$M

Movt
Sep 04v. Sep 03
%

1,419

1,396

2%

2,815

2,348

20%

3

(46)

large

(43)

(21)

large

1

1

-

2

2

-

8

4

100%

12

2

large

Operating profit after income tax according toAustralian GAAP
Items having the effect of increasing(decreasing)reported income:
Employee share issue and options
Depreciation charged on the difference between
revaluation amount and historical cost of buildings
Difference in gain or loss on disposal of properties
revalued under historical cost
Deferred profit on sale and leaseback transactions

(9)

(1)

large

(10)

(4)

large

Amortisation of sale and leaseback gain over lease term

13

13

-

26

25

4%

Amortisation of goodwill

104

85

22%

189

62

large

-

(5)

-100%

(5)

2

large

62

(151)

large

(89)

(47)

89%

Pension expense adjustment
Mark to market of non compliant derivative hedges (under SFAS 133)
Interest on reclassified preference shares and amortisation of costs

(34)

(30)

13%

(64)

(1)

large

Guarantee fee obligation

(12)

(11)

9%

(23)

-

n/a

Pension plan deficit amortisation

(6)

(5)

20%

(11)

-

n/a

Acquisition cost of NBNZ purchase adjustment

-

(37)

-100%

(37)

-

n/a

(14)

-

n/a

(14)

-

n/a

Adjustment on entering INGA
Taxation on the above adjustments
Net income according to US GAAP

(12)

52

large

40

12

large

1,523

1,265

20%

2,788

2,380

17%

487

(254)

large

233

(356)

large

2

5

-60%

7

(2)

large

(91)

(3)

large

(94)

76

large

(17)

3

large

(14)

(99)

-86%

1,904

1,016

87%

2,920

1,999

46%

Other comprehensive income
Currency translation adjustments, net of hedges after tax. Tax is:(HY Sep 2004: -$12m; HY Mar 2004:$21m; FY Sep 2003:$54m)
Unrealised profit(loss) on available for sale securities net of tax. Tax is:(HY Sep 2004:$1m; HY Mar 2004:$2m; FY Sep 2003:-$1m)
Mark to market of cash flow hedges net of tax. Tax is: (HY Sep 2004: -$39m;
HY Mar 2004:-$1m; FY Sep 2003:$33m)
Pension plan deficit net of tax. Tax is: (HY Sep 2004: -$7m; HY Mar 2004:$1m;
FY Sep 2003:-$42m)
Total comprehensive income according to US GAAP90

NOTES TO THE FINANCIAL STATEMENTS (continued)
21. Exchange rates
Major exchange rates used in translation of results of offshore controlled entities and branches into the Groupaccounts for each reporting period were as follows:

Balance Sheet
As at
As at
Sep 04
Mar 04As at
Sep 03

Profit and Loss Average
Half
Half
Full
year
year
year
Sep 04
Mar 04
Sep 04

Full
year
Sep 03

Great British pound

0.39830.41370.40700.39270.41790.40540.3822

United States dollar

0.71650.75850.67950.71250.74030.72630.6124

New Zealand dollar

1.07001.1467

1.1431

1.11251.14011.1254

1.113922. Significant events since balance date
ANZ Trustees merger with Equity Trustees Limited

On 12 October 2004, the Company announced it had signed an agreement with Equity Trustees Limited, to merge theGroup’s trustee business with Equity Trustees Limited. The merged business will create Australia’s third largest
trustee company and the leading manager of charitable foundations.
In consideration, the Company will become the major shareholder in Equity Trustees Limited with a 37.5% share of
the expanded issued capital, and receive $3 million in cash.
Completion of the merger is expected early in 2005 subject to the outcomes of due diligence, regulatory andgovernment approvals and approval by Equity Trustees’ shareholders. The Company will equity account for its
investment in Equity Trustees Limited and recognise a small profit from the transfer of the Group’s trustee business.
The financial effect of this merger has not been recognised in these financial statements.
Share buyback

On 26 October 2004, the Company will announce the intention to undertake an on-market share buyback of at least$350 million. The buyback is contingent on regulatory approval for a new offshore hybrid equity transaction.
The financial effect of this buyback has not been reflected in these financial statements.
Sale of London-headquartered project finance activities

On 26 October 2004, the Company will announce the sale, subject to due diligence, of the majority of its Londonheadquartered project finance activities to Standard Chartered Bank. The amount of the loans and commitments isapproximately $2 billion. The premium from the sale above book value is not expected to be significant.

91

APPENDIX 4E STATEMENT

The directors of Australia and New Zealand Banking Group Limited confirm that the financial statements and notes of
the consolidated entity set out on pages 61 to 91 are in the process of being audited.

Charles Goode
ChairmanJohn McFarlane
Director

25 October 2004

92

DEFINITIONS
Adjusted common equity is Tier 1 capital less preference shares at current rates and deductions from total capital.
Business Unit description:-

Banking Products manufactures deposit, transaction account and margin lending products.

-

Cards and Merchant Services provides consumer and commercial credit cards, ePayment products, personalloans, and merchant payment and ATM facilities.

-

Mortgages provides mortgage finance secured by residential real estate.

-

Personal Banking Distribution provides a full range of banking and financial planning services to personalcustomers across Australia, and to small business and agricultural customers in rural Australia.

-

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 Business customers.

-

Institutional Banking 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, throughcorporate clients where the Group has an existing customer relationship, in the United Kingdom, United States and
Asia.

-

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.

-

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. NBNZ will be reported as a separate business unit until 30 September 2004.

-

Business Banking in Australia provides a full range of banking services to metropolitan-based small to medium
businesses, with turnover 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-sizedbusinesses with a turnover of $10 million to $150 million.

-

Small Business Banking in Australia provides business banking services to metropolitan-based small businesses,with business banking funds under management of up to $50,000.

-

Treasury is the banker to all ANZ businesses charged with providing cashflow support, ensuring liquidity,
managing interest rate risk 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.
Equity standardisation Economic Value Added (EVATM) principles are in use throughout the Group, whereby risk
adjusted capital is allocated and charged against business units. Equity standardised profit is determined byeliminating the impact of earnings on each business unit’s book capital and attributing earnings on the business unit’s
risk adjusted capital. This enhances comparability of business unit performance. The results of the National Bank of
New Zealand have not been equity standardised. Geographic results are not equity standardised.
Impaired assets are loans or other credit facilities where there is reasonable doubt about the collectability ofinterest, 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, net inter business unit fee
and net intersegment interest income.
Net advances include gross loans and advances and acceptances less income yet to mature and provisions (for bothas at and average volumes).
Net interest average margin is net interest income as a percentage of average interest earning assets.
Non-assessable interest income is grossed up to the equivalent before tax amount for the purpose of thesecalculations.
93

DEFINITIONS (continued)

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 amountfor the purpose of these calculations.
Net non-interest bearing items, referred to in the analysis of interest spread and net interest average margin,
includes shareholders’ equity, provisions for doubtful debts, and deposits not bearing interest and other liabilities notbearing interest, offset by premises and equipment and other non-interest earning assets. Non-accrual loans areincluded within interest bearing loans, advances and bills discounted.
Net specific provision is the transfer from the general provision to the specific provision (representing new andincreased specific provisions less specific provision releases) less recoveries.
Operating expenses exclude charge for doubtful debts
Service Transfer Pricing is used to allocate services that are provided by central areas to each of its business units.
The objective of service transfer pricing is to remove cross-subsidies between business units, and ensure eachbusiness accounts for the costs of the services it uses. Transfer pricing arrangements are reviewed periodically. The
basis of pricing for internal services varies from cost recovery, to market equivalent. Changes in transfer pricing
arrangements in current periods are, to the extent possible, reflected in prior period comparatives to assist
comparability. NBNZ has not yet adopted full transfer pricing.
The profit and loss statement of each business unit includes net inter business unit fees and net inter business unit
expenses. This treatment is consistent with the Group’s strategy of managing along specialist business lines. Net
inter business unit fees includes intra-group receipts or payments for sales commissions. A product business (forexample, Mortgages) will pay a distribution channel (for example, Personal Banking) for product sales. Both thepayment and receipt are shown as net inter business unit fees. Net inter business unit expenses consist of thecharges made to business units for the provision of support services. Examples of services provided include
technology and payments, risk management, finance and human resources management. Both payments bybusiness units and receipts by service providers are shown as net inter business unit expenses.
The results of segments may include business units and a support unit. The services provided by the support unit areallocated to the business units. As a result of this allocation, the sum of individual profit and loss line items of thebusiness units may not equal the corresponding line item in the profit and loss statement of the segment.
Return on asset ratios include net intra group assets which are risk weighted at 0% for return on risk weighted
assets calculations.
Revenue in business segments includes equity standardised net interest, other operating income and net interbusiness unit fees.
Total advances include gross loans and advances and acceptances less income yet to mature (for both as at andaverage volumes.
Unproductive facilities comprise facilities (such as standby letters of credit, bill endorsements, documentary lettersof credit, guarantees to third parties, undrawn facilities to which the Group is irrevocably committed and market
related exposures) where the customer status is non-accrual.

94

ALPHABETICAL INDEX
PAGE
Accounting policies ..................................................................................................................................................65
Appendix 4E Statement ...........................................................................................................................................92
Associates, joint venture entities and investments.......................................................................................................89
Average Balance Sheet and related interest................................................................................................................79
Business Performance Review ...................................................................................................................................35
Capital adequacy.....................................................................................................................................................77
Changes in the composition of the Group ...................................................................................................................89
Contingent liabilities and contingent assets.................................................................................................................85
Consolidated Statement of Cash Flows .......................................................................................................................64
Consolidated Statement of Financial Performance........................................................................................................61
Consolidated Statement of Financial Position ..............................................................................................................62
Definitions..............................................................................................................................................................93
Derivative Financial Instruments ...............................................................................................................................83
Dividends ...............................................................................................................................................................69
Earnings per share ..................................................................................................................................................70
Exchange rates .......................................................................................................................................................91
Financial Highlights .................................................................................................................................................. 5
Five year summary..................................................................................................................................................57
Geographic Segment Performance.............................................................................................................................49
Highlights................................................................................................................................................................ 1
Impaired assets ......................................................................................................................................................72
Income ..................................................................................................................................................................66
Income tax expense ................................................................................................................................................68
Interest spreads and net interest average margins ......................................................................................................82
Loan capital............................................................................................................................................................76
Net loans and advances ...........................................................................................................................................71
Notes to the Statement of Cash Flows........................................................................................................................87
Operating expenses .................................................................................................................................................67
Provisions for doubtful debts.....................................................................................................................................75
Results Commentary ...............................................................................................................................................11
Share Capital..........................................................................................................................................................76
Significant events since balance date .........................................................................................................................91
Statement of Changes in Equity ................................................................................................................................63
US GAAP reconciliation.............................................................................................................................................9095

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