For personal use only

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

Half Year
31 March 2014

Consolidated Financial Report
Dividend Announcement
and Appendix 4D

The Consolidated Financial Report and Dividend Announcement contains information required by Appendix 4D of the Australian Securities
Exchange Listing Rules. It should be read in conjunction with ANZ’s 2013 Annual Report and is lodged with the Australian Securities Exchange
under listing rule 4.2A.

RESULTS FOR ANNOUNCEMENT TO THE MARKET

For personal use only

Name of Company:

APPENDIX 4D

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

Report for the half year ended 31 March 2014

Operating Results1

A$ million

Operating income

7%

to

9,518

Net statutory profit attributable to shareholders

15%

to

3,381

11%

to

3,515

2

Cash profit

Dividends3

Proposed interim dividend

Cents
per
share

Franked4amountper share

83

100%

Record date for determining entitlements to the proposed 2014 interim dividend

13 May 2014

Payment date for the proposed 2014 interim dividend

1 July 2014

Dividend Reinvestment Plan and Bonus Option Plan

Australia and New Zealand Banking Group Limited (ANZ) has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan (BOP) that will operate inrespect of the 2014 interim dividend. For the 2014 interim dividend, ANZ intends to provide shares under the DRP and BOP through the issue of newshares. The 'Acquisition Price' to be used in determining the number of shares to be provided under the DRP and BOP will be calculated by reference tothe arithmetic average of the daily volume weighted average sale price of all fully paid ANZ ordinary shares sold in the ordinary course of trading on the
ASX during the ten trading days commencing on 16 May 2014, and then rounded to the nearest whole cent. Shares provided under the DRP and BOP
will rank equally in all respects with existing fully paid ANZ ordinary shares. Election notices from shareholders wanting to commence, cease or vary their
participation in the DRP or BOP for the 2014 interim dividend must be received by ANZ's Share Registrar by 5.00pm (Australian Eastern Standard Time)on 14 May 2014. Subject to receiving effective contrary instructions from the shareholder, dividends payable to shareholders with a registered address in
the United Kingdom (including the Channel Islands and the Isle of Man) or New Zealand will be converted to Pounds Sterling and New Zealand dollars
respectively at an exchange rate calculated on 16 May 2014.

1
2

3
4

Compared to prior comparable period (half year ended 31 March 2013).
Statutory profit has been adjusted to exclude non-core items to arrive at cash profit, and has been provided to assist readers to understand the results for the ongoing activities of theGroup. The net after tax adjustment was an increase to cash profit of $134 million made up of several items. Refer pages 83 to 92 for further details.
There is no conduit foreign income attributed to the dividends.
It is proposed that the interim dividend will be fully franked for Australian tax purposes (30% tax rate) and carry New Zealand imputation credits of NZD 10 cents per ordinary share.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

CONSOLIDATED FINANCIAL REPORT, DIVIDEND ANNOUNCEMENT AND APPENDIX 4D
Half year ended 31 March 2014

For personal use only

CONTENTS

PAGE

Section 1 – Media release3

Section 2 – Snapshot

7

Section 3 – CEO overview

13

Section 4 – CFO overview

15

Section 5 – Segment review

41

Section 6 – Geographic review

75

Section 7 – Profit reconciliation

83

Section 8 – Condensed consolidated financial statements

93

Section 9 – Supplementary information

131

Definitions

145

ASX Appendix 4D Cross Reference Index

148

Alphabetical Index

149

This Consolidated Financial Report and Dividend Announcement has been prepared for Australia and New Zealand Banking Group Limited (the“Company”) together with its subsidiaries which are variously described as “ANZ”, “Group”, “ANZ Group”, “us”, “we” or “our”.
All amounts are in Australian dollars unless otherwise stated. The information on which the Condensed Consolidated Financial Statements are based,
has been reviewed by the Group’s auditors, KPMG. The Company has a formally constituted Audit Committee of the Board of Directors. The signing ofthese Condensed Consolidated Financial Statements was approved by resolution of a Committee of the Board of Directors on 30 April 2014.
When used in this Results Announcement the words “estimate”, “project”, “intend”, “anticipate”, “believe”, “expect”, “should” and similar expressions, as
they relate to ANZ and its management, are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof. ANZ does not undertake any obligation to publicly release the result of any revisions
to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Unless otherwise noted, all figures relate to the half year ended 31 March 2014. The term “prior comparable period” (PCP) refers to the half year ended
31 March 2013 and the term “previous half” (HOH) refers to the half year ended 30 September 2013.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDFor personal use onlyThis page has been left blank intentionally

ABN 11 005 357 522

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

Media Release
ANZ 2014 Half Year Result- good result demonstrates strategy is delivering
diversified growth and stronger returns -For personal use only

Performance Highlights – 1H 2014 compared to 1H 2013 (PCP)1•

Statutory profit $3.4 billion up 15%; Cash profit2 $3.5 billion up 11%.

•

Fully franked Interim Dividend of 83 cents per share an increase of 14%.

•

Income up 3.6% and expenses up 1.7% (FX adjusted).

•

Cost to income ratio improved a further 20 basis points to 44.3%.

•

Return on equity steady at 15.5% with earnings per share up 10% to 128.7 cents.

•

Customer deposits grew 13%, net loans and advances up 12%.

•

Provision charge of $528 million, 12% lower.

ANZ Chief Executive Officer Mike Smith said: “This is a good set of results. They demonstrateconsistent progress with ANZ’s long-term strategy to grow in our core franchises in Australia and
New Zealand, to build a significant and profitable franchise in Asia Pacific, and to establish common
infrastructure and processes that improve productivity and reduce risk.
“The diversification this strategy provides is now delivering a differentiated proposition for ourcustomers and improved returns for shareholders.
“Our international business, particularly Asia, is firing on all cylinders with revenue and profits again
growing strongly, and a sustained improvement in returns. Profits from International andInstitutional in Asia Pacific, Europe and Americas (APEA) are up 43% based on significant growth incustomer numbers and in products that support regional trade and investment flows such as foreignexchange, cash management and trade finance.
“Since we launched our strategy six years ago, the compound annual growth rate in earnings from
Asia has been 37% and ANZ is now being consistently rated a top 4 Corporate Bank in Asia by
Greenwich Associates3.

“In Australia we are seeing ongoing benefits emerge from the investment in our Banking onAustralia program which includes new digital solutions for our customers. We have developed
greater scale based on market share growth in home lending, small business lending and retaildeposits. Business confidence in Australia is recovering more slowly than expected however, and insome segments growth remains subdued with competition placing pressure on margins. Costs were
carefully managed in this environment.

“In New Zealand after several years of hard work our business is in a winning position. ANZ’s moveto a single brand and technology platform together with New Zealand’s economic recovery saw
volume growth, improved productivity and lower provisions.
“Global Wealth continues to focus on improving the customer experience with wealth solutions
increasingly integrated with our banking offering and more options for self directed customers. Ourrevenue performance was positive, underpinned by strong growth in funds under management,favourable claims and lapse experience along with growth in Private Wealth.
“Across the Group, operational and risk outcomes continue to be strong. Operational productivity
continues to improve, we increased the volume of transactions globally by around 8% on average
while reducing operations costs 4% (FX adjusted) on the prior year.
“Management actions are driving further improvements in the quality of the lending book. In
International and Institutional Banking 77% of Institutional customers are now rated investment

1 All comparisons are Half Year to 31 March 2014 compared to Half Year to 31 March 2013 and on a cash basis unless otherwise noted.
2 Statutory profit has been adjusted to exclude non-core items to arrive at Cash profit, the result for the ongoing activities of the Group.
3 Greenwich Associates 2013 Asian Large Corporate Banking Study

3

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

grade up from 60% in 2008, and this continues to drive a significant reductions in Group impaired
assets.
“Our focus on the customer and productivity program coupled with momentum from our diversified
growth opportunities has set us up for a good performance this year,” Mr Smith said.
PERFORMANCE BY DIVISION4

For personal use only

AUSTRALIA
Building on a strong performance in 2013, the Australia Division grew profit 5%, reflecting 4%
income growth, a 2% increase in expenses and a 4% increase in the provision charge. Lending grew
6% with customer deposits up 7%.
ANZ had the strongest home loan growth of the major banks over the past year and has grownhome loans at above system for 17 consecutive quarters. Small Business Banking has performed
particularly strongly with lending up 16%. To date ANZ has lent $1.2 billion to new Australian small
businesses as part of our $2 billion pledge, while maintaining credit quality.
Execution of the Banking on Australia program is building business momentum. Simpler products,
streamlined processes and improving distribution capability has seen growth in customer numbers.
We’ve brought 110,000 net new customers on board across Retail and Commercial in the last year
while simultaneously reducing average monthly customer complaints by 9%.
Back office efficiency programs, increased training and iPad enablement have increased frontline
Commercial team customer contact by 20%. ANZ is now equal first in Commercial customer
satisfaction, up from fourth and customer numbers are up 26,000 year on year.
We have strengthened our position in mobile and digital channels. More than half our customers are
digital users including 1.1 million active ANZ goMoney users with $78 billion in goMoneytransactions processed to date and we have rolled out 400 Smart ATMs across the branch network.
Commercial FastPay transactions have grown at a compound monthly rate of 43% since launch in
October 2012.
INTERNATIONAL AND INSTITUTIONAL BANKING (IIB)5International and Institutional Banking profit grew 9% with income up 4% and expenses up 3%,
along with further credit quality improvements driving provisions down 18%. The business
continues to diversify its earnings with 52% of income now coming from outside Australia and New
Zealand and cash profit from APEA up 31%.

Ongoing focus on higher return less capital intensive flow products delivered volume increases in
Foreign Exchange turnover (up 37%), Cash Management deposits (up 20%) and funded Trade andSupply Chain (up 6%).
The Global Markets business which services customers Foreign Exchange, Interest Ratemanagement and Commodities needs, delivered another strong result with income up 5% primarily
driven by customer sales. Income from servicing customers in Asia increased by 34% withparticularly strong sales in Foreign Exchange.
Institutional and Commercial customer numbers grew 12%. Our strong relationship focus is being
recognised in key customer surveys, including the Greenwich Associates 2013 Asian Large Corporate
Banking Study in which ANZ has achieved the fastest growth in ranking in the study’s history and aconsistent top 5 outcome over the past 3 years, including a top 4 in the last two years.6
Targeted growth in Asia Pacific is delivering a shorter duration, lower risk balance sheet with justunder half of our Institutional lending assets in Asia Pacific being Trade Finance related.
NEW ZEALAND (all comparisons are in NZD)The New Zealand Division grew profit 21%. Market share growth, productivity and credit quality
improvements were key features of the result with income up 3%, expenses down 6% and theprovision charge declining by $73 million. Lending grew 5% with customer deposits up 7%.

Under a single ANZ brand the business is now beginning to leverage its scale while also improving
customer experience. Brand consideration is at an all time high and leads the major banks. ANZ is

4 All comparisons are Half Year to 31 March 2014 compared to Half Year to 31 March 2013 and on a cash basis unless otherwise noted.
5 All figures are FX adjusted
6 Greenwich Associates 2013 Asian Large Corporate Banking Study

4

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

now number one for new mortgages in all of the larger New Zealand cities including Christchurch
and Auckland.
Our Commercial business has grown across all regions with overall growth faster than system year
to date. Small Business Banking has been particularly strong, up 14% driven by growth in customer
numbers (up 29% on the prior year).

For personal use only

We are investing in digital capability to grow customer numbers and increase customer satisfaction
and to improve our frontline capability and productivity. Active ANZ goMoney users are up 96% with
the App rated the number one Finance app in both the Apple App store and on Google Play7. In
Commercial, ANZ FastPay has had over 4,000 downloads since its launch in December 2013. Overthe counter transactions in branches have reduced by 11% over the year as customers takeadvantage of our self service technology including Smart ATMs.
GLOBAL WEALTHThe Global Wealth Division grew profit 11% with operating income up 8% and expenses up 7%.
Underlying performance was strong driven by growth in funds under management (FUM) andinforce insurance premiums, as well as an improved claims and lapse experience, with retail lapse
rates in Australia declining a further 120 bps across the year.
Global Wealth is focused on making it easier for customers to connect, protect and grow theirwealth using simple, direct solutions such as ANZ Smart Choice Super which now has over 270,000
customers and continues to build momentum. Wealth solutions are increasingly being integrated
into broader customer banking options with wealth solutions held by ANZ customers up 10% acrossthe year.
Private Wealth grew operating income by 28%, with customer deposits up 26% and lending up 4%.
CREDIT QUALITY
The quality of the loan book continues to strengthen with the provision charge of $528 million 12%
lower.

Gross impaired assets decreased 23%. Impaired assets are down 32% over the last two years,
and are lower than at any point since September 2008 despite 46% growth in the lending book inthat time8. While ANZ continues to expect that the provision charge for FY14 will be around 10%
lower than for FY139 it maintains a strong provision balance.
CAPITALANZ remains well capitalised with an APRA Common Equity Tier One ratio at 31 March of 8.33% or
10.5% on an internationally harmonised Basel 3 basis.
DIVIDEND
The fully franked dividend of 83 cps, up 14%, equates to a payment of $2.3 billion to shareholders.
The increased dividend reflects our stronger performance and a gradual rebalancing towards a moreeven split between the Interim and Final Dividend amounts, maintaining a payout ratio towards theupper end of the 65 to 70% of Cash Profit range.
For media enquiries contact:
Paul Edwards
Group GM, Corporate Communications
Tel: +61-3-8654 9999 or +61-434-070101
Email: Paul.Edwards@anz.com

Stephen Ries
Head of Media Relations
Tel: +61-3-8654 3659 or +61-409-655551
Email: Stephen.Ries@anz.com

For investor and analyst enquiries contact:
Jill Craig
Group GM, Investor Relations
Tel: +61-3-8654 7749 or +61-412-047448
Email: Jill.Craig@anz.com

Ben Heath
Senior Manager, Investor Relations
Tel: +61-3-8654 7793 or +61-435-655033
Email: Ben.Heath@anz.com

7 Refers to the New Zealand App Store and Google Play sites. ANZ is the top ranked free finance App.
8 Net lending assets increased 46% from $349.85 billion to $509.25 billion between 30 September 2008 and 31 March 2014.
9 The ANZ Group Full Year 2013 provision charge was $1.197 billion.

5

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

For personal use onlyThis page has been left blank intentionally6SNAPSHOTCONTENTS

Section 2 – Snapshot
Statutory Profit Results
Cash Profit Results

For personal use only

Key Balance Sheet Metrics
FX Adjusted - Cash Profit Results and Net Loans and Advances7

SNAPSHOT

Statutory Profit Results
Half Year

Movement

Net interest income

Mar 14$M
6,778

Sep 13$M
6,558

Mar 13$M
6,200

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
9%

Other operating income

2,740

2,965

2,736

-8%

0%

9,518

9,523

8,936

0%

7%

Operating expenses(4,286)(4,213)(4,044)

2%

6%

Profit before credit impairment and income tax

5,232

5,310

4,892

-1%

7%
-10%

For personal use only

Operating income

Credit impairment charge

(527)

(600)

(588)

-12%

Profit before income tax

4,705

4,710

4,304

0%

9%

Income tax expense(1,318)(1,376)(1,362)

-4%

-3%

(6)

(5)

(5)

20%

20%

3,381

3,329

2,937

2%

15%

Non-controlling interests
Profit attributable to shareholders of the Company
Earnings per ordinary share (cents)

Half Year

Movement

Mar 14

Sep 13

Mar 13

Basic

Reference
Page
105

108.5

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
15%

124.4

122.5

Diluted

105

120.2

118.5

105.3

1%

14%

Half Year

Ordinary share dividends (cents)
Interim - 100% franked1

Reference
Page
104

Final - 100% franked1

104

n/a

91

n/a

Ordinary share dividend payout ratio2

104

67.4%

75.1%

68.3%

104

3

3

3

Preference share dividend ($M)
Dividend paid3
Profitability ratios
Return on average ordinary shareholders' equity43.
4.

Mar 13
73

15.0%

15.3%

14.4%

0.92%

0.95%

0.90%

Net interest margin

2.15%

2.20%

2.24%

45.0%

44.2%

45.3%

1.17%

1.21%

1.24%

601

574

584

(74)

26

4

Operating expenses to average assets

Credit impairment charge/(release)
Individual credit impairment charge ($M)

2.

Sep 13n/a

Return on average assets

Efficiency ratios
Operating expenses to operating income1.

Mar 1483

Collective credit impairment charge/(release) ($M)
Total credit impairment charge ($M)

527

600

588

Individual credit impairment charge as a % of average net advances

107

0.24%

0.24%

0.26%

Total credit impairment charge as a % of average net advances

0.21%

0.25%

0.27%

Fully franked for Australian tax purposes and carry New Zealand imputation credits of NZD 10 cents per ordinary share for the proposed 2014 interim dividend (2013 final dividend: NZD
10 cents; 2013 interim dividend: NZD 9 cents).
Dividend payout ratio is calculated using 2013 interim, 2013 final dividends and the proposed 2014 interim dividend.
Represents dividends paid on Euro Trust Securities (preference shares) issued on 13 December 2004.
Average ordinary shareholders’ equity excludes non-controlling interests and preference shares.

8

SNAPSHOT
1

Cash Profit Results

Half Year

Movement

Sep 13$M
6,536

Mar 13$M
6,236

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
8%

Other operating income

2,904

2,763

2,856

5%

2%

Operating income

9,668

9,299

9,092

4%

6%

Operating expenses(4,286)(4,213)(4,044)

2%

6%

Profit before credit impairment and income tax

5,382

5,086

5,048

6%

7%

Credit impairment charge

(528)

(598)

(599)

-12%

-12%
9%

For personal use only

Net interest income

Mar 14$M
6,764

Profit before income tax

4,854

4,488

4,449

8%

Income tax expense(1,333)(1,170)(1,265)

14%

5%

(6)

(5)

(5)

20%

20%

3,515

3,313

3,179

6%

11%

Non-controlling interests
Cash profit1
Earnings per ordinary share (cents)

Half Year

Movement

Reference
Page

Mar 14

Sep 13

Mar 13

30
30

128.7

121.4

124.3

117.4

Basic
Diluted116.9

Mar 14v. Sep 13
6%

Mar 14v. Mar 13
10%

113.1

6%

10%

Half Year
Reference
Page
31

Ordinary share dividends (cents)
Ordinary share dividend payout ratio2
Profitability ratios
Return on average ordinary shareholders' equity3
Return on average assets
Net interest margin

19

Profit per average FTE ($)4

Efficiency ratios
Operating expenses to operating income
Operating expenses to average assets

Credit impairment charge/(release)
Individual credit impairment charge ($M)

Mar 1464.9%

Sep 13
75.4%

Mar 13
63.1%

15.5%

15.1%

15.5%

0.96%

0.95%

0.97%

2.15%

2.19%

2.25%

73,266

67,97262,429

44.3%

45.3%

44.5%

1.17%

1.21%

1.23%

595

25

602

572

Collective credit impairment charge/(release) ($M)

26

(74)

26

4

Total credit impairment charge ($M)

25

528

598

599

Individual credit impairment charge as a % of average net advances

0.24%

0.24%

0.27%

Total credit impairment charge as a % of average net advances

0.21%

0.25%

0.27%

Cash profit by division/geography

Half Year

Movement

Australia

Mar 14$M
1,479

Sep 13$M
1,449

Mar 13$M
1,409

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
5%

International and Institutional Banking

1,372

1,244

1,208

10%

14%

New Zealand

546

482

396

13%

38%

Global Wealth

226

268

204

-16%

11%

GTSO and Group Centre

(108)

(130)

(38)

-17%

large

Cash profit by division

3,515

3,313

3,179

6%

11%

Australia

2,025

2,136

2,164

-5%

-6%

681

554

459

23%

48%

Asia Pacific, Europe & America
New Zealand
Cash profit by geography

1.

2.
3.
4.

809

623

556

30%

46%

3,515

3,313

3,179

6%

11%

Statutory profit has been adjusted to exclude non-core items to arrive at cash profit, and has been provided to assist readers to understand the result for the ongoing business activities of
the Group. Refer to page 83 for the reconciliation between statutory and cash profit.
Dividend payout ratio is calculated using 2013 interim, 2013 final dividends and the proposed 2014 interim dividend.
Average ordinary shareholders’ equity excludes non-controlling interests and preference shares.
Comparative information has been restated to include technology contractors, consistent with how FTE are reported and managed internally.

9

SNAPSHOTKey Balance Sheet Metrics
As at

Movement

Reference
Page

Mar 14

Sep 13

Mar 13

35

8.3%

8.5%

8.2%

Mar 14v. Sep 13

Mar 14v. Mar 13

Capital adequacy ratio (%)
Common Equity Tier 1

For personal use only

- APRA Basel 3
1

35

10.5%

10.8%

10.3%

Credit risk weighted assets ($B)

- Internationally Harmonised Basel 3

135

305.3

287.7

275.0

6%

11%

Total risk weighted assets ($B)

135

360.7

339.3

322.6

6%

12%

512.4

486.9

457.6

5%

12%

Balance Sheet: Key Items
Gross loans & advances ($B)
Net loans & advances ($B)

509.3

483.3

454.3

5%

12%

Total assets ($B)

737.8

703.0

672.6

5%

10%

Customer deposits ($B)

388.0

368.8

344.1

5%

13%

Total equity ($B)

47.0

45.6

42.5

3%

11%

Impaired assets
Gross impaired assets ($M)

27

3,620

4,264

4,685

-15%

-23%

Net impaired assets ($M)

27

2,150

2,797

3,142

-23%

-32%

Net impaired assets as a % of net advances

0.42%

0.58%

0.69%

Net impaired assets as a % of shareholders' equity

4.6%

6.1%

7.4%
0%

-5%

-2%

3%

Individual provision ($M)

107

Individual provision as a % of gross impaired assets
Collective provision ($M)

107

1,470

1,467

1,543

40.6%

34.4%

32.9%

2,843

2,887

2,769

Collective provision as a % of credit risk weighted assets

0.93%

1.00%

1.01%

Net Assets
Net tangible assets per ordinary share ($)

13.90

13.48

12.55

3%

11%

Net tangible assets attributable to ordinary shareholders ($B)

38.1

37.0

34.4

3%

11%

48,857

48,86548,871

0%

0%

15.1

14.4

13.8

5%

9%

- high

$34.06$32.09$29.46

6%

16%

- low

$28.84$26.30$23.4210%23%- closing$33.06$30.78$28.53

7%

16%

90.7

84.5

78.3

7%

16%

Other information
Full time equivalent staff (FTE)2Assets per FTE ($M)
Share priceMarket capitalisation of ordinary shares ($B)

1.

2.

ANZ’s interpretation of the regulations documented in the Basel Committee publications; “Basel 3: A global regulatory framework for more resilient banks and banking systems” (June2011) and “International Convergence of Capital Measurement and Capital Standards” (June 2006). See page 36 for a reconciliation between APRA Basel 3 and Internationalised
harmonised Basel 3 standards.
Comparative information has been restated to include technology contractors, consistent with how FTE are reported and managed internally.

As at ($B)

Net loans & advances by division/geography

Movement

Australia

Mar 14278.3

Sep 13271.6

Mar 13262.0

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
6%

International and Institutional Banking

136.3

123.5

114.5

10%

19%

New Zealand

88.2

81.5

71.7

8%

23%

Global Wealth

6.0

6.2

5.8

-3%

3%

GTSO and Group Centre

0.5

0.5

0.3

0%

67%

Net loans & advances by division

509.3

483.3

454.3

5%

12%

Australia

336.5

324.3

314.6

4%

7%

Asia Pacific, Europe & America

76.6

69.9

61.2

10%

25%

New Zealand

96.2

89.1

78.5

8%

23%

Net loans & advances by geography

509.3

483.3

454.3

5%

12%

10

SNAPSHOT1

FX Adjusted – Cash Profit Results and Net Loans and Advances
Cash profit - FX adjusted
Half Year

Movement

Net interest income

Mar 14$M
6,764

Sep 13$M
6,640

Mar 13$M
6,459

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
5%

Other operating income

2,769

2,876

5%

1%

9,668

9,409

9,335

3%

4%

Operating expenses(4,286)(4,280)(4,213)0%

2%Profit before credit impairment and income tax

5,382

5,129

5,122

5%

5%

Credit impairment charge

(528)

(596)

(615)

-11%

-14%
8%

For personal use only

2,904

Operating income

Profit before income tax

4,854

4,533

4,507

7%

Income tax expense(1,333)(1,180)(1,266)

13%

5%

(6)

(5)

(5)

20%

20%

3,515

3,348

3,236

5%

9%

Non-controlling interests
Cash profit (FX adjusted)

Cash profit - FX adjusted by division and geography
Half Year

Movement

Australia

Mar 14$M
1,479

Sep 13$M
1,449

Mar 13$M
1,409

Mar 14v. Sep 13
2%

International and Institutional Banking

Mar 14v. Mar 13
5%

1,372

1,256

1,264

9%

9%

New Zealand

546

515

443

6%

23%

Global Wealth

226

270

209

-16%

8%

GTSO and Group Centre

(108)

(142)

(89)

-24%

21%

Cash profit - FX adjusted by division

3,515

3,348

3,236

5%

9%

Australia

2,025

2,117

2,098

-4%

-3%

Asia Pacific, Europe & America

681

561

501

21%

36%

New Zealand

809

670

637

21%

27%

3,515

3,348

3,236

5%

9%

Cash profit - FX adjusted by geography

As at ($B)

Net loans & advances by division/geography - FX adjusted

Movement

Australia

Mar 14278.3

Sep 13271.6

Mar 13262.1

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
6%

International and Institutional Banking

136.3

124.1

122.2

10%

12%

New Zealand

88.2

85.9

83.8

3%

5%

Global Wealth

6.0

6.3

6.2

-5%

-3%

GTSO and Group Centre

0.5

0.4

0.3

25%

67%

Net loans & advances by division - FX adjusted

509.3

488.3

474.6

4%

7%

Australia

336.5

324.3

314.6

4%

7%

Asia Pacific, Europe & America

76.6

70.2

68.3

9%

12%

New Zealand

96.2

93.8

91.7

2%

5%

Net loans & advances by geography - FX adjusted

509.3

488.3

474.6

4%

7%

1.

Comparative period data has been adjusted to remove the impact of foreign exchange movements.

11

SNAPSHOT

For personal use onlyThis page has been left blank intentionally12CEO OVERVIEWCEO Overview1
Strategy and Performance
ANZ is executing a focused strategy to build the best connected, most respected bank across the Asia Pacific region, and in doing so
provide shareholders with above-peer earnings growth.
The bank is pursuing significant organic growth opportunities in the Asia Pacific region, and with our strong domestic businesses inAustralia and New Zealand, our distinctive footprint and super regional connectivity, we are uniquely positioned to meet the needs ofcustomers, who are increasingly linked to regional capital, trade and wealth flows.

For personal use onlyThis half our differentiated strategy delivered a cash profit of $3.5 billion, up 11% from $3.2 billion over the prior corresponding
period, and 6% on the half, with a Return on Equity of 15.5%, earnings per share of $1.287 cents and a fully-franked dividend pershare of 83 cents. This result was driven by 6% revenue growth and 6% expense growth on a cash basis, and a 12% reduction inprovisions. Total shareholder returns for the past twelve months were 19%.
Pleasingly, profits sourced from the Asia Pacific region increased to 25% of total Group profits putting the Group within range of its
stated target of achieving 25-30% of profit driven by network revenue by 2017. While ANZ has ongoing growth aspirations in theregion, we are now sufficiently advanced with our strategy to place a greater emphasis on improving returns, hence the goal to lift
Group RoE to 16% or above by 2016 in part driven by improving returns outside Australia and New Zealand.
Strategic Progress
While economic conditions across the Asia Pacific region remain more robust by comparison to much of the rest of the world,
conditions for banking remain challenging – particularly for institutional banking where relatively subdued economic conditions andmargin compression have impacted growth.
Within that environment, management continued to focus on balancing the need for investment to meet the needs of our customers
and drive longer-term growth, and the need to generate attractive returns for our shareholders in the near-term. This has beenachieved by focusing on both productivity initiatives and capital management to improve returns and support strong EPS growth.

•

We are building stronger positions in our home markets of Australia and New Zealand, led by further gains in productivity andmarket share, and further penetration of Wealth products into our existing customer base in these markets.

•

We have continued to build Asia quickly, focused on intermediating the fast growing trade and capital flows in the region withparticular emphasis on regional treasury centres like Hong Kong and Singapore and products like Trade, FX and CashManagement for Institutional customers. Notable achievements include 52% of International and Institutional Banking profit
now coming from outside Australia and New Zealand; and significant increases in volume for higher return less capital intensive
flow products like Foreign Exchange (up 37%), Cash Management Deposits (up 20%) and funded Trade and Supply Chain (up6%).

•

Our Operations and Technology functions continue to deliver economies of scale, speed to market and a stronger control
environment to the business, particularly from our regional hubs and our use of common platforms and processes, resulting inlower unit costs, better quality and lower risk. While average volumes increased by 8% over the past year, operations expenses
reduced 4% (fx adjusted) on the prior comparative period.

•

The Group generated around $1.9 billion of additional capital over the year, and remains well capitalised with a Common Equity
Tier 1 ratio of 10.5% at 31 March 2014 on a Basel 3 harmonised basis, or 8.3% under APRA’s Basel 3 standards. Customer
funding remained stable at 62% of total funding.

•Gross impaired assets reduced both HOH and PCP, and the Group’s coverage ratios remain strong with CP to CRWA at 0.93%
and the total provision ratio at 1.41%.

•

Finally, we focused on strengthening management depth and the alignment between business, operations, support andtechnology.

Medium to Long Term Strategic Goals

ANZ is committed to delivering strong total shareholder returns and above-peer earnings growth over the business cycle, targeting aGroup cost to income ratio below 43% and return on equity above 16% by 2016. The target dividend payout ratio remains at 6570% of cash profit, which we believe to be a sustainable level in a Basel 3 environment.
To do this we will continue to:•Strengthen our position in our core markets of Australia and New Zealand by growing our Retail and Commercial operations,driving productivity benefits, leveraging our super regional strategy and using technology to drive better functionality.

–

In Australia, we are transforming the way we serve our customers by investing in physical, mobile and digitalchannels to support our retail customers, by increasing sales capacity to support our business banking customers,
and by investing in customer analytics.

–

In New Zealand, we will work under one brand on one platform with more efficient market coverage.

•

Focus our Asian expansion primarily on Institutional Banking, supporting our Australian and New Zealand customers, targeting
profitable markets and segments in which we have expertise and which are connected through trade and capital flows.

•

Achieve greater efficiency and control through the use of scalable common infrastructure and platforms.

•

Maintain strong liquidity and actively manage capital to enhance ROE.

•

Build on our Super Regional capabilities – utilising our management bench-strength and continuing to deepen our international
talent pool.

•

Apply strict criteria when reviewing existing investment and new inorganic opportunities.

1

The CEO Overview is reported on a cash basis

13

CEO OVERVIEW

For personal use onlyThis page has been left blank intentionally14

CFO OVERVIEWCONTENTS

Section 4 – CFO Overview
Cash profit
Divisional performance

For personal use only

Review of Group results
Income and expenses
Credit risk
Income tax expense
Impact of exchange rate movements/revenue hedges
Earnings per share and dividends
Economic profit
Balance sheet, liquidity and capital
Deferred acquisition costs and deferred income
Investment spend
Software capitalisation

15

CFO OVERVIEW
Non-IFRS information
The Group provides two additional measures of performance in the Results Announcement which are prepared on a basis other than in accordance withaccounting standards - cash profit and economic profit. The guidance provided in Australian Securities and Investments Commission Regulatory Guide
230 has been followed when presenting this information.

Cash profit

For personal use only

Statutory profit has been adjusted to exclude non-core items to arrive at cash profit, and has been provided to assist readers to understand the results forthe ongoing business activities of the Group. The adjustments made in arriving at cash profit are included in statutory profit which is subject to review
within the context of the external auditor’s review of the Condensed Consolidated Financial Statements. Cash profit is not subject to review by theexternal auditor, however, the external auditor has informed the Audit Committee that the adjustments have been determined on a consistent basis
across each period presented.

The CFO Overview is reported on a cash basis.
Half Year
Mar 14$M
3,381

Statutory profit attributable to shareholders of the Company
Adjustments between statutory profit and cash profit1
Cash profit

Sep 13$M
3,329

Movement
Mar 13$M
2,937

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
15%

134

(16)

242

large

-45%

3,515

3,313

3,179

6%

11%

Half Year

Movement

Mar 14$M

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

Treasury shares adjustment

37

31

Revaluation of policy liabilities

(3)

27

53

19%

-30%

19

large

Economic hedging

89

(205)

large

192

large

-54%

Revenue and net investment hedges

18

Structured credit intermediation trades

(7)

143

16

-87%

13%

(12)

(38)

-42%

-82%

134

(16)

242

large

-45%

Adjustments between statutory profit
and cash profit1

Total adjustments between
statutory profit and cash profit1

1.

Refer to pages 83 to 92 for analysis of the reconciliation of statutory profit to cash profit.

Cash Profit1
Half Year

Movement

Net interest income

Mar 14$M
6,764

Sep 13$M
6,536

Mar 13$M
6,236

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
8%

Other operating income

2,904

2,763

2,856

5%

2%

Operating income

9,668

9,299

9,092

4%

6%

Operating expenses(4,286)(4,213)(4,044)

2%

6%

Profit before credit impairment and income tax

5,382

5,086

5,048

6%

7%

Credit impairment charge

(528)

(598)

(599)

-12%

-12%
9%

Profit before income tax

4,854

4,488

4,449

8%

Income tax expense(1,333)(1,170)(1,265)

14%

5%

(6)

(5)

(5)

20%

20%

3,515

3,313

3,179

6%

11%

Non-controlling interests
Cash profit

1.

Refer to page 29 for the impact of exchange rates and revenue hedges on cash profit.

16

CFO OVERVIEWDivisional performance
There have been no major changes to Divisional segments since 30 September 2013, however certain amounts in the comparatives have been
reclassified to conform with current period financial statement presentations.

Half Year

Movement

Mar 14$M
1,479

Sep 13$M
1,449

Mar 13$M
1,409

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
5%

International and Institutional Banking

1,372

1,244

1,208

10%

14%

546

482

396

13%

38%

For personal use only

Cash profit by division
Australia

New ZealandGlobal Wealth

226

268

204

-16%

11%

GTSO and Group Centre

(108)

(130)

(38)

-17%

large

Cash profit/(loss) by division

3,515

3,313

3,179

6%

11%

Cash profit by division – March 2014 Half Year v March 2013 Half Year
150

22
3,515

164

(70)

70
3,179

$m

1H13
Cash profit

Australia

International andInstitutional Banking

New ZealandGlobal Wealth

GTSO and Group
Centre

1H14
Cash profit

March 2014 half year v March 2013 half year
Australia•

Profit increased 5% primarily due to a 7% increase in average net loans and advances, partially offset by a 4% increase in credit impairment
charges, higher operating expenses from the investment in the 'Banking on Australia' program and a 5 bp contraction in net interest margin.

International and Institutional Banking•

Profit increased 14% due to stronger operating income in Global Markets (primarily from strong customer demand for foreign exchange andcommodity products in Asia) and Transaction Banking, volume driven income growth from both Retail Asia Pacific and Asia Partnerships, andlower credit impairment charges, partially offset by 10% growth in operating expenses. Excluding the impact of favourable foreign exchangetranslations, profit was up 9%.

New Zealand•Profit increased 38% primarily due to above system growth in mortgages, a reduction in credit impairment charges (reflecting strong
improvements in credit quality across the lending book), a 6% decrease in operating expenses and favourable foreign exchange translation.

Global Wealth•Profit increased 11% primarily due to higher funds management operating income (average funds under management (FUM) increased 14%),strong income growth in Private Wealth (strong growth in average customer deposits and loans and advances), partially offset by a decline ininsurance income and higher operating expenses from strategic growth initiatives and regulatory spend.

GTSO and Group Centre•

Net loss increased $70 million primarily due to realised losses from hedges of Group foreign currency revenues (offsetting translation gains
elsewhere in the Group) and annual salary increases.

March 2014 half year v September 2013 half year
Australia•

Profit increased 2% primarily due to a 3% increase in average net loans and advances and a 7% decrease in credit impairment charges,
partially offset by 1% uplift in expenses and a 3 bp contraction in net interest margin.

International and Institutional Banking•

Profit increased 10% due to stronger operating income in Global Markets (primarily from stronger customer demand for foreign exchange andcommodity products in Asia) and volume driven income growth in Retail Asia Pacific and Asia Partnerships, partially offset by 4% growth inoperating expenses and higher credit impairment charges.

17

CFO OVERVIEWNew Zealand•Profit increased 13% primarily due to solid growth in mortgages and small business banking, a significant reduction in credit impairment charges(reflecting strong improvements in credit quality across the lending book), a 1% decrease in operating expenses and favourable foreignexchange translation.

Global WealthFor personal use only•

Profit decreased 16% mainly due to a favourable one off tax consolidation adjustment in the September 2013 half. Profit before tax increased
9% driven by strong growth in Private Wealth operating income (mainly from customer deposits) and higher funds management income(reflecting 7% average FUM growth), partially offset by lower insurance operating income and higher operating expenses from strategic growth
initiatives and regulatory spend.

GTSO and Group Centre•

Net loss decreased 17% primarily due to lower restructuring costs in the current period, partially offset by higher realised losses from hedges ofGroup foreign currency revenues (offsetting translation gains elsewhere in the Group).

Refer to Section 5 – Segment Review on pages 41 to 74 for further details

18

CFO OVERVIEW
Review of Group results
Income and expenses
Net interest income
Half Year

Movement

Mar 14$M
6,764

Sep 13$M
6,536

Mar 13$M
6,236

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
8%

Average interest earning assets

632,400

595,998556,264

6%

14%

Average deposit and other borrowings

498,484

466,261433,780

7%

15%

2.15

2.19

2.25

-4 bps-10 bps

For personal use onlyGroup
Cash net interest income

Net interest margin (%) - cash

Group (excluding Global Markets)
Cash net interest income

6,241

6,095

5,860

2%

7%

Average interest earning assets

492,602

466,006

440,110

6%

12%

Average deposit and other borrowings

381,118

360,113334,212

6%

14%

2.54

2.61

2.67

-7 bps-13 bps

Net interest margin (%) - cash

Half Year
Mar 14$M

Cash net interest margin by major division
Australia
Net interest margin (%)

Sep 13$M

Movement
Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

2.48

2.51

2.53

-3 bps-5 bpsAverage interest earning assets ($M)

276,779

268,795

259,721

3%

7%

Average deposits and other borrowings ($M)

155,314148,675

144,2774%8%International and Institutional Banking
1.55

1.58

1.65

-3 bps-10 bps

Average interest earning assets ($M)

Net interest margin (%)

258,222240,370

216,536

7%

19%

Average deposits and other borrowings ($M)

216,062

195,535

182,389

10%

18%

2.48

2.49

2.50

-1 bp

-2 bpsAverage interest earning assets ($M)

85,86477,786

71,497

10%

20%

Average deposits and other borrowings ($M)

54,51648,31145,023

13%

21%

New Zealand
Net interest margin (%)

Group net interest margin – March 2014 Half Year v March 2013 Half Year
3

225

1
(2)
(7)
215
(5)

bps

1H13
Cash
Net interest margin

Asset mix andfunding mix

Funding costs

Deposits
competition

Asset competition
and risk mix

Markets and treasury

1H14
Cash
Net interest margin

March 2014 half year v March 2013 half year
Net interest margin (-10 bps)•

Asset mix and funding mix (-2 bps): adverse asset mix from an increased proportion of lower margin home loans and trade loans.

•

Funding costs (+1 bp): impact from slightly favourable wholesale funding costs.

•

Deposit competition (+3 bps): benefit from active margin management across deposit products as a result of lower deposit competition,
particularly term deposits.

•

Asset competition and risk mix (-7 bps): continued pressure on lending margins, including competition and switching from variable to fixed in
the home loan market in Australia and New Zealand, competition in Global Loans and lower spreads within Corporate and Commercial
Banking.

19

CFO OVERVIEW•

Markets and treasury (-5 bps): primarily Treasury due to adverse impact of lower earnings on capital from lower interest rates.

For personal use only

Average interest earning assets (+$76.1 billion or 14%)•Australia (+$17.1 billion or 7%): driven by growth in net loans and advances, largely home loans and commercial lending facilities.

•

International and Institutional Banking (+$41.7 billion or 19%): $7.5 billion increase in Global Loans and $7.3 billion increase in Transaction
Banking loans which grew in line with strategy. Reverse repos, investment in government securities, bonds and liquidity portfolio within Global
Markets increased by $23.2 billion.

•

New Zealand (+$14.4 billion or 20%): increased Commercial and Retail lending, primarily in shorter term fixed rate home loans, as well as theimpact of stronger NZD.

•GTSO and Group Centre (+$2.4 billion): Increase in cash balance to facilitate interbank overnight settlement driven by new RBA requirements.

Average deposits and other borrowings (+$65 billion or 15%)•Australia (+$11.0 billion or 8%): driven by growth in customer deposits across the retail and commercial portfolios, largely at call products.

•

International and Institutional Banking (+$33.7 billion or 18%): primarily due to increased customer deposits within APEA and Australia.
Increase of $17.8 billion in Global Markets driven by customer deposits and external repos for funding purposes.

•

New Zealand (+$9.5 billion or 21%): increasing volumes in Retail and Commercial banking, including a focus on growing higher margin savings
products, as well as the impact of a stronger NZD.

•GTSO and Group Centre (+$8.4 billion): reflecting increased short term Negotiable Certificates of Deposit issuance and an increase in cash
borrowing balance related to the new RBA requirements.

Group net interest margin – September 2013 Half Year v March 2013 Half Year

2

219

(1)

-

215

Markets and treasury

1H14
Cash
Net interest margin

(5)

bps

2H13
Cash
Net interest margin

Asset mix andfunding mix

Funding costs

Deposits
competition

Asset competition
and risk mix

March 2014 half year v September 2013 half year
Net interest margin (-4 bps)•

Asset mix and funding mix (-1 bp): unfavourable asset mix impact from faster growth in lower margin Home Loans business and slower growthin higher margin Cards and Payments business.

•

Deposit competition (+2 bps): benefit from active margin management across deposit products as a result of lower deposit competition,
particularly term deposits.

•

Asset competition and risk mix (-5 bps): continued pressure on lending margins, including significant competition and switching from variable to
fixed in the home loan market in Australia and New Zealand, competition in Global Loans within IIB and lower spreads within Corporate andCommercial Banking.

Average interest earning assets (+$36.4 billion or 6%)•

Australia (+$8.0 billion or 3%): driven by growth in net loans and advances, largely in the variable home loan portfolio.

•

International and Institutional Banking (+$17.9 billion or 7%): Global Loans increased by $5.0 billion with strong re-financing levels in Australia
and Transaction Banking loans increased by $1.6 billion, primarily in Asia. Reverse repos, investment in government securities and liquidity
portfolio within Global Markets increased by $8.6 billion.

•

New Zealand (+$8.1 billion or 10%): Increased Commercial and Retail lending volumes, particularly shorter term fixed rate home loans as the
economic environment improved, as well as the impact of a stronger NZD.

•GTSO and Group Centre (+$2.5 billion): Increase in cash balance to facilitate interbank overnight settlement attributed to new RBA
requirements.

Average deposits and other borrowings (+$32 billion or 7%)•

Australia (+$6.6 billion or 4%): driven by growth in customer deposits across the retail and commercial portfolios, largely at call products.

•

International and Institutional Banking (+$20.5 billion or 10%): increase in term deposits, with growth concentrated in APEA and Australia.
Increase of $11.2 billion in deposits within Global Markets driven by customers and external repos for funding purposes and commodities
trading in Asia.

•

New Zealand (+$6.2 billion or 13%): increased customer deposits in both Commercial and Retail, as well as the impact of a stronger NZD.

•GTSO and Group Centre (-$2.1 billion): decreased short term wholesale funding borrowings, partially offset by increased cash borrowings
balance related to the new RBA requirements.

20

CFO OVERVIEW
Income and expenses, cont’d
Other operating income
Half Year
Mar 14$M
1,191

Fee income1

Movement

Sep 13$M
1,171

Mar 13$M
1,145

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
4%
-68%

43

75

134

-43%

Net income from wealth management

617

622

594

-1%

4%

Share of associates' profit1

243

269

209

-10%

16%

For personal use only

Foreign exchange earnings1

Other1

90

59

31

52%

large

Global Markets other operating income

720

567

743

27%

-3%

2,904

2,763

2,856

5%

2%

Global Markets income
Net interest income

523

441

376

19%

39%

Other operating income

720

567

743

27%

-3%

1,243

1,008

1,119

23%

11%

Cash other operating income

1.

Excluding Global Markets.

Cash Global Markets income

Half Year

Movement

Other operating income by division
Australia

Mar 14$M
588

Sep 13$M
602

Mar 13$M
588

Mar 14v. Sep 13-2%

International and Institutional Banking

Mar 14v. Mar 13
0%

1,599

1,409

1,502

13%

6%

New Zealand

178

186

162

-4%

10%

Global Wealth

726

705

680

3%

7%

GTSO and Group Centre

(187)

(139)

(76)

35%

large

Cash other operating income

2,904

2,763

2,856

5%

2%

Other operating income – March 2014 Half Year v March 2013 Half Year

2,856

59

46

34

23

2,904
(23)

(91)
$m

1H13
Cash otheroperating income

Fee income

Foreign exchange Net income from
earnings
wealthmanagement

Share ofassociates' profit

Other

Global Markets
other operating
income

1H14
Cash otheroperating income

March 2014 half year v March 2013 half year
Fee income (+$46 million or +4%)•

Transaction Banking increased $17 million, primarily due to an $8 million increase in fees relating to issuance of Letters of Credit in China, Korea
and Singapore, $3 million increase in fees from guarantees and Letters of Credit issued in Europe and $3 million increase in fees earned in the
Pacific due to volume growth.

•

Retail Asia Pacific increased $13 million, primarily due to higher income from investment and insurance products in Hong Kong and Singapore
and weakening of the AUD during the March 2014 half.

•

New Zealand increased $13 million, mainly due to weakening of the AUD during the March 2014 half.

•

Cards and Payments decreased $5 million, primarily due to reduced income as a result of improved customer payment behaviour on consumer
credit card products.

Foreign Exchange (-$91 million or -68%)•

Group Centre decreased $126 million, primarily due to realised losses on foreign currency revenue hedges (offsetting translation gains
elsewhere in the Group).

•

IIB (excluding Global Markets) increased $32 million, mainly driven by growth in cross border transaction volumes in Transaction Banking andhigher gains in Retail Asia Pacific due to the weakening of AUD.

21

CFO OVERVIEWNet Income from Wealth Management (+$23 million or +4%)•

Global Wealth increased $6 million due to improved funds management results driven by higher average funds under management, partially
offset by lower insurance income arising from the exit of a large group Iife insurance plan.

•

Group Centre increased $13 million due to a reduction in the elimination of Global Wealth investments in ANZ products (offset in net interest
income).

Share of associates profit (+$34 million or +16%)

For personal use only•

AMMB Holdings Berhad (AMMB) increased by $13 million mainly due to strong non-interest income growth driven by Retail and Insurance
segments.

•

Bank of Tianjin (BoT) increased $12 million due to increased earnings driven by strong lending growth in both Enterprise and Retail clients,
growth in interbank assets and weakening of the AUD.

•

Shanghai Rural Commercial Bank (SRCB) increased $5 million mainly due to weakening of the AUD.

•

P.T. Bank Pan Indonesia increased by $2 million due to increased earnings driven by lending growth more than offsetting the weakening of the
IDR.

Other income (+$59 million or large %)•Global Wealth increased $33 million, primarily due to resolution of an insurance settlement relating to a legacy New Zealand funds management
matter.

•Global Loans increased $7 million mainly due to the profit on the restructuring of structured lease assets.

•

Asia Partnerships increased $12 million due to the BoT dilution gain (from non-participation in a rights issue) recorded in the March 2014 half.

Global Markets Income (+$124 million or +11%)
In relatively similar trading conditions the customer franchise has been the key driver in increasing revenue by $124 million:•

Sales revenue increased $74 million, mainly due to the foreign exchange business where increased volatility has led to increased customer
hedging activity.

•

Trading income increased $20 million, primarily due to strong growth across the foreign exchange business, with high levels of customer demandin China, Hong Kong and Taiwan.

•

Income from management of the Group’s balance sheet and liquidity portfolio increased $30 million due to tightening of credit spreads on markto market valuation.

Refer to page 56 for further information.

March 2014 half year v September 2013 half year
Fee income (+$20 million or +2%)•

Transaction Banking increased $13 million, primarily due to a $10 million increase in fees relating to the issuance of Letters of Credit in China,
Korea, and Singapore and $3 million increase in guarantee fees in Australia.

•

Retail Asia Pacific increased $9 million, primarily due to higher income from investment and insurance products in Hong Kong and Singapore.

Foreign Exchange (-$32 million or -43%)•

Group Centre decreased $25 million driven by realised losses on foreign currency revenue hedges (offsetting translation gains elsewhere in theGroup).

•

Cards and Payments decreased $12 million due to seasonally lower travel card volumes.

Net Income from Wealth Management (-$5 million or -1%)•

Global Wealth decreased $5 million driven by a decline in insurance income arising from the exit of a large group life insurance plan, partially
offset by growth in funds management income.

Share of associates profit (-$26 million or -10%)•

AMMB decreased $12 million mainly due to seasonal factors impacting non-annuity earnings.

•

BoT increased $7 million due to increased earnings driven by growth in both Corporate lending and interbank assets.

•

SRCB decreased $12 million mainly due to an impairment of an investment held by SRCB.

•

P.T. Bank Pan Indonesia decreased $6 million mainly due to seasonal factors impacting earnings and the weakening of the IDR.

Other income (+$31 million or +52%)•

Asia Partnerships increased by $39 million due to a write down of the investment in Saigon Securities Inc. (SSI) of $26 million in the September
2013 half and a dilution gain of $12 million (from non-participation in a rights issue) relating to BoT recorded in the March 2014 half.

•

Global Wealth increased $21 million, primarily due to resolution of an insurance settlement relating to a legacy New Zealand funds management
matter.

•Global Loans increased by $8 million mainly due to the profit on the restructuring of structured lease assets.

•

New Zealand decreased $14 million as the September 2013 results included the gain on sale of EFTPOS New Zealand Limited.

22

CFO OVERVIEW
Global Markets Income (+$235 million or +23%)
A sustained period of strong client acquisition and favourable trading conditions has increased revenue by $235 million:
Sales revenues increased $45 million mainly attributable to the foreign exchange business where increased volatility has led to increased
customer hedging activity.

•

Trading income (primarily on customer foreign exchange hedging and precious metals) increased $68 million on improved trading conditions andhigher customer flows.

•

Income from management of the Group’s balance sheet and liquidity portfolio increased $122 million in part due to tightening of credit spreads
from September 2013 half.

For personal use only•

Refer to page 56 for further information.

23

CFO OVERVIEW
Income and expenses, cont’d

Half Year

Movement

Mar 14$M
2,493

Sep 13$M
2,417

Mar 13$M
2,347

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
6%

Premises expenses

391

377

356

4%

10%

Computer expenses

640

625

618

2%

4%

Restructuring expenses

35

28

57

25%

-39%

For personal use only

Expenses
Personnel expenses

Other expenses
Total cash operating expenses
1,2

Total full time equivalent staff (FTE)

1.
2.

727

766

666

-5%

9%

4,286

4,213

4,044

2%

6%

48,857

48,86548,8710%0%Refer to page 142 for a summary of full time equivalent staff movements during the period.
Comparative information has been restated to include technology contractors, consistent with how FTE are reported and managed internally.

Half Year

Movement

Expenses by division
Australia

Mar 14$M
1,500

Sep 13$M
1,492

Mar 13$M
1,475

Mar 14v. Sep 13
1%

Mar 14v. Mar 13
2%

International and Institutional Banking

1,598

1,531

1,456

4%

10%

New Zealand

514

486

475

6%

8%

Global Wealth

494

489

463

1%

7%

GTSO and Group Centre

180

215

175

-16%

3%

4,286

4,213

4,044

2%

6%

61

4,286

Other expenses

1H14
Cash operating
expenses

Total cash operating expenses

Operating expenses – March 2014 Half Year v March 2013 Half Year

146

22

35

(22)

4,044
$m

1H13
Cash operating
expenses

Personnel expenses Premises expenses Computer expenses

Restructuring
expenses

March 2014 half year v March 2013 half year•

Personnel expenses increased $146 million (6%), primarily due to annual salary increases and the adverse impact of foreign exchange
movements, partially offset by lower redundancy costs in the March 2014 half.

•Premises expenses increased $35 million (10%), driven by increased rental space, including our new Sydney premises, along with rent andutility cost increases and adverse foreign exchange translation.

•

Computer expenses increased $22 million (4%) due to increased depreciation and amortisation and higher spend on computer contractors
and communication costs, partially offset by lower software purchases.

•

Restructuring expenses decreased $22 million (-39%) due to the completion of “NZ Simplification” and lower restructuring initiatives in GTSO
and Group Centre.

•

Other expenses increased $61 million (9%), primarily due to adverse impact of foreign exchange movements, the impact of a one off GST
credit in the March 2013 half and higher advertising costs, partially offset by lower spend on project consultants.

March 2014 half year v September 2013 half year•

Personnel expenses increased $76 million (3%), primarily due to annual salary increases and the adverse impact of foreign exchange
movements.

•

Premises expenses increased $14 million (4%) due to increased depreciation and amortisation on new office buildings and fixtures.

•

Computer expenses increased $15 million (2%) due to increased depreciation and amortisation and higher computer contractors costs,
partially offset by lower software purchases.

•

Restructuring expenses increased $7 million (25%) due mainly to increased restructuring in GTSO and Group Centre.

•

Other expenses decreased $39 million (-5%) primarily due to lower spend on project consultants and decreased travel and entertainment
costs.

24

CFO OVERVIEW
Credit risk
Overall asset quality has improved compared to the prior comparable period in 2013, with gross impaired assets reducing $1,065 million (23%) to $3,620
million at 31 March 2014. This was driven by a focus on portfolio credit quality resulting in lower levels of impaired exposures across Australia, IIB and
New Zealand.
The Group continues to maintain a prudent approach to provisioning, with total provisions for impairment losses of $4,313 million as at 31 March 2014,
down $41 million (1%) from 30 September 2013, up $1 million compared to the 31 March 2013.

For personal use only

The total credit impairment charge of $528 million reduced by $71 million (12%) compared to the prior comparable period and by $70 million (12%)
compared to the September 2013 half.
Half Year
Mar 14$M
602

Credit impairment charge
Individual credit impairment charge

Sep 13$M
572

Movement
Mar 13$M
595

Mar 14v. Sep 13
5%

Mar 14v. Mar 13
1%

Collective credit impairment charge/(release)

(74)

26

4

large

large

Total credit impairment charge

528

598

599

-12%

-12%

Half Year

Movement

Credit impairment charge/(release)
Australia

Mar 14$M403

Sep 13$M
434

Mar 13$M
386

Mar 14v. Sep 13-7%

Mar 14v. Mar 13
4%

International and Institutional Banking

161

133

184

21%

-13%

New Zealand

(34)

9

28

large

large

Global Wealth

(1)

3

1

large

large

GTSO and Group Centre

(1)

19

-

large

n/a

528

598

599

-12%

-12%

Total credit impairment charge

Half Year

Movement

Individual credit impairment charge
Australia

Mar 14$M374

Sep 13$M
401

Mar 13$M370

International and Institutional Banking

215

113

167

90%

29%

New Zealand

13

37

58

-65%

-78%

Global Wealth

-

2

-

-100%

n/a

GTSO and Group Centre

-

19

-

-100%

n/a

602

572

595

5%

1%

Total individual credit impairment charge

Half Year

Mar 14v. Sep 13-7%

Mar 14v. Mar 13
1%

Movement

Mar 14$M
557

Sep 13$M
582

Mar 13$M
550

International and Institutional Banking

295

205

245

44%

20%

New Zealand

112

145

150

-23%

-25%

Global Wealth

3

4

-

-25%

n/a

GTSO and Group Centre

-

19

-

-100%

n/a

New and increased credit impairments for loans and advances

967

955

945

1%

2%

Recoveries and writebacks
Australia

(183)

(181)

(180)

1%

2%

International and Institutional Banking

(80)

(92)

(78)

-13%

3%

New Zealand

(99)

(108)

(92)

-8%

8%

Global Wealth

(3)

(2)

-

50%

n/a

Recoveries and writebacks

(365)

(383)

(350)

-5%

4%

Total individual credit impairment charge

602

572

595

5%

1%

New and increased individual credit impairments
Australia

Mar 14v. Sep 13-4%

Mar 14v. Mar 13
1%

March 2014 half year v March 2013 half year
The total individual credit impairment charge increased by $7 million (1%) over the March 2013 half primarily due to higher credit impairment charges in
IIB, partially offset by lower credit impairment charges in New Zealand due to an improvement in credit quality.
March 2014 half year v September 2013 half year
The total individual credit impairment charge increased $30 million (5%) over the half, primarily due to larger provisions being raised in IIB, partially offset
by reductions in Australia and New Zealand.

25

CFO OVERVIEW

Half Year

Movement

Mar 14$M85

Sep 13$M
67

Mar 13$M
69

Mar 14v. Sep 13
27%

Mar 14v. Mar 13
23%

Risk profile

(190)

(23)

(20)

large

large

Portfolio mix

(10)

(9)

(20)

11%

-50%

Economic cycle and concentration risk adjustment

41

(9)

(25)

large

large

(74)

26

4

large

large

Collective credit impairment charge/(release) by division
Australia

29

33

16

-12%

81%

International and Institutional Banking

(54)

20

17

large

large

New Zealand

(47)

(28)

(30)

68%

57%

Global Wealth

(1)

1

1

large

large

GTSO and Group Centre

(1)

-

-

n/a

n/a

Collective credit impairment charge/(release)

(74)

26

4

large

large

For personal use only

Collective credit impairment charge/(release) by source
Lending growth

Collective credit impairment charge/(release)

March 2014 half year v March 2013 half year

The collective credit impairment charge decreased by $78 million from the March 2013 half, driven by a significant improvement in the risk profile
following the crystallisation of individual provisions on a few large IIB exposures, and as a result of upgrades to a number of large customer exposures in
IIB and New Zealand. This was partially offset by a net increase in economic cycle provision, primarily related to the mining services industry.
The $54 million release in IIB was due to a combination of the crystallisation of individual provisions on a few large exposures and improved customer
credit ratings, partially offset by an increase in the economic cycle provision. The New Zealand release of $47 million was driven by improved credit
quality and a reduction in the economic cycle provision, partially offset by lending growth and a few exposures returning to performing. The $29 million
charge in Australia was primarily due to lending growth and an increase in the economic cycle provision.
March 2014 half year v September 2013 half year

The collective credit impairment charge decreased $100 million from the September 2013 half, driven by a significant improvement in the risk profile
following the crystallisation of individual provisions on a few large IIB exposures, and as a result of upgrades to a number of large customer exposures in
IIB and New Zealand. This was partially offset by a net increase in economic cycle provision, primarily related to the mining services industry.
The drivers of the current period collective provision are as described above.

26

CFO OVERVIEW
Credit risk, cont’d

As at ($M)

Provision for credit impairment balance

Movement

Sep 13$M

Mar 13$M

Collective provision1

2,843

2,887

2,769

Individual provision

1,470

1,467

For personal use only

Mar 14$M

Total provision for credit impairment
1.

4,313

4,354

Mar 14v. Sep 13-2%

Mar 14v. Mar 13
3%

1,543

0%

-5%

4,312

-1%

0%

The collective provision includes amounts for off-balance sheet credit exposures: $597 million at 31 March 2014 (Sep 13: $595 million; Mar 13: $531 million). The impact on the income
statement for the half year ended 31 March 2014 was a $8 million release (Sep 13 half: $35 million charge; Mar 13 half: $2 million charge).

Gross impaired assets
As at ($M)

Movement

Mar 14
3,314

Sep 13
3,751

Mar 13
3,978

Mar 14v. Sep 13-12%

Mar 14v. Mar 13-17%

Restructured items

60

341

524

-82%

-89%

Non-performing commitments and contingencies

246

172

183

43%

34%

3,620

4,264

4,685

-15%

-23%

(1,396)(1,440)(1,518)

-3%

-8%

(74)

(27)

(25)

large

large

2,150

2,797

3,142

-23%

-32%

Impaired loans

Gross impaired assets
Individual provisions
Impaired loans
Non-performing commitments and contingencies
Net impaired assets

As at ($M)

Movement

Gross impaired assets by division
Australia

Mar 14$M
1,463

Sep 13$M
1,685

Mar 13$M
1,746

Mar 14v. Sep 13-13%

Mar 14v. Mar 13-16%

International and Institutional Banking

1,471

1,758

1,893

-16%

-22%

New Zealand

668

765

1,013

-13%

-34%

Global Wealth

18

30

33

-40%

-45%

GTSO and Group Centre

-

26

-

-100%

n/a

Gross impaired assets

3,620

4,264

4,685

-15%

-23%

Impaired and restructured items by size of exposure
As at ($M)

Movement

Mar 142,204

Sep 132,235

Mar 13
2,246

Mar 14v. Sep 13-1%

Mar 14v. Mar 13-2%$10 million to $100 million

897

1,491

1,659

-40%

-46%

Greater than $100 million

519

538

780

-4%

-33%
-23%

Less than $10 million

Gross impaired assets

3,620

4,264

4,685

-15%

Less: Individually assessed provisions for impairment(1,470)(1,467)(1,543)0%-5%Net impaired assets

2,150

2,797

3,142

-23%

-32%

March 2014 half year v March 2013 half year

Gross impaired assets decreased 23% primarily due to several exposures returning to performing in IIB and New Zealand, combined with lending bookcredit quality improvements. The Group has an individual provision coverage ratio on impaired assets of 40.6% at 31 March 2014, up from 32.9% as at
31 March 2013.
March 2014 half year v September 2013 half year

Gross impaired assets decreased 15% primarily due to several exposures returning to performing in IIB and New Zealand, combined with asset
realisations and write-offs. The Group has an individual provision coverage ratio on impaired assets of 40.6% at 31 March 2014, up from 34.4% as at 30
September 2013.

27

CFO OVERVIEW
Credit risk, cont’d
New Impaired Assets
Half Year

Movement

Mar 14$M
1,431

Sep 13$M
1,687

Mar 13$M
1,551

Mar 14v. Sep 13-15%

Mar 14v. Mar 13-8%

Restructured items

10

24

13

-58%

-23%

Non-performing commitments and contingencies

100

5

7

large

large

Total new impaired assets

1,541

1,716

1,571

-10%

-2%

New impaired assets by division
Australia

Mar 14$M758

Sep 13$M
940

Mar 13$M
782

Mar 14v. Sep 13-19%

Mar 14v. Mar 13-3%

International and Institutional Banking

516

446

453

16%

14%

New Zealand

263

296

335

-11%

-21%

Global Wealth

4

8

1

-50%

large

GTSO and Group Centre

-

26

-

-100%

n/a

1,541

1,716

1,571

-10%

-2%

For personal use only

Impaired loans

Total new impaired assets

March 2014 half year v March 2013 half year

New impaired assets decreased 2% primarily due to decreases in Australia and New Zealand divisions as portfolio credit quality improved. This waspartially offset by some increases in IIB due to the downgrade of a few large customers.
March 2014 half year v September 2013 half year

New impaired assets decreased 10% primarily due to decreases in the Australia and New Zealand as portfolio credit quality improved. This was partially
offset by some increases in IIB due to the downgrade of a few large customers.

As at ($M)

Movement

Ageing analysis of net loans and advancesthat are past due but not impaired
1-5 days

Mar 14
3,345

Sep 13
3,096

Mar 13
2,088

Mar 14v. Sep 13
8%

Mar 14v. Mar 1360%

6-29 days

4,660

4,416

30-59 days

2,037

1,506

5,294

6%

-12%

1,870

35%

9%

60-89 days

980

927

889

6%

10%

>90 days

2,061

1,818

1,696

13%

22%

Total

13,083

11,763

11,837

11%

11%

March 2014 half year v March 2013 half year

The 90 past due but not impaired volumes increased by 22%, compared with the March 2013 half, predominantly due to increases within the Australianmortgage portfolio. This was driven by a combination of portfolio growth, hardship ageing treatment changes, seasonality and specific state-based
increases.
March 2014 half year v September 2013 half year

The 90 past due but not impaired volumes increased by 13%, compared with the September 2013 half, predominantly due to increases within theAustralian mortgage portfolio. This was driven by a combination of portfolio growth, hardship ageing treatment changes, seasonality and specific statebased increases. Along with the above, the 30-59 days delinquencies were also impacted by pending loan extension approvals and loan redocumentation for three large customers.

28

CFO OVERVIEW
Income tax expense
Half Year

Movement

Sep 13$M
1,170

Mar 13$M
1,265

Effective tax rate (cash profit)

27.5%

26.1%

28.4%

For personal use only

Income tax expense on cash profit

Mar 14$M
1,333

Mar 14v. Sep 13
14%

Mar 14v. Mar 13
5%

March 2014 half year v March 2013 half year

The effective tax rate decreased 0.9% primarily due to a favourable increase in the overseas tax rate differential during the March 2014 half.
March 2014 half year v September 2013 half year

The effective tax rate increased 1.4% primarily due to a favourable Global Wealth tax consolidation adjustment during the September 2013 half.
Impact of exchange rate movements/revenue hedges
The Group uses derivative instruments to economically hedge against the adverse impact on future offshore revenue streams from exchange rate
movements.
Movements in average exchange rates, net of realised hedges, resulted in an increase of $57 million in the Group’s cash profit over the prior comparable
period. Hedges reduced cash profit by $107 million (pre-tax) compared to the March 2013 half year and by $27 million (pre-tax) compared to the
September 2013 half. Hedge revenue/cost is recorded against other operating income in the Group Centre. Excluding the impact of hedges, operating
income (FX unadjusted) would have increased 4% on the September 2013 half year and by 8% on the March 2013 half year.
Half Year Mar 2014v. Half Year Sep 2013
FX
unadjusted %growth3%

FX adjusted% growth2%

Other operating income

5%

Operating income

4%

Operating expenses

2%

Net interest income

Profit before credit impairment and income tax

Half Year Mar 2014v. Half Year Mar 2013
FX
Impact$M
104

FX
unadjusted %growth8%

FX adjusted% growth
5%

FX
Impact
$M
223

5%

6

2%

1%

20

3%

110

6%

4%

243

0%

(67)

6%

2%

(169)

6%

5%

43

7%

5%

74

Credit impairment charge

-12%

-11%

2

-12%

-14%

(16)

Profit before income tax

8%

7%

45

9%

8%

58

Income tax expense

14%

13%

(10)

5%

5%

(1)

Non-controlling interests

20%

20%

-

20%

20%

-

Cash profit

6%

5%

35

11%

9%

57

The Group’s cash profit adjusted for exchange rate movements is as follows:
Half Year

Movement

Net interest income

Mar 14$M
6,764

Sep 13$M
6,640

Mar 13$M
6,459

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
5%

Other operating income

2,904

2,769

2,876

5%

1%

Operating income

9,668

9,409

9,335

3%

4%

Operating expenses(4,286)(4,280)(4,213)0%

2%Profit before credit impairment and income tax

5,382

5,129

5,122

5%

5%

Credit impairment charge

(528)

(596)

(615)

-11%

-14%
8%

Profit before income tax

4,854

4,533

4,507

7%

Income tax expense(1,333)(1,180)(1,266)

13%

5%

(6)

(5)

(5)

20%

20%

3,515

3,348

3,236

5%

9%

Non-controlling interests
Cash profit (FX adjusted)29

CFO OVERVIEW
Earnings related hedges
The Group has taken out economic hedges against New Zealand Dollar and US Dollar (and USD correlated) revenue and expense streams. New
Zealand dollar exposure relate to the New Zealand geography (refer page 81) and the debt component of New Zealand dollar intra-group funding of thisbusiness, which amounted to NZD 1.766 billion at 31 March 2014. Most of our US dollar earnings are in APEA (refer page 78). Details of these hedges
are set out below.
Half Year
Mar 14$M
2,275

Sep 13$M
1,549

Mar 13$M
1,315

Amount taken to income (pre tax statutory basis)2

(104)

(175)

(3)

Amount taken to income (pre tax cash basis)3

(71)

(40)

(2)

For personal use only

NZD Economic hedges
Net open NZD position (notional principal)1

USD Economic hedges
Net open USD position (notional principal)1

900

1,294

728

Amount taken to income (pre tax statutory basis)2

(5)

(88)

13

Amount taken to income (pre tax cash basis)3

(15)

(19)

23

1.
2.
3.

Value in AUD at original contract rate.
Unrealised valuation movement plus realised revenue from closed out hedges.
Realised revenue from closed out hedges.

As at 31 March 2014, the following hedges are in place to partially hedge future earnings against adverse movements in exchange rates:•

NZD 2.6 billion at a forward rate of approximately NZD 1.16 / AUD.

•

USD 0.8 billion at a forward rate of approximately USD 0.94 / AUD.

During the March 2014 half year:•

NZD 0.8 billion of economic hedges matured and a realised loss of $71 million (pre-tax) was recorded in cash profit.

•

USD 0.4 billion of economic hedges matured and a realised loss of $15 million (pre-tax) was recorded in cash profit.

•

An unrealised loss of $23 million (pre-tax) on the outstanding NZD and USD economic hedges was recorded in the income statement during the halfand has been treated as an adjustment to statutory profit as these are hedges of future periods’ NZD and USD revenues.

Earnings per share (cents)
Half Year

Movement

Mar 14

Sep 13

Mar 13

Mar 14v. Sep 13

Mar 14v. Mar 13

128.7

121.4

116.9

6%

10%

124.3

117.4

113.1

6%

10%

Basic

2,728.0

2,727.5

2,716.6

0%0%

Diluted

2,918.8

2,915.4

2,904.4

0%0%Cash profit ($M)

3,515

3,313

3,179

6%

11%

Cash earnings per share (cents)
Basic1
Diluted2

Cash weighted average number of ordinary shares (M)Preference share dividends ($M)

(3)

(3)

(3)

0%

0%

Cash profit less preference share dividends ($M)1

3,512

3,310

3,176

6%

11%

Diluted cash profit less preference share dividends ($M)

3,628

3,424

3,286

6%

10%

1.
2.

The earnings per share calculation excludes the Euro Trust Securities (preference shares).
Includes Treasury shares held in Global Wealth.

30

CFO OVERVIEWDividends
Half Year

Movement

Mar 14$M83

Sep 13$M
n/a

Mar 13$M
73

Mar 14v. Sep 13
n/a

Mar 14v. Mar 13
14%

n/a

91

n/a

n/a

n/a

Ordinary share dividends used in payout ratio ($M)2

2,278

2,497

2,003

-9%

14%

Cash profit ($M)

3,515

3,313

3,179

6%

11%

(3)

(3)

(3)

0%

0%

64.9%

75.4%

63.1%

Dividend per ordinary share (cents)
Interim (fully franked)1

For personal use only

Final (fully franked)

Less: Preference share dividends paid
Ordinary share dividend payout ratio (cash basis)

1.
2.

2014 interim is proposed.
Dividend payout ratio is calculated using proposed 2014 interim dividend of $2,278 million, which is based on the forecast number of ordinary shares on issue at the dividend record date.
Dividend payout ratios for the September 2013 half year and March 2013 half year are calculated using actual dividend paid of $2,497 million and $2,003 million respectively. Dividend
payout ratio is calculated by adjusting profit attributable to shareholders of the company by the amount of preference share dividends paid.

The Directors propose that an interim dividend of 83 cents be paid on each eligible fully paid ANZ ordinary share on 1 July 2014. The proposed 2014
interim dividend will be fully franked for Australian tax purposes and New Zealand imputation credits of NZD 10 cents per ordinary share will also be
attached.
Economic profit
Half Year
Mar 14$M
3,381

Statutory profit attributable to shareholders of the company
Adjustments between statutory profit and cash profit

Sep 13$M
3,329

Movement
Mar 13$M
2,937

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
15%

134

(16)

242

large

-45%

Cash profit

3,515

3,313

3,179

6%

11%

Economic credit cost adjustment

(256)

(205)

(171)

25%

50%

Imputation credits

566

585

644

-3%

-12%

Economic return

3,825

3,693

3,652

4%

5%

Cost of capital(2,485)(2,402)(2,242)

3%

11%

Economic profit

1,340

1,291

1,410

4%

-5%

Economic profit is a risk adjusted profit measure used to evaluate business unit performance and is considered in determining the variable component of
remuneration packages. This is used for internal management purposes and is not subject to review by the external auditor.
Economic profit is calculated via a series of adjustments to cash profit. The economic credit cost adjustment replaces the actual credit loss charge withinternal expected loss based on the average loss per annum on the portfolio over an economic cycle. The benefit of imputation credits is recognised,measured at 70% of Australian tax. The cost of capital is a major component of economic profit. At an ANZ Group level, this is calculated using averageordinary shareholders’ equity (excluding non-controlling interests), multiplied by the cost of capital rate (11% used consistently over a number of years)
plus the dividend on preference shares. At a business unit level, capital is allocated based on economic capital, whereby higher risk businesses attract
higher levels of capital. This method is designed to help drive appropriate risk management and ensure business returns align with the relevant risk. Key
risks covered include credit risk, operating risk, market risk and other risks.
Economic profit decreased 5% against the prior comparative period due to higher cash profit of 11% being more than offset by lower imputation tax
credits due to lower Australian tax expense, higher economic credit cost adjustment and the cost of higher capital levels.
Economic profit increased 4% against the prior half due to higher cash profit of 6%, partially offset by a higher economic credit cost adjustment and thecost of higher capital levels.

31

CFO OVERVIEW
Balance sheet, liquidity and capital
Condensed balance sheet
As at ($B)

Movement

Mar 14

Sep 131

Mar 131

Mar 14v. Sep 13

Mar 14v. Mar 13

Cash / Settlement balances owed to ANZ / Collateral paid

56.1

51.0

62.3

10%

-10%

Trading and available-for-sale assets

73.5

69.6

63.0

6%

17%

Derivative financial instruments

43.8

45.9

41.7

-5%

5%

Net loans and advances

509.3

483.3

454.3

5%

12%

Investments backing policy liabilities

33.2

32.1

31.2

3%

6%

Other

21.9

21.1

20.1

4%

9%

Total assets

737.8

703.0

672.6

5%

10%

Settlement balances owed by ANZ / Collateral received

12.0

12.6

16.3

-5%

-26%

Deposits and other borrowings

498.3

466.9

451.1

7%

10%

Derivative financial instruments

45.9

47.5

45.1

-3%

2%

Bonds and notes

73.6

70.4

60.2

5%

22%

Policy liabilities and external unit holder liabilities

36.7

35.9

34.8

2%

5%

Other

24.3

24.1

22.6

1%

8%

Total liabilities

690.8

657.4

630.1

5%

10%

Total equity

47.0

45.6

42.5

3%

11%

For personal use only

AssetsLiabilities

1.

Comparative amounts have been amended. Refer to Note 21 of the Condensed Consolidated Financial Statements for details.

March 2014 half year v March 2013 half year•

Trading securities and available-for-sale assets increased by $11 billion, primarily due to a $1 billion increase in fixed income securities held for
trading and increases in the Australia and New Zealand prime liquidity portfolios of $8 billion.

•

Net loans and advances increased $55 billion, driven by a $16 billion increase in Australia primarily from home loan growth; a $17 billion
increase in New Zealand due to home loan growth and favourable foreign exchange rate impact; and a $22 billion increase in IIB relating to
Global Markets in Australia, Transaction Banking in Asia and Global Loans in both Australia and Asia.

•

Deposits and other borrowings increased $47 billion, driven by a $11 billion increase in Australia from growth in Retail and Corporate &Commercial Banking; a $12 billion increase in New Zealand from growth in Retail and Commercial (and the impact of foreign exchange
movements); a $21 billion increase in IIB from growth in Transaction Banking and Retail term deposits; and a $7 billion increase in Group
Centre.

•Bonds and notes increased $13 billion, attributable to a $7 billion increase in net issuances and a $5 billion increase due to foreign exchange
movements.

March 2014 half year v September 2013 half year•

Trading securities and available-for-sale assets increased by $4 billion, primarily due to increases in the Australia and New Zealand prime
liquidity portfolios.

•

Net loans and advances increased $26 billion, driven by a $7 billion increase in Australia primarily from home loan growth; a $7 billion increase in
the New Zealand division due to home loan growth and favourable foreign exchange rate impact; and a $13 billion increase in IIB relating to
Global Markets in Australia, Transaction Banking in Asia and Global Loans in both Australia and Asia.

•

Deposits and other borrowings increased $31 billion, driven by a $4 billion increase in Australia from growth in Retail and Corporate &Commercial Banking; a $6 billion increase in New Zealand from growth in Retail and Commercial (and the impact of foreign exchange
movements); a $13 billion increase in IIB from growth in Transaction Banking and Retail accounts; and a $7 billion increase in Group Centre.

•

Bonds and notes increased $3 billion due to net issuances and foreign exchange movements.

32

CFO OVERVIEW
Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations as they fall due, including repaying depositors or maturing wholesaledebt, or that the Group has insufficient capacity to fund increases in assets. The timing mismatch of cash flows and the related liquidity risk is inherent inall banking operations and is closely monitored by the Group. The Group maintains a portfolio of liquid assets to manage potential stresses in funding
sources. The minimum level of liquidity portfolio assets to hold is based on a range of ANZ specific and general market liquidity stress scenarios such that
potential cash flow obligations can be met over the short to medium term.
The Group’s approach to liquidity risk management incorporates the following key components:
Scenario modelling of funding sources

For personal use only•

The Global Financial Crisis (GFC) highlighted the importance of differentiating between stressed and normal market conditions in a name-specificcrisis and the different behaviour that offshore and domestic wholesale funding markets can exhibit during market stress events. ANZ’s short term
liquidity scenario modelling stresses cash flow projections against multiple ‘survival horizons’ over which the Group is required to remain cash flow
positive. In addition, longer term scenarios are in place that measure the structural liquidity position of the balance sheet. Scenarios modelled areeither based on prudential requirements or Board mandated scenarios. Under these scenarios, customer and wholesale balance sheet asset/liability
flows are stressed.

•

Liquidity portfolio

The Group holds a diversified portfolio of cash and high credit quality securities that may be sold or pledged to provide same-day liquidity. This
portfolio helps protect the Group’s liquidity position by providing cash in a severely stressed environment. All assets held in the prime portfolio are
securities eligible for repurchase under agreements with the applicable central bank (i.e. ‘repo eligible’).
The liquidity portfolio is well diversified by counterparty, currency and tenor. Under the liquidity policy framework, securities purchased for ANZ’sliquidity portfolio must be of a similar or better credit quality to ANZ’s external long-term or short-term credit ratings and continue to be repo eligible.
Supplementing the prime liquid asset portfolio, the Group holds additional liquidity in the following:•

central bank deposits with the US Federal Reserve, Bank of England and Bank of Japan of $17.2 billion;•

Australian Commonwealth and State Government securities of $6.9 billion and gold and precious metals of $2.5 billion, and•cash and other securities to satisfy local country regulatory liquidity requirements which are not included in the liquid assets below.
As at
Mar 14
AUD $BSep 13
AUD $BMar 13
AUD $B

Australia

28.9

27.8

25.3

New Zealand

12.5

11.1

10.5

United States

3.8

2.1

1.3

United Kingdom

5.2

5.1

4.4

Singapore

3.2

3.1

3.2

Hong Kong

0.8

0.6

0.3

Prime liquidity portfolio (Market values post haircut)1

Japan

1.3

1.4

1.4

Total excluding internal Residential Mortgage Backed Securities (RMBS)

55.7

51.2

46.4

Internal Residential Mortgage Backed Securities (Australia)2

29.6

35.7

35.3

Internal Residential Mortgage Backed Securities (New Zealand)

5.1

3.7

3.3

Total prime portfolio

90.4

90.6

85.0

Other eligible securities including gold and cash on deposit with central banks 3

26.6

31.0

36.8

Total liquidity portfolio

117.0

121.6

121.8

1.
2.
3.

Market value is post the repo discount applied by the applicable central bank.
Reduction in internal RMBS in Australia during the March 2014 half is due to higher prescribed haircuts from the RBA effective Nov 13.
Liquid Asset holdings in Australia netted down against overnight interbank repo treasury borrowings.

Regulatory Change
The Basel 3 Liquidity changes include the introduction of two liquidity ratios to measure liquidity risk (the Liquidity Coverage Ratio (LCR) in 2015 and the
Net Stable Funding Ratio (NSFR), expected implementation 2018). A component of the liquidity required under the new standards will be met via theCommitted Liquidity Facility from the Reserve Bank of Australian (RBA). The size and composition of this facility for 2015 will be confirmend with APRA
during 2014, however the results of a trial exercise completed in 2013 confirmed our expectation that the Group remains well placed to meet future
requirements.
APRA has released its final Prudential Standard on its requirements in December 2013 which largely adopted the recalibrated Basel runoff factors for the
LCR. The Basel 3 revised standard on NSFR, released in January 2014, is currently undergoing a global review with the expectation of it being
implemented in 2018.
Wholesale Funding
ANZ targets a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency.
$13.1 billion of term wholesale debt (with a remaining term greater than one year as at 31 March 2014) was issued during the March 2014 half year. In
addition, $1.6 billion of ANZ Capital Notes were issued.
•

Access to all major global wholesale funding markets remained available to ANZ during the March 2014 half year.

•

All wholesale funding needs were comfortably met.

•

The weighted average tenor of new term debt was 5.3 years (4.3 years in 2013).

•

The average term debt portfolio costs are slowly reducing, however, remain substantially above pre-GFC levels.

33

CFO OVERVIEW
Liquidity risk, cont’d
The following tables show the Group’s funding composition:
As at ($M)

Customer deposits and other liabilities1
Australia

Movement

Mar 14

Sep 13

Mar 13

Mar 14v. Sep 13

Mar 14v. Mar 13

152,371

145,5353%

7%

172,023

163,151

151,847

5%

13%

New Zealand

51,74946,494

41,42311%

25%

Global Wealth

12,69911,56910,04210%26%

For personal use only

156,310

International and Institutional Banking

GTSO and Group Centre(4,759)(4,756)(4,712)0%

1%

Customer deposits

388,022368,829

344,135

5%

13%

Other2

10,895

13,15812,373-17%-12%

Total customer deposits and other liabilities (funding)

398,917

381,987356,5084%12%

Wholesale funding3
Bonds and notes4

72,747

69,57059,422

5%

22%

Loan capital

13,226

12,804

11,666

3%

13%

Certificates of deposit

57,70758,276

61,564-1%-6%

Commercial paper issued

16,041

12,255

14,48631%

11%

Other wholesale borrowings5

43,871

38,81342,92013%

2%

Total wholesale funding

203,592

191,718

190,058

6%

7%

Shareholders' equity (excl preference shares)

46,16744,732

41,632

3%

11%

Total funding

648,676

618,437

588,198

5%

10%

Short term wholesale funding (excluding Central Banks)7,8

82,93773,65072,351

13%

15%

Central Bank deposits

17,512

15,374

18,36014%-5%

Total short term wholesale funding

100,449

89,02490,71113%

11%- Less than 1 year residual maturity

18,695

20,292

31,977-8%-42%- Greater than 1 year residual maturity

77,12775,24061,3923%

26%

Hybrid capital including preference shares

7,321

7,162

5,978

2%

22%

203,592

191,718

190,058

6%

7%

15%

15%

15%

- Less than 1 year residual maturity

3%

3%

5%

- Greater than 1 year residual maturity

Wholesale funding maturity3,6Long term wholesale funding

Total wholesale funding and preference share capital
excluding shareholders' equity

Total funding maturity
Total short term wholesale funding
Long term wholesale funding

12%

12%

11%

Total customer liabilities (funding)

62%

62%

61%

Shareholders' equity and hybrid debt

8%

8%

8%

100%

100%

100%

Total wholesale funding and shareholder equity
excluding preference share capital

1.
2.
3.
4.
5.

6.

7.
8.

Includes term deposits, other deposits and an adjustment recognised in Group Centre to eliminate Global Wealth investments in ANZ deposit products.
Includes interest accruals, payables and other liabilities, provisions and net tax provisions, excluding other liabilities in Global Wealth.
Liability for acceptances have been removed as they do not provide net funding.
Excludes term debt issued externally by Global Wealth.
Includes borrowings from banks, net derivative balances, special purpose vehicles, other borrowings and Euro Trust Securities (preference shares).
Long term wholesale funding amounts are stated at original hedged exchange rates. Movements due to currency fluctuations in actual amounts borrowed are classified as short termwholesale funding.
RBA open-repo arrangement netted down by the exchange settlement account cash balance.
Liquid Asset holdings in Australia netted down against overnight interbank repo treasury borrowings.

34

CFO OVERVIEWCapital Management
Capital Ratios
As atInternationally Harmonised Basel 31

APRA Basel 3
Mar 14
8.3%

Sep 13
8.5%

Tier 1

10.3%

Total capital

12.1%

Risk weighted assets ($B)

360.7

For personal use only

Common Equity Tier 1

1.

Mar 13
8.2%

Mar 14
10.5%

Sep 13
10.8%

Mar 13
10.3%

10.4%

9.8%

12.6%

12.8%

12.1%

12.2%

11.7%

14.5%

14.7%

14.0%

339.3

322.6

339.5

318.5

307.6

Internationally Harmonised ratios do not include additional items identified as differences between APRA and Basel 3 capital regulations in the recently released Basel Committee’s
Regulatory Consistency Assessment Programme (RCAP) on Basel 3 implementation in Australia (March 2014). These items are subject to further clarification from APRA and the BaselCommittee and are not expected to have a material impact on ANZ’s Internationally Harmonised capital ratios.

APRA Basel 3 Common Equity Tier 1 (CET1) – March 2014 half year v September 2013 half year

1.

104
(27)

(18)

8.48

8.33

Movement
in
bps

(74)

Sep-13APRA Basel 3

Cash
NPAT

RWA
Business Usage

Non-RWA Business
Usage

Dividends1

Mar-14APRA Basel 3

Following the issue of 16.2 million ordinary shares under the Dividend Reinvestment Plan and Bonus Option Plan for the 2013 final dividend, the Company repurchased $500 million ofordinary shares via an on-market share buy-back resulting in 15.9 million ordinary shares being cancelled.

35

CFO OVERVIEWAPRA Basel 3 to Internationally Harmonised1 Basel 3 Common Equity Tier 1 (CET1) – March 2014 half year

43

10.48

IRRBB RWA
(APRA Pillar 1
approach)Mar-14
InternationallyHarmonised
Basel 3For personal use only55

1.

Movement
in
bps

79

19

19

8.33

Mar-14APRA Basel 3

Up to 5%10% allowance forinvestments inallowance fordeferred
insurance and banking
tax assets
associates

Other
capital items

Mortgage
20% LGD floor
and others

ANZ’s interpretation of the regulations documented in the Basel Committee publications; “Basel 3: A global regulatory framework for more resilient banks and banking systems” (June2011) and “International Convergence of Capital Measurement and Capital Standards” (June 2006).

The above table provides a reconciliation of CET1 ratio under APRA’s Basel 3 prudential capital standards to Internationally Harmonised Basel 3
standards. APRA views the Basel 3 reforms as a minimum requirement and hence has not incorporated some of the concessions proposed in the Basel3 rules and has also set higher requirements in other areas. As a result, Australian banks’ Basel 3 reported capital ratios will not be directly comparablewith international peers (Internationally Harmonised Basel 3).
In addition, APRA has implemented an accelerated implementation timetable for the Basel 3 capital reforms, particularly in relation to minimum capitalratios and deductions which became effective 1 January 2013. Introduction of the prescribed minimum capital buffers, which now includes higher loss
absorbency capital requirements for Domestic Systematically Important Banks (D-SIB) will be fully effective from 1 January 2016.
APRA is still yet to finalise capital standards on the Basel 3 reforms dealing with the leverage ratio and contingent capital.
Level 3 Conglomerates (“Level 3”)
APRA has announced that it will proceed with implementing Level 3 Conglomerates framework on 1 January 2015, with final Level 3 capital adequacy
standards expected to be released during 2014. The standards will regulate a bancassurance group such as ANZ as a single economic entity withminimum capital requirements and additional reporting on risk exposure levels. Based upon APRA’s draft Level 3 standards covering capital adequacy,group governance, risk management and risk exposures, ANZ is not expecting any material impact on its operations.
Domestic Systematically Important Bank (D-SIB) Framework
APRA has released details of its D-SIB framework for implementation in Australia and have classified ANZ and three other major Australian banks as
domestic systematically important banks. As a result the Capital Conservation Buffer (CCB) applied to the four major Australian banks will increase by
100 basis points from 1 January 2016, further strengthening the capital position of Australia D-SIBs. ANZ’s current capital position is already in excess of
APRA’s requirements including the D-SIB overlay. ANZ may modestly increase its capital buffers from current levels over time through organic capital
generation.

36

CFO OVERVIEW
Deferred acquisition costs and deferred income
The Group recognises as assets deferred acquisition costs relating to the acquisition of interest earning assets or the issuance of funding. The Groupalso recognises deferred income that is integral to the yield of an originated financial instrument, net of any direct incremental costs. This income isdeferred and recognised as net interest income over the expected life of the financial instrument under AASB 139: ‘Financial Instruments: Recognition
and Measurement’. Deferred acquisition costs that do not relate to interest earning assets, for example those relating to the acquisition of life investment
contracts, are excluded from this analysis.

For personal use only

The balances of deferred acquisition costs and deferred income were:
Deferred Acquisition Costs1

Australia

Deferred Income

Mar 14

Sep 13

Mar 13

Mar 14

Sep 13

Mar 13

$M

$M

$M

$M

$M

$M

794

780

745

67

69

70

International and Institutional Banking

34

18

17

271

262

251

New Zealand

170

142

106

50

47

38

Global Wealth

2

2

1

3

3

3

GTSO and Group Centre

63

49

44

-

-

-

1,063

991

913

391

381

362

Total

1.

Deferred acquisition costs largely include the amounts of brokerage capitalised and amortised in the Australia and New Zealand divisions. Deferred acquisition costs also include
capitalised debt raising expenses.

Deferred acquisition costs and associated amortisation during the period were:

Half Year Mar 2014
Amortisation Charge

Half Year Sep 2013

Capitalised Costs1

Amortisation Charge

Capitalised Costs1

$M

$M

$M

$M

Australia

203

217

203

238

International and Institutional Banking

14

30

7

8

New Zealand

30

58

24

60

Global Wealth

-

-

-

1

GTSO and Group Centre

12

26

13

18

Total

259

331

247

325

1.

Costs capitalised during the period exclude brokerage trailer commissions paid.

37

CFO OVERVIEW
Investment spend
Investment spend includes expenditure that develops and enhances the Group's infrastructure to meet business and strategic objectives and to improvecapabilities and efficiencies. Over the March 2014 half the Group continued to invest strongly with spend of $527 million. Key initiatives included the“Banking on Australia” program with a focus on building digital capabilities, continued investment in IIB with the implementation of the core banking
system in Hong Kong and continued development of our Transaction Banking capabilities. Risk and Compliance remains a significant focus withinvestment in technology security and regulatory requirements across the region.

For personal use only

Half Year

Movement

Expensed investment spend

Mar 14$M
161

Sep 13$M
204

Mar 13$M
181

Mar 14v. Sep 13-21%

Mar 14v. Mar 13-11%

Capitalised investment spend

366

551

333

-34%

10%

Investment spend

527

755

514

-30%

3%

Comprising

Half Year

Movement

Mar 14$M
229

Sep 13$M
313

Mar 13$M
209

Mar 14v. Sep 13-27%

Mar 14v. Mar 13
10%

Transformation and productivity

104

139

116

-25%

-10%

Risk and compliance

137

209

129

-34%

6%

Maintenance and infrastructure

57

94

60

-39%

-5%

Investment spend

527

755

514

-30%

3%

Growth38

CFO OVERVIEW
Software capitalisation
At 31 March 2014, the Group’s intangibles included $2,332 million in relation to costs incurred in acquiring and developing software. Details are set out inthe table below:
Half Year
Mar 14$M
2,170

For personal use only

Balance at start of period

Movement

Sep 13$M
1,857

Mar 13$M
1,762

Mar 14v. Sep 13
17%

Mar 14v. Mar 13
23%
27%

Software capitalised during the period

362

496

284

-27%

Amortisation during the period

(205)

(202)

(181)

1%

13%

Software impaired/written-off

(1)

-

(8)

n/a

-88%

Foreign exchange differences

6

19

-

-68%

n/a

2,332

2,170

1,857

7%

26%

Total capitalised software

Capitalised cost analysis by Division

Half Year

Movement

Mar 14$M
106

Sep 13$M
136

Mar 13$M
76

Mar 14v. Sep 13-22%

International and Institutional Banking

111

162

115

-31%

-3%

New Zealand

14

10

12

40%

17%

Global Wealth

19

36

14

-47%

36%

GTSO and Group Centre

112

152

67

-26%

67%

Total

362

496

284

-27%

27%

Australia

Net book value by Division

Half Year

Mar 14v. Mar 13
39%

Movement

Australia

Mar 14$M
510

Sep 13$M
453

Mar 13$M
359

Mar 14v. Sep 13
13%

Mar 14v. Mar 13
42%

International and Institutional Banking

1,039

1,008

914

3%

14%

New Zealand

81

75

84

8%

-4%

Global Wealth

101

97

75

4%

35%

GTSO and Group Centre

601

537

425

12%

41%

2,332

2,170

1,857

7%

26%

Total

39

CFO OVERVIEW

For personal use onlyThis page has been left blank intentionally

40

SEGMENT REVIEWCONTENTS

Section 5 – Segment Review
Segment performance
Australia

For personal use onlyInternational and Institutional Banking (IIB)
New ZealandGlobal Wealth
Global Technology, Services and Operations (GTSO) and Group Centre

41

SEGMENT REVIEW
Segment Performance
The Group operates on a divisional structure with Australia, International and Institutional Banking (IIB), New Zealand, and Global Wealth being the major
operating divisions. The IIB and Global Wealth divisions are coordinated globally. GTSO and Group Centre provide support to the operating divisions,
including technology, operations, risk management, financial management, strategy and marketing, human resources and corporate affairs. Additionally,
Group Centre includes Group Treasury, Shareholder Functions and Discontinued Businesses.
There have been no major structural changes to Divisional segments since 30 September 2013, however certain amounts in the comparatives have been
reclassified to conform with current period financial statement presentations.

For personal use only

The Segment Review section is reported on a cash basis.

March 2014 Half Year

AUD M
Net interest income
Other operating income

Australia
3,429International &Institutional
Banking
1,993

New Zealand
1,061

Global Wealth80

GTSO andGroup Centre
201

Group
6,764

588

1,599

178

726

(187)

2,904

Operating income

4,017

3,592

1,239

806

14

9,668

Operating expenses(1,500)(1,598)

(514)

(494)

(180)

(4,286)

Profit before credit impair't and income tax

2,517

1,994

725

312

(166)

5,382

Credit impairment (charge)/release

(403)

(161)

34

1

1

(528)

Profit before income tax

2,114

1,833

759

313

(165)

4,854

Income tax expense andnon-controlling interests

(635)

(461)

(213)

(87)

57

(1,339)Cash profit

1,479

1,372

546

226

(108)

3,515

Australia
3,389International &Institutional
Banking
1,906

New Zealand973

Global Wealth75

GTSO andGroup Centre
193

Group
6,536
2,763

September 2013 Half Year

AUD M
Net interest income
Other operating income

602

1,409

186

705

(139)

Operating income

3,991

3,315

1,159

780

54

9,299

Operating expenses(1,492)(1,531)

(486)

(489)

(215)

(4,213)

Profit before credit impair't and income tax

2,499

1,784

673

291

(161)

5,086

Credit impairment charge

(434)

(133)

(9)

(3)

(19)

(598)

Profit before income tax

2,065

1,651

664

288

(180)

4,488

Income tax expense andnon-controlling interests

(616)

(407)

(182)

(20)

50

(1,175)

Cash profit

1,449

1,244

482

268

(130)

3,313

Australia
1%International &Institutional
Banking
5%

New Zealand
9%

Global Wealth
7%

GTSO andGroup Centre
4%

Group
3%

Other operating income

-2%

13%

-4%

3%

35%

5%

Operating income

1%

8%

7%

3%

-74%

4%

Operating expenses

1%

4%

6%

1%

-16%

2%

Profit before credit impair't and income tax

1%

12%

8%

7%

3%

6%

Credit impairment charge

-7%

21%

large

large

large

-12%

Profit before income tax

2%

11%

14%

9%

-8%

8%

Income tax expense andnon-controlling interests

3%

13%

17%

large

14%

14%

Cash profit

2%

10%

13%

-16%

-17%

6%

March 2014 Half Year vs September 2013 Half Year%Net interest income

42

SEGMENT REVIEWMarch 2014 Half Year

AUD M
Net interest income

New Zealand
1,061

Global Wealth80

GTSO andGroup Centre
201

Group
6,764
2,904

588

1,599

178

726

(187)

Operating income

4,017

3,592

1,239

806

14

9,668

Operating expenses(1,500)(1,598)

(514)

(494)

(180)

(4,286)

Profit before credit impair't and income tax

2,517

1,994

725

312

(166)

5,382

Credit impairment (charge)/release

(403)

(161)

34

1

1

(528)

Profit before income tax

2,114

1,833

759

313

(165)

4,854

Income tax expense andnon-controlling interests

(635)

(461)

(213)

(87)

57

(1,339)Cash profit

1,479

1,372

546

226

(108)

3,515

Australia
3,281International &Institutional
Banking
1,785

New Zealand891

Global Wealth64

GTSO andGroup Centre
215

Group
6,236

For personal use only

Other operating income

Australia
3,429International &Institutional
Banking
1,993

March 2013 Half Year

AUD M
Net interest income
Other operating income

588

1,502

162

680

(76)

2,856

Operating income

3,869

3,287

1,053

744

139

9,092

Operating expenses(1,475)(1,456)

(475)

(463)

(175)

(4,044)

Profit before credit impair't and income tax

2,394

1,831

578

281

(36)

5,048

Credit impairment charge

(386)

(184)

(28)

(1)

-

(599)

Profit before income tax

2,008

1,647

550

280

(36)

4,449

Income tax expense andnon-controlling interests

(599)

(439)

(154)

(76)

(2)

(1,270)Cash profit

1,409

1,208

396

204

(38)

3,179

Australia
5%International &Institutional
Banking
12%

New Zealand19%

Global Wealth
25%

GTSO andGroup Centre
-7%

Group
8%

Other operating income

0%

6%

10%

7%

large

2%

Operating income

4%

9%

18%

8%

-90%

6%

Operating expenses

2%

10%

8%

7%

3%

6%

Profit before credit impair't and income tax

5%

9%

25%

11%

large

7%

Credit impairment charge

4%

-13%

large

large

n/a

-12%

Profit before income tax

5%

11%

38%

12%

large

9%

Income tax expense andnon-controlling interests

6%

5%

38%

14%

large

5%

Cash profit

5%

14%

38%

11%

large

11%

March 2014 Half Year vs March 2013 Half Year%Net interest income

43

SEGMENT REVIEW
Australia
Philip Chronican
The Australia Division comprises the Retail and Corporate and Commercial Banking (C&CB) business units.
Cash profit – March 2014 Half Year v March 2013 Half YearFor personal use only

148
(25)

1,479

(17)
(36)

1,409
$m

1H13
Cash profit

Net interest income

Operating expenses

Credit impairment charge Income tax expense &non-controlling interests

Banking on Australia Transformation Program

1H14
Cash profit

March 2014 half year v March 2013 half year

Our “Banking on Australia” program is transforming the business toposition ANZ for growth in a changing environment. We are building
our lead in digital and mobile channels to enhance the customer
experience, expand our reach and deepen customer loyalty by making
it easier for our customers to bank with us, while delivering a lower costto serve. We are transforming our distribution networks to focus onsales and bringing the whole of ANZ to our customers, reducing branchfootprint costs, building our contact centre capability and improving
frontline banker effectiveness. Compared to the March 2013 half year
the expense to income ratio reduced by 78 bps to 37.3%.

Cash profit increased 5%, with 4% income growth, a 2% increase in
expenses and a 4% increase in credit impairment charges.
Key factors affecting the result were:

We are improving the customer experience by providing flexible
banking options for our customers. ANZ goMoneyTM continues to be
the leading mobile offering in the market with $78 billion in transactions
processed since launch in September 2010, the number of ANZ
FastPayTM transactions has increased at a compound monthly rate of
43% since its launch in October 2012 and all C&CB frontline bankers
are enabled with mobility tools (iPads). 85 branches have beentransformed to a sales focused format and 400 Smart ATMs rolled out
across the network, resulting in 26% of targeted transactions being
migrated from branches to these ATMs. Customer complaints have
reduced 24% since the start of the “Banking on Australia” program in
October 2012.

•

Net interest income increased 5% driven by a 7% rise in average
net loans and advances from above system home loan growth andstrong growth in Small Business Banking. Net interest margin
contracted 5 bps, with increased lending competition outweighing
the benefits of disciplined deposit pricing.

•Operating expenses increased by 2%. Increased personnel
expenses, Banking on Australia investment and volume growth
were partly offset by productivity gains.

•

Credit impairment charges increased by 4%, driven primarily by ahigher collective provision charge as a result of lending growth andan increase in the economic cycle provision. Individual provisions
increased slightly, with increases in Corporate Banking andEsanda largely offset by improvements in Business Banking, andRetail from improved Home Loan asset realisations and lower
delinquencies in Cards and Payments.
March 2014 half year v September 2013 half year

Cash profit increased 2% in the half, with 1% income growth, a 1%
increase in expenses and a 7% decline in credit impairment charges.

Retail continues to perform well underpinned by strong volumes andactive margin management, a continued focus on productivity and adisciplined approach to credit quality. ANZ has grown Home Loans atabove system levels for 17 consecutive quarters1 and 53% of Home
Loans were sold through our proprietary channels (v 51% March 2013
half year). ANZ also grew deposits at above system levels.

Key factors affecting the result were:

Despite a subdued middle market business environment and customer
de-leveraging, C&CB lending grew 3% compared to March 2013 halfyear. The small business segment is performing strongly with lendingup 16%, aided by ANZ’s $2 billion lending pledge. Other businessfoundations remain strong with deposits growing 8% and cross-sell
revenue increasing 4% through sales of retail and wealth products toour customer base. Customer numbers2 have increased byapproximately 26,000 and we are now equal first in customer
satisfaction3. We are continuing to leverage ANZ’s Super Regional
advantage with cross border referrals up 120% since the March 2013
half year. Cost discipline has been maintained and our underlying
asset quality remains sound.

44•

Net interest income increased 1% driven by a 3% increase inaverage net loans and advances (from above system home loan
growth), partially offset by subdued C&CB lending conditions. Net
interest margin contracted 3 bps, reflecting increased lending
competition, partially offset by disciplined deposit pricing.

•Operating expenses increased 1%. Increased personnel
expenses, Banking on Australia investment and volume growth
were partly offset by lower discretionary expenditure andproductivity gains.

•

Credit impairment charges decreased 7% driven by lower
individual provisions in Retail from improved Home Loan asset
realisations and lower delinquencies in Cards and Payments. In
C&CB, increased individual provisions in Corporate Banking weremore than offset by improvements across all other C&CB
segments.

1

Source: APRA Monthly Banking Statistics 12 months to Mar-14.

2

Customer numbers exclude Esanda.

3

Source: DBM, Business Financial Services Monitor, ranked against other ‘Big 4’banks, commercial Banking includes majority of businesses with turnover <$100
million, data sourced in the 6 months to March 2014.

SEGMENT REVIEW
Australia
Philip Chronican

Australia Total
Half YearFor personal use only

Net interest income
Other operating income

Movement

Mar 14$M
3,429

Sep 13$M
3,389

Mar 13$M
3,281

Mar 14v. Sep 13
1%

Mar 14v. Mar 13
5%

588

602

588

-2%

0%

Operating income

4,017

3,991

3,869

1%

4%

Operating expenses(1,500)(1,492)(1,475)

1%

2%

Profit before credit impairment and income tax

2,517

2,499

2,394

1%

5%

Credit impairment charge

(403)

(434)

(386)

-7%

4%

Profit before tax

2,114

2,065

2,008

2%

5%

Income tax expense and non-controlling interests

(635)

(616)

(599)

3%

6%

Cash profit

1,479

1,449

1,409

2%

5%

933

902

827

3%

13%

546

547

586

0%

-7%

-

-

(4)

n/a

large

1,479

1,449

1,409

2%

5%

Balance Sheet
Net loans & advances

278,279

271,589

262,065

2%

6%

Other external assets

2,912

2,736

2,886

6%

1%

External assets

281,191

274,325

264,951

3%

6%

Customer deposits

156,310

152,371

145,535

3%

7%

Other external liabilities

12,33013,397

14,636-8%-16%

External liabilities

168,640

165,768

160,171

2%

5%

Risk weighted assets

109,839

109,596

105,523

0%

4%

Average net loans and advances

274,910

266,956

257,914

3%

7%

Average deposits and other borrowings

155,314148,675

144,277

4%

8%

RatiosReturn on assets

1.07%

1.07%

1.08%

Net interest margin

2.48%

2.51%

2.53%

Operating expenses to operating income

37.3%

37.4%

38.1%

Operating expenses to average assets

1.08%

1.10%

1.14%

374

401

370

-7%

1%

0.27%

0.30%

0.29%
-12%

81%

-24%

-29%

1%

1%

Consisting of:RetailCorporate and Commercial Banking

Other

Cash profit

Individual credit impairment charge/(release)
Individual credit impairment charge/(release) as a % of average net advances
Collective credit impairment charge/(release)Collective credit impairment charge/(release) as a % of average net advances
Net impaired assets

29

33

16

0.02%

0.02%

0.01%

717

939

1,016

Net impaired assets as a % of net advances

0.26%

0.35%

0.39%

Total full time equivalent staff (FTE)1

14,735

14,623

14,5511.

Comparative information has been restated to include technology contractors, consistent with how FTE are reported and managed internally.

45

SEGMENT REVIEW
Australia
Philip Chronican
Individual credit impairment charge/(release)

Half Year
Mar 14$M
170

RetailMovement

Sep 13$M
198

Mar 13$M186

Mar 14v. Sep 13-14%

Mar 14v. Mar 13
-9%
-41%

13

23

22

-43%

Cards & Payments

149

165

155

-10%

-4%

8

10

9

-20%

-11%

204

203

184

0%

11%
large

For personal use onlyHome Loans
Deposits1

Corporate and Commercial Banking
Corporate Banking

70

(16)

13

large

Esanda

70

73

53

-4%

32%

Regional Business Banking

21

53

43

-60%

-51%

Business Banking

4

43

33

-91%

-88%

Small Business Banking

39

50

42

-22%

-7%

374

401

370

-7%

1%

Individual credit impairment charge/(release)Collective credit impairment charge/(release)

Half Year
Mar 14$M
10

RetailMovement

Sep 13$M-

Mar 13$M
19

Mar 14v. Sep 13
n/a

Mar 14v. Mar 13-47%

Home Loans

9

7

5

29%

80%

Cards & Payments

(1)

(7)

15

-86%

large

Deposits2

2

-

(1)

n/a

large

19

33

(3)

-42%

large

Corporate Banking

10

18

(6)

-44%

large

Esanda

(2)

6

(2)

large

0%

Regional Business Banking

(4)

6

(8)

large

-50%

Corporate and Commercial Banking

Business Banking

2

-

4

n/a

-50%

Small Business Banking

13

3

9

large

44%

Collective credit impairment charge/(release)

29

33

16

-12%

81%

Total credit impairment charge/(release)

403

434

386

-7%

4%

1.

2.

Represents individual credit impairment charge/(release) on Overdraft balances.
Represents collective credit impairment charge/(release) on Overdraft balances.

46

SEGMENT REVIEW
Australia
Philip Chronican
Net loans & advances

As at ($M)

Mar 14
213,112

Sep 13
206,269

Mar 13
198,883

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
7%

Home Loans

201,646

194,991

187,920

3%

7%

Cards & Payments

11,37011,184

10,894

2%

4%

96

94

69

2%

39%

65,16765,32063,1820%

3%For personal use only

RetailOther

Corporate and Commercial Banking
Corporate Banking

9,074

9,466

9,296

-4%

-2%

Esanda16,297

16,503

16,352-1%

0%

Regional Business Banking

11,955

12,121

11,373-1%

5%

Business Banking

16,525

16,62816,403-1%

1%

Small Business Banking

11,316

10,602

9,758

7%

16%

278,279

271,589

262,065

2%

6%

Net loans & advances

Customer deposits

As at ($M)

RetailHome Loans
Cards & Payments
Deposits

Corporate and Commercial Banking1
EsandaMovement
Mar 14v. Sep 13
2%

Mar 14v. Mar 13
7%

14,093

8%

16%

322

-5%

1%

91,541

87,5711%

6%

46,93445,37343,549

3%

8%

1

19

66

-95%

-98%
-2%

Mar 14
109,376

Sep 13106,998

Mar 13
101,986

16,308

15,114326

343

92,742

Regional Business Banking

4,955

4,926

5,059

1%

Business Banking

13,185

12,61812,331

4%

7%

Small Business Banking

28,79327,81026,0934%

10%

156,310

152,371

145,535

3%

7%

Customer deposits

1.

Movement

Corporate Banking deposits are included in the International and Institutional Banking division deposits.

47

SEGMENT REVIEW
Australia
Philip Chronican
RetailHalf Year

Movement

Mar 14$M
2,066

Sep 13$M
2,014

Mar 13$M
1,915

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
8%

449

459

453

-2%

-1%

Operating income

2,515

2,473

2,368

2%

6%

Operating expenses(1,002)

(993)

(981)

1%

2%

Profit before credit impairment and income tax

1,513

1,480

1,387

2%

9%

Net interest income

For personal use only

Other operating income

Credit impairment charge

(180)

(198)

(205)

-9%

-12%

Profit before tax

1,333

1,282

1,182

4%

13%

Income tax expense and non-controlling interests

(400)

(380)

(355)

5%

13%

Cash profit

933

902

827

3%

13%

54,95053,14350,801

3%

8%

Risk weighted assets

Half Year

Individual credit impairment charge/(release)
Home Loans
Cards & Payments
Deposits1

Individual credit impairment charge/(release)1.

Movement

Mar 14$M
13

Sep 13$M
23

Mar 13$M
22

Mar 14v. Sep 13-43%

Mar 14v. Mar 13
-41%

149

165

155

-10%

-4%

8

10

9

-20%

-11%

170

198

186

-14%

-9%

Represents individual credit impairment charge/(release) on Overdraft balances.

Collective credit impairment charge/(release)
Home Loans
Cards & Payments
Deposits2

9

7

5

29%

80%

(1)

(7)

15

-86%

Large

2

-

(1)

n/a

Large

Collective credit impairment charge/(release)

10

-

19

n/a

-47%

Total credit impairment charge/(release)

180

198

205

-9%

-12%

2.

Represents collective impairment charge/(release) on Overdraft balances.

As at ($M)

Movement

Net loans & advancesHome Loans

Mar 14
201,646

Sep 13
194,991

Mar 13
187,920

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
7%

Cards & Payments

11,37011,184

10,894

2%

4%

96

94

69

2%

39%

Net loans & advances

Other

213,112206,269

198,883

3%

7%

Customer deposits
Home Loans

16,308

15,114

14,093

8%

16%

326

343

322

-5%

1%

92,742

91,541

87,571

1%

6%

109,376

106,998

101,9862%

7%

Cards & Payments
Deposits

Customer deposits

48

SEGMENT REVIEW
Australia
Philip Chronican
Corporate and Commercial Banking
Half Year

Movement

Mar 14$M
1,363

Sep 13$M
1,375

Mar 13$M
1,366

Mar 14v. Sep 13-1%

Mar 14v. Mar 13
0%

139

143

135

-3%

3%

Operating income

1,502

1,518

1,501

-1%

0%

Operating expenses

(498)

(499)

(489)

0%

2%

Profit before credit impairment and income tax

1,004

1,019

1,012

-1%

-1%

Credit impairment charge

(223)

(236)

(181)

-6%

23%

Profit before tax

781

783

831

0%

-6%

Income tax expense and non-controlling interests

(235)

(236)

(245)

0%

-4%

Cash profit

546

547

586

0%

-7%

53,71655,28953,606-3%0%

Net interest income

For personal use only

Other external operating income

Risk weighted assets

Half Year

Movement

Mar 14$M
70

Sep 13$M(16)

Mar 13$M
13

Esanda

70

73

53

-4%

32%

Regional Business Banking

21

53

43

-60%

-51%

Business Banking

4

43

33

-91%

-88%

Small Business Banking

39

50

42

-22%

-7%

Individual credit impairment charge/(release)

204

203

184

0%

11%

Collective credit impairment charge/(release)
Corporate Banking

large

Individual credit impairment charge/(release)
Corporate Banking

Mar 14v. Sep 13
large

Mar 14v. Mar 13
large

10

18

(6)

-44%

Esanda

(2)

6

(2)

large

0%

Regional Business Banking

(4)

6

(8)

large

-50%
-50%

Business Banking

2

-

4

n/a

Small Business Banking

13

3

9

large

44%

Collective credit impairment charge/(release)

19

33

(3)

-42%

large

Total credit impairment charge/(release)

223

236

181

-6%

23%

As at ($M)

Mar 14
9,074

Sep 13
9,466

Mar 13
9,296

Mar 14v. Sep 13-4%

Mar 14v. Mar 13-2%

Esanda16,297

16,503

16,352-1%

0%

Regional Business Banking

11,955

12,121

11,373-1%

5%

Business Banking

16,525

16,62816,403-1%

1%

Small Business Banking

11,316

10,602

9,758

7%

16%

65,16765,32063,1820%

3%Net loans & advances
Corporate Banking

Net loans & advances

Customer deposits1
Esanda

1

19

66

-95%

-98%

Regional Business Banking

4,955

4,926

5,059

1%

-2%

Business Banking

13,185

12,61812,331

4%

7%

Small Business Banking

28,79327,81026,0934%

10%

46,93445,37343,5493%

8%

Customer deposits
1.

Movement

Corporate Banking deposits are included in the International and Institutional Banking division deposits.

49

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
The International and Institutional Banking division comprises Global Institutional, Retail Asia Pacific and Asia Partnerships business units, along withRelationship & Infrastructure.
Cash profit – March 2014 Half Year v March 2013 Half Year97

For personal use only

208

23
(142)

1,372
(22)

1,208
$m

1H13
Cash profit

Net interest income

Other operating
incomeOperating expenses•

International and Institutional Banking’s result demonstrates thecontinuing development of a profitable franchise in Asia (with cash
profit in APEA increasing by 43% from the March 2013 half), delivery of
our product and geographic diversification strategy and ongoing focus
on improving portfolio credit quality.
Our continued expansion into Asia is illustrated by APEA now
accounting for 79% of the division’s employees, serving 2 million
customers and generating $653 million of cash profit. The build ofscale and capability in Asia has allowed us to access stronger system
growth in Asian markets, compared to the more constrained businessenvironments in Australia and New Zealand. IIB is a significant
contributor to the Group’s net funding.

Credit impairment Income tax expense &chargenon-controllinginterests

1H14
Cash profit

Credit impairment charges decreased 13%. Collective credit
impairment releases due to counterparty credit rating upgrades,
provisions no longer required and crystallisation of individual
provisions, were partially offset by an increase in economic cycle
provision for exposures impacted by global commodity prices andhigher individual credit impairment charges in Transaction
Banking and Global Markets.
March 2014 half year v September 2013 half year

Cash profit increased by 10% (9% FX adjusted), driven primarily by anincrease in operating income in Global Markets and Transaction
Banking, partially offset by an increase in operating expenses andcredit impairments.

March 2014 half year v March 2013 half year
Key factors affecting the result were:Cash profit increased by 14% (9% FX adjusted), with a significant
increase in operating income in Global Markets and Transaction
Banking and a reduction in credit impairment being partially offset byhigher operating expenses.

•

Net interest income increased 5% (3% FX adjusted), driven by
Global Markets and Transaction Banking. Average deposits were
10% higher and average net loans and advances increased 9%,with growth concentrated largely in APEA and Australia. Net
interest margin declined by 3 basis points driven by pricecompetition (particularly in Australia) and growth focused onhigher credit quality in Global Loans, movements in the structured
trade finance mix to lower risk products with tighter margins andlower earnings on capital, partially offset by the impact of the
management of the Group’s liquidity portfolio and derivative
positions within Global Markets.

•

Other operating income increased 13% (12% FX adjusted),
driven by Global Markets from higher FX sales revenue,
favourable trading conditions in the March 2014 half and strong
demand for FX hedging products in the APEA region.
Transaction Banking improved mainly due to volume driven
growth in trade fee income.

•Operating expenses increased 4%. FX adjusted operating
expenses were 3% higher reflecting productivity gains andinvestment in targeted growth areas.

•

Credit impairment charges increased 21%, due to higher
individual credit impairment charges in Transaction Banking and
Global Markets, partially offset by collective provision releases
relating to the crystallisation of individual provisions, counterparty
credit rating upgrades and releases of provisions no longer
required.

Key factors affecting the result were:•••

Net interest income increased 12% (7% FX adjusted), driven by
growth mainly in targeted products in Transaction Banking and
Global Markets. Average deposits were 18% higher and average
net loans and advances increased 20%, with growth across all
regions, particularly APEA. Net interest margin declined by 10
basis points, driven by price competition (particularly in Australia)
and growth focused on higher credit quality in Global Loans,
movements in the structured trade finance mix to lower risk
products with tighter margins and lower earnings on capital,
partially offset by the impact of the management of the Group’s
liquidity portfolio and derivative positions within Global Markets.
Other operating income increased by 6% (0% FX adjusted),
driven by volume increases across most lines of business. Fee
income increased in Transaction Banking and Global Loans.
Investment and insurance income increased in Retail Asia
Pacific, and Asia Partnerships recorded better underlying income
as well as a gain arising from the dilution of our Bank of Tianjin
stake.
Operating expenses increased 10%. FX adjusted operating
expenses increased 3% reflecting productivity gains andinvestment in targeted growth areas.

50

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
International and Institutional Banking Total
Half Year

Movement

Sep 13$M
1,906

Mar 13$M
1,785

Mar 14v. Sep 13
5%

Mar 14v. Mar 13
12%

Other operating income

1,599

1,409

1,502

13%

6%

Operating income

3,592

3,315

3,287

8%

9%

Operating expenses(1,598)(1,531)(1,456)

4%

10%

Profit before credit impairment and income tax

1,994

1,784

1,831

12%

9%

Credit impairment charge

(161)

(133)

(184)

21%

-13%

Profit before income tax

1,833

1,651

1,647

11%

11%

For personal use only

Net interest income

Mar 14$M
1,993

Income tax expense and non-controlling interests

(461)

(407)

(439)

13%

5%

Cash profit

1,372

1,244

1,208

10%

14%

Consisting of:
Global Institutional

1,142

1,065

1,011

7%

13%

Asia Partnerships

239

221

194

8%

23%

Retail Asia Pacific

43

22

27

95%

59%

Relationship & Infrastructure

(52)

(64)

(24)

-19%

large

1,372

1,244

1,208

10%

14%

Balance Sheet
Net loans & advances

136,343

123,472

114,460

10%

19%

Other external assets

178,670

173,050

170,983

3%

4%

External assets

315,013296,522

285,443

6%

10%

Customer deposits

172,023

163,151

151,847

5%

13%

Other deposits and borrowings

38,172

33,64337,05313%

3%

Deposits and other borrowings

210,195

196,794

188,900

7%

11%

Other external liabilities

62,16557,91054,7137%

14%

External liabilities

272,360

254,704

243,613

7%

12%

Risk weighted assets

189,945

174,602

166,303

9%

14%

Average net loans and advances

132,129

120,912110,331

9%

20%

Average deposits and other borrowings

216,062

195,535

182,389

10%

18%

RatiosReturn on assets

0.87%

0.83%

0.88%

Net interest margin

1.55%

1.58%

1.65%

Net interest margin (excluding Global Markets)

2.49%

2.65%

2.81%

Operating expenses to operating income

44.5%

46.2%

44.3%

Operating expenses to average assets

1.01%

1.02%

1.06%
90%

29%

large

large

-26%

-30%

-1%

-2%

Cash profit

Individual credit impairment charge/(release)
Individual credit impairment charge/(release) as a % of average net advances
Collective credit impairment charge/(release)Collective credit impairment charge/(release) as a % of average net advances
Net impaired assets

215

113

167

0.32%

0.19%

0.30%

(54)

20

17

(0.08%)

0.03%

0.03%

975

1,326

1,401

Net impaired assets as a % of net advances

0.72%

1.07%

1.22%

Total full time equivalent staff (FTE)1

13,04013,196

13,3121.

Comparative information has been restated to include technology contractors, consistent with how FTE are reported and managed internally.

51

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
International and Institutional Banking by Geography
Half Year
Mar 14$M
1,002

Australia
Net interest income

Mar 13$M936

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
7%

442

459

575

-4%

-23%

Operating income

1,444

1,441

1,511

0%

-4%

Operating expenses

(551)

(551)

(551)

0%

0%

Profit before credit impairment and income tax

893

890

960

0%

-7%

For personal use only

Other operating income

Sep 13$M
982

Movement

Credit impairment charge

(77)

(33)

(80)

large

-4%

Profit before income tax

816

857

880

-5%

-7%

Income tax expense and non-controlling interests

(246)

(251)

(264)

-2%

-7%

Cash profit

570

606

616

-6%

-7%

Individual credit impairment charge/(release)

81

12

77

large

5%

Collective credit impairment charge/(release)

(4)

21

3

large

large

Net loans & advances

55,10649,52849,48311%

11%

Customer deposits

60,891

56,881

52,115

7%

17%

Asia Pacific, Europe and America
Net interest income

831

775

706

7%

18%

Other operating income

1,028

865

804

19%

28%

Operating income

1,859

1,640

1,510

13%

23%

Operating expenses

(962)

(897)

(826)

7%

16%

Profit before credit impairment and income tax

897

743

684

21%

31%

Credit impairment charge

(85)

(89)

(99)

-4%

-14%

Profit before income tax

812

654

585

24%

39%

Income tax expense and non-controlling interests

(159)

(118)

(127)

35%

25%

Cash profit

653

536

458

22%

43%

Individual credit impairment charge/(release)

127

92

87

38%

46%

Collective credit impairment charge/(release)

(42)

(3)

12

large

large

Net loans & advances

74,79867,68959,282

11%

26%

Customer deposits

98,402

94,19989,442

4%

10%

New Zealand
Net interest income

160

149

143

7%

12%

Other operating income

129

85

123

52%

5%

Operating income

289

234

266

24%

9%

Operating expenses

(85)

(83)

(79)

2%

8%

Profit before credit impairment and income tax

204

151

187

35%

9%

1

(11)

(5)

large

large

Profit before income tax

205

140

182

46%

13%

Income tax expense and non-controlling interests

(56)

(38)

(48)

47%

17%

Cash profit

149

102

134

46%

11%

Individual credit impairment charge/(release)

7

9

3

-22%

large

Collective credit impairment charge/(release)

(8)

2

2

large

large

Net loans & advances

6,439

6,255

5,695

3%

13%

Customer deposits

12,73012,071

10,2905%24%

Credit impairment (charge)/release52

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
Individual credit impairment charge/(release)

Half Year

Movement

Retail Asia Pacific

Mar 14$M
38

Sep 13$M
38

Mar 13$M
23

Mar 14v. Sep 13
0%

Mar 14v. Mar 13
65%

Global Institutional

174

74

144

large

21%

Transaction Banking

11

15

large

large

52

64

122

-19%

-57%

Global Markets

21

(1)

7

large

large

3

1

-

large

n/a

215

113

167

90%

29%

For personal use only

101

Global Loans

Relationship & Infrastructure
Individual credit impairment charge/(release)Collective credit impairment charge/(release)

Half Year

Movement

Retail Asia Pacific

Mar 14$M(31)

Sep 13$M(20)

Mar 13$M(6)

Mar 14v. Sep 13
55%

Mar 14v. Mar 13
large

Global Institutional

(21)

39

21

large

large

Transaction Banking

18

9

10

100%

80%

Global Loans

(40)

31

8

large

large

1

(1)

3

large

-67%

Relationship & Infrastructure

Global Markets

(2)

1

2

large

large

Collective credit impairment charge/(release)

(54)

20

17

large

large

Total credit impairment charge/(release)

161

133

184

21%

-13%

Net loans & advances

As at ($M)

Movement

Retail Asia Pacific

Mar 14
7,851

Sep 13
7,222

Mar 13
5,694

Mar 14v. Sep 13
9%

Mar 14v. Mar 13
38%

Global Institutional

126,503

114,532

107,451

10%

18%

Transaction Banking

30,772

28,77526,2777%

17%

Global Loans

80,45972,62569,34811%

16%

Global Markets

15,272

13,132

11,826

16%

29%

1,989

1,718

1,315

16%

51%

136,343

123,472

114,460

10%

19%

Relationship & Infrastructure
Net loans & advances

Customer deposits

As at ($M)

Movement
Mar 14v. Sep 13
3%

Mar 14v. Mar 13
22%

Retail Asia Pacific

Mar 14
13,336

Sep 13
12,916

Mar 13
10,932Global Institutional

157,084

148,716

139,547

6%

13%

79,68974,641

62,511

7%

27%

Transaction Banking

Global Loans

889

730

722

22%

23%

Global Markets

76,50673,34576,3144%0%

Relationship & Infrastructure
Customer deposits

53

1,603

1,519

1,368

6%

17%

172,023

163,151

151,847

5%

13%

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
Global Institutional
Half Year

Movement

Other operating income

1,161

991

1,136

17%

2%

Operating income

2,891

2,647

2,687

9%

8%

Operating expenses(1,163)(1,082)(1,115)

7%

4%

Profit before credit impairment and income tax

1,728

1,565

1,572

10%

10%

For personal use only

Net interest income

Mar 14$M
1,730

Sep 13$M
1,656

Mar 13$M
1,551

Mar 14v. Sep 13
4%

Mar 14v. Mar 13
12%

Credit impairment charge

(153)

(113)

(165)

35%

-7%

Profit before income tax

1,575

1,452

1,407

8%

12%

Income tax expense and non-controlling interests

(433)

(387)

(396)

12%

9%

Cash profit

1,142

1,065

1,011

7%

13%

Consisting of:Transaction Banking

228

303

255

-25%

-11%

Global Loans

433

398

357

9%

21%

Global Markets

481

364

399

32%

21%

1,142

1,065

1,011

7%

13%

Balance Sheet
Net loans & advances

126,503

114,532

107,451

10%

18%

Other external assets

171,924

166,648

166,054

3%

4%

External assets

298,427

281,180

273,505

6%

9%

Customer deposits

157,084

148,716

139,547

6%

13%

Other deposits and borrowings

38,16833,63637,04513%

3%

Deposits and other borrowings

195,252

182,352

176,592

7%

11%

Other external liabilities

60,94556,99453,9647%

13%

External liabilities

256,197239,346

230,556

7%

11%

Risk weighted assets

180,445

165,922

158,117

9%

14%

Average net loans and advances

122,457

112,681

103,749

9%

18%

Average deposits and other borrowings

201,211

181,940

170,086

11%

18%

RatiosReturn on assets

0.76%

0.75%

0.77%

Net interest margin

1.40%

1.42%

1.48%

Net interest margin (excluding Global Markets)

2.23%

2.38%

2.51%

Operating expenses to operating income

40.2%

40.9%

41.5%

Operating expenses to average assets

0.78%

0.76%

0.85%

174

74

144

large

21%

0.28%

0.13%

0.28%
large

large

-28%

-35%

Cash profit

Individual credit impairment charge/(release)
Individual credit impairment charge/(release) as a % of average net advances
Collective credit impairment charge/(release)Collective credit impairment charge/(release) as a % of average net advances
Net impaired assets
Net impaired assets as a % of net advances

54

(21)

39

21

(0.03%)

0.07%

0.04%

877

1,237

1,351

0.69%

1.08%

1.26%

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
Global Institutional by Product
Half Year

Movement

Mar 14$M
442

Sep 13$M425

Mar 13$M
385

Mar 14v. Sep 13
4%

Other operating income

373

359

348

4%

7%

Operating income

815

784

733

4%

11%

Operating expenses

(379)

(355)

(352)

7%

8%

Profit before credit impairment and income tax

436

429

381

2%

14%

Credit impairment charge

(119)

(20)

(25)

large

large

Profit before income tax

317

409

356

-22%

-11%

Income tax expense and non-controlling interests

(89)

(106)

(101)

-16%

-12%

Cash profit

228

303

255

-25%

-11%

37,91835,59034,834

7%

9%

Individual credit impairment charge/(release)

101

11

15

large

large

Collective credit impairment charge/(release)

18

9

10

100%

80%

Net loans & advances

30,772

28,77526,277

7%

17%

Customer deposits

79,68974,641

62,511

7%

27%

Global Loans
Net interest income

765

790

790

-3%

-3%

Other operating income

68

65

45

5%

51%
0%

For personal use only

Transaction Banking
Net interest income

Risk weighted assets

Mar 14v. Mar 13
15%

Operating income

833

855

835

-3%

Operating expenses

(222)

(209)

(209)

6%

6%

Profit before credit impairment and income tax

611

646

626

-5%

-2%

Credit impairment charge

(12)

(95)

(130)

-87%

-91%

Profit before income tax

599

551

496

9%

21%

Income tax expense and non-controlling interests

(166)

(153)

(139)

8%

19%

Cash profit

433

398

357

9%

21%

87,78881,21574,9928%

17%

Individual credit impairment charge/(release)

52

64

122

-19%

-57%

Collective credit impairment charge/(release)

(40)

31

8

large

large

Net loans & advances

80,45972,62569,348

11%

16%

Customer deposits

889

730

722

22%

23%

Global Markets
Net interest income

523

441

376

19%

39%

Other operating income

720

567

743

27%

-3%

Operating income

1,243

1,008

1,119

23%

11%

Operating expenses

(562)

(518)

(554)

8%

1%

Profit before credit impairment and income tax

681

490

565

39%

21%

Risk weighted assets

Credit impairment (charge)/release

(22)

2

(10)

large

large

Profit before income tax

659

492

555

34%

19%

Income tax expense and non-controlling interests

(178)

(128)

(156)

39%

14%

Cash profit

481

364

399

32%

21%

54,73949,117

48,291

11%

13%

Individual credit impairment charge/(release)

21

(1)

7

large

large

Collective credit impairment charge/(release)

1

(1)

3

large

-67%

Net loans & advances

15,272

13,132

11,82616%

29%

Customer deposits

76,50673,34576,3144%0%

Risk weighted assets

55

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
Analysis of Global Markets operating income
Half Year
Composition of Global Markets
operating income by product class
Fixed income

Mar 14$M504

Sep 13$M
330

Mar 13$M
472

Mar 14v. Sep 13
53%

Mar 14v. Mar 13
7%
27%

526

460

414

14%

Capital markets

118

104

122

13%

-3%

Other

95

114

111

-17%

-14%

1,243

1,008

1,119

23%

11%

For personal use only

Foreign exchange

Movement

Global Markets operating income

Half Year

Movement

Composition of Global Markets
operating income by geography
Australia

Mar 14$M493

Sep 13$M
461

Mar 13$M
527

Mar 14v. Sep 13
7%

Mar 14v. Mar 13-6%

Asia Pacific, Europe & America

602

451

451

33%

33%

New Zealand

148

96

141

54%

5%

1,243

1,008

1,119

23%

11%

Global Markets operating income

Half Year

Composition of Global Markets
operating income by activity

Movement

Sales1

Mar 14$M635

Sep 13$M
590

Mar 13$M
561

Mar 14v. Sep 13
8%

Trading2

322

254

302

27%

7%

Balance sheet3

286

164

256

74%

12%

1,243

1,008

1,119

23%

11%

Global Markets operating income

Half Year

Composition of Global Markets Sales income
by geography1
Australia

Mar 14v. Mar 13
13%

Movement

Mar 14$M
248

Sep 13$M
236

Mar 13$M
253

Mar 14v. Sep 13
5%

Mar 14v. Mar 13-2%

Asia Pacific, Europe & America

318

287

259

11%

23%

New Zealand

69

67

49

3%

41%

Global Markets Sales income

635

590

561

8%

13%

Half Year

Composition of Global Markets Trading andBalance Sheet income by geography2,3Australia

Movement

Mar 14$M
245

Sep 13$M
225

Mar 13$M
274

Asia Pacific, Europe & America

284

164

192

73%

48%

New Zealand

79

29

92

large

-14%

Global Markets
Trading and Balance Sheet income

608

418

558

45%

9%

1.
2.
3.

Sales represents direct client flow business on core products such as fixed income, FX, commodities and capital markets.
Trading primarily represents management of the Group’s strategic positions and those taken as part of direct client sales flow.
Balance sheet represents hedging of interest rate risk on the Group’s loan and deposit books and the management of the Group’s liquidity portfolio.

56

Mar 14v. Sep 13
9%

Mar 14v. Mar 13-11%

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
Analysis of Global Markets operating income
Global Markets continues to benefit from its expansion into APEA, which now accounts for 48% of operating income. Across the APEA region, particularly
Asia, there is significant customer demand for foreign exchange and commodity products.
Improvements in the New Zealand economy have created favourable trading conditions that have driven growth across the Fixed Income business.

For personal use only

Operating income from Australia decreased 6% relative to the prior comparable period, as movements in interest rates and credit spreads resulted in
reduced levels of fixed income trading gains being recorded as well as decreased levels of debt capital markets activity as customers preferred loans to
fixed income instruments.
March 2014 half year v March 2013 half year

In relatively similar trading conditions the customer franchise was the key driver in increasing revenue by 11%:•

Sales growth continues to be propelled by foreign exchange and commodity products.

•

APEA operating income increased 33%, driven by strong growth across the foreign exchange business, with high levels of customer demand in
China, Hong Kong and Taiwan.

•

Although credit spreads have tightened, the magnitude relative to the March 2013 half is not as significant when compared to September 2013.

March 2014 half year v September 2013 half year

A sustained period of strong client acquisition and favourable trading conditions has increased revenue by 23%:•

The increase in sales revenues (including Capital Markets) are mainly attributable to the foreign exchange business where the weakening AUD andhigher CNY volatility have led to increased customer hedging activity.

•

APEA operating income increased 33%, driven by strong demand for foreign exchange hedging and precious metals products.

•

Further tightening of credit spreads has benefited the Fixed Income business in Australia and New Zealand.

57

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
Market risk
Traded market risk

For personal use only

Below are aggregate Value at Risk (VaR) exposures at 99% confidence level covering both physical and derivatives trading positions for the Bank’s
principal trading centres. All figures are in AUD.
99% confidence level (1 day holding period)
As at
Mar 14

Low forperiodMar 14$M

Avg forperiodMar 14$M

As at
Sep 13$M

High for
periodMar 14$M$M

High foryear
Sep 13$M

Low foryear
Sep 13$M

Avg foryear
Sep 13$M

Foreign exchange

8.4

13.5

2.8

Interest rate

9.5

16.6

3.2

6.9

3.0

12.6

2.3

5.2

7.7

3.9

11.6

2.8

Credit

2.8

5.2

5.8

2.8

3.9

4.2

8.6

2.8

Commodities

1.2

4.2

2.1

1.1

1.5

1.6

4.2

1.2

Equity

2.3

0.7

2.2

0.4

1.0

1.4

3.4

0.6

Diversification benefit

1.6

(7.4)

n/a

n/a

(9.3)

(8.5)

n/a

n/a

(10.4)

15.2

18.0

5.5

11.7

5.6

13.6

4.9

8.7

Value at Risk at 99% confidence

Total VaR

Non-traded interest rate risk
Non-traded interest rate risk is managed by Global Markets and relates to the potential adverse impact of changes in market interest rates on future netinterest income for the Group. Interest rate risk is reported using various techniques including VaR and scenario analysis to a 1% rate shock.
99% confidence level (1 day holding period)
As at
Mar 14High for
periodLow forperiodAvg forperiodAs at
Sep 13High foryear

Low foryear

Avg foryear$M

Mar 14$M

Mar 14$M

Mar 14$M$M

Sep 13$M

Sep 13$M

Sep 13$M

Australia

54.3

64.5

52.0

57.9

66.3

71.8

25.5

49.3

New Zealand

10.9

11.4

10.1

10.9

12.6

17.9

10.0

13.2

Asia Pacific, Europe & America

10.4

10.6

9.3

10.0

9.7

11.1

4.2

6.3

Diversification benefit(19.3)

n/an/a(12.8)(11.4)

n/a

n/a(16.1)

56.3

76.3

56.3

66.0

77.2

79.6

27.3

52.7

Value at Risk at 99% confidence

Total VaR

Impact of 1% rate shock on the next 12 months’ net interest income1
As at

As at period end

Mar 140.76%

Sep 13
1.00%

Maximum exposure

1.51%

1.72%

Minimum exposure

0.76%

1.00%

Average exposure (in absolute terms)

1.14%

1.29%

1.

The impact is expressed as a percentage of net interest income. A positive result indicates that a rate increase is positive for net interest income. Conversely, a negative indicates a rateincrease is negative for net interest income.

58

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
Global Institutional by Geography
Half Year
Mar 14$M
1,001

Australia
Net interest income

Mar 13$M934

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
7%

442

459

575

-4%

-23%

Operating income

1,443

1,439

1,509

0%

-4%

Operating expenses

(544)

(537)

(574)

1%

-5%

Profit before credit impairment and income tax

899

902

935

0%

-4%

Credit impairment charge

(77)

(33)

(80)

large

-4%

Profit before income tax

822

869

855

-5%

-4%

Income tax expense and non-controlling interests

(248)

(254)

(256)

-2%

-3%

Cash profit

574

615

599

-7%

-4%

83,814

79,11879,711

6%

5%

Individual credit impairment charge/(release)

81

11

77

large

5%

Collective credit impairment charge/(release)

(4)

22

3

large

large

Net loans & advances

55,10649,52749,48311%

11%

Customer deposits

60,89056,881

52,115

7%

17%

Asia Pacific, Europe & America
Net interest income

569

528

474

8%

20%

Other operating income

590

449

437

31%

35%

Operating income

1,159

977

911

19%

27%

Operating expenses

(530)

(462)

(462)

15%

15%

Profit before credit impairment and income tax

629

515

449

22%

40%

Credit impairment charge

(77)

(69)

(80)

12%

-4%

Profit before income tax

552

446

369

24%

50%

Income tax expense and non-controlling interests

(129)

(95)

(91)

36%

42%

Cash profit

423

351

278

21%

52%

83,49575,08067,771

11%

23%

Individual credit impairment charge/(release)

86

54

64

59%

34%

Collective credit impairment charge/(release)

(9)

15

16

large

large

Net loans & advances

64,96058,751

52,27311%

24%

Customer deposits

83,464

79,765

77,142

5%

8%

New Zealand
Net interest income

160

148

143

8%

12%

Other operating income

129

83

124

55%

4%

Operating income

289

231

267

25%

8%

Operating expenses

(89)

(83)

(79)

7%

13%

Profit before credit impairment and income tax

200

148

188

35%

6%

1

(11)

(5)

large

large

Profit before income tax

201

137

183

47%

10%

Income tax expense and non-controlling interests

(56)

(38)

(49)

47%

14%

Cash profit

145

99

134

46%

8%

13,136

11,724

10,635

12%

24%

Individual credit impairment charge/(release)

7

9

3

-22%

large

Collective credit impairment charge/(release)

(8)

2

2

large

large

Net loans & advances

6,437

6,254

5,695

3%

13%

Customer deposits

12,73012,070

10,2905%24%

For personal use only

Other operating income

Sep 13$M
980

Movement

Risk weighted assets

Risk weighted assets

Credit impairment (charge)/release

Risk weighted assets

59

SEGMENT REVIEWInternational and Institutional Banking
Andrew Geczy
Retail Asia Pacific
Half Year

Movement

Mar 14$M
225

Sep 13$M
218

Mar 13$M
206

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
9%

Other operating income

177

165

159

7%

11%

Operating income

402

383

365

5%

10%

Operating expenses

(345)

(337)

(313)

2%

10%

For personal use only

Net interest income

Profit before credit impairment and income tax

57

46

52

24%

10%

Credit impairment charge

(7)

(18)

(17)

-61%

-59%

Profit before income tax

50

28

35

79%

43%

Income tax expense and non-controlling interests

(7)

(6)

(8)

17%

-13%

Cash profit

43

22

27

95%

59%

6,747

6,359

6,857

6%

-2%

Risk weighted assets

Individual credit impairment charge/(release)

38

38

23

0%

65%

Collective credit impairment charge/(release)

(31)

(20)

(6)

55%

large

Net loans & advances

7,851

7,222

5,694

9%

38%

Customer deposits

13,336

12,916

10,932

3%

22%

Asia Partnerships
Half Year

Movement

Mar 14$M(8)

Sep 13$M(7)

Mar 13$M(6)

Mar 14v. Sep 13
14%

Mar 14v. Mar 13
33%

Other operating income

252

236

206

7%

22%

Operating income

244

229

200

7%

22%

Operating expenses

(4)

(5)

(4)

-20%

0%

240

224

196

7%

22%

Credit impairment charge

-

-

-

n/a

n/a

Profit before income tax

240

224

196

7%

22%

(1)

(3)

(2)

-67%

-50%

239

221

194

8%

23%

Net interest income

Profit before credit impairment and income tax

Income tax expense and non-controlling interests
Cash profit

60

SEGMENT REVIEWFor personal use onlyThis page has been left blank intentionally

61

SEGMENT REVIEWNew ZealandDavid Hisco
The New Zealand division comprises Retail and Commercial business units.
New Zealand’s results and commentary are reported in NZD. AUD results are shown on page 67.
Cash profit – March 2014 Half Year v March 2013 Half YearFor personal use only

73
598
33

(40)

46
NZD m

494

1H13
Cash profit(8)

Net interest income

Other operating
incomeOperating expenses

The completion of brand and systems integration in 2013 has
positioned the New Zealand division to realise ongoing productivity
gains. We are continuing to simplify the business and leverage scale.
Productivity has given the business the capacity to invest in growth.
We are investing in our digital channels, optimising our branch networkand simplifying products and processes. We are enhancing theexperience for our customers, and making it easier for them to dobusiness with us.

We are growing our market share in target segments, and in the March2014 half we grew both lending and deposits in excess of system1. At
the same time we are improving the quality of our portfolio. We havecreated a platform for consistent, sustainable earnings growth.

Credit impairment
chargeIncome tax expense& non-controllinginterests

1H14
Cash profit•

Other operating income decreased 4% due to income foregone
following the divestment of EFTPOS New Zealand Limited(‘EFTPOS’). Excluding this factor, other operating income
increased 4%, reflecting strong growth in credit card earnings.

•

Operating expenses decreased 6%. The March 2013 half included
NZD 19 million of restructuring costs relating to the systems
integration project. Excluding these costs, operating expenses
decreased 2% as productivity gains exceeded inflationary andinvestment impacts.

•

Credit impairment charge decreased NZD 73 million. The
individual credit impairment charge decreased 79% reflecting aslowing in the level of new provisions, particularly in the CommAgri
book. The level of write-backs remain high. Although releases fromthe economic cycle provision decreased by NZD 11 million
compared to the March 2013 half, improved credit quality resulted
in the collective credit impairment release increasing 41%.

RetailSound execution of the ‘simplify, leverage scale’ strategy is delivering astronger Retail bank. Our staff are spending more time on the frontline
with customers, growing revenue per FTE and per branch, andmeeting more needs per customer. We are also achieving good
lending growth whilst holding net interest margin in a competitive credit
environment.

The above factors have similarly driven a 5% increase in cash profit
compared with the September 2013 half.

Commercial

Key factors affecting the result were:

The Commercial business has focused on growing Small BusinessBanking which continues to achieve above-system lending growth.
Resources invested in improving credit quality in CommAgri haveresulted in a significantly improved credit provisioning result. Thisbusiness is now building new momentum in lending growth.

•

Net interest income increased 2%, with the benefit from strong
lending growth more than offsetting the impact of margin
contraction. Net interest margin contracted 1 bp due to lending
competition and unfavourable lending mix.

•

Other operating income decreased 11% as the September 2013
half included a gain from the divestment of EFTPOS. This impact
was partly offset by strong growth in cards income.

•Operating expenses decreased 1% with productivity gains frombusiness simplification and leveraging business scale more thanoffsetting inflationary and investment impacts.

•

Credit impairment charge decreased NZD 47 million with theindividual credit impairment charge 64% lower. The levels of newprovisions have slowed, and write-backs remain high. The
collective credit impairment release increased 63% despite lending
growth, which reflected strong improvements in credit quality
across the lending book.

March 2014 half year v September 2013 half year

March 2014 half year v March 2013 half year

Cash profit increased 21%, driven by lending growth, cost productivity
and credit quality improvement.
Key factors affecting the result were:•

Net interest income increased 4%, driven by lending growth.
Average net loans and advances grew 5%, led by above-system
growth in mortgages. Net interest margin contracted 2 bps. Thiswas driven by lending competition and unfavourable lending mix
as customers continue to favour lower margin fixed rate products
over higher margin variable rate products. Return on capital was
also lower in a low rate environment. These margin impacts were
mostly offset by lower wholesale funding costs and improved
deposit margins.

1

62

Source: RBNZ schedules S7 and S8 : 5 months to February 2014.

SEGMENT REVIEWNew ZealandDavid Hisco
New Zealand Total
Table reflects NZD for New Zealand
AUD results shown on page 67

For personal use only

Half Year
Mar 14
NZD M
1,162

Net interest income
Other operating income

Sep 13
NZD M
1,144

Movement
Mar 13
NZD M
1,116

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
4%
-4%

195

220

203

-11%

Operating income

1,357

1,364

1,319

-1%

3%

Operating expenses

(563)

(571)

(596)

-1%

-6%

Profit before credit impairment and income tax

794

793

723

0%

10%

Credit impairment (charge)/release

37

(10)

(36)

large

large

Profit before income tax

831

783

687

6%

21%

Income tax expense and non-controlling interests

(233)

(214)

(193)

9%

21%

Cash profit

598

569

494

5%

21%

Consisting of:Retail

222

202

177

10%

25%

Commercial

377

369

332

2%

14%

Other

(1)

(2)

(15)

-50%

-93%

Cash profit

598

569

494

5%

21%

Balance Sheet
Net loans & advances

94,14091,62889,414

3%

5%

Other external assets

4,075

3,903

3,807

4%

7%

External assets

98,215

95,531

93,221

3%

5%

Customer deposits

55,20552,24451,650

6%

7%

Other deposits and borrowings

5,401

4,765

4,337

13%

25%

Deposits and other borrowings

60,60657,00955,987

6%

8%

Other external liabilities

15,995

15,48016,5153%-3%

External liabilities

76,601

72,48972,502

6%

6%

Risk weighted assets

53,79850,04950,488

7%

7%

Average net loans and advances

92,88290,326

88,667

3%

5%

Average deposits and other borrowings

59,74356,81756,4295%

6%

RatiosReturn on assets

1.24%

1.21%

1.08%

Net interest margin

2.48%

2.49%

2.50%

Operating expenses to operating income

41.5%

41.9%

45.2%

Operating expenses to average assets

1.17%

1.22%

1.29%

15

42

73

-64%

-79%

0.03%

0.09%

0.17%

(52)

(32)

(37)

63%

41%

(0.11%)(0.07%)(0.08%)

477

573

881

-17%

-46%

Net impaired assets as a % of net advances

0.51%

0.63%

0.98%

Total full time equivalent staff (FTE)

7,323

7,400

7,755

-1%

-6%

Individual credit impairment charge/(release)
Individual credit impairment charge/(release) as a % of average net advances
Collective credit impairment charge/(release)Collective credit impairment charge/(release) as a % of average net advances
Net impaired assets

63

SEGMENT REVIEWNew ZealandDavid Hisco
Individual credit impairment charge/(release)

Half Year

Movement

Mar 14
NZD M
28

Sep 13
NZD M
37

Mar 13
NZD M
39

Mar 14v. Sep 13-24%

Mar 14v. Mar 13-28%

Commercial

(13)

5

34

large

large

CommAgri

(25)

4

28

large

large

Small Business Banking

12

1

6

large

100%

15

42

73

-64%

-79%

For personal use only

RetailIndividual credit impairment charge/(release)Collective credit impairment charge/(release)

Half Year

Movement

Mar 14
NZD M(16)

Sep 13NZD M(10)Mar 13NZD M(9)Commercial

(36)

(22)

(28)

64%

29%

CommAgri

(33)

(30)

(19)

10%

74%

RetailSmall Business Banking

Mar 14v. Sep 13
60%

Mar 14v. Mar 13
78%

(3)

8

(9)

large

-67%

Collective credit impairment charge/(release)

(52)

(32)

(37)

63%

41%

Total credit impairment charge/(release)

(37)

10

36

large

large

Net loans & advances

As at (NZD M)

Movement

RetailMar 1436,875

Sep 1336,422

Mar 1335,806

Mar 14v. Sep 13
1%

Mar 14v. Mar 13
3%

Commercial

57,26555,20653,608

4%

7%

CommAgri35,42934,75934,395

2%

3%

Small Business Banking

21,836

20,447

19,2137%

14%

94,14091,62889,4143%

5%

Net loans & advances

Customer deposits

As at (NZD M)

Movement

RetailMar 1432,656

Sep 1332,077

Mar 1331,392

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
4%

Commercial

22,54920,167

20,258

12%

11%

CommAgri

10,832

9,414

9,644

15%

12%

Small Business Banking

11,717

10,753

10,6149%

10%

55,20552,24451,650

6%

7%

Customer deposits

64

SEGMENT REVIEWNew ZealandDavid Hisco
RetailHalf YearNet interest income

For personal use only

Other operating income

Movement

Mar 14
NZD M
482

Sep 13
NZD M
475

Mar 13
NZD M
451

Mar 14v. Sep 13
1%

Mar 14v. Mar 13
7%

154

152

145

1%

6%

Operating income

636

627

596

1%

7%

Operating expenses

(316)

(319)

(320)

-1%

-1%

Profit before credit impairment and income tax

320

308

276

4%

16%

Credit impairment (charge)/release

(12)

(27)

(30)

-56%

-60%

Profit before income tax

308

281

246

10%

25%

Income tax expense and non-controlling interests

(86)

(79)

(69)

9%

25%

Cash profit

222

202

177

10%

25%

19,271

19,367

19,5080%-1%

Risk weighted assets

Half Year
Mar 14
NZD M
28

Individual credit impairment charge/(release)Collective credit impairment charge/(release)

Sep 13
NZD M
37

Movement
Mar 13
NZD M
39

Mar 14v. Sep 13-24%

Mar 14v. Mar 13
-28%

(16)

(10)

(9)

60%

78%

Net loans & advances

36,87536,42235,806

1%

3%

Customer deposits

32,65632,07731,3922%

4%

65

SEGMENT REVIEWNew ZealandDavid Hisco
Commercial
Half YearNet interest income

For personal use only

Other operating income

Movement

Mar 14
NZD M
672

Sep 13
NZD M
661

Mar 13
NZD M
655

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
3%

47

67

59

-30%

-20%

Operating income

719

728

714

-1%

1%

Operating expenses

(244)

(240)

(247)

2%

-1%

Profit before credit impairment and income tax

475

488

467

-3%

2%

Credit impairment (charge)/release

49

17

(6)

large

large

Profit before income tax

524

505

461

4%

14%

Income tax expense and non-controlling interests

(147)

(136)

(129)

8%

14%

Cash profit

377

369

332

2%

14%

34,19630,40730,797

12%

11%

Risk weighted assets

Half Year

Individual credit impairment charge/(release)
CommAgri

Small Business Banking

Mar 14
NZD M(25)

Sep 13NZD M
4Movement
Mar 13
NZD M
28

Mar 14v. Sep 13
large

Mar 14v. Mar 13
large

12

1

6

large

100%

(13)

5

34

large

large

CommAgri

(33)

(30)

(19)

10%

74%

Small Business Banking

(3)

8

(9)

large

-67%

Collective credit impairment charge/(release)

(36)

(22)

(28)

64%

29%

Total credit impairment charge/(release)

(49)

(17)

6

large

large

Individual credit impairment charge/(release)Collective credit impairment charge/(release)

As at (NZD M)

Movement

Mar 1435,429Sep 1334,759Mar 1334,395

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
3%

21,836

20,447

19,2137%

14%

Net loans & advances

57,26555,20653,608

4%

7%

Customer deposits
CommAgri

10,832

9,414

9,644

15%

12%

11,717

10,753

10,6149%

10%

22,54920,167

20,25812%

11%

Net loans & advances
CommAgri
Small Business Banking

Small Business Banking

Customer deposits

66

SEGMENT REVIEWNew ZealandDavid Hisco
New Zealand Total
Table reflects AUD for New Zealand
NZD results shown on page 63

For personal use only

Half Year
Mar 14$M
1,061

Net interest income
Other operating income

Sep 13$M
973

Movement
Mar 13$M
891

Mar 14v. Sep 13
9%

Mar 14v. Mar 13
19%

178

186

162

-4%

10%

Operating income

1,239

1,159

1,053

7%

18%

Operating expenses

(514)

(486)

(475)

6%

8%

Profit before credit impairment and income tax

725

673

578

8%

25%

Credit impairment (charge)/release

34

(9)

(28)

large

large

Profit before income tax

759

664

550

14%

38%

Income tax expense and non-controlling interests

(213)

(182)

(154)

17%

38%

Cash profit

546

482

396

13%

38%

Consisting of:Retail

203

171

142

19%

43%

Commercial

344

313

265

10%

30%

Other

(1)

(2)

(11)

-50%

-91%

Cash profit

546

482

396

13%

38%

Balance Sheet
Net loans & advances

88,247

81,542

71,710

8%

23%

Other external assets

3,819

3,473

3,053

10%

25%

External assets

92,06685,01574,7638%

23%

Customer deposits

51,74946,494

41,423

11%

25%

Other deposits and borrowings

5,063

4,240

3,478

19%

46%

Deposits and other borrowings

56,81250,73444,901

12%

27%

Other external liabilities

14,994

13,776

13,2469%

13%

External liabilities

71,80664,51058,147

11%

23%

Risk weighted assets

50,43044,54040,491

13%

25%

Average net loans and advances

84,756

76,77770,745

10%

20%

Average deposits and other borrowings

54,51648,31145,023

13%

21%

RatiosReturn on assets

1.24%

1.21%

1.08%

Net interest margin

2.48%

2.49%

2.50%

Operating expenses to operating income

41.5%

41.9%

45.2%

Operating expenses to average assets

1.17%

1.22%

1.29%

13

37

58

-65%

-78%

0.03%

0.09%

0.17%

(47)

(28)

(30)

68%

57%

(0.11%)(0.07%)(0.08%)

446

510

706

-13%

-37%

Net impaired assets as a % of net advances

0.51%

0.63%

0.98%

Total full time equivalent staff (FTE)

7,323

7,400

7,755

-1%

-6%

Individual credit impairment charge/(release)
Individual credit impairment charge/(release) as a % of average net advances
Collective credit impairment charge/(release)Collective credit impairment charge/(release) as a % of average net advances
Net impaired assets

67

SEGMENT REVIEW
Global Wealth
Joyce Phillips
The Global Wealth division comprises Funds Management, Insurance and Private Wealth business units that provide investment, superannuation,pension, insurance and private banking solutions to customers across Australia, New Zealand and Asia.
Cash profit – March 2014 Half Year v March 2013 Half YearFor personal use only

23
27

2
226

15

(11)

204

(3)

$m

1H13
Cash profit

(31)

Funds
Management
incomeInsurance
incomePrivate WealthincomeCorporate andother income

Global Wealth provides a range of innovative solutions to customers acrossthe region to make it easier for them to connect, protect and grow theirwealth.
Global Wealth serves over 2.3 million customers and manages $62 billion in
investment and retirement savings. Customers can access ANZ’s wealthsolutions through teams of highly qualified financial planners and advisers,
innovative digital platforms, ANZ Private Bankers and ANZ’s branch anddirect channels. For ANZ customers, wealth solutions are becoming
increasingly integrated with their banking making it easier and moreconvenient for them to successfully manage their financial affairs.
Global Wealth is investing in strategic growth initiatives to help customers
engage with their wealth. This includes delivering more options for the selfdirected customer, new digital solutions and new physical environments.
Global Wealth is also investing in programs to leverage capabilities acrossthe region to deliver service and scale efficiencies.
Funds Management
The Funds Management business helps customers grow their wealththrough investment, superannuation and pension solutions. Global Wealthhas embraced the changing regulatory environment to reshape thebusiness, simplifying operational processes and delivering innovative
solutions like ANZ Smart Choice Super and new digital platforms. The
business experienced positive netflows driven by increased productivity offinancial planners and strong growth for ANZ Smart Choice Super which
now has over 270,000 customers.

OperatingexpensesCreditimpairment
chargeIncome tax
expense & noncontrollinginterests

1H14
Cash profit•

Funds Management operating income increased by 6%. This was
driven by 14% growth in average FUM as a result of strong gains
from investment markets and growth of over $1 billion in netflows
due to improved planner productivity.

•

Insurance operating income declined by 1% reflecting the exit of
one large group life insurance plan. Excluding this $47 million
impact, insurance operating income grew 16% driven by strong
underlying business performance along with improved claims andlapse experience.

•

Private Wealth operating income increased by 28% mainly driven
by solid growth in wealth investment solutions. Average customer
deposits grew by 24% and average net loans and advances
increased by 10%.

•

Corporate and other operating income benefited from a $26
million non-recurring insurance settlement.

•

Operating expenses grew by 7% reflecting increased investment
in strategic growth initiatives focusing on innovations to enable
customers to be self-directed, as well as regulatory spend.
March 2014 half year v September 2013 half year

Cash profit reduced by 16%, due to inclusion of a one off tax
consolidation adjustment in September 2013. Profit before tax grew by
9%.
Key factors affecting the result were:

Insurance
The Insurance business provides protection for all life stages through acomprehensive range of life and general insurance products distributed via
intermediated and direct channels. Global Wealth’s focus on retail risk
resulted in a 13% growth in inforce premiums, while continued investment
in claims management and retention initiatives in Australia improved claim
ratios and reduced lapse rates by 120 bps.

•

Funds Management operating income improved by 1%. This was
mainly driven by an increase in average FUM of 7% reflecting
strong market performance and a significant improvement in
netflows as a result of improved planner productivity.

•

Insurance operating income decreased by 5% due to the exit of
one large group life insurance plan. Excluding this $47 million
impact, insurance operating income grew 11% due to improved
claims and lapse experience and strong growth in inforce
premiums.

•

Private Wealth operating income improved by 14% with solid
growth in average customer deposits and average net loans andadvances of 10% and 1% respectively.

•

Corporate and other operating income benefited from a $26
million non-recurring insurance settlement.

•

Operating expenses were up slightly reflecting productivity gains
offsetting the cost growth of digital innovations and regulatory
spend.

Private WealthOperating in six countries across the region we continue to strengthen our
Private Wealth operations by building core capabilities and developing thesuite of global investment solutions. This includes leveraging the expertiseof strategic partners such as Swiss Private Bank Vontobel. Private Wealthhas delivered strong growth across deposits, investments and loans.
March 2014 half year v March 2013 half year
Cash profit improved by 11%, with an 8% increase in operating income and
7% increase in expenses.
Key factors affecting the result were:68

SEGMENT REVIEW
Global Wealth
Joyce Phillips
Global Wealth Total
Half Year
Mar 14$M
80

Net interest income

Mar 13$M
64

Mar 14v. Sep 13
7%

Mar 14v. Mar 13
25%

120

94

80

28%

50%

Net funds management and insurance income

606

611

600

-1%

1%

Operating income

806

780

744

3%

8%

Operating expenses

(494)

(489)

(463)

1%

7%

Profit before credit impairment and income tax

312

291

281

7%

11%

For personal use only

Other operating income

Sep 13$M
75

Movement

Credit impairment (charge)/release
Profit before income tax

1

(3)

(1)

large

large

313

288

280

9%

12%

Income tax expense and non-controlling interests

(87)

(20)

(76)

large

14%

Cash profit

226

268

204

-16%

11%

Consisting of:Business Segment
Funds Management1

62

78

53

-21%

17%

Insurance

98

113

110

-13%

-11%

Private Wealth

40

27

22

48%

82%

Corporate and Other2

26

50

19

-48%

37%

Total Global Wealth

226

268

204

-16%

11%

Australia

156

237

175

-34%

-11%

New Zealand3

71

36

30

97%

large

Asia Pacific, Europe & America

(1)

(5)

(1)

-80%

0%

Total Global Wealth

226

268

204

-16%

11%

Income from invested capital4

28

26

31

8%

-10%

Balance Sheet
Funds under management

61,65258,57854,805

5%

12%

Average funds under management60,55256,50753,2187%14%

In-force premiums

1,955

1,986

1,893

-2%

3%

Customer deposits

12,69911,56910,04210%26%

Net loans & advances

6,009

6,187

5,776

-3%

4%

Average net loans and advances

6,121

6,060

5,541

1%

10%

Average customer deposits

12,278

11,112

9,929

10%

24%

61.3%

62.7%

62.2%

Australia

0.60%

0.57%

0.65%

New Zealand

0.41%

0.46%

0.49%

Australia

11.7%

11.7%

10.7%

New Zealand

34.6%

36.1%

41.6%

Australia

12.1%

14.1%

13.3%

New Zealand5

RatiosOperating expenses to operating income
Funds management expenses to average FUM

Insurance expenses to in-force premiums

Retail insurance lapse rates

14.9%

16.7%

15.7%

Total full time equivalent staff (FTE)6

4,090

4,271

4,176

-4%

-2%

Aligned adviser numbers7

2,061

2,133

2,160

-3%

-5%

1.
2.
3.

4.

5.
6.
7.

Funds management includes Pensions & Investments business and E*TRADE.
Corporate and other includes income from invested capital, profits from the Advice and Distribution business and unallocated corporate tax credits.
Includes the cross border settlement of an insurance claim involving both Australia and New Zealand on a net basis. For statutory purposes, the individual components of the settlement
have been recognised in their respective geographies.
Income from invested capital represents after tax revenue generated from investing insurance and investment business’ capital balances (required for regulatory purposes) net of groupfunding charges and borrowing costs which is included as part of Corporate and Other results. The invested capital as at 31 March 2014 was $2.1 billion (Sep 13: $2.1 billion), which
comprises fixed interest securities of 36% and cash and term deposits of 64% (Sep 13: 33% fixed interest securities and 67% cash and term deposits).
Funds management expense and FUM only relates to the Pensions & Investments business.
Comparative information has been restated to include technology contractors, consistent with how FTE are reported and managed internally.
Includes corporate authorised representatives of dealer groups wholly or partially controlled by Global Wealth and ANZ financial planners.

69

SEGMENT REVIEW
Global Wealth
Joyce Phillips

Major business segments
Half Year
Mar 14$M
17

For personal use only

Funds Management1
Net interest income

Movement

Sep 13$M
17

Mar 13$M
18

Mar 14v. Sep 13
0%

Mar 14v. Mar 13-6%

Other operating income

33

36

33

-8%

0%

Funds management income

416

406

389

2%

7%

Funds management volume related expenses

(194)

(191)

(183)

2%

6%

Operating income

272

268

257

1%

6%

Operating expenses

(184)

(175)

(185)

5%

-1%

88

93

72

-5%

22%

Profit before credit impairment and income tax
Credit impairment charge

-

-

-

n/a

n/a

Profit before income tax

88

93

72

-5%

22%

Income tax expense and non-controlling interests

(26)

(15)

(19)

73%

37%

Cash profit

62

78

53

-21%

17%

Half Year
Mar 14$M
14

Insurance
Net interest income

Movement

Sep 13$M
14

Mar 13$M
14

Mar 14v. Sep 13
0%

Mar 14v. Mar 13
0%

Other operating income

33

33

25

0%

32%

Insurance income

357

383

366

-7%

-2%

Insurance volume related expenses

(135)

(146)

(133)

-8%

2%

Operating income

269

284

272

-5%

-1%

Operating expenses

(135)

(133)

(122)

2%

11%

Profit before credit impairment and income tax

134

151

150

-11%

-11%

Credit impairment charge

-

-

-

n/a

n/a

Profit before income tax

134

151

150

-11%

-11%

Income tax expense and non-controlling interests

(36)

(38)

(40)

-5%

-10%

Cash profit

98

113

110

-13%

-11%

Half Year

Movement

Mar 14$M
67

Sep 13$M
59

Mar 13$M
49

Mar 14v. Sep 13
14%

Mar 14v. Mar 13
37%

Other operating income

30

25

23

20%

30%

Net funds management income

25

23

23

9%

9%

Operating income

122

107

95

14%

28%

Operating expenses

(67)

(65)

(62)

3%

8%

Profit before credit impairment and income tax

55

42

33

31%

67%

Credit impairment charge

1

(3)

(1)

large

large

Profit before income tax

56

39

32

44%

75%

Income tax expense and non-controlling interests

(16)

(12)

(10)

33%

60%

Cash profit

40

27

22

48%

82%

Private Wealth
Net interest income

1.

Funds management includes Pensions & Investments business and E*TRADE.

70

SEGMENT REVIEW
Global Wealth
Joyce Phillips
Half Year
Mar 14$M

Insurance operating margin
Life Insurance Planned profit margin

Movement

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

52

69

62

-25%

-16%

(25)

(23)

(6)

9%

large

Assumption changes2

-

-

-

n/a

n/a

General Insurance operating profit margin3

45

46

37

-2%

22%

Australia

72

92

93

-22%

-23%

21

20

16

5%

31%

5

1

1

large

large

-

-

-

n/a

n/a

New Zealand

26

21

17

24%

53%

Total

98

113

110

-13%

-11%

For personal use onlyGroup & Individual
Experience profit/(loss)1

Life Insurance Planned profit margin
Individual

Experience profit/(loss)

1

Assumption changes2

Half Year

Movement

Mar 14$M184

Sep 13$M
175

Mar 13$M
185

Mar 14v. Sep 13
5%

Mar 14v. Mar 13-1%

Insurance

135

133

122

2%

11%

Private Wealth

67

65

62

3%

8%

Corporate and Other

108

116

94

-7%

15%

Total

494

489

463

1%

7%

Operating expenses by business segment
Funds management4

Half Year

Movement

Mar 14$M402

Sep 13$M
400

Mar 13$M
382

Mar 14v. Sep 13
1%

Mar 14v. Mar 13
5%

New Zealand

60

58

53

3%

13%

Asia Pacific, Europe & America

32

31

28

3%

14%

Total

494

489

463

1%

7%

Operating expenses by geography
Australia

As at ($M)

Movement

Funds under management
Funds under management - average

Mar 1460,552

Sep 1356,507

Mar 1353,218Mar 14v. Sep 13
7%

Mar 14v. Mar 13
14%

Funds under management - end of period

61,65258,57854,8055%

12%Composed of:Australian equities

19,947

19,164

18,2084%

10%Global equities

13,468

11,583

10,301

16%

31%

Cash and fixed interest

24,35024,153

22,7751%

7%

Property and infrastructure

3,887

3,678

3,521

6%

10%

Total

61,65258,57854,8055%

12%

As at ($M)

Mar 1345,385

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
7%

11,216

9,420

15%

37%

58,57854,8055%

12%

Funds under management by region
Australia

Mar 14
48,746

Sep 1347,362

New Zealand

12,906

Total

61,652

1.

2.
3.
4.

Movement

Experience profit/(loss) variations are gains or losses arising from actual experience differing from plan on Group and Individual business (Australia) and Individual business (New
Zealand).
Assumption changes are gains or losses arising from a change in valuation methods and best estimate assumptions.
General insurance operating profit margin includes ANZ Lender’s Mortgage Insurance.
Funds management includes Pensions & Investments business and E*TRADE.

71

SEGMENT REVIEW
Global Wealth
Joyce Phillips
Inflows

Outflows

Sep 13$M

OneAnswer

18,925

1,368(1,216)472

18,301Other Personal Investment

5,549

333

(460)

125

5,551

Employer Super

14,306996(1,163)445

14,028

Oasis

6,079

466

(432)

160

5,885

ANZ Trustees

3,887

501

(318)

107

3,597

Kiwisaver

4,604

582

(174)

383

3,813

Private Bank - New Zealand

4,392

402

(229)

340

3,879

For personal use only

Mar 14$M

Other1

Funds Management cashflows by product

Other New Zealand

3,910

518

(488)

356

3,524

Total

61,652

5,166(4,480)2,388

58,578As at ($M)

Movement

Insurance annual in-force premiumsGroup

Mar 14336

Sep 13447

Mar 13439

Mar 14v. Sep 13-25%

Mar 14v. Mar 13-23%

Individual

1,132

1,067

1,006

6%

13%

General Insurance

487

472

448

3%

9%

Total

1,955

1,986

1,893

-2%

3%

Insurance annual in-force premiums by region
Australia

1,780

1,839

1,756

-3%

1%

175

147

137

19%

28%

1,955

1,986

1,893

-2%

3%

Mar 14LapsesSep 13$MNewbusiness
$M2

$M

$M

336

17

(128)

447

1,132

138

(73)

1,067

487

81

(66)

472

Total

1,955

236

(267)

1,986

Insurance in-force book movement by region
Australia

1,780

200

(259)

1,839

175

36

(8)

147

1,955

236

(267)

1,986

New Zealand
Total

Insurance in-force book movement
Group
Individual
General Insurance

New Zealand
Total

Embedded value and value of new business (insurance and investments only)
Embedded value as at September 20133
Value of new business4
5

Expected return

Experience deviations and assumption changes6

Embedded value before economic assumption changes and net transfer
Economic assumptions change7
8

Net transfer

Embedded value as at March 2014
1.
2.

3.

4.
5.
6.

7.
8.

Australia

New Zealand

Total

$M
3,244

$M
422

$M
3,666

70

9

79

156

18

174

(2)

5

3

3,468

454

3,922

(21)

62

41

(160)

(38)

(198)

3,287

478

3,765

Other includes investment income net of taxes, fees and charges and distributions; and the impact of translation differences on foreign currency balances.
New business includes the impact of foreign currency gains on translation.
Embedded value represents the present value of future profits and releases of capital arising from the business in force at the valuation date, and adjusted net assets. It is determinedusing best estimate assumptions with franking credits included at 70% of face value. Projected cash flows have been discounted using capital asset pricing model risk discount rates of
9.00%-10.75%. ANZ Lenders Mortgage Insurance business is not included in the valuation.
Value of new business represents the present value of future profits less the cost of capital arising from the new business written over the period.
Expected return represents expected increase in value over the period.
Experience deviations and assumption changes arise from deviations from and changes to best estimate assumptions underlying the prior period embedded value. The adverse
movement for the Australian business is primarily due to higher lapse experience in the Group Insurance business partially offset by better claim experience in the Retail Insurance andGeneral Insurance.
Risk discount rates have increased by 25 bps over the half year leading to a negative impact. A higher exchange rate for New Zealand dollar has led to a positive value impact.
Net transfer represents net capital movements over the period including restructuring of the business, capital injections, transfer of cash dividends and value of franking credits. There wasa $127 million cash dividend and $35 million in franking credits transferred to the ANZ Group.

72

SEGMENT REVIEW
Global Technology, Services and Operations and Group Centre
GTSO and Group Centre provide support to the operating divisions, including technology, operations, risk management, financial management, strategy
and marketing, human resources and corporate affairs. Additionally, Group Centre includes Group Treasury, Shareholder Functions and Discontinued
Businesses.

Half YearFor personal use only

Net interest income
Other operating income1

Movement

Mar 14$M
201

Sep 13$M
193

Mar 13$M
215

Mar 14v. Sep 13
4%

Mar 14v. Mar 13
-7%

(187)

(139)

(76)

35%

large

Operating income1

14

54

139

-75%

-90%

Operating expenses

(180)

(215)

(175)

-16%

3%

Profit/(Loss) before credit impairment and income tax

(166)

(161)

(36)

3%

large

1

(19)

-

large

n/a

(165)

(180)

(36)

-8%

large

57

50

(2)

14%

large

Cash profit/(loss)

(108)

(130)

(38)

-17%

large

Total full time equivalent staff (FTE)2

9,669

9,375

9,077

3%

7%

Credit impairment charge
Profit/(Loss) before income tax
Income tax expense and non-controlling interests

1.
2.

Includes offsetting variances between net interest and other income as a result of elimination entries associated with the consolidation of Global Wealth.
Comparative information has been restated to include technology contractors, consistent with how FTE are reported and managed internally.

Cash profit – March 2014 Half Year v March 2013 Half Year

(38)
(14)

59

$m

(108)

1
(111)
1H13
Cash loss

Net interest
incomeOther operating
income(5)Operatingexpenses

March 2014 half year v March 2013 half year

Creditimpairment
chargeIncome tax
expense & noncontrollinginterests

1H14
Cash loss

March 2014 half year v September 2013 half year

Key factors affecting the result were:

Key factors affecting the result were:•

Operating income decreased 90% largely due to realised losses
from foreign currency hedges (offsetting translation gains
elsewhere in the Group).

•

Operating income decreased 75% largely due to realised losses
from foreign currency hedges (offsetting translation gains
elsewhere in the Group).

•

Operating expenses increased 3% due to annual salary
increases.

•

Operating expenses decreased 16% largely due to lower
restructuring costs.

•

The increase in FTEs relate to the transfer of activities into central
operations, global enablement and hubs. These are offset in the
Divisions.

•Credit impairment charges decreased $20 million due toprovisions relating to discontinued businesses in the September
2013 half.

•

The increase in FTEs relate to the transfer of activities into central
operations, global enablement and hubs. These are offset in the
Divisions.

73

SEGMENT REVIEWFor personal use onlyThis page has been left blank intentionally74

GEOGRAPHIC REVIEWCONTENTS

Section 6 – Geographic Review
Geographic performance
Australia geography

For personal use only

Asia Pacific, Europe & America geography
New Zealand geography

75

GEOGRAPHIC REVIEW
Geographic Performance

Half Year

Statutory Profit
Australia

For personal use only

Asia Pacific, Europe & America
New Zealand

Movement

Mar 14$M
1,920

Sep 13$M
2,140

Mar 13$M
1,958

Mar 14v. Sep 13-10%

Mar 14v. Mar 13
-2%

683

583

459

17%

49%

778

606

520

28%

50%

3,381

3,329

2,937

2%

15%

Half Year

Cash Profit
Australia
Asia Pacific, Europe & America
New Zealand

Movement

Mar 14$M
2,025

Sep 13$M
2,136

Mar 13$M
2,164

Mar 14v. Sep 13-5%

Mar 14v. Mar 13
-6%

681

554

459

23%

48%

809

623

556

30%

46%

3,515

3,313

3,179

6%

11%

As at ($M)

Movement

Net loans & advances
Australia

Mar 14
336,466

Sep 13324,278

Mar 13
314,620

Mar 14v. Sep 13
4%

Mar 14v. Mar 13
7%

Asia Pacific, Europe & America

76,63469,893

61,223

10%

25%

New Zealand

96,15089,09378,4738%

23%

Net loans & advances509,250

483,264454,316

5%

12%

As at ($M)

Movement

Customer deposits
Australia

Mar 14
216,127

Sep 13207,902

Mar 13
195,849

Mar 14v. Sep 13
4%

Mar 14v. Mar 13
10%

Asia Pacific, Europe & America

102,463

98,127

92,736

4%

10%

New Zealand

69,43262,80055,550

11%

25%

Customer deposits

388,022368,829

344,135

5%

13%

76

GEOGRAPHIC REVIEW
Australia geography
Half Year

Movement

Sep 13$M
4,631

Mar 13$M
4,514

Mar 14v. Sep 13
1%

Mar 14v. Mar 13
3%

Other operating income

1,381

1,533

1,677

-10%

-18%

Operating income

6,040

6,164

6,191

-2%

-2%

Operating expenses(2,648)(2,679)(2,603)-1%

2%

Profit before credit impairment and income tax

3,392

3,485

3,588

-3%

-5%

Credit impairment charge

(479)

(488)

(466)

-2%

3%

Profit before tax

2,913

2,997

3,122

-3%

-7%
-7%

For personal use only

Net interest income

Mar 14$M
4,659

Income tax expense and non-controlling interests

(888)

(861)

(958)

3%

Cash profit

2,025

2,136

2,164

-5%

-6%

Adjustments between statutory profit and cash profit

(105)

4

(206)

large

-49%

Statutory profit

1,920

2,140

1,958

-10%

-2%

Balance Sheet
Net loans & advances

336,466

324,278

314,620

4%

7%

Other external assets

136,579

128,905

124,1426%

10%

External assets

473,045453,183

438,762

4%

8%

Customer deposits

216,127

207,902

195,849

4%

10%

Other deposits and borrowings

73,90866,277

71,26412%

4%Deposits and other borrowings

290,035

274,179

267,113

6%

9%

Other external liabilities

147,174

149,505

140,112-2%

5%

External liabilities

437,209423,684

407,225

3%

7%

Risk weighted assets

201,720

196,416

192,118

3%

5%

Average net loans and advances

330,036

319,212

310,578

3%

6%

Average deposits and other borrowings

290,912276,136

262,013

5%

11%

Ratios
Net interest margin - cash

2.37%

2.45%

2.52%

Operating expenses to operating income - cash

43.8%

43.5%

42.0%

Operating expenses to average assets - cash

1.14%

1.18%

1.20%
5%

2%

-56%

26%

-30%

-40%

-2%

-3%

Individual credit impairment charge/(release) - cash

455

433

447

Individual credit impairment charge/(release) as a % of
average net advances - cash

0.28%

0.27%

0.29%

Collective credit impairment charge/(release) - cash

24

55

19

0.01%

0.03%

0.01%

Collective credit impairment charge/(release) as a % of
average net advances - cash
Net impaired assets

1,267

1,819

2,097

Net impaired assets as a % of net advances

0.38%

0.56%

0.67%

Total full time equivalent staff (FTE)121,35321,75722,0961.

Comparative information has been restated to include technology costs, consistent with how FTE are reported and managed internally.

77

GEOGRAPHIC REVIEWAsia Pacific, Europe & America geography
Table reflects AUD for the APEA region
Half YearNet interest income

Mar 14$M
855

Other operating income

Sep 13$M
768

Movement
Mar 13$M
682

Mar 14v. Sep 13
11%

Mar 14v. Mar 13
25%

879

815

18%

27%

1,891

1,647

1,497

15%

26%

Operating expenses

(977)

(911)

(829)

7%

18%

Profit before credit impairment and income tax

914

736

668

24%

37%

Credit impairment charge

(85)

(91)

(99)

-7%

-14%

Profit before income tax

829

645

569

29%

46%

Income tax expense and non-controlling interests

(148)

(91)

(110)

63%

35%

Cash profit

681

554

459

23%

48%

2

29

-

-93%

n/a

683

583

459

17%

49%

Balance Sheet
Net loans & advances

76,63469,893

61,223

10%

25%

Other external assets

66,47566,72871,2600%-7%

External assets

143,109

136,621

132,483

5%

8%

Customer deposits

102,463

98,127

92,736

4%

10%

Other deposits and borrowings

29,79125,30630,53318%-2%

Deposits and other borrowings

132,254

123,433

123,269

7%

7%

For personal use only

1,036

Operating income

Adjustments between statutory profit and cash profit
Statutory profit

Other external liabilities

21,296

17,944

16,74719%

27%

External liabilities

153,550

141,377

140,016

9%

10%

Risk weighted assets

94,35385,58678,416

10%

20%

Average net loans and advances

75,621

67,83456,896

11%

33%

Average deposits and other borrowings

133,781

124,105

110,748

8%

21%

Ratios
Net interest margin

1.20%

1.16%

1.20%

Operating expenses to operating income - cash

51.7%

55.3%

55.4%

Operating expenses to average assets - cash

1.22%

1.25%

1.29%
35%

46%

large

large

-16%

-3%

2%

6%

Individual credit impairment charge/(release) - cash

127

94

87

Individual credit impairment charge/(release) as a % of
average net advances - cash

0.34%

0.28%

0.31%

Collective credit impairment charge/(release) - cash

(42)

(3)

12

(0.11%)(0.01%)

0.05%

326

389

337

Collective credit impairment charge/(release) as a % of
average net advances - cash
Net impaired assets
Net impaired assets as a % of net advances

0.43%

0.56%

0.55%

Total full time equivalent staff (FTE)1

19,247

18,824

18,1191.

Comparative information has been restated to include technology contractors, consistent with how FTE are reported and managed internally.

78

GEOGRAPHIC REVIEWAsia Pacific, Europe & America geography
Table reflects USD for the APEA region
Half Year
Mar 14
USD M
778

Net interest income

Mar 13
USD M
709

Mar 14v. Sep 13
6%

Mar 14v. Mar 13
10%

945

837

847

13%

12%

Operating income

1,723

1,568

1,556

10%

11%

Operating expenses

(891)

(867)

(862)

3%

3%

Profit before credit impairment and income tax

832

701

694

19%

20%

Credit impairment charge

(77)

(86)

(103)

-10%

-25%

Profit before income tax

755

615

591

23%

28%

Income tax expense and non-controlling interests

(134)

(86)

(114)

56%

18%

Cash profit

621

529

477

17%

30%

1

29

-

-97%

n/a

622

558

477

11%

30%

Balance Sheet
Net loans & advances

70,75665,08463,819

9%

11%

Other external assets

61,377

62,13874,281-1%-17%

External assets

132,133

127,222

138,100

4%-4%

Customer deposits

94,60391,376

96,6694%-2%

Other deposits and borrowings

27,50723,56531,82717%-14%

Deposits and other borrowings

122,110

114,941

128,496

6%-5%

For personal use only

Other operating income

Sep 13
USD M
731

Movement

Adjustments between statutory profit and cash profit
Statutory profit

Other external liabilities

19,663

16,71017,45618%

13%

External liabilities

141,773

131,651

145,952

8%-3%

Risk weighted assets

87,116

79,69881,741

9%

7%

Average net loans and advances

68,91164,76259,099

6%

17%

Average deposits and other borrowings

121,910

118,180

115,035

3%

6%

Ratios
Net interest margin

1.20%

1.16%

1.20%

Operating expenses to operating income - cash

51.7%

55.3%

55.4%

Operating expenses to average assets - cash

1.22%

1.25%

1.29%
28%

28%

large

large

-17%

-14%

2%

6%

Individual credit impairment charge/(release) - cash

115

90

90

Individual credit impairment charge/(release) as a % of
average net advances - cash

0.34%

0.28%

0.31%

Collective credit impairment charge/(release) - cash

(38)

(4)

13

(0.11%)(0.01%)

0.05%

302

362

352

Collective credit impairment charge/(release) as a % of
average net advances - cash
Net impaired assets
Net impaired assets as a % of net advances

0.43%

0.56%

0.55%

Total full time equivalent staff (FTE)1

19,247

18,824

18,1191.

Comparative information has been restated to include technology contractors, consistent with how FTE are reported and managed internally.

79

GEOGRAPHIC REVIEWAsia Pacific, Europe & America geography
Table reflects AUD results for the APEA regions
Half Year

Statutory Profit
Asia

For personal use only

Europe & America
Pacific

Movement

Mar 14$M
498

Sep 13$M355

Mar 13$M
302

Mar 14v. Sep 13
40%

60

126

66

-52%

-9%

125

102

91

23%

37%

683

583

459

17%

49%

Half Year
Mar 14$M
497

Cash Profit
Asia

Mar 14v. Mar 13
65%

Movement

Sep 13$M355

Mar 13$M
301

Mar 14v. Sep 13
40%

Mar 14v. Mar 13
65%

Europe & America

59

97

67

-39%

-12%

Pacific

125

102

91

23%

37%

681

554

459

23%

48%

Half Year

Movement

Net loans and advances
Asia

Mar 14$M
67,261

Sep 13$M
61,306

Mar 13$M
53,545

Mar 14v. Sep 13
10%

Mar 14v. Mar 13
26%

Europe & America

5,991

5,459

5,045

10%

19%

Pacific

3,382

3,128

2,633

8%

28%

76,63469,893

61,22310%

25%

Half Year

Movement

Customer deposits
Asia

Mar 14$M
61,894

Sep 13$M
59,644

Mar 13$M
47,972

Mar 14v. Sep 13
4%

Mar 14v. Mar 13
29%

Europe & America

36,013

34,11540,702

6%-12%

Pacific

4,556

4,368

4,062

4%

12%

102,463

98,127

92,736

4%

10%

Half Year

Movement

Risk weighted assets
Asia

Mar 14$M
70,222

Sep 13$M
61,533

Mar 13$M
57,613

Mar 14v. Sep 13
14%

Mar 14v. Mar 13
22%

Europe & America

17,362

17,834

15,263-3%

14%

Pacific

6,769

6,219

5,540

9%

22%

94,35385,58678,416

10%

20%

80

GEOGRAPHIC REVIEWNew Zealand geography
Table reflects AUD results for the New Zealand geography
Half Year
Mar 14$M
1,250

Net interest income

Mar 13$M
1,040

Mar 14v. Sep 13
10%

Mar 14v. Mar 13
20%

487

351

364

39%

34%

Operating income

1,737

1,488

1,404

17%

24%

Operating expenses

(661)

(623)

(612)

6%

8%

Profit before credit impairment and income tax

1,076

865

792

24%

36%

36

(19)

(34)

large

large

For personal use only

Other operating income

Sep 13$M
1,137

Movement

Credit impairment (charge)/release
Profit before income tax

1,112

846

758

31%

47%

Income tax expense and non-controlling interests

(303)

(223)

(202)

36%

50%

Cash profit

809

623

556

30%

46%

Adjustments between statutory profit and cash profit

(31)

(17)

(36)

82%

-14%

Statutory profit

778

606

520

28%

50%

Balance Sheet
Net loans & advances

96,15089,09378,473

8%

23%

Other external assets

25,511

24,09822,9136%

11%

External assets

121,661

113,191

101,386

7%

20%

Customer deposits

69,43262,80055,550

11%

25%

Other deposits and borrowings

6,597

6,503

5,173

1%

28%

Deposits and other borrowings

76,02969,30360,723

10%

25%

Other external liabilities

23,98923,02822,1644%

8%

External liabilities

100,018

92,331

82,887

8%

21%

Risk weighted assets

64,66757,26352,048

13%

24%

Average net loans and advances

92,606

84,046

77,571

10%

19%

Average deposits and other borrowings

73,791

66,02061,01912%

21%

Ratios
Net interest margin

2.32%

2.31%

2.27%

Operating expenses to operating income - cash

38.1%

41.7%

43.6%

Operating expenses to average assets - cash

1.10%

1.12%

1.18%
-56%

-67%

large

large

-5%

-21%

0%

-5%

Individual credit impairment charge/(release) - cash

20

45

61

Individual credit impairment charge/(release) as a % of
average net advances - cash

0.04%

0.11%

0.16%

Collective credit impairment charge/(release) - cash

(56)

(26)

(27)

(0.12%)(0.06%)(0.07%)

557

589

708

Net impaired assets as a % of net advances

0.58%

0.66%

0.90%

Total full time equivalent staff (FTE)

8,257

8,284

8,656

Collective credit impairment charge/(release) as a % of
average net advances - cash
Net impaired assets

81

GEOGRAPHIC REVIEWNew Zealand geography
Table reflects NZD results for the New Zealand geography
Half Year
Mar 14
NZD M
1,370

Net interest income

Mar 13
NZD M
1,303

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
5%
17%

534

411

457

30%

Operating income

1,904

1,749

1,760

9%

8%

Operating expenses

(725)

(730)

(767)

-1%

-5%

Profit before credit impairment and income tax

1,179

1,019

993

16%

19%

39

(22)

(43)

large

large

For personal use only

Other operating income

Sep 13
NZD M
1,338

Movement

Credit impairment (charge)/release
Profit before income tax

1,218

997

950

22%

28%

Income tax expense and non-controlling interests

(331)

(262)

(253)

26%

31%

Cash profit

887

735

697

21%

27%

Adjustments between statutory profit and cash profit

(34)

(20)

(44)

70%

-23%

Statutory profit

853

715

653

19%

31%

Balance Sheet
Net loans & advances

102,571

100,113

97,847

2%

5%

Other external assets

27,21527,07928,5701%-5%External assets

129,786

127,192

126,417

2%

3%

Customer deposits

74,06970,566

69,264

5%

7%

Other deposits and borrowings

7,038

7,309

6,450

-4%

9%

Deposits and other borrowings

81,107

77,87575,714

4%

7%

Other external liabilities

25,59025,876

27,636-1%-7%

External liabilities

106,697

103,751

103,350

3%

3%

Risk weighted assets

68,98564,34664,898

7%

6%

Average net loans and advances

101,484

98,873

97,223

3%

4%

Average deposits and other borrowings

80,86577,66376,477

4%

6%

Ratios
Net interest margin

2.32%

2.31%

2.27%

Operating expenses to operating income - cash

38.1%

41.7%

43.6%

Operating expenses to average assets - cash

1.10%

1.12%

1.18%
-58%

-71%

large

85%

-10%

-33%

0%

-5%

Individual credit impairment charge/(release) - cash

22

52

76

Individual credit impairment charge/(release) as a % of
average net advances - cash

0.04%

0.11%

0.16%

Collective credit impairment charge/(release) - cash

(61)

(30)

(33)

(0.12%)(0.06%)(0.07%)

594

662

884

Net impaired assets as a % of net advances

0.58%

0.66%

0.90%

Total full time equivalent staff (FTE)

8,257

8,284

8,656

Collective credit impairment charge/(release) as a % of
average net advances - cash
Net impaired assets

82

PROFIT RECONCILIATIONCONTENTS

Section 7 – Profit Reconciliation
Adjustments between statutory profit and cash profit
Explanation of adjustments between statutory profit and cash profit

For personal use only

Reconciliation of statutory profit to cash profit

83

PROFIT RECONCILIATION
Non-IFRS information
The Group provides two additional measures of performance in the Results Announcement which are prepared on a basis other than in accordance withaccounting standards - cash profit and economic profit. The guidance provided in Australian Securities and Investments Commission Regulatory Guide
230 has been followed when presenting this information.

Adjustments between statutory profit and cash profit

For personal use only

Statutory profit has been adjusted to exclude non-core items to arrive at cash profit, and has been provided to assist readers to understand the results forthe ongoing business activities of the Group. The adjustments made in arriving at cash profit are included in statutory profit which is subject to review
within the context of the external auditor’s review of the Condensed Consolidated Financial Statements. Cash profit is not subject to review by theexternal auditor, however, the external auditor has informed the Audit Committee that the adjustments have been determined on a consistent basis
across each period presented.
Half Year
Mar 14$M
3,381

Statutory profit attributable to shareholders of the Company
Adjustments between statutory profit and cash profit
Cash profit

Sep 13$M
3,329

Movement
Mar 13$M
2,937

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
15%

134

(16)

242

large

-45%

3,515

3,313

3,179

6%

11%

Half Year

Movement

Mar 14$M

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

Treasury shares adjustment

37

31

Revaluation of policy liabilities

(3)

27

53

19%

-30%

19

large

large

Economic hedging

89

(205)

Revenue and net investment hedges

18

143

192

large

-54%

16

-87%

Structured credit intermediation trades

(7)

13%

(12)

(38)

-42%

-82%

134

(16)

242

large

-45%

Adjustments between statutory profit
and cash profit

Total adjustments between
statutory profit and cash profit

Explanation of adjustments between statutory profit and cash profit•

Treasury shares adjustment
ANZ shares held by the Group in the consolidated managed funds and life business are deemed to be Treasury shares for accounting purposes.
Dividends and realised and unrealised gains and losses from these shares are reversed as these are not permitted to be recognised in income forstatutory reporting purposes. In deriving cash profit, these earnings are included to ensure there is no asymmetrical impact on the Group’s profits
because the Treasury shares support policy liabilities which are revalued in deriving income. Accordingly the gain of $37 million after tax ($40 million
pre tax) eliminated for statutory accounting purposes has been added back to cash profit.

•

Revaluation of policy liabilities
When calculating policy liabilities, the projected future cash flows on insurance contracts are discounted to reflect the present value of the obligation,with the impact of changes in the market discount rate each period being reflected in the income statement. ANZ includes the impact on theremeasurement of the insurance contract attributable to changes in market discount rates as an adjustment to cash profit to remove the volatility
attributable to changes in market interest rates which reverts to zero over the life of the insurance contract.

•

Economic hedging and Revenue and net investment hedges

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. The application of AASB 139: Financial Instruments –Recognition and Measurement results in fair value gains and losses being recognised within the income statement. ANZ includes the mark-tomarket adjustments as an adjustment to cash profit as the profit or loss resulting from the transactions will reverse over time to match with the profit
or loss from the economically hedged item as part of cash profit. This includes gains and losses arising from:–approved classes of derivatives not designated in accounting hedge relationships but which are considered to be economic hedges, including
hedges of NZD and USD revenue;–

the use of the fair value option (principally arising from the valuation of the ‘own name’ credit spread on debt issues designated at fair value); and–ineffectiveness from designated accounting cash flow, fair value and net investment hedges.

In the table below, funding and lending related swaps are primarily cross currency interest rate swaps which are being used to convert the proceedsof foreign currency debt issuances into floating rate Australian dollar and New Zealand dollar debt. As these swaps do not qualify for hedge
accounting, movements in the fair values are recorded in the Income Statement. The main drivers of these fair values are currency basis spreads
and the Australian dollar and New Zealand dollar fluctuation against other major funding currencies. This category also includes economic hedges of
select structured finance and specialised leasing transactions that do not qualify for hedge accounting. The main drivers of these fair value
adjustments are Australian and New Zealand yield curves.
Mark-to-market losses in March 2014 half year were driven by a narrowing of basis spreads principally from movements in AUD/USD and USD/EUR
currency pairs. These were partially offset by gains from the continuing weakening of AUD across some major currencies principally USD and EUR.
The AUD has weakened significantly against EUR and USD since March 2013 and this drove much of the gains in the September 2013 half year.

84

PROFIT RECONCILIATION
Losses arising from the use of the fair value option on own name debt hedged by derivatives are attributable to a narrowing of ANZ credit spreads
driven from a continuing period of relative stability in the global markets. In September 2013 half year, some negative sentiment on the Australianeconomy saw a marginal reversal of falling spreads which generated a gain in the period.
Losses within revenue and net investment hedges were principally as a result of the weakening in AUD against the NZD exchange rate during the
March 2014 half year.
Half Year
Mar 14$M

Sep 13$M

Mar 13$M

Funding and lending related swaps

101

(281)

203

Use of the fair value option on own debt hedged by derivatives

15

(11)

74

Revenue and net investment hedges

26

201

23

Ineffective portion of cash flow and fair value hedges

10

(2)

(6)

Increase/(decrease) to cash profit before tax

152

(93)

294

Increase/(decrease) to cash profit after tax

107

(62)

208

For personal use only

Adjustments to the income statement
Timing differences where IFRS results in asymmetry between thehedge and hedged items

Cumulative increase/(decrease) to cash profit pre-tax
relating to economic hedging

As at ($M)
Mar 14$M

Sep 13$M

Mar 13$M

Funding and lending related swaps

779

678

959

Use of the fair value option on own debt hedged by derivatives

14

(1)

10

Revenue and net investment hedges

205

179

(22)

Ineffective portion of cash flow and fair value hedges

(15)

(25)

(23)

983

831

924

Timing differences where IFRS results in asymmetry between thehedge and hedged items (before tax)

85

PROFIT RECONCILIATION•

Structured credit intermediation trades
ANZ entered into a series of structured credit intermediation trades from 2004 to 2007. The underlying structures involve credit default swaps (CDS)
over synthetic collateralised debt obligations (CDOs), portfolios of external collateralised loan obligations (CLOs) or specific bonds/floating rate notes(FRNs). ANZ sold protection using credit default swaps over these structures and then to mitigate risk, purchased protection via credit default swaps
over the same structures from eight US financial guarantors.

For personal use only

Being derivatives, both the sold protection and purchased protection are marked-to-market. Prior to the commencement of the global credit crisis,
movements in valuations of these positions were not significant and largely offset each other in income. Following the onset of the credit crisis, thepurchased protection has provided only a partial offset against movements in valuation of the sold protection because:–

one of the counterparties to the purchased protection defaulted and many of the remaining were downgraded; and–a credit valuation adjustment is applied to the remaining counterparties to the purchased protection reflective of changes to their credit
worthiness.

ANZ is actively monitoring this portfolio with a view to reducing the exposure via termination and restructuring of both the bought and sold protection
if and when ANZ deems it cost effective relative to the perceived risk associated with a specific trade or counterparty. The bought and sold protection
trades are by nature largely offsetting, with the notional amount on the outstanding bought CDSs and outstanding sold CDSs at 31 March 2014 eachamounting to US$4.4 billion (30 September 2013: US$4.5 billion; 31 March 2013: US$4.7 billion).
The profit and loss impact of credit risk on structured credit derivatives remains volatile reflecting the impact of market movements in credit spreads
and AUD/USD rates.
The (gain)/loss on structured credit intermediation trades is included as an adjustment to cash profit as it relates to a legacy non-core business where
the cumulative mark-to-market movements are expected to reverse to zero in future periods.
Half Year

Movement

Mar 14$M(9)

Sep 13$M(15)

Mar 13$M(48)

Mar 14v. Sep 13-40%

Mar 14v. Mar 13-81%

Income tax expense

2

3

10

-33%

-80%

Profit after income tax

(7)

(12)

(38)

-42%

-82%

Credit risk on intermediation trades
Profit before income tax

As at ($M)

Movement

Mar 14136

Sep 13179

Mar 13257

Mar 14v. Sep 13-24%

Mar 14v. Mar 13-47%

CVA for outstanding transactions

33

42

54

-21%

-39%

Realised close out and hedge costs

333

333

336

0%

-1%

Cumulative life to date charges

366

375

390

-2%

-6%

Financial impacts of credit intermediation trades
Mark-to-market exposure to financial guarantors
Cumulative costs relating tofinancial guarantors1

1.

•

The cumulative costs in managing the positions include realised losses relating to restructuring of trades in order to reduce risks and realised losses on termination of sold protection trades.
It also includes foreign exchange hedging losses

Credit risk on impaired derivatives (nil profit after tax impact)
Reclassification of a charge to income for credit valuation adjustments on defaulted and impaired derivative exposures to credit impairment charges
of $1 million for the half year (Sep 13 half: $2 million release; Mar 13 half: $11 million charge). The reclassification has been made to reflect themanner in which the defaulted and impaired derivatives are managed.

•

Policyholders tax gross up (nil profit after tax impact)
For statutory reporting purposes policyholder income tax and other related taxes paid on behalf of policyholders are included in both net income fromwealth management and the Group’s income tax expense. The gross up of $29 million (Sep 13 half: $184 million; Mar 13 half: $187 million) has been
excluded from the cash results as it does not reflect the underlying performance of the business which is assessed on a net of policyholder tax basis.

86

PROFIT RECONCILIATION

For personal use onlyThis page has been left blank intentionally87

PROFIT RECONCILIATION
Reconciliation of statutory profit to cash profit
March 2014 Half Year
Statutory

Adjustments to statutory profit

profitTreasurysharesadjustment

Policyholders
tax gross up

Revaluationof policy
liabilities

$M
6,778

$M
-

$M
-

$M
-

Fee income

For personal use only

Net interest income

1,255

-

-

-

Foreign exchange earnings

593

-

-

-

Profit on trading instruments

15

-

-

-

Net income from wealth management

611

40

(29)

(5)

Other

266

-

-

-

Other operating income

2,740

40

(29)

(5)

Operating income

9,518

40

(29)

(5)

Personnel expenses(2,493)---

Premises expenses

(391)

-

-

-

Computer expenses

(640)

-

-

-

Restructuring expenses

(35)

-

-

-

Other expenses

(727)

-

-

-

Operating expenses(4,286)---

Profit before credit impairment and tax

5,232

40

(29)

(5)

Credit impairment charge

(527)

-

-

-

Profit before income tax

4,705

40

(29)

(5)

Income tax expense(1,318)

(3)

29

2

(6)

-

-

-

3,381

37

-

(3)

Non-controlling interests
ProfitSeptember 2013 Half Year
Statutory

Adjustments to statutory profit

profitTreasurysharesadjustment

Policyholders
tax gross up

Revaluationof policy
liabilities

Net interest income

$M
6,558

$M
-

$M
-

$M
-

Fee income

1,228

-

-

-

Foreign exchange earnings

377

-

-

-

Profit on trading instruments

48

-

-

-

Net income from wealth management

735

33

(184)

38

Other

577

-

-

-

Other operating income

2,965

33

(184)

38

Operating income

9,523

33

(184)

38

Personnel expenses(2,417)---

Premises expenses

(377)

-

-

-

Computer expenses

(625)

-

-

-

Restructuring expenses

(28)

-

-

-

Other expenses

(766)

-

-

-

Operating expenses(4,213)---

Profit before credit impairment and tax

5,310

33

(184)

38

Credit impairment charge

(600)

-

-

-

Profit before income tax

4,710

33

(184)

38

Income tax expense(1,376)

(2)

184

(11)

(5)

-

-

-

3,329

31

-

27

Non-controlling interests
Profit88

PROFIT RECONCILIATIONMarch 2014 Half YearFor personal use only

Adjustments to statutory profit

CashprofitEconomic
hedging

Revenue andnet investment
hedges

Structured
creditintermediation trades

Credit risk
on impaired
derivatives

Total
adjustments tostatutory profit

$M
(14)

$M
-

$M
-

$M
-

$M
(14)

$M
6,764

-

-

-

-

-

1,255

-

26

-

-

26

619

-

-

(9)

1

(8)

7

-

-

-

-

6

617

140

-

-

-

140

406

140

26

(9)

1

164

2,904

126

26

(9)

1

150

9,668

-

-

-

-

-

(2,493)

-

-

-

-

-

(391)

-

-

-

-

-

(640)

-

-

-

-

-

(35)

-

-

-

-

-

(727)

-

-

-

-

-

(4,286)

126

26

(9)

1

150

5,382

-

-

-

(1)

(1)

(528)

126

26

(9)

-

149

4,854

(37)

(8)

2

-

(15)

(1,333)

-

-

-

-

-

(6)

89

18

(7)

-

134

3,515

September 2013 Half Year
Adjustments to statutory profit

CashprofitEconomic
hedging

Revenue andnet investment
hedges

Structured
creditintermediation trades

Credit risk
on impaired
derivatives

Total
adjustments tostatutory profit

$M
(22)

$M
-

$M
-

$M
-

$M
(22)

$M
6,536

-

-

-

-

-

1,228

7

201

-

-

208

585

(43)

-

(15)

(2)

(60)

(12)

-

-

-

-

(113)

622

(237)

-

-

-

(237)

340

(273)

201

(15)

(2)

(202)

2,763

(295)

201

(15)

(2)

(224)

9,299

-

-

-

-

-

(2,417)

-

-

-

-

-

(377)

-

-

-

-

-

(625)

-

-

-

-

-

(28)

-

-

-

-

-

(766)

-

-

-

-

-

(4,213)

(295)

201

(15)

(2)

(224)

5,086

-

-

-

2

2

(598)

(295)

201

(15)

-

(222)

4,488

90

(58)

3

-

206

(1,170)

-

-

-

-

-

(5)

(205)

143

(12)

-

(16)

3,313

89

PROFIT RECONCILIATIONMarch 2013 Half Year
Statutory

Adjustments to statutory profit

profitTreasurysharesadjustment

Policyholders
tax gross up

Revaluationof policy
liabilities

$M
6,200

$M
-

$M
-

$M
-

Fee income

For personal use only

Net interest income

1,231

-

-

-

Foreign exchange earnings

467

-

-

-

Profit on trading instruments

315

-

-

-

Net income from wealth management

696

57

(187)

28

Other

27

-

-

-

Other operating income

2,736

57

(187)

28

Operating income

8,936

57

(187)

28

Personnel expenses(2,347)---

Premises expenses

(356)

-

-

-

Computer expenses

(618)

-

-

-

Restructuring expenses

(57)

-

-

-

Other expenses

(666)

-

-

-

Operating expenses(4,044)---

Profit before credit impairment and tax

4,892

57

(187)

28

Credit impairment charge

(588)

-

-

-

Profit before income tax

4,304

57

(187)

28

Income tax expense(1,362)

(4)

187

(9)

(5)

-

-

-

2,937

53

-

19

Non-controlling interests
Profit90

PROFIT RECONCILIATIONMarch 2013 Half YearFor personal use only

Adjustments to statutory profit

CashprofitEconomic
hedging

Revenue andnet investment
hedges

Structured
creditintermediation trades

Credit risk
on impaired
derivatives

Total
adjustments tostatutory profit

$M
36

$M
-

$M
-

$M
-

$M
36

$M
6,236

-

-

-

-

-

1,231

(12)

23

-

-

11

478

7

-

(48)

11

(30)

285

-

-

-

-

(102)

594

241

-

-

-

241

268

236

23

(48)

11

120

2,856

272

23

(48)

11

156

9,092

-

-

-

-

-

(2,347)

-

-

-

-

-

(356)

-

-

-

-

-

(618)

-

-

-

-

-

(57)

-

-

-

-

-

(666)

-

-

-

-

-

(4,044)

272

23

(48)

11

156

5,048

-

-

-

(11)

(11)

(599)

272

23

(48)

-

145

4,449

(80)

(7)

10

-

97

(1,265)

-

-

-

-

-

(5)

192

16

(38)

-

242

3,179

91

PROFIT RECONCILIATION

For personal use onlyThis page has been left blank intentionally92

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTSCONTENTS

PAGE

94

For personal use only

Directors’ Report

Condensed Consolidated Income Statement95

Condensed Consolidated Statement of Comprehensive Income

96

Condensed Consolidated Balance Sheet

97

Condensed Consolidated Cash Flow Statement98

Condensed Consolidated Statement of Changes in Equity

99

Notes to Condensed Consolidated Financial Statements

100

93

DIRECTORS’ REPORTThe Directors present their report on the Condensed Consolidated Financial Statements for the half year ended 31 March 2014.
Directors
The names of the Directors of the Company who held office during and since the end of the half year are:
Mr JP MorschelChairman
Director and Chief Executive Officer

Dr GJ Clark

Director, retired on 18 December 2013

Ms PJ Dwyer

Director

Mr DM Gonski, AC

Director since 27 February 2014

For personal use only

Mr MRP Smith, OBE

Mr PAF Hay

Director

Mr Lee Hsien Yang

Director

Mr GR Liebelt

Director

Mr IJ Macfarlane, AC

Director

Mr DE Meiklejohn, AM

Director, retired on 18 December 2013

Ms AM Watkins

Director

Result
The consolidated profit attributable to shareholders of the Company was $3,381 million. Further details are contained in the CFO’s Overview on pages 15
to 40 which forms part of this report, and in the Condensed Consolidated Financial Statements.

Review of operations
A review of the operations of the Group during the half year and the results of those operations are contained in the CFO’s Overview on pages 15 to 40
which forms part of this report.

Lead auditor’s independence declaration
The lead auditor’s independence declaration given under section 307C of the Corporations Act 2001 (as amended) is set out on page 129 which forms
part of this report.

Rounding of amounts
The amounts contained in these Condensed Consolidated Financial Statements have been rounded to the nearest million dollars, except whereotherwise indicated, as permitted by ASIC Class Order 98/100.

Significant events since balance date
On 10 April 2014, the Company announced the sale of ANZ Trustees to Equity Trustees Limited for $150 million. The transaction is expected to becompleted in July 2014 subject to regulatory approval. The gain on sale will be recognised in the second half of the 2014 financial year.
There have been no other significant events from 31 March 2014 to the date of this report.

Signed in accordance with a resolution of the Directors.

John P MorschelChairmanMichael R P Smith, OBE
Director

30 April 201494

CONDENSED CONSOLIDATED INCOME STATEMENT

Australia and New Zealand Banking Group Limited
Movement

Half Year
Note
Interest income11Mar-14

Sep-13Mar-13Mar-14Mar-14$M
14,430$M
14,301$M
14,326v. Sep-13
1%

v. Mar-13
1%(7,652)(7,743)(8,126)-1%-6%Net interest income

2

6,778

6,558

6,200

3%

9%

Other operating income

2

1,882

1,959

1,829

-4%

3%

Net funds management and insurance income

2

611

735

696

-17%

-12%

Share of associates' profit

2,18

For personal use onlyInterest expense

Operating income
Operating expenses

3

Profit before credit impairment and income tax
Credit impairment charge

8

Profit before income tax
Income tax expense

4

Profit for the period

247

271

211

-9%

17%

9,518

9,523

8,936

0%

7%

(4,286)(4,213)(4,044)

2%

6%

5,232

5,310

4,892

-1%

7%

(527)

(600)

(588)

-12%

-10%

4,705

4,710

4,304

0%

9%

(1,318)(1,376)(1,362)

-4%

-3%

3,387

3,334

2,942

2%

15%

6

5

5

20%

20%

3,381

3,329

2,937

2%

15%

Comprising:
Profit attributable to non-controlling interests
Profit attributable
to shareholders of the Company

Earnings per ordinary share (cents)
Basic

6

124.4

122.5

108.5

2%

15%

Diluted

6

120.2

118.5

105.3

1%

14%

5

83

91

73

-9%

14%

Dividend per ordinary share (cents)

The notes appearing on pages 100 to 127 form an integral part of the Condensed Consolidated Financial Statements.

1.

Comparative amounts have changed. Refer to Note 21 for details.

95

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Australia and New Zealand Banking Group Limited
Half Year

Movement

Mar 14$M
3,387

1

Sep 13$M
3,334

1

Mar 13$M
2,942

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
15%

36

65

(22)

-45%

large

(10)

(17)

(1)

-41%

large

Exchange differences taken to equity

570

1,706

6

-67%

Large

Exchange differences transferred to income statement

(11)

-

-

n/a

n/a

Valuation gain/(loss) taken to equity

133

(22)

35

large

Large

Transferred to income statement

(45)

5

(2)

large

Large

Valuation gain/(loss) taken to equity

-

(71)

(115)

-100%

-100%

Transferred to income statement

(16)

(5)

5

large

Large

(32)

(2)

20

large

large

(26)

2

(9)

large

large

Profit for the period
Other comprehensive income

For personal use only

Items that will not be reclassified subsequently to profit or loss
Remeasurement gain/(loss) on defined benefit plans
Income tax on items that will not be reclassified subsequently to profit or loss
Remeasurement gain/(loss) on defined benefit plans
Items that may be reclassified subsequently to profit or loss
Foreign currency translation reserve

Available-for-sale assets

Cash flow hedges

Share of associates' other comprehensive income2
Income tax on items that may be reclassified subsequently to profit or loss
Available-for-sale assets revaluation reserve
Cash flow hedge reserve

Other comprehensive income net of tax
Total comprehensive income for the period

3

21

31

-86%

-90%

602

1,682

(52)

-64%

large

3,989

5,016

2,890

-20%

38%

Comprising total comprehensive income attributable to:Non-controlling interests
Shareholders of the Company

1.

2.

6

10

5

-40%

20%

3,983

5,006

2,885

-20%

38%

Comparative amounts have changed. Refer to Note 21 for details.
Share of associates other comprehensive income is comprised of Available-for-sale assets reserve loss of $32 million (Sep 13 half: loss of $2 million, Mar 13 half: gain of $20 million);
Foreign currency translation reserve of nil (Sep 13 half: nil, Mar 13 half: loss of $1 million) and Cash flow hedge reserve of nil (Sep 13 half: nil, Mar 13 half: gain of $1 million).

The notes appearing on pages 100 to 127 form an integral part of the Condensed Consolidated Financial Statements.

96

CONDENSED CONSOLIDATED BALANCE SHEET

Australia and New Zealand Banking Group Limited

As at ($M)

AssetsCash

Note

Mar 1433,651

Sep 131
25,270Mar 131
39,779Mar 14v. Sep 13
33%

Mar 14v. Mar 13-15%

16,20919,22515,804-16%

3%

Collateral paid

6,219

6,530

6,699

-5%

-7%

Trading securities

46,17041,28839,56912%

17%

Derivative financial instruments

43,82945,87841,700-4%

5%

Available-for-sale assets

27,33028,277

23,410-3%

17%

For personal use only

Settlement balances owed to ANZ

Movement

Net loans and advances509,250

483,264454,3165%

12%

Regulatory deposits

7

2,205

2,106

1,679

5%

31%

Investment in associates

4,323

4,123

3,719

5%

16%

Current tax assets

64

20

55

large

16%

Deferred tax assets

446

725

659

-38%

-32%

Goodwill and other intangible assets

7,969

7,690

7,142

4%

12%

Investments backing policy liabilities

33,19732,08331,1993%

6%

Other assets

4,803

4,352

4,821

10%

0%

Premises and equipment

2,150

2,164

2,079

-1%

3%

737,815

702,995

672,630

5%

10%

Settlement balances owed by ANZ

8,133

8,695

13,373-6%-39%

Collateral received

3,880

3,921

2,877

-1%

35%

498,318

466,915

451,1057%

10%45,87647,50945,070

-3%

2%

285

972

735

-71%

-61%
large

Total assets
Liabilities

Deposits and other borrowings

10

Derivative financial instruments
Current tax liabilities
Deferred tax liabilities

41

14

12

large

Policy liabilities

33,40232,38831,0873%

7%

External unit holder liabilities (life insurance funds)

3,334

3,511

3,730

-5%

-11%

Payables and other liabilities

9,615

9,059

9,074

6%

6%

Provisions

1,115

1,228

1,172

-9%

-5%

Bonds and notes

73,55270,37660,226

5%

22%

Loan capital

13,226

12,804

11,666

3%

13%

Total liabilities

11

690,777

657,392

630,127

5%

10%

Net assets

47,03845,60342,503

3%

11%

Ordinary share capital

23,52923,641

23,5890%0%Preference share capital

871

871

871

0%

0%

Shareholders' equity

Reserves

13

(334)

(907)

(2,528)

-63%

-87%

Retained earnings

13

22,90521,936

20,518

4%

12%

Share capital and reserves attributable toshareholders of the Company

13

46,97145,54142,4503%

11%

Non-controlling interests

13

67

62

53

8%

26%

Total shareholders' equity

13

47,03845,60342,503

3%

11%

The notes appearing on pages 100 to 127 form an integral part of the Condensed Consolidated Financial Statements.
1.

Comparative amounts have changed. Refer to Note 21 for details.

97

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Australia and New Zealand Banking Group Limited
Half Year
Mar 14
Inflows

Sep 131
Inflows

Mar 131
Inflows(Outflows)(Outflows)(Outflows)

$M

$M

$M

14,309(7,389)19
2,024(4,216)(1,867)

14,450(8,083)92
7,146(3,598)(1,203)

14,302(8,250)22
2,470(3,753)(1,291)

3,552
48(2,642)
(230)

3,360
139
(2,595)
(239)

2,733
59
(2,388)
(207)

3,608

9,469

3,697

396
(4,990)(16,357)

169(1,624)(13,088)179
2,392(15,610)(2,474)2,217(2,166)2,413(1,339)1,928

27,397
(624)
(70)
347

(3,816)(4,678)1,045(2)31,357
7,957
346(1,023)

Change in operating assets and liabilities arising fromcash flow movements

5,842(21,747)

26,187

Net cash provided by/(used in) operating activities

9,450(12,278)

29,884(6,713)
7,947(6,091)
2,683(10,229)
7,541

9

(1)
56

(1)
25

(135)
(856)
252

(207)
(684)
(4,244)

(149)
(550)
(3,363)

10,814(8,860)11,915(9,090)

6,980(10,683)

1,874(1,505)(1,970)
2
(500)

1,118
(500)
(1,569)
9
(425)

750
(965)
(1,657)21-

Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effects of exchange rate changes on cash and cash equivalents

(145)
9,557
49,023(88)

1,458(15,064)
60,777
3,310(5,554)20,96741,450(1,640)Cash and cash equivalents at end of period

58,49249,02360,777For personal use only

Cash flows from operating activities
Interest received
Interest paid
Dividends received
Other operating income received
Other operating expenses paid
Income taxes (paid)/refunds received
Net cash flows from funds management and insurance businessPremiums, other income and life investment deposits received
Investment income and policy deposits received/(paid)
Claims and policy liability payments
Commission expense paid
Cash flows from operating activities before changes inoperating assets and liabilities
Changes in operating assets and liabilities arising fromcash flow movements(Increase)/decrease in operating assets
Collateral paid
Trading securities
Loans and advances
Net cash flows from investments backing policy liabilities
Purchase of insurance assets
Proceeds from sale/maturity of insurance assets
Increase/(decrease) in operating liabilities
Deposits and other borrowings
Settlement balances owed by ANZ
Collateral received
Payables and other liabilities

Cash flows from investing activities
Available-for-sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Other assets
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Dividends paid
Share capital issues
Share buyback

1.

Comparative amounts have changed as a result of the changes referred to in Note 21.

The notes appearing on pages 100 to 127 form an integral part of the Condensed Consolidated Financial Statements.

98CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Australia and New Zealand Banking Group Limited

As at 1 October 2012 (restated)

For personal use only

As at 1 October 2012
Restatement (refer Note 1)

Ordinary
share
capital$M
23,070-Preference
shares Reserves1
$M
$M
871
(2,498)-

Shareholders'equityattributable to
Retained Equity holders ofearnings
the Bank$M$M
19,72841,171(17)(17)

Noncontrollinginterests
$M
49
-

Total
Shareholders'equity$M41,220(17)

23,070871(2,498)19,711

41,15449

41,203

Profit or loss

-

-

-

2,937

2,937

5

2,942

Other comprehensive income for the period

-

-

(29)

(23)

(52)

-

(52)

Total comprehensive income for the period

-

-

(29)

2,914

2,885

5

2,890

Dividends paid

-

-

-

(2,118)(2,118)-(2,118)Dividend income on treasury shares
held within the Group's
life insurance statutory funds

-

-

-

10

10

-

10

451

-

-

-

451

-

451

-

-

-

-

-

(1)

(1)

Group share option scheme

21

-

-

-

21

-

21

Treasury shares Global Wealth adjustment

27

-

-

-

27

-

27

Group employee share acquisition
Scheme

20

-

-

-

20

-

20

Transactions with equity holders intheir capacity as equity holders:

Dividend reinvestment plan
Transactions with non-controlling interests

Other equity movements:

Transfer of options/rights lapsed

-

-

(1)

1

-

-

-

23,589871(2,528)20,51842,45053

42,503

Profit or loss

-

-

-

3,329

3,329

5

3,334

Other comprehensive income for the period

-

-

1,629

48

1,677

5

1,682

Total comprehensive income for the period

-

-

1,629

3,377

5,006

10

5,016

Dividends paid

-

-

-

(1,970)(1,970)(1)(1,971)Dividend income on treasury shares
held within the Group's
life insurance statutory funds

-

-

-

10

10

-

10

392

-

-

-

392

-

392

-

-

(10)

-

(10)

-

(10)

Share based payments/(exercises)

-

-

3

-

3

-

3

Group share option scheme

9

-

-

-

9

-

9

Treasury shares Global Wealth adjustment

(20)

-

-

-

(20)

-

(20)

Group employee share acquisition
scheme

96

-

-

-

96

-

96

(425)

-

-

-

(425)

-

(425)

-

-

(1)

1

-

-

-

23,641871(907)

21,93645,54162

45,603

Profit or loss

-

-

-

3,381

3,381

6

3,387

Other comprehensive income for the period

-

-

576

26

602

-

602

Total comprehensive income for the period

-

-

576

3,407

3,983

6

3,989

Dividends paid

-

-

-

(2,458)(2,458)(1)(2,459)Dividend income on treasury shares held within
the Group's life insurance statutory funds

-

-

-

12

12

-

12

476

-

-

-

476

-

476

-

-

-

-

-

Share based payments/(exercises)

-

-

5

-

5

-

Group share option scheme

2

-

-

-

2

-

2

Treasury shares Global Wealth adjustment

(2)

-

-

-

(2)

-

(2)

Group employee share acquisition
scheme

(88)

-

-

-

(88)

-

(88)

Group share buyback

(500)

-

-

-

(500)

-

(500)

As at 31 March 2013

Transactions with equity holders intheir capacity as equity holders:

Dividend reinvestment plan
Transactions with non-controlling interests

Other equity movements:

Group share buyback
Transfer of options/rights lapsed

As at 30 September 2013

Transactions with equity holders intheir capacity as equity holders:

Dividend reinvestment plan
Transactions with non-controlling interests-

Other equity movements:

Transfer of options/rights lapsed
As at 31 March 2014
1.

5

-

-

(8)

8

-

-

-

23,529871(334)

22,905

46,971

67

47,038Further information on reserves is disclosed in Note 13.

The notes appearing on pages 100 to 127 form an integral part of the Condensed Consolidated Financial Statements.

99

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
These Condensed Consolidated Financial Statements:
have been prepared in accordance with the recognition and measurement requirements of Australian Accounting Standards (“AASs”);

For personal use only

should be read in conjunction with ANZ’s Annual Financial Statements for the year ended 30 September 2013 and any public announcements
made by the Parent Entity and its controlled entities (the Group) for the half year ended 31 March 2014 in accordance with the continuous
disclosure obligations under the Corporations Act 2001 and the ASX Listing Rules;

i)

ii)

are Condensed Consolidated Financial Statements as defined in the AASB 134 Interim Financial Reporting (“AASB 134”). This report does notinclude all notes of the type normally included in ANZ’s Annual Financial Statements;
are presented in Australian dollars unless otherwise stated; andwere approved by the Board of Directors on 30 April 2014.
Statement of compliance
These Condensed Consolidated Financial Statements have been prepared in accordance with the Corporations Act 2001 and AASB 134 which
ensures compliance with IAS 34 Interim Financial Reporting.
Accounting policies
These Condensed Consolidated Financial Statements have been prepared on the basis of accounting policies and using methods ofcomputation consistent with those applied in the 2013 Annual Financial Statements with the exception of changes in policies arising from theadoption of a number of new and revised AAS’s that are effective from 1 October 2013 as described below:
AASB 10 Consolidated Financial Statements (“AASB 10”)
This standard replaces AASB 127 Consolidated and Separate Financial Statements and Interpretation 112 Consolidation – Special Purpose
Entities and establishes the principles for when the Group controls another entity and is required to consolidate the other entity in the Group’s
Financial Statements. The standard provides a single definition of control based on whether the investor is exposed to, or has rights to variable
returns from its involvement with an investee and has the ability to affect those returns through its power over the investee. Implementation of
AASB 10 did not materially impact the Group.
AASB 13 Fair Value Measurement (“AASB 13”)This standard provides a single source of guidance on fair value measurement for financial and non-financial assets and liabilities.
Consequential amendments to AASB 134 require additional fair value disclosures for financial assets and liabilities for Interim Financial Reports
which have been included in Note 14. Comparative information is not required in the first year of application. Initial application of the standard did
not materially impact the Group.
AASB 119 Employee Benefits (amended 2011)
These amendments impact the accounting for and disclosure of employee benefits by employers. The amendment to this standard has resulted
in a change to the measurement of interest costs from defined benefit obligations.
In accordance with transitional provisions the changes have been applied retrospectively, with the net impact of initial application recognised inretained earnings as at 1 October 2012 and shown in the statement of changes in equity. The comparative balances of payables and otherliabilities and the associated deferred tax asset have been restated. Refer to Note 21 for further details.

iii) Basis of measurement
The financial information has been prepared in accordance with the historical cost basis except that the following assets and liabilities are statedat their fair value:
derivative financial instruments, including in the case of fair value hedging, the fair value adjustment on the underlying hedged exposure;available-for-sale financial assets;financial instruments held for trading; andassets and liabilities designated at fair value through profit and loss.
In accordance with AASB 1038 Life Insurance Contracts, life insurance liabilities are measured using the Margin on Services model.
In accordance with AASB 119 Employee Benefits, defined benefit obligations are measured using the Projected Unit Credit method.

iv) Use of estimates, assumptions and judgmentsv)

The preparation of these Condensed Consolidated Financial Statements requires the use of management judgement, estimates andassumptions that affect reported amounts and the application of accounting policies. Discussion of the critical accounting treatments, which
include complex or subjective decisions or assessments, are covered in Note 2 of the 2013 Annual Financial Statements. Such estimates andjudgements are reviewed on an ongoing basis.
Rounding of amounts
The amounts contained in these Condensed Consolidated Financial Statements have been rounded to the nearest million dollars, except whereotherwise indicated, as permitted by Australian Securities and Investments Commission Class Order 98/100.

vi) Comparatives
Certain amounts in the comparative information have been reclassified to conform with current period financial statement presentations. Refer toNote 21 for further details.

100

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. IncomeInterest income

Mar 14$M
14,430

Sep 13$M
14,301

Mar 13$M
14,326

Mar 14v. Sep 13
1%

Mar 14v. Mar 13
1%

Interest expense(7,652)(7,743)(8,126)-1%-6%Net interest income

6,778

6,558

6,200

3%

9%

396

373

371

6%

7%

Non-lending fees and commissions

1,069

1,042

1,043

3%

2%

Total fee and commission income

1,465

1,415

1,414

4%

4%

Fee and commission expense

(210)

(187)

(183)

12%

15%

Net fee and commission income2

1,255

1,228

1,231

2%

2%

For personal use onlyi) Fee and commission income
Lending fees1ii) Net funds management and insurance income
Funds management income
Investment income

458

444

418

3%

10%

1,232

1,832

2,303

-33%

-47%

Insurance premium income

534

829

519

-36%

3%

Commission income/(expense)

(230)

(239)

(207)

-4%

11%

Claims

(345)

(364)

(345)

-5%

0%

Changes in policy liabilities3(998)(1,734)(1,935)

-42%

-48%

Elimination of treasury share (gain)/loss

(40)

(33)

(57)

21%

-30%

Total net funds management and insurance income

611

735

696

-17%

-12%

iii) Share of associates' profit

247

271

211

-9%

17%

Net foreign exchange earnings

593

377

467

57%

27%

Net gains from trading securities and derivatives

15

33

267

-55%

-94%

Credit risk on credit intermediation trades

9

15

48

-40%

-81%

(140)

236

(241)

large

-42%

28

28

25

0%

12%

-

(26)

-

-100%

n/a

Dilution gain on investment in Bank of Tianjin

12

-

-

n/a

n/a

Insurance settlement

26

-

-

n/a

n/a

iv) Other income

Movement on financial instruments measured at fairvalue through profit & loss4
Brokerage income
Write-down of investment in SSI

Other

84

68

32

24%

Large

Total other income

627

731

598

-14%

5%

Total other operating income5

2,740

2,965

2,736

-8%

0%

Total income

17,17017,266

17,062

-1%

1%

1.
2.
3.

4.

5.

Lending fees exclude fees treated as part of the effective yield calculation in interest income.
Includes interchange fees paid.
Includes policyholder tax gross up, which represents contribution tax (recovered at 15% on the super contributions made by members) debited to the policyholder account once a year in
July when the statement is issued to the members at the end of the 30 June financial year.
Includes fair value movements (excluding realised and accrued interest) on derivatives not designated as accounting hedges entered into to manage interest rate and foreign exchange
risk on funding instruments, ineffective portions of cashflow hedges, and fair value movements in financial assets and liabilities designated at fair value through profit and loss.
Total income includes external dividend income of $0.2 million (Sep 13 half: $1.8 million; Mar 13 half: $2.5 million).

101

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Operating expenses
Half Year
Mar 14$M

Movement

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13
14%

Personnel
Employee entitlements and taxes

131

149

115

-12%

1,627

1,556

1,547

5%

5%

4

9

6

-56%

-33%

Superannuation costs - defined contribution plans

148

140

143

6%

3%

Equity-settled share-based payments

110

99

101

11%

9%

Temporary staff

82

84

64

-2%

28%

For personal use only

Salaries and wages
Superannuation costs - defined benefit plans

Other

391

380

371

3%

5%

2,493

2,417

2,347

3%

6%

Depreciation and amortisation

50

41

47

22%

6%

Rent

226

227

208

0%

9%

Utilities and other outgoings

89

89

81

0%

10%

Other

26

20

20

30%

30%

391

377

356

4%

10%

Computer contractors

124

72

109

72%

14%

Data communications

61

60

55

2%

11%

Depreciation and amortisation

265

258

238

3%

11%

Rentals and repairs

69

71

71

-3%

-3%

Software purchased

105

155

120

-32%

-13%

Total personnel expenses

Premises

Total premises expenses

Computer

Software impairment

1

-

8

n/a

-88%

Other

15

9

17

67%

-12%

640

625

618

2%

4%

Advertising and public relations

125

129

112

-3%

12%

Amortisation and impairment of intangible assets

45

50

50

-10%

-10%

Audit and other fees

11

8

10

38%

10%

Depreciation of furniture and equipment

50

48

49

4%

2%

Freight and cartage

34

33

32

3%

6%

Loss on sale and write-off of equipment

2

8

7

-75%

-71%

Non-lending losses

27

26

28

4%

-4%

Total computer expenses

Other

Postage and stationery

65

67

61

-3%

7%

Professional fees

106

150

118

-29%

-10%

Telephone

36

36

34

0%

6%

Travel

93

102

85

-9%

9%

Other

133

109

80

22%

66%

727

766

666

-5%

9%

-

4

14

-100%

-100%

35

24

43

46%

-19%

Total other expenses

Restructuring
New Zealand simplification programme

Other

Total restructuring expenses
Operating expenses

102

35

28

57

25%

-39%

4,286

4,213

4,044

2%

6%

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Income tax expense
Reconciliation of the prima facie income tax expense on pre-tax profit with
the income tax expense charged in the Income Statement

Half Year

Movement

Profit before income tax

Mar 14$M
4,705

Sep 13$M
4,710

Mar 13$M
4,304

Mar 14v. Sep 13
0%

Mar 14v. Mar 13
9%

Prima facie income tax expense at 30%

1,412

1,413

1,291

0%

9%

Overseas tax rate differential

(59)

(25)

(16)

large

large

Rebateable and non-assessable dividends

(1)

(1)

(3)

0%

-67%

Profit from associates

(74)

(81)

(63)

-9%

17%

For personal use only

Tax effect of permanent differences:

Write-down of investment in SSI

-

8

-

-100%

n/a

Offshore Banking Unit

(1)

(2)

(4)

-50%

-75%

Global Wealth - Policyholder income and contributions tax

21

130

131

-84%

-84%

-

(50)

-

-100%

n/a

Tax provisions no longer required

(25)

-

(4)

n/a

large

Interest on Convertible Instruments

32

29

29

10%

10%
large

Global Wealth - Tax consolidation adjustment

Other

13

(48)

2

large

1,318

1,373

1,363

-4%

-3%

-

3

(1)

-100%

-100%

1,318

1,376

1,362

-4%

-3%

Australia

879

1,013

1,054

-13%

-17%

Overseas

439

363

308

21%

43%

-4%

-3%

Income tax under/(over) provided in previous years
Total income tax expense charged
in the income statement

Effective Tax Rate - Group

103

1,318

1,376

1,362

28.0%

29.2%

31.6%

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Dividends
Half Year

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

For personal use only

Final (fully franked)

Ordinary share dividend1
Interim dividend
Final dividend
Bonus option plan adjustment
Total2
Ordinary share dividend payout ratio (%)

1.

2.
3.

3

Movement

Mar 1483

Sep 13n/a

Mar 1373

Mar 14v. Sep 13
n/a

Mar 14v. Mar 13
14%

n/a

91

n/a

n/a

n/a

$M
-

$M
2,003

$M
-

%
n/a

%
n/a

2,497

-

2,150

n/a

16%

(42)

(36)

(35)

17%

20%

2,455

1,967

2,115

25%

16%

67.4%

75.1%

68.3%

Dividends paid to ordinary equity holders of the Company. Excludes dividends payable by subsidiaries of the Group to non-controlling equity holders of approximately $1 million (Sep 13
half: $1 million; Mar 13 half: nil).
Dividends payable are not accrued and are recorded when paid.
Dividend payout ratio is calculated using proposed 2014 interim dividend of $2,278 million (not shown in the above table). The proposed 2014 interim dividend of $2,278 million is based on
the forecast number of ordinary shares on issue at the dividend record date. Dividend payout ratios for the September 2013 half year and March 2013 half year are calculated using actual
dividend paid of $2,497 million and $2,003 million respectively. Dividend payout ratio is calculated by adjusting profit attributable to shareholders of the company by the amount ofpreference share dividends paid.

Ordinary Shares
The Directors propose that an interim dividend of 83 cents be paid on each eligible fully paid ANZ ordinary share on 1 July 2014. The proposed 2014
interim dividend will be fully franked for Australian tax purposes and New Zealand imputation credits of NZD 10 cents per ordinary share will also be
attached.
ANZ has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan (BOP) that will operate in respect of the proposed 2014 interim dividend. For the2014 interim dividend, ANZ intends to provide shares under the DRP and BOP through the issue of new shares. The “Acquisition Price” to be used indetermining the number of shares to be provided under the DRP and BOP will be calculated by reference to the arithmetic average of the daily volume
weighted average sale price of all fully paid ANZ ordinary shares sold in the ordinary course of trading on the ASX during the ten trading days
commencing on 16 May 2014, and then rounded to the nearest whole cent. Shares provided under the DRP and BOP will rank equally in all respects withexisting fully paid ANZ ordinary shares. Election notices from shareholders wanting to commence, cease or vary their participation in the DRP or BOP for
the 2014 interim dividend must be received by ANZ's Share Registrar by 5.00pm (Australian Eastern Standard Time) on 14 May 2014.
Subject to receiving effective contrary instructions from the shareholder, dividends payable to shareholders with a registered address in the United
Kingdom (including the Channel Islands and the Isle of Man) or New Zealand will be converted to Pounds Sterling and New Zealand Dollars respectively
at an exchange rate calculated on 16 May 2014.

Preference Shares
Half Year

Movement

Mar 14$M

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

3

3

3

0%

0%

€4.60

€4.45

€4.37

3%

5%

Preference share dividend
Euro Trust Securities

Dividend per preference share
Euro Trust Securities

104

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Earnings per share
Half Year

Number of fully paid ordinary shares on issue (M)1

For personal use only

Basic
Profit attributable to shareholders of the Company ($M)
Less Preference share dividends ($M)
Profit less preference share dividends ($M)
Weighted average number of ordinary shares (M)2

Movement

Mar 14
2,744.1

Sep 13
2,743.7

Mar 13
2,743.7

Mar 14v. Sep 13
0%

Mar 14v. Mar 13
0%

3,381

3,329

2,937

2%

15%

(3)

(3)

(3)

0%

0%

3,378

3,326

2,934

2%

15%

2,715.2

2,714.8

2,704.1

0%0%Basic earnings per share (cents)

124.4

122.5

108.5

2%

15%

DilutedProfit less preference share dividends ($M)

3,378

3,326

2,934

2%

15%

Interest on US Trust Securities ($M)3

7

17

14

-59%

-50%

Interest on ANZ Convertible Preference Shares ($M)4

85

90

96

-6%

-11%

Interest on ANZ Capital Notes ($M)5

24

7

-

large

n/a

3,494

3,440

3,044

2%

15%

2,715.2

2,714.8

2,704.1

0%

0%

5.0

4.8

5.3

4%

-6%

Profit attributable to shareholders of the Company
excluding interest on US Trust Securities, ANZ Convertible Preference Shares
and ANZ Capital Notes ($M)
Weighted average number of shares on issue (M)2
Weighted average number of convertible options (M)Weighted average number of convertible US Trust Securities (M)3

16.8

27.5

26.5

-39%

-37%

Weighted average number of ANZ Convertible Preference Shares (M)4

134.5

144.6

156.0

-7%

-14%

Weighted average number of convertible ANZ Capital Notes (M)5

34.5

11.0

-

large

n/a

2,906.0

2,902.7

2,891.9

0%

0%

120.2

118.5

105.3

1%

14%

Adjusted weighted average number of shares - diluted (M)6
Diluted earnings per share (cents)

1.

2.

3.

4.

5.

6.

Number of fully paid ordinary shares on issue includes Treasury shares of 26.9 million at 31 March 2014 (Sep 13: 28.4 million; Mar 13: 28.7 million), comprised of 12.6 million Treasury
shares held in Global Wealth (Sep 13: 12.6 million; Mar 13: 12.1 million) and 14.3 million in ANZEST Pty Ltd (Sep 13: 15.8 million; Mar 13: 16.6 million).
Weighted average number of ordinary shares excludes 12.8 million weighted average number of ordinary Treasury shares held in Global Wealth (Sep 13: 12.7 million; Mar 13: 12.5 million)and 15.0 million weighted average number of ordinary Treasury shares held in ANZEST Pty Ltd (Sep 13: 16.4 million; Mar 13: 16.6 million) for the group employee share acquisition
scheme.
The US Trust Securities (issued on 27 November 2003) were due to convert to ANZ ordinary shares in 2053 at the market price of ANZ ordinary shares less 5% unless redeemed orbought back prior to that date. The US Trust Securities were redeemed by ANZ for cash at face value on 16 December 2013.
There are three “tranches” of convertible preference shares. The first are convertible preference shares (CPS1) issued on 30 September 2008 which convert to ordinary shares on 16
June 2014 at the market price of ANZ ordinary shares less 2.5% (subject to certain conversion conditions). On 31 March 2014, 6.3 million CPS1 were cancelled and re-invested in ANZ
Capital Notes 2 (CN2) issued on that date. The second are convertible preference shares (CPS2) issued on 17 December 2009 and convert to ordinary shares on 15 December 2016 at
the market price of ANZ ordinary shares less 1.0% (subject to certain conversion conditions). The third are convertible preference shares (CPS3) issued on 28 September 2011 thatconvert to ordinary shares on 1 September 2019 at the market price of ANZ ordinary shares less 1% (subject to certain conversion conditions).
There are two “tranches” of ANZ Capital Notes. The first are ANZ Capital Notes (CN1) issued on 7 August 2013 which convert to ANZ ordinary shares on 1 September 2023 at the market
price of ANZ ordinary shares less 1.0% (subject to certain market conditions). The second are ANZ Capital Notes 2 (CN2) issued on 31 March 2014 which convert to ANZ ordinary shareson 24 March 2024 at the market price of ANZ ordinary shares less 1.0% (subject to certain market conditions).
The earnings per share calculation excludes the Euro Trust Securities (Preference Shares).

105

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Net loans and advances

As at ($M)

Movement

Mar 14

Sep 13

Mar 13

Mar 14v. Sep 13

Mar 14v. Mar 13

5,756

6,400

5,779

-10%

0%

8,852

8,847

8,761

0%

1%
-25%

Australia

For personal use only

Overdrafts
Credit card outstandings
Commercial bills outstanding

12,224

13,855

16,388-12%

Term loans - housing

201,396

194,755

187,708

3%

7%

Term loans - non-housing

106,967

99,162

93,9488%

14%

Lease receivables

1,563

1,597

1,560

-2%

0%

Hire purchase

1,764

2,118

2,388

-17%

-26%

490

79

704

large

-30%

339,012

326,813317,2364%

7%

Overdrafts

1,456

1,239

1,077

18%

35%

Credit card outstandings

1,135

1,103

994

3%

14%

Commercial bills outstanding

2,431

2,681

1,539

-9%

58%

Term loans - housing

6,063

5,737

4,494

6%

35%

Term loans - non-housing

65,11558,92752,385

11%

24%

140

147

132

-5%

6%

Other

Asia Pacific, Europe & America

Lease receivables
Other

121

303

334

-60%

-64%

76,461

70,13760,955

9%

25%

1,221

1,194

987

2%

24%

New Zealand
Overdrafts
Credit card outstandings

1,430

1,297

1,135

10%

26%

Term loans - housing

57,25452,78546,0808%

24%

Term loans - non-housing

36,11033,83830,422

7%

19%

Lease receivables

105

114

119

-8%

-12%

Hire purchase

720

642

535

12%

35%

Other

117

111

108

5%

8%

96,95789,981

79,3868%22%

512,430

486,931457,577

5%

12%

Less: Provision for credit impairment (refer note 8)(4,313)(4,354)(4,312)-1%0%

Less: Unearned income1(1,052)(1,067)(1,087)-1%-3%

Add: Capitalised brokerage/mortgage origination fees2

1,000

942

869

6%

15%

Add: Customers' liabilities for acceptances

1,185

812

1,269

46%

-7%

Total gross loans and advances

Total net loans and advances1.
2.

(3,180)(3,667)(3,261)-13%-2%509,250

483,264454,316

5%

12%Includes fees deferred and amortised using the effective interest method of $391 million (Sep 13: $381 million; Mar 13: $362 million).
Capitalised brokerage/mortgage origination fees are amortised over the term of the loan.

106

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Provision for credit impairment

Half Year

Movement

Mar 14$M
2,887

Sep 13$M
2,769

Mar 13$M
2,765

Charge/(credit) to income statement

(74)

26

Adjustment for exchange rate fluctuations

30

92

2,843

For personal use only

Collective provision
Balance at start of period

Total collective provision1

Mar 14v. Sep 13
4%

Mar 14v. Mar 13
4%

4

large

large

-

-67%

n/a

2,887

2,769

-2%

3%

Individual provision
Balance at start of period

1,467

1,543

1,773

-5%

-17%

New and increased provisions

966

957

932

1%

4%

Write-backs

(257)

(247)

(240)

4%

7%

12

54

(3)

-78%

large

Adjustment for exchange rate fluctuations
Discount unwind

(30)

(47)

(55)

-36%

-45%

Bad debts written-off

(688)

(793)

(864)

-13%

-20%

Total individual provision

1,470

1,467

1,543

0%

-5%

Total provision for credit impairment

4,313

4,354

4,312

-1%

0%

1.

The collective provision includes amounts for off-balance sheet credit exposures: $597 million at Mar 14 (Sep 13: $595 million; Mar 13: $531 million). The impact on the income statement
for the half year ended 31 March 2014 was an $8 million release (Sep 13 half: $35 million charge; Mar 13 half: $2 million charge).

Half Year

Movement

Mar 14$M

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Australia

688

658

646

5%

7%

Asia Pacific, Europe & America

152

143

132

6%

15%

New Zealand

126

156

154

-19%

-18%

966

957

932

1%

4%

(257)

(247)

(240)

4%

7%

709

710

692

0%

2%

Recoveries of amounts previously written-off

(108)

(136)

(111)

-21%

-3%

Individual credit impairment charge for loans and advances

601

574

581

5%

3%

-

-

3

n/a

-100%

Provision movement analysis
New and increased provisions

Write-backs

Impairment on available-for-sale assets

Mar 14v. Mar 13

Collective credit impairment charge/(credit) to income statement

(74)

26

4

large

large

Credit impairment charge

527

600

588

-12%

-10%

Half Year

Movement

Individual provision balance
Australia

Mar 14$M
941

Sep 13$M944

Mar 13$M
955

Asia Pacific, Europe & America

296

262

275

13%

8%

New Zealand

233

261

313

-11%

-26%

1,470

1,467

1,543

0%

-5%

Total individual provision107

Mar 14v. Sep 13
0%

Mar 14v. Mar 13-1%

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Credit quality
Financial Assets maximum exposure to credit risk
For financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances, there
may be differences between the carrying amounts reported on the balance sheet and the amounts reported in the table below. Principally, thesedifferences arise in respect of financial assets that are subject to risks other than credit risk, such as equity investments which are primarily subject tomarket risk. For contingent exposures, the maximum exposure to credit risk is the maximum amount the Group would have to pay if the instrument iscalled upon. For undrawn facilities, the maximum exposure to credit risk is the full amount of the committed facilities.

For personal use only

The following table presents the maximum exposure to credit risk of on-balance sheet and off-balance sheet financial instruments before taking
account of any collateral held or other credit enhancements.

Reported
33,651

1

Excluded
1,511

Maximum
exposure tocredit risk
32,140

Settlement balances owed to ANZ

16,209-16,209Collateral Paid

6,219

-

6,219

Trading securities

46,170-46,170Derivative financial instruments2

43,829-43,829Available-for-sale assets

27,33037

27,293Net loans and advances3

509,250-

509,250
2,205

As at March 2014
$M
Cash

Regulatory deposits

2,205

-

Investments relating to insurance business

33,19733,197-

Other financial assets4

8,076

-

8,076

On-balance sheet sub total
Undrawn facilities

726,136

34,745

691,391

177,386-

177,386

Contingent facilities

39,268-39,268Off-balance sheet sub total

216,654-

216,654

Total

942,790

34,745908,045

Cash

25,2701,318

23,952

Settlement balances owed to ANZ

19,225-

19,225Collateral Paid

6,530

-

6,530

Trading securities

41,288-41,288Derivative financial instruments2

45,878-45,878Available-for-sale assets

28,27759

28,218Net loans and advances3

483,264-

483,264
2,106

As at September 2013
$M

Regulatory deposits

2,106

-

Investments relating to insurance business

32,08332,083-

Other financial assets4

7,038

-

7,038

On-balance sheet sub total
Undrawn facilities

690,959

33,460657,499

170,670-

170,670

Contingent facilities

36,532-36,532Off-balance sheet sub total

207,202-207,202

Total

898,161

33,460864,701

1.

2.
3.
4.

Includes bank notes and coins within cash, equity instruments within available-for-sale financial assets and investments relating to the insurance business where the credit risk is passed
onto the policy holder.
Derivative financial instruments are net of credit valuation adjustments.
Includes individual and collective provisions for credit impairment held in respect of credit related commitments.
Mainly comprises trade dated assets and accrued interest.

108

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reported

Excluded1

Maximum
exposure tocredit riskCash39,7791,629

38,150

Settlement balances owed to ANZ

15,804-15,804

Collateral Paid

6,699

-

6,699

Trading securities

39,569-39,569Derivative financial instruments2

41,700-41,700Available-for-sale assets

23,41065

23,345Net loans and advances3

454,316-454,316
1,679

For personal use only

As at March 2013
$M

Regulatory deposits

1,679

-

Investments relating to insurance business

31,19931,087112

Other financial assets4

5,662

-

5,662

On-balance sheet sub total
Undrawn facilities

659,81732,781

627,036

152,467-

152,467

Contingent facilities

34,008-34,008Off-balance sheet sub total

186,475-

186,475

Total

846,292

32,781

813,511

1.

2.
3.
4.

Includes bank notes and coins within cash, equity instruments within available-for-sale financial assets and investments relating to the insurance business where the credit risk is passed
onto the policy holder.
Derivative financial instruments are net of credit valuation adjustments.
Includes individual and collective provisions for credit impairment held in respect of credit related commitments.
Mainly comprises trade dated assets and accrued interest.

109

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9.

Credit quality, cont’dDistribution of financial assets by credit quality

Neither past due
nor impaired
32,140

Past due but not
impaired-

Restructured-

Net
Impaired-Total
32,140

Settlement balances owed to ANZ

16,209---16,209Collateral Paid

6,219

-

-

-

6,219

Trading securities

46,170---46,170Derivative financial instruments1

43,771--58

43,829Available-for-sale assets

27,293---27,293Net loans and advances2494,860

13,08360

1,918

509,921

2,205

-

-

-

2,205

-

-

-

-

-

8,076

-

-

-

8,076

For personal use only

As at March 2014
$M
Cash

Regulatory deposits
Investments backing policy liabilities
Other financial assets3
Credit related commitments4

215,869--

114

215,983

Total

892,812

13,08360

2,090

908,045

As at September 2013
$M
Cash

23,952---

23,952

Settlement balances owed to ANZ

19,225---

19,225Collateral Paid

6,530

-

-

-

6,530

Trading securities

41,288---41,288Derivative financial instruments1

45,786-25

67

45,878Available-for-sale assets

28,218---28,218Net loans and advances2

469,496

11,763316

2,311

483,886

2,106

-

-

-

2,106

-

-

-

-

-

7,038

-

-

-

7,038

Credit related commitments4

206,502--78

206,580

Total

850,141

11,763341

2,456

864,701

As at March 2013
$M
Cash

38,150---38,150

Settlement balances owed to ANZ

15,804---15,804

Collateral Paid

6,699

-

-

-

6,699

Trading securities

39,569---39,569Derivative financial instruments1

41,592-25

83

41,700Available-for-sale assets

23,345---23,345Net loans and advances2

440,076

11,837499

2,460

454,872

1,679

-

-

-

1,679

112

-

-

-

112

5,662

-

-

-

5,662

Regulatory deposits
Investments backing policy liabilities
Other financial assets3

Regulatory deposits
Investments backing policy liabilities
Other financial assets3
Credit related commitments4

185,844--75

185,919

Total

798,532

11,837524

2,618

813,511

1.
2.
3.
4.

Derivative assets, considered impaired, are net of credit valuation adjustments.
Individual and collective provisions for credit impairment held in respect of credit related commitments have been reallocated to credit related commitments in this table.
Mainly comprises trade dated assets and accrued interest.
Comprises undrawn commitments and customer contingent liabilities net of collective and individual provisions.

110

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9.

Credit quality, cont’dCredit quality of financial assets neither past due nor impaired
The credit quality of financial assets is managed by the Group using internal ratings based on their current probability of default. The Group’s
masterscales are mapped to external rating agency scales, to enable wider comparisons.

For personal use only

As at March 2014
$M
Cash

Strong credit
profile1 Satisfactory risk2
31,929211

Sub-standard but
not past due or
impaired3-

Total
32,14016,209Settlement balances owed to ANZ

15,345732

132

Collateral Paid

6,217

2

-

6,219

Trading securities

46,170--46,170Derivative financial instruments

42,841851

79

43,771

Available-for-sale assets

25,9801,297

16

27,293Net loans and advances

377,153

101,346

16,361

494,860

1,611

538

56

2,205

-

-

-

-

7,724

304

48

8,076

183,80729,851

2,211

215,869

738,777

135,132

18,903892,812

Regulatory deposits
Investments backing policy liabilities
Other financial assets4
Credit related commitments5

As at September 2013
$M
Cash

23,951

1-

23,952

Settlement balances owed to ANZ

19,13777

11

19,225Collateral Paid

6,528

2

-

6,530

Trading securities

41,288--41,288Derivative financial instruments

44,4651,170

151

45,786

Available-for-sale assets

26,9231,280

15

28,218Net loans and advances

350,119

101,783

17,594469,496

Regulatory deposits

1,132

445

529

2,106

Other financial assets4

6,698

289

51

7,038

Credit related commitments

5

174,565

29,661

2,276

206,502694,806

134,708

20,627850,141

As at March 2013
$M
Cash

38,05495

138,150

Settlement balances owed to ANZ

15,536267

115,804

Collateral Paid

6,698

1

-

6,699

Trading securities

39,328240

139,569Derivative financial instruments

40,582802

208

41,592Available-for-sale assets

21,8191,520

623,345Net loans and advances

325,853

96,751

17,472440,076

Regulatory deposits

810

405

464

1,679

Investments backing policy liabilities

112

-

-

112

5,276

327

59

5,662

154,240

29,3792,225

185,844648,308

129,787

20,437

798,532

Other financial assets4
Credit related commitments5

1.

2.

3.

4.
5.

Customers that have demonstrated superior stability in their operating and financial performance over the long-term, and whose debt servicing capacity is not significantly vulnerable toforeseeable events. This rating broadly corresponds to ratings “Aaa” to “Baa3” and “AAA” to “BBB-” of Moody’s and Standard & Poor’s respectively.
Customers that have consistently demonstrated sound operational and financial stability over the medium to long term, even though some may be susceptible to cyclical trends orvariability in earnings. This rating broadly corresponds to ratings “Ba2” to “Ba3” and “BB” to “BB-” of Moody’s and Standard & Poor’s respectively.
Customers that have demonstrated some operational and financial instability, with variability and uncertainty in profitability and liquidity projected to continue over the short and possibly
medium term. This rating broadly corresponds to ratings “B1” to “Caa” and “B+” to “CCC” of Moody’s and Standard & Poor’s respectively.
Mainly comprises trade dated assets and accrued interest.
Comprises undrawn commitments and customer contingent liabilities net of collective provisions.

111

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9.

Credit quality, cont’dAgeing analysis of financial assets that are past due but not impaired

For personal use only

Ageing analysis of past due loans is used by the Group to measure and manage emerging credit risks. Financial assets that are past due but not
impaired include those which are assessed, approved and managed on a portfolio basis within a centralised environment (for example credit cards
and personal loans), that can be held on a productive basis until they are 180 days past due, as well as those which are managed on an individual
basis.
A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the value of associated security is
sufficient to cover amounts outstanding.

March 2014 Half Year$M
Net loans and advances

1-5 days 6-29 days 30-59 days 60-89 days > 90 days
3,345
4,660
2,037
980
2,061
3,345

2,061

13,083

1-5 days 6-29 days 30-59 days 60-89 days > 90 days
3,096
4,416
1,506
927
1,818

Total
11,763

Total

September 2013 Half Year$M
Net loans and advances

4,660

3,096

4,416

980

1,818

11,763

1-5 days 6-29 days 30-59 days 60-89 days > 90 days
2,088
5,294
1,870
889
1,696

Total
11,837

Total

March 2013 Half Year$M
Net loans and advances

2,037

Total
13,083

2,088

Total

1,506

5,294

927

1,870

889

1,696

11,837

Financial assets that are individually impaired
ANZ regularly reviews its portfolio and monitors adherence to contractual terms. When doubt arises as to the collectability of a credit facility, thefinancial instrument (or ‘the facility’) is classified and reported as individually impaired and an individual provision is allocated against it.
As described in the summary of significant accounting policies in the 2013 Annual Financial Statements, provisions are created for financial
instruments that are reported on the balance sheet at amortised cost. For instruments reported at fair value, impairment provisions are treated aspart of overall change in fair value and directly reduce the reported carrying amounts.
Impaired instruments

Individual provision balances

As at ($M)

As at ($M)

Derivative financial instruments1

Mar 14$M
58

Sep 13$M
67

Mar 13$M
83

Mar 14$M-

Sep 13$M-

Mar 13$M-

Net loans and advances

3,314

3,751

3,978

1,396

1,440

1,518

188

105

100

74

27

25

3,560

3,923

4,161

1,470

1,467

1,543

Credit related commitments2
Total

1.
2.

Derivative assets, considered impaired, are net of credit valuation adjustments.
Comprises undrawn commitments and customer contingent liabilities.

As at ($M)

Movement

Mar 142,204

Sep 132,235

Mar 13
2,246

Mar 14v. Sep 13-1%

Mar 14v. Mar 13-2%$10 million to $100 million

897

1,491

1,659

-40%

-46%

Greater than $100 million

519

538

780

-4%

-33%
-23%

Less than $10 million

Gross impaired assets

1

3,620

4,264

4,685

-15%

Less: Individually assessed provisions for impairment(1,470)(1,467)(1,543)0%-5%Net impaired assets

2,150

2,797

3,142

-23%

-32%

1.

Includes $60 million restructured items (Sep 13: $341 million; Mar 13: $524 million).

112

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Deposits and other borrowings
As at ($M)
Mar 14$M
51,217Australia
Certificates of deposit

Sep 13$M
51,448

Movement
Mar 13$M
52,231

Mar 14v. Sep 13
0%

Mar 14v. Mar 13-2%77,90080,29778,515-3%-1%

Other deposits bearing interest and other borrowings

132,331

121,932

111,895

9%18%

Deposits not bearing interest

6,157

5,701

5,373

8%

15%

Deposits from banks

13,617

6,767

8,024

large

70%

Commercial paper

8,812

8,015

11,00810%-20%

For personal use only

Term deposits

Borrowing corporations' debt

1

19

67

-95%

-99%

290,035

274,179

267,113

6%

9%

-38%

Asia Pacific, Europe & America
Certificates of deposit

4,986

4,725

8,030

6%

Term deposits

79,58676,25974,601

4%

7%

Other deposits bearing interest and other borrowings

19,07718,30815,412

4%

24%

Deposits not bearing interest

3,990

3,827

3,012

4%

32%

Deposits from banks

22,44920,314

22,214

11%

1%

Commercial paper

2,166

-

-

n/a

n/a

132,254

123,433

123,269

7%

7%

New ZealandCertificates of deposit

1,504

2,103

1,303

-28%

15%

Term deposits

32,68630,13527,053

8%

21%

Other deposits bearing interest and other borrowings

29,841

26,41922,73513%

31%

Deposits not bearing interest

5,468

4,918

4,585

11%

19%

Deposits from banks

30

160

393

-81%

-92%

Commercial paper

5,063

4,240

3,478

19%

46%

Borrowing corporations' debt

1,437

1,328

1,176

8%

22%

76,02969,30360,72310%

25%498,318

466,915

451,105

7%

10%

Total deposits and other borrowings

113

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. Loan capital

For personal use only

APRA has granted ANZ transitional capital treatment for the ANZ Convertible Preference Shares (CPS) and all outstanding subordinated notes issued
prior to 1 January 2013. Transition will apply up until the security's first call date, except in the case of the outstanding USD and NZD Perpetual
Subordinated Notes and ANZ CPS3 where the transitional treatment will apply up until the earlier of the end of the transitional period (January 2021) andthe first call date when either a step up event (i.e. an increase in credit margin) or a conversion to ordinary shares is to occur.

Half Year

Movement

Mar 14$M

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

-

812

740

-100%

-100%

ANZ CPS12

454

1,081

1,080

-58%

-58%

ANZ CPS23

1,965

1,963

1,961

0%

0%

ANZ CPS34

1,331

1,329

1,327

0%

0%

ANZ Capital Notes 15

1,107

1,106

-

0%

n/a

ANZ Capital Notes 26

1,593

-

-

n/a

n/a

Perpetual subordinated notes

1,108

1,065

957

4%

16%

Subordinated notes

5,668

5,448

5,601

4%

1%

13,226

12,804

11,666

3%

13%

Tier 1US Trust Securities1
Convertible Preference Shares (ANZ CPS)

Tier 2

Total Loan Capital

1.

2.

3.

4.

5.

6.

On 27 November 2003, ANZ issued USD 750 million Trust Securities each comprising an interest paying unsecured note and a preference share which were stapled together. ANZ
redeemed the Trust Securities on 16 December 2013. The securities constituted Additional Tier 1 capital as defined by APRA for capital adequacy purposes.
On 30 September 2008, ANZ issued convertible preference shares (CPS1) which will convert into ANZ ordinary shares on 16 June 2014 at a 2.5% discount (subject to certain conditions
being satisfied). $627 million CPS1 were reinvested in ANZ Capital Notes 2 (CN2) on 31 March 2014 leaving $454 million outstanding. The securities constitute Additional Tier 1 capital as
defined by APRA for capital adequacy purposes.
On 17 December 2009, ANZ issued convertible preference shares (CPS2) which will convert into ANZ ordinary shares on 15 December 2016 at a 1% discount (subject to certain
conditions being satisfied). The securities constitute Additional Tier 1 capital as defined by APRA for capital adequacy purposes.
On 28 September 2011, ANZ issued convertible preference shares (CPS3) which will convert into ANZ ordinary shares on 1 September 2019 at a 1% discount (subject to certain
conditions being satisfied). If ANZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125% then the convertible preference shares will immediately convert into ANZ ordinary
shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on and from 1 September 2017 the convertible preference shares are redeemable orconvertible into ANZ ordinary shares (on similar terms to the mandatory conversion) by ANZ. The securities constitute Additional Tier 1 capital as defined by APRA for capital adequacy
purposes.
On 7 August 2013, ANZ issued convertible notes (ANZ Capital Notes or CN1) which will convert into ANZ ordinary shares on 1 September 2023 at a 1% discount (subject to certain
conditions being satisfied). If ANZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125%, or ANZ receives a notice of non-viability from APRA, then the notes will
immediately convert into ANZ ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on and from 1 September 2021 the notes are
redeemable or convertible into ANZ ordinary shares (on similar terms to the mandatory conversion) by ANZ. The securities constitute Additional Tier 1 capital as defined by APRA for
capital adequacy purposes.
On 31 March 2014, ANZ issued convertible notes (ANZ Capital Notes 2 or CN2) which will convert into ANZ ordinary shares on 24 March 2024 at a 1% discount (subject to certain
conditions being satisfied). If ANZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125%, or ANZ receives a notice of non-viability from APRA, then the notes will
immediately convert into ANZ ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on and from 24 March 2022 the notes are
redeemable or convertible into ANZ ordinary shares (on similar terms to the mandatory conversion) by ANZ. The securities constitute Additional Tier 1 capital as defined by APRA for
capital adequacy purposes.

114

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Share capital
Issued and quoted securities

Number quoted

Issue priceper share

Amount paid
up per share€1,000€1,000Ordinary shares
2,744,118,670

For personal use only

As at 31 March 2014
Issued during the half year

16,352,516

Bought back during half year1

15,889,156

Preference shares
As at 31 March 2014
Euro Trust Securities2,3

1.

2.

3.

500,000

Following the issue of 16.2 million ordinary shares under the Dividend Reinvestment Plan and Bonus Option Plan for the 2013 final dividend, the Company repurchased $500 million ofordinary shares via an on-market share buy-back resulting in 15.9 million ordinary shares being cancelled.
On 13 December 2004, ANZ issued €500 million Trust Securities each comprising subordinated floating rate notes due 2053 stapled to a preference share. Subject to certain conditions,the securities are redeemable by the issuer on 16 December 2014. The securities constitute Additional Tier 1 capital as defined by APRA for capital adequacy purposes.
APRA has granted ANZ transitional capital treatment for the Euro Trust Securities (preference shares) until their first call date on 16 December 2014.

13. Shareholders’ equity

Half Year

Movement

Mar 14$M

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

24,512

24,46023,941

0%

2%

Share capital
Balance at start of period
Ordinary share capital
Dividend reinvestment plan

476

392

451

21%

6%

Group employee share acquisition scheme1

(88)

96

20

large

large

Treasury shares in Global Wealth2

(2)

(20)

27

-90%

large

Group share option scheme

2

9

21

-78%

-90%

Group share buyback3

Total share capital

(500)

(425)

-

18%

n/a

24,40024,512

24,4600%0%(1,125)(2,826)(2,831)

-60%

-60%

Foreign currency translation reserve
Balance at start of period
Transfer to the income statement

(11)

-

-

n/a

n/a

Currency translation adjustments net of hedges after tax

570

1,701

5

-66%

large

Total foreign currency translation reserve(566)(1,125)(2,826)

-50%

-80%

55

53

54

4%

2%

Share option reserve4
Balance at start of period
Share based payments/(exercises)

5

3

-

67%

n/a

Transfer of options/rights lapsed to retained earnings

(8)

(1)

(1)

large

large

Total share option reserve

52

55

53

-5%

-2%

1.

2.

3.

4.

As at 31 March 2014, there were 14.3 million ANZEST Treasury shares outstanding (Sep 13: 15.8 million, Mar 13: 16.6 million). Shares in the Company which are purchased on-market by
ANZEST Pty Ltd (trustee of ANZ employee share and option plans) or issued by the Company to ANZEST Pty Ltd are classified as Treasury shares (to the extent that they relate tounvested employee share-based awards).
As at 31 March 2014, there were 12.6 million Global Wealth Treasury shares outstanding (Sep 13: 12.6 million, Mar 13: 12.1 million). Global Wealth purchases and holds shares in the
Company to back policy liabilities in the life insurance statutory funds. These shares are classified as Treasury shares.
Following the issue of 16.2 million ordinary shares under the Dividend Reinvestment Plan and Bonus Option Plan for the 2013 final dividend, the Company repurchased $500 million ofordinary shares via an on-market share buy-back resulting in 15.9 million ordinary shares being cancelled.
The share option reserve arises on the grant of share options/deferred share rights/performance rights (“options and rights”) to selected employees under the ANZ Share Option Plan.
Amounts are transferred from the share option reserve to other equity accounts when the options and rights are exercised and to retained earnings when lapsed or forfeited after vesting.
Forfeited options and rights due to termination prior to vesting are credited to the income statement.

115

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13. Shareholders’ equity, cont’d

Half Year

Movement

Mar 14$M

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

Balance at start of period

121

138

94

-12%

29%

Gain/(loss) recognised after tax

62

(21)

15

large

large

Transferred to income statement

(32)

4

29

large

large

Total available-for-sale revaluation reserve

151

121

138

25%

9%

For personal use only

Available-for-sale revaluation reserve5

Hedging reserve6
Balance at start of period

75

130

208

-42%

-64%

Gain/(loss) recognised after tax

-

(52)

(81)

-100%

-100%

Transferred to income statement

(13)

(3)

3

large

large

Total hedging reserve

62

75

130

-17%

-52%

(33)

(23)

(23)

43%

43%

-

(10)

-

-100%

n/a

Total transactions with non-controlling interests reserve

(33)

(33)

(23)

0%

43%

Total reserves

(334)

(907)

(2,528)

-63%

-87%

21,936

20,51819,728

7%

11%

-

-

(17)

n/a

-100%

Restated balance at beginning of period

21,936

20,51819,711

7%

11%

Profit attributable to shareholders of the Company

3,381

3,329

2,937

2%

15%

8

1

1

large

large

25,32523,84822,6496%

12%Transactions with non-controlling interests reserve
Balance at start of period
Transactions with non-controlling interests

Retained earnings
Balance at start of period
Restatement (refer Note 1)

Transfer of options/rights lapsed from share option reserve
Total available for appropriation
Remeasurement gain/(loss) on defined benefit plans after tax
Ordinary share dividends paid
Dividend income on Treasury shares held within theGroup's life insurance statutory funds
Preference share dividends paid

26

48

(23)

-46%

large

(2,455)(1,967)(2,115)

25%

16%

12

10

10

20%

20%

(3)

(3)

(3)

0%

0%

Retained earnings at end of period

22,90521,936

20,518

4%

12%

Share capital and reserves attributable toshareholders of the Company

46,97145,54142,450

3%

11%

67

62

53

8%

26%

47,03845,60342,503

3%

11%

Non-controlling interests
Total shareholders' equity

5.

6.

The available-for-sale revaluation reserve arises on the revaluation of available-for-sale financial assets. Where a revalued financial asset is sold or impaired, that portion of the reserve
which relates to that financial asset is recognised in the income statement.
The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain or loss on the hedge is recognised in theincome statement when the hedged transaction impacts profit or loss.

14. Fair Value Measurement
A significant number of financial instruments are carried on balance sheet at fair value. The following disclosures set out the Group’s fair value
measurements, various levels within which the fair value measurements are categorised, valuation methodologies and, techniques and inputs used.
(i) Financial assets and financial liabilities not measured at fair value
Below is a comparison of the carrying amounts as reported on the balance sheet and fair value of financial asset and liability categories other than thosecategories where the carrying amount is at fair value or considered a reasonable approximation of fair value:116

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Carrying amount in the balance sheet

Fair ValueAt amortisedcost

At fair
value

Total

Mar 14$M

Mar 14$M

Mar 14$M

Mar 14$M

509,012238

509,250

509,536

509,012238

509,250

509,536

Deposits and other borrowings

493,255

5,063

498,318

498,423

Bonds and notes1

70,871

2,681

73,55274,506

Loan capital1

13,226-

13,226

13,424577,352

7,744

585,096586,353

Financial assets

For personal use only

Net loans and advances1

Financial liabilities

1.

Fair value hedging is applied to certain financial instruments within these categories. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

(ii) Financial assets and financial liabilities measured at fair value in the balance sheet(a) Valuation methodologies
ANZ has an established control framework that ensures fair value is either determined or validated by a function independent of the party that undertakes
the transaction. The control framework ensures that all models are calibrated periodically to test that outputs reflect prices from observable current market
transactions in the same instrument or other available observable market data.
Where quoted market prices are used, prices are independently verified from other sources. For fair values determined using a valuation model, thecontrol framework may include, as applicable, independent development or validation of valuation models, any inputs to those models, any adjustments
required outside of the valuation model and, where possible, independent validation of model outputs. In this way, continued appropriateness of thevaluations is ensured.
In instances where the Group holds offsetting risk positions, the Group uses the portfolio exemption in AASB 13 to measure the fair value of such groupsof financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (that is, an asset) for a particular risk
exposure or to transfer a net short position (that is, a liability) for a particular risk exposure.
The Group categorises its fair value measurements on the basis of inputs used in measuring fair value using the fair value hierarchy below:
Level 1 – Financial instruments that have been valued by reference to unadjusted quoted prices in active markets for identical financial instruments.
This category includes financial instruments valued using quoted yields where available for specific debt securities.
Level 2 – Financial instruments that have been valued through valuation techniques incorporating inputs other than quoted prices within Level 1 thatare observable for a similar financial asset or liability, either directly or indirectly.

Level 3 – Financial instruments that have been valued using valuation techniques which incorporate significant inputs that are not based on
observable market data (unobservable inputs).

(b) Valuation techniques and inputs used

In the event that there is no quoted market price for the instrument, fair value is based on valuation techniques. The valuation models incorporate theimpact of bid/ask spreads, counterparty credit spreads, funding costs and other factors that would influence the fair value determined by market
participants.
The majority of valuation techniques employ only observable market data. However, for certain financial instruments the valuation technique may employ
some data (valuation inputs or components) which is not readily observable in the current market. In these cases valuation inputs (or components of theoverall value) are derived and extrapolated from other relevant market data and tested against historic transactions and observed market trends. To theextent that valuation is based on models or inputs that are not observable in the market, the determination of fair value can be more subjective,
dependent on the significance of the unobservable input to the overall valuation.
The following valuation techniques have been applied to determine the fair values of financial instruments where there is no market price for the
instrument:
For instruments classified as Trading security assets and Trading liabilities, Derivative financial assets and liabilities, Available-for-sale financial
assets, and Investments backing policy liabilities, fair value measurements are derived by using modelled valuations techniques (including
discounted cash flow models) that incorporate market prices/yields for securities with similar credit risk, maturity and yield characteristics; and/or
current market yields for similar instruments.
For Net loans and advances, Deposits and other borrowings and Bonds and notes, discounted cash flow techniques are used where contractual
future cash flows of the instrument are discounted using discount rates incorporating changes in wholesale market rates or market borrowing rates ofdebt with similar maturities or a yield curve appropriate for the remaining term to maturity.
The fair value of External unit holder liabilities (life insurance funds) represents the unitholder’s share of net assets within the fund, which are carriedat fair value in the fund. The fair value of Policy liabilities being liabilities of the insurance business is directly linked to the performance and value ofthe assets backing the liabilities. These assets are carried at fair value using modelled valuations.
Further details of valuation techniques and significant unobservable inputs used in measuring fair values are described in (iii)(a) below.

117

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
There have been no substantial changes in the valuation techniques applied to different classes of financial instruments during the current half-year
period.
(c) Fair value measurements
The table below provides an analysis of financial instruments carried at fair value at reporting date categorised according to the lowest level input into avaluation model or a valuation component that is significant to the reported fair value. The fair value has been allocated in full to the category in the fairvalue hierarchy which most appropriately reflects the determination of the fair value.

For personal use only

Fair value measurements
Level 1

Level 2

Level 3Total

Mar 14$M

Mar 14$M

Mar 14$M

Mar 14$M

42,467

3,703-

46,170Derivative financial instruments

611

43,083135

43,829Available for sale financial assets

23,0994,195

36

27,330Investments backing policy liabilities

19,39013,721

86

33,197

-

238

-

238

85,56764,940257

150,764

Financial assets
Trading securities

Loans and advances (designated at fair value)
Total

Financial liabilities
Payables and other liabilities1

3,212

76

-

3,288

Derivative financial instruments

636

45,098142

45,876

Deposits and other borrowings (designated at fair value)

-

5,063

-

5,063

Bonds and notes

-

2,681

-

2,681

Policy liabilities2-

32,888-32,888External unit holder liabilities (life insurance funds)
Total

1.
2.

-

3,334

-

3,334

3,848

89,140142

93,130

Represents trading liabilities.
Policy liabilities relate to life investment contract liabilities only as these are designated at fair value through profit and loss.

There are no assets or liabilities measured at fair value on a non-recurring basis.
The Group recognises transfers between Level 1 and Level 2 as of the beginning of the reporting period during which the transfer has occurred. There
have been no significant transfers between Level 1 and Level 2 during the period.

118

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(iii) Details of fair value measurements that incorporate unobservable market data(a)Composition of Level 3 fair value measurements

The following table presents the composition of financial instruments measured at fair value with significant unobservable inputs (Level 3 fair value
measurements).
Financialliabilities

For personal use only

Financial assets

Investments
Available-for- backing policy
Derivatives
saleliabilities

Derivatives

Mar 14$M-

Mar 14$M
2

Mar 14$M
2

Illiquid corporate bonds

-

8

-

-

Structured credit products

102

-

-

(127)

Managed funds (suspended)

-

-

23

-

Alternative assets

-

26

61

-

Other derivatives

33

-

-

(15)

Total

135

36

86

(142)

Asset backed securities

Mar 14$M-

Structured credit products comprise the structured credit intermediation trades that the Group entered into from 2004 to 2007 whereby it sold protection
using credit default swaps over certain structures, and mitigated risk by purchasing protection via credit default swaps from US financial guarantors overthe same structures. These trades are valued using complex models with certain inputs relating to the reference assets and derivative counterparties not
being observable in the market. Such unobservable inputs include credit spreads and default probabilities contributing from 12% to 57% of the valuation.
The assets underlying the structured credit products are diverse instruments with a wide range of credit spreads and default probabilities relevant to thevaluation.
The remaining Level 3 balances include Asset backed securities and Illiquid corporate bonds where the effect on fair value of issuer credit cannot bedirectly or indirectly observed in the market; Managed funds (suspended) comprising of fixed income and mortgage investments in managed funds thatare illiquid and are not currently redeemable; Alternative assets that largely comprise various investments in unlisted equity securities for which no active
market exists; and Other derivatives which include reverse mortgage swaps where the mortality rate cannot be observed and long dated oil swaps where
market data for the full tenor is unobservable. These Level 3 balances are not considered material.
(b)

Movements in Level 3 fair value measurements

The following table sets out movements in Level 3 fair value measurements. Derivatives are categorised on a portfolio basis and classified as either financial assets
or financial liabilities based on whether the closing balance is an unrealised gain or loss. This could be different to the opening balance.
Financialliabilities

Financial assets

Investments
Available-for- backing policy
Derivatives
saleliabilities

Derivatives

Mar 14$M

Mar 14$M

Mar 14$M

Mar 14$M

Opening balance

200

36

105

(437)

New purchases

-

4

-

n/a

Disposals (sales)

-

(4)

(15)

n/a

Cash settlements

n/a

n/a

n/a

1

Transfers into Level 3 category

-

1

-

-

Transfers out of Level 3 category

(31)

-

-

254

Fair value gain/(loss) recorded in other operating income in the income statement1

(34)

-

(4)

40

-

(1)

-

-

135

36

86

(142)

Transfers:

Fair value gain/(loss) recognised in reserves in equity
Closing balance

1.

Relating to assets and liabilities that are held at the end of the period.

Transfers out of Level 3 relate principally to interest rate swaptions containing multi-callable features. The trade characteristics of the portfolio are suchthat inputs significant to the valuation are now observable.
Transfers into and out of Level 3 are deemed to have occurred as of the beginning of the reporting period in which the transfer occurred.

119

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(c)

Sensitivity to Level 3 data inputs

For personal use only

Where valuation techniques use assumptions due to significant data inputs not being directly observed in the market place (Level 3 inputs), changing
these assumptions changes the resultant estimate of fair value. The majority of transactions in this category are ‘back-to-back’ in nature where ANZ
either acts as a financial intermediary or hedges the market risks. Similarly, the performance of Investments backing policy liabilities directly impacts theassociated life investment contracts they relate to. In these circumstances, changes in the assumptions generally have minimal impact on the income
statement and net assets of ANZ. An exception to this is the ‘back-to-back’ structured credit intermediation trades which create significant exposure tomarket risk and/or credit risk.
Principal inputs used in the determination of fair value of financial instruments included in the structured credit portfolio include counterparty credit
spreads, market-quoted CDS prices, recovery rates, default probabilities, correlation curves and other inputs, some of which may not be directly
observable in the market. The potential effect of changing prevailing unobservable inputs to reasonably possible alternative assumptions for valuing thosefinancial instruments could result in less than a (+ / - ) $10 million impact on profit. The ranges of reasonably possible alternative assumptions are
established by application of professional judgement and analysis of the data available to support each assumption.
(d)Deferred fair value gains and losses

Where the fair value of a financial instrument is determined using unobservable data that is significant to the valuation of the instrument, any difference
between the transaction price and the amount determined based on the valuation technique on initial recognition of the financial instrument (day-one gainor loss) is deferred on the balance sheet. Subsequently, the day-one gain or loss is recognised in the income statement only to the extent that it arises
from a change in factors (including time) that a market participant would consider in setting the price for the instrument.
The table below summarises the movement of the aggregate amount of day-one gains not recognised in the income statement on the initial recognition of
the financial instrument where not all inputs to the valuation technique are observable in the market.

Mar 14$M
4Opening balance
Deferral on new transactions

1

Amounts recognised in income statement during the period(2)

Closing balance3

The closing balance of unrecognised gains is predominantly related to derivative financial instruments.

120

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Segment analysis(i) Description of segments

For personal use only

The Group operates on a divisional structure with Australia, International and Institutional Banking (IIB), New Zealand, and Global Wealth being the
major operating divisions. The IIB and Global Wealth divisions are coordinated globally. GTSO and Group Centre provide support to the operating
divisions, including technology, operations, risk management, financial management, strategy and marketing, human resources and corporate
affairs. Additionally, Group Centre includes Group Treasury, Shareholder Functions and Discontinued Businesses.
There have been no major structural changes to Divisional segments since 30 September 2013; however certain amounts in the comparatives havebeen reclassified to conform with current period financial statement presentations.
(ii) Operating segments
Transactions between business units across segments within ANZ are conducted on an arms length basis.
Half Year

Movement

Segment Revenue
Australia

Mar 14$M
4,017

Sep 13$M
3,991

Mar 13$M
3,869

Mar 14v. Sep 13
1%

International and Institutional Banking

3,592

3,315

3,287

8%

9%

New Zealand

1,239

1,159

1,053

7%

18%

Global Wealth

806

780

744

3%

8%

GTSO and Group Centre

14

54

139

-74%

-90%

Subtotal

9,668

9,299

9,092

4%

6%

Other1

(150)

224

(156)

large

-4%

Group total

9,518

9,523

8,936

0%

7%

Half Year

Mar 14v. Mar 13
4%

Movement

Segment Profit
Australia

Mar 14$M
1,479

Sep 13$M
1,449

Mar 13$M
1,409

Mar 14v. Sep 13
2%

Mar 14v. Mar 13
5%

International and Institutional Banking

1,372

1,244

1,208

10%

14%

New Zealand

546

482

396

13%

38%

Global Wealth

226

268

204

-16%

11%

GTSO and Group Centre

(108)

(130)

(38)

-17%

large

Subtotal

3,515

3,313

3,179

6%

11%

Other1

(134)

16

(242)

large

-45%

Group total

3,381

3,329

2,937

2%

15%

Half Year

Movement

Segment Assets
Australia

Mar 14$M
281,191

Sep 13$M274,325

Mar 13$M
264,951

Mar 14v. Sep 13
3%

Mar 14v. Mar 13
6%

International and Institutional Banking

315,013296,522

285,443

6%

10%

New Zealand

92,06685,01574,7638%

23%

Global Wealth

49,80049,01047,3422%

5%

21(1,685)

325

large

-94%

738,091

703,187

672,824

5%

10%

(276)

(192)

(194)

44%

42%

737,815

702,995

672,630

5%

10%

GTSO and Group Centre
Subtotal
Other1
Group total

1.

In evaluating the performance of the operating segments, certain items are removed from the operating segment results where they are not considered integral to the ongoing performanceof the segment and are evaluated separately. These items are set out in part (iii) of this note (refer pages 83 to 92 for further analysis).

121

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Segment analysis, cont’d(iii) Other items
The table below sets out the profit after tax impact of other items.
Half Year
Mar 14$M

Sep 13$M

Mar 13$M
53

Related segment

Treasury shares adjustment

Global Wealth37

31

Revaluation of policy liabilities

Global Wealth

(3)

27

19

Economic hedging

IIB

89

(205)

192

Revenue and net investment hedges

GTSO and Group Centre

18

143

16

Structured credit intermediation trades

IIB

(7)

(12)

(38)

134

(16)

242

For personal use only

Item gains/(losses)

Total profit after tax

16. Note to the Cash Flow Statement
Reconciliation of cash and cash equivalents

Half Year
Mar 14
Inflows(Outflows)$M

Sep 131
Inflows(Outflows)$M

Mar 131
Inflows(Outflows)
$M

3,381

3,329

2,937

527

600

588

-

-

3

410

397

384

(Profit)/loss on sale of businesses

-

(14)

(6)

(Profit)/loss on sale of premises and equipment

9

(31)

33

Profit after income tax
Adjustments to reconcile to net cash provided by/(used in) operating activities
Provision for credit impairment
Impairment on available for sale assets transferred to profit and loss
Depreciation and amortisation

Equity settled share-based payments expense

(78)

99

20

Net derivatives/foreign exchange adjustment

250

5,030

784

Other non cash movements

(299)

(105)

(192)

(4,990)(1,624)

2,392

396

169

179

Loans and advances(16,357)(13,088)(15,610)Investments backing policy liabilities

Net (increase)/decrease in operating assets:
Trading securities
Collateral paid

(1,238)(1,509)(1,893)

Interest receivable

(121)

151

(18)

Accrued income

(36)

60

(85)

Net tax assets

(474)

174

72

Net increase/(decrease) in operating liabilities:
Deposits and other borrowings

27,397(3,816)31,357

Settlement balances owed by ANZ(624)(4,678)

7,957

Collateral received

(70)

1,045

346

Payables and other liabilities

347

(2)

(1,023)

Life insurance contract policy liabilities

1,020

1,677

1,992

Interest payable

263

(340)

(124)

Accrued expenses

(136)

86

(103)

Other

(127)

112

(106)

Net cash provided by/(used in) operating activities

9,450(12,278)

29,8841.

Comparative amounts have changed as a result of the changes referred to in Note 21.

122

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16. Note to the cash flow statement, cont'd
Half Year
Mar 14

Sep 13

Mar 13

Inflows

Inflows

Inflows(Outflows)(Outflows)(Outflows)

$M

$M

$M

33,651

25,27039,77924,841

23,75320,99858,49249,02360,777

Dividends satisfied by share issue

476

392

451

Dividends satisfied by bonus share issue

42

36

35

518

428

486

Reconciliation of cash and cash equivalents

For personal use only

Cash and cash equivalents at the end of the period as shown in the cash flow
statement are reflected in the related items in the balance sheet as follows
Cash
Cash equivalents 1

Non-cash financing activities

1.

Cash equivalents include settlement balances and loans and advances with financial institution counterparties that have original maturities of less than 90 days.

17. Changes in composition of the Group
There were no material entities acquired or disposed during the half year ended 31 March 2014.

18. Investments in Associates
Half Year

Profit after income tax

Mar 14$M

Sep 13$M

Mar 13
$M

247

271

211

Contributions to profit1

Contribution toGroup post-tax profit

Ownership interest
held by Group

Half Year

As at

Associates
Mar 14$M
40

Sep 13$M
46

Metrobank Card Corporation Inc

10

Bank of Tianjin2,3

56

AMMB Holdings Berhad
Shanghai Rural Commercial Bank

P.T. Bank Pan Indonesia

2

Mar 13$M
38

Mar 14%39

Sep 13%39

Mar 13
%
39

10

9

40

40

40

49

44

14

18

18

67

79

54

24

24

24

68

80

63

20

20

20

Saigon Securities Inc.

-

-

-

18

18

18

Other associates

6

7

3

n/a

n/a

n/a

247

271

211

Profit after income tax

1.

2.

3.

The results differ from the published results of these entities due to the application of IFRS, Group Accounting Policies and acquisition adjustments. This amounted to a nil increase for the
March 2014 half (Sep 13 half: $5 million increase; Mar 13 half: $1 million increase). Excludes gains or losses on disposal or valuation adjustments.
Significant influence was established via representation on the Board of Directors.
During the period the Group did not participate in a rights issue and as a result the Group’s interest was reduced to 14%.

123

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
19. Contingent liabilities and contingent assets
There are outstanding court proceedings, claims and possible claims for and against the Group, the aggregate amount of which cannot reasonably
be quantified. Expert legal advice has been obtained and, in the light of such advice, provisions and/or disclosures as deemed appropriate havebeen made. In some instances we have not disclosed the estimated financial impact of the individual items as this may prejudice the interests of theGroup.
Refer to Note 43 of the 2013 ANZ Annual Financial Statements for a description of contingent liabilities and contingent assets.

For personal use only–

Bank fees litigation
Litigation Funder Bentham IMF Limited commenced a class action against ANZ in 2010, followed by a second similar class action in March
2013. Together the class actions are claimed to be on behalf of more than 40,000 ANZ customers.
On 5 February 2014, the Federal Court delivered reasons for judgment in the second class action. The first class action is in abeyance. The
customers currently involved in these class actions are only part of ANZ’s customer base for credit cards and transaction accounts.
The applicants contended that the relevant exception fees were unenforceable penalties (at law and in equity) and that various of the fees werealso unenforceable under statutory provisions governing unconscionable conduct, unfair contract terms and unjust transactions. On the
penalties claims, the Court found in ANZ's favour in relation to all but one of the fee types that were in issue in the case, namely honour fees
(retail and business), dishonour fees (business), overlimit and non-payment fees. The Court found against ANZ in respect of late payment feeson the basis that they were unenforceable penalties. All of the applicants' statutory claims were dismissed. Both ANZ and the applicants haveappealed the Court’s decision. The appeal hearing is likely to take place in the second half of 2014 calendar year. Given the complexity of theissues involved, and the appeal by each side, the implications of the Court's decision of 5 February 2014 are uncertain and may not be known
for some time.
In June 2013, litigation funder Litigation Lending Services (NZ) commenced a representative action against ANZ for certain fees charged to
New Zealand customers since 2007. There is a risk that further claims could emerge in Australia, New Zealand or elsewhere.

–

Security recovery actions
Various claims have been made or are anticipated, arising from security recovery actions taken to resolve impaired assets over recent years.
ANZ will defend these claims and any future claims.

20. Related party disclosure
There have been no significant changes to the arrangements with related parties. Refer to Notes 46 and 47 of the 2013 Annual Financial
Statements.

21. Changes to comparatives
Certain amounts reported as comparative information have changed either as a result of the adoption of AASB 119 Employee Benefits (“AASB119”) or being reclassified to conform with current period financial statement presentations.
The following changes have been made to either the Income Statement and/or Balance Sheet:
Balance sheet reclassification
During the period, the classification of the balance sheet has changed to more consistently reflect the nature of the financial assets and liabilities.
Prior to this reclassification, the balance sheet was classified according to both nature and counterparty. The key changes include:
Assets•Securities purchased under agreements to resell in less than three months previously reported in Liquid assets are now classified as Cash.

•

Money at call, bills receivable and remittances in transit previously reported in Liquid assets are now classified as either Cash, Settlementbalances owed to ANZ or Net loans and advances depending on the nature of the asset.

•

Loans to other banks previously reported in Due from other financial institutions are now classified as Net Loans and Advances.

•

Collateral paid previously reported in Due from other financial institutions is now classified separately.

•

Issued security settlements previously reported in Other assets are now classified as Settlement balances owed to ANZ.

Liabilities•

Loans from other banks previously reported in Due to other financial institutions are now classified as Deposits and other borrowings.

•

Collateral received previously reported in Due to other financial institutions is now classified separately.

•

Issued security settlements previously reported in Other liabilities is now classified as Settlement balances owed by ANZ.

Employee benefits
The adoption of AASB 119 has resulted in changes to the measurement of the Group’s defined benefit obligations. This has resulted in a
restatement to comparatives in the Income Statement and Balance Sheet.
Business taxes reported in Asia
During the period business taxes which were previously reported as a contra to revenue were classified as expenses to better reflect the nature of
the transaction. Comparative information has been reclassified accordingly.

124

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As at $M
September 2013

AssetsLiquid assets

Balancesheetreclassification(39,737)

Employeebenefits-

Currently
reported-

22,177(22,177)

-

-

Cash

-

25,270-25,270

Settlement balances owed to ANZ-

19,225-

19,225Collateral paid

-

6,530

-

6,530

Available-for-sale assets

28,135142-

28,277Net loans and advances

469,295

13,969-483,264

721

-

4

725

Other assets

7,574(3,222)-

4,352

All other assets

135,352--

135,352

Total assets

702,991-4

702,995

36,306(36,306)

-

-

-

8,695

-

8,695

For personal use only

Due from other financial institutions

Previously
reported
39,737

Deferred tax assets

Liabilities
Due to other financial institutions
Settlement balances owed by ANZ
Collateral received

-

3,921

-

3,921

439,674

27,241-

466,915

Payables and other liabilities

12,594(3,551)

16

9,059

All other liabilities

168,802--

168,802

Total liabilities

657,376-

16

657,392

Net Assets

45,615-(12)

45,603Retained earnings

21,948-(12)

21,936All other equity

23,667--

23,667

Total shareholders' equity

45,615-(12)

45,603

Deposits and other borrowings

Half Year ($M)
September 2013
Previously
reported
6,558

Business tax
restatement-

Employeebenefits-

Currently
reported
6,558

Other operating income

2,958

7

-

2,965

Operating income

9,516

7

-

9,523

Operating expenses(4,202)(7)(4)(4,213)

Profit before credit impairment and income tax

5,314

-

(4)

5,310

Provision for credit impairment

(600)

-

-

(600)

Profit before income tax

4,714

-

(4)

4,710

Income tax expense and non-controlling interests(1,382)-

1(1,381)

Profit attributable to shareholders of the Company

3,332

-

(3)

3,329

Other comprehensive income net of tax

1,670

-

7

1,677

Total comprehensive income attributable to shareholders of theCompany

5,002

-

4

5,006

Net interest income

125

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As at $M
March 2013

For personal use only

AssetsLiquid assets
Due from other financial institutions

Previously
reported
53,077

Balancesheetreclassification(53,077)

Employeebenefits-

Currently
reported-

20,781(20,781)

-

-

Cash

-

39,779-39,779Settlement balances owed to ANZ-

15,804-15,804

Collateral paid

-

6,699

-

6,699

Available-for-sale assets

23,282

128-

23,410Net loans and advances

441,980

12,336-454,316

654

-

5

659

Other assets

5,709

(888)

-

4,821

All other assets

127,142--

127,142

Total assets

672,625-5

672,630

43,345(43,345)---

13,373-

13,373

Deferred tax assets

Liabilities
Due to other financial institutions
Settlement balances owed by ANZ
Collateral received

-

2,877

-

2,877

420,474

30,631-

451,105

Payables and other liabilities

12,589(3,536)21

9,074

All other liabilities

153,698--

153,698

Total liabilities

630,106-21

630,127

Net Assets

42,519-(16)

42,503Retained earnings

20,534-(16)

20,518All other equity

21,985--21,985

Total shareholders' equity

42,519-(16)

42,503

Deposits and other borrowings

Half Year ($M)
March 2013
Previously
reported
6,200

Business tax
restatement-

Employeebenefits-

Currently
reported
6,200

Other operating income

2,730

6

-

2,736

Operating income

8,930

6

-

8,936

Operating expenses(4,034)(6)(4)(4,044)

Profit before credit impairment and income tax

4,896

-

(4)

4,892

Provision for credit impairment

(588)

-

-

(588)

Profit before income tax

4,308

-

(4)

4,304

Income tax expense and non-controlling interests(1,368)-1(1,367)

Profit attributable to shareholders of the Company

2,940

-

(3)

2,937

(56)

-

4

(52)

2,884

-

1

2,885

Net interest income

Other comprehensive income net of tax
Total comprehensive income attributable to shareholders of theCompany126

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As at $M
1 October 2012

AssetsLiquid assets

Balancesheetreclassification(36,578)

Employeebenefits-

Currently
reported-

17,103(17,103)

-

-

Cash

-

25,143-25,143

Settlement balances owed to ANZ-

14,016-

14,016

Collateral paid

-

6,878

-

6,878

Available-for-sale assets

20,562

79-

20,641

Net loans and advances

427,8238,804-

436,627

785

-

7

792

Other assets

5,623(1,239)-4,384

All other assets

133,653--

133,653

Total assets

642,127-

7

642,134

30,538(30,538)

-

-

-

5,416

-

5,416

For personal use only

Due from other financial institutions

Previously
reported
36,578Deferred tax assets

Liabilities
Due to other financial institutions
Settlement balances owed by ANZ
Collateral received

-

2,531

-

2,531

397,123

23,690-420,813

Payables and other liabilities

10,109(1,099)24

9,034

All other liabilities

163,137--

163,137

Total liabilities

600,907-24

600,931

Net Assets

41,220-(17)

41,203Retained earnings

19,728-(17)

19,711

All other equity

21,492--

21,492

Total shareholders' equity

41,220-(17)

41,203

Deposits and other borrowings

22. Significant events since balance date
On 10 April 2014, ANZ announced the sale of ANZ Trustees to Equity Trustees Limited for $150 million. The transaction is expected to becompleted in July 2014 subject to regulatory approval. The gain on sale will be recognised in the second half of the 2014 financial year.
Other than the matter described above, there have no significant events from 31 March 2014 to the date of signing of this report.

127

DIRECTORS’ DECLARATION AND RESPONSIBILITY STATEMENT
Directors’ Declaration
The Directors of Australia and New Zealand Banking Group Limited declare that:

For personal use only

1.

2.

in the Directors’ opinion the Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements are inaccordance with the Corporations Act 2001, including:•section 304, that they comply with the Australian Accounting Standards and any further requirements of the Corporations Regulations 2001;
and•section 305, that they give a true and fair view of the financial position of the Group as at 31 March 2014 and of its performance for the halfyear ended on that date; andin the Directors’ opinion as at the date of this declaration there are reasonable grounds to believe that the Company will be able to pay its debts as
and when they become due and payable.

Signed in accordance with a resolution of the Directors.

John MorschelChairmanMichael R P Smith, OBE
Director

30 April 2014

Responsibility statement of the Directors in accordance with the Disclosure and Transparency Rule 4.2.10(3)(b) of the United Kingdom
Financial Conduct Authority
The Directors of Australia and New Zealand Banking Group Limited confirm to the best of their knowledge that:
the Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements for the half year ended 31 March2014 and Directors’ Report (including matters included by reference) and Directors’ Declaration as set out on pages 94 to 128 as well as the additional
information on page 144 includes a fair review of:(i)

the important events that have occurred during the first six months of the financial year, and their impact on the Condensed Consolidated Financial
Statements; and(ii)

a description of the principal risks and uncertainties for the remaining six months of the financial year.

Signed in accordance with a resolution of the Directors.

John MorschelChairmanMichael R P Smith, OBE
Director

30 April 2014128

AUDITOR’S REVIEW REPORT AND INDEPENDENCE DECLARATION
Independent auditor’s review report to the members of Australia and New Zealand Banking Group Limited

Report on the condensed consolidated financial statements

For personal use only

We have reviewed the accompanying half year condensed consolidated financial statements of Australia and New Zealand Banking Group Limited (the“Company”) which comprises the condensed consolidated balance sheet as at 31 March 2014, condensed consolidated income statement andcondensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated cash
flow statement for the half year ended on that date, notes 1 to 22 comprising a basis of preparation and other explanatory notes, and the directors’
declaration of the Group comprising the Company and the entities it controlled at the half year’s end or from time to time during the half year.

Directors’ responsibility for the half year condensed consolidated financial statements
The directors of the Company are responsible for the preparation of the half year condensed consolidated financial statements that give a true and fairview in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine isnecessary to enable the preparation of the half year condensed consolidated financial statements that are free from material misstatement, whether due
to fraud or error.
Auditors’ responsibility
Our responsibility is to express a conclusion on the half year condensed consolidated financial statements based on our review. We conducted ourreview in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditorof the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that thehalf year condensed consolidated financial statements are not in accordance with the Corporations Act 2001 including: giving a true and fair view of theGroup’s financial position as at 31 March 2014 and its performance for the half year ended on that date; and complying with Australian AccountingStandard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As auditor of Australia and New Zealand Banking Group
Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual report.
A review of a half year condensed consolidated financial statements consists of making enquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordancewith Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters thatmight be identified in an audit. Accordingly, we do not express an audit opinion.
Independence
In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

Conclusion
Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half year condensed consolidated
financial statements of Australia and New Zealand Banking Group Limited is not in accordance with the Corporations Act 2001, including:(a)giving a true and fair view of the Group’s financial position as at 31 March 2014 and of its performance for thehalf year ended on that date; and(b)complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

MelbourneAndrew Yates
Partner

30 April 2014
Lead Auditor’s Independence Declaration under section 307C of the Corporations Act 2001
To: the directors of Australia and New Zealand Banking Group Limited
I declare that, to the best of my knowledge and belief, in relation to the review for the half year ended 31 March 2014, there have been:(i)no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and(ii)

no contraventions of any applicable code of professional conduct in relation to the review.

MelbourneAndrew Yates
Partner

30 April 2014
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.

129

AUDITOR’S REVIEW REPORT AND INDEPENDENCE DECLARATION

For personal use onlyThis page has been left blank intentionally

130

SUPPLEMENTARY INFORMATIONCONTENTS

Section 9 – Supplementary information
Four year summary by half year
Capital management

For personal use only

Average balance sheet and related interest
Full time equivalent staff
Exchange rates
Derivative financial instruments
Summary of principal risks and uncertainties

131

SUPPLEMENTARY INFORMATION

Four year summary by half year
Sep 13$M

Mar 13$M

Sep 12$M

Mar 12$M

Sep 11$M

Mar 11$M

Sep 10$M

Financial Performance
Net interest income

6,764

6,536

6,236

6,126

5,984

5,848

5,652

5,623

Other operating income

2,904

2,763

2,856

3,002

2,736

2,529

2,856

2,592

Operating expense(4,286)(4,213)(4,044)(4,386)(4,133)(3,997)(4,026)(3,722)

(528)

(598)

(599)

(688)

(570)

(560)

(660)

(722)

For personal use only

Mar 14$M

Credit impairment charge
Profit before income tax

4,854

4,488

4,449

4,054

4,017

3,820

3,822

3,771

Income tax expense(1,333)(1,170)(1,265)(1,118)(1,117)(1,073)(1,094)(1,040)Non-controlling interests

(6)

(5)

(5)

(2)

(4)

(3)

(5)

(4)

Cash/underlying profit1

3,515

3,313

3,179

2,934

2,896

2,744

2,723

2,727

Adjustments to arrive at statutory profit1

(134)

16

(242)

(192)

23

(53)

(59)

(151)

Profit attributable to shareholders of the Company

3,381

3,329

2,937

2,742

2,919

2,691

2,664

2,576

Assets

737,815

702,995

672,630

642,127

612,212594,488

537,447

531,739

Net assets

47,03845,60342,503

41,22039,44337,95435,12934,155

Financial Position

Common Equity Tier 1 - APRA Basel 3

8.3%

8.5%

8.2%

8.0%

7.8%

7.5%

7.3%

n/a

Common Equity Tier 1 - Internationally Harmonised Basel 3

10.5%

10.8%

10.3%

10.0%

9.8%

9.5%

9.3%

n/a

Return on average ordinary shareholders' equity (statutory)

15.0%

15.3%

14.4%

13.7%

15.6%

14.9%

15.8%

15.5%

Return on average assets (statutory)

0.92%

0.95%

0.90%

0.85%

0.95%

0.93%

0.97%

0.94%

Operating expenses to operating income (statutory)

45.0%

44.2%

45.3%

49.3%

46.9%

48.0%

46.8%

46.3%

Operating expenses to operating income (cash/underlying)

44.3%

45.3%

44.5%

48.0%

47.4%

47.7%

47.3%

45.3%

Shareholder value - ordinary shares
Total return to shareholders(share price movement plus dividends)

10.4%

10.5%

19.0%

9.6%

23.6%

(15.7%)

3.6%(4.5%)

Market capitalisation

90,72084,45078,27867,25562,32551,31961,82060,614

Dividend

83 cents

91 cents

73 cents

79 cents

66 cents

76 cents

64 cents

74 cents

100%

100%

100%

100%

100%

100%

100%

100%

- high

$34.06$32.09$29.46$25.12$23.68$24.49$25.96$26.23- low$28.84$26.30$23.42$20.26$18.60$17.63$22.05$19.95- closing$33.06$30.78$28.53$24.75$23.26$19.52$23.81$23.68

Earnings per share - basic (statutory)

124.4c122.5c108.5c102.6c110.8c104.0c104.2c102.1cDividend payout ratio (statutory)

67.4%

75.1%

68.3%

78.5%

60.8%

74.6%

62.5%

73.7%

Net tangible assets per ordinary share$13.90$13.48$12.55$12.22$11.74$11.44$10.61$10.38

Number of fully paid ordinary shares (million)

2,744.1

2,743.7

2,743.7

2,717.4

2,679.5

2,629.0

2,596.4

2,559.7

Franked portion
Share price

Share information

Other information
Total full time equivalent staff (FTE)2

48,857

48,86548,87150,35751,74452,37851,65050,552

Number of shareholders

486,596468,343

451,621438,958

439,811442,943424,787

411,692

1.

From 1 October 2012, the Group changed to reporting profit on a cash basis from reporting profit on an underlying profit basis. Consequently, certain comparative information was restatedon a consistent basis. March 2011 to March 2014 balances reflect adjustments between cash profit and statutory profit. September 2010 balances reflect adjustments between underlying
profit and statutory profit.

2.

Comparative information has been restated to include technology contractors, consistent with the how FTE are reported and managed internally.

132

SUPPLEMENTARY INFORMATION

Capital management
Half Year

Qualifying Capital
Tier 1
Shareholders' equity and non-controlling interests

For personal use onlyPrudential adjustments to shareholders' equity

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

45,60342,5033%

11%(1,071)

(932)

(958)

15%

12%

45,96744,671

41,545

3%

11%

Table 2

(15,931)(15,892)(15,170)0%5%30,036

28,77926,375

4%

14%

Table 3Tier 1 capital

Tier 2 capitalSep 13$M

47,038

Common Equity Tier 1 capital
Additional Tier 1 capital

Mar 14$M

Table 1Gross Common Equity Tier 1 capital
Deductions

Movement

Table 4

Total qualifying capital

7,279

6,401

5,365

14%

36%

37,31535,18031,740

6%

18%

6,335

6,190

6,062

2%

5%

43,65041,37037,802

6%

15%

Capital adequacy ratios
Common Equity Tier 1

8.3%

8.5%

8.2%

-

-

Tier 1

10.3%

10.4%

9.8%

-

-

Tier 2

1.8%

1.8%

1.9%

-

-

Total

12.1%

12.2%

11.7%

-

-

360,740

339,265

322,582

6%

12%

Risk weighted assets

Table 5133

SUPPLEMENTARY INFORMATION

Capital management, cont’d
Half Year
Mar 14$M

Movement

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

Table 1: Prudential adjustments to shareholders' equity
275

273

253

1%

9%

Reclassification of preference share capital

(871)

(871)

(871)

0%

0%

Accumulated retained profits and reserves of insurance, funds management andsecuritisation entities

(727)

(583)

(573)

25%

27%

Deferred fee revenue including fees deferred as part of loan yields

391

381

362

3%

8%

Available-for-sale reserve attributable to deconsolidated subsidiaries

(81)

(90)

(105)

-10%

-23%

Other

(58)

(42)

(24)

38%

large

Total

(1,071)

(932)

(958)

15%

12%

Unamortised goodwill & other intangibles (excluding OnePath Australia and New
Zealand)(4,126)(3,970)(3,717)

4%

11%

Intangible component of investments in OnePath Australia and New Zealand(2,107)(2,096)(2,075)1%

2%

Capitalised software(2,252)(2,102)(1,800)7%25%

Capitalised expenses including loan and lease origination fees20%

For personal use only

Treasury shares attributable to OnePath policy holders

Table 2: Deductions from Common Equity Tier 1 capital(1,058)

(979)

(884)

8%

Applicable deferred net tax assets(934)(1,102)

(990)

-15%

-6%

Expected losses in excess of eligible provisions

(129)

(376)

(526)

-66%

-75%

Investment in ANZ insurance and funds management subsidiaries

(428)

(453)

(684)

-6%

-37%

Investment in OnePath Australia and New Zealand(984)(1,059)(1,042)-7%-6%(3,565)(3,361)(2,956)

6%

21%

(348)

(394)

(496)

-12%

-30%

(15,931)(15,892)(15,170)

0%5%

ANZ CPS1

454

1,081

1,080

-58%

-58%

ANZ CPS2

1,965

1,963

1,961

0%

0%

ANZ CPS3

1,331

1,329

1,327

0%

0%

ANZ Capital Notes 1

1,107

1,106

-

0%

n/a

ANZ Capital Notes 2

1,593

-

-

n/a

n/a

Preference Shares

871

871

871

0%

0%

Hybrid Securities

-

812

740

-100%

-100%

Investment in banking associates
Other deductions
Total

Table 3: Additional Tier 1 capital
Convertible Preference Shares

Regulatory adjustments and deductions
Transitional adjustments
Total

(42)

(78)

(17)

-46%

large

-

(683)

(597)

-100%

-100%

7,279

6,401

5,365

14%

36%

Table 4: Tier 2 capital
General reserve for impairment of financial assets

212

245

244

-13%

-13%

Perpetual subordinated notes

1,108

1,065

957

4%

16%

Subordinated debt

5,668

5,448

5,601

4%

1%

Regulatory adjustments and deductions

(354)

(340)

(740)

4%

-52%

Transitional adjustments

(299)

(228)

-

31%

n/a

Total

6,335

6,190

6,062

2%

5%

134

SUPPLEMENTARY INFORMATION

Half Year

Movement

Mar 14$M

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

On balance sheet

217,606

208,326

199,121

4%

9%Commitments

Table 5: Risk weighted assets

47,80945,25012%

19%12,903

11,184

10,17415%

27%

Derivatives

21,042

20,332

20,4333%

3%

Total credit risk

305,328

287,651

274,9786%11%

Market risk - Traded

7,104

4,303

6,850

65%

4%

Market risk - IRRBB

16,35918,287

12,629-11%30%

Operational risk

31,94929,024

28,12510%

14%

Total risk weighted assets

360,740

339,265

322,5826%12%

For personal use only

53,777

Contingents

Half Year

Movement

Mar 14$M

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

Corporate

123,743

121,586

114,700

2%

8%

Sovereign

4,545

4,360

4,382

4%

4%

Bank

20,26916,27015,83825%

28%

Residential mortgage

50,42647,55944,597

6%

13%

Qualifying revolving retail (credit cards)

7,260

7,219

7,234

1%

0%

Other retail26,41624,32823,2009%14%Credit risk weighted assets
subject to Advanced IRB approach

232,659

221,322

209,951

5%

11%

Credit risk specialised lending exposuressubject to slotting criteria

28,522

27,64027,842

3%

2%

Corporate

26,255

19,285

17,15736%

53%

Residential mortgage

1,966

1,922

1,827

2%

8%

Qualifying revolving retail (credit cards)

1,796

1,728

2,068

4%

-13%

Other retail

1,073

985

1,248

9%

-14%

Credit risk weighted assets subject to Standardised approach

31,09023,92022,30030%

39%Credit Valuation Adjustment andQualifying Central Counterparties

8,065

8,501

8,949

-5%

-10%

Credit risk weighted assets relating to securitisation exposures

1,253

2,724

2,549

-54%

-51%

Other assets

3,739

3,544

3,387

6%

10%

305,328

287,651

274,978

6%

11%

Table 6: Credit risk weighted assets by Basel asset class
Subject to Advanced IRB approach

Subject to Standardised approach

Total credit risk weighted assets

135

SUPPLEMENTARY INFORMATION

Capital management, cont’d

Table 7: Collective provision and regulatory expected loss by divisionCollective Provision

Regulatory Expected
Loss

As at ($M)

As at ($M)

Australia

Mar 14
1,152

Sep 13
1,123

Mar 14
2,481

Sep 13
2,393

International and Institutional Banking

1,310

1,570

1,046

372

399

784

763

Global Wealth

11

12

14

21

Other

43

43

-

19

2,843

2,887

4,849

4,242

For personal use only

1,265

New ZealandCollective provision and regulatory expected loss

As at ($M)

Movement

Mar 14$M

Sep 13$M

Mar 13$M

Mar 14v. Sep 13

Mar 14v. Mar 13

Defaulted

2,373

1,854

1,976

28%

20%

Non-defaulted

2,476

2,388

2,349

4%

5%

4,849

4,242

4,325

14%

12%

(2,843)(2,887)(2,769)

-2%

3%

300

346

341

-13%

-12%

Table 8: Expected loss in excess of eligible provisions
Basel expected loss

Less: Qualifying collective provisionCollective provisionNon-qualifying collective provision
Standardised collective provision

212

245

245

-13%

-13%

(2,331)(2,296)(2,183)2%

7%(1,470)(1,467)(1,543)0%-5%Less: Qualifying individual provision
Individual provision
Additional individual provision for partial write offs1(797)

Standardised individual provision

153

219

249

-30%

-39%

Collective provision on advanced defaulted

(275)

(322)

(322)

-15%

-15%

(2,389)(1,570)(1,616)

52%

48%

129

376

526

-66%

-75%

Gross deduction

1.

Included in eligible provisions post September 2013 due to a change in RWA calculation methodology.

136

SUPPLEMENTARY INFORMATION

Capital management, cont’d
Table 9: APRA Basel 3 Common Equity Tier 1
Half Year
Mar 14 vs Sep 13
APRA Basel 3 Common Equity Tier 1+104bps($3.5B)

For personal use only

Cash profit after preference share dividends
Risk weighted assets
Portfolio growth and mix-29bpsRisk migration and Expected Losses in excess of Eligible Provisions+4bps

Non-credit risk

-2bps

Capital retention in insurance businesses and associates-9bps

Capitalised software and intangibles-7bps

Other items-2bps

Organic Capital Generation+59bpsOrdinary share dividends-74bps

Other

0bps

Total Common Equity Tier 1 movement-15bpsMarch 2014 APRA Basel 3 Common Equity Tier 1 ratio

8.3%

137

SUPPLEMENTARY INFORMATION

Average balance sheet and related interest

For personal use only

Averages used in the following tables are predominantly daily averages. Interest income figures are presented on a tax-equivalent basis. Impaired loans
are included under the interest earning asset category, ‘loans and advances’. Intra-group interest earning assets and interest bearing liabilities are treatedas external assets and liabilities for the geographic segments. During the period the classification of the balance sheet has been amended to moreconsistently reflect the nature of the financial assets and liabilities. As a result, average balance and related interest comparative information haschanged accordingly. Refer to Note 21 of the Condensed Consolidated Financial Statements for further information.
Half year Mar 14

Half year Sep 13

Half year Mar 13

Ave balInt

Rate

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

$M

$M

%

Interest earning assets
Settlement Balances owed to ANZAustralia

990

14

2.8%

948

12

2.5%

632

12

3.8%

12,186

7

0.1%

11,096

6

0.1%

10,688

5

0.1%

53

1

3.8%

55

1

3.6%

88

1

2.3%

Australia

1,296

19

2.9%

1,495

23

3.1%

769

16

4.2%

Asia Pacific, Europe & America

1,291

1

0.2%

1,835

2

0.2%

4,731

2

0.1%

723

1

0.2%

676

1

0.3%

978

1

0.2%

1,225

5

0.8%

1,089

4

0.7%

939

3

0.7%

Australia

42,539650

3.1%

38,938629

3.2%

36,511605

3.3%

Asia Pacific, Europe & America

20,443156

1.5%

18,661132

1.4%

15,270124

1.6%

New Zealand

11,633223

3.8%

10,127

177

3.5%

9,971

183

3.7%

Australia

332,847

9,249

5.6%

321,973

9,490

5.9%

313,425

9,856

6.3%

Asia Pacific, Europe & America

76,408

1,126

3.0%

68,669

1,058

3.1%

57,664965

3.4%

New Zealand

93,349

2,674

5.7%

84,834

2,496

5.9%

78,413

2,338

6.0%

Australia

14,392165

2.3%

10,389

141

2.7%

7,491

107

2.9%

Asia Pacific, Europe & America

20,51241

0.4%

22,56933

0.3%

16,49624

0.3%

New Zealand

2,438

31

2.6%

2,597

30

2.3%

2,224

27

2.4%

Asia Pacific, Europe & America
New ZealandCollateral Paid

New Zealand

Regulatory Deposits
Asia Pacific, Europe & America

Trading and available-for-sale assets

Loans and advances

Cash

Other assets
Australia

67

9

n/a

41

14

n/a

(28)

1

n/a

Asia Pacific, Europe & America

8

20

n/a

6

28

n/a

2

32

n/a

New Zealand

-

38

n/a

-

24

n/a

-

24

n/a

Australia

3,067

200

n/a

3,199

216

n/a

1,907

217

n/a

Asia Pacific, Europe & America

8,520

1

n/a

7,527

(11)

n/a

8,718

1

n/a

643,987

14,631

606,724

14,506566,889

14,544(11,587)(201)(10,726)(205)(10,625)(218)

632,400

14,430595,998

14,301

556,264

14,326

Intragroup assets

Intragroup elimination

4.6%

4.8%

Non-interest earning assets
Derivatives
Australia

29,91633,71832,979Asia Pacific, Europe & America

6,972

4,488

5,193

New Zealand

6,758

6,063

6,809

Premises and equipment

2,143

2,102

2,082

Insurance assets

32,76531,46030,216

Other assets

28,62625,80325,463

Provisions for credit impairment
Australia(2,812)(2,762)(2,846)

Asia Pacific, Europe & America

(743)

(834)

(767)

New Zealand

(787)

(789)

(843)

102,143

99,99598,235734,543695,993654,499

Total average assets
1.

Gross loans and advances including unearned income, capitalised brokerage/mortgage origination fees and customers’ liabilities for acceptances.

138

5.2%

SUPPLEMENTARY INFORMATION

Half year Mar 14

Half year Sep 13

Half year Mar 13

Ave balInt

Rate

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

$M

$M

%

Australia

136,155

2,255

3.3%

136,595

2,509

3.7%

134,894

2,803

4.2%

Asia Pacific, Europe & America

82,570348

0.8%

79,280333

0.8%70,817333

0.9%

New Zealand

32,929623

3.8%

30,606590

3.8%

28,654569

4.0%

Australia

26,782423

3.2%

24,765414

3.3%

23,564424

3.6%

Asia Pacific, Europe & America

4,996

11

0.4%

5,582

13

0.5%

4,968

12

0.5%

New Zealand

9,184

143

3.1%

7,840

127

3.2%

6,225

106

3.4%

Australia

97,221

1,198

2.5%

87,438

1,180

2.7%

83,134

1,217

2.9%

Asia Pacific, Europe & America

13,152

21

0.3%

11,39717

0.3%

10,43216

0.3%

New Zealand

19,023220

2.3%

17,113203

2.4%

15,683195

2.5%

Australia

15,578

199

2.6%

9,160

132

2.9%

6,473

102

3.2%

Asia Pacific, Europe & America

28,22862

0.4%

24,07575

0.6%

21,593

78

0.7%

516

6

2.3%

535

6

2.2%

668

8

2.4%

Interest bearing liabilities

For personal use only

Time deposits

Savings deposits

Other demand deposits

Deposits from banks

New Zealand

Settlement Balances owed by ANZAustralia

1,660

10

1.2%

1,397

10

1.4%

1,705

12

1.4%

Asia Pacific, Europe & America

355

-

0.0%

1,084

-

0.0%

875

-

0.0%

New Zealand

306

2

1.3%

375

3

1.6%

341

3

1.8%

Collateral Received (IEB)
Australia
Asia Pacific, Europe & America
New Zealand

616

6

2.0%

798

11

2.7%

815

12

3.0%

1,357

3

0.4%

1,091

3

0.5%

1,755

3

0.3%

532

1

0.4%

571

1

0.3%

271

1

0.7%

8,914

115

2.6%

12,200

172

2.8%

8,400

139

3.3%

805

2

0.5%

-

-

0.0%

-

-

0.0%

5,553

80

2.9%

4,030

61

3.0%

4,395

67

3.1%

Commercial paper
Australia
Asia Pacific, Europe & America
New ZealandBorrowing corporations' debt
6

-

4.3%

46

2

8.7%

81

3

7.4%

1,399

30

4.3%

1,264

28

4.4%

1,165

27

4.6%

Australia

65,426

1,350

4.1%

64,618

1,375

4.2%

64,881

1,497

4.6%

Asia Pacific, Europe & America

4,742

29

1.2%

3,331

20

1.2%

1,142

11

1.9%

New Zealand

14,298323

4.5%

13,985322

4.6%

13,692332

4.9%

Australia

2,737

81

n/a

3,593

69

n/a

2,383

125

n/a

Asia Pacific, Europe & America

2,195

25

n/a

2,099

21

n/a

1,832

21

n/a

398

86

n/a

424

46

n/a

530

10

n/a

11,587201

n/a

10,726205

n/a

10,625218

n/a589,220

7,853

556,018

7,948

521,993

8,344

Australia
New Zealand

Loan capital, bonds and notes

Other liabilities

New Zealand

Intragroup liabilities
New Zealand

Intragroup elimination(11,587)(201)

577,633

7,652

2.7%

(10,726)(205)

545,292

7,743

2.8%

(10,625)(218)

511,368

8,126

Non-interest bearing liabilities
Deposits
Australia

6,134

5,605

5,416

Asia Pacific, Europe & America

3,893

3,630

2,771

New Zealand

5,186

4,615

4,143

Australia

31,811

31,46929,418Asia Pacific, Europe & America

6,676

4,904

5,550

New Zealand

6,235

6,968

6,723

Insurance Liabilities

32,89431,35529,891

Derivatives

External unit holder liabilities

3,510

3,729

3,949

Other liabilities

14,392

14,004

13,521

110,731106,279

101,382

688,364

651,571

612,750

Total average liabilities

139

3.2%

SUPPLEMENTARY INFORMATION

Half Year
Mar 14$M

Sep 13$M

Mar 13$M

Australia

469,557

453,442434,621

Asia Pacific, Europe & America

157,899

144,489

128,340

New Zealand

118,674

108,788

102,163(11,587)(10,726)(10,625)734,543695,993654,499

36.5%

35.3%

33.9%

Australia

395,198

376,983

360,707

Asia Pacific, Europe & America

140,593

131,452

114,508

New Zealand

108,196

98,28991,674(11,587)(10,726)(10,625)

632,400

595,998556,264

Australia

439,399

423,165

404,874

Asia Pacific, Europe & America

151,984

138,553

123,914

New Zealand

108,568

100,579

94,587(11,587)(10,726)(10,625)

688,364

651,571

612,750

36.2%

35.1%

33.9%

Australia

355,095

340,610326,330

Asia Pacific, Europe & America

138,400

127,939

113,414

For personal use only

Total average assets

less intragroup elimination% of total average assets attributable to overseas activities

Average interest earning assets

less intragroup elimination

Total average liabilities

less intragroup elimination% of total average liabilities attributable to overseas activities

Average interest bearing liabilities

New Zealandless intragroup elimination

95,72587,46982,249(11,587)(10,726)(10,625)

577,633

545,292

511,368

45,30843,55140,878

871

871

871

46,17944,422

41,749734,543695,993654,499

Total average shareholders' equity
Ordinary share capital, reserves and retained earnings1
Preference share capital

Total average liabilities and shareholders' equity

1.

Average shareholders’ equity includes Global Wealth shares that are eliminated from the closing shareholders’ equity balance of $275 million for Mar 14 (Sep 13: $273 million; Mar 13:$253 million).

140

SUPPLEMENTARY INFORMATION

Half Year
Mar 14%

Sep 13%

Mar 13%Australia

5.23

5.57

6.01

Asia Pacific, Europe & America

1.91

1.90

2.03

New Zealand

5.50

5.54

5.63

Group

4.58

4.79

5.17

2.05

2.13

2.12

0.32

0.33

0.37

2.37

2.46

2.49

1.18

1.14

1.19

Interest attributable to net non-interest bearing items

0.02

0.02

0.01

2

1.20

1.16

1.20

1.90

1.91

1.89

0.42

0.40

0.38

2.32

2.31

2.27

1.92

1.95

1.98

0.23

0.25

0.26

2.15

2.20

2.24

2.54

2.61

2.65

For personal use only

Gross earnings rate1

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

Australia
Net interest spread
Interest attributable to net non-interest bearing items
2

Net interest margin - Australia

Asia Pacific, Europe & America
Net interest spread

Net interest margin - Asia Pacific, Europe & America

New Zealand
Net interest spread
Interest attributable to net non-interest bearing items
2

Net interest margin - New ZealandGroup
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin2

Net interest margin (excluding global markets)

1.
2.

Average interest rate received on average interest earning assets.
Statutory basis.

141

SUPPLEMENTARY INFORMATION

Full Time Equivalent Staff1
At 31 March 2014, ANZ employed 48,857 people worldwide (30 September 2013: 48,865) on a full-time equivalent basis (“FTEs”).
As at

Division

Movement

Sep 13
14,623

Mar 13
14,551

Mar 14v. Sep 13
1%

Mar 14v. Mar 13
1%

International and Institutional Banking

13,04013,196

13,312-1%-2%

New Zealand

7,323

7,400

7,755

-1%

-6%

Global Wealth

4,090

4,271

4,176

-4%

-2%

GTSO and Group Centre

9,669

9,375

9,077

3%

7%

Totals48,857

48,86548,8710%0%

For personal use only

Australia

Mar 14
14,735As at

Geography

Movement

Australia

Mar 14
21,353

Sep 1321,757

Mar 1322,096

Mar 14v. Sep 13-2%

Asia Pacific, Europe & America

19,247

18,824

18,119

2%

6%

New Zealand

8,257

8,284

8,656

0%

-5%

Totals48,857

48,86548,871

0%0%

1.

Mar 14v. Mar 13-3%

Comparative information has been restated to include technology contractors, consistent with how FTE are reported and managed internally.

Exchange rates
Major exchange rates used in translation of results of offshore controlled entities and branches and investments in associates were as follows:
Balance sheet

Profit & Loss Average

As atHalf Year

Chinese Yuan

Mar 145.7480

Sep 13
5.6976

Mar 136.4793

Mar 145.5544

Sep 135.8062

Mar 136.4746Euro

0.67160.68960.81520.66720.71930.7938Great British Pound

0.55520.57600.6886

0.55650.61480.6574

Indian Rupee

55.29658.53156.73856.40056.05656.240Indonesian Rupiah

10,488.7

10,860.1

10,127.4

10,719.3

9,689.6

10,034.1

Malaysian Ringgit

3.01693.03343.23512.96442.99783.1876

New Zealand Dollar

1.06681.1237

1.24691.09591.1733

1.2533

Papua New Guinea Kina

2.23562.23852.22972.20542.10952.1850

United States Dollar

0.92330.9312

1.04240.91130.94741.0387142

SUPPLEMENTARY INFORMATION

Derivative financial instruments
Derivatives

For personal use only

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices. They include swaps, forward
rate contracts, 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 foreign exchange andinterest rates as part of its asset and liability management activities. Derivatives are subject to the same types of credit and market 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, interest rate, commodity and credit derivatives. It includes all contracts, bothtrading and hedging.
Notional principal amount is the face value of the contract and represents the volume of outstanding transactions. Fair value is the net position ofcontracts with positive market values and negative market values.
As at 31 March 2014
Notional
Principal
amount$M

As at 30 September 2013
Notional
Principal
amount$M

Total fair value
Assets$M

Liabilities$M

Total fair value
Assets$M

Liabilities$M

Foreign exchange contracts
Spot and forward contracts

542,709

7,001(7,408)463,606

7,593(7,539)

Swap agreements

393,063

11,159(14,100)

377,385

10,352(12,692)

Futures contracts

1,401

105

(67)

546

22

(23)

Options purchased

92,0302,017-

65,991

1,376-

Options sold

129,306-(1,812)78,352-(1,449)1,158,509

20,282(23,387)

985,880

19,343(21,703)

27,2691,172(1,127)

23,1691,346(1,232)

Commodity contracts
Derivative contracts

Interest rate contracts
75,9502(4)84,547

3(5)

Swap agreements

Forward rate agreements

2,249,000

20,303(19,032)

2,076,377

23,359(22,476)

Futures contracts

151,466

330

(333)

100,849

456

(498)

Options purchased

43,803

1,373-

26,909

1,049-

Options sold48,735-(1,590)35,282-(1,233)2,568,954

22,008(20,959)

2,323,964

24,867(24,212)

4,777

103

-

4,811

137

-

15,452

189(227)

14,332121(143)

Credit default swaps
Structured credit derivatives
purchased1
Other credit derivatives
purchased2
Total credit derivatives purchased

20,229292(227)

19,143258(143)

Structured credit derivatives sold1

4,777

-

(127)

4,811

-

(169)

Other credit derivatives sold2

14,08175(49)

13,04564(50)

Total credit derivatives sold18,85875(176)

17,85664(219)

39,087367(403)

36,999322(362)

3,793,819

43,829(45,876)

3,370,012

45,878(47,509)

Total

1.
2.

Refer page 86.
The notional amounts comprise vanilla credit default swap transactions including credit indices such as Itraxx (Europe and Australia) and CDX. In the case of back-to-back deals, where arisk position from one counterparty is “closed out” with another counterparty, the notional amounts are not netted down in the above table. For example, ANZ may sell credit protection
over a particular corporate bond (or reference asset) to a counterparty and simultaneously offset that credit exposure by buying credit protection over the same corporate bond (orreference asset) from another counterparty. Netting may only occur when there is an offsetting deal with the same counterparty. These credit default swap trades are transacted inconjunction with other financial instruments by reference to the traded market risk limit framework which includes VaR, name and rating specific concentration limits, sensitivity limits andstress testing limits. VaR disclosures are set out on page 58.

143

SUPPLEMENTARY INFORMATION

Summary of principal risks and uncertainties
The principal risks and uncertainties facing the Group are unchanged from those disclosed in ANZ’s 2013 Annual Report. However, the operational, legal
and regulatory landscape in which ANZ operates has continued to evolve since the prior financial period.
Set out below is a summary of the principal risks and uncertainties which could adversely impact the financial condition of the Group. These should not
be regarded as a complete and comprehensive statement of all potential risks and uncertainties. The summary should be read in conjunction with the“Principal Risks and Uncertainties” section of ANZ’s 2013 Annual Report listed on pages 191 to 199.

For personal use only

All of the Group’s activities involve, to varying degrees, the analysis, evaluation, acceptance and management of risks or combinations of risks. The
material risks facing the Group and its approach to management of those risks are described below:
Credit Risk – is defined as the risk of financial loss resulting from the failure of ANZ’s customers and counterparties to honour or perform fully the termsof a loan or contract. ANZ has a comprehensive framework to manage credit risk and support sound growth for appropriate returns. The framework is top
down, being defined by credit principles and policies. The effectiveness of the credit risk management framework is assessed through various complianceand monitoring processes. These, together with portfolio selection, define and guide the credit process, organisation and staff.
Market Risk – is defined as the risk to earnings arising from changes in market risk factors, which ANZ may have an exposure to in the Banking Book
and/or Trading Book. The key market risk factors can be summarised as follows:- Interest rate risk: exposure to changes in the level and volatility of interest rates, slope of the yield curve and changes in credit spreads.
- Currency rate risk: exposure to changes in foreign exchange spot and forward prices and the volatility of foreign exchange rates.
- Commodity price risk: exposure to changes in commodity prices and the volatility of commodity prices.
- Equity price risk: exposure to changes in equity prices and the volatility of equity prices.
The Market Risk function is a specialist risk management unit independent of the business that is responsible for measuring and monitoring market risk.
Market Risk have implemented policies and procedures to ensure that ANZ’s market risk exposures are managed within the appetite and limit framework
set by the Board.
Liquidity Risk – is defined as the risk that the Group is unable to meet its payment obligations as they fall due, including repaying depositors or maturingwholesale debt, or that the Group has insufficient capacity to fund increases in assets. The timing mismatch of cash flows and the related liquidity risk isinherent in all banking operations and is closely monitored by the Group. The Group maintains a portfolio of liquid assets to manage potential stresses infunding sources. The minimum level of liquid assets held is based on a range of ANZ specific and general market liquidity stress scenarios such that
potential cash flow obligations can be met over the short to medium term.
Operational Risk – is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Thisdefinition includes legal risk, and the risk of reputational loss but excludes strategic risk. The Group Operational Risk function is responsible for exercising
governance over operational risk by ensuring business management usage of the operational risk measurement and management framework. They arealso responsible for ensuring that key operational risks and their management are reported to executive risk committees. Key operational risk themes
include business disruption, rogue trader and mis-selling. Business units are responsible for the day to day management of operational risks through theimplementation of the Operational Risk Measurement and Management framework. This includes the identification, analysis, assessment, monitoring,treatment and escalation of operational risks.
Compliance Risk – is defined as the probability and impact of an event that results in a failure to act in accordance with laws, regulations, industry
standards and codes, internal policies and procedures and principles of good governance as applicable to ANZ’s businesses. Group Compliance isaccountable for designing a compliance program that allows ANZ to meet its regulatory obligations. It also provides assurance to the Board that material
risks are identified, assessed and managed by the business.
Reputational Risk – is defined as the risk of loss caused by adverse perceptions of ANZ held by the public, shareholders, investors, regulators, or rating
agencies that directly or indirectly impact earnings, capital adequacy or value. We have established decision-making frameworks and policies to ensure
our business decisions are guided by sound social and environmental standards and take into account reputation risk.
Insurance Risk – is defined as the risk of loss due to unexpected changes in current and future insurance claim rates. In life insurance business,insurance risk arises primarily through mortality (death), morbidity (illness and injury) and longevity risks. For general insurance business, insurance riskarises mainly through weather-related incidents and similar calamities, as well as adverse variability in home, contents, motor, travel and other insurance
claim amounts. Insurance risk is managed primarily by: product design to price all applicable risks into contracts; reinsurance to reduce liability for large
individual risks; underwriting to price/reserve for the level of risk associated with an individual contract; claims management to admit and pay only
genuine claims; insurance experience reviews to update assumptions and portfolio management to maintain a diversity of individual risks.
Reinsurance Risk – Reinsurance is an agreement in which one insurer (‘the reinsurer’) indemnifies another insurer for all or part of the risk of a policy
originally issued and assumed by that other insurer. Reinsurance is a risk transfer tool between the insurer and reinsurer. The main risk that arises withreinsurance is counterparty credit risk. This is the risk that a reinsurer fails to meet their contractual obligations, i.e. to pay reinsurance claims when due.
This risk is measured by assigning a counterparty credit rating or probability of default. Reinsurance counterparty credit risk is mitigated by restricting
counterparty exposures on the basis of financial strength and concentration.

144

DEFINITIONSAAS - Australian Accounting Standards.
AASB - Australian Accounting Standards Board.

For personal use only

Cash represents short-term highly liquid instruments that are readily convertible to known amounts of cash and are subject to insignificant risk of change
in value. Cash includes coins, notes, money at call, balances held with central banks, securities purchased under agreements to resell ("reverse repos").
Cash profit is a measure of profit which is prepared on a basis other than in accordance with accounting standards. Cash profit represents a measure of
the result of the ongoing business activities of the Group, enabling shareholders to assess Group and Divisional performance against prior periods andagainst peer institutions. To calculate cash profit, the Group excludes items from statutory net profit as noted below. These items are calculated
consistently period on period so as not to discriminate between positive and negative adjustments.
Gains and losses are adjusted where they are significant, or have the potential to be significant in any one period, and fall into one of three categories:
1.

non-core gains or losses included in earnings arising from changes in tax, legal, accounting legislation or other non-core items not associatedwith the ongoing operations of the Group;2.

treasury shares, revaluation of policy liabilities, economic hedging impacts and similar accounting items that represent timing differences thatwill reverse through earnings in the future; and3.

accounting reclassifications between individual line items that do not impact reported results, such as policyholder tax gross up.

The adjustments made in arriving at cash profit are included in statutory profit which is subject to review within the context of the Group Condensed
Consolidated Financial Statements review. Cash profit is not subject to review by the external auditor, however, the external auditor has informed the
Audit Committee that the adjustments have been determined on a consistent basis across each period presented.
Collective provision is the provision for credit losses that are inherent in the portfolio but not able to be individually identified. A collective provision
may only be recognised when a loss event has already occurred. Losses expected as a result of future events, no matter how likely, are not recognised.
Customer deposits represent term deposits, other deposits bearing interest, deposits not bearing interest and borrowing corporations debt excluding
securitisation deposits.
Economic Profit is a risk adjusted profit measure. Economic Profit is determined by adjusting cash profit with economic credit costs, the benefit of
imputation credits and the cost of capital. This measure is used to evaluate business unit performance and is included in determining the variable
component of remuneration packages.

Expected loss is determined based on the expected average annual loss of principal over the economic cycle for the current risk profile of the lending
portfolio.
IFRS – International Financial Reporting Standards.
Impaired commitments and contingencies comprises undrawn facilities and contingent facilities where the customer’s status is defined as impaired.
Impaired loans comprises drawn facilities where the customer’s status is defined as impaired.
Individual provision is the amount of expected credit losses on financial instruments assessed for impairment on an individual basis (as opposed to on
a collective basis). It takes into account expected cash flows over the lives of those financial instruments.
Net interest average margin is net interest income as a percentage of average interest earning assets.
Net loans and advances includes gross loans and advances and acceptances and capitalised brokerage/mortgage origination fees, less unearned
income and provisions for credit impairment.
Net tangible assets equals share capital and reserves attributable to shareholders of the Group less preference share capital and unamortised
intangible assets (including goodwill and software).
Operating expenses excludes the provision for impairment of loans and advances charge.
Operating income includes net funds management and insurance income, share of associates profit and other operating income.
Repo discount is a discount applicable on the repurchase by a central bank of an eligible security pursuant to a repurchase agreement.

145

DEFINITIONS

Restructured items comprise facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of thecustomer. Restructuring may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materially beyond thosetypically offered to new facilities with similar risk.
Revenue includes net interest income, net funds management and insurance income, share of associates profit and other operating income.

For personal use only

Segment review description
The Group operates on a divisional structure with Australia, International and Institutional Banking (IIB), New Zealand, and Global Wealth being the major
operating divisions. The IIB and Global Wealth divisions are coordinated globally. Global Technology, Services & Operations and Group Centre provide
support to the operating divisions, including risk management, financial management, strategy and marketing, human resources and corporate affairs.

Australia
The Australia division comprises the Retail and Corporate and Commercial Banking business units.

•

RetailRetail is responsible for delivering a range of product solutions including home loans, credit cards, personal loans, merchant services, transaction
banking, savings accounts and deposits to our consumer customers, using capabilities in product, analytics, customer research, segmentation,
strategy and marketing. It also provides a range of solutions for businesses including physical payment instruments (cash and cheques) as well as
online and electronic payments.

-

Home Loans provides housing finance to consumers in Australia for both owner occupied and investment purposes, as well as providing
housing finance for overseas investors.

-

Cards and Payments provides consumer and commercial credit cards, personal loans and merchant services.

-

Deposits provides transaction banking, savings and investment products, such as term deposits and cash management accounts.

Retail delivers banking solutions to customers across multiple distribution channels including the Australian branch network, ANZ Direct, specialist
sales channels and digital channels (including goMoney, Internet Banking, anz.com). The retail distribution network provides retail and wealthsolutions to consumers, as well as providing small business solutions and meeting the various cash and cheque handling needs of corporate,commercial and institutional customers.

•

Corporate and Commercial Banking (C&CB)-

Corporate Banking provides a full range of banking services including traditional relationship banking and sophisticated financial solutions,primarily to large private companies, smaller listed companies and multi-national corporation subsidiaries.

-

Regional Business Banking provides a full range of banking services to non-metropolitan commercial and Agri (including corporate)
customers.

-

Business Banking provides a full range of banking services, to metropolitan based small to medium sized business clients with a turnover of
A$5 million up to A$125 million.

-

Small Business Banking provides a full range of banking services to metropolitan and regional based small businesses in Australia with aturnover of up to A$5m and lending up to A$1 million.

-

Esanda provides motor vehicle and equipment finance.

International and Institutional Banking (IIB)
The International and Institutional Banking division comprises Global Institutional, Retail Asia Pacific and Asia Partnerships business units, along withRelationship & Infrastructure.
•

Global Institutional provides global financial services to government, corporate and institutional clients with a focus on solutions for clients withcomplex financial needs, based on a deep understanding of their businesses and industries, with particular expertise in natural resources, agriculture
and infrastructure. Institutional delivers transaction banking, specialised and relationship lending and markets solutions in Australia, New Zealand,Asia, Pacific, Europe and America.
-

Transaction Banking provides working capital and liquidity solutions including regional cash management solutions, deposit products,
international payments and clearing, documentary trade, supply chain finance and structured trade finance principally to institutional, corporate
and commercial customers.

-

Global Markets provides risk management services to corporate and institutional clients globally in relation to foreign exchange, interest
rates, credit, commodities, debt capital markets, wealth solutions and equity derivatives. Markets provides origination, underwriting, structuring
and risk management services, advice and sale of credit and derivative products globally. Markets also manages the Group’s interest rate risk
position and liquidity portfolio.

-

Global Loans provides term loans and specialist loan structuring and execution. It provides specialist credit analysis, structuring, execution
and ongoing monitoring of strategically significant customer transactions including project and structured finance, debt structuring andacquisition finance, structured asset finance and export finance.

•

Retail which provides retail and small business banking services to customers in the Asia Pacific region and also includes investment and insurance•

Asia Partnerships which is a portfolio of strategic partnerships in Asia. This includes investments in Indonesia with PT Bank Pan Indonesia, in the

products and services for Asia Pacific customers.
Philippines with Metrobank Cards Corporation, in China with Bank of Tianjin and Shanghai Rural Commercial Bank, in Malaysia with AMMB Holdings
Berhad and in Vietnam with Saigon Securities Incorporation.

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DEFINITIONS

Segment review description, cont’d•Relationship & Infrastructure includes client relationship management teams for global institutional and financial institution and corporate
customers in Australia, New Zealand, Asia Pacific, Europe and America and central support functions. Relationship and infrastructure also includes
businesses within IIB which are discontinued.

New ZealandFor personal use only

The New Zealand division comprises Retail and Commercial business units.
••

Retail-Retail provides mortgages, credit cards, unsecured lending, transaction banking services, and savings and deposit products to personalcustomers in New Zealand.

Commercial-

Commercial & Agri (CommAgri) provides financial solutions through a relationship management model for medium-sized businesses,
including agri-business, with a turnover of up to NZ$150 million. Asset Finance (including motor vehicle and equipment finance), operatingleases and investment products are provided under the UDC brand.

-

Small Business Banking provides a full range of banking services to small enterprises, typically with turnover of less than NZ$5 million.

Global Wealth
The Global Wealth division comprises Funds Management, Insurance and Private Wealth which provides investment, superannuation, insurance
products and services as well as Private Banking for customers across Australia, New Zealand and Asia.
•

Private Wealth specialises in assisting individuals and families to manage, grow and preserve their wealth. The businesses within Private Wealthinclude Private Bank and ANZ Trustees.

•

Funds Management includes the Pensions and Investment business, E*Trade and Investment Lending.

•Insurance includes Life Insurance, General Insurance and ANZ Lender’s Mortgage Insurance.

•

Corporate and other includes income from invested capital, cash profits from advice and distribution business and unallocated corporate tax
credits.

Global Technology, Services and Operations (GTSO) and Group Centre
GTSO and Group Centre provide support to the operating divisions, including technology, operations, risk management, financial management, strategy
and marketing, human resources and corporate affairs. Additionally, Group Centre includes Group Treasury, Shareholder Functions and Discontinued
Businesses.

Settlement balances owed to / from ANZ represents financial assets and/or liabilities which are in the course of being settled. These may include
trade dated assets and liabilities, nostro / vostro accounts and settlement accounts.

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ASX APPENDIX 4D – CROSS REFERENCE INDEX

Page
Details of the reporting period (4D Item 1) ................................................................................................................................................... Table of Contents
Results for Announcement to the Market (4D Item 2) .....................................................................................................................................After front cover

For personal use only

Net Tangible Assets per security (4D Item 3)....................................................................................................................................................................... 10
Details of entities over which control has been gained or lost (4D Item 4) ......................................................................................................................... 123
Dividends and dividend dates (4D Item 5).......................................................................................................................................................After front cover
Dividend Reinvestment Plan (4D Item 6) ........................................................................................................................................................After front cover
Details of associates and joint venture entities (4D Item 7)................................................................................................................................................ 123

148

ASX APPENDIX 4D - ALPHABETICAL INDEXPAGEAppendix 4D Statement ..................................................................................................................................................................................After front coverAppendix 4D Cross Reference Index ................................................................................................................................................................................. 148

For personal use only

Basis of preparation ........................................................................................................................................................................................................... 100
CEO Overview ..................................................................................................................................................................................................................... 13
CFO Overview...................................................................................................................................................................................................................... 15
Changes in comparatives................................................................................................................................................................................................... 124
Changes in composition of the Group ................................................................................................................................................................................ 123
Condensed Consolidated Balance Sheet............................................................................................................................................................................. 97

Condensed Consolidated Cash Flow Statement.................................................................................................................................................................. 98
Condensed Consolidated Income Statement ....................................................................................................................................................................... 95
Condensed Consolidated Statement of Comprehensive Income ......................................................................................................................................... 96
Condensed Statement of Changes in Equity........................................................................................................................................................................ 99
Contingent liabilities and contingent assets........................................................................................................................................................................ 124
Credit quality ...................................................................................................................................................................................................................... 108
Definitions .......................................................................................................................................................................................................................... 145
Deposits and other borrowings........................................................................................................................................................................................... 113
Dividends ........................................................................................................................................................................................................................... 104
Earnings per share............................................................................................................................................................................................................. 105
Fair value measurement..................................................................................................................................................................................................... 116
Geographic review ............................................................................................................................................................................................................... 75
Income ............................................................................................................................................................................................................................... 101
Income tax expense ........................................................................................................................................................................................................... 103
Investments in associates .................................................................................................................................................................................................. 123
Loan capital........................................................................................................................................................................................................................ 114
Media Release ....................................................................................................................................................................................................................... 3
Net loans and advances..................................................................................................................................................................................................... 106
Note to the Cash Flow Statement ...................................................................................................................................................................................... 122
Operating expenses ........................................................................................................................................................................................................... 102

Profit reconciliation............................................................................................................................................................................................................... 83
Provision for credit impairment........................................................................................................................................................................................... 107
Related party disclosure..................................................................................................................................................................................................... 124
Segment analysis............................................................................................................................................................................................................... 121
Segment review ................................................................................................................................................................................................................... 41
Shareholders’ equity .......................................................................................................................................................................................................... 115
Share capital ...................................................................................................................................................................................................................... 115
Significant events since balance date ................................................................................................................................................................................ 127
Snapshot ................................................................................................................................................................................................................................ 7
Supplementary Information – Average balance sheet and related interest ........................................................................................................................ 138
Supplementary Information – Capital management ........................................................................................................................................................... 133
Supplementary Information – Derivative financial instruments........................................................................................................................................... 143
Supplementary Information – Exchange rates ................................................................................................................................................................... 142
Supplementary Information – Four year summary by half year.......................................................................................................................................... 132
Supplementary Information – Full Time Equivalent staff .................................................................................................................................................... 142
Supplementary Information – Summary of principal risks and uncertainties ...................................................................................................................... 144

149