2015

BASEL IIIPILL AR 3
DISCLOSURE

AS AT 30 SEPTEMBER 2015
APS 330: PUBLIC DISCLOSURE

ANZ Basel III Pillar 3 disclosure

September 2015

Important noticeThis document has been prepared by Australia and New Zealand Banking Group Limited (ANZ) tomeet its disclosure obligations under the Australian Prudential Regulation Authority (APRA) ADI
Prudential Standard (APS) 330: Public Disclosure.
This disclosure was prepared as at 30 September 2015. ANZ has a continuous disclosure policy,
under which ANZ will immediately notify the market of any material price sensitive information
concerning the Group, in accordance with legislative and regulatory disclosure requirements.

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ANZ Basel III Pillar 3 disclosure

September 2015

TABLE OF CONTENTS 1
Chapter 1 – Highlights ....................................................................................................... 3
Chapter 2 – Introduction .................................................................................................... 5
Purpose of this document ............................................................................................. 5
Chapter 3 - Risk appetite and governance ........................................................................... 6
Risk types… ................................................................................................................ 6
Risk appetite framework .............................................................................................. 7
Risk management governance ...................................................................................... 7
Chapter 4 – Capital reporting and measurement .................................................................. 9
Chapter 5 – Capital and capital adequacy ........................................................................... 11
Table 1

Common disclosure template ...................................................................... 11

Table 2Main features of capital instruments............................................................. 22

Table 6

Capital adequacy ....................................................................................... 22

Chapter 6 – Credit risk ..................................................................................................... 27
Table 7

Credit risk – General disclosures.................................................................. 27

Table 8Credit risk – Disclosures for portfolios subject to the Standardised approach andsupervisory risk weights in the IRB approach ................................................ 43

Table 9Credit risk – Disclosures for portfolios subject to Advanced IRB approaches ...... 44

Table 10Credit risk mitigation disclosures ................................................................. 54

Table 11

General disclosures for derivative and counterparty credit risk ....................... 59

Chapter 7 – Securitisation ............................................................................................... 62
Table 12Banking Book - Securitisation disclosures ..................................................... 65
Trading Book - Securitisation disclosures ...................................................... 74

Chapter 8 – Market risk .................................................................................................... 78
Table 13

Market risk – Standard approach ................................................................. 78

Table 14

Market risk – Internal models approach ........................................................ 79

Chapter 9 - Operational risk .............................................................................................. 82
Table 15

Operational risk ........................................................................................ 82

Chapter 10 – Equities ...................................................................................................... 88
Table 16

Equities – Disclosures for banking book positions........................................... 88

Chapter 11 – Interest Rate Risk in the Banking Book ........................................................... 90
Table 17

Interest Rate Risk in the Banking Book ......................................................... 90

Chapter 12 – Leverage and Liquidity Coverage Ratio ............................................................ 93
Appendix 1 – ANZ Bank (Europe) Limited ........................................................................... 96
Glossary.......... ............................................................................................................... 97

1

Each table reference adopted in this document aligns to those required by APS 330 to be disclosed at year end.

2

ANZ Baseel III Pillaar 3 disclos
sure

September 2015

Cha
apter 1 – Highlights
Capittal Ratios*

12.5
5%

13.2%
12.1%

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐
3.5%
3
CapitalCo
onservation
9.6%
8.8%
%
8.7%
.
Buffer‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐
4.5% CET1
Minimum
Sep 14Higher CET
T1 ratio at Septemberr 2015

Mar 15Internationally Com
mparable Basel III

Sep 15APR
RA Basel III• Capital raatios have increasediinn the half
to Septem
mber 2015 mainly due
e to theimpact of $$3.2bn in additional capital raised
during 2H1
15, in respo
onse to higher RWA
requiremen
nts for Au
ustralian reesidential
mortgage e
exposure from 1 July 2016.
eof• ANZ’s ccapital ratios are in excess
APRA’s Cap
pital Conserrvation Bufffer (CCB)
requiremen
nts that will come into effect onJanuary 20
016. The CCB
Cincorpoorates an
Systemic
additional1%
Dommestically
Important B
Bank (D-SIB
B) CET1 requuirement.

* Internatio
onally Comparable methodology aligns with AP
PRA’s InformatioonPaper entitlled Internationa
al Capital Compaarison Study (Juuly 2015). The
March 2015
5 and Septembe
er 2014 comparatives have bee
en restated to alignwith this methodology.

Expossure at Defa
ault* ($bn))

Growth in EAD ofon in 2H15$1,024bn

3%

H
HoH

to

• Growth
h driven predominately byincreases in the Re
esidential Mortgage+$13bn aand Bank & Sovereign +$8bn
asset classses.

* Exposu
ure at Default do
oes not include Securitisation, E
Equities or Otheeross credit exposure without offssets for credit riisk
Assets. Itt represents gro
mitigationn such as guara
antees, credit deerivatives, nettin
ng and financial
collateral.

Impaired As
ssets ($m)**

Impairred Assets remained stable
HoH.
• Impaaired assets
s steady HooH anddecreassed by 5% YoY.
Y

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ANZ Baseel III Pillaar 3 disclos
sure

September 2015

Provision Ratios (Proovision / Crredit RWA)

Provision ccoverage remains app
propriate• The total provision ratio at 1..15% andcollective pro
ovision ratioo at 0.85% continues
too provide addequate coveerage.

Mov
vement in Credit
C
Risk Weighted
W
A
Assets ($bnn)

Credit Ris
sk Weighted
d Assets (CCRWA) upby $10.1bbn HoH• Growth in CRWA has been driven byincreases in the Corporate, Residential
R
Mortgage and QRR & Other Re
etail Basel
Asset Classses.
• FX impa
act driven by the depre
eciation of
the AUD against thet
USD offset byappreciatio
on of the AUD against the NZD.

Risk Weeights (Creddit RWA / E
EAD*)Mar 15

Sep
p 15

85%

7%
17

* Exposure aat Default repres
sents gross cred
dit exposure witthout offsets forrcredit risk miitigation such ass guarantees, crredit derivativess, netting andateral.
financial colla

4Standardised

Other

10%

Specialised
Lending

Residential
Mortgage

Bank &
Sovereign10%

Corporate

78%

5
59%

54%
%

QRR & Other
Retail

Sep 14

ANZ Basel III Pillar 3 disclosure

September 2015

Chapter 2 – Introduction
Purpose of this document
This document has been prepared in accordance with the Australian Prudential Regulation Authority(APRA) ADI Prudential Standard (APS) 330: Public Disclosure.
APS 330 mandates the release to the investment community and general public of information relating
to capital adequacy and risk management practices. APS 330 was established to implement Pillar 3 of
the Basel Committee on Banking Supervision’s framework for bank capital adequacy2. In simple terms,
the Basel framework consists of three mutually reinforcing ‘Pillars’:

Pillar 1

Pillar 2

Pillar 3

Minimum capital requirement

Supervisory review process

Market discipline

Minimum capital requirements
for Credit Risk, Operational
Risk, Market Risk and Interest
Rate Risk in the Banking Book

Firm-wide risk oversight,
Internal Capital Adequacy
Assessment Process (ICAAP),
consideration of additional risks,
capital buffers and targets andrisk concentrations, etc.

Regular disclosure to themarket of qualitative andquantitative aspects of risk
management, capital adequacy
and underlying risk metrics

APS 330 requires the publication of various levels of information on a quarterly, semi-annual andannual basis. This document is the annual disclosure, which has the most comprehensive requirements.
Basel in ANZIn December 2007, ANZ received accreditation for the most advanced approaches permitted under
Basel for credit risk and operational risk, complementing its accreditation for market risk. Effective
January 2013, ANZ adopted APRA requirements for Basel III with respect to the measurement andmonitoring of regulatory capital.
Verification of disclosures
These Pillar 3 disclosures have been verified in accordance with Board approved policy, including
ensuring consistency with information contained in ANZ’s Annual Report and in Pillar 1 returns provided
to APRA. This Pillar 3 disclosure is not audited by ANZ’s external auditor.
Comparison to ANZ’s Annual Report
These disclosures have been produced in accordance with regulatory capital adequacy concepts andrules, rather than in accordance with accounting policies adopted in ANZ’s Annual Report. As such,there are different areas of focus and measures in some common areas of disclosures. These
differences are most pronounced in the credit risk disclosures, for instance:The principal method for measuring the amount at risk is Exposure at Default (EAD), which is theestimated amount of exposure likely to be owed on a credit obligation at the time of default.
Under the Advanced Internal Ratings Based (AIRB) approach in APS 113 Capital Adequacy:Internal Ratings-based Approach to Credit Risk, banks are accredited to provide their own
estimates of EAD for all exposures (drawn, commitments or contingents) reflecting the current
balance as well as the likelihood of additional drawings prior to default.



Loss Given Default (LGD) is an estimate of the amount of losses expected in the event of default.
LGD is essentially calculated as the amount at risk (EAD) less expected net recoveries fromrealisation of collateral as well as any post default repayments of principal and interest.



Most credit risk disclosures split ANZ’s portfolio into regulatory asset classes, which span areas of
ANZ’s internal divisional and business unit organisational structure.

Unless otherwise stated, all amounts are rounded to AUD millions.

2
Basel Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards:
A Revised Framework, 2004.

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ANZ Basel III Pillar 3 disclosure

September 2015

Chapter 3 – Risk appetite and governanceRisk types
ANZ is exposed to a broad range of inter-related business risks.
Credit risk is the risk of financial loss resulting from a counterparty falling to fulfill its obligations, orfrom a decrease in credit quality of a counterparty resulting in a loss in value.

Market risk stems from ANZ’s trading and balance sheet activities and is the risk to ANZ’s earnings
arising from changes in interest rates, foreign exchange rates, credit spreads, volatility, correlations
or from fluctuations in bond, commodity or equity prices.



Securitisation risk is the risk of credit related losses greater than expected due to a securitisation
failing to operate as anticipated, or of the values and risks accepted or transferred, not emerging as
expected.



Operational risk is the risk of loss resulting from inadequate or failed internal processes, people
and systems, or from external events. The definition includes legal risk, and the risk of reputation
loss, or damage arising from inadequate or failed internal processes, people and systems, but
excludes strategic risk.

Equity risk is the risk of financial loss arising from the unexpected reduction in value of equity
investments not held in the trading book including those of the Group’s joint ventures andassociates.

Capital adequacy risk is the risk of loss arising from ANZ failing to maintain the level of capitalrequired by prudential regulators and other key stakeholders (shareholders, debt investors,
depositors, rating agencies etc.) to support ANZ's consolidated operations and risk appetite. Losses
include those arising from diminished reputation, a reduction in investor/counter-party confidence,
regulatory non-compliance (e.g. fines and banking licence restrictions) and an inability for ANZ tocontinue to do business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 proceduresand principles of good governance as applicable to ANZ’s businesses.

Liquidity and Funding risk is the risk that the Group is unable to meet its payment obligations as
they fall due, including repaying depositors or maturing wholesale debt, or that the Group has
insufficient capacity to fund increases in assets.



Reputation risk3 is defined as the risk of loss caused by adverse perceptions of ANZ held by the
public, the media, depositors, shareholders, investors, regulators, or rating agencies that directly or
indirectly impact earnings, capital adequacy or value. Reputation Risk arises as a result of poor
control processes over client on-boarding or new product development or strategies or a result of
unexpected risks crystallising (e.g. credit, market or operational risk).

Insurance risk is defined as the risk of unexpected losses resulting from worse than expectedclaims experience (variation in timing and amount of insurance claims due to incidence or nonincidence of death, sickness, disability or general insurance claims) and includes inadequate or
inappropriate underwriting, claims management, reserving, insurance concentrations, reinsurance
management, product design and pricing which will expose an insurer to financial loss and theconsequent inability to meet its liabilities.



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 otherinsurer. Reinsurance is a risk transfer tool between the insurer and reinsurer. The main risk thatarises with reinsurance is counterparty credit risk. This is the risk that a reinsurer fails to meet theircontractual obligations, i.e. to pay reinsurance claims when due. This risk is measured by assigning acounterparty credit rating or probability of default. Reinsurance counterparty credit risk is mitigatedby restricting counterparty exposures on the basis of financial strength and concentration.

Strategic risks are risks that affect or are created by an organisation’s business strategy andstrategic objectives. Where the strategy leads to an increase in other Key Material Risks (e.g. Credit
Risk, Market Risk, Operational Risk) the risk management strategies associated with these risks form
the primary controls.

3

Regulatory Capital is calculated in accordance with the definition of Operational Risk outlined in APS 115 Capital
Adequacy: Advanced Measurement Approaches to Operational Risk, and therefore excludes reputation risk
considerations.

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ANZ Basel III Pillar 3 disclosure

September 2015

Risk Appetite Framework
ANZ's Board is ultimately responsible for ANZ’s risk management framework, which includes the Group
Risk Appetite Statement (RAS). The Group RAS is the document which clearly and concisely sets out theBoard’s expectations regarding the degree of risk that ANZ is prepared to accept in pursuit of its strategic
objectives and business plan.
The articulation of risk appetite and risk tolerances is central to a risk appetite statement. ANZ’s GroupRAS conveys the following:The degree of risk (risk appetite) that ANZ is prepared to accept in pursuit of its Super Regional
Strategy, objectives and business plans with consideration of its shareholders’ and customers’ bestinterests.
For each material risk, ANZ has set the maximum level of risk (risk tolerance) that it is willing tooperate within, expressed as a risk limit and based on its risk appetite, risk profile and capitalstrength. Risk tolerances translate risk appetite into operational limits for the day-to-day
management of material risks, where possible.
The process for ensuring that risk tolerances are set at an appropriate level, based on an estimate of
the impact in the event that a risk tolerance is breached, and the likelihood that each material risk
is realised.
The process for monitoring compliance with each risk tolerance and for taking appropriate actionin the event that it is breached; andThe timing and process for review of the risk appetite and risk tolerances.
Risk management governance
ANZ’s Board has ultimate responsibility for establishing processes, and monitoring the effectiveness ofthe processes for risk management. There are three key committees focused on risks that impact
regulatory capital.

Risk
Committee

Audit
Committee

GovernanceCommittee

The Board is principally responsible for approving the Group’s risk appetite,risk tolerance and related strategies and policies. This responsibility also
extends to the oversight of policy compliance and the effectiveness of ANZ’srisk and compliance management framework. The Risk Committee assists theBoard in relation to the oversight and review of the Group’s risk management
principles and policies, strategies, appetite, processes and controls. These
include credit, market, liquidity, balance sheet, operational, compliance andreputation risk frameworks. The Committee meets at least four times
annually.
Assists the Board of Directors in reviewing: financial reporting principles andpolicies, controls and procedures; the effectiveness of ANZ's internal control
and risk management framework; the work of Global Internal Audit; theintegrity of ANZ’s financial statements and the independent audit thereof andcompliance with related legal and regulatory requirements; due diligenceprocedures; prudential supervision procedures and other regulatory
requirements to the extent relating to financial reporting and for reviewing
reports from major subsidiary audit committees. It is also responsible for theappointment and evaluation of the external auditor. The committee meets atleast four times annually.
Amongst other matters, the Committee reviews the development of andapproves all other corporate governance policies and principles applicable to
ANZ and ensures an appropriate Board and Committee structure is in place. It
ensures there is a robust and effective process for evaluating the performanceof the Board, Board Committee and Non-Executive Directors. It also approves
corporate sustainability objectives and reviews their progress in achieving
them. The Committee meets at least twice annually.

The above committees are exclusively comprised of non-executive directors. Members, including thechairperson are appointed by the Board and serve at the discretion of the Board and for such term or
terms as the Board determines. Global Internal Audit provides independent and objective assurance
around ANZ’s risk management and control effectiveness, and its primary reporting line is to the Audit
Committee.

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ANZ Basel III Pillar 3 disclosure

September 2015

Executive management committees are responsible for co-ordination of risk matters for each of the areasof risk management. The executive committees most relevant to the risks described above and overall
capital management at ANZ are as follows:
Group Asset and Liability Committee (GALCO)GALCO is responsible for the oversight and strategic management of the ANZ’s balance sheet,liquidity and funding positions and capital management activities. The committee meets at least
four times annually.
Capital Management Policy Committee (CMPC)CMPC is responsible for the oversight and control of the Group’s capital and portfolio measurement
framework, addressing economic and regulatory capital requirements and is also responsible formaking capital management and portfolio measurement related recommendations to the Risk
Committee and ANZ Board. The committee meets six times per year or on an ‘as required’ basis.
CMPC is a sub-committee of GALCO.
Credit and Market Risk Committee (CMRC)
CMRC is responsible for the oversight and control of credit, market, insurance and material financial
risks across the ANZ Group. The committee meets monthly, with additional meetings as required.
Credit Ratings System Oversight Committee (CRSOC)
CRSOC oversees and controls the internal ratings system for credit risk in the wholesale and retailsectors, including credit model approvals and performance monitoring. CRSOC is assisted in its
rating systems governance role by the Wholesale Ratings Working Group and the Retail Ratings
Working Group. The committee meets six times per year or on an as required basis.
Operational Risk Executive Committee (OREC)OREC is responsible for oversight of the Operational Risk and Compliance expected and unexpectedrisk profile and the related control environment. The committee meets at least four times annually.
Reputation Risk Committee (RRC)
RRC is responsible for assisting ANZ businesses, Risk, Corporate Affairs, and Legal in partnership toeffectively manage reputation risk in relation to environmental, social, business, and regulatory
issues across ANZ. The committee meets at least four times annually.
Stress Testing Oversight Committee (STOC)
STOC is responsible for the oversight and control of the Group’s stress testing framework, modelingand processes. The Committee meets four times per year, with additional meetings at thediscretion of the Chair. STOC is a sub-committee of CMPC.

Processes and procedures relating to the operation of each of the management committees are
documented in the committee charters.

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ANZ Basel III Pillar 3 disclosure

September 2015

Chapter 4 – Capital reporting and measurement
Capital reporting and measurement
To ensure that an Authorised Deposit-taking Institution (ADI) is adequately capitalised on both astandalone and group basis, APRA adopts a tiered approach to the measurement of an ADI’s capital
adequacy by assessing the ADI’s financial strength at three levels:

Level 1 - being the ADI i.e. Australia and New Zealand Banking Group Limited, consolidated with
APRA approved subsidiaries, to form the ADI’s Extended Licensed Entity (ELE).



Level 2 - being the consolidated group for financial reporting purposes adjusted to exclude
associates activities and certain subsidiaries excluded under APS 001: Definitions that undertake thefollowing business activities:

Insurance businesses (including friendly societies and health funds).

Acting as manager, responsible entity, approved trustee, trustee or similar role in relation to
funds management.



Non-financial (commercial) operations.



Securitisation special purpose vehicles to which assets have been transferred in accordance with
APRA's requirements as set out in APS 120: Securitisation.

In May 2014 APRA provided further clarification to the definition of the Level 2 Authorised Deposit-Taking
Institution (ADI) group, whereby subsidiary intermediate holding companies are now considered part of
the Level 2 Group. The above clarification results in the phasing out, over time, of capital benefits arisingfrom the debt issued by ANZ Wealth Australia Limited (ANZWA). As at 30 September 2015, ANZWA had$400m of debt outstanding which is equivalent to approximately 10bps of Common Equity Tier 1 capital.
APRA has approved transitional arrangements, in line with existing residual maturity profile of the debt inMarch 2016. The Group is well placed to manage this through organic capital generation.
Level 3 - the consolidated group for financial reporting purposes.

ANZ measures capital adequacy monthly and reports for prudential purposes on a Level 1 and Level 2
basis.
In August 2014, APRA announced its planned framework for the supervision of Conglomerates Group(Level 3) which includes updated Level 3 capital adequacy standards. These standards will regulate abancassurance group such as ANZ as a single economic entity with minimum capital requirements andadditional monitoring on risk exposure levels.
APRA has deferred a decision on the full implementation date as well as the final form of the Level 3
framework until the Australian Government’s response to the FSI recommendations have beenannounced and considered by APRA. APRA has committed to a minimum transition period of 12 months
for the affected institutions to comply with the new requirements once an implementation date isestablished.
Based upon the current versions of the Level 3 standards covering capital adequacy and risk exposures,
ANZ is not expecting any material impact on its operations.

9ANZ Bassel III Pillaar 3 disclo
osure

Septemmber 2015

This Pillar 3 reportt is based on the Level 2 prrudential struc
cture

Refer to Note 34 ofo ANZ’s 2015
5 Annual Repo
ort for a list of all material subsidiaries aand a brief description
heir key activitties.
of th

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ANZ Basel III Pillar 3 disclosure

September 2015

Chapter 5 – Capital and Capital Adequacy
Table 1

Common Disclosure template

The head of the Level 2 Group to which this prudential standard applies is Australia and New Zealand
Banking Group Limited.
Table 1 of this chapter consists of a Common Disclosure template that assists users in understanding thedifferences between the application of the Basel III reforms in Australia and those rules as detailed in the
document Basel III: A global regulatory framework for more resilient banks and banking systems, issued
by the Bank for International Settlements. The common disclosure template in this chapter is the post
January 2018 version as ANZ is fully applying the Basel III regulatory adjustments, as implemented by
APRA. Note that the capital conservation and countercyclical buffers referred to in rows 64 to 67 do not
apply until 1 January 2016 and the phase out period for capital instruments began on 1 January 2013.
The information in the lines of the template has been mapped to ANZ’s Level 2 balance sheet, which
adjusts for non-consolidated subsidiaries as required under APS 001: Definitions. Where this information
cannot be mapped on a one to one basis, it is provided in an explanatory table. ANZ’s material nonconsolidated subsidiaries are also listed in this chapter.
Restrictions on Transfers of Capital within ANZANZ operates branches and locally incorporated subsidiaries in many countries. These operations arecapitalised at an appropriate level to cover the risks in the business and to meet local prudential
requirements. This level of capitalisation may be enhanced to meet local taxation and operational
requirements. Any repatriation of capital from subsidiaries or branches is subject to meeting therequirements of the local prudential regulator and/or the local central bank. Apart from ANZ’s operations
in New Zealand, local country capital requirements do not impose any material call on ANZ’s capital base.
ANZ undertakes banking activities in New Zealand principally through its wholly owned subsidiary, ANZBank New Zealand Limited, which is subject to minimum capital requirements as set by the Reserve Bankof New Zealand (RBNZ). The RBNZ adopted the Basel II framework, effective from 1 January 2008 andBasel III reforms from 1 January 2013 and ANZ Bank New Zealand Limited has been accredited to use
the advanced approach for the calculation of credit risk and operational risk. ANZ Bank New Zealand
Limited maintains a buffer above the minimum capital base required by the RBNZ. This capital buffer has
been calculated via the ICAAP undertaken for ANZ Bank New Zealand Limited, to ensure ANZ Bank New
Zealand Limited is appropriately capitalised under stressed economic scenarios.

11ANZ Basel III Pillar 3 disclosure

Table 1

September 2015

Common disclosure template$M

Reconciliation
Table
Reference
Table A

Sep 15

Common Equity Tier 1 Capital: instruments and reserves
1

Directly issued qualifying ordinary shares (and equivalent for mutually-owned entities) capital

28,4202

Retained earnings

26,519

Table B

3

Accumulated other comprehensive income (and other reserves)

1,583

Table C

4

Directly issued capital subject to phase out from CET1 (only applicable to mutually-owned companies)
Ordinary share capital issued by subsidiaries and held by third parties (amount allowed in group
CET1)

5
6

Common Equity Tier 1 capital before regulatory adjustments

n/a64

Table D56,586

Common Equity Tier 1 capital: regulatory adjustments
7

Prudential valuation adjustments

8

Goodwill (net of related tax liability)

4,098

Table E

9

4,936

Table F

9

Table J

11

Other intangibles other than mortgage servicing rights (net of related tax liability)
Deferred tax assets that rely on future profitability excluding those arising from temporary
differences (net of related tax liability)
Cash-flow hedge reserve

12

Shortfall of provisions to expected losses

13

Securitisation gain on sale (as set out in paragraph 562 of Basel II framework)

14

Gains and losses due to changes in own credit risk on fair valued liabilities

11

15

Defined benefit superannuation fund net assets

116

16

Investments in own shares (if not already netted off paid-in capital on reported balance sheet)-

17

Reciprocal cross-holdings in common equity-

18

Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10%of the issued share capital (amount above 10% threshold)-

19

Significant investments in the ordinary shares of banking, financial and insurance entities that areoutside the scope of regulatory consolidation, net of eligible short positions (amount above 10%threshold)

10

20
21
22

-

479

Mortgage service rights (amount above 10% threshold)Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related
tax liability)
Amount exceeding the 15% threshold23

of which: significant investments in the ordinary shares of financial entities

24

of which: mortgage servicing rights

25
26
26a

269
Table G-

1,730

Table H

Table In/an/aof which: deferred tax assets arising from temporary differences
National specific regulatory adjustments (sum of rows 26a - 26j)

6,412

26c

of which: treasury sharesof which: offset to dividends declared under a dividend reinvestment plan (DRP), to the extent tothat the dividends are used to purchase new ordinary shares issued by the ADI
of which: deferred fee income

(380)

26d

of which: equity investment in financial institutions not reported in rows 18, 19 and 23

4,709

Table I26eof which: deferred tax assets not reported in rows 10, 21 and 25

685

Table J

26f

of which: capitalised expenses

1,320

Table K

26g

of which: investments in commercial (non-financial) entities that are deducted under APRA rules

33

Table L26h

of which: covered bonds in excess of asset cover in pools

26iof which: undercapitalisation of a non-consolidated subsidiary

26b

26j
27

of which: other national specific regulatory adjustments not reported in rows 26a to 26i
Regulatory adjustments applied to CET1 due to insufficient Additional Tier 1 and Tier 2 to coverdeductions

-

45
-

28

Total regulatory adjustments to CET1

18,06029

Common Equity Tier 1 capital (CET1)

38,526

12

ANZ Basel III Pillar 3 disclosure

September 2015

$M

Reconciliation
Table
Reference

3,699

Table M

Sep 15Additional Tier 1 capital: instruments
30
31
32

Directly issued qualifying Additional Tier 1 instrumentsof which: classified as equity under applicable accounting standards

3,699

Table M

3,309

Table M

356

Table M

35

Directly issued capital instruments subject to phase out from Additional Tier 1
Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries
and held by third parties (amount allowed in group AT1)of which: instruments issued by subsidiaries subject to phase out

36

Additional Tier 1 capital before regulatory adjustments

7,364

33
34

of which: classified as liabilities under applicable accounting standards-

n/aAdditional Tier 1 capital: regulatory adjustments
37

Investments in own Additional Tier 1 instruments-

38

Reciprocal cross-holdings in Additional Tier 1 instruments
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10%of the issued share capital (amount above 10% threshold)
Significant investments in the capital of banking, financial and insurance entities that are outside thescope of regulatory consolidation, (net of eligible short positions)

-

39
40
41

405

National specific regulatory adjustments (sum of rows 41a - 41c)of which: holdings of capital instruments in group members by other group members on behalf of
41athird partiesof which: investments in the capital of financial institutions that are outside the scope of
41b
regulatory consolidations not reported in rows 39 and 40
41cof which: other national specific regulatory adjustments not reported in rows 41a and 41b

1

42Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 cover deductions-

43

Total regulatory adjustments to Additional Tier 1 capital

44

Additional Tier 1 capital (AT1)

6,958

45

Tier 1 Capital (T1=CET1+AT1)

45,484

Table M

1

Table M

406

Tier 2 capital: instruments and provisions
46

Directly issued qualifying Tier 2 instruments

3,152

47

4,049

49

Directly issued capital instruments subject to phase out from Tier 2Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued bysubsidiaries and held by third parties (amount allowed in group T2)of which: instruments issued by subsidiaries subject to phase out

50

Provisions

51

Tier 2 capital before regulatory adjustments

48

Table N

668
668

Table N

252

Table G

8,121

Tier 2 capital: regulatory adjustments
52

Investments in own Tier 2 instruments

1053

Reciprocal cross-holdings in Tier 2 instruments
Investments in the Tier 2 capital of banking, financial and insurance entities that are outside the54 scope of regulatory consolidation, net of eligible short positions, where the ADI does not own morethan 10% of the issued share capital (amount above 10%)Significant investments in the Tier 2 capital of banking, financial and insurance entities that are
55
outside the scope of regulatory consolidation, net of eligible short positions
56 National specific regulatory adjustments (sums of rows 56a - 56c)of which: holdings of capital instruments in group members by other group members on behalf of
56athird partiesof which: investments in the capital of financial institutions that are outside the scope of
56b
regulatory consolidation not reported in rows 54 and 55
56c
of which: other national specific regulatory adjustments not reported in rows 56a and 56b
57

Total regulatory adjustment to Tier 2 capital

58

Tier 2 capital (T2)59

Total capital (TC=T1+T2)

60

Total risk-weighted assets based on APRA standards

85

Table N

75
75
170
7,951
53,435

13

Table N-

401,937

Table NANZ Basel III Pillar 3 disclosure

September 2015
Sep 15$M

Reconciliation
Table
Reference

Capital ratios and buffers
61

Common Equity Tier 1 ( as a percentage of risk-weighted assets)

9.6%

62

Tier 1 (as a percentage of risk-weighted assets)

11.3%

63

Total capital (as a percentage of risk-weighted assets)
Institution specific buffer requirement (minimum CET1 requirement of 4.5% plus capital conservationbuffer of 2.5% plus countercyclical buffer requirements plus G-SIBs buffer requirement, expressed asa percentage of risk-weighted assets)of which: capital conservation buffer requirement

13.3%

64
65
66

of which: ADI-specific countercyclical buffer requirements

67

of which: G-SIB buffer requirement (not applicable)

68

7.0%
2.5%
n/a

Common Equity Tier 1 available to meet buffers (as a percentage of risk-weighted assets)

5.1%

National minima (if different from Basel III)69

National Common Equity Tier 1 minimum ratio (if different from Basel III minimum)

n/a

70

National Tier 1 minimum ratio (if different from Basel III minimum)

n/a

71

National total capital minimum ratio (if different from Basel III minimum)

n/aAmount below thresholds for deductions (not risk-weighted)
72

Non-significant investments in the capital of other financial entities

117

73

Significant investments in the ordinary shares of financial entities

4,667

74

Mortgage servicing rights (net of related tax liability)

n/a

75

Deferred tax assets arising from temporary differences (net of related tax liability)

685

Applicable caps on the inclusion of provisions in Tier 2
76
77
78
79

Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach(prior to application of cap)
Cap on inclusion of provisions in Tier 2 under standardised approach
Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based
approach (prior to application of cap)
Cap for inclusion of provisions in Tier 2 under internal ratings-based approach

252
536
1,841

Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2018 1 Jan 2022)
80

Current cap on CET1 instruments subject to phase out arrangements

81

Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities)

n/a

82

4,187

84

Current cap on AT1 instruments subject to phase out arrangements
Amount excluded from AT1 instruments due to cap (excess over cap after redemptions andmaturities)
Current cap on T2 instruments subject to phase out arrangements

85

Amount excluded from T2 due to cap (excess over cap after redemption and maturities)

83

14

n/a

4,809
(1,170)

Table I
Table JANZ Basel III Pillar 3 disclosure

September 2015

The following table shows ANZ's consolidated balance sheet and the adjustments required to derive theLevel 2 balance sheet. The adjustments remove the external assets and liabilities of the entities
deconsolidated for prudential purposes and reinstate any intragroup assets and liabilities, treating themas external to the Level 2 group.
Balance
Sheet as inpublishedfinancialstatements
($m)

($m)

Balancesheet underscope ofregulatory
consolidation
($m)

Cash

53,903(91)

53,812

Settlement Balances owed to ANZ

18,596-

18,596

Collateral Paid

9,967

-

9,967

Trading securities

49,000-49,000AssetsAdjustmentsof which: Financial Institutions capital instruments

10of which: Financial Institutions equity investmentsof which: Investments in the capital of financial
institutions
Derivative financial instruments-

85,625-85,625

Available-for-sale assets

43,667(1,236)42,431

Template andReconciliation
Table
Reference75

Table N
Table Nof which: Financial institutions equity instruments

26

Table Iof which: Other entities equity investments

22

Table LNet loans and advances562,173(95)

562,078of which: deferred fee income(380)

Row 26cof which: collective provision(2,956)

Table Gof which: individual provisions(1,061)

Table Gof which: capitilised brokerage

1,252

Table K

1
4
45
1

Table I
Table LRow 26j
Table Mof which: Financial Institutions equity exposuresof which: Other equity exposuresof which: CET1 margin lending adjustmentof which: AT1 margin lending adjustment
Regulatory deposits
Due from controlled entitiesof which: Significant investments in the Tier 2 capital ofbanking, financial and insurance entities that are outside
the scope of regulatory consolidation
Shares in controlled entitiesof which: Investment in deconsolidated financial
subsidiaries
of which: AT1 significant investment in banking, financial
and insurance entities that are outside the scope of
regulatory consolidation
Shares in associates

1,773

-

1,773

-

116

116
85

-

5,440

4,362

(3)

of which: Financial Institutionsof which: Other Entities

Table N

4,362
3,957

Table I

405

Table M

5,437
5,430

Table I

7

Table L

Current tax assets

90

-

90

Deferred tax assetsof which: Deferred tax assets that rely on future
profitability
Goodwill and other intangible assets

402

124

526

Table J

9

Table J

8,312

(1,992)

6,320

of which: Goodwill

3,419

Table Eof which: Software

2,888

Table F

13
2,219

Table Fof which: other intangible assets
Investments backing policy liabilities
Premises and equipment
Other assetsof which: Defined benefit superannuation fund net assets
Esanda dealer finance assets held for sale4
Total Assets

34,8202,221(34,820)
(2)

5,846

(1,476)

8,065
889,900(35,113)

4,370
143
8,065
854,7874

On 4 May 2015, the Group announced its intention to sell the Esanda Dealer Finance business within the Australia
Division. The assets classified as held for sale includes lending assets comprising retail point-of-sale finance andwholesale bailment facilities and other Esanda branded finance offered to motor vehicle dealers along with associatedprovisions and deferred acquisition costs. No impairment losses were recognised on reclassification as held for sale.
On 8th October the Group entered into an agreement to sell the Esanda Dealer Finance business to Macquarie Group
Limited. The sale is expected to complete during the first half of 2016. The estimated sale price is $8.2 billion.

15

Table HANZ Basel III Pillar 3 disclosure

September 2015
Balance
Sheet as inpublishedfinancialstatements

Adjustments

Balancesheet underscope ofregulatory
consolidation

Liabilities

($m)

($m)

($m)

Settlement Balances owed by ANZ

11,250(1)

11,249Collateral Received

7,829

-

7,829

Deposits and other borrowings

570,794

5,481

576,275

Derivative financial instruments

81,270(1)

81,269

-

714

714

Current tax liabilities

267

(118)

149

Deferred tax liabilities

249

(294)

(45)

Table J

58

Table F
Table K
Table HDue to controlled entitiesof which: related to intangible assetsof which: related to capitalised expenses
of which: related to defined benefit super assets
Policy liabilities
External unit holder liabilities
Payables and other liabilities
Provisions
Debt Issuances
Subordinated Debtof which: Directly issued qualifying Additional Tier 1
instrumentsof which: Directly issued capital instruments subject tophase out from Additional Tier 1of which: Additional Tier 1 Instrumentsof which: Directly issued capital instruments subject tophase out from Tier 2

35,401
3,291(35,401)(3,291)5
27-

10,366
1,074
93,747
17,009(1,366)
(37)
(365)
14

9,000
1,037
93,382
17,023

Template andReconciliation
Table
Reference

3,669

Table M

3,305

Table M

449

Table M

5,689

Table Nof which: Directly issued qualifying Tier 2 instruments

3,152

Table Nof which: instruments issued by subsidiaries subject tophase out

759

Table N

Total Liabilities
Net Assets

832,547(34,665)

797,882

57,353(448)

56,905

Shareholders’ equity

Balance
Sheet as inpublishedfinancialstatements($m)

Ordinary Share Capital

28,367($m)

Balancesheet underscope ofregulatory
consolidation
($m)

242

28,609

Table A

189

Tables A & C

1,458

Table C

269

Row 11
Table B

Adjustmentsof which: Share reserve
Reserves

1,571

(113)

of which: Cash flow hedging reserves
Retained earnings

27,309(572)

26,737

Share capital and reserves attributable to shareholdersof the company

57,247(443)

56,804Non-controlling interests
Total Shareholders’ Equity

16

106

(5)

101

57,353(448)

56,905

Template andReconciliation
Table
Reference

Table DANZ Basel III Pillar 3 disclosure

September 2015

The following reconciliation tables provide additional information on the difference between Table 1
Common Disclosure template and the Level 2 balance sheet.
Sep 15$M

Table A
Issued capital

28,609Less Reclassification to Reserves
Regulatory Directly Issued qualifying ordinary shares

Table B
Less

Row 1

Sep 15$M

Table 1
Reference(218)

Table I

Retained earnings

26,519Row 2

Sep 15$M

Table 1
Reference

1,458

Reclassification from Issued Capital

189

Less Non qualifying reserves

Table A

(64)

Reserves for Regulatory capital purposes (amount allowed in group CET1)

Table D
Non-controlling interests

1,583

Row 3

Sep 15$M

Table 1
Reference

101

Less Surplus capital attributable to minority shareholders(37)

Ordinary share capital issued by subsidiaries and held by third parties

Table E
Goodwill

64

Row 5

Sep 15$M

Table 1
Reference

3,419

Goodwill component of investments in financial associates
Goodwill (net of related tax liability)

Table F
Software679

Table I

4,098

Row 8

Sep 15$M

Table 1
Reference

2,888

Other intangible assets

13

Less Associated deferred tax liabilities
Add

Table C

26,737

Reserves

Add

(189)
28,420Retained earnings
Regulatory reclassification from significant investments in the ordinary shares of banking, financial
and insurance entities outside the scope of regulatory consolidation

Table C
Add

Table 1
Reference(58)

Regulatory reclassification from significant investments in the ordinary shares of banking, financial
and insurance entities outside the scope of regulatory consolidation

2,093

Table I

Other intangibles other than mortgage servicing rights (net of related tax liability)

4,936

Row 9

17

ANZ Basel III Pillar 3 disclosure

September 2015
Sep 15

Table G$M

Table 1
Reference

Qualifying collective provisionCollective provision(2,956)

Less Non-qualifying collective provision333

Less Standardised collective provision

252

Less Non-defaulted expected loss

Row 502,850

Non-Defaulted: Expected Loss - Eligible Provision Shortfall

479

Qualifying individual provision
Individual provisionAdd(1,061)

Additional individual provisions for partial write offs

(633)

Less Standardised individual provision
Add

107

Collective provision on advanced defaulted(287)

Less Defaulted expected loss

1,815

Defaulted: Expected Loss - Eligible Provision Shortfall
Gross deduction

Table HRow 12

Sep 15$M

Table 1
Reference

Defined benefit superannuation fund net assets

143

Associated deferred tax liabilities(27)

Defined benefit superannuation fund net assets

116

Row 15

Sep 15$M

Table 1
Reference

Table I
Investment in deconsolidated financial subsidiaries

3,957

Less Regulatory reclassification to Retained Earnings and Other Intangible Assets
Add

479

Investment in financial associates(2,311)Less Goodwill component of investments in financial associates
Less Amount below 10% threshold of CET1
Significant investments in the ordinary shares of banking, financial and insurance entities
that are outside the scope of regulatory consolidation, net of eligible short positions(amount above 10% threshold)(679)

Table E

(4,667)

Row 73

1,730

Row 19

4,667

Row 73

Add

Amount below the 10% threshold of CET 1

Add

Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than
10% of the issued share capital - trading securities-

Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than
10% of the issued share capital - Available for Sale exposures

26

Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than
10% of the issued share capital - Loan exposures

1

Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than
10% of the issued share capital - Undrawn

15

Equity investment in financial institutions not reported in rows 18, 19 and 23

4,709

Deduction for equity holdings in financial institutions - APRA regulations

6,439

Sep 15$M

Table J
Deferred tax assets
Add

Tables B & F

5,430

Row 26dTable 1
Reference

526

Deferred tax liabilities

45

Deferred tax asset less deferred tax liabilities

571

Less Deferred tax assets that rely on future profitability

(9)

Add

Deferred tax liabilities on intangible assets, capitalised expenses and defined benefit super assets

91

Add

Impact of calculating the deduction on a jurisdictional basis

32

Deferred tax assets not reported in rows 10, 21 and 25 of the Common Disclosure
Template

685

18

Row 10Row 26eANZ Basel III Pillar 3 disclosure

September 2015

Sep 15
Table K

$M

Capitalised brokerage costs

Table 1
Reference

1,252

Capitalised debt and capital issuance expenses

73

Less Associated deferred tax liabilities(5)

Capitalised expenses

Table L1,320

Row 26f

Sep 15$M

Table 1
Reference

Investments in non financial Available-for-Sale equities

22

Investments in non financial associates

7

Non financial equity exposures (loans)

4

Equity exposures to non financial entities

33

Row 26g

Table M
Directly issued qualifying Additional Tier 1 Capital Instruments classified as liabilities
Add Issues costs

Sep 15$M
3,669
30

Table 1
Reference

Directly issued qualifying Additional Tier 1 Capital Instruments classified as liabilities

3,699

Row 30

Directly issued capital instruments subject to phase out from Additional Tier 1 - loan capital

3,305

Add

Issue costs

4Less Transitional adjustment-

Directly issued capital instruments subject to phase out from Additional Tier 1
Add

Additional Tier 1 instruments issued by subsidiaries held by third parties
Issues costs
Surplus capital attributable to third party holders
AT1 Instruments issued by subsidiaries and held by third parties (amounts allowed in Group AT1)
Additional Tier 1 capital before regulatory adjustments

Less

Significant investments in the capital of banking, financial and insurance entities that are outside thescope of regulatory consolidation
Significant investments in the capital of banking, financial and insurance entities that are outside thescope of regulatory consolidation, eligible short positions
Additional Tier 1 capital

Table N
Directly issued capital instruments subject to phase out from Tier 2
Add

Issue costs

Row 33

449
5
(98)
356

Row 34

7,364
(405)

Row 40(1)
6,958

Row 44

Sep 15$M

Table 1
Reference

5,689
8

Add Amortisation of Tier 2 Capital Instruments subject to Phase out
Less Fair value adjustment
Less Transition adjustment

(241)
(237)
(1,170)

Directly issued capital instruments subject to phase out from Tier 2

4,049

Instruments issued by subsidiaries subject to phase out from Tier 2

759

Less Surplus capital attributable to third party holders

Row 47(91)

Instruments issued by subsidiaries subject to phase out from Tier 2
Add

3,309

Directly issued qualifying Tier 2 instruments
Provisions
Tier 2 capital before regulatory adjustments

668

Row 493,152

Row 46

252

Table G

8,121

Row 51Less Investments in own Tier 2 instruments (trading limit)(10)

Row 52Significant investments in the Tier 2 capital of banking, financial and insurance entities that areLessoutside the scope of regulatory consolidation, net of eligible short positions(85)

Row 55Investments in the capital of financial institutions that are outside the scope of regulatory
consolidation not reported in rows 54 and 55(75)

Row 56b

7,951

Row 58Less

Tier 2 capital

19

ANZ Basel III Pillar 3 disclosure

September 2015

The following table provides details of entities included within the accounting scope of consolidation but
excluded from regulatory consolidation.
EntityActivity

ACN 008 647 185 Pty Ltd
Advice for Life Pty Ltd

Corporate
AdviceTotal Assets($M)

Total Liabilities
($M)

0
0

0
1

ANZ Insurance Broker Co Ltd

Insurance Broker

21

2

ANZ Investment Services (New Zealand) Limited

Funds Manager

45

23

1,130

696

ANZ Lenders Mortgage Insurance Pty Limited

Mortgage insurance

ANZ Life Assurance Company Pty Ltd

Insurance

30

ANZ New Zealand Investments Limited

Funds Manager

95

22

ANZ New Zealand Investments Nominees Limited

Trustee/Nominee

00

ANZ Private Equity Management Limited

Investment

01

ANZ Self Managed Super Ltd

Investment

00

ANZ Specialist Asset Management Limited

Trustee/Nominee

13

7

ANZ ILP Pty Ltd

Incorporated Legal Practice20

ANZ Wealth Alternative Investments Management Pty Ltd

Investment

2,412

2,408

ANZ Wealth Australia Limited

Holding Company

2,731

383

ANZ Wealth New Zealand Limited

Holding Company

467

0

ANZcover Insurance Private Ltd

Captive-Insurance

71

17

AUT Administration Pty Ltd

Corporate

10

AUT Investments Limited

Investment

50Capricorn Financial Advisers Pty Ltd

Advice02Elders Financial Planning Pty Ltd

Advice13

3Financial Investment Network Group Pty Ltd

Advice681Financial Lifestyle Solutions Pty Limited

Advice4

5

Financial Planning Hotline Pty Ltd

Advice00Financial Services Partners Holdings Pty Limited

Holding Company

20

Financial Services Partners Incentive Co Pty Limited

Advice00Financial Services Partners Management Pty Limited

Advice00Financial Services Partners Pty Ltd

Advice4

3

FSP Funds Management Limited

Advice1

0

FSP Group Pty Limited

Holding Company

16

1

FSP Portfolio Administration Limited

Advice1

0

FSP Super Pty Limited

Advice60Integrated Networks Pty Limited

Holding Company

440

Mercantile Mutual Financial Services Pty Ltd

Investment

10Millennium 3 Financial Services Group Pty Ltd

Advice57

16Millennium 3 Professional Services Pty Ltd

Advice10Millennium 3 Financial Services Pty Ltd

Advice20

12Millennium 3 Mortgage Platform Services Pty Limited

Advice00

OASIS Asset Management Limited

Investment

9

4

OASIS Fund Management Limited

Superannuation

6

4

OneAnswer Nominees Limited

Trustee/Nominee

00

OnePath Administration Pty Ltd

Corporate

90

31

OnePath Custodians Pty Ltd

Superannuation

42

3

OnePath Financial Planning Pty Ltd

Advice10

OnePath Funds Management Ltd

Investment

102

33

OnePath General Insurance Pty Ltd

Insurance

347

248

OnePath Investment Holdings Pty Ltd

Investment

70

OnePath Life (NZ) Limited

Insurance

803

264

OnePath Life Australia Holdings Pty Ltd

Corporate

2,529

0

OnePath Life Limited

Holding Company

39,03736,56320

ANZ Basel III Pillar 3 disclosure

September 2015

Total Assets($M)

Total Liabilities
($M)

1
11

1
5

Advice10Advice10Advice00EntityActivity

Polaris Financial Solutions Pty Limited
RI Advice Group Pty Ltd

AdviceAdviceRI Central Coast Pty Ltd
RI Gold Coast Pty Ltd
RI Maroochydore Pty Ltd
RI Newcastle Pty Ltd

Advice20

RI Parramatta Pty Ltd

Advice10

RI Rockhampton & Gladstone Pty Ltd

Advice20

RI Townsville Pty Ltd

Advice00Rieas Pty Ltd

Advice00

Shout for Good Pty Ltd

Corporate

0

0

21

ANZ Basel III Pillar 3 disclosure

Table 2September 2015

Main features of capital instruments

As the main features of ANZ’s capital instruments are updated on an ongoing basis, ANZ has provided
this information separately in the Regulatory Disclosures section of its website.

Table 3 Capital adequacy, Table 4 Credit risk, Table 5 Securitisation
The above tables are produced at the quarters ending 30 June and 31 December.

Table 6

Capital adequacy

Capital management
ANZ pursues an active approach to capital management, which is designed to protect the interests ofdepositors, creditors and shareholders. This involves the on-going review and Board approval of the level
and composition of ANZ’s capital base, assessed against the following key policy objectives:







Regulatory compliance such that capital levels exceed APRA’s, ANZ’s primary prudential supervisor,
minimum Prudential Capital Ratios (PCRs) both at Level 1 (the Company and specified subsidiaries)
and Level 2 (ANZ consolidated under Australian prudential standards), along with US Federal
Reserve’s minimum Level 2 requirements under ANZ’s Foreign Holding Company Licence in the
United States of America;
Capital levels are aligned with the risks in the business and to meet strategic and businessdevelopment plans through ensuring that available capital exceeds the level of Economic Capitalrequired to support the Ratings Agency ‘default frequency’ confidence level for a ‘AA’ credit rating
category bank. Economic Capital is an internal estimate of capital levels required to support risk andunexpected losses above a desired target solvency level;
Capital levels are commensurate with ANZ maintaining its preferred ‘AA’ credit rating category forsenior long-term unsecured debt given its risk appetite outlined in its strategic plan; andAn appropriate balance between maximising shareholder returns and prudent capital management
principles.

ANZ achieves these objectives through an Internal Capital Adequacy Assessment Process (ICAAP)
whereby ANZ conducts detailed strategic and capital planning over a medium term time horizon.
Annually, ANZ conducts a detailed strategic planning process over a three year time horizon, theoutcomes of which are embodied in the Strategic Plan. This process involves forecasting key economic
variables which Divisions use to determine key financial data for their existing business. New strategic
initiatives to be undertaken over the planning period and their financial impact are then determined.
These processes are used for the following:
Review capital ratios, targets, and levels of different classes of capital against ANZ’s risk profile andrisk appetite outlined in the Strategic Plan. ANZ’s capital targets reflect the key policy objectives
above, and the desire to ensure that under specific stressed economic scenarios that capital levels
have sufficient capital to remain above both Economic Capital and PCR requirements;
Stress tests are performed under different economic conditions to ensure a comprehensive review of
ANZ’s capital position both before and after mitigating actions. The stress tests determine the levelof additional capital (i.e. the ‘stress capital buffer’) needed to absorb losses that may be experienced
during an economic downturn; andStress testing is integral to strengthening the predictive approach to risk management and is a key
component in managing risks, asset writing strategies and business strategies. It creates greater
understanding of the impacts on financial performance through modeling relationships andsensitivities between geographic, industry and Divisional exposures under a range of macro-economic
scenarios. ANZ has a dedicated stress testing team within Risk Management that models and reports
to management and the Board’s Risk Committee on a range of scenarios and stress tests.
Results are subsequently used to:recalibrate ANZ’s management targets for minimum and operating ranges for its respective classes ofcapital such that ANZ will have sufficient capital to remain above both Economic Capital andregulatory requirements; and
identify the level of organic capital generation and hence determine current and future capitalissuance requirements for Level 1 and Level 2.

22

ANZ Basel III Pillar 3 disclosure

September 2015

From these processes, a Capital Plan is developed and approved by the Board which identifies the capitalissuance requirements, capital securities maturity profile, and options around capital products, timing
and markets to execute the Capital Plan under differing market and economic conditions.
The Capital Plan is maintained and updated through a monthly review of forecast financial performance,
economic conditions and development of business initiatives and strategies. The Board and senior
management are provided with monthly updates of ANZ’s capital position. Any actions required to ensureongoing prudent capital management are submitted to the Board for approval.
Regulatory environment
ANZ’s regulatory capital calculation is governed by APRA’s Prudential Standards which adopt a risk-based
capital assessment framework based on the Basel III capital measurement standards. This risk-based
approach requires eligible capital to be divided by total risk weighted assets (RWAs), with the resultant
ratio being used as a measure of an Authorised Deposit-taking Institution’s (ADIs) capital adequacy.
APRA determines PCRs for Common Equity Tier 1 (CET1), Tier 1 and Total Capital, with capital as thenumerator and RWAs as the denominator.
Regulatory capital is divided into Tier 1, carrying the highest capital elements, and Tier 2, which has
lower capital elements, but still adds to the overall strength of the ADI.
Tier 1 capital is comprised of Common Equity Tier 1 capital less deductions and Additional Tier 1 capital
instruments. Common Equity Tier 1 capital comprises shareholders’ equity adjusted for items which APRA
does not allow as regulatory capital or classifies as lower forms of regulatory capital. Common Equity Tier
1 capital includes the following significant adjustments:







Additional Tier 1 capital instruments included within shareholders’ equity are excluded;
Reserves excluding the hedging reserve and reserves of insurance and funds management subsidiaries
excluded for Level 2 purposes;
Retained earnings excluding retained earnings of insurance and funds management subsidiaries
excluded for Level 2 purposes, but includes capitalised deferred fees forming part of loan yields thatmeet the criteria set out in the prudential standard;
Inclusion of qualifying treasury shares; andCurrent year net of tax earnings less profits of insurance and funds management subsidiaries
excluded for Level 2 purposes.

Additional Tier 1 capital instruments are high quality components of capital that provide a permanent andunrestricted commitment of funds, are available to absorb losses, are subordinated to the claims ofdepositors and senior creditors in the event of the winding up of the issuer and provide for fully
discretionary capital distributions.
Deductions from the capital base comprise mainly deductions to the Common Equity Tier 1 component.
These deductions are largely intangible assets, investments in insurance and funds management entities
and associates, capitalised expenses (including loan and origination fees), and the amount of regulatory
expected losses (EL) in excess of eligible provisions.
Tier 2 capital mainly comprises perpetual subordinated debt instruments and dated subordinated debt
instruments which have a minimum term of five years at issue date.
Total Capital is the sum of Tier 1 capital and Tier 2 capital.
In addition to the prudential capital oversight that APRA conducts over the Company and the Group, theCompany’s branch operations and major banking subsidiary operations are overseen by local regulatorssuch as the Reserve Bank of New Zealand, the US Federal Reserve, the UK Prudential Regulation
Authority, the Monetary Authority of Singapore, the Hong Kong Monetary Authority and the China
Banking Regulatory Commission who may impose minimum capitalisation rates on those operations.
Throughout the financial year, the Company and the Group maintained compliance with the minimum
Common Equity Tier 1, Tier 1 and Total Capital ratios set by APRA and the US Federal Reserve (asapplicable) as well as applicable capitalisation rates set by regulators in countries where the Company
operates branches and subsidiaries.
Regulatory development
There are a number of matters currently outstanding that may have an impact on ANZ’s regulatory
capital in the future. Details of these matters are available in ANZ’s 2015 Full Year Results
Announcement
Group
Results
section,page
43,
availableon
ANZ’s
website:shareholder.anz.com/pages/results-announcement-archive.

23

ANZ Basel III Pillar 3 disclosure

September 2015

The following table provides the composition of capital used for regulatory purposes and capital adequacy
ratios.

Table 6

Capital adequacy - Capital Ratio and Risk Weighted Assets

The following table provides the composition of capital used for regulatory purposes and capital adequacy
ratios.
Sep 15$M

Mar 15$M

Sep 14$M

Corporate

150,165

140,451

129,087

Sovereign

6,664

5,385

4,923

Bank

17,44522,07820,329Residential Mortgage

54,99653,50150,068

Qualifying Revolving Retail

7,546

7,775

7,546

Other Retail32,99031,66426,858269,806

260,854

238,81132,24031,44229,505

Corporate

26,21727,03323,121

Residential Mortgage

2,882

2,603

2,344

Other Retail

3,625

3,271

2,989

Credit risk weighted assets subject to Standardised approach

32,72432,90728,454Credit Valuation Adjustment and Qualifying Central Counterparties

10,170

9,630

7,394

Credit risk weighted assets relating to securitisation exposures

1,156

1,067

1,030

Other assets

3,655

3,797

3,691

349,751

339,697

308,885

Risk weighted assets (RWA)
Subject to Advanced Internal Rating Based (IRB) approach

Credit risk weighted assets subject to Advanced IRB approach
Credit risk Specialised Lending exposures subject to slotting approach5
Subject to Standardised approach

Total credit risk weighted assets
Market risk weighted assets

6,868

6,042

7,048

Operational risk weighted assets

37,88533,43431,969Interest rate risk in the banking book (IRRBB) risk weighted assets
Total risk weighted assets

7,433

7,690

13,627

401,937

386,863361,529

Capital ratios (%)6
8.5%
9.6%

8.2%
8.7%

n/a
8.8%

Level 2 Tier 1 capital ratio

11.3%

10.6%

10.7%

Level 2 Total capital ratio

13.3%

12.6%

12.7%

9.6%

8.8%

9.1%

Level 1: Extended licensed entity Tier 1 capital ratio

11.6%

10.9%

11.3%

Level 1: Extended licensed entity Total capital ratio

13.7%

13.1%

13.4%

Level 2 Common Equity Tier 1 capital ratio

Level 1: Extended licensed Common Equity Tier 1 capital ratio

Other significant Authorised Deposit-taking Institution (ADI) or overseas bank subsidiary:
ANZ Bank New Zealand Limited - Common Equity Tier 1 capital ratio

10.5%

10.1%

10.7%

ANZ Bank New Zealand Limited - Tier 1 capital ratio

12.7%

12.4%

11.1%

ANZ Bank New Zealand Limited - Total capital ratio

13.6%

13.3%

12.3%

5
Specialised Lending exposures subject to slotting approach are those where the main servicing and repayment is fromthe asset being financed, and includes specified commercial property development/investment lending, project financeand object finance.
6
ANZ Bank New Zealand Limited’s capital ratios have been calculated in accordance with Reserve Bank of New Zealandprudential standards.

24

ANZ Basel III Pillar 3 disclosure

September 2015

Credit Risk Weighted Assets (CRWA)
Total CRWA increased $40.9 billion (13.2%) from September 2014 to $349.8 billion at September 2015,
including an $18.5 billion increase due to foreign currency movements. Portfolio growth contributed afurther $14 billion, with growth in Australia and New Zealand business contributing to the increase in
AIRB Corporate and IRB Residential Mortgage asset classes. The increase in the IRB Other Retail AssetClass includes a reclassification of exposures from IRB Residential Mortgage Asset Class.
Market Risk, Operational Risk and IRRBB RWA
Traded Market Risk RWA decreased $0.2 billion (3%). Throughout the year, a decrease in Standard
Model RWA was offset by an increase to the Internal Model RWA.
IRRBB RWA decreased by $6.2 billion (45.5%) to $7.4 billion over the year, which was due to a reduction
in repricing and yield curve risk combined with an improvement in embedded gains.
A new operational risk measurement system (ORMS) has been developed by ANZ. The new ORMS wasformally accredited by APRA on 30 September 2015 for the purpose of calculating operational risk capital
under APS 115. The change in methodology is the predominant driver of the increase in RWA between
September 2014 and September 2015. The increased RWA is reflective of our business growth andrecognises global and local industry trends toward more conservative operational risk capital holdings.

International capital ratio comparisonsInternational comparable details
One of the main purposes of the Pillar 3 disclosures is to facilitate comparisons of banks, both within andacross jurisdictions. International investors should be aware that there are a number of features of
APRA’s implementation of Basel III that have the effect of making key capital adequacy ratios appear
lower than would be the case if they were calculated under the rules in other jurisdictions.
The following table details the material differences between APRA’s Basel III prudential requirements andthose of the Basel Committee on Banking Supervision (BCBS) as at 20 September 2015 on an
Internationally Comparable basis. The Internationally Comparable capital ratios methodology is alignedwith APRA’s information paper entitled International Capital Comparison Study (13 July 2015). The Basel
III Internationally Comparable ratios do not include an estimate of the Basel I capital floor.
ANZ’s CET1, Tier 1 and Total Capital ratios as at 30 September 2015 on an Internationally Comparable
basis were 13.2%, 15.3% and 17.8% respectively.
CET1

Tier 1 Capital

Total
Capital

9.6%

11.3%

13.3%

Significant Investments in FI's and deconsolidated entities

0.9%

0.9%

0.8%

Deferred Tax Assets

0.1%

0.1%

0.1%

Residential mortgages – 20% LGD floor

0.4%

0.4%

0.5%

IRRBB RWA (APRA Pillar 1 approach)

0.2%

0.2%

0.3%

Specialised Lending (Advanced treatment)

0.4%

0.5%

0.6%

Unsecured Corporate Lending LGD

1.2%

1.5%

1.6%

Undrawn Corporate EAD

0.4%

0.4%

0.5%

Other RWA items

0.0%

0.0%

0.1%

Total Adjustments

3.6%

4.0%

4.5%

13.2%

15.3%

17.8%

Regulatory Capital Frameworks Comparison
Basel III - APRA
Differences relating to capital

Differences related to risk weighted assets

Basel III - Internationally Comparable

25

ANZ Basel III Pillar 3 disclosure

September 2015

The table below provides an explanation of the material differences between APRA’s Basel III capitalrules and the International Comparable basis with the impact of converting APRA Basel III capital ratios
to Internationally Comparable Basel III capital ratios.
Item

Description

Movement inratios, APRA to
InternationallyHarmonised

Significant investments in
Financial Institutions(FI’s) and otherdeconsolidated
subsidiaries

APRA requires full deduction against CET1 forinvestment in insurance and banking associates. On
anInternationally
Comparable
basis,
these
investments are subject to concessional threshold
before a deduction is required.

Increase ratio

Deferred Tax Assets

APRA requires all deferred tax assets, including
those relating to temporary differences, to be
deducted 100% from CET1. On an Internationally
Comparable basis, deferred tax assets relating totemporary differences is first subject to concessional
threshold before any deduction is required.

Increase ratio

Interest rate risk in thebanking book (IRRBB)APRA requires the inclusion of IRRBB within RWA.
This is not required under the Basel III framework.

Increase ratio

Residential mortgages –20% Loss Given Default(LGD) floor

APRA imposes a floor of 20% on the downturn Loss
Given Default (LGD) used in advanced credit models
for determining credit RWA’s for residential
mortgages. The Basel III framework imposes a
downturn LGD floor of 10% for these exposures.

Increase ratio

Specialised Lending

APRA requires the supervisory slotting approach beused in determining credit RWA for specialised
lending exposures. The Internationally Comparable
basis allows for the advanced internal ratings based
approach to be used instead when calculating RWA
for these exposures.

Increase ratio

Unsecured Corporate
Lending LGD

Adjustment to align ANZ’s unsecured corporate
lending LGD to 45% to be consistent with banks inother jurisdictions. The 45% LGD rate is also usedin the Foundation Internal Ratings-based approach(FIRB).

Increase ratio

Undrawn Corporate
Lending Exposure at
Default (EAD)

To adjust ANZ’s credit conversion factors (CCF) for
undrawn corporate loan commitments to 75% (alsoused in FIRB approach) to align with banks in otherjurisdictions.

Increase ratio

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ANZ Basel III Pillar 3 disclosure

September 2015

Chapter 6 –Credit risk
Table 7 Credit risk – General disclosures
Definition of credit risk
Credit risk is the risk of financial loss resulting from a counterparty falling to fulfil its obligations, or froma decrease in credit quality of a counterparty resulting in a loss in value.
Regulatory approval to use the Advanced Internal Ratings-based approach
ANZ has been given approval by APRA to use the Advanced Internal Ratings-based approach to credit
risk, under APS 113. There are however several small portfolios (mainly retail and local corporates in
Asia Pacific) where ANZ applies the Standardised approach to credit risk, under APS 112 Capital
Adequacy: Standardised Approach to Credit Risk.
Credit risk management framework and policies
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. Credit policies,
requirements and procedures cover all aspects of the credit life cycle such as transaction structuring, risk
grading, initial approval, ongoing management and problem debt management, as well as specialist
policy topics. The effectiveness of the credit risk management framework is assessed through various
compliance and monitoring processes. These, together with portfolio selection, define and guide thecredit process, organisation and staff.
Organisation
As described in Chapter 3, the CMRC is a senior executive level credit risk committee. The CRSOC
supports the CMRC, by providing group-wide oversight of ANZ’s credit rating system.
The primary responsibility for prudent and profitable management of credit risk assets and customer
relationships rests with the business units. An independent credit risk management function is staffed byrisk specialists. Independence is achieved by having all credit risk staff ultimately report to the CRO,even where they are embedded in business units. Risk provides independent credit assessment andapproval on lending decisions, and also performs key roles in portfolio management such as development
and validation of credit risk measurement systems, loan asset quality reporting, and development ofcredit policies and requirements.
The authority to make credit decisions is delegated by the Board to the CEO who in turn delegatesauthority to the CRO. The CRO in turn delegates some of his credit discretion to individuals as part of a‘cascade’ of authority from senior to the most junior credit officers. Within ANZ, credit approval formaterial judgemental lending is made on a ‘dual approval’ basis, jointly by the business writer in thebusiness unit and the respective independent credit risk officer. Individuals must be suitably skilled andaccredited in order to be granted and retain a credit discretion. Credit discretions are reviewed on anannual basis, and may be varied based on the holder’s performance.
Programmed credit assessment typically covers retail and some small business lending, and refers to theautomated assessment of credit applications using a combination of scoring (application andbehavioural), policy rules and external credit reporting information. Where an application does not meet
the automated assessment criteria it will be referred out for manual assessment, with assessors
considering the decision tool recommendation.
Portfolio direction and performance
The credit risk management framework contains several important portfolio direction and performancetools which enable Risk to play a fundamental role in monitoring the direction and performance of theportfolio. These include:Group and divisional level risk appetite strategies, business writing strategies & segment transaction
guidelines are prepared by the businesses and set out appetite, planned portfolio growth, capital
usage and risk/return profile, and also identify areas that may require attention to mitigate andimprove risk management.

Regular portfolio reviews.

Exposure concentration limits, covering single customers, industries and cross border risk, to ensure
a diversified portfolio.

27

ANZ Basel III Pillar 3 disclosure

September 2015

ANZ uses portfolio monitoring and analysis tools, technologies and techniques to assist with portfolio risk
assessment and management. These assist in:Monitoring, analysing and reporting ANZ’s credit risk profile and progress in meeting portfolio
objectives.

Calculating and reporting ANZ’s collective provision, economic capital, expected loss, regulatory RWA
and regulatory expected loss.

Assessing impact of emerging issues, and conducting ad hoc investigations and analysis.

Validating rating/scoring tools and credit estimates.



Ongoing review and refinement of ANZ's credit risk measurement and policy framework.

Reporting – overview and definitions
Credit risk management information systems, reporting and analysis are managed centrally and at thedivisional and business unit level.
Periodic reporting provides confirmation of the effectiveness of processes highlights emerging issues
requiring attention and allows monitoring of portfolio trends by all levels of management and the Board.
Examples of reports include EAD, portfolio mix, risk grade profiles and migrations, RWAs, large exposure
reporting, credit watch and control lists, impaired assets and provisions. Within the retail segments,
monthly reporting packs are prepared that focus on such aspects as scoring and delinquency/slippage
monitoring.
Exposure at default
Exposure at Default is defined as the expected facility exposure at the date of default. Unless otherwise
stated, throughout this disclosure EAD represents gross credit exposure without offsets for credit risk
mitigation such as guarantees, credit derivatives, netting and financial collateral.
Past due facilities
Facilities where a contractual payment has not been met or the customer is outside of contractual
arrangements for a material length of time are deemed past due. Past due facilities include those
operating in excess of approved arrangements or where scheduled repayments are outstanding but do
not include impaired assets.
Impaired assets
Facilities are classified as impaired when there is doubt as to whether the contractual amounts due,
including interest and other payments, will be met in a timely manner. Impaired assets include impaired
facilities, and impaired derivatives. Impaired derivatives have a credit value adjustment (CVA), which is amarket assessment of the credit risk of the relevant counterparties.
Restructured items
Restructured items comprise facilities in which the original contractual terms have been modified forreasons related to the financial difficulties of the customer. Restructuring may consist of reduction ofinterest, principal or other payments legally due, or an extension in maturity beyond those typicallyoffered to new facilities with similar risk.
Collective provisions
As well as holding individual provisions for credit loss, ANZ also holds a collective provision to covercredit losses which have been incurred but have not yet been specifically identified.
Calculation of the collective provision involves placing exposures in pools of similar assets with similarrisk characteristics. The required collective provision is estimated on the basis of historical loss
experience for assets with credit risk characteristics similar to those in the collective pool and includes anallowance for inherent risk associated with the design and use of models. The initial calculation from
historical loss experience may be adjusted based on current observable data such as changed economic
conditions, and to take account of the impact of inherent risk of large concentrated losses within theportfolio.

28

ANZ Basel III Pillar 3 disclosure

September 2015

The methodology underpinning calculation of collective provision from historical experience ispredominantly based around the product of an exposure’s probability of default (PD), LGD and EAD. ANZ
uses slightly different PD, LGD and EAD factors in the calculation of regulatory capital and regulatory EL,
due to the different requirements of APRA and accounting standards. The key differences are:

ANZ must use more conservative LGD assumptions for regulatory capital purposes, such as the 20%
LGD floor for retail mortgages and downturn LGD factors.

ANZ must use cycle-adjusted PDs for regulatory capital purposes, but uses point-in-time estimatesto calculate provisions.

Essentially these differences reflect the effects of the credit cycle on credit losses. Point-in-time refers tolosses at any given point in the credit cycle, cycle-adjusted refers to adjusting estimates to reflect a fullcredit cycle and downturn refers to losses at the worst of the cycle and is the most conservative estimate
to use. Regardless of the adjustments, the starting point for all estimates is the output of therating/scoring models and tools to satisfy the in use test7.
Individual provisions
Individual provisions are assessed on a case-by-case basis for all individually managed impaired assets
taking into consideration factors such as the realisable value of security (or other credit mitigants), thelikely return available upon liquidation or bankruptcy, legal uncertainties, estimated costs involved inrecovery, the market price of the exposure in secondary markets and the amount and timing of expected
receipts and recoveries.
Write-offs
Facilities are written off against the related provision for impairment when they are assessed as partiallyor fully uncollectable, and after proceeds from the realisation of any collateral have been received. Where
individual provisions recognised in previous periods have subsequently decreased or are no longer
required, such impairment losses are reversed in the current period income statement.
Definition of default
ANZ uses the following definition of default:

ANZ considers that the customer is unlikely to pay its credit obligations in full, without recourse toactions such as realising security, orthe customer is at least 90 days past due on a credit obligation, orthe customer’s overdraft or other revolving facility (ies) have been continuously outside approved
limits for 90 or more consecutive days.

Specific provision and general reserve for credit losses
Due to definitional differences, there is a difference in the split between ANZ’s individual provision andcollective provision for accounting purposes and the specific provision and general reserve for credit
losses (GRCL) for regulatory purposes. This does not impact total provisions, and essentially relates tothe classification of collectively assessed provisions on defaulted accounts. The disclosures in thisdocument are based on individual provision and collective provision, for ease of comparison with otherpublished results.

7
One of the key criteria for regulatory acceptance of a rating model is that the outputs must be used in a wide range ofongoing management activities, to demonstrate that the model is used in day-to-day management of exposures and notjust for regulatory capital calculation.

29

ANZ Basel III Pillar 3 disclosure

September 2015

Table 7(b) part (i): Period end and average Exposure at Default 8 9Advanced IRB approach

Exposureat Default$M

Risk Weighted
Assets$M

Sep 15
Average
Exposureat Default
for half year
$M

Individual
provision
charge forhalf year$M

Write-offs forhalf year$M

Corporate

150,165

276,516

274,042

204

197

Sovereign

6,664

127,349

120,166

(2)

-

Bank

17,445

115,898

119,246--

Residential Mortgage

54,996323,174

316,986917

Qualifying Revolving Retail

7,546

22,08822,011

102

145

Other Retail32,99046,351

46,236279

272

269,806

911,376

898,687592

631

32,24037,754

37,639(15)

61

Corporate

26,21730,36530,283

10

34

Residential Mortgage

2,882

7,829

7,559

-

4

Other Retail

3,625

3,636

3,460

68

85

Total Standardised approach

32,724

41,83041,30278

123

Credit Valuation Adjustment andQualifying Central Counterparties

10,17033,25529,771--

344,940

1,024,215

1,007,399

655

815

Total Advanced IRB approach
Specialised LendingStandardised approach

Total

8
Exposure at Default in Table 7 includes Advanced IRB, Specialised Lending and Standardised exposures, however does
not include Securitisation, Equities or Other Assets exposures. Exposure at Default in Table 7 is gross of credit risk
mitigation such as guarantees, credit derivatives, netting and financial collateral.
9
Average Exposure at Default for half year is calculated as the simple average of the balances at the start and the endof each six month period.

30

ANZ Basel III Pillar 3 disclosure

Advanced IRB approach

September 2015

Exposureat Default$M

Risk Weighted
Assets$M

Mar 15
Average
Exposureat Default
for half year
$M

Individual
provision
charge forhalf year$M

Write-offs forhalf year$M

Corporate

140,451

271,567

260,156

144

142

Sovereign

5,385

112,983

100,165

1

-

Bank

22,078

122,594

120,741--

Residential Mortgage

53,501

310,799

302,602

4

21

Qualifying Revolving Retail

7,775

21,93421,70389

129

Other Retail

31,664

46,12042,783190

206

260,854885,997

848,150428

498

31,442

37,52536,237

16

21

Corporate

27,03330,201

27,838

4

16

Residential Mortgage

2,603

7,289

6,924

-

4

Other Retail

3,271

3,283

3,148

7

70

32,907

40,77337,910

11

90

9,630

26,28718,366--334,833

990,582

940,663455

609

Sep 14
Average
Exposureat Default
for half year
$M

Individual
provision
charge forhalf year$M

Total Advanced IRB approach
Specialised LendingStandardised approach

Total Standardised approach
Credit Valuation Adjustment andQualifying Central Counterparties
Total

Advanced IRB approach

Exposureat Default$M

Risk Weighted
Assets$M

Write-offs forhalf year$M

Corporate

129,087

248,746

239,591

156

376

Sovereign

4,923

87,34680,994--Bank

20,329118,889

112,581--

Residential Mortgage

50,068294,407

290,91024

27

Qualifying Revolving Retail

7,546

21,471

21,298

100

139

Other Retail26,85839,44538,993211

211

238,811

810,304

784,367491

753

29,50534,94934,459(6)

33

Corporate

23,121

25,47727,302

8

61

Residential Mortgage

2,344

6,559

6,005

6

2

Other Retail

2,989

3,012

2,934

43

62

28,45435,04836,241

57

125

7,394

10,444

10,369--304,164

890,745865,436542

911

Total Advanced IRB approach
Specialised LendingStandardised approach

Total Standardised approach
Credit Valuation Adjustment andQualifying Central Counterparties
Total

31

ANZ Basel III Pillar 3 disclosure

September 2015

Table 7(b) part(ii): Exposure at Default by portfolio type10

Portfolio TypeSep 15$M

Mar 15$M

Sep 14$M

Average for halfyear Sep 15
$M

Cash

29,17633,045

20,866

31,111

Contingents liabilities, commitments, andother off-balance sheet exposures

162,535

158,355

147,702160,445

Derivative financial instruments

141,641

133,552

109,101

137,596

Settlement balances owed to ANZ

39,21635,35825,34837,287Available for sale assets

37,811

32,411

25,67135,111

Net Loans, Advances & Acceptances11

565,448551,854519,327

558,651

Other assets

12,114

9,717

6,321

10,916

Trading Securities

36,27436,29036,40936,282

Total exposures

1,024,215

990,582

890,745

1,007,399

10
Average for half year is calculated as the simple average of the balances at the start and the end of each six month
period.
11

Includes loans reclassified as held for sale for accounting purposes.

32

ANZ Basel III Pillar 3 disclosure

September 2015

Table 7(c): Geographic distribution of Exposure at Default

Sep 15

Portfolio Type

Australia$M

New Zealand$M

Asia Pacific,
Europe andAmericas$M

Corporate148,299

47,904

110,678

306,881

Sovereign

40,524

11,26575,560127,349

Bank

74,7596,699

34,440115,898

Residential Mortgage

257,901

65,2737,829

331,003

Qualifying Revolving Retail

22,088--22,088Other Retail34,561

11,822

3,604

49,987

Qualifying Central Counterparties

20,559

9,425

3,271

33,255Specialised Lending

28,0759,242

437

37,754

Total exposures

626,766

161,630

235,819

1,024,215

Total
$M

Total
$M

Mar 15

Portfolio Type

Australia$M

New Zealand$M

Asia Pacific,
Europe andAmericas$M

Corporate148,289

49,766

103,713

301,768

Sovereign

36,638

11,41364,932112,983

Bank

78,955

7,326

36,313

122,594

Residential Mortgage

244,269

66,5307,289

318,088

Qualifying Revolving Retail

21,934--

21,934

Other Retail33,50012,6493,254

49,403

Qualifying Central Counterparties

17,043

5,803

3,441

26,287

Specialised Lending

27,661

9,325

539

37,525

Total exposures608,289

162,812219,481990,582

Total$M
274,223

Sep 14

Portfolio Type

Australia$M

New Zealand$M

Asia Pacific,
Europe andAmericas$M

Corporate

139,01144,31290,900

Sovereign

31,2959,567

46,48487,346

Bank

77,217

9,389

32,283

118,889

Residential Mortgage

234,879

59,5286,559

300,966

Qualifying Revolving Retail

21,471--

21,471Other Retail30,163

9,320

2,974

42,457

Qualifying Central Counterparties

8,132

1,567

745

10,444

Specialised Lending

26,562

7,865

522

34,949Total exposures

568,730

141,548

180,467

890,745

33

Table 7(d): Industry distribution of Exposure at Default12 13

Sep 15

Portfolio Type
Corporate
SovereignBank
Residential Mortgage
Qualifying Revolving Retail
Other Retail
Qualifying Central
Counterparties
Specialised Lending
Total exposures% of Total

Agriculture,
Forestry, Fishing& Mining$M

Business
Services$M

Construction$M

Electricity,
Gas & Water
Supply$M

46,379
1,268
1
‐
‐
3,506

11,396
9
‐
‐
‐
2,831

7,481
59
‐
‐
‐
4,040

11,135
677
‐
‐
‐
117

Entertainment,
Financial,
Leisure & Investment &Tourism
Insurance$M$M

12,583
4
‐
‐
‐
2,156

51,661
85,203
115,761‐‐
658

Government
and Official
Institutions$M

Manufacturing$M

Personal$M

Property
Services$M

Wholesale
Trade$M

Retail Trade$M

Transport &Storage
$M

Other
$M

Total
$M

3,389
37,810‐‐‐11

54,556
1,443
111
‐
‐
1,537

2,088
‐
‐
331,003
22,08823,096

20,874
260
2
‐
‐
1,172

32,840
44
‐
‐
‐
1,169

16,348
‐
‐
‐
‐
4,221

17,113
249
23
‐
‐
1,468

19,038
323
‐
‐
‐
4,005

306,881
127,349
115,898
331,003
22,08849,987

‐

‐

‐

‐

‐

33,255

‐

‐

‐

‐

‐

‐

‐

‐

33,255

1,040
52,1945.1%

8
14,244
1.4%

166
11,746
1.1%

1,497
13,426
1.3%

239
14,982
1.5%

3286,54128.0%

39
41,2494.0%

657,653
5.6%‐
378,275
36.9%

32,47054,7785.3%

934,062
3.3%

720,5762.0%

1,260
20,1132.0%

1,010
24,376
2.4%

37,754
1,024,215
100.0%

12
Property Services includes Commercial property operators, Residential property operators, Retirement village operators/developers, Real estate agents, Non-financial asset investors
and Machinery and equipment hiring and leasing.
13

Other industry includes Health & Community Services, Education, Communication Services and Personal & Other Services.

34

ANZ Basel III Pillar 3 disclosure

March 2014

Mar 15

Portfolio Type
Corporate
SovereignBank
Residential Mortgage
Qualifying Revolving
RetailOther Retail
Qualifying Central
Counterparties

Agriculture,
Forestry, Fishing& Mining$M

Business
Services$M

46,292
1,485‐‐

10,802‐‐‐

Electricity, Gas& Water
Construction
Supply
$M
$M

7,954
54
‐
‐

11,623776‐‐

Entertainment,
Financial,
Leisure & Investment &Tourism
Insurance$M$M

11,913
5‐‐

49,99573,872
122,475‐

Government
and Official
Institutions$M

Manufacturing$M

Personal$M

Property
Services$M

Wholesale
Trade$M

Retail Trade$M

Transport &Storage
$M

Other
$M

Total
$M

3,242
35,228‐‐53,783
969
98
‐

1,872
1
‐
318,088

21,446
255‐‐

33,53446‐‐

16,347‐‐‐

16,201
195
21‐

16,764
97‐‐

301,768
112,983
122,594
318,088

‐

‐

‐

‐

‐

‐

‐

‐

21,934

‐

‐

‐

‐

‐

21,934

3,546

2,751

3,910

113

2,006

645

13

1,530

23,001

1,138

1,133

4,096

1,447

4,074

49,403
26,287

‐

‐

‐

‐

‐

26,287

‐

‐

‐

‐

‐

‐

‐

‐

Specialised Lending

1,017

8

268

1,513

74

3

35

5

‐

32,538

23

5

1,266

770

37,525

Total exposures

52,34013,561

12,186

14,025

13,998273,277

38,51856,385364,896

55,377

34,736

20,448

19,13021,705990,582

5.3%

1.4%

1.2%

1.4%

1.4%

27.6%

3.9%

5.7%

36.8%

5.6%

3.5%

2.1%

1.9%

2.2%

100.0%

Entertainment,
Financial,
Leisure & Investment &Tourism
Insurance$M$M

Government
and Official
Institutions$M

Manufacturing$M

Personal$M

Property
Services$M

Wholesale
Trade$M

Retail Trade$M

Transport &Storage
$M

Other
$M

Total
$M

2,714
29,158‐‐47,925
919
86
‐

1,902
1
‐
300,966

20,37768‐‐

30,13845‐‐

15,043‐‐‐

14,688361
17‐16,47751‐‐

274,223
87,346
118,889
300,966% of Total

Sep 14

Portfolio Type
Corporate
SovereignBank
Residential Mortgage
Qualifying Revolving
RetailOther Retail
Qualifying Central
Counterparties

Agriculture,
Forestry, Fishing& Mining$M

Business
Services$M

Construction$M

Electricity,
Gas & Water
Supply$M

42,022
1,264
‐
‐

9,980
2
‐
‐

7,226
53
‐
‐

10,887657‐‐

11,171
6‐‐

43,67354,761
118,786
‐

‐

‐

‐

‐

‐

‐

‐

‐

21,471

‐

‐

‐

‐

‐

21,471

3,086

2,246

3,186

93

1,399

440

10

1,180

21,550

943

871

2,958

1,218

3,277

42,457

‐

‐

‐

‐

‐

10,444

‐

‐

‐

‐

‐

‐

‐

‐

10,444

Specialised Lending

1,150

21

427

1,769

76

3

35

7

‐

29,651

8

4

1,105

693

34,949Total exposures

47,522

12,24910,892

13,406

12,652

228,107

31,917

50,117345,890

51,03931,06218,005

17,38920,498890,745

5.3%

1.4%

1.2%

1.5%

1.4%

25.6%

3.6%

5.6%

38.9%

5.7%

3.5%

2.0%

2.0%

2.3%

100.0%% of Total

35

ANZ Basel III Pillar 3 disclosure

September 2015

Table 7(e): Residual contractual maturity of Exposure at Default14

Sep 15< 12 mths$M

1 - 5 years$M> 5 years$M

No Maturity
Specified
$M

Total
$M

Corporate

133,312

153,214

20,185170

306,881

Sovereign

78,70625,94322,700-127,349

Bank

69,32744,765

1,806-

115,898

412

7,751

291,437

31,403331,003---

22,08822,088Other Retail

17,326

13,82918,79735

49,987

Qualifying Central Counterparties

4,448

16,50912,298-33,255Specialised Lending

11,59724,0432,065

49

37,754

Total exposures

315,128

286,054369,288

53,745

1,024,215

Portfolio Type

Residential Mortgage
Qualifying Revolving RetailMar 15< 12 mths$M

1 - 5 years$M> 5 years$M

No Maturity
Specified
$M

Total
$M

Corporate

135,762

144,147

21,681

178

301,768

Sovereign

70,59222,753

19,638-112,983

Bank

66,29854,385

1,911-

122,594

272

7,165

279,051

31,600318,088---

21,934

21,934

Other Retail

17,546

13,72618,131-49,403

Qualifying Central Counterparties

3,132

11,611

11,544-

26,287

Specialised Lending

11,181

24,0202,256

6837,525

Total exposures

304,783

277,807354,21253,780990,582

Portfolio Type

Residential Mortgage
Qualifying Revolving RetailSep 14< 12 mths$M

1 - 5 years$M> 5 years$M

No Maturity
Specified
$M

Total
$M

Corporate

123,118

131,390

19,548167

274,223

Sovereign

53,981

19,715

13,650-87,346

Bank

61,81055,135

1,944-

118,889

912

6,133

263,657

30,264300,966---

21,471

21,471

15,405

13,902

13,150-42,457

265

5,319

4,860

-

10,444

Specialised Lending

10,544

22,4901,871

4434,949Total exposures

266,035

254,084

318,680

51,946

890,745

Portfolio Type

Residential Mortgage
Qualifying Revolving Retail
Other Retail
Qualifying Central Counterparties

14

No Maturity Specified predominately includes credit cards and residential mortgage equity manager accounts.

36

ANZ Basel III Pillar 3 disclosure

September 2015

Table 7(f) part (i): Impaired assets15 16, Past due loans17, Provisions and Write-offs by
Industry sector
Sep 15
Individual
provisionbalance$M

Individual
provision
charge for
Write-offs
half year for half year
$M
$M

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans ≥90
days
$M

5

799

136

221

112

76

-

88

31

55

12

17

Construction

-

95

183

42

20

31

Electricity, gas and water supply

-

3

-

3

(1)

1

Entertainment Leisure & Tourism
Financial, Investment &Insurance
Government & Official Institutions

-

131

38

43

33

18

-

52

20

26

19

14

-

-

-

-

-

-

Manufacturing

4

258

42

145

33

50

Personal

-

869

1,434

290

337

441

Property Services

-

110

100

50

(3)

53

Retail Trade

-

139

88

60

42

28

28

164

26

29

(13)

35

Wholesale Trade

-

126

27

76

39

24

Other

-

28

74

21

25

27

Total

37

2,862

2,199

1,061

655

815

Industry Sector
Agriculture, Forestry, Fishing &MiningBusiness Services

Transport & Storage

15
Impaired derivatives are net of credit value adjustment (CVA) of $69 million, being a market value based
assessment of the credit risk of the relevant counterparties (March 2015: $64 million; September 2014: $46 million).
16
Impaired loans / facilities include restructured items of $184 million for customer facilities in which the originalcontractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring
may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materiallybeyond those typically offered to new facilities with similar risk (March 2015: $146 million; September 2014: $67
million).
17

For regulatory reporting not well secured portfolio managed retail exposures have been reclassified from past dueloans > 90 days to impaired loans / facilities.

37

ANZ Basel III Pillar 3 disclosure

September 2015

Mar 15
Individual
provision
charge for
Write-offs
half year for half year
$M
$M

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans ≥90days
$M

Individual
provisionbalance
$M

-

606

221

184

41

50

-

86

50

60

(12)

22

Construction

-

107

70

54

23

16

Electricity, gas and water supply

-

3

5

4

2

-

Entertainment Leisure & Tourism
Financial, Investment &Insurance
Government & Official Institutions

-

103

45

26

6

9

-

42

26

17

6

3

-

-

-

-

-

-

Manufacturing

-

221

52

153

63

19

Personal

-

914

1,216

316

251

402

Property Services

3

379

171

89

15

13

Retail Trade

-

67

74

41

13

12

24

186

38

79

9

17

Wholesale Trade

-

109

30

60

27

21

Other

-

37

71

31

11

25

Total

27

2,860

2,069

1,114

455

609

Industry Sector
Agriculture, Forestry, Fishing &MiningBusiness Services

Transport & Storage

Sep 14

Industry Sector
Agriculture, Forestry, Fishing &MiningBusiness Services

Impairedderivatives$M

Impaired
Past dueloans/ loans ≥90
facilities
days
$M
$M

Individual
provisionbalance$M

Individual
provision
charge for
Write-offs
half year for half year
$M
$M

2

747

207

219

53

111

-

120

36

92

32

106

Construction

-

96

72

42

35

16

Electricity, gas and water supply

-

2

1

2

2

2

Entertainment Leisure & Tourism
Financial, Investment &Insurance
Government & Official Institutions

-

62

35

25

18

8

-

33

27

15

5

5

-

-

5

-

-

-

Manufacturing

-

215

43

107

7

38

Personal

-

905

1,072

380

322

397

Property Services

6

418

137

86

(16)

52

Retail Trade

-

71

70

41

30

52

29

179

42

81

25

16

Wholesale Trade

-

100

18

48

(1)

79

Other

-

58

63

38

30

29

Total

37

3,006

1,828

1,176

542

911

Transport & Storage

38

ANZ Basel III Pillar 3 disclosure

September 2015

Table 7(f) part (ii): Impaired asset, Past due loans, Provisions and Write-offs

Sep 15

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans≥90 days$M

Individual
provisionbalance$M

Individual
provision
charge forhalf year$M

Write-offs
for half
year$M

Portfolios subject to Advanced IRB approach
Corporate

9

1,487

202

575

204

197

Sovereign

-

2

-

4

(2)

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

240

1,570

86

9

17

Qualifying Revolving Retail

-

88

-

-

102

145

Other Retail

-

599

306

317

279

272

Total Advanced IRB approach

9

2,416

2,078

982

592

631

28

159

62

40

(15)

61

Corporate

-

73

40

23

10

34

Residential Mortgage

-

37

12

14

-

4

Other Retail

-

177

7

2

68

85

Total Standardised approach

-

287

59

39

78

123

Qualifying Central Counterparties

-

-

-

-

-

-

37

2,862

2,199

1,061

655

815

Specialised Lending
Portfolios subject to Standardised approach

Total

39

ANZ Basel III Pillar 3 disclosure

September 2015
Mar 15

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans≥90 days$M

Individual
provisionbalance$M

Individual
provision
charge forhalf year$M

Write-offs
for half
year$M

Portfolios subject to Advanced IRB approach
Corporate

-

1,265

288

570

144

142

Sovereign

-

1

1

4

1

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

284

1,376

99

4

21

Qualifying Revolving Retail

-

88

-

-

89

129

Other Retail

-

494

314

285

190

206

Total Advanced IRB approach

-

2,132

1,979

958

428

498

27

436

42

96

16

21

Corporate

-

96

33

45

4

16

Residential Mortgage

-

42

10

14

-

4

Other Retail

-

154

5

1

7

70

Total Standardised approach

-

292

48

60

11

90

Qualifying Central Counterparties

-

-

-

-

-

-

27

2,860

2,069

1,114

455

609

Individual
provisionbalance$M

Individual
provision
charge forhalf year$M

Write-offs
for halfyear$MSpecialised Lending
Portfolios subject to Standardised approach

Total

Sep 14

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans≥90 days$M

Portfolios subject to Advanced IRB approach
Corporate

2

1,398

312

574

156

376

Sovereign

-

2

13

2

-

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

356

1,127

116

24

27

Qualifying Revolving Retail

-

77

-

-

100

139

Other Retail

-

437

245

265

211

211

Total Advanced IRB approach

2

2,270

1,697

957

491

753

35

457

88

96

(6)

33

Corporate

-

97

31

56

8

61

Residential Mortgage

-

43

9

16

6

2

Other Retail

-

139

3

51

43

62

Total Standardised approach

-

279

43

123

57

125

Qualifying Central Counterparties

-

-

-

-

-

-

37

3,006

1,828

1,176

542

911

Specialised Lending
Portfolios subject to Standardised approach

Total

40

ANZ Basel III Pillar 3 disclosure

September 2015

Table 7(g): Impaired assets18 19, Past due loans20 and Provisions21 by Geography

Geographic region
Australia

Impairedderivatives$M

Impairedloans/
facilities$M

Sep 15
Past dueloans≥90 days$M

Individual
provisionbalance$M

Collective
provisionbalance
$M

33

1,621

1,949

698

1,895

New Zealand

-

400

182

147

425

Asia Pacific, Europe and America

4

841

68

216

636

37

2,862

2,199

1,061

2,956

Impairedderivatives$M

Impairedloans/
facilities$M

Mar 15
Past dueloans≥90 days$M

Individual
provisionbalance$M

Collective
provisionbalance$M

Australia

27

1,684

1,798

698

1,882

New Zealand

-

537

204

197

450

Asia Pacific, Europe and America

-

639

67

219

582

Total

27

2,860

2,069

1,114

2,914

Impairedderivatives$M

Impairedloans/
facilities$M

Sep 14
Past dueloans≥90 days$M

Individual
provisionbalance$M

Collective
provisionbalance$M

Australia

29

1,811

1,621

740

1,829

New Zealand

2

647

137

200

413

Asia Pacific, Europe and America

6

548

70

236

515

37

3,006

1,828

1,176

2,757

Total

Geographic region

Geographic region

Total

18
Impaired derivatives are net of credit value adjustment (CVA) of $69 million, being a market value based
assessment of the credit risk of the relevant counterparties (March 2015: $64 million; September 2014: $46 million)
19
Impaired loans / facilities include restructured items of $184 million for customer facilities in which the originalcontractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring
may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materiallybeyond those typically offered to new facilities with similar risk (March 2015: $146 million; September 2014: $67
million).
20
For regulatory reporting not well secured portfolio managed retail exposures have been reclassified from past dueloans > 90 days to impaired loans / facilities.
21

Due to definitional differences, there is a variation in the split between ANZ’s Individual Provision and Collective
Provision for accounting purposes and the Specific Provision and General Reserve for Credit Losses (GRCL) for
regulatory purposes. This does not impact total provisions, and essentially relates to the classification of collectively
assessed provisions on defaulted accounts. The disclosures in this document are based on Individual Provision andCollective Provision, for ease of comparison with other published results.

41

ANZ Basel III Pillar 3 disclosure

September 2015

Table 7(h): Provision for Credit Impairment

Collective Provision
Balance at start of period

Half year
Sep 15$M

Half year
Mar 15$M

Half year
Sep 14
$M

2,914

2,757

2,843

Charge to income statement

40

55

(81)

Adjustments for exchange rate fluctuations

2

102

(5)

2,956

2,914

2,757

1,114

1,176

1,470

951

806

846

(174)

(260)

(190)

Total Collective Provision
Individual Provision
Balance at start of period
New and increased provisions
Write-backs
Adjustment for exchange rate fluctuations
Discount unwind

7

33

(4)

(22)

(32)

(35)

Bad debts written off

(815)

(609)

(911)

Total Individual Provision

1,061

1,114

1,176

Total Provisions for Credit Impairment

4,017

4,028

3,933

Table 7(J): Specific Provision Balance and General Reserve for Credit Losses22
S

Sep 15Specific Provision
Balance$M

General Reserve for
Credit Losses
$M

Total
$M

Collective Provision

334

2,622

2,956

Individual Provision

1,061

-

1,061

Total Provision for Credit Impairment

1,395

2,622

4,017

Specific Provision
Balance$M

General Reserve for
Credit Losses
$M

Total
$M

Collective Provision

304

2,610

2,914

Individual Provision

1,114

-

1,114

Total Provision for Credit Impairment

1,418

2,610

4,028

Specific Provision
Balance$M

General Reserve for
Credit Losses
$M

Total
$M

Collective Provision

283

2,474

2,757

Individual Provision

1,176

-

1,176

Total Provision for Credit Impairment

1,459

2,474

3,933

Mar 15

Sep 1422
Due to definitional differences, there is a variation in the split between ANZ’s Individual Provision and Collective
Provision for accounting purposes and the Specific Provision and General Reserve for Credit Losses (GRCL) for
regulatory purposes. This does not impact total provisions, and essentially relates to the classification of collectively
assessed provisions on defaulted accounts. The disclosures in this document are based on Individual Provision andCollective Provision, for ease of comparison with other published results.

42

ANZ Basel III Pillar 3 disclosure

Table 8September 2015

Credit risk – Disclosures for portfolios subject to theStandardised approach and supervisory risk weights in the
IRB approach

Table 8(a): Use of external rating agencies (External Credit Assessment Institutions)
ANZ portfolios under the Standardised approach are mainly Retail portfolios and hence are not rated
by external rating agencies. However, there are a small number of local corporate counterparties thatare externally rated. For these counterparties, external ratings by Standard & Poor’s and Moody’s
Investors Service are used as inputs into the RWA calculation. As described in the section on the ANZ
rating system, ANZ has mapped its master scale to the grading of these two External Credit
Assessment Institutions (ECAIs).
Table 8(b): Exposure at Default by risk bucket23
Risk weightSep 15$M

Standardised approach exposures

Mar 15$M

Sep 14
$M

0%

-

-

-

20%

855

710

449

35%

7,386

7,145

6,417

50%

1,406

237

145

75%

4

3

3

100%

27,09828,38425,131

150%

852

755

335

>150%

1

29

1

Capital deductions

-

-

-

37,60237,26332,481

Total
Other Asset exposures
0%

-

-

-

20%

1,191

1,030

1,100

35%

-

-

-

50%

-

-

-

75%

-

-

-

100%

3,417

3,591

3,471

150%

-

-

-

>150%

-

-

-

Capital deductions

-

-

-

4,608

4,621

4,571

Total
Specialised Lending exposures
0%

473

933

993

70%

14,005

13,525

12,412

90%

19,53919,35017,761

115%

3,245

3,413

3,606

250%

448

254

274

Total

37,71037,47535,04623

Table 8(b) shows exposure at default after credit risk mitigation in each risk category.

43

ANZ Basel III Pillar 3 disclosure

Table 9September 2015

Credit risk – Disclosures for portfolios subject to Advanced
IRB approaches

Portfolios subject to the Advanced IRB (AIRB) approach
The following table summarises the types of borrowers and the rating approach adopted within each of
ANZ’s AIRB portfolios:
IRB Asset Class

Borrower Type

Rating Approach

Corporate

Corporations, partnerships or proprietorships that do
not fit into any other asset class

AIRB

Sovereign

Central governments
Central banks
Certain multilateral development banks

AIRB

Bank

Banks24
In Australia only, other authorised deposit taking
institutions (ADI) incorporated in Australia

AIRB

Residential
mortgages

Exposures secured by residential property

AIRB

Consumer credit cards <$100,000 limit

AIRB

Other retail

Small business lending
Other lending to consumers

AIRB

Specialised Lending

Income Producing Real Estate25
Project financeObject finance

AIRB – Supervisory
Slotting26

Other assets

All other assets not falling into the above classes e.g.
margin lending, fixed assets

AIRB –
weights

Qualifying
retailrevolving

fixed

risk

In addition, ANZ has applied the Standardised approach to some portfolio segments (mainly retail andlocal corporates in Asia Pacific) where currently available data does not enable development ofadvanced internal models for PD, LGD and EAD estimates. Under the Standardised approach,exposures are mapped to several regulatory risk weights, mainly based on the type of counterparty
and its external rating.
ANZ applies its full normal risk measurement and management framework to these segments forinternal management purposes, such as for economic capital. Standardised segments will be migrated
to AIRB if they reach a volume that generates sufficient data for development of advanced internal
models.
ANZ has not applied the Foundation IRB approach to any portfolios.
The ANZ rating system
As an AIRB bank, ANZ’s internal models generate the inputs into regulatory capital adequacy todetermine the risk weighted exposure calculations for both on and off-balance sheet exposures,
including undrawn portions of credit facilities, committed and contingent exposures and EL
calculations. ANZ’s internal models are used to generate the three key risk components that serve as
inputs to the IRB approach to credit risk:PD is an estimate of the level of the risk of borrower default. Borrower ratings are derived by wayof rating models used both at loan origination and for ongoing monitoring.



EAD is defined as the expected facility exposure at the date of default.

24

The IRB asset classification of investment banks is Corporate, rather than Bank.

25

Since 2009, APRA has agreed that some large, well-diversified commercial property exposures may be treated ascorporate exposures, in line with the original Basel Committee’s definition of Specialised Lending.
26

ANZ uses an internal assessment which is mapped to the appropriate Supervisory Slot.

44

ANZ Basel III Pillar 3 disclosure

September 2015

LGD is an estimate of the potential economic loss on a credit exposure, incurred as aconsequence of obligor default and expressed as a percentage of the facility’s EAD. Whenmeasuring economic loss, all relevant factors are taken into account, including material effects ofthe timing of cash flows and material direct and indirect costs associated with collecting on the
exposure, including realisation of collateral.

Effective maturity is also calculated as an input to the risk weighted exposure calculation for bank,sovereign and corporate IRB asset classes.
ANZ’s rating system has two separate and distinct dimensions that:

Measure the PD, which is expressed by the Customer Credit Rating (CCR), reflecting the ability toservice and repay debt.

Measure the LGD as expressed by the Security Indicator (SI) ranging from A to G. The SI iscalculated by reference to the percentage of loan covered by security which can be realised in theevent of default. This calculation uses standard ratios to adjust the current market value ofcollateral items to allow for historical realisation outcomes. The security-related SIs aresupplemented with a range of other SIs which cover such factors as cash cover, mezzanine
finance, intra-group guarantees and sovereign backing as ANZ’s LGD research indicates thatthese transaction characteristics have different recovery outcomes. ANZ’s LGD also includes
recognition of the different legal and insolvency regimes in different countries, where this has
been shown to influence recovery outcomes.

ANZ’s corporate PD master scale is APRA approved, and is made up of 27 rating grades. Eachlevel/grade is separately defined and has a range of default probabilities attached to it. The PD masterscale enables ANZ’s rating system to be mapped to the gradings of external rating agencies, using the
PD as a common element after ensuring that default definitions and other key attributes are aligned.
The following table demonstrates this alignment (for one year PDs):
ANZ CCR

Moody’sStandard & Poor’s

PD Range

0+ to 1-

Aaa to Aa3

AAA to AA-

0.0000 - 0.0346%

2+ to 3+

A1 to Baa1

A+ to BBB+

0.0347 - 0.1636%

3= to 4=

Baa2 to > Ba1

BBB to > BB+

0.1637 - 0.5108%

4- to 6-

Ba1 to B1

BB+ to B+

0.5109 - 3.4872%

7+ to 8+B2 to B3

B to B-

3.4873 - 17.8799%

8=

Caa

CCC

17.8800 - 99.9999%

8-, 9 and 10

Default

Default

100%

In the retail asset classes, most facilities utilise credit rating scores. The scores are calibrated to PDs,
and used to allocate exposures to homogenous pools, along with LGD and EAD.
ANZ also uses specialised PD master scale/mappings for the sovereign asset class, based
predominantly on the corporate master scale.
Use of internal estimates other than for regulatory capital purposes
ANZ’s rating system is a fundamental part of credit management and plays a key role in:Lending discretions.



Minimum origination standards.

Concentration limits.

Portfolio reporting.

Customer profitability measurement.

Collective provision measurement.

Management of deteriorating customers (where certain CCR/SI combinations trigger increasing
scrutiny).

Pricing decisions.

45

ANZ Basel III Pillar 3 disclosure

September 2015

PD, LGD and EAD are used in the calculation of economic capital and in the collective provisioning
process. Regulatory and economic capital are calculated from the same data sources and starting fromthe same basis, however there are some differences between the factors used because several
aspects of ANZ’s rating system are adjusted in accordance with APRA requirements for regulatory
capital purposes. The most significant of these adjustments are the use for regulatory capital purposesof downturn LGDs; the imposition of a 20% LGD floor for exposures secured by Australian residential
real estate and the mandatory use of the supervisory slotting approach for project finance and mostcommercial real estate exposures.
Controls surrounding the ratings system
ANZ’s rating system and credit risk estimates are governed by the Board Risk Committee and several
executive management committees, and are underpinned by a comprehensive framework of controlsthat operate throughout ANZ. All policies, methodologies, model designs, model reviews, validations,
responsibilities, systems and processes supporting the ratings systems are documented, and subject
to review by Global Internal Audit.
The design, build and implementation of credit rating models resides with a specialist Group-levelteam. Credit rating models are owned by central Risk teams. The use (including overrides) andperformance of credit rating models is monitored by the relevant business and their counterparts in
Risk, and validated regularly by a separate specialist Group-level function. This cycle of design, build,
implementation, monitoring and validation is overseen by the CRSOC, and informs the need for newmodels or recalibration of existing models.
Risk grades are an integral part of reporting to the Board and executives.
In addition, the use of the rating system’s outputs in key business unit performance measures inprocesses such as provisioning and the allocation of economic capital ensures that the rating system
receives robust input from the business units, not just the specialist modelling teams.
Rating process by asset class
Building reliable and accurate rating tools requires balancing of many factors including data availability(external data may be used in some circumstances, where it is relevant), the size of the segment (themore customers within the segment, the more likely that statistically reliable models can be built),
and the need to be able to validate the model. Rating tool approaches include:

Statistical models producing a PD or a LGD, which are developed from internal or external data on
defaults.



Statistical models producing an internal rating, which involve calibrating ANZ’s models to externalrating data where data on defaults is insufficient for statistical purposes (such as banks).

Hybrid statistical and expert models producing an internal rating, which use a mixture of default
data and expert input.

Expert models/processes that produce an internal rating, including external rating agency
replication models.

Ongoing data collection and testing processes ensure enhanced or new models are introduced as
required to maintain and improve the accuracy and reliability of rating processes.
Regardless of what credit risk rating tool is used, lending staff rating a customer are required toreview the model-generated PD (or CCR) and take into account any out-of-model factors or policy
overlays to decide whether or not to override the model rating. Overrides of a rating model to abetter rating require approval from the independent credit risk function. The significance of the model
for risk grading varies with the customer segment: models will dominate risk grading of homogenous,
simple and data-rich segments such as in Retail, however for complex, specialised business segments
expert knowledge and the highly customised nature of transactions will influence the rating outcome.

46

ANZ Basel III Pillar 3 disclosure

September 2015

The following table summarises the types of internal rating approaches used in ANZ:IRB Asset Class

Borrower type

Rating Approach

Corporate

Corporations, partnerships or
proprietorships that do not fit into any otherasset class

Mainly statistical models
Some use of expert models andpolicy processes

Sovereign

Central governments
Central banks
Certain multilateral development banks
Australian state governments

External rating and expert
judgement

Bank

Banks
In Australia only, other ADIs incorporated inAustralia

Statistically-based models
Review of all relevant andmaterial information including
external ratings

Residential
Mortgages

Exposures secured by residential property

Statistical models

Qualifying Revolving
RetailConsumer credit cards <$100,000 limit

Statistical models

Other Retail

Small business lending
Other lending to consumers

Statistical models

Specialised Lending

Income Producing Real Estate
Project financeObject financeExpert models/Supervisory
Slotting27

For the Retail Basel asset class (Residential Mortgages, Qualifying Revolving Retail and Other Retail
Exposures) the large number of relatively homogenous exposures enable the development ofstatistically robust application scoring models for use at origination and behavioural scoring forongoing management. As noted above, the scores are calibrated to PD, and used to allocate
exposures to homogenous pools, along with LGD and EAD.
Estimation of LGD and EAD
ANZ’s LGD modelling takes into account data on secured recovery, unsecured recovery rates and debt
seniority, geography and internal management costs from several major data sources. Internal data isused as the basis for LGD estimation in the retail asset class, and is supplemented by external data forthe corporate asset class. Given the scarcity of internal data for Bank and Sovereign Basel asset
classes, LGD modelling for these classes is primarily based on external data.
EAD represents the expected facility exposure at the date of default, including an estimate ofadditional drawings prior to default, as well as post-default drawings that were legally committed toprior to default.

27
Specialised Lending exposures are rated with internal rating tools to produce a PD and LGD. These are used ininternal processes, but not for regulatory capital purposes where the exposures are mapped to Supervisory Slots.

47

ANZ Basel III Pillar 3 disclosure

September 2015

Table 9(d): Non Retail Exposure at Default subject to Internal Ratings Based (IRB)
approach28 29 30
Sep 15
AAA
< A+
$M

A+
< BBB
$M

BBB
< BB+
$M

BB+
< B+
$M

B+
< CCC
$M

CCC
$M

Exposure at Default
Corporate
SovereignBank

23,432
107,082
33,75079,305
14,666
73,101

91,943
2,448
6,314

74,780
3,047
2,723

2,824
85
-

2,222
21
10

2,010 276,516- 127,349- 115,898

Total

164,264

167,072 100,705

Default
$M

Total
$M

80,550

2,909

2,253

2,010 519,763

32.1%

19.4%

15.5%

0.6%

0.4%

0.4%

100.0%

Undrawn commitments (included in above)
Corporate
6,237
25,820
Sovereign
566
497
Bank
-

26,4835
139

11,705
66
11

301
-

223
-

80
-

70,849
1,134
150

Total

80

72,133% of Total

31.6%

6,803

26,317

26,627

11,782

301

223

Average Exposure at Default
Corporate
7.658
Sovereign160.363
Bank
18.615

4.136
94.5884.396

1.540
38.692
4.107

0.406
23.2384.760

0.535
14.210
0.026

0.270
1.949
0.282

0.846
0.935
- 121.510
5.815

Exposure-weighted average Loss Given Default (%)
Corporate
57.0%
58.7%
51.0%
Sovereign
5.8%
16.3%
43.3%
Bank
62.3%
62.9%
63.9%

40.8%
51.5%
68.8%

44.7%
54.2%
74.5%

46.0%
59.2%
74.4%

38.8%
-

50.3%
9.0%
63.1%

Exposure-weighted average risk weight (%)
Corporate
19.4%
36.7%
Sovereign
1.1%
5.1%
Bank
21.3%
24.9%

78.3%
115.1%
123.0%

148.3%
172.1%
276.0%

228.7%
316.7%
358.6%

141.3%
-

58.8%
5.6%
32.1%

59.1%
47.8%
67.8%

28
In accordance with APS 330, EAD in Table 9(d) includes Advanced IRB exposures; however does not include
Specialised Lending, Standardised, Securitisation, Equities or Other Assets exposures. Specialised Lending is
excluded from Table 9(d) as it follows the Supervisory Slotting treatment, and a breakdown of risk weightings isprovided in Table 8(b).
29
Average EAD is calculated as total EAD post risk mitigants divided by the total number of credit risk generating
exposures.
30

Exposure-weighted average risk weight (%) is calculated as CRWA divided by EAD.

48

ANZ Basel III Pillar 3 disclosure

September 2015

Mar 15

Exposure at Default
Corporate
Sovereign
Bank
Total

AAA
< A+
$M

A+
< BBB
$M

BBB
< BB+
$M

BB+
< B+
$M

B+
< CCC
$M

CCC
$M

22,23791,926
37,60573,537
16,104
74,157

93,3761,508
6,883

76,150
3,254
3,914

2,410
158
30

1,680
33
5

2,177 271,567- 112,983- 122,594

163,798 101,767

Total
$M

83,318

2,598

1,718

2,177 507,144

32.3%

20.1%

16.4%

0.5%

0.3%

0.4%

100.0%

Undrawn commitments (included in above)
Corporate
5,879
22,127
Sovereign
267
339
Bank
124
155

25,87910
178

12,448
7
10

295
-

168
-

52
-

66,848
623
467

Total

52

67,938% of Total

151,768

Default
$M

29.9%

6,270

22,621

26,067

12,465295

168

Average Exposure at Default
Corporate
7.043
Sovereign
122.513Bank
24.8643.996
236.323
5.514

1.554
25.6495.293

0.415
20.334
5.303

0.541
6.859
7.403

0.231
2.570
0.268

0.695
0.924
- 104.356
7.252

Exposure-weighted average Loss Given Default (%)
Corporate
56.9%
58.9%
50.0%
Sovereign
2.4%
2.6%
46.0%
Bank
63.0%
63.3%
69.4%

41.2%
49.9%
69.9%

38.2%
75.9%
75.0%

44.1%
25.7%
71.3%

39.8%
-

49.8%
4.6%
64.2%

Exposure-weighted average risk weight (%)
Corporate
19.0%
35.4%
Sovereign
0.4%
0.9%
Bank
21.7%
25.6%

56.7%
52.8%
77.1%

73.8%
112.5%
127.0%

127.9%
249.3%
226.0%

207.0%
136.8%
328.2%

138.7%
-

56.3%
5.1%
35.6%

Default
$M

Total
$M

Sep 14
AAA
< A+
$M

A+
< BBB
$M

BBB
< BB+
$M

BB+
< B+
$M

B+
< CCC
$M

CCC
$M

17,25180,82340,38264,3502,037
69,37788,791
1,446
6,064

71,990
2,808
3,028

3,160
200
31

960
32
7

2,244 248,746
87,346- 118,889

138,456

135,764

96,301

77,8263,391

999

2,244 454,981

30.4%

29.9%

21.2%

17.1%

0.7%

0.2%

0.5%

100.0%

Undrawn commitments (included in above)
Corporate
5,598
20,323
Sovereign
516
229
Bank
136
185

23,88513
342

12,125
46
17

389
-

77
-

72
-

62,469
804
680

Total

Exposure at Default
Corporate
Sovereign
Bank
Total
% of Total

6,250

20,737

24,24012,188

389

77

72

63,953

Average Exposure at Default
Corporate
6.031
Sovereign106.126
Bank
23.1953.058
39.492
3.489

1.442
24.8634.338

0.397
17.440
3.966

0.577
9.548
0.996

0.159
2.276
0.315

0.654
-

0.847
80.964
5.216

Exposure-weighted average Loss Given Default (%)
Corporate
57.8%
58.7%
50.0%
Sovereign
2.4%
7.2%
45.3%
Bank
62.8%
63.2%
69.2%

40.5%
51.2%
69.1%

39.0%
74.5%
74.0%

41.0%
26.1%
64.8%

40.0%
-

49.3%
5.1%
63.9%

Exposure-weighted average risk weight (%)
Corporate
18.9%
34.8%
Sovereign
0.5%
3.7%
Bank
21.4%
25.3%

72.8%
116.2%
123.2%

116.1%
221.1%
244.0%

178.2%
125.3%
273.9%

138.2%
-

56.1%
5.9%
33.6%

56.4%
49.7%
76.7%

49

ANZ Basel III Pillar 3 disclosure

September 2015

Table 9(d): Retail Exposure at Default subject to Advanced Internal Ratings Based (IRB)
approach by risk grade
Sep 150.00%<0.11%$M

0.11%<0.30%$M

0.30%<0.51%
$M

0.51%
3.49%
10.09%<3.49% <10.09% <100.0%
$M
$M
$M

Exposure at Default
Residential Mortgage
Qualifying Revolving Retail
Other Retail

69,637
11,4091,393

139,008
435
5,433

27,253
2,007
2,157

70,065
5,110
25,773

10,126
2,103
8,843

5,085
863
1,809

2,000 323,174
161
22,088943
46,351

Total

82,439144,876

31,417 100,948

21,072

7,757

3,104 391,613% of Total

21.1%

37.0%

8.0%

25.8%

5.4%

2.0%

0.8%

100.0%

Undrawn commitments (included in above)
Residential Mortgage
6,249
16,935
Qualifying Revolving Retail
8,915
434
Other Retail
681
2,014

968
1,328
1,252

7,577
2,305
3,340

182
781
464

176
113
68

2
28
6

32,08913,904
7,825

Total

Default
$M

Total
$M

15,845

19,383

3,548

13,222

1,427

357

36

53,818

0.234
0.011
0.010

0.210
0.006
0.017

0.192
0.010
0.011

0.237
0.009
0.022

0.276
0.009
0.011

0.268
0.008
0.010

0.218
0.009
0.019

0.221
0.010
0.016

Exposure-weighted average Loss Given Default (%)
Residential Mortgage
19.8%
19.2%
19.1%
Qualifying Revolving Retail
73.2%
73.2%
73.2%
Other Retail
44.9%
44.3%
73.1%

22.3%
73.2%
45.5%

20.5%
73.2%
59.3%

20.0%
73.2%
60.1%

20.8%
73.2%
49.9%

20.1%
73.2%
50.0%

Exposure-weighted average risk weight (%)
Residential Mortgage
5.3%
6.7%
Qualifying Revolving Retail
4.9%
11.6%
Other Retail
26.4%
34.8%

29.5%
39.2%
60.0%

75.1%
110.5%
100.8%

108.4%
207.5%
182.2%

224.7%
327.8%
201.2%

17.0%
34.4%
71.2%

Average Exposure at Default
Residential Mortgage
Qualifying Revolving Retail
Other Retail

13.7%
13.8%
54.2%

50

ANZ Basel III Pillar 3 disclosure

September 2015

Mar 150.00%<0.11%$M

0.11%<0.30%$M

0.30%<0.51%
$M

0.51%
3.49%
10.09%<3.49% <10.09% <100.0%
$M
$M
$M

Exposure at Default
Residential Mortgage
Qualifying Revolving Retail
Other Retail

70,542
11,255
1,346

130,842377
5,726

26,118
1,944
4,126

67,347
4,910
24,632

9,142
2,317
7,709

4,927
968
1,751

1,881 310,799
163
21,934830
46,120

Total

83,143

136,945

32,18896,88919,1687,646

2,874 378,853% of Total

21.9%

36.1%

8.5%

25.6%

5.1%

2.0%

0.8%

100.0%

Undrawn commitments (included in above)
Residential Mortgage
8,584
16,724
Qualifying Revolving Retail
8,781
376
Other Retail
616
2,161

962
1,267
1,757

4,958
2,212
3,155

158
756
274

172
121
58

2
26
10

31,56013,539
8,031

Total

Default
$M

Total
$M

17,981

19,261

3,986

10,325

1,188

351

38

53,130

0.235
0.011
0.018

0.205
0.006
0.017

0.189
0.010
0.017

0.227
0.009
0.019

0.258
0.009
0.010

0.264
0.008
0.010

0.210
0.009
0.015

0.216
0.010
0.016

Exposure-weighted average Loss Given Default (%)
Residential Mortgage
19.8%
19.2%
18.9%
Qualifying Revolving Retail
73.2%
73.2%
73.2%
Other Retail
41.5%
44.8%
55.7%

22.6%
73.2%
47.4%

20.7%
73.2%
57.0%

20.0%
73.2%
60.6%

21.3%
73.2%
50.9%

20.1%
73.2%
50.0%

Exposure-weighted average risk weight (%)
Residential Mortgage
5.8%
6.7%
Qualifying Revolving Retail
4.8%
11.2%
Other Retail
27.4%
34.6%

30.5%
38.4%
62.8%

76.6%
107.7%
93.9%

108.4%
206.0%
175.9%

225.8%
338.2%
212.3%

17.2%
35.7%
68.7%

Default
$M

Total
$M

Average Exposure at Default
Residential Mortgage
Qualifying Revolving Retail
Other Retail

13.5%
13.9%
42.4%

Sep 140.00%<0.11%$M

0.11%<0.30%$M

0.30%<0.51%
$M

0.51%
3.49%
10.09%<3.49% <10.09% <100.0%
$M
$M
$M

Exposure at Default
Residential Mortgage
Qualifying Revolving Retail
Other Retail

2,612
11,239999

191,293
291
4,218

22,625
1,861
3,441

62,4594,726
21,223

8,463
2,395
7,395

5,224
804
1,445

1,731 294,407
155
21,471
724
39,445

Total

14,850195,80227,92788,40818,2537,473

2,610 355,323

4.2%

55.1%

7.9%

24.9%

5.1%

2.1%

0.7%

100.0%

Undrawn commitments (included in above)
Residential Mortgage
1,023
21,103
Qualifying Revolving Retail
8,781
290
Other Retail
460
1,709

873
1,204
1,686

4,017
2,053
2,623

162
942
317

150
97
50

4
25
8

27,332
13,392
6,853

Total

% of Total

10,264

23,102

3,763

8,693

1,421

297

37

47,577

0.048
0.011
0.014

0.216
0.006
0.014

0.165
0.010
0.013

0.206
0.009
0.017

0.248
0.009
0.010

0.261
0.008
0.009

0.194
0.009
0.015

0.204
0.010
0.014

Exposure-weighted average Loss Given Default (%)
Residential Mortgage
15.4%
19.5%
18.8%
Qualifying Revolving Retail
73.2%
73.2%
73.2%
Other Retail
49.7%
50.4%
66.6%

22.6%
73.2%
48.1%

20.7%
73.2%
56.3%

20.0%
73.2%
63.6%

21.8%
73.2%
52.4%

20.1%
73.2%
52.2%

Exposure-weighted average risk weight (%)
Residential Mortgage
3.8%
6.4%
Qualifying Revolving Retail
4.9%
11.4%
Other Retail
33.4%
39.5%

30.3%
38.8%
61.7%

74.1%
112.8%
87.7%

107.7%
206.3%
145.3%

224.0%
330.6%
196.5%

17.0%
35.4%
68.1%

Average Exposure at Default
Residential Mortgage
Qualifying Revolving Retail
Other Retail

13.4%
14.1%
50.6%

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ANZ Basel III Pillar 3 disclosure

September 2015

Table 9(e): Actual Losses by portfolio type
Half year Sep 15
Individual provision charge$M

Write-offs$M

Corporate

204

197

Sovereign(2)-

Basel Asset Class

Bank

-

-

Residential Mortgage

917

Qualifying Revolving Retail

102

145

Other Retail

279

272

Total Advanced IRB

592

631

Specialised Lending

(15)

61

78

123

655

815

Standardised approach
Total

Half year Mar 15
Individual provision charge$M

Write-offs$M

Corporate

144

142

Sovereign

1

-

Bank

-

-

Residential Mortgage

4

21

Qualifying Revolving Retail

89

129

Other Retail

190

206

Total Advanced IRB

428

498

Specialised Lending

16

21

Basel Asset Class

Standardised approach
Total

11

90

455

609

Half year Sep 14
Individual provision charge$M

Write-offs$M

Corporate

156

376

Sovereign

-

-

Bank

-

-

Residential Mortgage

24

27

Qualifying Revolving Retail

100

139

Other Retail

211

211

Total Advanced IRB

491

753

Specialised Lending

(6)

33

Standardised approach

57

125

542

911

Basel Asset Class

Total

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ANZ Basel III Pillar 3 disclosure

September 2015

Table 9(f): Average estimated vs. actual PD, EAD and LGD – Advanced IRB

Average
Estimated PD%

Average
Actual PD%

Sep 15
Averageestimated toactual EAD
ratio

Corporate

1.52

0.98

1.12

40.03

Sovereign

0.37

nil

n/a

n/a

n/a

Bank

0.56

0.05

0.93

46.00

58.3

Specialised Lending

n/a

2.06

1.10

n/a

22.31

Residential Mortgage

0.77

0.79

1.00

21.0

3.9

Qualifying Revolving Retail

2.68

1.95

1.05

73.2

72.2

Other Retail

3.54

3.52

1.05

49.9

43.1

Portfolio Type

Average
Estimated
LGD%

Average
Actual LGD%
28.98

APS 330 Table 9f compares internal credit risk estimates used in calculating regulatory capital withrealised outcomes by portfolio types. It covers the PD, EAD and LGD estimates for the IRB portfolios.
Estimated PD and LGD for Specialised Lending exposures have not been provided, since APRA requires
the use of supervisory slotting for Regulatory EL calculations.
Actual PD, EAD ratio, Estimated LGD and Actual LGD for Sovereign exposures have not been provided,
since there was no Sovereign defaults observed in ANZ Sovereign exposures for the observation
period.
The estimated PD is based on the average of the internally estimated long-run PD’s for obligors thatare not in default at the beginning of each financial year over the period of observation being 2009 to
September 2015. The actual PD is based on the number of defaulted obligors compared to the total
number of obligors measured at the beginning of each financial year over the period of observation
being 2009 to September 2015.
The EAD ratio compares internally estimated EAD prior to default to realised EAD for defaulted
obligors over the six years of observation being 2009 to September 2015. A ratio greater than 1.0
signifies that on average, the actual defaulted exposures are lower than the estimated exposures at
the time of default.
The estimated LGD is the downturn LGD for accounts that defaulted at the beginning of each year
during the observation period being 2009 to September 2013. The actual LGD is based on the averagerealised losses over the period for the accounts observed at beginning and defaulted during theobservation period. For non-retail portfolios, the estimated and actual LGDs are based on accounts
that defaulted in 2009 to September 2013. For retail portfolios, the estimated and actual LGDs are
based on accounts that defaulted in 2009 to 2015 financial years. For non-retail portfolios, defaults
occurring in between October 2013 and September 2015 have been excluded from the analysis toallow sufficient time for workout period. For retail portfolios, defaults occurring in 2015 have been
excluded. For non-retail portfolios, actual LGD for defaults where workouts were not finalised havebeen estimated to approximate the final actual loss. For the retail portfolios, defaults with nonfinalised workout have been excluded from the analysis.
In assessing the accuracy of the credit risk estimates, it should be noted that the period of analysis
does not cover a full economic cycle

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ANZ Basel III Pillar 3 disclosure
Table 10

September 2015

Credit risk mitigation disclosures

Main types of collateral taken by ANZ
Collateral is used to mitigate credit risk, as the secondary source of repayment in case thecounterparty cannot meet its contractual repayment obligations.31 Types of collateral typically taken
by ANZ include:Security over residential, commercial, industrial or rural property.

Charges over business assets.



Security over specific plant and equipment.

Charges over listed shares, bonds or securities.



Charges over cash deposits.

Guarantees and pledges.

In some cases, such as where the customer risk profile is considered very sound or by the nature of
the product (for instance, small limit products such as credit cards), a transaction may not be
supported by collateral.
Credit policy, requirements and processes set out the acceptable types of collateral, as well as aprocess by which additional instruments and/or asset types can be considered for approval. ANZ’scredit risk modelling teams use historical internal loss data and other relevant external data to assist
in determining the discount that each type would be expected to incur in a forced sale. The discounted
value is used in the determination of a SI for LGD purposes.
Policies and processes for collateral valuation and management
ANZ has well established policies, requirements and processes around collateral valuation andmanagement, that are reviewed regularly. The concepts of legal enforceability, certainty and current
valuation are central to collateral management.
In order to achieve legal enforceability and certainty, ANZ uses standard collateral instruments or has
specific documentation drawn up by external legal advisers, and where applicable, security interests
are registered. The use of collateral management systems also provides certainty that the collateral
has been properly taken, registered and stored.
In order to rely on the valuation of collateral assets, ANZ has developed comprehensive rules aroundacceptable types of valuations (including who may value an asset), the frequency of revaluations andstandard extension ratios for typical asset types. Upon receipt of a new valuation, the information isused to recalculate the SI (or to reassess the adequacy of the provision, in the case of an impaired
asset), thereby ensuring that the exposure has an updated LGD attached to it for risk quantification
purposes.
Guarantee support
Guarantee support for lending proposals are an integral component in transaction structuring for ANZ.
The guarantee of a financially strong party can help improve the PD of a transaction through its
explicit support of the weaker rated borrower.
Guarantees that are recognised for risk rating purposes may be provided by parties that include
associated entities, banks, sovereigns or individuals. Credit requirements provide thresholdparameters to determine acceptable counterparties in achieving risk grade enhancement of thetransaction.
The suitability of the guarantor is determined by risk rating that guarantor. Not all guarantees orguarantors are recognised for risk grade enhancement purposes.
Use of credit derivatives for risk mitigation
ANZ uses purchased credit derivatives to mitigate credit risk by lowering exposures to reference
entities that generate high concentration risk exposures or to improve risk return performance.
Only certain credit derivatives such as credit default swaps (CDS) are recognised for risk mitigation
purposes in the determination of regulatory capital. A CDS entails the payment by one party in
31

For some products, the collateral provided is fundamental to its structuring so is not strictly the secondary sourceof repayment. For example, lending secured by trade receivables is typically repaid by the collection of thosereceivables.

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ANZ Basel III Pillar 3 disclosure

September 2015

exchange for credit default protection payment if a credit default event on a reference asset occurs.
Standard, legally enforceable documentation applies.
For regulatory capital purposes, ANZ only recognises protection using credit derivatives where theymeet several policy and regulatory requirements around the strength of the protection offered such as
being irrevocable.
A CDS may only be transacted with banks and non-bank financial institutions that have been credit
assessed and approved by a designated specialist credit officer. All parties must meet minimum credit
standards and be allocated a related credit limit. In the event that the creditworthiness of a credit
protection provider falls below the minimum required to provide effective protection, the protection is
no longer recognised as an effective risk mitigant for regulatory purposes.
The use of netting
Netting is a form of credit risk mitigation in that it reduces EAD, by offsetting a customer’s positive
and negative balances with ANZ.
In order to apply on-balance sheet netting, the arrangement must be specifically documented with thecustomer and meet a number of legally enforceable requirements.
Netting is also used where the credit exposure arises from off-balance sheet market relatedtransactions. For close-out netting to be utilised with counterparties, a legally enforceable eligible
netting agreement in an acceptable jurisdiction must be in place. This means that each transaction isaggregated into a single net amount and transactions are netted to arrive at a single overall sum.
Transaction structuring to mitigate credit risk
Besides collateral, guarantee support and derivatives described above, credit risk mitigation can also
be furthered by prudent transaction structuring. For example, the risk in project finance lending canbe mitigated by lending covenants, loan syndication and political risk insurance.
Concentrations of credit risk mitigation
Taking collateral raises the possibility that ANZ may inadvertently increase its risk by becoming
exposed to collateral concentrations. For example, in the same way that an over-exposure to aparticular industry may mean that a bank is more sensitive to the fortunes of that industry, an overexposure to a particular collateral asset type may make ANZ more sensitive to the performance ofthat asset type.
ANZ does not believe that it has any material concentrations of collateral types, given the welldiversified nature of its portfolio and conservative asset extension ratios.

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ANZ Basel III Pillar 3 disclosure

September 2015

Table 10(b): Credit risk mitigation on Standardised approach portfolios – collateral 32

Exposure$M

Sep 15
Eligible Financial Other Eligible
CollateralCollateral$M$M% Coverage

Standardised approach
Corporate

30,365

496

-

1.6%

Residential Mortgage

7,829

36

-

0.5%

Other Retail

3,636

-

-

0.0%

41,830

532

-

1.3%

Mar 15
Eligible Financial Other Eligible
CollateralCollateral$M$M% Coverage

Total

Exposure$M
Standardised approach
Corporate

30,201

461

-

1.5%

Residential Mortgage

7,289

41

-

0.6%

Other Retail

3,283

-

-

0.0%

40,773

502

-

1.2%

Sep 14
Eligible Financial Other Eligible
CollateralCollateral$M$M% Coverage

Total

Exposure$M
Standardised approach
Corporate

25,477

530

-

2.1%

Residential Mortgage

6,559

51

-

0.8%

Other Retail

3,012

-

-

0.0%

35,048

581

-

1.7%

Total

32
Eligible Collateral could include cash collateral (cash, certificates deposits and bank bills issued by the lending
ADI), gold bullion and highly rated debt securities.

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ANZ Basel III Pillar 3 disclosure

September 2015

Table 10(c): Credit risk mitigation – guarantees and credit derivatives
Sep 15

Exposure$M

Exposurescovered by
Guarantees$M

Exposurescovered by
CreditDerivatives$M% Coverage

Corporate (incl. Specialised Lending)

314,270

13,851345

4.5%

Sovereign

127,349

337

-

0.3%

Bank

115,898

13,260-11.4%

Residential Mortgage

323,174

-

-

0.0%

Qualifying Revolving Retail

22,088--0.0%

Other Retail46,351--

0.0%

949,130

27,448345

2.9%Corporate

30,365--0.0%

Residential Mortgage

7,829

-

-

0.0%

Other Retail

3,636

-

-

0.0%

Total

41,830--0.0%

Qualifying Central Counterparties

33,255--0.0%

Exposure$M

Exposurescovered by
Guarantees$M

Exposurescovered by
CreditDerivatives$M% Coverage

Corporate (incl. Specialised Lending)309,092

15,211235

5.0%

Sovereign

112,983

470

-

0.4%

Bank

122,594

9,680

-

7.9%

Residential Mortgage

310,799

-

-

0.0%

Qualifying Revolving Retail

21,934--

0.0%

Other Retail46,120--0.0%

923,523

25,361235

2.8%

Corporate

30,201--

0.0%

Residential Mortgage

7,289

-

-

0.0%

Other Retail

3,283

-

-

0.0%

Total

40,773--0.0%

Qualifying Central Counterparties

26,287--0.0%

Advanced IRB

Total
Standardised approach

Mar 15

Advanced IRB

Total
Standardised approach

57

ANZ Basel III Pillar 3 disclosure

September 2015

Sep 14

Exposure$M

Exposurescovered by
Guarantees$M

Exposurescovered by
CreditDerivatives$M% Coverage

Corporate (incl. Specialised Lending)283,695

17,742233

6.3%

Sovereign87,346

202

-

0.2%

Bank

118,889

8,027

-

6.8%

Residential Mortgage

294,407

-

-

0.0%

Qualifying Revolving Retail

21,471--

0.0%

Other Retail39,445--0.0%

845,252

25,972233

3.1%

Corporate

25,477--0.0%

Residential Mortgage

6,559

-

-

0.0%

Other Retail

3,012

-

-

0.0%

Total

35,049--0.0%

Qualifying Central Counterparties

10,444--0.0%

Advanced IRB

Total
Standardised approach

58

ANZ Basel III Pillar 3 disclosure
Table 11

September 2015

General disclosures for derivatives and counterparty credit
riskDefinition of counterparty credit risk
Counterparty credit risk in derivative transactions arises from the risk of counterparty default before
settlement date of derivative contracts and the counterparty is unable to fulfill present and futurecontractual payment obligations. The amount at risk may change over time as a function of theunderlying market parameters up to the positive value of the contract in favour of ANZ.
Counterparty credit risk is present in market instruments (derivatives and forward contracts), andcomprises:•

Settlement risk, which arises where one party makes payment or delivers value in the expectation
but without certainty that the counterparty will perform the corresponding obligation in a bilateralcontract at settlement date.

•Market replacement risk (pre-settlement risk), which is the risk that a counterparty will default
during the life of a derivative contract and that a loss will be incurred in covering the position.

ANZ transacts market instruments with the following counterparties:•

End users – would typically use over the counter derivative instruments provided by ANZ tomanage price movement risk associated with their core business activity.

•

Professional counterparties – ANZ may hedge price movement risks by entering into transactions
with professional counterparties that conduct two way (buy and sell) business.

Counterparty credit risk requires a different method to calculate exposure at default because actualand potential market movements impact ANZ’s exposure or replacement cost. The markets coveredby this treatment include the derivative activities associated with interest rate, foreign exchange,
CDS, equity, commodity and repurchase agreement (repo) products.
Counterparty credit risk governance
ANZ’s counterparty credit risk management is governed by its credit principles, policies andprocedures. The Counterparty Credit Risk function is responsible for determining the counterparty
credit risk exposure methodology applied to market instruments, in the framework for counterparty
credit limit management, measurement and reporting.
The counterparty credit risk associated with derivative transactions is governed by credit limit setting
consistent with all credit exposures to the ANZ Group. Counterparty credit limits are approved by theappropriate credit delegation holders.
Counterparty credit risk measurement and reporting
The approach to measure counterparty credit risk exposure is based on internal models. These
measures are referred to as potential credit risk exposure (PCRE) and potential future exposure (PFE)and measure the worst case credit exposure of derivative transactions at future time points. PFE ismeasured at the 97.5th percentile at future pre-described time points, and PCRE is a 97.5th percentile
averaged over time points.
ANZ is moving from PCRE based on add-on methodology to a more sophisticated PFE Monte Carlobased approach to assess possible exposure movements for certain derivative products and will use
these estimates in internal Economic Capital calculations.
PCRE factors recognise that prices may change over the remaining period to maturity, and that risk
decreases as the contract’s remaining term to maturity decreases. In general terms PCRE is calculated
by applying a risk weighting or volatility factor to the face value of the notional principal of individual
trades.
PFE simulates relevant risk factors in a portfolio by taking into account the relevant volatilities andcorrelations calibrated to historical market data.
PFE and PCRE models are also used by credit officers to establish credit limits on an uncommitted andunadvised basis, to ensure the potential volatility of the transaction value is recognised. Counterparty
credit risk exposure is calculated six times per 24 hour day and excesses above approved limits arereported to account controllers and Credit officers for action.

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ANZ Basel III Pillar 3 disclosure

September 2015

Credit value adjustment (CVA)
Over the life of a derivative instrument, ANZ uses a CVA model to adjust fair value to take into
account the impact of counterparty credit quality. The methodology calculates the present value of
expected losses over the life of the financial instrument as a function of PD, LGD, and expected credit
risk exposure.
APRA requires banks to hold additional risk based capital to cover the risk of mark to market losses
associated with deterioration in counterparty credit worthiness when entering into derivatives
transactions. The effect is that banks are required to increase the amount of capital provisioned for
deterioration in the counterparty credit worthiness when entering into a derivatives trade.
Wrong way risk
ANZ’s management of counterparty credit risk also considers the possibility of wrong way risk, which
emerges when PD is adversely correlated with counterparty credit risk exposures. ANZ’s credit
policies and independent transaction evaluation by Credit Risk are central to managing wrong way
risk.
Counterparty credit risk mitigation and credit enhancements
ANZ’s primary tools to mitigate counterparty credit risk include:

A bilateral netting master agreement (e.g. an International Swaps and Derivatives Association ISDA) allowing close-out netting of exposures in a portfolio with offsetting contracts, with a single
net payment with the same legal counterparty.

Use of collateral agreements in some transactions based on standard market documentation (i.e.
ISDA master agreement with credit support annex) that governs the amount of collateral required
to be posted or received by ANZ throughout the life of the contract. Some agreements are linked
to external credit ratings which means in the event of a party’s (ANZ or a counterparty) externalrating being downgraded, it would likely be required to lodge collateral. The operation of collateralagreements falls under policy which establishes the control framework to ensure a robust andglobally consistent approach to the management of collaterised exposures.

Use of right to break clauses in master agreement or in trade confirmation to reduce term of longdated derivative trades.

Independent limit setting, credit exposure control, monitoring and reporting of excesses against
approved credit limits.

Additional termination triggers (close out of exposure) such as credit rating downgrade clauses
and change in ownership clauses included in documentation.

Linking covenants and events of default in existing loan facility agreement to master agreement.



Use of credit derivatives to hedge counterparty credit risk exposure.

Settlement through Continuous Linked Settlement (CLS) to eliminate settlement risk for foreignexchange transactions with CLS members.



Clearing certain derivative transactions through central counterparty clearing houses.

In the event of a downgrading of ANZ’s rating by one notch from AA- to A+, as at 30 September
2015, ANZ would be required to lodge USD 112 million additional collateral with its counterparties.
This represents a small percentage of ANZ's overall liquidity portfolio.

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ANZ Basel III Pillar 3 disclosure

September 2015

Table 11(b): Counterparty credit risk – net derivative credit exposure
Net derivative credit exposure
Sep 15$M
Gross positive fair value of contracts

85,625

Netting benefits(62,782)

Netted current credit exposure

22,843Collateral held

(7,165)Net derivatives credit exposure

15,678Counterparty credit risk exposure – by portfolio type
Portfolio TypeSep 15$M

Corporate

35,221

Sovereign

5,433

Bank

67,406

Qualifying Central Counterparties

32,733Specialised Lending

848

Total exposures

141,641

Notional value of credit derivative hedges
Sep 15$M
Credit Default Swaps

728

Interest Rate Swaps-

Currency Swaps

-

Other

-

Net derivatives credit exposure

728

Table 11(c): Counterparty credit risk exposure – credit derivative transactions
Protection Protection
Bought
Sold
$M
$M

Total
$M

Credit derivative products used for own credit portfolio
Credit default swaps

22,284

21,47443,758

Total notional value

22,284

21,47443,758

728
-

728
-

1,456
-

Credit derivative products used for intermediation
Credit default swaps
Total return swaps
Total notional value
Total credit derivative notional value

61

728

728

1,456

23,012

22,20245,214

ANZ Basel III Pillar 3 disclosure

September 2015

Chapter 7 – Securitisation
Table 12Securitisation disclosures

Definition of securitisation and resecuritisation
A securitisation is a financial structure where the cash flow from a pool of assets is used to service
obligations to at least two different tranches or classes of creditors,33 typically holders of debt
securities, with each class or tranche reflecting a different degree of credit risk. This stratification of
credit risk means that one class of creditors is entitled to receive payments from the pool before
another class. A resecuritisation exposure is a securitisation exposure in which the risk associated withan underlying pool of exposures is tranched and at least one of the underlying exposures is asecuritisation exposure.
Securitisations may be categorised as:

Traditional securitisations, where legal ownership of the underlying asset pool is transferred toinvestors, with principal and interest paid from realisation of or regular cash flows from theassets. The Special Purpose Vehicle (SPV) assets are insulated from bankruptcy of the seller orservicer.
Synthetic securitisations, where credit risk is transferred to a third party but legal ownership of
the underlying assets remain with the originator e.g. by using credit derivatives or guarantees.


Covered bond transactions, whereby bonds issued by ANZ are secured by assets held in a special
purpose vehicle, are not securitisation exposures.
Regulatory capital approaches used in ANZ’s securitisation activities
For securitisation exposures held in ANZ’s banking book34, ANZ applies an IRB approach (as outlinedin APS 120) to determine the regulatory capital charge.
Chapter 8 outlines regulatory capital treatment for securitisation exposures held in ANZ’s tradingbook.
Securitisation activities
ANZ’s key securitisation activities are:

Securitisation of third-party originated assets, including residential mortgages, credit cards, autoand equipment loans and trade receivables.
Investment in securities – ANZ may purchase notes issued by securitisation programs.
Securitisation of ANZ originated assets (including self securitisation) as a funding and liquidity
management tool, which may or may not involve the transfer of credit risk i.e. may or may notprovide regulatory capital relief.
Provision of facilities and services to securitisations or resecuritisations (where the underlying
assets may be ANZ or third-party originated) e.g. structuring and arranging services, providing
funding and/or swaps to securitisation vehicles and (via ANZ Capel Court Limited) trust
management services.

Similar to other exposures, securitisation exposures are subject to credit, market, operational liquidity
and legal risks. Roles and responsibilities are clearly outlined in ANZ’s established risk management
framework of policies and procedures, including:Appropriate risk management systems to identify, measure, monitor and manage the risks arisingfrom its involvement in securitisation exposures;
Impact of ANZ’s involvement in securitisation exposures on its risk profile; andHow ANZ ensures that it does not provide any implicit support to its securitisation exposures.

Funding for third party originated exposures and investment in securities are via balance sheet fundedarrangements where such arrangements satisfy ANZ’s credit, due diligence and other business
requirements.

33

APRA’s definition of securitisation includes certain cases where only one tranche or class of creditors is serviced by
the cash flow from the pool of assets.

34

Exposures are classified into either the trading book or the banking book. In general terms, the trading bookconsists of positions in financial instruments and commodities held with trading intent or in order to hedge otherelements of the trading book, and the banking book contains all other exposures. Banking book exposures are
typically held to maturity, in contrast to the shorter term, trading nature of the trading book.

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ANZ Basel III Pillar 3 disclosure

September 2015

ANZ has no affiliated entities that ANZ manages or advises and that invests in securitisation
exposures that ANZ has securitised or in SPV’s that ANZ sponsors.
Governance of securitisation activities
Governance of securitisation activities is overseen by the Board and executive committees describedin Chapter 3, and managed in accordance with the credit risk and market risk frameworks described in
Chapters 6 and 8.
Many functions within ANZ are involved in securitisation activities given the range of activities
undertaken and risks that need to be managed. For origination and structuring of securitisationtransactions, ANZ has a specialist securitisation team with independent Risk personnel overseeing
operations. Credit decisions require joint Risk and business approval. The securitisation team must be
involved in all non-trading securitisation transactions across ANZ, which ensures consistent expert
treatment. Where ANZ invests in instruments issued by securitisation programs, the relevant businessarea manages these exposures until the securitisation exposures are repaid in full or traded.
Risk measurement and reporting of securitisation exposures
In accordance with APS 120, ANZ has a hierarchy of approaches available to quantify the credit risk ofbanking book securitisation exposures. The most common approaches used are the Ratings BasedApproach (specifically utilising the external ratings of ECAI’s) and the Internal Assessment Approach(IAA). Other approaches that may be used are Supervisory Formula Approach (SFA) and Eligible
Facility Approach.
IAA is applied to securitisation exposures that are not externally rated where the underlying assets areresidential mortgages, equipment finance, auto loans or trade receivables. In addition to adopting
IAA for regulatory and economic capital requirements, IAA may be used for internal management
purposes
When utilising the IAA, ANZ uses a rating agency-type methodology which specifies certain stressfactors, takes into account historical performance of assets and other (asset-specific) considerations
such as underwriting standards. IAA methodology is applied and maintained in accordance with
APRA’s requirements and it forms part of ANZ’s overall securitisation risk-grading framework.
All facilities provided to or investments in securitisation programs (across both the banking andtrading books) undergo initial and ongoing due diligence requirements as outlined by APRA. This due
diligence is completed with input from the Risk function and includes analysing the structure of thetransaction and monitoring performance of the underlying assets of the transaction. In addition, suchsecuritisation exposures are formally reviewed at least annually, including the risk grade.
The type and frequency of internal reporting on ANZ’s securitisation exposures is as follows:Facilities provided to securitisation programs are reported using standard credit reporting
systems, distinguished by appropriate product codes. The regular reporting frequency for most ofthese systems is monthly.
Investments in securitisations are reported through the banking book or the trading book on amonthly basis.

The use and treatment of Credit Risk Mitigation (CRM) techniques with respect to securitisation
exposures is assessed on a case-by-case basis in a manner consistent with the bank-wide CRM
methodology.35
Accounting policies
The principal accounting policies governing ANZ’s securitisation activities are outlined in ANZ’s 2015
Annual Report, Notes to the Financial Statements. These include the valuation, derecognition,
consolidation and income recognition principles outlined in Note 1 – Significant Accounting Policies andthe critical judgments applied to these policies outlined in Note 2 – Critical Estimates and Judgments
Used in Applying Accounting Policies. ANZ applies these group accounting policies to its securitisation
activities, as appropriate and these policies have not changed since the prior year. Note 36 –Structured Entities and Note 37 – Transfers of Financial Assets also provides details about the natureof ANZ’s securitisation activities and certain accounting policies as they specifically apply to these
activities.

35

For example, various types of analysis including quantitative analysis of credit enhancements are performed for
non-externally rated transactions. Factors such as geography, facility / transaction type and ANZ’s role will
determine the applicable CRM techniques to apply.

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ANZ Basel III Pillar 3 disclosure

September 2015

Financial instruments held or issued by structured entities are recognised and valued using theprinciples of AASB 139 Financial Instruments: Recognition and Measurement. For synthetic
securitisations, any transferred credit exposure is recognised through the fair value measurement of
the segregated embedded or stand-alone credit derivative established within the structure.
To the extent that ANZ has exposures intended to be securitised, they could reside in either thebanking or trading book.
To the extent that ANZ has entered into contractual arrangements that could require it to provide
financial support for securitised assets e.g. liquidity facilities, these are recognised in accordance withthe accounting policies set out in ANZ’s 2015 Annual Report.
Use of external rating agencies
Where the use of ECAIs is relevant, ANZ applies the ratings or the rating methodologies provided byStandard & Poor’s, Moody's Investor Services and/or Fitch Ratings as appropriate.

64

ANZ Basel III Pillar 3 disclosure

September 2015

Banking Book
Table 12(g): Banking Book: Traditional and synthetic securitisation exposures

Sep 15
Traditional securitisations
ANZ Originated$M

ANZ Self Securitised$M

ANZ Sponsored$M

Residential mortgage-

79,355-Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

79,355-ANZ Originated$M

ANZ Self Securitised$M

ANZ Sponsored$M

Residential mortgage

-

-

-

Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

-

-

Aggregate of traditional and synthetic securitisations
ANZ Originated$M
Underlying asset

ANZ Self Securitised$M

ANZ Sponsored$M

Underlying asset

Synthetic securitisations
Underlying asset

Residential mortgage-

79,355-Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

79,355-65

ANZ Basel III Pillar 3 disclosure

September 2015

Mar 15
Traditional securitisations
ANZ Originated$M-

ANZ Self Securitised$M
74,060ANZ Sponsored$M-

Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

74,060-ANZ Originated$M

ANZ Self Securitised$M

ANZ Sponsored$M

Residential mortgage

-

-

-

Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

-

-

Aggregate of traditional and synthetic securitisations
ANZ Originated$M
Underlying asset
Residential mortgage

ANZ Self Securitised$M
74,060ANZ Sponsored$M-

Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

74,060-Underlying asset
Residential mortgage

Synthetic securitisations
Underlying asset

Sep 14
Traditional securitisations
ANZ Originated$M-

ANZ Self Securitised$M73,368ANZ Sponsored$M-

Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

73,368-ANZ Originated$M

ANZ Self Securitised$M

ANZ Sponsored$M

Residential mortgage

-

-

-

Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

-

-

Aggregate of traditional and synthetic securitisations
ANZ Originated$M
Underlying asset
Residential mortgage

ANZ Self Securitised$M73,368ANZ Sponsored$M-

Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

73,368-Underlying asset
Residential mortgage

Synthetic securitisations
Underlying asset

66

ANZ Basel III Pillar 3 disclosure

September 2015

Table 12(h): Banking Book: Impaired and Past due loans relating to ANZ originatedsecuritisations
Sep 15ANZ Originated$M

ANZ Self
Securitised$M

Impaired$M

Past due$M

Losses recognised
for the six month
ended
$M

Residential mortgage-

79,355-36

1Credit cards and other personal loans

-

-

-

-

-

Auto and equipment finance

-

-

-

-

-

Commercial loans

-

-

-

-

-

Other

-

-

-

-

-

Total

-

79,355-36

1

Underlying asset

Mar 15ANZ Originated$M

ANZ Self
Securitised$M

Impaired$M

Past due$M

Losses recognised
for the six month
ended
$M

Residential mortgage-

74,060131-

Credit cards and other personal loans

-

-

-

-

-

Auto and equipment finance

-

-

-

-

-

Commercial loans

-

-

-

-

-

Other

-

-

-

-

-

Total

-

74,0601

31-

Underlying asset

Sep 14ANZ Originated$M

ANZ Self
Securitised$M

Impaired$M

Past due$M

Losses recognised
for the six month
ended
$M

Residential mortgage-

73,368128-

Credit cards and other personal loans

-

-

-

-

-

Auto and equipment finance

-

-

-

-

-

Commercial loans

-

-

-

-

-

Other

-

-

-

-

-

Total

-

73,3681

28-

Underlying asset

67

ANZ Basel III Pillar 3 disclosure

September 2015

Table 12(i): Banking Book: Total amount of outstanding exposures intended to be
securitised
No assets from ANZ's Banking Book were intended to be securitised as at the reporting date.
Table 12(j): Banking Book: Securitisation - Summary of current period’s activity byunderlying asset type and facility36
Sep 15
Original value securitised

Securitisation activity by underlying asset type

ANZ
Originated$M

ANZ Self
Securitised$M

ANZ Sponsored$M

Recognised gainor loss
on sale$M

Residential mortgage

-

5,295

-

-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

-

5,295

-

-

Notional amount$M

Securitisation activity by facility provided
Liquidity facilities-

Funding facilities

329

Underwriting facilities-

Lending facilities-

Credit enhancements-

Holdings of securities (excluding trading book)

240

Other

4

Total

573

Mar 15
Original value securitised
Recognised gainor loss
on sale$M

ANZ
Originated$M-

ANZ Self
Securitised$M
692

ANZ Sponsored$M-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

-

692

-

-

Securitisation activity by underlying asset type
Residential mortgage-

Notional amount$M

Securitisation activity by facility provided
Liquidity facilities-

Funding facilities

12

Underwriting facilities-

Lending facilities-

Credit enhancements-

Holdings of securities (excluding trading book)

875

Other

30

Total

917

36

Activity represents net movement in outstandings.

68

ANZ Basel III Pillar 3 disclosure

September 2015
Sep 14
Original value securitised
Recognised gainor loss
on sale$M

ANZ
Originated$M-

ANZ Self
Securitised$M
25,422ANZ Sponsored$M-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

-

25,422--

Securitisation activity by underlying asset type
Residential mortgage-

Notional amount$M

Securitisation activity by facility provided
Liquidity facilities(43)

Funding facilities(722)

Underwriting facilities-

Lending facilities-

Credit enhancements-

Holdings of securities (excluding trading book)

1,312

Other

4

Total

551

69

ANZ Basel III Pillar 3 disclosure

September 2015

Table 12(k): Banking Book: Securitisation - Regulatory credit exposures by exposure typeSep 15$M

Securitisation exposure type - On balance sheet

Mar 15$M

Sep 14$M

Liquidity facilities

5

6

-

Funding facilities

5,593

4,789

4,599

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

5,076

4,836

3,962

Holdings of securities (excluding trading book)Protection provided

-

-

-

Other

168

315

356

Total

10,842

9,946

8,917

Securitisation exposure type - Off balance sheet

Sep 15$M

Mar 15$M

Sep 14$M

Liquidity facilities

66

76

70

Funding facilities

-

-

-

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities (excluding trading book)

-

-

-

Protection provided

-

-

-

Other

-

-

-

Total

66

76

70

Sep 15$M

Mar 15$M

Sep 14$M

Total Securitisation exposure type
Liquidity facilities

71

82

70

Funding facilities

5,593

4,789

4,599

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

5,076

4,836

3,962

Holdings of securities (excluding trading book)Protection provided

-

-

-

Other

168

315

356

Total

10,90810,022

8,987

70

ANZ Basel III Pillar 3 disclosure

September 2015

Table 12(l) part (i): Banking Book: Securitisation - Regulatory credit exposures by risk
weight band

Securitisation
risk weights≤ 25%

Sep-15Mar-15
Sep-14
Regulatory credit
Risk weighted Regulatory credit
Risk weighted Regulatory credit
Risk weighted
exposure
assetsexposure
assetsexposure
assets
$M
$M
$M
$M
$M
$M
10,799

1,065

9,891

952

8,762

853

>25 ≤ 35%

-

-

-

-

-

-

>35 ≤ 50%

-

-

-

-

-

-

>50 ≤ 75%

43

24

48

27

135

71

>75 ≤ 100%

66

66

76

77

71

71

>100 ≤ 650%

-

1

7

11

19

35

1250% (Deduction)

-

-

-

-

-

-

10,9081,156

10,022

1,067

8,987

1,030

Total

Resecuritisation
risk weights≤ 25%

Sep-15Mar-15
Sep-14
Regulatory credit
Risk weighted Regulatory credit
Risk weighted Regulatory credit
Risk weighted
exposure
assetsexposure
assetsexposure
assets
$M
$M
$M
$M
$M
$M
-

>25 ≤ 35%

-

-

-

-

-

-

>35 ≤ 50%

-

-

-

-

-

-

>50 ≤ 75%

-

-

-

-

-

-

>75 ≤ 100%

-

-

-

-

-

-

>100 ≤ 650%

-

-

-

-

-

-

1250% (Deduction)

-

-

-

-

-

-

Total

-

-

-

-

-

-

Total Securitisation
risk weights≤ 25%

Sep-15Mar-15
Sep-14
Regulatory credit
Risk weighted Regulatory credit
Risk weighted Regulatory credit
Risk weighted
exposure
assetsexposure
assetsexposure
assets
$M
$M
$M
$M
$M
$M
10,799

1,065

9,891

952

8,762

853

>25 ≤ 35%

-

-

-

-

-

-

>35 ≤ 50%

-

-

-

-

-

-

>50 ≤ 75%

43

24

48

27

135

71

>75 ≤ 100%

66

66

76

77

71

71

>100 ≤ 650%

-

1

7

11

19

35

1250% (Deduction)

-

-

-

-

-

-

10,9081,156

10,022

1,067

8,987

1,030

Total

71

ANZ Basel III Pillar 3 disclosure

September 2015

Table 12(l) part (ii): Banking Book: Securitisation - Aggregate securitisation exposures
deducted from Capital
No longer required under Basel III; defaulted exposures given a risk weight of 1250% are no longer
deducted from capital.

Table 12(m): Banking Book: Securitisations subject to early amortisation treatment
ANZ does not have any Securitisations subject to early amortisation treatment or using Standardised
approach.

72

ANZ Basel III Pillar 3 disclosure

September 2015

Table 12(n): Banking Book: Resecuritisation - Aggregate amount of resecuritisation
exposures retained or purchased

Exposuressubject to CRM$M

Sep 15
Exposures not
subject to CRM
$M

Total
$M

Residential mortgage
Credit cards and other personal loans
Auto and equipment financeCommercial loans
Other

-

-

-

Total

-

-

-

Resecuritisation exposures retained or purchased

Resecuritisation exposures by credit worthiness of guarantors
Credit Rating Level 1
Credit Rating Level 2
Credit Rating Level 3
Credit Rating Level 4
Credit Rating Level 5 or below
No Guarantor
Total

Exposures to
Guarantors$M-

Residential mortgage
Credit cards and other personal loans
Auto and equipment financeCommercial loans
Other

-

Mar 15
Exposures not
subject to CRM
$M
-

Total

-

-

Exposuressubject to CRM$M

Resecuritisation exposures retained or purchased

Resecuritisation exposures by credit worthiness of guarantors
Credit Rating Level 1
Credit Rating Level 2
Credit Rating Level 3
Credit Rating Level 4
Credit Rating Level 5 or below
No Guarantor
Total

Total
$M
-

Exposures to
Guarantors$M-

Resecuritisation exposures retained or purchased
Residential mortgage
Credit cards and other personal loans
Auto and equipment financeCommercial loans
Other
Total

Resecuritisation exposures by credit worthiness of guarantors
Credit Rating Level 1
Credit Rating Level 2
Credit Rating Level 3
Credit Rating Level 4
Credit Rating Level 5 or below
No Guarantor
Total

Exposuressubject to CRM$M-

Sep 14
Exposures not
subject to CRM
$M
-

Total
$M
-

-

-

-

Exposures to
Guarantors
$M
-

73

ANZ Basel III Pillar 3 disclosure

September 2015

Trading Book
Table 12(o): Trading Book: Traditional and synthetic securitisation exposures
No assets from ANZ's Trading Book were securitised during the reporting period.
Table 12(p): Trading Book: Total amount of outstanding exposures intended to be
securitised
No assets from ANZ's Trading Book were intended to be securitised as at the reporting date.
Table 12(q): Trading Book: Securitisation - Summary of current year's activity byunderlying asset type and facility
No assets from ANZ's Trading Book were securitised during the reporting period.
Table 12(r): Trading Book: Traditional and synthetic securitisation exposures
No assets from ANZ's Trading Book were securitised during the reporting period.

74

ANZ Basel III Pillar 3 disclosure

September 2015

Table 12(s): Trading Book: Securitisation – Regulatory credit exposures by exposure typeSep-15$M

Mar-15$M

Sep-14$M

Liquidity facilities

-

-

-

Funding facilities

-

-

-

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities

-

-

10

Protection provided

-

-

-

Other

-

-

-

Total

-

-

10

Sep-15$M

Mar-15$M

Sep-14$M

Liquidity facilities

-

-

-

Funding facilities

-

-

-

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities

-

-

-

Protection provided

-

-

-

Other

-

-

-

Total

-

-

-

Sep-15$M

Mar-15$M

Sep-14$M

Liquidity facilities

-

-

-

Funding facilities

-

-

-

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities

-

-

10

Protection provided

-

-

-

Other

-

-

-

Total

-

-

10

Securitisation exposure type - On balance sheet

Securitisation exposure type - Off balance sheet

Total Securitisation exposure type75

ANZ Basel III Pillar 3 disclosure

September 2015

Table 12(t)(i) & Table 12(u)(i): Trading Book: Aggregate securitisation exposures subject
to Internal Models Approach (IMA) and the associated Capital requirements
ANZ does not have any Securitisation exposures subject to Internal Models Approach.
Table 12(t)(ii) & Table 12(u)(ii): Trading Book: Aggregate securitisation exposures subject
to APS120 and the associated Capital requirements
ANZ does not have any aggregate Securitisation exposures subject to APS 120 and the associatedCapital requirements.
Table 12(u)(iii): Trading
deducted from Capital

Book:

Securitisation-

Aggregate

securitisation

exposures

ANZ does not have any Securitisation exposures deducted from Capital.
Table 12(v): Trading Book: Securitisations subject to early amortisation treatment
ANZ does not have any Securitisation exposures subject to early amortisation or using Standardised
approach.

76

ANZ Basel III Pillar 3 disclosure

September 2015

Table 12(w):Trading Book: Resecuritisation - Aggregate amount of resecuritisation
exposures retained or purchased

Resecuritisation exposures retained or purchased
Residential mortgage
Credit cards and other personal loans
Auto and equipment financeCommercial loans
Other
Total

Resecuritisation exposures by credit worthiness of guarantors
Credit Rating Level 1
Credit Rating Level 2
Credit Rating Level 3
Credit Rating Level 4
Credit Rating Level 5 or below
No Guarantor
Total

Resecuritisation exposures retained or purchased
Residential mortgage
Credit cards and other personal loans
Auto and equipment financeCommercial loans
Other
Total

Resecuritisation exposures by credit worthiness of guarantors
Credit Rating Level 1
Credit Rating Level 2
Credit Rating Level 3
Credit Rating Level 4
Credit Rating Level 5 or below
No Guarantor
Total

Resecuritisation exposures retained or purchased
Residential mortgage
Credit cards and other personal loans
Auto and equipment financeCommercial loans
Other
Total

Resecuritisation exposures by credit worthiness of guarantors
Credit Rating Level 1
Credit Rating Level 2
Credit Rating Level 3
Credit Rating Level 4
Credit Rating Level 5 or below
No Guarantor
Total

Exposuressubject to CRM$M

Sep 15
Exposures not
subject to CRM
$M

Total
$M

-

-

-

Exposuressubject to CRM$M

Mar 15
Exposures not
subject to CRM
$M

Total
$M

-

-

-

Exposures to
Guarantors$M-

Exposures to
Guarantors$M-

Exposuressubject to CRM$M
10-

Sep 14
Exposures not
subject to CRM
$M
-

Total
$M
10
-

10

-

10

Exposures to
Guarantors
$M
10
10

77

ANZ Basel III Pillar 3 disclosure

September 2015

Chapter 8 – Market risk
Table 13

Market risk – Standard approach

ANZ uses the standard model approach to measure market risk capital for interest rate risk – specificrisk37, equity specific risk and electricity trading risk factors. For internal purposes only ANZ also uses
an internal model for electricity.
For interest rate risk – specific risk, ANZ’s internal VaR model captures general interest rate and credit
spread risk for all products, but not the credit spread risk associated with individual issuers of interest
rate products.

Table 13(b): Market risk – Standard approach 38

Sep 15$M

Mar 15$M

Sep 14$M

Interest rate risk

118

132

193

Equity position risk

1

-

-

Foreign exchange risk

-

-

-

Commodity risk

2

1

4

121

133

197

1,513

1,663

2,466

Total
Risk Weighted Assets equivalent

37
Specific risk is the risk that the value of a security will change due to issuer-specific factors. It applies to interest
rate and equity positions related to a specific issuer.
38

RWA equivalent is the capital requirement multiplied by 12.5 in accordance with APS 110.

78

ANZ Basel III Pillar 3 disclosure
Table 14

September 2015

Market risk – Internal models approach

Definition and scope of market risk
Market risk stems from ANZ’s trading and balance sheet activities and is the risk to ANZ’s earnings
arising from changes in interest rates, foreign exchange rates, credit spreads, volatility, correlations orfrom fluctuations in bond, commodity or equity prices.
Market risk management of IRRBB is described in Chapter 11 and is excluded from this Chapter.
Regulatory approval to use the Internal Models Approach
ANZ has been approved by APRA to use the Internal Models Approach (IMA) under APS 116 Capital
Adequacy: Market Risk for all trading portfolios except for specific interest rate risk, equity specificrisk and electricity trading. ANZ uses the Standardised approach to market risk capital for thesesegments.
Governance of market risk
The Board Risk Committee oversight of market risk is supported by the CMRC as described in Chapter
3.
The Markets Risk function is a specialist risk management unit independent of the business that is
responsible for:

Designing and implementing policies and procedures to ensure market risk exposures aremanaged within the appetite and limit framework set by the Board.

Measuring and monitoring market risk exposures, and approving counterparty and associatedrisks.

The ongoing effectiveness and appropriateness of the risk management framework.

Traded market risk
The Traded, Foreign Exchange and Commodity Market Risk Policy and accompanying procedures(together the “TFC Framework”) governs the management of traded market risk and its key
components include:

A clear definition of the trading book.

A comprehensive set
communication of risk.



A robust Value at Risk (VaR) quantification approach supplemented by comprehensive stresstesting.



A comprehensive limit framework that controls all material market risks.

An independent Markets Risk function with specific responsibilities.



Regular and effective reporting of market risk to executive management and the Board.

ofrequirements

thatpromotetheproactive

identification

andMeasurement of market risk
ANZ’s traded market risk management framework incorporates a risk measurement approach toquantify the magnitude of market risk within trading books. This approach and related analysis
identifies the range of outcomes that can be expected over a given period of time and establishes therelative likelihood of those outcomes.
ANZ’s key tools to measure and manage traded market risk on a daily basis are VaR, sensitivities andstress tests. VaR is calculated in two forms – Standard and Stressed. Standard VaR is based on ahistorical simulation using a 500 day observation period. Stressed VaR is based on a one-year periodof stressed market conditions. Traded VaR is calculated at a 99% confidence level with one and tenday holding periods for standard VaR, and a ten-day holding period for stressed VaR. All material
market risk factors and all trading portfolios are captured within the VaR model, with the exception of
specific interest rate risk, equity specific risk and electricity trading, for which capital is calculatedusing the Standardised approach described in Table 13(b). Risk measurement methods and models
are reviewed and validated by an independent function to comply with the prudential requirements forprudent valuation practices for positions held in the trading book contained in Attachment A of APS
111.
ANZ also applies a wide range of stress tests to the Group trading portfolio and to individual trading
portfolios. Standard stress tests are executed daily and measure the potential loss that would arise
from the largest market movements during the previous seven years given prescribed holding periods.

79

ANZ Basel III Pillar 3 disclosure

September 2015

The prescribed holding periods used in the stress tests vary to reflect the liquidity of each producttype.
Results from stress testing on severe yet plausible scenarios are calculated monthly and potential
losses are reported to the CMRC.
VaR and stress tests are also supplemented by cumulative loss limits and detailed control limits.
Cumulative loss limits ensure that in the event of continued losses from a trading activity, the trading
activity is stopped and senior management reviews before trading is resumed. Where necessary,detailed control limits such as sensitivity or position limits are also in place to ensure appropriate
control is exercised over a specific risk or product.
Comparison of VaR estimates to gains/losses
Back testing involves comparing VaR calculations with corresponding profit and loss to identify how
often trading losses exceed the calculated VaR. For APRA back testing purposes, VaR is calculated at
the 99% confidence interval with a one-day holding period.
Back testing is conducted daily, and outliers are analysed to determine whether they are the result of
trading decisions, systemic changes in market conditions or issues related to the VaR model (historical
data or model calibration).
ANZ uses actual and hypothetical profit and loss data. Hypothetical data is designed to remove theimpacts of intraday trading and sales margins. It is calculated as the difference between the value ofthe prior day portfolio at prior day closing rates and the value at current day closing rates. Markets
Finance calculates actual profit and loss while Market Risk calculates hypothetical profit and loss.
Total traded market risk back testing exceptions were within the APS 116 green zone for the period.
The following table discloses the high, mean and low VaR values over the reporting period and at
period end.
Table 14(e): Value at Risk (VaR) and stressed VaR over the reporting period39

Six months ended 30 Sep 15
Mean$M

Maximum$M

Minimum$M

Foreign Exchange

6.7

14.2

2.8

5.0

Interest Rate

8.3

12.9

5.5

10.1

Credit

3.8

5.4

2.9

3.5

Commodity

2.4

3.6

1.5

1.6

Equity

0.9

4.5

0.1

2.5

99% 1 Day Value at Risk (VaR)

Period end$M

Six months ended 31 Mar 15
Mean$M

Maximum$M

Minimum$M

Period end$MForeign Exchange

9.0

18.2

3.3

4.6

Interest Rate

10.3

20.2

4.8

6.5

Credit

3.9

4.9

2.9

3.3

Commodity

2.3

3.5

1.3

2.2

Equity

1.3

6.3

0.4

0.6

99% 1 Day Value at Risk (VaR)

Six months ended 30 Sep 14
99% 1 Day Value at Risk (VaR)

Mean
$M

Maximum$M

Minimum$M

Period end$MForeign Exchange

11.2

18.5

5.4

11.9

Interest Rate

8.4

15.7

3.8

10.4

Credit

3.6

5.8

2.7

5.8

Commodity

1.4

2.7

0.9

1.9

Equity

1.0

2.5

0.5

1.3

39

The Foreign exchange VaR excludes foreign exchange translation exposures outside of the trading book.

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Six months ended 30 Sep 15

99% 10 Day Stressed VaR

Mean
$M

Maximum$M

Minimum$M

Period end$MForeign ExchangeInterest Rate

36.1

71.6

13.3

25.5

67.3

161.7

38.5

45.2

Credit

26.5

40.4

19.2

23.6

Commodity

10.7

19.6

5.3

11.6

Equity

1.3

5.0

0.5

2.9

Six months ended 31 Mar 15
99% 10 Day Stressed VaR

Mean
$M

Maximum$M

Minimum$M

Period end$MForeign Exchange

67.7

138.7

30.9

53.7

Interest Rate

62.9

170.3

18.5

63.5

Credit

26.0

39.9

18.8

23.6

Commodity

14.3

22.2

9.7

9.8

Equity

1.2

7.3

0.3

0.7

Six months ended 30 Sep 14
99% 10 Day Stressed VaR

Mean
$M

Maximum$M

Minimum$M

Period end$MForeign Exchange

73.0

171.5

22.8

81.4

Interest Rate

65.3

113.9

25.1

48.4

Credit

26.0

38.3

19.9

28.9

Commodity

14.8

44.9

3.6

10.9

Equity

12.2

42.0

0.2

0.9

Reporting of market risk
Market Risk reports daily VaR and stress testing results to senior management in Market Risk and the
Global Markets business. Market Risk expediently escalates details of any limit breach to theappropriate discretion holder within Market Risk and to Group Risk, and report to the CMRC eachmonth.
Market Risk monitors and analyses back testing results daily and reports results to the CMRC
quarterly.
Mitigation of market risk
The Market Risk team’s responsibilities, including the reporting and escalation processes describedabove, are fundamental to how market risk is managed. Market Risk has presence in all the major
dealing operations centres in Australia, New Zealand, Asia, Europe and America.
Commodities risk
Commodity price risk arises as a result of movement in prices of various commodities. All exposures
are transferred to the trading book and centrally managed by the Global Markets business andmonitored by Market Risk in accordance with the TFC framework.
Foreign exchange risk
Foreign exchange risk arises as a result of movements in relative values of various currencies.
Exposures from ANZ’s normal operating business and trading activities are recorded in core multicurrency systems and managed within the trading book in accordance with the TFC framework.
Structural exposures from foreign investments and capital management activities are managed inaccordance with policies approved by the Board Risk Committee, with the main objective of ensuringthat ANZ’s capital ratio is largely protected from changes in foreign exchange. As at 30 September
2015, ANZ’s investment in ANZ Bank New Zealand Limited is the main source of the structural foreignexchange exposure.

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Chapter 9 – Operational risk
Table 15

Operational risk

Definition of operational risk
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes,
people and systems, or from external events. This definition includes legal risk, and the risk ofreputation loss, or damage arising from inadequate or failed internal processes, people and systems,
but excludes strategic risk.
The objective of operational risk management is to ensure that risks are identified, assessed, measured,
evaluated, treated, monitored and reported in a structured environment with appropriate governanceand oversight. ANZ does not expect to eliminate all risks. Rather it seeks to ensure that its residual risk
exposure is managed as low as reasonably practical based on a sound risk/reward analysis in thecontext of an international financial institution.
ANZ has been authorised by APRA to use the advanced measurement approach (AMA) for calculationof operational risk capital requirements under APS 115 Capital Adequacy: Advanced Measurement
Approaches to Operational Risk. This methodology applies across all of ANZ.
Operational risk governance and structure
The ANZ Board has delegated its powers to the Risk Committee to approve the ANZ Operational Risk
Framework which is in accordance with Australian Prudential Standard APS 115. The Operational Risk
Executive Committee (OREC) is the primary senior executive management forum responsible for theoversight of operational risk and the compliance risk control environment. OREC supports the Risk
Committee in carrying out its role in relation to operational risk and compliance. OREC undertakes
review and challenge of ANZ’s operational risk profile including treatment plans for extreme risks.
Divisional Risk Committees and Business Unit Risk Forums manage and maintain oversight ofoperational risks supported by thresholds for escalation and monitoring. Day to day management ofoperational risk is the accountability of every employee. Business Units undertake operational risk
activities as part of this accountability. This includes implementation of the operational risk frameworkand involvement in decision making processes concerning all material operational risk matters.
Divisional risk personnel provide oversight of operational risk undertaken in the Business Units.
Enterprise Operational Risk is responsible for exercising governance and assurance over theoperational risk framework, policy development, operational risk capital calculation and allocation andreporting of operational risk issues to executive committees.
Three lines of defense
ANZ operates three lines of defence model for the management of Operational Risk. Each line of
Defence has defined roles, responsibilities and escalation paths to support effective two way
communication and management of operational risk at ANZ. There are also on-going review
mechanisms in place to ensure the Operational Risk Measurement and Management Framework(ORMMF) and Compliance frameworks continue to meet organisational needs and regulatory
requirements.
The Business has first line of defence responsibility for managing operational risk including obligations
to:
take primary accountability for the identification, measurement and management of key risks
and the related control environment;undertake day-to-day management of risks, ;promote a strong risk culture; manage risk exposure and make sustainable businessdecisions;

ensure operational risk information is up to date and reflective of the bank’s true operationalrisk position.

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Operational Risk functions (Divisional and Enterprise) form the second line of defence
Division Risk is accountable for:

undertaking independent oversight of the application of the ORMMF;


coordinating, oversighting and reporting on material operational risks and change initiatives;

contributing to the identification of systemic issues and risk collation across the Division;undertaking review and challenge of business activities and ensuring that the strategy ismaintained across the division.

Enterprise Operational Risk is accountable for:
developing and maintaining relevant policies and procedures to ensure continuing
appropriateness of the Operational Risk Measurement and Management Framework(ORMMF)and to support its consistent execution;setting and monitoring compliance with the Group Operational Risk Appetite Statements (RAS);
undertaking independent review and challenge of business activities and ensuring that thestrategy is maintained across the enterprise;leading the scenario analysis and operational risk capital calculation process;

being a central point of contact for regulators in regards to operational risk;



ensuring a strong risk management culture across the enterprise.

Global Internal Audit forms the third line of defence and is accountable for:

providing independent and objective assurance to management and the ANZ Board regarding
compliance with policy and regulatory requirements;

performing objective assessments across all geographies, Divisions, Lines of Business andprocesses;undertaking independent review of the adequacy of the ORMMF.

Collectively Global Internal Audit, Operational Risk functions, Divisions and Business Units are
responsible for monitoring and reporting to Executive Management, the Board, Regulators and others on
all matters related to the measurement and management of operational risk

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Operational risk principles
ANZ has developed a comprehensive framework to manage operational risk and compliance which
includes the following operational risk management principles:
Principle 1:
Risk Governance

ANZ recognises operational risk as a primary risk category and has aneffective and embedded operational risk governance structure. This
includes a dedicated and independent operational risk management
function and an executive committee for oversight of operational risk
across ANZ, supported by organisation wide policies, procedures andsystems.

Principle 2:
Risk Culture

ANZ believes risk management is everyone’s responsibility andencourages a culture of prompt escalation of risk to staff sufficiently senior
to drive resolution. This culture is supported by clearly articulated roles
and responsibilities to ensure effective measurement and management ofoperational risk.

Principle 3:
Risk Appetite andObjective Setting

ANZ’s Board is responsible for the overall operational risk profile andaccordingly has an approved operational risk appetite, including
thresholds for risk assessment and reporting that determines the riskboundaries within which the business must operate to set its strategy.

Principle 4:
Risk and Control
Assessment

ANZ periodically identifies and assesses its exposure to key operationalrisk within all existing and new products, processes, projects and systems,
and assesses the key controls in place to manage these risks.

Principle 5:
Loss and IncidentManagement

ANZ incorporates analysis of loss, incident and control failure into
improving the underlying control environment by defining clearly
articulated risk response strategies. This includes effective contingency
and business continuity plans that enable it to operate on an ongoingbasis and limit losses in the event of severe business disruption.

Principle 6:
Capital Calculation

ANZ holds capital commensurate with its operational risk, and maintains
comprehensive and well documented operational risk capital processes forcalculating its operational risk capital, including monitoring for materialchanges to capital exposure.

Principle 7:
Risk Monitoring andReporting

ANZ maintains a comprehensive and sustainable approach for monitoring
and reporting relevant operational risk data, and monitors materialchanges to operational risk exposure, including Key Risk Indicators (KRIs),
to support the proactive management of operational risk across theGroup.

Principle 8:
Assurance andContinuous
Improvement

ANZ has appropriate review processes to continuously evaluate theeffectiveness and relevance of its operational risk measurement andmanagement processes to meet organisational needs and regulatory
requirements.

Principle 9:
Risk Based Decision
Making

ANZ ensures effective integration of day to day operational risk
management with outputs from the operational risk measurement
processes, to support risk based decision making.

ANZ’s operational risk framework is delivered through:

Level 1 ANZ Board Operational Risk Policy (the Principles) – approved by the Board Risk
Committee, it sets out the operational risk principles for governing the overall measurement andmanagement of operational risk across ANZ.

Level 2 Global Operational Risk Measurement and Management Policy (the Policy) – approved by
the Board Risk Committee, outlines the core standards, roles and responsibilities and minimum
requirements for the way in which operational risk is measured and managed, in line with Level 1
ANZ Board Operational Risk Policy and APS 115.

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Level 2A Global Operational Risk Procedures – owned by Enterprise Operational Risk, they detailthe processes that support the consistent application of Level 1 and Level 2 Global Operational
Risk Policies across ANZ. The procedures are further augmented by tools, templates, systems andon-going training.

Operational risk management
Risk and Controls are managed as part of business as usual right across the organisation. Risk
management, supported by a strong Risk Culture, ensures all staff are thinking about and managing
risk on a daily basis – “Risk is Everyone’s Responsibility”. However, Senior Management needs
visibility of Key Risks. These are the risks that if they materialised, would adversely affect theachievement of business objectives, ANZ’s reputation, legal and regulatory compliance or impact key
processes.
Day-to-day management of operational risk is the responsibility of business unit line management andstaff. This includes:
primary accountability for the understanding of key risks and the related control environment;

analysis of identified risks, including assessment of inherent and residual risks This requires
analysis of the potential consequences of failing to deal with the risks, the likelihood of therisks being realised and the effectiveness of the key controls in place to prevent or mitigate the
risk;



evaluation of the risk to determine whether it is within Board approved risk appetite tolerances;

identification and implementation of risk treatment options to improve the environment of key
risks that are outside appetite;ensuring operational risk information is up to date and reflective of the true operational risk
position;

monitoring and reviewing of treatment plans, operational risks and controls, including testing of
key controls and reporting on the current operational risk profile;

promoting a strong risk culture of managing risk exposure and making sustainable risk
decisions;Operational risk mitigation
In line with industry practice, ANZ obtains insurance to cover those operational risks where costeffective premiums can be obtained. In conducting their business, Business Units are advised to act as
if uninsured and to not use insurance as a guaranteed mitigant for operational risk. ANZ’s Advanced
Measurement Approach (AMA) operational risk regulatory capital calculation does not utilise insurance
as a risk mitigation.
ANZ has business continuity, recovery and crisis management plans. The intention of the business
continuity and recovery plans is to ensure critical business functions can be maintained, or restored ina timely fashion, in the event of material disruptions arising from internal or external events.
Crisis management planning at Group and country levels supplement business continuity plans in theevent of a broader group or country crisis. Crisis management plans include crisis team structures,roles, responsibilities and contact lists, and are subject to testing.
Operational risk reporting
ANZ’s operational risk management includes a system for capturing internal losses, case management
and reporting. Operational risk and compliance events (including actual losses, near misses andbreaches) are recorded and managed to ensure timely, complete and accurate reporting.
OREC’s role is to monitor the state of operational risk measurement and management and compliancemanagement on an enterprise basis and instigate any necessary corrective actions.
ANZ’s advanced measurement approach
Enterprise Operational Risk is responsible for maintaining ANZ’s AMA for the measurement andallocation of operational risk capital.
Operational risk capital is held to protect depositors and shareholders of the bank from rare andsevere unexpected losses. In order to quantify the overall operational risk profile, ANZ maintains andcalculates operational risk capital (including regulatory and economic capital), on at least a six
monthly basis. The capital model uses the following expected and unexpected losses as data inputs:historical internal losses captured and reported in the Bank-wide Operational Loss Database;

relevant external losses, sourced from the Operational Risk Data Exchange (ORX), an
industry data base comprising the anonymised loss data from over 60 member banks;

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scenario analysis - unexpected potential loss estimates for severe but plausible risk events
estimated using exposure models developed using business data and inputs from subject
matter experts;

Operational risk modelling is performed by a specialist central function. The data inputs are combinedusing loss distribution approach and calculated using Monte Carlo simulations.
Once calculated, the capital is allocated to divisions based on the historic loss experience andexposure to scenarios. Understanding the divisional exposure to scenarios (and their underlying risk
drivers) allows lines of business to consider capital impacts when making decisions. Accordingly,
capital allocations are structured to encourage businesses to effectively manage their operational risk
exposures e.g. improve controls, reduce losses etc.
Operational risk regulatory capital to meet the regulatory capital soundness standard is based on a
99.9% confidence interval in accordance with APS 115. Economic Capital based on a 99.97%
confidence interval.
ANZ does not use expected loss offsets for the purposes of regulatory capital modelling and does notrecognise the risk-mitigating effect of insurance in determining operational risk capital.
Compliance
ANZ’s Compliance Function is responsible for the development and maintenance of ANZ’ Compliance
Framework. Each division and business is responsible for embedding the Framework into its business
operations, identifying all regulatory compliance obligations and escalating and managing incidents
when they occur.
Definition of compliance
At ANZ, Compliance refers to our adherence to laws, regulations, industry standards and codes,
internal policies and procedures and the principles of good governance that impact the Group and its
activities.
Compliance Governance and structure
The roles of the Board Risk Committee and OREC are described in Section 2.
ANZ’s Compliance Function is accountable for designing a program that enables ANZ to meet its
regulatory obligations and satisfy itself that appropriate standards of good governance are met. It has
also been tasked to provide assurance to the Board that material compliance risks are identified,assessed and appropriately managed by the business.
ANZ’s compliance principles and framework
The following Principles, approved by ANZ’s Board set out ANZ’s commitment to compliance:
1.

Doing the right thing the right way - ANZ will operate to high ethical standards by promoting
a culture where our people understand the importance of doing the right thing the right way
and will reinforce this through its values, Code of Conduct and training programs.

2.

Enterprise-wide approach for compliance - ANZ will adopt an enterprise-wide approach for
managing compliance and ensure consistent standards are embedded in how we do business,
how we conduct ourselves and the design and operation of our processes, systems andproducts.

3.

Clearly defined authority and accountability - ANZ will clearly define authority andaccountability for compliance management and associated decision-making across its
business operations and will commit adequate resources to enable its businesses to operate
in a compliant manner.

4.

Independent compliance function – ANZ will have an independent compliance function
responsible for governance, management, oversight and reporting of compliance with ANZ’s
key compliance obligations.

5.

No tolerance for deliberate non-compliance – Managing ANZ’s business to our global
compliance standards and the laws of the countries in which we operate is non-negotiable.
ANZ will not tolerate deliberate or negligent non-compliance. Consequences could result insevere disciplinary action such as dismissal.

6.

Adequate risk and control environment and prompt response to deficiencies – ANZ will ensure
implementation of a generally acceptable risk and control environment for managing
compliance which is within our risk appetite settings. When compliance incidents are
identified, ANZ will act promptly to implement meaningful corrective action.

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ANZ’s Compliance Framework is aligned to key industry and global standards and benchmarks. It
utilises the concept of a 'risk-based' approach to manage compliance.
•

Allows the Compliance Function to support divisions and businesses by taking a simple andstandardised approach to compliance management tasks.

•

Enables ANZ to be consistent in proactively identifying, assessing, managing, reporting andescalating compliance-related risk exposures.

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Chapter 10 – Equities
Table 16

Equities – Disclosures for banking book positions

Definition and categorisation of equity investments held in the banking book
Equity risk is the risk of financial loss arising from the unexpected reduction in value of equity
investments not held in the trading book including those of the Group’s associates. ANZ’s equity
exposures in the banking book are primarily categorised as follows:

Equity investments that are taken for strategic reasons - These transactions represent strategic
business initiatives and include ANZ’s investments in partnership arrangements with financial
institutions in Asia. These investments are undertaken after extensive analysis and due diligenceby Group Strategy, internal specialists and external advisors, where appropriate. Board approvalis required prior to committing to any investments over delegated authorities, and all regulatory
notification requirements are met. Performance of these investments is monitored by both theowning business unit and Group Strategy to ensure that it is within expectations and the values of
the investments are tested at least six monthly for impairment.



Equity investments on which capital gains are expected - These transactions are originated andmanaged by dedicated equity finance teams. These transactions represent funding solutions for
known customers of ANZ and are governed by specific policies. ANZ ensures that the investmentin these entities does not constitute a controlling interest in the relevant business.

Equity investments made as the result of a work out of a problem exposure - From time to time,
ANZ will take an equity stake in a customer as part of a work out arrangement for problem
exposures. These investments are made only where there is no other viable option available andform an immaterial part of ANZ’s equity exposures.

Valuation of and accounting for equity investments in the banking bookIn line with Group Accounting Policy the accounting treatment of equity investments depends onwhether ANZ has significant influence over the investee.
Investments in associates
Where significant influence exists, the investment is classified as an Investment in Associate in thefinancial statements. ANZ adopts the equity method of accounting for associates. ANZ’s share of theresults of associates is included in the consolidated income statement. The associate investments arerecognised at cost plus ANZ’s share of post acquisition net assets. Interests in associates are reviewed
annually for impairment, using either market value, or a discounted cash flow methodology to assessvalue in-use.
Available-for-Sale Investments
Where ANZ does not have significant influence over the investee, the investment is classified as
Available-for-Sale (AFS). The investment is initially recognised at fair value plus transaction
costs. Changes in the fair value of the investments are recognised in an equity reserve with any
impairment recognised in the income statement. When the asset is sold the cumulative gain or loss
relating to the asset held in the AFS revaluation reserve is transferred to the income statement.

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Table 16(b) and 16(c): Equities – Types and nature of Banking Book investments
Sep 15$M

Equity investments
Balance sheet value

Fair value

Value of listed (publicly traded) equities

2,328

1,853

Value of unlisted (privately held) equities

3,157

3,157

Total

5,485

5,010
Mar 15$M

Equity investments
Balance sheet value

Fair value

Value of listed (publicly traded) equities

2,415

2,941

Value of unlisted (privately held) equities

2,940

2,940

Total

5,355

5,881

Sep 14$M

Equity investments
Balance sheet value

Fair value

Value of listed (publicly traded) equities

2,341

2,656

Value of unlisted (privately held) equities

2,354

2,354

Total

4,695

5,010

Half Year
Sep 15$M

Half Year
Mar 15$M

Half Year
Sep 14$M

Cumulative realised gains (losses) from disposals
and liquidations in the reporting period

-

-

-

Total

-

-

-

Half Year
Sep 15$M

Half Year
Mar 15$M

Half Year
Sep 14
$M

-

2

(2)

-

-

-

-

2

(2)

Table 16(d) and 16(e): Equities – gains (losses)

Realised gains (losses) on equity investments

Unrealised gains (losses) on equity investments
Total unrealised gains (losses)
Reversal of prior period unrealised gains (losses) from
disposals and liquidations in the reporting period
Total unrealised gains (losses) included in Common
Equity Tier 1, Tier 1 and/or Tier 2 capital

Table 16(f): Equities Risk Weighted Assets
From 1 January 2013 all banking book equity exposures are deducted from Common Equity Tier 1
capital.

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Chapter 11 – Interest Rate Risk in the Banking Book
Table 17

Interest Rate Risk in the Banking Book

Definition of interest rate risk in the banking bookInterest rate risk in the banking book (IRRBB) relates to the potential adverse impact of changes inmarket interest rates on ANZ’s future net interest income. The risk generally arises from:

Repricing and yield curve risk - the risk to earnings or market value as a result of changes in theoverall level of interest rates and/or the relativity of these rates across the yield curve.

Basis risk - the risk to earnings or market value arising from volatility in the interest margin
applicable to banking book items.



Optionality risk - the risk to earnings or market value arising from the existence of stand-alone orembedded options in banking book items.

Regulatory capital approach
ANZ has received approval from APRA to use the IMA for the calculation of regulatory capital for
IRRBB, under APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs).
Governance
The Board Risk Committee has established a risk appetite for IRRBB and delegated authority to the
GALCO to manage the strategic position (capital investment term) and oversee the interest rate risk
arising from the repricing of asset and liabilities (mismatch risk) in the banking book. GALCO hasdelegated the management of this mismatch risk to the Global Markets business.
Markets Risk is the independent function responsible for:

Designing and implementing policies and procedures to ensure that IRRBB exposure is managed
within the limit framework set by the Board Risk Committee.



Monitoring and measuring IRRBB market risk exposure, compliance with limits and policies.

Ensuring ongoing effectiveness and appropriateness of the risk management framework.

Management framework
IRRBB is managed under a comprehensive measurement and reporting framework, supported by anindependent Markets Risk function. Key components of the framework include:

A comprehensive set of policies that promote proactive risk identification and communication.

Funds Transfer Pricing framework to transfer interest rate risk from business units so it can be
managed by the Global Markets business and monitored by Markets Risk.



Quantifying the magnitude of risks and controlling the potential impact that changes in market
interest rates can have on the net interest income and balance sheet fair value of ANZ.

An independent Markets Risk function with specific responsibilities.



Regular and effective reporting of IRRBB to executive management and the Board.

Measurement of interest rate risk in the banking book
ANZ uses the following principal techniques to quantify and monitor IRRBB:Interest Rate Sensitivity - this is an estimate of the change in economic value of the banking bookdue to a 1 basis point move in a specific part of the yield curve.

Earnings at risk (EaR) - this is an estimate of the amount of income that is at risk from interest
rate movements over a given holding period, expressed to a 97.5% or 99% level of statisticalconfidence.

Value at risk (VaR) - this is an estimate of the impact of interest rate changes on the banking
book’s market value, expressed to a 99% level of statistical confidence for a given holding period.

Market Value loss limits - this mitigates the potential for embedded losses within the banking
book.



Stress testing - standard and extraordinary tests are used to highlight potential risk which may
not be captured by VaR, and how the portfolio might behave under extraordinary circumstances.

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The calculations used to quantify IRRBB require assumptions to be made about the repricing term of
exposures that do not have a contractually defined repricing date, such as deposits with no set
maturity dates, and prepayments. Changes to these assumptions require GALCO approval.
Where relevant, IRRBB techniques recognise foreign currency effects as all measures are expressed inAustralian dollars.
Basis and optionality risks are measured using Monte Carlo simulation techniques, to generate atheoretical worst outcome at a specified confidence level (typically 99%) less the average outcome.
Reporting of interest rate risk in the banking bookMarkets Risk analyses the output of ANZ’s VaR, EaR and Stress Testing calculations daily. Compliancewith the risk appetite and limit framework is reported to CMRC, GALCO and the Board Risk
Committee.
IRRBB regulatory capital is calculated monthly.
ANZ’s interest rate risk in the banking book capital requirement
The IRRBB regulatory capital requirements includes a value for repricing and yield curve risk, basis
and optionality risks based on a 99% confidence interval, one year holding period and a six year
historical data set.
Embedded losses also make up the capital requirement and are calculated as the difference between
the book value of banking book items and the current economic value.
Results of standard shock scenario
The Basel II framework sets out a standard shock scenario of a 200 basis point parallel shift change ininterest rates, in order to establish a comparable test across banks.
Table 17(b) that follows shows the results of this test by currency of the exposures outside the trading
book.

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Table 17(b): Interest Rate Risk in the Banking Book
Change in Economic Value
Sep 15

Mar 15

Sep 14$M$M$M

200 basis point parallel increase

(17)

(393)

(722)

200 basis point parallel decrease

34

455

774

200 basis point parallel increase

17

(15)

(4)

200 basis point parallel decrease

(23)

11

1

200 basis point parallel increase

(112)

(53)

(32)

200 basis point parallel decrease

123

57

37

Standard Shock Scenario Stress Testing:Interest rate shock applied
AUD

NZD

USD

GBP
200 basis point parallel increase

-

6

-

200 basis point parallel decrease

-

(6)

-

200 basis point parallel increase

(74)

(43)

13

200 basis point parallel decrease

80

50

(8)

IRRBB regulatory capital

595

615

IRRBB regulatory RWA

7,433

7,690

Other

1,090
13,627

IRRBB stress testing methodology
Stress tests within ANZ include standard and extraordinary tests. These tests are used to highlightpotential risk which may not be captured by VaR, and how the portfolio might behave under
extraordinary circumstances. Standard stress tests include statistically derived scenarios based on
historical yield curve movements. These combine parallel shocks with twists and bends in the curve to
produce a wide range of hypothetical scenarios at high statistical confidence levels, with the single
worst scenario identified and reported. Extraordinary stress tests include interest rate moves from
historical periods of stress as well as stresses to assumptions made about the repricing term of
exposures. The rate move scenarios include daily changes over the stressed periods and the worst
theoretical losses over the selected periods are each reported. Stresses of the repricing term
assumptions investigate scenarios where actual repricing terms are vastly different to those modelled.

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Chapter 12 – Leverage and Liquidity Coverage Ratio
Leverage Ratio
The Leverage Ratio requirements are part of the Basel Committee on Banking Supervision (BCBS)
Basel III capital framework. It is a simple, non-risk based supplement or backstop to the current risk
based capital requirements and is intended to restrict the build-up of excessive leverage in thebanking system.
Consistent with the BCBS definition, APRA’s Leverage Ratio compares Tier 1 Capital to the Exposure
Measure (expressed as a percentage) as defined by APS 110. APRA has not finalised a minimum
Leverage Ratio requirement for Australian ADIs, although the current BCBS proposal is for a minimumof 3%. Currently the Leverage Ratio is only a disclosure requirement. APRA intends to consult on theappropriate application of the Leverage Ratio as a minimum requirement for Australian ADIs once
BCBS finalises its calibration for implementation as a Pillar 1 requirement by January 2018
At 30 September 2015, the Group’s Leverage Ratio of 5.1% was above the 3% minimum currently
proposed by the BCBS. Table 18 below shows the Group’s Leverage Ratio calculation as at 30
September 2015 and Table 19 summarises the reconciliation of accounting assets and leverage ratio
exposure measure at 30 September 2015.

Table 18

Leverage Ratio
Sep 15$M

On-balance sheet exposures
On-balance sheet items (excluding derivatives and securities financing transactions(SFTs), but including collateral)

1

751,843

2

Asset amounts deducted in determining Basel III Tier 1 capital(18,087)3

Total on-balance sheet exposures (excluding derivatives and SFTs)

733,756

Derivative exposures
4
5
6
7
8
9

Replacement cost associated with all derivatives transactions (i.e. net of eligible cash
variation margin)
Add-on amounts for potential future credit exposures (PFCE) associated with allderivatives transactions
Gross-up for derivatives collateral provided where deducted from the balance sheet
assets pursuant to the Australian Accounting Standards
Deductions of receivables assets for cash variation margin provided in derivatives
transactions
Exempted central counterparty (CCP) leg of client-cleared trade exposures

16,07827,960(8,121)-

10

Adjusted effective notional amount of written credit derivatives
Adjusted effective notional offsets and add-on deductions for written credit derivatives

22,115(19,917)

11

Total derivative exposures

38,115

Securities financing transaction exposures

13
14
15

Gross SFT assets (with no recognition of netting), after adjusting for sale accounting
transactions
Netted amounts of cash payables and cash receivables of gross SFT assets
CCR exposure for SFT assets
Agent transaction exposures

16

Total securities financing transaction exposures12

17,319(763)
741
17,297

Other off-balance sheet exposures
17

Off-balance sheet exposure at gross notional amount

18

Adjustments for conversion to credit equivalent amounts(163,312)

271,129

19

Off-balance sheet items

107,817

Capital and total exposures
20

Tier 1 capital

45,484
896,98521
Total exposures
Leverage ratio
22

Basel III leverage ratio

5.1%

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Table 19
Summary comparison of accounting assets vs leverage ratio
exposure measure1

Total consolidated assets as per published financial statements

2

Adjustment for investments in banking, financial, insurance or commercial
entities that are consolidated for accounting purposes but outside the scopeof regulatory consolidation.

3

Adjustment for assets held on the balance sheet in a fiduciary capacity
pursuant to the Australian Accounting Standards but excluded from theleverage ratio exposure measure

4

Adjustments for derivative financial instruments.

5

Adjustment for SFTs (i.e. repos and similar secured lending)

6

Adjustment for off-balance sheet exposures (i.e. conversion to credit
equivalent amounts of off-balance sheet exposures)Sep 15$M
889,900(35,113)(47,510)(22)
107,817

7

Other adjustments(18,087)

8

Leverage ratio exposure

896,985

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Table 20

September 2015

Liquidity Coverage Ratio disclosure template

Total
Unweighted
Value
$M

Sep 15

Total
Weighted
Value
$M

Total
Unweighted
Value
$M

Jun 15

Total
Weighted
Value$M

Liquid assets, of which:1High-quality liquid assets (HQLA)-

107,769-

94,7642

Alternative liquid assets (ALA)
Reserve Bank of New Zealand (RBNZ)
securities-

54,000-54,000-11,627-

11,622

Cash outflows
Retail deposits and deposits from small
4business customers
5of which: stable deposits

197,388

23,012

197,935

23,57270,393

3,520

71,5833,579

6

126,995

19,492

126,352

19,993

182,225

108,264

173,363

104,543

48,026

11,91843,475

10,780120,049

82,196115,299

79,174

14,15014,15014,58914,589

-

5,993

-

5,077

139,039

35,940133,866

31,841

21,212

23,04919,561

19,561---

12,280

3

7
8
9
10

of which: less stable deposits
Unsecured wholesale fundingof which: operational deposits (allcounterparties) and deposits in
networks for cooperative banksof which: non-operational deposits(all counterparties)of which: unsecured debt

11

Secured wholesale funding

12

Additional requirementsof which: outflows related toderivatives exposures and othercollateral requirementsof which: outflows related to loss offunding on debt products

13
14
15

117,827

12,891

114,305

16

Other contractual funding obligationsof which: credit and liquidity facilities

13,597-

14,944-

17

Other contingent funding obligations

115,501

5,785

114,187

6,304

18

Total cash outflows

178,994

171,337

Cash inflows
19

Secured lending (e.g. reverse repos)

9,270

15

13,624

15

20

Inflows from fully performing exposures

40,293

26,69643,08328,13914,241

21

Other cash inflows

16,155

16,155

14,24122

Total cash inflows

65,71842,86670,94842,39523

Total liquid assets-

173,396-

160,38624

Total net cash outflows-

136,128-

128,94225

Liquidity Coverage Ratio (%)

127.4%

124.4%

Liquidity Coverage Ratio (LCR)
ANZ’s average LCR for the 6 months to 30 September 2015 was 1.26 with total liquid assets
exceeding net outflows by an average of $34.4b.
The main contributors to net outflows were modelled outflows associated with the bank’s corporate
and retail deposit portfolios, offset by inflows from maturing loans. While cash outflows associatedwith derivatives are material, these are effectively offset by derivative cash inflows.
The composition of the liquid asset portfolio has remained relatively stable through the half, withHQLA1 securities making up on average 58.5% of total liquid assets.
Through the period the Liquidity Coverage Ratio has remained within a range of 1.20 to 1.35.
ANZ has a well diversified deposit and funding base avoiding undue concentrations by investor type,maturity, market source and currency.
ANZ monitors and manages its liquidity risk including LCR by site and currency, ensuring ongoingcompliance across the network.

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Appendix 1 – ANZ Bank (Europe) Limited
ANZ Bank (Europe) Limited (ANZBEL) is a 100% owned and controlled subsidiary of ANZ. ANZBEL isregulated by the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA),
formerly the Financial Services Authority (FSA). ANZBEL is subject to similar Pillar 3 requirements as
ANZ, under the FCA's Prudential Source Book for Banks, Building Societies and Investment Firms(BIPRU). The FCA has granted ANZBEL a Pillar 3 Disclosure waiver direction, which can be found on
the FCA website: fca.org.uk/static/fca/documents/waivers/bipru-waivers.pdf
In line with the FCA waiver direction, ANZBEL will rely on disclosures in this document to satisfy mostof its Pillar 3 disclosure obligations. The following FCA requirements are not mirrored in APS 330 orincluded in this disclosure document, and as such are required by the FCA to be reported on an
individual basis in the annual ANZBEL Statutory Accounts:

BIPRU 11.5.4R (4) - Disclosure of the firm’s minimum capital requirements covering position,
foreign exchange, commodity, counterparty and concentration risks.
BIPRU 11.5.12R – Disclosure: Market Risk.

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Glossary
Collective provision (CP)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 aloss event has already occurred. Losses expected as a result of
future events, no matter how likely, are not recognised.

Credit Default Swaps (CDS)

A sequence of payments by one party (often called the “Buyer”)
in exchange for an obligation of the other party (often called
the “Seller”) to make a payment to the buyer if a credit default
event occurs in relation to a specified reference entity (andpossibly a specified obligation of that reference entity).

Credit exposure

The aggregate of all claims, commitments and contingent
liabilities arising from on- and off-balance sheet transactions (inthe banking book and trading book) with the counterparty orgroup of related counterparties.

Credit risk

The risk of financial loss resulting from the failure of ANZ’scustomers and counterparties to honour or perform fully theterms of a loan or contract.

Credit Valuation Adjustment (CVA)

Over the life of a derivative instrument, ANZ uses a CVA modelto adjust fair value to take into account the impact ofcounterparty credit quality. The methodology calculates thepresent value of expected losses over the life of the financial
instrument as a function of probability of default, loss given
default, expected credit risk exposure and an asset correlation
factor. Impaired derivatives are also subject to a CVA.

Days past due

The number of days a credit obligation is overdue, commencing
on the date that the arrears or excess occurs and accruing foreach completed calendar day thereafter.

Equity risk

Is the potential loss that may
investments in the banking book.

Expected loss (EL)

Expected loss is determined based on the expected averageannual loss of principal over the economic cycle for the current
risk profile of the lending portfolio.

Exposure at Default (EAD)

Exposure At Default is defined as the expected facility exposure
at the date of default.

Impaired assets (IA)Facilities are classified as impaired when there is doubt as towhether the contractual amounts due, including interest andother payments, will be met in a timely manner. Impaired
assets include impaired facilities, and impaired derivatives.
Impaired derivatives have a credit valuation adjustment (CVA),
which is a market assessment of the credit risk of the relevant
counterparties.

Impaired loans (IL)Impaired loans comprise of drawn facilities
customer’s status is defined as impaired.

Individual provision charge (IPC)

Individual provision charge 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 flow over the lives of those financial
instruments.

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theANZ Basel III Pillar 3 disclosure

September 2015

Loss Given Default (LGD)

Loss Given Default is an estimate of the potential economic loss
on a credit exposure, incurred as a consequence of obligor
default and expressed as a percentage of the facility’s EAD.

Market risk

The risk to ANZ’s earnings arising from changes in interest
rates, currency exchange rates and credit spreads, or fromfluctuations in bond, commodity or equity prices. ANZ has
grouped market risk into two broad categories to facilitate themeasurement, reporting and control of market risk:
Traded market risk - the risk of loss from changes in the valueof financial instruments due to movements in price factors forphysical and derivative trading positions. Trading positions arise
from transactions where ANZ acts as principal with clients orwith the market.
Non-traded market risk (or balance sheet risk) - comprises
interest rate risk in the banking book and the risk to the AUD
denominated value of ANZ’s capital and earnings due to foreignexchange rate movements.

Operational risk

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 reputation loss, or
damage arising from inadequate or failed internal processes,
people and systems, but excludes strategic risk.

Past due facilities

Facilities where a contractual payment has not been met or thecustomer is outside of contractual arrangements are deemed
past due. Past due facilities include those operating in excess ofapproved arrangements or where scheduled repayments areoutstanding but do not include impaired assets.

Probability of Default (PD)Probability of Default is an estimate of the level of the risk ofborrower default.

Recoveries

Payments received and taken to profit for the current period forthe amounts written off in prior financial periods.

Regulatory Expected Loss

Regulatory Expected Loss is a measure of expected credit
losses at the start of the year.

Restructured items

Restructured items comprise facilities in which the originalcontractual terms have been modified for reasons related to thefinancial difficulties of the customer. Restructuring may consistof reduction of interest, principal or other payments legally due,or an extension in maturity materially beyond those typicallyoffered to new facilities with similar risk.

Risk Weighted Assets (RWA)

Assets which are weighted for credit risk according to a set
formula (APS 112/113).

Securitisation risk

The risk of credit related losses greater than expected due to asecuritisation failing to operate as anticipated, or of the values
and risks accepted or transferred, not emerging as expected.

Slotting

Exposures where repayment is dependent on funds generated
by the asset financed and with little/no recourse to any
alternative source.

Write-Offs

Facilities are written off against the related provision for
impairment when they are assessed as partially or fully
uncollectable, and after proceeds from the realisation of any
collateral have been received. Where individual provisions
recognised in previous periods have subsequently decreased or
are no longer required, such impairment losses are reversed in
the current period income statement.

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ANZ Basel III Pillar 3 disclosure

Average Risk Weights (Credit RWA / EAD*)

September 2015