Australia and New Zealand
Banking Group Limited

ABN 11 005 357 522

Consolidated Financial Report
Dividend Announcement
and Appendix 4B

Half year
31 March 2003

Corporate Affairs
Level 20, 100 Queen Street
Melbourne Vic 3000
Telephone 03 9273 6190
Facsimile 03 9273 4899
www.anz.com

For Release: 24 April 2003

ANZ 2003 Interim Results
Australia and New Zealand Banking Group Limited (ANZ) today announced an operating profit
after tax of $1,141 million for the half year ended March 2003 up 8.7% for the same period lastyear. Earnings per share were up 8.6% to 72 cents.
Results Summary• Profit after tax of $1,141 million up 8.7% including significant items. Excluding
significant items profit after tax was up 7.0%.
• Earnings per ordinary share up 8.6% to 72 cents per share.
• Interim dividend 44 cents up 12.8%.
• Cost-income ratio further reduced to 45.6%.
• Specific provisions down 29% to $259 million.
All comparisons with 2002 Interim Results.

ANZ Chief Executive Officer Mr John McFarlane said: “The overall result is reasonable. It reflects
a strong performance by most of our specialist businesses offset by the one-off charge in our
Credit Card business. We are on track to deliver 8% underlying earnings growth for the full year.
“In recent years our financial performance based on superior execution has helped make ANZ avery different bank. The issue we experienced in Cards was below standard and the bottom-line
is we need to do better than this.
“The agenda at ANZ is about a distinctive strategy that is well executed and consistently delivers
superior performance for shareholders, our staff, our customers and the community.
“Our specialist business portfolio is performing well. However there is clearly an opportunity toraise our game further,” Mr McFarlane said.

For media enquiries, contact:
Paul Edwards
Head of Group Media Relations
Tel: 03-9273 6955 or 0409-655 550
Email: paul.edwards@anz.com

For analyst enquiries, contact:
Philip Gentry
Head of Investor Relations
Tel: 03-9273 4185 or 0411-125 474
Email: gentryp@anz.com

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

1

Chief Executive Officer’s Review
2003 Interim Results

Stronger underlying performance offset by one-off Cards charge
In the six-month period ending 31 March 2003, ANZ recorded a net profit after tax of$1,141 million, up 8.7% on the same period last year. Earnings per share rose by
8.6% to 72 cents and cash EPS by 10.4%. The interim dividend was increased by
12.8% to 44 cents, reflecting our strong capital position.
Excluding significant transactions, net profit after tax rose 7%, EPS rose 6.8% andcash EPS rose by 8.7%.
Return on equity was down marginally to 20.3%, but above our 20% target. Our
productivity continues to be in the top five per cent of major banks globally with thecost-income ratio further reduced to 45.6%, from 46.5%.
In the half, we took a one-off charge of $27 million in the Consumer Finance business.
This related to the under-accrual of loyalty points for past years. This wasinconsistent with ANZ’s normally high execution standards and action has been taken
to avoid similar issues in future. Despite this, Consumer Finance has been one of ourfastest growing businesses during recent years and the underlying growth in thatbusiness remains strong.
Of significance, in the half we settled a long-standing tax dispute with the Australian
Taxation Office relating to equity product transactions, mainly from the late 1990s.
The settlement of $262 million was met from ANZ’s existing tax provisions.
Risk levels have improved. Specific provisions were down by 29% to $259 million, net
non-accrual loans were down 28%, and the economic loss provisioning charge as apercentage of risk-weighted assets was reduced.
We also ended the half with strong common equity and general reserves, andmaintained our double A category rating.
The first half result follows a particularly strong 2002 performance. In an
environment that continues to be difficult for banks around the world, this is areasonable result, but marginally below our internal target.

2
Our portfolio of specialist businesses is performing well
Our specialisation strategy is distinctive. Eight of our seventeen specialist businessesdelivered double-digit earnings growth and eleven delivered profit increases.
Institutional, Corporate, Mortgages, Asset Finance and Asia Pacific all produced strong
performances. Results from the ING Joint Venture were subdued in difficult equity
markets, while Consumer Finance and Treasury recorded profit decreases.
Personal Banking Australia is worthy of special mention in the context that we areworking to revitalise a business that has not been a traditional strength of ANZ.
Although earnings were not as strong as its sister businesses we are investing heavily
in this segment for the long run. The Restoring Customer Faith program, together
with much of the group’s technology investment, relates to upgrading our strategic
capability in this area. Additionally we are currently experiencing the early impact of
reducing the prices of our everyday banking accounts. These are now the simplest
products offering the best deal in Australia, and we expect earnings growth to remain
subdued in the near term, as we work to increase market share and generate a moresustainable strategic position in this segment.

Risks levels have been brought down
The credit quality of our portfolio of assets has improved with economic loss
provisioning (ELP) as a percentage of risk-weighted assets down to 40 basis points(bp) from 43bp. Gross non-accrual loans, net non-accrual loans, new non-accrualloans and specific provisions are all down materially. Domestic credit quality remains
particularly strong.
The risk of our offshore energy and telecommunications exposures appears to havestabilised. Nonetheless, we are taking steps to further reduce exposure. While somelosses are inevitable, they are containable, and we continue to expect full year specificprovisions to be less than our ELP for 2003.

3
We are focused on four key priorities for the future
Leveraging real capabilities to build a sustainable strategic position!
!
!

Leverage specialisation as a distinctive strategy
Leverage leading product capability to increase customer share
Leverage superior cost position:-!

To give customers the best deal
To give shareholders sustainable and growing returns

Leverage ANZ’s emerging and distinctive “human face” to gain:--

Unique positioning against peers
Traction in earning the trust of the community

Growing value by creating a rich, diversified portfolio of specialised businesses!
!
!

Leverage decentralisation and focus to gain distinctive momentum
Actively manage the portfolio to optimise sustainability, growth and return
Substantially raise revenue productivity in Personal Banking:
-

!
!
!
!
!
!
!
!

Develop new Banking Product and Transaction Services business
Further decentralise autonomy to Local CEOs
Enrich Restoring Customer Faith with a retailing culture
Upgrade customer service levels and reliability

Enhance productivity and financial performance in Wealth Management
Develop sustainable post-interchange Consumer Finance strategy
Regain leading position in Small to Medium Business
Develop the Institutional portfolio while reducing risk concentrations
Leverage specialised distribution in Mortgages
Advance the customer franchise in New Zealand through a local approach
Turn Asset Finance into a sustainable growth proposition
Create a portfolio of growth options:--

Invest in high growth domestic franchises
Leverage distinctive capabilities with local partners in Asia-PacificBecoming one of the best managed and most efficient banks in the world!
!
!
!

Make execution a distinctive capability
Accelerate revenue and productivity momentum in businesses
Rebalance higher risk segments
Simplify and streamline operations and technology infrastructure:--

End-to-end rationalisation of major processes
Substantial cutback in technology project load
Leverage low-cost international locations
Focus on core activities and eliminate the tail

Being bold and different, leveraging a unique performance culture and approach
!
!
!
!
!

Systematically improve across all measures of high performance culture
Make financial management and values orientation distinctive capabilities
Build on ANZ’s position as a preferred employer
Gain community and shareholder recognition
Raise our game in execution to minimise surprises

4
The domestic economies remain strong in an uncertain global environment
The global economic environment remains challenging; in part reflecting heightenedlevels of geopolitical uncertainty and more recently the potential effect of SARS. The
US and world economies are likely to be weighed down over the medium-term by thecontinued after-effects of the collapse of the 1990’s equity market bubble.
Despite this relatively unfavourable external environment, the Australian and New
Zealand economies are still likely to record reasonable growth in 2003. In particular,
Australia does not have to cope with the direct fallout from the collapse of an equity
market bubble, which is one factor likely to underpin continued growth in business
investment and businesses demand for credit. The expected breaking of the droughtin Australia could also provide a boost to economic growth this year.
There are clearly a number of downside risks to the outlook. Activity in the housing
market is likely to soften and weigh on housing credit growth over the period ahead.
Widespread house price declines in Australia are not expected, partly due to thebenign interest rate outlook and partly because the strong rises of recent years reflect
the structural decline in interest rates over the last decade. There is also the risk thatbusiness sentiment continues to be affected by geopolitical uncertainties and leads tosome deferral of investment intentions.
We remain on track for target earnings growth in full-year 2003 and for 2004
We believe domestic economic growth over the balance of 2003 is likely to remain
reasonable.
The outlook for 2004 is likely to be similar. In a broader sense, ANZ’s performance in2004 will in part be a function of the economic environment, general levels ofconfidence and activity and the extent to which slowing mortgage growth is offset bybusiness credit growth.
An important challenge is positioning the Consumer Finance business for the changes
in credit card interchange levels announced by the Reserve Bank of Australia. In thisrespect, we announced the combined impact of changes in credit card interchange andincreased costs of loyalty programs are expected to cause a $40 million negative
impact on earnings in 2004. While the strategy for the Consumer Finance businessfor the period ahead is still evolving, we are confident the impact won’t exceed this$40 million estimate.
With respect to dividend policy, given our strong capital generation, as in this half, ourcurrent view is that we are likely to pursue a higher level of dividend growth thanearnings growth, resulting in an increase over the next few years in the dividend
payout ratio to an upper sixty percent level.
All in all, we are confident overall growth in net profit after tax for 2003 (excluding
significant transactions in 2002) will be in line with market expectations ofapproximately 8%. Additionally, notwithstanding the challenges of the global economy
and in credit cards, we believe there are reasonable prospects of a similar
performance level in 2004.

5

ANZ Group Management Structure

GROUP LEADERSHIP
Chief Executive Officer
John McFarlaneGroup
FinancePeter MarriottGroup Strategic
Development
Peter Hawkins

Group Treasury

Asia PacificGroup Risk
Mark LawrenceGroup People
CapitalShane Freeman

Major Investment
Programs
Grahame Miller

Operations, Technology& Shared Services
David Boyles

SEGMENT LEADERSHIPNew Zealand Banking
Greg Camm

Consumer Finance
Brian Hartzer

Mortgages
Chris Cooper

Corporate
Graham Hodges
Small to Medium Enterprises Australia
Corporate Banking Australia

Institutional
Bob Edgar
Institutional Banking
Transaction Services
Foreign Exchange
Capital Markets
Structured Finance International
Corporate Financing & Advisory

Personal Banking Australia
Elmer Funke Kupper
Personal Banking
Wealth Management
ING Australia

Asset Finance
Elizabeth Proust

Australia and New Zealand Banking Group Limited
ABN 11 005 357 522
CONSOLIDATED FINANCIAL REPORT AND DIVIDEND ANNOUNCEMENT
Half year ended 31 March 2003

CONTENTSPAGEHIGHLIGHTS

1

FINANCIAL HIGHLIGHTS

2

Net Profit
Net Profit Reconciliation
Profit excluding profit on sale of businesses to joint venture, NHB recovery and special generalprovision for doubtful debts
Performance Measurements
Statement of Financial Position
Assets and Capital

2
2
2
3
4
5

CHIEF FINANCIAL OFFICER’S REVIEW

7March 2003 half year
Business Segment Performance
Geographic Segment Performance

7
13
52

RISK MANAGEMENT

59

COUNTRY EXPOSURES

63

FOUR YEAR SUMMARY

65

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS68

AUDITORS’ REVIEW REPORT

116

DEFINITIONS

117

ALPHABETICAL INDEX

119

All amounts are in Australian dollars unless otherwise stated. The information on which this announcement isbased has been reviewed by the Group’s auditors, KPMG. The Company has a formally constituted Audit
Committee of the Board of Directors. This report was approved by resolution of a Committee of the Board of
Directors on 23 April 2003.

HIGHLIGHTSCHIEF EXECUTIVE OFFICERJohn McFarlane

Half year results
ChangeMar ‘02$1,141 million

up 8.7%$1,050m

Earnings per ordinary share

72.0 centsup 8.6%66.3 cents

Cash EPS

74.0 centsup 10.4%

67.0 cents

44 cents

up 12.8%

39 cents

Net profit after tax

Interim dividend! Net specific provisions, improved to $259 million, from $366 million! Return on ordinary shareholders equity weakened to 20.3%, from 21.6%

Half year results excluding significant transactions1

ChangeMar ‘02$1,141 million

up 7.0%$1,066m

Earnings per ordinary share

72.0 centsup 6.8%67.4 cents

Cash EPS

74.0 centsup 8.7%68.1 cents

Return on ordinary
shareholders’ equity

20.3%

down 1.7%

22.0%

Cost to income

45.6%

down 0.9%

46.5%

Net profit after tax

1.

Significant transactions during half year ended 31 March 2002 were NHB recovery ($159 million after tax) and special provision for doubtful debts($175 million after tax)

1

FINANCIAL HIGHLIGHTSNet Profit
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

2,140

2,053

1,965

4%

9%

Other operating income

1,352

1,561

1,409

-13%

-4%

Operating income

3,492

3,614

3,374

-3%

3%

Operating expenses(1,602)(1,575)(1,330)2%

20%

Profit before debt provision

1,890

2,039

2,044

-7%

-8%

Provision for doubtful debts

(303)

(309)

(551)

-2%

-45%

Profit before income tax

1,587

1,730

1,493

-8%

6%

Income tax expense

(444)

(457)

(441)

-3%

1%

Outside equity interests

(2)

(1)

(2)

100%

-

1,141

1,272

1,050

-10%

9%

1,141

1,102

1,066

4%

7%

Special general provision for doubtful debts after tax

-

-

(175)

n/a

n/a

Recovery from NHB litigation after tax

-

-

159

n/a

n/a

Net profit attributable to members of the Company

Net Profit Reconciliation
Profit excluding profit after tax from sale of businesses to joint venture
NHB recovery and special general provision for doubtful debts

Profit on sale of businesses to ING joint venture after tax

-

170

-

-100%

n/a

Net profit attributable to members of the Company

1,141

1,272

1,050

-10%

9%

Profit excluding profit on sale of businesses to joint venture, NHB recovery and special
general provision for doubtful debts
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

2,140

2,053

1,965

4%

9%

Other operating income

1,352

1,387

1,409

-3%

-4%

Operating income

3,492

3,440

3,374

2%

3%

Operating expenses(1,602)(1,575)(1,578)2%

2%

Profit before debt provision

1,890

1,865

1,796

1%

5%

Provision for doubtful debts

(303)

(309)

(301)

-2%

1%

Profit before income tax

1,587

1,556

1,495

2%

6%

Income tax expense

(444)

(453)

(427)

-2%

4%

(2)

(1)

(2)

100%

-

1,141

1,102

1,066

4%

7%

Outside equity interests
Net profit adjusted for significant transactions

2

FINANCIAL HIGHLIGHTS (continued)
Performance Measurements

EVATM 1

Halfyear
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02
$M

735

736

702

20.3%

24.8%

21.6%

20.3%

21.3%

22.0%

1.22%

1.43%

1.18%

Profitability ratios
Return on:
Average ordinary shareholders' equity22

Average ordinary shareholders' equity excluding significant transactions

4

Average assets
Average risk weighted assets

1.57%

1.83%

1.54%

Total income

17.1%

19.6%

17.1%

Net interest average margin

2.71%

2.79%

2.75%

Profit per average FTE ($)

51,07756,011

46,464

Operating expenses to operating income (excluding significant transactions4)

45.6%

45.5%

46.5%

Operating expenses to operating income

45.6%

43.3%

39.1%

Operating expenses (excluding significant transactions) to average assets

1.7%

1.8%

1.8%

Operating expenses to average assets

1.7%

1.8%

1.5%

303

309

301

Efficiency ratios

34

Debt provisioning
Economic loss provisioning ($M)
Special general provision charge ($M)

-

-

250

259

362

366

Earnings per ordinary share (basic)

72.0

81.0

66.3

Earnings per ordinary share (diluted)

71.7

80.6

66.0

Earnings per ordinary share (basic) excluding significant transactions4

72.0

69.6

67.4

74.0

71.5

68.1

44

n/a

39

Net specific provisions ($M)
Earnings per ordinary share (cents)

Earnings per ordinary share (basic) excluding significant transactions
and goodwill amortisation5
Ordinary share dividends (cents)
Interim - 100% franked (Mar 02: 100% franked)
Final - 100% franked (Sep 02: 100% franked)
Dividend payout ratio6

n/a

46

n/a

61.3%

57.0%

58.9%

54

57

60

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

See page 10 for reconciliation to reported net profit
Ordinary shareholders’ equity excluding outside equity interests
Operating expenses $1,593 million (Sep 2002: $1,565 million; Mar 2002: $1,320 million) excludes goodwill amortisation $9 million (Sep 2002: $10 million; Mar
2002: $10 million). Excluding goodwill amortisation decreases the ratio by 0.3% (Sep 2002: 0.3%; Mar 2002: 0.3%)
Significant transaction during the half year ended 30 September 2002 was sale of business to INGA; during half year ended 31 March 2002 were NHB recovery
and special general provision for doubtful debts. See page 2 for reconciliation of net profit excluding significant transactions to reported net profit
Earnings used in ratio of $1,118 million (Sep 2002: $1,073 million; Mar 2002: $1,016 million) excludes significant transactions $nil (Sep 2002: $170 million net
profit; Mar 2002: ($16 million) net loss) and goodwill amortisation $31 million (Sep 2002: $28 million; Mar 2002: $10 million)
Dividend payout ratio is calculated using the dividend declared but not paid at 31 March 2003

3

FINANCIAL HIGHLIGHTS (continued)
Statement of Financial Position
As at
Mar 03As at
Sep 02As at
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

$M

$M

7,759

7,410

6,752

5%

15%

AssetsLiquid assets
Due from other financial institutions

3,123

3,815

3,468

-18%

-10%

Trading and investment securities

9,520

9,482

7,905

-

20%

Net loans and advances including acceptances

155,235

145,856

139,779

6%

11%

Other

14,881

16,542

18,685-10%-20%

Total assets

190,518

183,105

176,5894%8%Due to other financial institutions

8,824

10,860

8,215

-19%

7%

Deposits and other borrowings

122,256

113,297

105,6168%

16%

Liabilities

Liability for acceptances

13,27013,796

14,512-4%-9%

Bonds and notes

14,917

14,70814,437

1%

3%

Other

18,766

18,97923,006-1%-18%

Total liabilities

178,033

171,640

165,7864%

7%

Total shareholders' equity

12,485

11,465

10,803

9%

16%

4

FINANCIAL HIGHLIGHTS (continued)
Assets and CapitalMovt
Mar 03v. Mar 02%

As at
Mar 03As at
Sep 02As at
Mar 02

$M

$M

$M

Movt
Mar 03v. Sep 02%

Total assets

190,518

183,105

176,589

4%

8%

Risk weighted assets

148,603

141,390

135,418

5%

10%

Shareholders' equity1, 2

12,468

11,448

10,7899%16%

Total advances

157,323

147,937

141,914

6%

11%

Net advances

155,235

145,856

139,779

6%

11%

7.32

6.58

6.14

11%

19%

Net tangible assets attributable to ordinary shareholders

11,072

9,893

9,191

12%

20%

Total number of ordinary shares (M)1,513.4

1,503.9

1,495.7

1%

1%

As at
Mar 03As at
Sep 02As at
Mar 02

%

%

%

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net tangible assets per ordinary share ($)

Capital adequacy ratio (%)
Inner Tier 1

6.9%

6.9%

6.8%

-

1%

Tier 1

7.7%

7.9%

7.8%

-3%

-1%

Tier 2

3.4%

2.8%

3.1%

21%

10%

Total capital ratio

9.9%

9.5%

10.4%

4%

-5%

Adjusted common equity ratio

5.7%

5.7%

6.3%

-

-10%

As at
Mar 03As at
Sep 02As at
Mar 02

$M

$M

$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

1,530

1,496

1,546

2%

-1%

Impaired assets
General provision
General provision as a % of risk weighted assets

1.03%

1.06%

1.14%

-3%

-10%

Gross non-accrual loans

1,153

1,203

1,357

-4%

-15%

Specific provisions

(553)

(575)

(524)

-4%

6%
-28%

Net non-accrual loans

600

628

833

-4%

Specific provision as a % of total non-accrual loans

48.0%

47.8%

38.6%

-

24%

Total provisions3 as a % of non-accrual loans

180.7%

172.2%

152.5%

5%

18%

Net non-accrual loans as a % of net advances

0.4%

0.4%

0.6%

-

-33%

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

4.8%

5.5%

7.7%

-13%

-38%

22,48322,482

22,737

0%

-1%

8.5

8.1

7.8

5%

9%

27,13526,544

26,5792%

2%

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

Excludes outside equity interests
Includes preference share capital of $1,225 million (Sep 2002: $1,375 million; Mar 2002: $1,410 million)
General provision plus specific provisions on non-accrual loans
Includes outside equity interests

5This page has been left blank intentionally6

CHIEF FINANCIAL OFFICER’S REVIEWCHIEF FINANCIAL OFFICERPeter Marriott

March 2003 half year
Comparison of March 2003 half year with the September 2002 half year

Change in Profit
September 2002 v March 2003

$M
1,400

1,272

(170)

1,300

(35)

87

1,200

(27)

1,102

6

8

1,141

Income tax
expense &outside equity
interests

Mar 03

1,100
1,000
900
Sep 02

Profit on saleof businesses
to joint
venture aftertax

Sep 02 profit
excludingProfit on saleof businesses
to joint
venture in
2H02

Net interest
incomeOther Income

Operatingexpenses

Provision for
doubtful debts

Australia and New Zealand Banking Group Limited (ANZ, or the Group) recorded a profit after tax of$1,141 million for the half year ended 31 March 2003, a reduction of 10% over the September 2002 half year.
Earnings per ordinary share were 11.1% lower, at 72.0 cents, and return on ordinary shareholders’ equity was
down from 24.8% to 20.3%.
However, the September 2002 half year included $170 million profit from the sale of businesses to ING
Australia (INGA). Excluding this profit, profit after tax grew by 3.5%, and EPS by 3.4%. Cash earnings grewby 3.7%, and EPS on cash earnings by 3.4% (refer page 9).
Institutional, Corporate and Mortgages business segments performed strongly this half, with growth of 5%, 6%
and 6% respectively. The retail businesses, Personal Banking Australia and New Zealand Banking (adjusted forthe impact of foreign exchange movements) were subdued; traditionally these businesses perform morestrongly in the second half. Our product businesses, Consumer Finance and Asset Finance, had strong
underlying performance, although Consumer Finance was adversely impacted by a one-off charge for underaccrual of loyalty points.
Key influences on the operating result for the year were:"Growth of 4% in net interest income. Net lending assets grew by $9.4 billion (6%) overall, with growth of$6.0 billion (9%) in Mortgages and $1.3 billion in Corporate. Deposits grew by $6.2 billion overall, withgrowth in Personal Banking Australia of $1.2 billion, growth in New Zealand Banking of $1.2 billion,$2.6 billion in Institutional and $0.7 billion in Corporate. The deposit growth was encouraged by uncertainty
in global equity markets.

"

Net interest margin contracted by 8 basis points. Net interest income in Global Treasury fell by $20 million,
as a result of run off of the existing portfolio and flat yield curves and represented 3 basis points. Margins
fell in deposit businesses which had previously benefited from cash rate increases in the September half.

"

A 13% reduction in other operating income. Non-lending fees reduced by 13% ($78 million) principally froma $38 million under-accrual of loyalty points on co-branded credit cards in prior years, higher cost of loyalty
points and new fee arrangements in Personal Banking Australia. As announced in February, shortcomings
were identified in the methodology used to accrue loyalty points for some co-branded cards. Non-fee otherincome increased by 10%, including a one-off equity accounted gain in PT Panin and higher earnings from
INGA.

7

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Comparison of March 2003 half year with the September 2002 half year (continued)"""

Expenses increased by 2%. Personnel numbers were held steady. Increases in computer expenses wereprimarily driven by increased software amortisation. Removing the foreign exchange impact, expenses
increased by $16 million (1%). Costs were constrained during the half as it became clear that income
growth was weak.
The provision for doubtful debts reduced by 2%, as overall average credit quality improved slightly during
the half.
The tax rate decreased owing to a higher amount of equity accounted earnings and other small permanentdifferences.

Comparison of March 2003 half year with the March 2002 half year

Change in Profit
March 2002 v March 2003

$M

175

(57)
(24)

1,200

(2)
1,050

(159)

175

(17)

1,141

1,066

1,000

800
Mar 02

Recovery fromSpecial
Mar 02 profit
NHB litigation
generalexcluding
after tax inprovision for
significant
1H02
doubtful debts transactions
after tax

Net interest
incomeOther Income

Operatingexpenses

Provision for
doubtful debts

Income tax
expense &outside equity
interests

Mar 03

Profit after tax for the March 2003 half year at $1,141 million was 9% higher than the prior comparative halfyear. Earnings per share increased 9% to 72.0 cents while return on ordinary shareholders’ equity was downfrom 21.6% to 20.3%.
The March 2002 half-year included two significant transactions:" In January 2002, the Group settled its long standing litigation with National Housing Bank in India (NHB).
This resulted in the recovery of $248 million ($159 million after tax), from the net amount of $575 million,
which had been provided when the Group sold Grindlays to Standard Chartered Bank.
" In March 2002, a special provision for doubtful debts of $250 million ($175 million after tax) was charged inorder to restore the provision balance to an appropriate level in an environment of unexpected investment
grade defaults.
Profit after tax grew by 7% excluding the NHB recovery and the special provision for doubtful debts. Key
factors affecting the result were:" Net interest growth of 9%. Net lending asset volumes grew by $16 billion, primarily in Mortgages while
deposits grew $12.8 billion across the businesses.
" Overall net interest margin reduced by 4 basis points, with reduced margins in the lending based units
which benefited from falling cash rates and the lag in repricing customer loans in the March 2002 half year.
Treasury net interest fell $17 million as high yielding assets matured.
" Non-interest income reduced by $57 million. Adjusting for the sale of ANZ Funds Management business andthe $38 million under-accrual in Consumer Finance, non-interest income increased $44 million or 3%.
" Operating expenses grew by 1% or 4% after adjusting for the sale of ANZ Funds Management businesses to
INGA. Personnel costs increased by 2% and software amortisation increased.
" Provision for doubtful debts remained stable with a lower charge to operating segments offsetting an
increased charge to reflect higher levels of default in the US and European portfolios.
Our focus going forward remains on investment in more attractive sectors to grow income, whilst continuing tomaintain a healthy buffer between income growth and cost growth and thus continuing to moderately lower thecost income ratio. Constantly re-engineering “business as usual” costs to ensure tight cost control remains a
key aspect of our financial management.

8

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Cash earnings reconciliation
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
Movt
Movt
year
Mar 03Mar 03Mar 02 v. Sep 02 v. Mar 02
$M
%
%

1,172

1,130

1,076

4%

9%

Net profit (loss) on significant transactions

-

170

(16)

-100%

-100%

Amortisation of goodwill on ING Australia JV

(22)

(18)

-

22%

n/a

Amortisation of other goodwill

(9)

(10)

(10)

-10%

-10%

1,141

1,272

1,050

-10%

9%

Cash earnings reconciliation
Cash earnings before significant transactions

Net profit attributable to members of the Company

The cash earnings measure analyses the core operating result without the distortion of one-off significant
transactions, the impact of the amortisation of goodwill and certain revaluations. ANZ has not revalued
subsidiary entities or other assets in the periods shown. These earnings do not include any impact fromappraisal value movements.
Software Capitalisation
The Group capitalises the development of software for major projects. As at March 2003, the balance ofsoftware capitalised was $451 million ($419 million at September 2002 and $381 million at March 2002).
Software is amortised over 3 to 5 years, commencing on the date of implementation (the only exception is thebranch network platform, which is amortised over 7 years). During the first half, software amortisation of$37 million was recognised and a further $62 million of software build costs were capitalised. The build up in
capitalised projects has been at a time when the Group has had an unusually high number of long term
infrastructure projects.
Software capitalisation and amortisation
$M
120
100
80
60
40
20
0
Mar
99

Sep
99

Mar
00

Sep
00

Amount Capitalised

Mar
01

Sep
01

Mar
02

Sep
02

Mar
03

Amortisation

Risk
The Group economic loss provision (ELP) was $303 million, compared with $309 million in the half year to
September 2002. The ELP charge to operating segments at $251 million reduced slightly compared to the
September 2002. A charge of $52 million (7 basis points) was taken to recognise continued uncertainty in theoffshore lending portfolio. The ELP rate decreased over the half-year to 40 basis points compared to 43 basis
points for the September 2002 half year, with an increase in the percentage of low risk (principally mortgages)
assets in the portfolio and a reduction in the average risk across the half.
Net specific provisions were $259 million, down $103 million on the September 2002 half year with the
reduction due principally to lower offshore losses. Net specific provisions included $27 million relating to thefinalisation of our credit warranty with Standard Chartered (this warranty was given on the sale of Grindlays).
Net specific provisions were $123 million in Institutional, $65 million in Consumer Finance, and $25 million in
Asset Finance.

9

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Risk (continued)
There was some further minor deterioration in the Power and Telecommunications portfolios, with additional
provisions of $72 million raised during the half compared to $207 million in the September 2002 half year.
There were minimal large single name losses experienced this half as compared to last half. As a percentage of
average net lending assets net specific provisions reduced to 34 basis points this half, from 50 basis points lasthalf.
Net non-accrual loans were $600 million at March 2003 compared with $628 million at September 2002. The
general provision balance at 31 March 2003 remains strong at $1,530 million (1.03% of risk weighted assets),
compared with $1,496 million (1.06% of risk weighted assets) at 30 September 2002.
Capital management
The Group’s total capital adequacy ratio increased by 0.4% to 9.9% due to the net issuance of $1.4 billion ofTier 2 capital.
The Group’s ACE (Adjusted common equity; refer page 117 for definition) ratio remained unchanged at 5.7%,
which is at the upper end of our target range of 5.25% to 5.75%, with very strong growth in risk weighted
assets and a small increase in deductions absorbing retained earnings growth. The Tier 1 ratio decreased in
the half by 0.2% to 7.7%, with the 5% growth in RWA being slightly stronger than the 3% growth in capital.
Preference share capital, which is denominated in USD, has been re-translated to the spot rates applicable atthe date of issue on the introduction of a revised foreign currency standard.
The dividend payout ratio is 61.3%. The Group is aiming to increase its dividend payout ratio over the next
few years in order to realise the value of its franking capacity whilst sustaining sufficient levels of internal
capital generation to cater for business investment requirements and RWA growth. The Group’s current plans
are to increase the dividends at a higher rate than earnings, to give shareholders the benefit of our strong
capital position. This will result progressively over a number of years in a dividend payout ratio in the highsixties.
Mar 03$B

Sep 02$B

Mar 02$B

Tier 1

11.5

11.2

10.6

Preference Shares

(1.3)

(1.4)

(1.4)

Deductions

(1.8)

(1.7)

(0.7)

Adjusted Common Equity ($B)

8.4

8.1

8.5

% of risk weighted assets

5.7%

5.7%

6.3%

The Group is managed to maximise value for our shareholders. One measure of shareholder value is EVATM(Economic Value Added) growth relative to prior periods. EVATM for the half year ended 31 March was$735 million, up from $702 million for the year ended 31 March 2002, but flat compared with $736 million for
the September 2002 half.
EVA reconciliation
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Movt
Movt
Half
Mar 03Mar 03year
Mar 02 v. Sep 02 v. Mar 02
%
%
$M

1,163

1,120

1,066

4%

9%

Imputation credits

215

233

216

-8%

0%

Risk adjusted profit

1,378

1,353

1,282

2%

7%

Cost of capital

(589)

(560)

(520)

5%

13%

Cost of preference share capital

(54)

(57)

(60)

-5%

-10%

EVATM

735

736

702

0%

5%

EVATM
Profit (excl INGA notional goodwill)after tax excluding significant transactions1

1.

Profit equates to reported net profit $1,141 million (Sep 2002: $1,272 million; Mar 2002: $1,050 million) excluding INGA notional goodwill $22 million (Sep 2002:$18 million) and significant transactions (per page 2) $nil (Sep 2002: $170 million net profit; Mar 2002: ($16 million) net loss)

10

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
EVA reconciliation (continued)
EVATM is a measure of risk adjusted accounting profit. It is based on operating profit after tax, adjusted for
one-off items, the cost of capital, imputation credits (measured at 70% of Australian tax) and economic credit
costs. Of these, the major component is the cost of capital, which is calculated on the risk adjusted or
economic capital at a rate of 11%. At the Group level, total capital is used so the cost of capital reflects the fullresources provided by shareholders.
At ANZ, economic capital is the equity allocated according to a business unit’s inherent risk profile. It is
allocated for several risk categories including: credit risk, operating risk, interest rate risk, basis risk, mismatch
risk, investment risk, trading risk and other risk. The methodology used to allocate capital to business units forrisk is designed to help drive appropriate risk management and business strategies throughout the Group.
EVATM is a key measure for evaluating business unit performance and correspondingly is a key factor in
determining the variable component of remuneration packages. Business unit results are equity standardised,by eliminating the impact of earnings on each business unit’s book capital and attributing earnings on thebusiness unit’s risk adjusted or economic capital.

11This page has been left blank intentionally

12

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Business Segment Performance
Analysis of the segment and business unit results appears on pages 13 to 51. The principles used to compile
business unit results are explained in the glossary on page 117.
Net profit for each business is determined after service transfer pricing and equity standardisation.
The Group from time to time modifies the organisation of its businesses to enhance the focus on delivery of
specialised products or services to customers. Prior period numbers are adjusted for such organisationalchanges to allow comparability. During the last half a number of changes were made as follows:"

Following the integration of Global Institutional and Investment Banking as part of the October
announcement, ANZ has strengthened the alignment of its international operations with ANZ’s core
Australasian franchise, and more clearly defined Structured Finance International’s (formerly GSF) core
activities.
As a result, international corporate relationships with an Australasian connection are managed by therelevant industry Segment heads in Institutional Banking Australia and reported under Institutional Banking.
Structured Finance International now focuses on its core business, project and structured finance.

"

The increased level of autonomy provided to ANZ New Zealand results in Corporate Banking and Small to
Medium Enterprises in New Zealand being reported within New Zealand segment, rather than within the
Corporate Segment.

"

In addition, there were a number of minor restatements as a result of changes in internal transfer pricing
methodologies and realignment of support functions.

Prior period comparatives have been adjusted to reflect these changes.
The recent re-organisation within Personal Banking and Wealth Management was effective from 1 April 2003,
and will be reflected in the full year results announcement.
Profit & Loss (including effect of movements in foreign currencies)
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
Movt
Movt
year
Mar 03Mar 03Mar 02 v. Sep 02 v. Mar 02$M%%

Personal Banking Australia

188

185

169

2%

11%

Institutional

382

364

348

5%

10%

Corporate

133

125

120

6%

11%

New Zealand Banking

74

69

61

7%

21%

Mortgages

131

124

123

6%

7%

Consumer Finance

47

71

79

-34%

-41%

Asset Finance

60

54

48

11%

25%

1

ING Australia

7

8

25

-13%

-72%

Asia Pacific

67

51

45

31%

49%

Treasury

49

61

63

-20%

-22%

Group Centre

3

(10)

(15)

large

large

1,141

1,102

1,066

4%

7%

-

170

(16)

-100%

-100%

1,141

1,272

1,050

-10%

9%

Net profit after income tax

Net profit (excl significant transactions)
2

Significant transactions
Net profit
1.
2.

Includes the results of the ING Australia (INGA) in the period from 1 May 2002; and the results of the businesses sold into INGA for the prior periods
Significant transaction during the half year ended 30 September 2002 was sale of business to INGA; during half year ended 31 March 2002 were NHB recovery
and special general provision for doubtful debts

13

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Business Segment Performance (continued)
Profit & Loss (prior period figures restated to remove effect of movements in foreign currencies)
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
Movt
Movt
year
Mar 03Mar 03Mar 02 v. Sep 02 v. Mar 02$M%%

Personal Banking Australia

188

185

169

2%

11%

Institutional

382

366

351

4%

9%

Corporate

133

125

120

6%

11%

New Zealand Banking

74

74

68

0%

9%

Mortgages

131

125

125

5%

5%

Consumer Finance

47

72

80

-35%

-41%

Asset Finance

60

55

49

9%

22%

1

ING Australia

7

8

25

-13%

-72%

Asia Pacific

67

50

42

34%

60%

Treasury

49

61

62

-20%

-21%

Group Centre

3

(13)

(20)

large

large

1,141

1,108

1,071

3%

7%

-

173

(16)

-100%

-100%

1,141

1,281

1,055

-11%

8%

-

(9)

(5)

-100%

-100%

1,141

1,272

1,050

-10%

9%

Net profit after income tax

Net profit (excl significant transactions)
2

Significant transactions
Net profit

FX impact on reported Net Profit
Reported net profit
1.
2.

Includes the results of the ING Australia (INGA) in the period from 1 May 2002; and the results of the businesses sold into INGA for the prior periods
Significant transaction during the half year ended 30 September 2002 was sale of business to INGA; during half year ended 31 March 2002 were NHB recovery
and special general provision for doubtful debts

14This page has been left blank intentionally15

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
PERSONAL BANKING AUSTRALIA
Elmer Funke Kupper♦ Personal Banking♦ Wealth Management

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

420

408

380

3%

11%

Other external operating income

189

201

166

-6%

14%

Net inter business unit fees

149

147

177

1%

-16%

Operating income

758

756

723

0%

5%

External operating expenses

(374)

(395)

(364)

-5%

3%

Net inter business unit expenses

(104)

(85)

(106)

22%

-2%

Operating expenses

(478)

(480)

(470)

0%

2%

Profit before debt provision

280

276

253

1%

11%

Provision for doubtful debts

(13)

(11)

(12)

18%

8%

Profit before income tax

267

265

241

1%

11%

Income tax expense and outside equity interests

(79)

(80)

(72)

-1%

10%

Net profit attributable to members of the Company

188

185

169

2%

11%

5,197

4,945

4,700

5%

11%

Net loans & advances including acceptances
Other external assets

1,029

887

1,508

16%

-32%

External assets

6,226

5,832

6,208

7%

0%

Deposits and other borrowings

24,662

24,05822,890

3%

8%

Other external liabilities

1,099

1,104

1,033

0%

6%

External liabilities

25,761

25,162

23,923

2%

8%

Net interest average margin

3.47%

3.63%

3.51%

-4%

-1%

Return on assets

1.46%

1.53%

1.42%

-5%

3%

Return on risk weighted assets

4.24%

4.60%

4.21%

-8%

1%

Operating expenses to operating income

63.1%

63.5%

65.3%

-1%

-3%

Operating expenses to average assets

3.72%

3.98%

4.02%

-7%

-7%

(9)

(8)

(9)

13%

0%

0.34%

0.33%

0.39%

3%

-13%

7

10

8

-30%

-13%

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

0.13%

0.20%

0.17%

-35%

-24%

Total employees

5,866

5,598

5,534

5%

6%

16

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
PERSONAL BANKING AUSTRALIA
Elmer Funke Kupper
Our businessOur business generates revenue through four major activities:
Activity

Key drivers

Managing and selling proprietaryproducts (savings products andtransaction accounts) from which
we earn interest and fees
Selling other ANZ products fromwhich we earn sales commissions
and, in some cases, trailer
commissions.
Providing branch services to ANZ’s
personal and corporate customers(eg. cash deposit facilities), on a
cost-recovery basis
Providing financial advice toindividuals and distributing
investment products

Deposit & loanbalances
Interest margin

Revenue Source
Other

Net Interest

Sales volume
Sales mix

Product
Distribution &ServiceCommissions

Unit costs
Transaction
volumesManagedinvestment flows

Half
year
Mar 03
30.4
2.3
54.7
970
3.2

Key Performance Indicators
Deposit balances ($ billion) *Product interest margin (%)
Sales commissions ($ million) **Managed investment flows ($ million)
Customers (million)*

Proprietary productrevenue

Fees

Half
year
Sep 02
29.0
2.4
52.3
1,083
3.1

Half
year
Mar 02
27.7
2.4
45.8
977
3.1

includes V2 Plus; deposits shown on page 16 exclude V2 Plus** excludes Wealth Management

External considerations
Our business has three significant economic sensitivities:" GDP growth, which impacts domestic savings and borrowing. We expect our deposits to grow by 4-5% andour loans by 8-10% over the next 6 months based on Australian GDP growth of around 3%.
" Interest rates. Our margins are normally higher in higher interest rate environments.
" Demand for mortgages. 60% of our sales commissions come from mortgage sales. Demand is expected tosoften over 2003 as the residential property market consolidates after several years of high growth.
Half
year
Mar 03
2.5
4.8
8.5

Business environment
measures
Real GDP growth (%)
Official cash rate (%)
Residential mortgage growth (%)

Half
year
Sep 02
2.9
4.8
9.9

Half
year
Mar 02
3.1
4.3
8.5

Source: economics@anz

Executing our strategy
We are a sales-orientated business, and are looking to improve our sales performance and customer retention.
We have two main strategic initiatives:
Initiative
Restoring Customer Faith

Main drivers impacted• Sales volume• Sales mix• Customer numbers
Development of Deposits and • Deposit & loan balances
Transaction Banking• Sales volume
business• Sales mix

17

Progress
Implemented in NSW
and Victoria

Goals for Sep 2003
• Roll out to remaining
states of Australia

Implemented 1 April
2003• Market leadership in cash
management accounts• Market share increases

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
PERSONAL BANKING AUSTRALIAPERSONAL BANKING
Elmer Funke Kupper
Provides a full range of banking services to personal customers andsmall to medium rural business customers in Australia through branches,call centres, ATMs, and on-line banking

Half Year

Movement

Mar 03$M

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

137

133

121

3%

13%

Revenue

600

591

563

2%

7%

Operating expenses

(394)

(391)

(380)

1%

4%

Provision for doubtful debts

(12)

(10)

(11)

20%

9%

Net specific provisions

(9)

(8)

(8)

13%

13%

Net non-accrual loans

6

12

7

-50%

-14%

Comparison with September 2002 half
Profit after tax increased by 3%. Significant influences on the result were:"

Personal Banking’s Metro performance declined by 3%, while Rural Banking grew by 13%.

"

Revenue increased slightly with higher net interest resulting from continued growth in deposit balances andincreased rural lending volumes. However, much of this benefit was eroded by lower deposit margins
compared to the September half. The business is predominantly deposit driven.

"

Other operating income was flat, partly reflecting the seasonality in this business where revenues are
typically stronger in the second half. Increased sales and retention commissions from growth in sales of ANZ
products through the branch network have been partly offset by the impact of reduced fees following a
reduction in dishonour fees and the migration of customers to new low fee products.

"

Operating expenses growth has been contained to 1%, notwithstanding several significant investments inthe business including the Restoring Customer Faith initiative, ATM installations, branch refurbishments andthe new sales and service platform.

"

Net non-accruals and net specific provisions remain low reflecting the soundness of underlying asset quality.

Comparison with March 2002 half
Profit after tax increased 13% with a 7% increase in revenue driven by higher net interest on increased
deposits, agribusiness lending, and higher sales and retention commissions, principally on mortgages.
Operating expenses increased 4% reflecting higher technology costs, Enterprise Bargaining Agreement salary
increases, and higher property costs emanating from the refurbishment program under way within the network.

18

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
PERSONAL BANKING AUSTRALIAWEALTH MANAGEMENT
Craig Coleman
Wealth Management delivers comprehensive financial advisory, trustee
and distribution services to high net worth customers in Australia
covering investment, risk, lending and banking

Half Year

Movement

Mar 03$M

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

51

52

48

-2%

6%

Revenue

158

165

160

-4%

-1%

Operating expenses

(84)

(89)

(91)

-6%

-8%

Provision for doubtful debts

(1)

(1)

(1)

-

-

Comparison with September 2002 half
Profit after tax has reduced by 2%. Significant factors influencing this result were:"

Revenues were down 4% principally due to the negative impact of sustained downturn in equity markets onretail funds management sales and balances. The reduction in fund management revenues was partly offset
by the growth in our cash management deposit account (V2 Plus).

"

Operating costs were down 6% principally through lower incentive payments to staff (as a consequence oflower sales) and efficiency savings arising from the integration of INGA activities.

Comparison with March 2002 half
Profit increased by 6% over the comparable seasonal half. Revenue performance was flat, due largely to theimpact of equity markets on funds management retail sales. Expenses were down 8% due to integration
benefits arising from INGA, tighter control on discretionary expenses, pacing of business initiatives and lower
incentive payments to staff (as a consequence of lower sales). Whilst operating expenses have reduced, thenumber of authorised sales representatives has remained the same.

19

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
INSTITUTIONAL
Bob Edgar♦ Institutional Banking♦ Transaction Services♦ Foreign Exchange♦ Capital Markets♦ Structured Finance International♦ Corporate Financing & Advisory

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

369

363

348

2%

6%

Other external operating income

578

572

546

1%

6%

Net inter business unit fees

(13)

(14)

(15)

-7%

-13%

Operating income

934

921

879

1%

6%

External operating expenses

(277)

(280)

(281)

-1%

-1%

Net inter business unit expenses

(64)

(61)

(60)

5%

7%

Operating expenses

(341)

(341)

(341)

-

-

Profit before debt provision

593

580

538

2%

10%

Provision for doubtful debts

(80)

(86)

(86)

-7%

-7%

Profit before income tax

513

494

452

4%

13%

Income tax expense and outside equity interests

(131)

(130)

(104)

1%

26%

Net profit attributable to members of the Company

382

364

348

5%

10%

Net loans & advances including acceptances

42,181

41,702

42,6761%-1%

Other external assets

17,151

17,292

15,695-1%

9%External assets

59,33258,99458,371

1%

2%

Deposits and other borrowings

28,772

26,568

24,101

8%

19%

Other external liabilities

20,822

23,87924,260-13%-14%External liabilities

49,59450,44748,361-2%

3%

Net interest average margin

1.74%

1.82%

1.67%

-4%

4%

Return on assets

1.26%

1.23%

1.12%

2%

13%

Return on risk weighted assets

1.15%

1.13%

1.04%

2%

11%

Operating expenses to operating income

36.5%

37.0%

38.8%

-1%

-6%

Operating expenses to average assets

1.13%

1.15%

1.09%

-2%

4%

Net specific provisions

(123)

(220)

(233)

-44%

-47%

Net specific provision as a % of average net advances

0.56%

1.03%

1.02%

-46%

-45%

405

449

627

-10%

-35%

Net non-accrual loans as a % of net advances

0.92%

1.03%

1.42%

-11%

-35%

Total employees

2,641

2,583

2,622

2%

1%

Net non-accrual loans

20

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
INSTITUTIONAL
Bob Edgar
Our businessInstitutional brings together the Institutional Banking customer segment and the specialised wholesale productsegments to provide a complete range of financial solutions for our customers. The operations of each of thesesegments covers:
Institutional Banking" This business is accountable for managing the full customer relationship for our larger clients globally. We provide
lending facilities and co-ordinate product specialists from other ANZ businesses in order to provide complete
financial solutions to customers.
Transaction Services" Assist corporates to manage their international trade activities, working capital facilities and associated risks byproviding liquidity, short-term debt/investment options, trade finance and international settlements.
" Customer base is mainly Australasian corporates and institutions, with capability that extends to Europe, theAmericas and Asia.
Foreign Exchange" Trading desks are maintained in key global financial centres, including the Pacific.
" Industry recognition through presentation of awards - Best FX Bank in Australia and New Zealand – Asiamoney,
Best FX Bank in Australia – INSTO, Top 10 FX Bank Globally – FX Week, Best FX Bank in Australia – Global
Finance, and 1st Internet-based Execution House in Australia and New Zealand - Asiamoney FX Poll 2002.
Capital Markets" The provision of interest rate, credit and funding solutions including risk management.
" An Australian and NZ leader in the syndicated loan, securitisation and derivative markets.
" A presence in major offshore financial centres to enable ANZ to be a leading provider to the global markets ofAustralian and New Zealand credit and interest rate products.
Structured Finance International" Provides project finance to selected geographies in partnership with infrastructure developers. Projects are largely
in Power, Infrastructure, Mining & Minerals, Oil & Gas, Media & Telecommunications, Transportation & Leasing
Finance, Corporate Finance and Export Credit & Capital Goods.
" Recent Project Finance Deals of the Year Awards included Project Finance International, Finance Asia, Asiamoney,
and Project Finance magazines, International Financing Review, plus Oil & Gas Financial Adviser of the Year Infrastructure Journal.
" In 2002, ANZ achieved a top 10 position globally in the Dealogic Project Finance Arranger league tables and Top 5
position as a Project Finance Provider.
Corporate Financing & Advisory" Provision of complex financing and advisory services, structured financial products, leasing, private equity, project,export and leveraged finance and infrastructure investment in Australia and New Zealand.
Institutional Risk Profile
Grade$42.7bn

AAA toBBBProfit Contribution$41.7bn$42.2bn

44%

46%

45%

BBB-

27%

25%

23%

BB+ to
BB

18%

17%

19%

BB-

7%

7%

9%

B+ andlower

Mar 02

Sep 02Mar 03Grade

Mar 02

Sep 02Mar 03

B+ to CCC

2.3%

2.6%

3.1%

CCC and lower

2.0%

1.8%

1.7%

Structured
Finance
International
10%

Corporate
Finance &Advisory
10%

CapitalMarkets
9%
Foreign
Exchange
11%

Transaction
Services
22%Internal credit ratings have been mapped to external credit grades in this table21

Institutional
Banking38%

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
INSTITUTIONAL
Bob Edgar
External considerations"

This half has seen the Australian and NZ businesses contribute significantly to revenue and asset growth.
Uncertainty in the global market provided both trading opportunities and challenges.

"

Overall our domestic lending volumes have increased at levels above business system growth.

"

The downgrades, mainly from BBB- to BB+ and BB, were account specific but this was not reflective of awider industry or ANZ portfolio trend.

"

Financial markets growth continues to focus on new financing techniques, securitisation and structured
products. Securitisation growth has been around 30% pa for the last 5 years.

"

Increasing competition, uncertain global economic conditions and instability in the Middle East could impact
second half growth opportunities.

Executing our strategy
The overall vision for the Institutional business is to move the mix of business increasingly towards a fee based
advisory, solutions oriented, value added proposition with a low risk balance sheet. The best of investmentbanking together with our stronger balance sheet and traditional product capability and our existing corporate
franchise are expected to deliver strong revenue opportunities.
New Products" Global Commodity Trade Finance" Inventory swap and loan Asset Swaps products" Provision of banking capability to “third party providers”" Expand commodities business" Credit derivatives (not a new product but a developing market)

Better execution" Attract and retain first class talent" Penetrate “sophisticated” products into Corporate & Small to Medium Enterprise segments" Target larger Corporate Finance transactions

Extend capabilities in niche markets" Establish stronger Foreign Exchange and Interest Rate business presence in Asia
" Extend securitisation capabilities into customer base
" Increase penetration of FX Online to offshore points" Acquire and/or launch of specialist wholesale funds for infrastructure financeTransforming our business offshore" Corporate lending has been disaggregated from Structured Finance International and will be managed on global
industry lines from Australia. Non-core lending is being exited" A selective asset writing strategy has been put in place in Asia that excludes lending to middle market corporates
and Small to Medium Enterprises" Lower single customer limits are now in place offshore which will reduce the size of offshore customer exposures

22

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
INSTITUTIONALINSTITUTIONAL BANKING
Murray HornManaging customer relationships through nine specialised industry
segments. Developing financial services solutions and strategies forlarge businesses (turnover greater than $100 million) in Australia & New
Zealand, and through corporates where we have an existing customer
relationship in United Kingdom, United States and Asia
Half Year

Movement

Mar 03$M

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

145

131

119

11%

22%

Revenue

351

335

317

5%

11%

Operating expenses

(86)

(84)

(83)

2%

4%

Provision for doubtful debts

(56)

(63)

(60)

-11%

-7%

Net specific provisions

(42)

(166)

(186)

-75%

-77%

Net non-accrual loans

198

265

415

-25%

-52%

Comparison with September 2002 half
Net profit increased by $14 million or 11% with Australasia results contributing growth of $12 million andoffshore contributing an additional $2 million.
"

Net interest income growth of 4% resulted from an increase in lending volumes in Australia and New
Zealand, partly offset by a reduction in offshore exposures. Margins were flat.

"

Other income grew 5% with 12% growth in lending fees on increased volumes being offset by a reduction incommercial bill revenue.

"

Operating expenses increased 2% which reflects a change in personnel mix with more higher paid front line
staff offsetting efficiency savings in back office areas.

"

Provision for doubtful debts reduced 11%. Improvements in credit quality in Australia and continued workin reducing exposures to certain industries offshore has offset volume growth. September 2002 half year
also included a special $4 million ELP charge for a hedging transaction. Net specific provisions relate tooffshore loans (with 2002 including Enron and Marconi) with no new major provisions booked in Australasia
during the half. Approximately 70% of the portfolio is investment grade.

Comparison with March 2002 half
Profit grew 22%, driven by income growth of 11%. Strong increases in both net interest and fees were offset
by a reduction in income due to a one-off profit on the sale of securities in March 2002. Cost growth of 4%
mainly reflects higher personnel costs with a change in mix to more higher paid front line staff and reduced
back office staff. Doubtful debt provisioning reduced 7% with improvements in credit quality in Australia andreductions in offshore corporate exposures offsetting volume growth. Specific provisions have reduced
significantly, mainly in offshore units which were inflated by losses on Enron.
Half Year

Movement
Mar 03v. Sep 02%

Mar 03v. Mar 02%

Lending volume

Mar 03$M

Sep 02$M

Mar 02$M

Australia

23,132

22,71022,592

2%

2%

New Zealand

2,906

2,372

1,994

23%

46%

Asia

2,260

2,515

2,656

-10%

-15%

UK/USA/Other
Lending volume ( incl commercial bills)

2,304
30,602

2,728
30,3252,680
29,922

-16%
1%

-14%
2%

23

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
INSTITUTIONAL
TRANSACTION SERVICES
Mark Paton
Provision of cash management, trade finance, international payments,
clearing and custodian services principally to institutional and corporate
customers in Australasia and overseas

Half Year

Movement

Mar 03$M

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

84

77

76

9%

11%

Revenue

212

208

208

2%

2%

Operating expenses

(92)

(94)

(94)

-2%

-2%

Provision for doubtful debts

(4)

(4)

(5)

-

-20%

Net specific provisions

3

2

(7)

50%

large

Net non-accrual loans

4

4

4

-

-

Comparison with September 2002 half
Profit after tax increased 9%. Significant influences on the result were:"Higher net interest income arising from growth in deposit volumes (corporate and institutional clients
increased cash holdings), increased securities lending income and strong domestic trade finance activity.
This has offset reductions in clearing account balances with the introduction of Continuous Linked
Settlement, and reduced trade in the UK and US markets.

"

An improvement in other operating income resulted from increased international payment fees,
predominantly foreign exchange drafts, coupled with higher domestic structured trade transactions andon-line service fees.

"

Operating expenses were well contained with process efficiencies from our trade-processing platform,
reduced technology expenses and lower non-lending losses. This result was achieved despite increased
investment in our custody system replacement.

"

During the half, the Proponix Joint Venture was restructured with ANZ acquiring the Australiantrade-processing hub.

Comparison with March 2002 half
Profit after tax grew 11% with increased fee income from international payments, strong deposit growth andsolid domestic trade finance activity, offsetting lower revenue on reduced clearing account balances and therisk reduction strategy in the March 2002 half to wind down Latin American exposures. Costs reduced
notwithstanding the investment in our custody replacement system.

24

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
INSTITUTIONALFOREIGN EXCHANGE
Rick Sawers

Provision of foreign exchange and commodity trading and sales related
services to corporate and institutional clients globally

Half Year

Movement

Mar 03$M

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

43

43

41

-

5%

Revenue

126

125

123

1%

2%

Operating expenses

(63)

(62)

(61)

2%

3%

Provision for doubtful debts

(1)

(1)

(2)

-

-50%

Net specific provisions

(24)

-

1

n/a

large

Net non-accrual loans

53

77

77

-31%

-31%

Comparison with September 2002 half
Profit after tax was level with the previous half’s results. Significant influences on the result were:"

Operating income growth of 1% was achieved despite a weak global economy, low volatility and suppressedcustomer activity for much of the half.

"

New commodity activity (primarily soft commodities and base metals) largely offset the flat level of the
precious metals activity as commodity customers merged and rationalised their hedging activities.

"

Operating expenses increased 2% as a result of the costs of implementing and operating Continuous Linked
Settlement (CLS).

"

Net specific provisions of $24 million relate to increases in specific provisions on foreign exchange options
and forward exposures to one large Australian corporate which defaulted in 2001.

Comparison with March 2002 half
Profit after tax increased 5%. Revenue grew 2% with increased volatility, and greater sales and eFX
penetration. Cost growth at 3% resulted from CLS expenditure as previously detailed and increased
investment in customer facing technology, which now captures 40% of customer transactions.

25

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
INSTITUTIONALCAPITAL MARKETSDavid Hornery

Provision of origination, underwriting, structuring, risk management,
advice and sale of credit and derivative products globally

Half Year

Movement

Mar 03$M

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

36

33

31

9%

16%

Revenue

98

92

90

7%

9%

Operating expenses

(45)

(44)

(44)

2%

2%

Provision for doubtful debts

(1)

(1)

(1)

-

-

Net specific provisions

-

(3)

-

-100%

n/a

Net non-accrual loans

19

4

-

large

n/a

Comparison with September 2002 half
Profit after tax grew 9%. Significant influences on the result were:"

Operating revenue increased 7%. This is particularly pleasing given the impact of global economic andgeopolitical issues on deal volumes. Revenue was impacted by the historically low level of interest rates andgrowth of credit derivative and securitisation markets, promoting improved turnover in specific areas of ourbusiness.

"

Both trading and sales activities contributed strongly to revenue and profit growth.

"

GCM On-line, our internet based trading platform, was deployed in the second half of last year. Turnoveracross this application is growing strongly with the addition of some 1,000 accounts over the last six
months.

"Costs remained flat with savings generated within the business used to fund major improvements to ourinfrastructure, such as the replacement of our front to back operating systems, and GCM On-line.

"

The increase in non-accrual loans related to exposures to the UK and US power sectors.

Comparison with March 2002 half
Profit after tax grew strongly by 16%. This was driven by 9% revenue growth across the broad product range,
and an increased share of wallet of our corporate customer base. Operating expenses increased slightly
despite investment in distribution and infrastructure replacement.

26

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
INSTITUTIONALSTRUCTURED FINANCE INTERNATIONAL
Gordon Branston
Provision of advisory, arranging, underwriting, financial engineering andfunding services outside Australia and New Zealand in relation to
structured project transactions

Half Year

Movement

Mar 03$M

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

36

44

40

-18%

-10%

Revenue

101

111

91

-9%

11%

Operating expenses

(37)

(37)

(39)

-

-5%

Provision for doubtful debts

(11)

(11)

(12)

-

-8%

Net specific provisions

(55)

(53)

(3)

4%

large

Net non-accrual loans

117

77

106

52%

10%

The Structured Finance International result reflects the realignment of non-project international corporate relationships with ANZ’s core Australasian franchise, which
are now reported under Institutional Banking. Prior period financial data has also been restated.

Comparison with September 2002 half
Profit after tax was lower at $36 million primarily as a result of the 5% appreciation in the AUD, the wind downof the tax-based leasing business, uncertainty surrounding the Gulf war and more subdued markets generally.
(Excluding the impact of exchange rate movements the reduction in profit after tax was approximately 11%).
The level of specific provisions was the negative for the half with losses on power projects reflecting a
breakdown in market pricing arrangements following regulatory changes and over-building of capacity.
Significant factors affecting the result were:"Lower revenue reflecting subdued market conditions and in particular, a decision to effect reductions in net
lending assets in a difficult credit environment and the impact of the AUD appreciation. This was partly
offset by the acquisition and subsequent syndication of high yielding structured assets, coupled with interest
recoveries from non-performing loans.

"

Fee income was supported by further international project financing deals, although the difficult market
conditions resulted in increased time being taken to bring mandated projects to financial close.

"

Operating expenses remained flat, with the favourable impact of the appreciation in the AUD and reduced
staffing levels largely offset by increased restructuring costs.

"

Provision for doubtful debts was flat, reflecting a combination of the reduction in the credit portfolio
mentioned above and an increase in the economic loss provision rate. The net specific provisions largely
reflected principally further provisions on previously identified accounts following the failure of offtake
arrangements. Losses in the last two halves are in contrast to previous years of little losses and reflect thecyclical nature of credit.

Comparison with March 2002 half
Profit after tax was 10% lower, which, after adjusting for the impact of AUD appreciation, represents aneffective 8% increase. This strong performance in a difficult environment was driven by revenue growth of
11% (22% excluding exchange rate impact) achieved through increased interest income on large structured
transactions and interest recoveries on non-performing loans offsetting a fall in fee income. Revenue growth
was partly offset by a reduction in tax credits from tax-based leasing transactions. Operating expenses were5% lower reflecting the appreciation of the AUD, partly offset by restructuring costs associated with a reduced
headcount. Provision for doubtful debts was down 8% given a reduction in net lending assets and specificprovisioning relates to a small number of previously identified exposures.

27

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
INSTITUTIONALCORPORATE FINANCING & ADVISORYPeter Hodgson
Provision of complex financing and advisory services, structured financial
products, leasing, private equity, project, export and leveraged financeand infrastructure investment in Australia and New ZealandHalf Year

Movement

Mar 03$M

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

38

37

41

3%

-7%

Revenue

48

50

49

-4%

-2%

Operating expenses

(20)

(21)

(19)

-5%

5%

Provision for doubtful debts

(7)

(6)

(6)

17%

17%

Net specific provisions

(5)

-

(38)

n/a

-87%

Net non-accrual loans

13

21

25

-38%

-48%

Comparison with September 2002 half
Profit after tax increased 3% to $38 million. Significant factors affecting the result were:"

Net interest income remained stable with little growth in project and structured finance asset volumes. The
current environment resulted in a reduced number of transactions coming to market and an increase in thetime to bring projects to completion.

"

Other operating income reduced with project finance and corporate finance advisory fees tending cyclicallylower, however, improvements were recorded in both the leasing and structured export finance businesses.

"

Operating expenses remained stable.

"

Provision for doubtful debts increased slightly with a mild deterioration in the quality of the credit portfolio.
Non-accrual loans reduced while the net specific provision related to two corporate exposures.

Comparison with March 2002 half
Profit reduced by 7%. Revenue was slightly lower with the March 2002 half boosted by the sale of a private
equity investment and profit on the sale of legacy assets. Core costs were well controlled with investment ingrowth initiatives stable. Specific provisions were significantly lower as March 2002 contained a provision for
one large US corporate.

28

This page has been left blank intentionally29

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
CORPORATE
Graham Hodges♦ Small to Medium Enterprises Australia♦ Corporate Banking Australia

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

240

228

223

5%

8%

Other external operating income

99

99

96

-

3%

Net inter business unit fees

(22)

(20)

(20)

10%

10%

Operating income

317

307

299

3%

6%

External operating expenses

(87)

(88)

(85)

-1%

2%

Net inter business unit expenses

(17)

(18)

(17)

-6%

-

Operating expenses

(104)

(106)

(102)

-2%

2%

Profit before debt provision

213

201

197

6%

8%

Provision for doubtful debts

(23)

(23)

(25)

-

-8%

Profit before income tax

190

178

172

7%

10%

Income tax expense and outside equity interests

(57)

(53)

(52)

8%

10%

Net profit attributable to members of the Company

133

125

120

6%

11%

14,90913,633

12,948

9%

15%

58

66

53

-12%

9%

External assets

14,967

13,69913,0019%15%

Deposits and other borrowings

11,881

11,155

10,212

7%

16%

Other external liabilities

4,653

4,561

4,267

2%

9%

External liabilities

16,534

15,716

14,4795%

14%

Net interest average margin

3.83%

3.97%

4.18%

-4%

-8%

Return on assets

1.63%

1.64%

1.65%

-1%

-1%

Return on risk weighted assets

1.88%

1.88%

1.82%

-

3%

Operating expenses to operating income

32.8%

34.5%

34.1%

-5%

-4%

Operating expenses to average assets

1.27%

1.39%

1.40%

-9%

-9%

(8)

(21)

(27)

-62%

-70%

0.11%

0.31%

0.40%

-65%

-73%

87

77

93

13%

-6%

Net non-accrual loans as a % of net advances

0.59%

0.55%

0.70%

7%

-16%

Total employees

1,521

1,491

1,454

2%

5%

Net loans & advances including acceptances
Other external assets

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

30

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
CORPORATE
Graham Hodges
Our business
Small to Medium Enterprises Australia
The key objective is to achieve sustainable competitive advantage in SME business. The business is on track todouble over the four years to 2004. A core part of the strategy is to enhance the customer service proposition
and build the capability of the frontline teams. The success of this approach is demonstrated by the ongoinggrowth of the business. Growth in revenues has been driven by new customers, including industry
specialisation and higher average balances from existing customers. The business has also continued to invest
in Risk Management practices to ensure that the growth rates achieved are sustainable.
Corporate Banking Australia
Our relationship management team is focused onproviding financial services and solutions, which range
from sophisticated investment banking products (“WallStreet to Main Street” initiative) to more traditional debt
and transaction services.

Contribution to Other BU's

20

50
40

15

30

10

20

5

10

0

0
1H02

2H02

% NIACC - Contribution
to Other BU

Key drivers of NIACC within our business (i.e. not arisingfrom cross sell) are our risk profile (measured by the ELPrate), deposit and loan balances, and interest margins.

NIACC Growth% NIACC Growth

A key indicator of the value of the Corporate Banking
business is our total customer net income after capitalcharge (NIACC). Growth in NIACC is a broader measureof business performance than Corporate Banking PAT.

Corporate Banking Australia - NIACC

1H03

External considerations" Demand for business lending depends primarily on the growth in the broader economy (indicated by GDP
growth), business investment and interest rates.
" ANZ has a strong market position in the Corporate Banking customer segment, with 26% market share(based on lead relationships). The Small to Medium Enterprises business has expanded at a faster rate than
nominal GDP and, if sustained, will lead to a gain in market share.

Executing our strategy
Combining our Corporate and Small to Medium Enterprise businesses into one segment has allowed us to
identify and extract synergies around the customer proposition and product offering.
Initiative

Main drivers impacted

Progress

Expansion of the businessgeographic coverage (‘footprint’) in
the SME sector

•
•
•
•
•
•

Customer numbers have increased by
2.5%. Increases were also achieved inaverage volume per customer, NIACC
per customer and Revenue per FTE.

Wall Street to Main Street(provision of sophisticated financial
solutions to middle market
business)

Customer numbers
Average volume per customer
NIACC per customer
Revenue per FTE
Total NIACC growth
NIACC contribution to otherbusiness units

31

Total NIACC has grown 16%

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
CORPORATESMALL TO MEDIUM ENTERPRISES AUSTRALIA
Graham Hodges

Provides a full range of banking services for metropolitan based small to
medium business in Australia with turnover up to $10 million

Half Year

Movement

Mar 03$M

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

78

72

65

8%

20%

Revenue

171

160

149

7%

15%

Operating expenses

(53)

(51)

(49)

4%

8%

Provision for doubtful debts

(7)

(7)

(7)

-

-

Net specific provisions

(2)

(6)

(7)

-67%

-71%

Net non-accrual loans

6

5

6

20%

-

Comparison with September 2002 half
Profit after tax increased 8%. Significant factors influencing the result were:"

Net interest income has increased 9% with lending and deposit volumes growing strongly. This growth hascome from an increase in activity with existing customers and significant growth in new customers to ANZ.

"The success in generating new business reflects several factors, including:- an increased geographical ‘footprint’ (new relationship managers);- success in our industry specialisation segments; and- a higher performance culture leading to improved business outcomes.

"

Other external income increased on the back of strong growth in lending volumes.

"

Operating expenses were up 4% largely due to investment in growth initiatives, new hiring and training ofrelationship teams.

"

Provision for doubtful debts was stable despite growth in new lending, with the quality of the portfolio
remaining sound. Specific provisions have reduced with economic loss provisioning in excess of specificprovisioning.

Comparison with March 2002 half
Profit after tax grew strongly over the year rising by 20%. This performance reflects the successful executionof growth initiatives and a more disciplined and effective business culture. Significant investment has been
made in industry specialisation segments and the business ‘footprint’ with a 14% increase in staff numbers
contributing to an 8% increase in expenses. Operating revenues have increased 15% due to growth in bothloans and deposits.

32

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
CORPORATECORPORATE BANKING AUSTRALIA
Graham Hodges
Managing customer relationships and developing financial solutions for
medium sized businesses (turnover $10 million to $100 million) in
Australia

Half Year

Movement

Mar 03$M

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

55

53

55

4%

-

Revenue

146

147

151

-1%

-3%

Operating expenses

(51)

(55)

(54)

-7%

-6%

Provision for doubtful debts

(16)

(16)

(18)

-

-11%

Net specific provisions

(6)

(15)

(20)

-60%

-70%

Net non-accrual loans

81

72

87

13%

-7%

Comparison with September 2002 half
Profit after tax increased 4%. Significant factors influencing the result include:"

Net interest income has increased with higher deposit volumes. A subdued environment for business
investment and reasonable underlying profitability has contributed to corporate customers reducing debt
and maintaining higher levels of deposits. Competition in this environment has resulted in a squeeze on
interest margins, which has partly offset the impact of volume growth.

"

Other operating income reduced in part due to a squeeze on commercial bill margins and a relatively
subdued environment for corporate lending.

"

The business has continued its focus on cross-selling the products of other ANZ business segments. Total
customer profitability (NIACC) has grown 16% in the half with 44% of that being reported in the profits ofother Product businesses.

"

Costs have reduced with restructuring of middle office processes creating efficiency savings.

"

Provision for doubtful debts remained stable while specific provisions have decreased.

Comparison with March 2002 half
Profit after tax remained steady, with reduced costs following middle office process restructuring and improved
credit quality leading to a reduced doubtful debt provision charge. Revenue decreased 3% with lower interest
margins and lower interest recoveries on impaired assets.

33

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
NEW ZEALAND BANKING
Greg Camm
Provides a full range of banking services, including wealth management, forpersonal, small business and corporate customers in New Zealand throughbranches, call centres, relationship managers and on-line banking; New
Zealand Banking excludes the Mortgages, Cards, Asset Finance andInstitutional businesses in NZ and certain central NZ units. New Zealandgeography (page 54) includes all ANZ operations in NZ.

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

161

148

128

9%

26%

Other external operating income

91

85

83

7%

10%

Net inter business unit fees

22

23

22

-4%

-

Operating income

274

256

233

7%

18%

External operating expenses

(107)

(109)

(101)

-2%

6%

Net inter business unit expenses

(49)

(37)

(34)

32%

44%

Operating expenses

(156)

(146)

(135)

7%

16%

Profit before debt provision

118

110

98

7%

20%

Provision for doubtful debts

(7)

(7)

(7)

-

-

Profit before income tax

111

103

91

8%

22%

Income tax expense and outside equity interests

(37)

(34)

(30)

9%

23%

Net profit attributable to members of the Company

74

69

61

7%

21%

56.9%

57.0%

57.9%

-0%

-2%

Net specific provisions

3

(2)

(3)

large

large

Net non-accrual loans

5

3

2

67%

large

2,399

2,329

2,247

3%

7%

Operating expenses to operating income

Total employees

Comparison with September 2002 half
Profit after tax was 7% higher driven by an appreciation in the New Zealand dollar. Excluding the exchange
rate impact profit was flat. Key influences on the result excluding the exchange rate impact include:"

Net interest income grew by 2%, with growth in deposits and lending in small and medium business.
Deposit growth was modest. Margins remained stable.

"

Fee income was flat, with higher ATM interchange fees from an expanded ATM network being offset by areducing contribution from some transaction fees.

"

Operating expenses were flat. The cost of increased investment in the branch network, including increased
staffing as part of the Restoring Customer Faith initiative, was largely absorbed.

"

Credit quality is sound.

Comparison with March 2002 half
Profit after tax grew 21%, (9% excluding foreign exchange impact) from March 2002. Underlying income grew
6% with higher deposit volumes and margins in personal banking and lending growth in small to medium
business. Expenses were 4% higher in real terms due to investment in the Restoring Customer Faith initiativewith increased sales staff, a new sales platform and branch refurbishments.

34

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
NEW ZEALAND
Greg Camm
Our business
We operate in the personal, corporate, business and ruralsectors in New Zealand:"

Personal Banking is being re-shaped with the Restoring
Customer Faith rollout and provision of improved
customer choice with new, simplified banking products.

"

ANZ Business and Rural has experienced strong lending
growth, culminating in an increase in market share in
the business market. Prospects for continued growth inboth the business and rural sectors are strong.

"

Revenue Source
Corporate
Banking
9%

ANZ Business& Rural12%
NZ Personal
79%

Corporate Banking maintains a strong market shareposition, with clear market leadership in the middle
market.

External considerations"""

Overall business environment. This remains relatively
strong with GDP growth of 3% forecast for 2003.
International uncertainty may have a negative impact
on consumer and business confidence.

NZ GDP GrowthA nnualaverage %change6 %Household deposit growth. This remains robust,assisted by the under performance of equity markets
and current international uncertainty.

4

Corporate debt. This is expected to sustain reasonablegrowth. Despite the general downturn in the
agricultural sector that is a key driver of domestic
economic activity and corporate debt levels; investment
intentions remain strong, partly due to high capacity
utilisation in recent years.

-

2
Quarterly %change

-2
96

10%

97

98

99

00

01

02

03

Growth: Household deposits, corporate
debt and mortgages

8%
6%
4%
2%
0%
-2%
1998

1999

Deposits

2000

2001

Corporate Debt

2002

2003

Mortgage Growth

Source: economics@anz

Executing our strategy
In October 2002, ANZ restructured its specialised businesses around the needs of customers. As part of thisrestructure, ANZ New Zealand was provided with greater management autonomy to respond to customers andthe NZ community generally. We are now better positioned to build our New Zealand franchise. We enjoy highlevels of customer satisfaction in the business sector, which contrasts with low customer satisfaction in the
personal sector. The recently completed Restoring Customer Faith project will significantly improve thecustomer service proposition and strengthen the links between branches and their local communities. Over the
next six months we will:"

Grow our sales capability by investing more in training and increasing the number of sales specialists.

"

Develop proposals to strengthen the brand and identity and increase community involvement.

"

Commence the upgrade of our branch network and increase branches in key geographical growth centres.

35

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
MORTGAGES
Chris Cooper

Provision of mortgage finance secured by residential real estate inAustralia and New Zealand

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

368

342

340

8%

8%

Other external operating income

44

45

44

-2%

-

Net inter business unit fees

(124)

(118)

(112)

5%

11%

Operating income

288

269

272

7%

6%

External operating expenses

(67)

(58)

(62)

16%

8%

Net inter business unit expenses

(19)

(20)

(20)

-5%

-5%

Operating expenses

(86)

(78)

(82)

10%

5%

Profit before debt provision

202

191

190

6%

6%

Provision for doubtful debts

(15)

(15)

(13)

-

15%

Profit before income tax

187

176

177

6%

6%

Income tax expense and outside equity interests

(56)

(52)

(54)

8%

4%

Net profit attributable to members of the Company

131

124

123

6%

7%

28.5%

27.5%

28.7%

4%

-1%

Net specific provisions

(9)

(7)

(4)

29%

large

Net non-accrual loans

32

29

38

10%

-16%

1,144

1,048

963

9%

19%

Operating expenses1 to operating income

Total employees
1.

Operating expenses $82 million (Sep 2002: $74 million; Mar 2002: $78 million) excludes goodwill amortisation $4 million (Sep 2002: $4 million; Mar 2002:$4 million). Excluding goodwill amortisation decreases the ratio to operating income 1.4% (Sep 2002: 1.5%; Mar 2002: 1.5%)

Comparison with September 2002 half
Profit after tax was 6% higher than the previous half year.
" Net interest income increased 8% driven by strong volume growth in the Australian market with record
volumes written - particularly through the third party channel. After two half years of flat or declining
mortgage volumes, New Zealand has experienced an increase in volumes in the current half.
" Other operating income reduced 2%. Volume related increases in approval fees were offset by higher
valuation and search costs, along with a reduction in non-lending fees in Origin.
" Sales and retention commissions paid to Wealth Management and Personal Banking increased in line withbusiness volumes.
" Operating expenses increased 10% due to seasonally higher marketing spend in the first half of the year
and investment in process re-engineering, which will be progressively implemented, commencing in thesecond half year. In addition, an increase in staffing levels was required to ensure maintenance of service
standards with the increased volume flow.
" Provision for doubtful debts was flat. Specific provisions increased marginally, due to one-off higher losses
on equity lines, but remain at very low levels.
Comparison with March 2002 half
Profit after tax was 7% higher. Mortgage lending (excluding securitised loans) grew 18.5%, resulting in higher
net interest. Expenses were higher due to amortisation of new mortgage origination software and investmentin process re-engineering. In addition, as noted above, to maintain our service standards we increased staffing
levels to service the additional business volumes. A higher provision for doubtful debts also reflects increased
business volumes.

36

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
MORTGAGES
Chris Cooper
Our business
ANZ Mortgages has 11.4% of the home finance market inAustralia and 15% in New Zealand. Mortgages are
sourced through the Bank’s branch network and mortgage
brokers, with the business having written in excess of 20%
of broker loans in Australia. The business also provides
wholesale mortgage funding to other non-bank mortgage
lenders. Current critical success factors are:" Developing products which best meet customer needs(measured by product awards received).
" Maintaining market leadership in sales by mortgage
brokers (measured by independent surveys).
" Controlling costs of distribution and servicing(measured by average acquisition cost per mortgage).
" Managing risk (measured by provisioning).

Sales Channel Utilisation

$M

100%
80%
60%
40%
20%
0%
Mar 02Halfyear
Mar 03
1.10
9.4
34

Key Performance Indicators
Interest margin (%)
Loans balance growth (%)
Proportion of sales through brokers (%)

Sep 02
ANZ Network
BrokerMar 03
OriginHalfyear
Sep 02
1.10
8.3
26

Half
year
Mar 02
1.19
7.1
22

External considerations
Our business has four significant external sensitivities:" Demand for mortgages. We expect our total loan balances to grow by 6-7% over the next 6 months basedon residential mortgage growth of 6-7% in Australia and 8% in New Zealand.
" Interest yield curve. Mortgages are priced with reference to the cash rate, however funding is generally
priced with reference to the 90 day bill rate.
" Competitor pricing. Aggressive pricing from competitors may lead to margin reduction.
" Broker utilisation. Mortgage borrowers are increasingly using brokers to obtain loans, making broker
relationships critical for market share growth.
Half
year
Mar 03
8.5
4.75
4.77

Business environment
measures
Residential mortgage growth Australia (%)
Official cash rate Australia (%)
90 day bill rate Australia (%)

Half
year
Sep 02
9.9
4.75
4.88

Half
year
Mar 02
8.5
4.25
4.62

Source: economics@anz. Refer to NZ page for NZ mortgage information.

Executing our strategy
Our primary focus is on delivering the best products in the market to our customers efficiently. There are five
key initiatives underway to help achieve our strategy in the next 6-12 months.
Initiative
Re-engineering of support services

Main drivers impacted••
Introduce new products••
Automate loan approvals for brokers •Enhance risk analysis••
Improve valuation process••

Cost/income
Customer satisfaction
Mortgage sales
Product awards
Broker sales share
Provisions
Arrears levels
Customer satisfaction
Avg acquisition cost

37

Progress
Diagnostic review completed and quick
wins implemented
Range of new product initiatives being
progressed
System in pilot phase
Enhanced portfolio modelling and risk
management implemented
Infrastructure developed

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
CONSUMER FINANCE
Brian Hartzer
Provides consumer and commercial credit cards, ePayment products,
personal loans, and merchant payment facilities in Australia, New
Zealand, and selected overseas markets

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

213

192

197

11%

8%

Other external operating income

152

195

200

-22%

-24%

Net inter business unit fees

(48)

(44)

(45)

9%

7%

Operating income

317

343

352

-8%

-10%

External operating expenses

(127)

(120)

(114)

6%

11%

Net inter business unit expenses

(44)

(40)

(36)

10%

22%

Operating expenses

(171)

(160)

(150)

7%

14%

Profit before debt provision

146

183

202

-20%

-28%

Provision for doubtful debts

(75)

(75)

(86)

-

-13%

Profit before income tax

71

108

116

-34%

-39%

Income tax expense and outside equity interests

(24)

(37)

(37)

-35%

-35%

Net profit attributable to members of the Company

47

71

79

-34%

-41%

53.3%

45.5%

41.5%

17%

28%

Net specific provisions

(65)

(63)

(70)

3%

-7%

Net non-accrual loans

1

2

2

-50%

-50%

1,043

1,156

1,174

-10%

-11%

Operating expenses1 to operating income

Total employees
1.

Operating expenses $169 million (Sep 2002: $156 million; Mar 2002: $146 million) excludes goodwill amortisation $2 million (Sep 2002: $4 million; Mar 2002:$4 million). Excluding goodwill amortisation decreases the ratio to operating income 0.6% (Sep 2002: 1.1%; Mar 2002: 1.1%)

Comparison with September 2002 half
Profit after tax reduced $24 million. Significant factors affecting the result were:"

Net interest income increased 11%. Card outstandings grew 8%, while personal loan volumes increased
7%. The run-off of higher-risk personal loan accounts is now largely complete, and tighter credit procedures
are in place. Interest margins were slightly higher due to an increase in the proportion of credit cardbalances paying interest.

"

Other income reduced by $43 million. During the half there has been a one-off charge of $38 million($27 million after tax) as a result of an under-accrual of loyalty points on co-branded cards since 1999.

"

Underlying other operating income fell by $5 million. While underlying volume growth remains strong, theAustralian issuing business has been impacted by the significant increase in the cost of loyalty programs.
Repricing, designed to partially offset these higher loyalty costs, went into effect in December.

"Operating costs increased 7% reflecting strong volume growth and increased amortisation costs of newtechnology and our upgraded MultiPOS terminal network. Personnel costs were flat, reflecting productivity
improvements from our new operating platform.

"

Provision for doubtful debts was flat, with improved credit quality and reduced delinquency rates offsettingvolume growth.

Comparison with March 2002 half
Profit after tax was 41% lower. Operating revenue reduced 10% with strong underlying growth being offset by
the impact of the one-off under-accrual of card loyalty points in prior years, and a significant increase in thecost of loyalty points on co-branded cards. Expenses were 14% higher, reflecting growth in business volume
and significant investments in new technology. Provision for doubtful debts reduced with a decrease in losseson the personal loan book and improvement in credit quality and delinquencies in the cards book.

38

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
CONSUMER FINANCE
Brian Hartzer
Our business
Cards Issuing [Australia, New Zealand, Indonesia andHong Kong]
"

"

30%

We earn interest income on cardholder outstandings(excluding those within an interest free period), fee
income on each account, and interchange revenue.
Outstandings earning interest across the Cards portfolio
varies in the range of 65% - 75%.
Loyalty programs form an important part of ourcustomer proposition, however, they are increasingly
costly to operate. Normalised loyalty costs in the firsthalf amounted to $148 million, an increase of$49 million on the first half last year.

Market Share - Australia

28%
26%
24%
22%
20%
18%
16%
Mar 00 Sep 00 Mar 01 Sep 01 Mar 02 Sep O2 Mar 03
Acquiring spend
Issuing spend
Issuing balances outstanding

Cards Acquiring [Australia and New Zealand]"

We earn transaction and terminal fees from merchants using our MultiPOS terminals. We also earnprocessing fees from merchants using their own terminals. ANZ has approximately 65,000 terminals acrossAustralia and around 25,000 in New Zealand under the “EFTPOS NZ” brand.

Personal Loans [Australia and New Zealand]"

We provide unsecured personal instalment loans to customers through our Australasian branch network andthrough direct channels which generate interest and fee income.

External considerations""

Australian Credit Card Market ShareNon-housing consumer lending in Australia totalled$88 billion as at 31 January 2003, of which credit card
debt represents $23 billion.
economics@anz is forecasting consumer credit growthof 7.5% in the year to September 2003 down from
10.9% in the year to September 2002. Card
outstandings have grown faster than these rates,
however we expect some slowing in overall
outstandings growth over the medium term.

"

The Reserve Bank of Australia has introduced a newinterchange standard, which will significantly reduce
industry revenue in 2004.

"

While credit delinquency has continued to fall, we
expect a modest increase in market default rates
over the next 18 months, reflecting a tougher credit
environment.

$23b
Credit Cards
$65b
Other
non-housing
debts

Non
ANZ
82%

ANZ
18%

Executing our strategy"

Loyalty costs have had a significant impact on our performance. The under-accrual of loyalty costs
identified during the half spans the period since 1999. The full impact of repricing on our co-brandprograms will be reflected in the second half.

"

The reduction in interchange revenue later in the year will require us to make further changes to our loyalty
programs. Whilst the strategy is still evolving, the combined impact of changes to loyalty programs, andreductions in interchange revenue, is expected to have a net impact on our Australian credit card annual
profit of not more than $40 million after tax in 2004.

"

During the period, we made progress on several key customer and product strategy initiatives:- Completed roll-out of our “Sphere” loyalty program and MultiPOS chip-enabled terminal network.
- Improved customer experience and service reliability, particularly on new card delivery (now 80% within
3 days), expanded Internet banking functionality, and created a “single-point-of-contact” for resolving
urgent customer issues.
- Signed a Memorandum of Understanding to provide credit card services to Metrobank in the Philippines.

39

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
ASSET FINANCE
Elizabeth Proust
Operating under the Esanda and UDC brands, our vision is to be the leading
provider of vehicle and equipment finance and rental services. This meansdelivering superior shareholder returns, fast, convenient and excellent
customer experience, an environment for our people to excel, value for ourchannel partners and a contribution to our community.

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

172

169

167

2%

3%

Other external operating income

42

37

32

14%

31%

Net inter business unit fees

(4)

(4)

(3)

-

33%

Operating income

210

202

196

4%

7%

External operating expenses

(79)

(75)

(76)

5%

4%

Net inter business unit expenses

(12)

(14)

(15)

-14%

-20%

Operating expenses

(91)

(89)

(91)

2%

-

Profit before debt provision

119

113

105

5%

13%

Provision for doubtful debts

(32)

(34)

(35)

-6%

-9%

Profit before income tax

87

79

70

10%

24%

Income tax expense and outside equity interests

(27)

(25)

(22)

8%

23%

Net profit attributable to members of the Company

60

54

48

11%

25%

42.9%

43.6%

45.9%

-2%

-7%

Net specific provisions

(25)

(32)

(26)

-22%

-4%

Net non-accrual loans

55

56

64

-2%

-14%

1,290

1,303

1,315

-1%

-2%

Operating expenses1 to operating income

Total employees
1.

Operating expenses $90 million (Sep 2002: $88 million; Mar 2002: $90 million) excludes goodwill amortisation $1 million (Sep 2002: $1 million; Mar 2002:$1 million). Excluding goodwill amortisation decreases the ratio to operating income 0.4% (Sep 2002: 0.5%; Mar 2002: 0.5%)

Comparison with September 2002 half
Profit after tax increased 11%. Significant influences on the result were:"

Operating income grew by 4%, driven by increased lending fees and interest income.

"Lending volumes continued to show growth from last half, as the new car releases and the equipment
financing market improved. Margins remained solid in a competitive market.

"

Operating expenses increased 2% with annual salary increases. Headcount reduced slightly as a result ofcontinuing back office process efficiencies.

"

Provision for doubtful debts and net specific provisions reduced with an improvement in the quality of theportfolio.

Comparison with March 2002 half
Profit after tax grew by 25%. Income was 7% higher with increased lending volumes and solid margins.
Operating costs increased slightly with higher salary costs and the successful integration of an acquired
business in the March 2002 half year, being largely funded by efficiency improvements. Provision for doubtful
debts and net specific provisions reduced with an improvement in the quality of the portfolio.

40

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
ASSET FINANCE
Elizabeth Proust
Our business"

Asset Distribution by Customer Segment*

We provide finance and operating leases for vehicles
and business equipment. We operate as Esanda inAustralia (approximately 75% profit) and UDC in New
Zealand (approximately 25% profit).

UDC
15%

Being a separate legal entity, we raise money to fundour loans by issuing debentures and borrowing fromwholesale markets and Group Treasury.

Corporate10%"

Our primary distribution channels for providing financeare our dealer and broker networks in both Australia
and New Zealand, and the ANZ branch network.

Small toMediumBusiness
20%"*UDC is organised according
Critical success factors for us are:to similar segments- Acquiring new business (our average loan duration is
3-4 years).
- Cost control (over 120,000 loans are approved annually).
- Capturing growth opportunities in the operating lease market.
- Risk management (which has improved as indicated by lower provisions relative to assets).

"

External considerations"

Finance segment growth. The total new lending market
for vehicles is estimated to be $20 billion per annum, of
which we have approximately 15%.

"

Operating lease segments growth. These segments
provide strong growth opportunities; we expect tocapture a larger share of these segments through our
Fleet Partners and Specialised Asset Financebusinesses.

"

Debentures. Esanda’s share of debenture sales has
improved after AGC’s withdrawal from this market in
2002.

Executing our strategy
The past 6 months have seen us transition our businessfrom a distribution channel focus to a customer focus. We
are changing our organisation and processes to improve
the service we provide to our customers and to achievesustainable growth. Continued reduction in processing
costs and improving customer satisfaction are key
measures of our success in this endeavour. Our objectives
for the next period are to:"

Be the leading provider of vehicle and equipment
finance and rental services in domestic markets.

"

Position our business to capture growth opportunities in
the asset finance market and further improve
profitability.

"

Provide an operationally excellent platform to ourcustomers and business partners.

Finance

Consumer
55%

Australian Market Share by ProductSegment (%)

Traditional motor vehicle finance

15

Equipment finance11

Usage/Lease
Motor vehicle operating lease10

Equipment operating lease4

Source: Australian
Bureau of Statistics%

Esanda Customer Satisfaction

50
40
30
20
10
0

0-1

41

2-3

4-6

Source: Wallis Consulting Group; March 2003

7-8

9-10

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
ING AUSTRALIA (JOINT VENTURE)
John Wylie
ING Australia, the joint venture between ANZ and ING Group, provides
integrated manufacture and distribution of wealth creation, management
and protection products and services aligned to ANZ distribution and theopen market

ING Australia and former ANZ businesses
Half YearMar 03$M

Movement

Sep 02$M

Mar 02$M

Mar 03v. Sep 02%

Mar 03v. Mar 02%

Net profit after tax

7

8

25

-13%

-72%

Revenue

2

12

87

-83%

-98%

Operating expenses

-

(6)

(37)

-100%

-100%

-

15

25

-100%

-100%

7

(7)

-

large

n/a

7

8

25

-13%

-72%

Net profit after tax reconciliation
Sold Businesses
ING Australia

ING Australia
6 months
to Mar 03$M

5 months
to Sep 02$M

AnnualisedMovt
Mar 03v. Sep 02%

Funds management income

190

183

-13%

Risk income

76

58

9%

266

241

-8%

(207)

(188)

-8%

59

53

-7%

Capital investment earnings

24

(6)

large

Net income

83

47

47%

-

(5)

-100%

83

42

65%

ANZ share of INGA earnings @ 49%

41

20

71%

Notional goodwill

(22)

(18)

2%

ANZ equity accounted profits

19

2

large

ANZ capital hedges

2

5

-67%

(14)

(14)

-16%

7

(7)

large

Costs (excl goodwill on purchase of ANZ business)

Income tax expense
Profit after tax
ANZ share

Net funding cost
Net return to ANZ

On 23 April, the Board of ING Australia announced the appointment of Paul Bedbrook as Chief Executive Officer
of INGA, effective 1 July 2003. John Wylie will take up an Asian regional management role for ING Group.
Comparison with 5 months to September 2002
Funds management income decreased by 13% (annualised) compared to 30 September primarily as a result of
reduced net inflows to retail products and equity market devaluation. This result reflects a better outcome thanthe market generally, which experienced a significant reduction in retail inflows to the industry over the same
period. Based on ASSIRT information, net retail inflows to the industry decreased by 49% in the December
2002 quarter compared to the September 2002 quarter.

42

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
ING AUSTRALIA (JOINT VENTURE)
Comparison with 5 months to September 2002, continued
The launch of ING OneAnswer and other retail products was successful in the half year, generating strong
inflows and helped underpin INGA’s #4 position in Retail FUM as at December 2002. INGA was #1 in Retailfunds flow for December 2002 quarter as measured by ASSIRT on the back of strong V2 Plus flows. In thiscontext, the sales and funds under management result for the half was satisfactory.
Revenues from the Risk business have been better than expected reflecting a number of initiatives to improve
new premium inflows and the efficiency of this business. In particular, continued strong new businesspremiums and improved efficiency in claims management have been the major contributors to this result.
Costs reduced compared to September 2002 reflecting the early benefits of successful integration. At the timeof the launch of INGA, cost synergy benefits were estimated to be 10% to 15% of the combined cost base by
2004. Initiatives are now completed to deliver cost reductions at the higher end of the estimated cost
reduction range. Up to 31 December, the planned costs of integration exceeded the cost synergies delivered.
From 1 January 2003 the benefits of integration synergies will be reflected in INGA’s cost base.
Capital investment earnings were significantly enhanced compared to September 2002 due to a modest
improvement in equity markets and reflecting the relatively conservative investment of shareholders capital by
INGA.
The result for the half year to March 2003 also benefited from a one-off tax credit recorded following changed
treatment of the assessability of certain fees and charges derived by the life companies in the current and priorperiods.
Funds under management, Australia (excluding cash)
$B

27.5

30

3.1

26.9

25

(3.4)

(0.3)

Redemptions

Market Movements

20
15
10
5
0
Starting FUM
30 September
2002

Inflows

Retail FUM

Closing FUM
31 March 2003

Wholesale FUM

Funds under management marginally decreased over the half year reflecting relatively strong inflows,
particularly for ING OneAnswer and other retail products offset by outflows driven by negative investor
sentiment, low equity market returns and specific wholesale outflows. However the result is pleasing given themarked reduction in inflows to the industry over the period.
Net flows

$M

800
600
400
200
0

-200
-400
RetailV2+

Net Flows 6 Months Mar 2002

Master Trust
Super / Wrap /APM

Mezzanine

Net Flows 6 Months Sep 2002

Wholesale Life
Investments

ClosedNet Flows 6 Months Mar 2003

Key retail products and platforms recorded positive net inflows for the half. This result supports INGA’s
objective of focusing growth on key retail platforms. The mezzanine and wholesale products are generally
more volatile and reflect specific individual outflows.

43

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
ING AUSTRALIA (JOINT VENTURE)
Achievements and outlook" INGA integration – 97% of integration milestones are complete with no significant issues outstanding, andwith business as usual maintained and system connectivity and relocation of personnel achieved.
Headcount reduction of 250 was achieved in line with original expectations with ING and ANZ teams
merged. Integration costs were below expectations.
" Product enhancements – all major products were reviewed and relaunched to underpin improved capability
and future revenue growth.
" Culture – organisation wide initiatives continue to create a ‘Fast, Focused, Open’ culture.
" Outlook – the business outlook is for continued subdued investor sentiment likely in this period of continued
global uncertainty.
" Focus – in the next period the following key initiatives will be driven – continued efficiency focus, productrationalisation, launch of the ANZ version of OneAnswer product, funds under management retention,
insurance sales initiatives in ANZ Branch network and improved planner productivity.
Valuation of Investment in INGA
ANZ engaged Ernst & Young ABC Pty Ltd (EY ABC) to provide an independent valuation of INGA. The valuation
is a stand alone market based assessment of economic value, and excludes ANZ specific synergies and hedging
arrangements. The valuation is at 31 December 2002, and in the opinion of EY ABC there has been no material
net movement in the value in the period to 31 March 2003.
The valuation uses a discounted cash flow approach, with allowance for the cost of capital.
The base valuation provided by EY ABC has been presented as a range from $3.30 billion to $3.69 billion, which
gives a range of $1.62 billion to $1.81 billion for ANZ’s 49% share and excludes the value of synergies which
accrue to the ANZ network. ANZ’s carrying value at 31 March 2003 is $1.61 billion. Accordingly, the directors
do not recommend any change to the carrying amount of INGA.
Valuation of Investment in INGA
The following table shows the components of the independent valuation performed.
Low Value$B

High Value$B

Net Worth

0.36

0.36

Value of In-Force Business

1.68

1.73

Embedded Value

2.04

2.09

Value of Future New Business

1.27

1.60

Total Value

3.30

3.69

Note:

For some of the smaller entities of INGA, separate figures for the value of in-force
and the value of future new business have not been determined and the total
value for these entities has been included in the value of in-force. Also, figures in
the above table may not appear to add correctly due to rounding.

Carrying Value in ANZ Group Accounts
$M
19
1,591

1,612

2

Carrying value
EquityCarrying value
Equity1 May 2002
accounted profit accounted profit 31 March 2003
to 31 Mar 03
to 30 Sep 02

44

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
ING AUSTRALIA (JOINT VENTURE)
Valuation$M
360(approx)
248

2,199

1,839

18% 26%

1,808

1,591

1,612

1,617

Carrying value Unrecognised
1 May 02
profit on saleof ANZ FM"""

Opening
proforma
value

Synergies andcost savingsin INGA

Expectedvalue

Reduction in
expectations

EY ABC
Carrying value
Valuation
31 Mar 03
1,808 - 1,617

At inception, the sum of the value ascribed to the entities contributed to INGA was $3.75 billion. ANZ’s 49%
share equalled $1.84 billion. ANZ’s carrying value of $1.59 billion arises after deduction of the profit
associated with the 49% of ANZ entities that in substance were not sold.
The value of INGA was expected to increase by approximately $720 million ($360 million impact on ANZ’sshare). The additional value was expected to arise mainly from the distribution of ING products through
ANZ channels, and through cost savings. In addition, ANZ was expected to gain value from synergies
created within ANZ and these have not been reflected in the valuation.
Based on the additional value expected to be created in INGA, we could have expected the value to ANZ to
now be around $2.2 billion. However, offsetting the creation of extra value has been a significant overall
decline in the value of all funds management and life insurance businesses domestically and internationally.
The loss in value has been less than the expected value created, plus the non-recognised profit. Accordingly
no write down is required.

Key Assumptions
The valuation was based on a discounted cash flow approach comprising the present value of estimated future
distributable profits after corporate tax, together with (in Australia only) the present value of 70% of theattaching imputation credits.
The assumptions underlying the cash flow projections were generally based on a long term view, together withan assessment of the current market environment.
The following gross of tax risk discount rates were used:" Australian life insurance businesses
10.75% p.a.
" Australian funds management businesses
11.75% p.a.
" New Zealand businesses
13.00% p.a.
These, along with other economic assumptions, including future investment earnings, have been derived on aconsistent basis using the Capital Asset Pricing Model.
The value of future new business was based on a projection of 20 years of future new business allowing for
anticipated new business sales volumes and growth, together with an allowance for future margin squeeze.
Other business assumptions have been set relative to the experience of the business and the industry as wellas management business plans. Some allowance has been made for near term cost savings based on
management forecasts.
The range of values determined by EY ABC represent a range of reasonable sales and cost base assumptions.

45

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
ASIA PACIFIC
Bob Lyon
Provision of primarily retail banking services in the Pacific Region andAsia, including ANZ’s share of PT Panin Bank in Indonesia; this business
unit excludes Institutional and Corporate transactions that are includedin the geographic results for Asia

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

59

61

58

-3%

2%

Other external operating income

99

78

67

27%

48%

-

-

-

n/a

n/a

Operating income

158

139

125

14%

26%

External operating expenses

(51)

(50)

(45)

2%

13%

Net inter business unit expenses

(17)

(15)

(14)

13%

21%

Operating expenses

(68)

(65)

(59)

5%

15%

Profit before debt provision

90

74

66

22%

36%

Provision for doubtful debts

(5)

(5)

(5)

-

-

Profit before income tax

85

69

61

23%

39%

Income tax expense and outside equity interests

(18)

(18)

(16)

-

13%

Net profit attributable to members of the Company

67

51

45

31%

49%

41.8%

45.3%

46.4%

-8%

-10%

Net specific provisions

1

(5)

-

large

n/a

Net non-accrual loans

12

11

14

9%

-14%

1,562

1,558

1,578

0%

-1%

Net inter business unit fees

Operating expenses1 to operating income

Total employees
1.

Operating expenses $66 million (Sep 2002: $63 million; Mar 2002: $58 million) excludes goodwill amortisation $2 million (Sep 2002: $2 million; Mar 2002:$1 million). Excluding goodwill amortisation decreases the ratio to operating income 1.2% (Sep 2002: 1.5%; Mar 2002: 0.8%)

Comparison with September 2002 half
Profit after tax increased 31%. Significant factors affecting the result were:"

Net interest reduced 3%. Margins in PNG have reduced significantly as a result of competitive pressure
following the rationalisation of the number of banks and increased regulatory pressure. This and an
appreciation in the AUD has offset the impact of volume growth.

"External operating income has increased 27%. A one-off profit on the sale of bonds by PT Panin has
increased equity accounted income by $16 million. Total profit from PT Panin was $29 million up from
$17 million in the September half. FX earnings increased with volatility in Pacific and Asian currency
markets combined with ANZ’s strong market position. Fee revenue has increased with the standardisationof fees following a review of fee structures.

"

External operating expenses increased 2% following a review of the technology support required for the
Pacific and Asia businesses.

"

Income tax expense was flat, despite a 23% increase in profit before tax as the bond profits in PT Panin are
equity accounted on an after tax basis.

Comparison with March 2002 half
Profit after tax increased 49%. Increased equity accounted revenue, higher foreign exchange earnings andvolume growth have offset a margin contraction and the impact of an appreciation in the AUD. Operating
expenses have increased reflecting the impact on costs of the acquisition of the Bank of Hawaii businesses andan increased investment in electronic banking and our technology infrastructure.

46

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
ASIA PACIFIC
Bob Lyon
Our business"

ANZ is a clear banking leader in the South Pacific, being
number 1 or 2 in the 10 countries in which we operate.

"

We service both consumer and business customers, andleverage operational expertise from the broader ANZgroup.

"In addition to traditional banking services, we offer
foreign exchange services, which benefit from exchange
volatility and tourism.

"

We equity account 29% of the profits of PT Panin due toour equity investment in this bank. In the last half,
PT Panin achieved a one-off gain due to early
realisation of a bond product increasing our share of
profit by $16 million.

"

We also manage ANZ’s consumer banking business in
Asia which comprises around 10% of our profit, andgrew by 13% in the previous half.

External considerations"

Papua New Guinea and Fiji together comprise 35% of
our profit.

"

Fiji is expecting GDP growth of 5.7% for 2003 fromincreased tourism, partially due to the South PacificGames to be held in June.

"

The PNG economy is looking fragile with many
prospects running off and little new investment on thehorizon. In addition, competitive pressures haveincreased following the recent merger of PNGBC/Bankof South Pacific which has further dampened theearnings outlook.

"

Revenue Analysis
Other

Net interest
incomeLending fees

Non-lendingfees

Foreignexchangeearnings

Equityincome from
Panin

$M

GDP

10
5
0
1998

1999

2000

2001

2002

2003

-5
-10
-15

PNG

Fiji

Indonesia

Our foreign exchange earnings continues to benefit
from currency volatility. For example, the PNG kina
devalued by 10% in early 2003.

Executing our strategy"

Bank of Hawaii businesses in Vanuatu, Fiji and Papua New Guinea. Synergies following the 2002 acquisitionof these operations have now been extracted, with cost savings in line with expectations.

"

Quest. A 100% owned subsidiary company, Quest, was established in Fiji in November 2002 to centralise
operational support functions. Quest provides low cost support for our business as well as enabling theinsourcing of other Pacific banks processing. Cost savings to date have been utilised to expand our service
proposition.

"

Operating business model. We have completed a review of our business model and refined it in Samoa tofocus on quality, efficiency and improved customer service. This model will be aggressively installed in allother Pacific sites over the next 12 months.

"

Industry alliances. We have secured unique alliances with a number of key leading industry players in the
Pacific Region over the last 12 months. For example, we offer a mobile phone top-up arrangement throughthe ATM network in Fiji with Vodafone.

"

Our staff. We focus on developing the skills and capabilities of our national staff, enabling them to have asignificant role in the leadership of their country.

47

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
TREASURY
Peter Prasser (Acting Group Treasurer)
The banker to all ANZ businesses. Charged with providing cash flow
support, ensuring liquidity, managing interest rate risk and providing
capital to the businesses

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

81

101

98

-20%

-17%

Other external operating income

-

(4)

4

-100%

-100%

Net inter business unit fees

-

-

-

n/a

n/a

Operating income

81

97

102

-16%

-21%

External operating expenses

(7)

(7)

(8)

-

-13%

Net inter business unit expenses

(3)

(3)

(3)

-

-

Operating expenses

(10)

(10)

(11)

-

-9%

Profit before debt provision

71

87

91

-18%

-22%

Provision for doubtful debts

-

-

-

n/a

n/a

Profit before income tax

71

87

91

-18%

-22%

Income tax expense and outside equity interests

(22)

(26)

(28)

-15%

-21%

Net profit attributable to members of the Company

49

61

63

-20%

-22%

Total employees

43

46

45

-7%

-4%

Net interest income

Comparison with September 2002 half"

Net profit in the first half of 2003 was down on prior periods, falling $12 million (20% decrease on theprevious half). This was a function of ageing within the existing portfolio and global market uncertainty,
leading to flat yield curves, limiting the opportunity for investment in term assets.

"

The RBA & RBNZ moved to a tightening bias in mid 2002. Expectations of further cash rate increases
towards the end of the financial year added slightly to the cost of funding term assets. However this impact
on earnings was somewhat offset by the Federal Reserve's decision to cut its cash rate by 0.50% in earlyNovember 2002.

"

Looking ahead to 2004, the continued uncertainty of the state of the global economy, potential adverse
impacts from the war in Iraq and continued flat yield curves are expected to favour reductions in the
duration of assets. Group Treasury's priority is to ensure that the balance sheet is structured to takeaccount of various economic scenarios so as to ensure earnings stability for the Group.

Comparison with March 2002 half
The March 2002 half benefited from higher levels of risk and an easing interest rate environment. By
comparison, income for the half to March 2003 declined due to lower levels of risk, the runoff of higher yielding
assets within the portfolio, plus limited opportunities to increase the duration of assets due to historically low
interest rates.

48

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
TREASURY
Peter Prasser (Acting Group Treasurer)
Economic environment
The absolute level of interest rates, shape of yield curves and liquidity affect Group Treasury’s operations.
Geopolitical risks and the Iraq conflict have dominated financial markets leading to business and consumer
uncertainty and a dampening effect on global markets. This has resulted in lower interest rates and yield
curves around the world flattening (the spread between the AUD three year rate and 90 day rate was negative
by up to 21 basis points during the period). Whilst this has adversely impacted Treasury’s result through lower
margins on term assets, it has benefited the Group’s funding activities due to increased liquidity as investors
moved towards risk averse investments.
Credit spreads for AA rated financials have remained stable to slightly improved. Significant offshore AUD debt
issuance, predominantly AUD Uridashi (Japanese retail market) flows have dramatically reduced the basis swap
margin to convert foreign currency proceeds to AUD, resulting in a lower cost of funds for debt issued offshore.
Our business

Capital ratios

11%

Capital Management

10%

Our principal target ratio for capital management is
Adjusted Common Equity divided by Risk Weighted Assets.
The current target for ACE/RWA is 5.25%-5.75%. This isset by the Board and management who consider:" Business conditions and risk
" Compliance with prudential standards" Strategic flexibility" Requirements to support our AA credit status" Costs of alternate capital structures

9%
8%
7%
6%
5%
Mar-2002

Sep-2002

Total CapitalMar-2003

Tier 1

ACE

Wholesale Funding

Term wholesale funding of $20 billion is managed within
Board approved metrics which are designed to achieve:

AUD $billion"

Diversification of funding sources as to geography,
investor class and maturity profile

6"

Minimisation of overall funding cost, balanced against
operational, structural and strategic imperatives

4

In the first half, we raised over $5 billion of debt (including$1.8 billion subordinated debt) achieving a weighted
average term to maturity of 4.2 years.

Maturity profile of term debt

8

2
0
1 yr

Liquidity Management

The liquidity position is continually assessed againstinternal metrics, designed in consultation with APRA,
encompassing requirements in both normal and extreme
business conditions. To support this ANZ maintains an$8.5 billion portfolio of high quality, diversified, highly
liquid securities in a number of major currencies tosupport payment obligations and contingent funding in theevent of a market disruption.

2 yr
Senior

AUD $billion

6

3 yr

4 yr

5 yr

>5 yr

SubordinatedLiquidity Portfolio analysed by credit rating
(S&P)

4

2

Non-traded interest rate risk

Non-traded interest rate risk arises principally from themismatch in repricing terms of interest bearing assets andliabilities, and the investment of capital and other noninterest bearing items. This interest rate exposure must
be managed to enhance net interest income and,ultimately, shareholder value.

0
AAA AA+

AA

AA-

A+

A

A-

<A-

Interest rate exposures must be managed within clearly prescribed parameters from the Board, which limit
both earnings at risk over the next 12 months and the variation in the balance sheet’s overall fair value.
Earnings from non-traded interest rate risk were weaker in the half, reflecting reduced market volatility and an
inverse yield curve out to 3-4 years. We expect these factors to continue during the second half.

49

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
David Boyles

Shane Freeman

GROUP CENTRE
Peter Hawkins♦ Group People Capital♦ Group Risk Management♦ Call Centre

Mark LawrencePeter Marriott♦ Group Strategic Development♦ CFO Units♦ Operations, Technology &Shared Services

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

76

57

24

33%

large

Other external operating income

37

47

46

-21%

-20%

Net inter business unit fees

38

35

35

9%

9%

Operating income

151

139

105

9%

44%

External operating expenses

(426)

(392)

(392)

9%

9%

Net inter business unit expenses

331

298

292

11%

13%

Operating expenses

(95)

(94)

(100)

1%

-5%

Profit before debt provision

56

45

5

24%

large

Provision for doubtful debts

(53)

(53)

(32)

-

66%

Profit before income tax

3

(8)

(27)

large

large

Income tax expense and outside equity interests

-

(2)

12

-100%

-100%

Net profit attributable to members of the Company

3

(10)

(15)

large

large

4,970

5,266

5,150

-6%

-3%

Total employees

Comparison with September 2002 half
The result for the Group Centre was a profit of $3 million compared with a loss of $10 million in the September
half-year. Significant influences on the result were:"

In February 2003, the ANZ’s dispute with the Australian Taxation Office relating to equity products was
settled.

"The continued strengthening of the AUD over the half resulted in gains on contracts put in place to hedge
offshore earnings. These hedges are mainly over interest income. Interest income also increased from
earnings on central capital.

"

ANZ wrote down its investment in E*Trade by $6 million to market value; write downs of $24 million after
tax in the value of our investment in Proponix were taken against a provision that was recognised in priorperiods.

"

External operating expenses increased by 8% largely as a result of an increased technology spend. These
costs are on-charged to business units through the Net inter business unit expense line.

"

Provision for doubtful debts principally represents a special provision reflecting the unexpected rate ofdefault in the offshore (particularly US and Europe) lending portfolios. This has remained relatively constant
and will be revisited once offshore defaults stabilise.

Comparison with March 2002 half
The profit of $3 million reported an increase of $18 million from the prior comparative half. Increased
operating income resulted from increased interest on capital repatriated from Tokyo and gains on foreign
currency earnings hedges. This was partly offset by an increase in the provision for doubtful debts inrecognition of the uncertain economic outlook in international markets.

50

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
GROUP CENTRE
Group Risk Management" Our largest corporate exposures were further managed down over the half.
" ANZ’s level of corporate defaults was significantly down over the half compared to the 2002 year.
" Over the last half year Group Risk has been active in managing and monitoring the Group’s risks in an
uncertain and changing global environment. Group Risk continues to embed a strong risk culture across theGroup and is an integral component of ANZ strategic decision making.
Operations, Technology and Shared Services (OTSS)" Completed the deployment of Windows 2000 software to all desktops throughout Australia, New Zealandand the Pacific.
" ANZ’s information technology subsidiary in India achieved world class accreditation for its softwaredevelopment capability (CMM Level 5).
" Completed a commercial arrangement with SecureNet for the hosting of Public Key Infrastructure services.
" Successfully participated in the launch of the Continuous Linked Settlement (CLS) system which hasenhanced the global foreign exchange markets.
" Voucher imaging processing, which was introduced in Australia last year to facilitate faster response tocustomer enquiries and internal efficiency, was implemented in New Zealand.
" Delivered major new projects for corporate banking and investment banking and a program of major
upgrades to the retail core systems is progressing. The November 2002 component of this program hadsignificant settling-in issues, which were addressed.
" OTSS continues to ensure its technology infrastructure is robust, secure, flexible and cost effective, withproductivity improving.
People Capital" ANZ's staff survey results continue to be very positive with 78% of staff indicating satisfaction with theorganisation, despite a more difficult operating climate than six months ago.
" Specific focus has been directed to creating broader career development opportunities for staff outside theboundaries of their normal work environment. One such initiative has been the introduction of the ANZ"Opportunities Bank" designed as an on-line job posting facility for short-term development opportunities.
" A leadership assessment and development program has been established and is designed to surface
emerging leaders in the organisation judged as having senior executive potential.
Cultural Transformation" Breakout events/programs have now been experienced by over 10,000 ANZ staff. The next wave of the
Breakout Transformational experience is now being established - Inspiring Leaders is currently being run
through ANZ Senior Management.
" Results of Performance Ethic and Barretts surveys show that ANZ is making progress in relation to ourvalues.
" One of the highest profile Breakout Charters is an initiative on Sustainability which has begun to explore thebank's societal purpose beyond shareholder value.
" Moving from Breakout as an 'event' to 'a way of life' continues to be a focus - embedding Breakout into theway we operate has been facilitated by a range of consulting, relationship management and Breakout
Champion interventions with Business Units.
CFO Units" ANZ has received several awards for our level of disclosure, transparency, integrity and openness.
" CFO Units have been key in developing a strong performance culture throughout the organisation andputting into place the necessary financial management framework to ensure that the specialist business unit
model operates effectively.
" Our capital management is effective and clearly articulated.
" Settlement of a material dispute with the Australian Tax Office removes a large uncertainty.
" The legal function has effectively achieved a professional legal services function and a close alignment withthe business unit.
Group Strategy" We have continued to pursue the Group’s organic growth strategy across all of the Group’s business inAustralia and New Zealand. Internationally, we have played a leading role in furthering the creation of anumber of consumer focussed business partnerships in Asia. These include the Memorandum ofUnderstanding in relation to credit cards with Metrobank in the Philippines and the recently announced
Co-operation Agreement with the Shanghai Rural Credit Co-operative Union.

51

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Geographic Segment Performance
includes significant transactions

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Australia

804

934

774

-14%

4%

New Zealand

172

188

142

-9%

21%

UK / USA and Other

72

63

61

14%

18%

Asia

60

56

45

7%

33%

Pacific

33

31

28

6%

18%

1,141

1,272

1,050

-10%

9%

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Australia

142,547

135,050

131,655

6%

8%

New Zealand

26,037

23,79922,5409%16%UK / USA and Other

13,417

15,337

14,236

-13%

-6%

Asia

6,941

7,368

6,600

-6%

5%

Pacific

1,576

1,551

1,558

2%

1%

190,518

183,105

176,5894%8%Australia

110,001

104,537

98,894

5%

11%

New Zealand

18,75815,867

14,93618%

26%

UK / USA and Other

13,442

14,547

14,971

-8%

-10%

Asia

5,161

5,340

5,512

-3%

-6%

Pacific

1,241

1,099

1,105

13%

12%

148,603

141,390

135,4185%

10%Net profit attributable to members of the Company

External assets

Risk weighted assets

52

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Geographic Segment – Australia
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

1,584

1,530

1,477

4%

7%

Fee income

711

780

742

-9%

-4%

Other operating income

215

337

294

-36%

-27%

Operating income

2,510

2,647

2,513

-5%

-0%

Operating expenses(1,160)(1,141)

(917)

2%

26%

Profit before debt provision

1,350

1,506

1,596

-10%

-15%

Provision for doubtful debts

(234)

(236)

(475)

-1%

-51%

Income tax expense

(312)

(336)

(347)

-7%

-10%

Net profit attributable to members of the Company

804

934

774

-14%

4%

Net interest average margin

2.77%

2.88%

2.94%

-4%

-6%

Return on risk weighted assets

1.50%

1.85%

1.57%

-19%

-4%

1

Operating expenses to operating income

46.1%

43.0%

36.3%

7%

27%

1

Operating expenses to average assets

1.68%

1.74%

1.40%

-4%

20%

Net specific provision

(132)

(135)

(196)

-2%

-33%

Net specific provision as a % of average net advances

0.22%

0.24%

0.36%

-8%

-39%

286

315

367

-9%

-22%

Net non-accrual loans as a % of net advances

0.23%

0.27%

0.33%

-15%

-30%

Total employees

15,894

15,87916,121--1%

Lending growth

6.5%

5.8%

2.7%

n/a

n/a

External assets

142,547

135,050

131,655

6%

8%

Risk weighted assets

110,001

104,537

98,894

5%

11%

Net interest income

Net non-accrual loans

1.

Operating expenses $1,156 million (Sep 2002: $1,137 million; Mar 2002: $913 million) excludes goodwill amortisation $4 million (Sep 2002: $4 million;
Mar 2002: $4 million). Excluding goodwill amortisation decreases the ratio to operating income 0.1% (Sep 2002: 0.1%; Mar 2002: 0.2%) and average assets
0.01% (Sep 2002: 0.01%; Mar 2002: 0.01%)

The Australian results have been impacted by three significant transactions:" Sale of ANZ’s Funds Management businesses to INGA, $138 million profit after tax, (Sep 2002 half).
" Settlement of litigation with India’s National Housing Bank, $159 million profit after tax, (Mar 2002 half).
" Special increase in the general provision, $175 million cost after tax, (Mar 2002 half).
Comparison with September 2002 half
Profit after tax declined by 14%. Excluding significant transactions underlying profit grew 1% reflecting:"

Net interest income increasing 4% with higher lending volumes in Mortgages, Institutional and Corporate,and higher customer deposit volumes. These were partly offset by reduced deposit margins and Treasury
earnings in a low and flat interest rate environment.

"

Fee income declining 9% largely in Consumer Finance, due to under accrual of loyalty points ($38 million)
and ongoing costs of credit card loyalty programs, and in Personal Banking with customers choosing newtransaction products with simpler fee structures.

"

Other operating income increasing mainly in Capital Markets.

"

Operating expenses increased 2% reflecting higher staff costs and increased software amortisation as new
systems became operational.

Comparison with March 2002 half
Profit after tax increased 4% (2% excluding significant transactions), with higher net interest reflecting
increased margin, higher lending volumes (primarily mortgages) and higher customer deposit volumes.
Offsetting this, net return from INGA was $7 million in March 2003 compared with $25 million profit in March
2002 from the ANZ businesses sold to INGA. Economic loss provisioning was steady, while net specificprovisions and non-accrual loans reduced reflecting an improvement in the overall portfolio credit quality.

53

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Geographic Segment – New Zealand (Greg Camm)
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

329

304

276

8%

19%

Fee income

159

145

142

10%

12%

Other operating income

43

78

41

-45%

5%

Operating income

531

527

459

1%

16%

Operating expenses

(259)

(247)

(229)

5%

13%

Profit before debt provision

272

280

230

-3%

18%

Provision for doubtful debts

(28)

(26)

(28)

8%

-

Income tax expense

(72)

(66)

(60)

9%

20%

Net profit attributable to members of the Company

172

188

142

-9%

21%

Net interest average margin

2.84%

2.90%

2.74%

-2%

4%

Return on risk weighted assets

1.96%

2.42%

1.93%

-19%

2%

1

Operating expenses to operating income

48.2%

46.1%

49.0%

5%

-2%

1

Operating expenses to average assets

2.02%

2.08%

2.06%

-3%

-2%

Net specific provision

(10)

(18)

(13)

-44%

-23%

0.10%

0.19%

0.15%

-47%

-33%

22

17

17

29%

29%

Net non-accrual loans as a % of net advances

0.10%

0.09%

0.09%

11%

11%

Total employees

3,716

3,698

3,706

-

0%

Lending growth (including FX impact)

12.4%

3.3%

0.9%

n/a

n/a

Lending growth (excluding FX impact)

5.8%

-1.3%

7.2%

n/a

n/a

External assets

26,037

23,79922,5409%

16%

Risk weighted assets

18,75815,867

14,93618%

26%

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

1.

Operating expenses $256 million (Sep 2002: $243 million; Mar 2002: $225 million) excludes goodwill amortisation $3 million (Sep 2002: $4 million; Mar 2002:$4 million). Excluding goodwill amortisation decreases the ratio to operating income 0.6% (Sep 2002: 0.8%; Mar 2002: 0.9%) and average assets 0.02%(Sep 2002: 0.03%; Mar 2002: 0.04%)

Comparison with September 2002 half
Underlying profit growth for the half was 3% after adjusting for the one off gain from the sale, in the preceding
half, of the funds management business to the INGA ($32 million); and for the appreciation of the New Zealanddollar. The main features (excluding the impact of exchange rates) were:" Net interest income increased 1%, from growth in deposits and modest lending growth in the Institutional
Banking, Small and Medium Business, and Consumer Finance businesses. Following a decline in thepreceding half, Mortgage volumes recorded modest gains. Lower net interest income from Group Treasury
driven by maturing high yielding assets and lower risk levels taken with a flat yield curve caused overallmargins to fall and offset the volume increases.
" Fee Income grew 3%, primarily derived from corporate financing activities. Fees in personal banking wereflat, with higher volume related fees from an expanded ATM network being offset by lower transaction fees.
" Other income declined due to the inclusion in the September 2002 half of the gain on sale of funds
management businesses to INGA.
" Operating expenses declined 2% with the cost of an increased investment in the branch network, as part of
the Restoring Customer Faith initiative being largely absorbed by savings in other costs.
Comparison with March 2002 half
Profit after tax grew 21% due largely to the appreciation of the New Zealand dollar. Excluding the exchange
rate impact profit grew 9% as a result of a 7% growth in net interest income on higher lending and deposit
volumes. Fee income was flat with volume related increases offset by lower transaction fees. Operating
expenses were contained to the levels of the March 2002 half.

54

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Geographic Segment – UK / USA and Other

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

118

104

100

13%

18%

Fee income

67

84

76

-20%

-12%

Other operating income

20

20

5

-

large

Operating income

205

208

181

-1%

13%

Operating expenses

(72)

(80)

(80)

-10%

-10%

Profit before debt provision

133

128

101

4%

32%

Provision for doubtful debts

(25)

(33)

(30)

-24%

-17%

Income tax expense

(35)

(32)

(10)

9%

large

Outside equity interests

(1)

-

-

n/a

n/a

Net profit attributable to members of the Company

72

63

61

14%

18%

Operating expenses to operating income

35.1%

38.5%

44.2%

-9%

-21%

Net specific provision

(100)

(204)

(153)

-51%

-35%

Net non-accrual loans

261

246

379

6%

-31%

Total employees

807

853

837

-5%

-4%

Comparison with September 2002 half
Profit after tax increased by 14%. Excluding the impact of the significant appreciation in the AUD profit after
tax increased 16%. Features of the first half excluding exchange rate impacts include:"

Net interest income increased 15% due mainly to higher earnings on capital injected into London and theacquisition and subsequent syndication of high yielding structured assets in the US.

"

Fee income reduced 19% largely due to lower structured finance activity reflecting general market
conditions and an increased time to bring mandated deals to financial close.

"

Operating expenses declined 9% reflecting a reduction in the number of technology contractors in South
Asia and lower profit based incentive payments.

"

Net specific provisions exceeded doubtful debt provision, however reduced from the September 2002 half
which included provisioning for the Marconi exposure. Net non-accrual loans increased with a small numberof previously identified high risk accounts deteriorating to non-accrual status. Power exposures were again
the principal source of the net specific provisions along with the $27 million relating to finalisation of thecredit indemnity given to Standard Chartered as part of the Grindlays sale. Provisions for doubtful debts
charge reduced with lower volumes, some portfolio improvement and the absence of a hedging cost
component in the second half of 2002.

Comparison with March 2002 half
Profit after tax increased 18% (23% excluding foreign currency movements) largely driven by higher net
interest income from structured finance activities in the United States, improved structured finance trading
income and higher foreign exchange earnings in the United Kingdom. Net specific provisions declined with the
March 2002 half including a small number of large provisions, notably Enron.

55

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Geographic Segment – Asia
John Winders

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

60

65

66

-8%

-9%

Fee income

30

27

34

11%

-12%

Other operating income

49

39

30

26%

63%

Operating income

139

131

130

6%

7%

Operating expenses

(56)

(56)

(58)

-

-3%

Profit before debt provision

83

75

72

11%

15%

Provision for doubtful debts

(11)

(9)

(13)

22%

-15%

Income tax expense

(11)

(9)

(12)

22%

-8%

Outside equity interests

(1)

(1)

(2)

-

-50%

Net profit attributable to members of the Company

60

56

45

7%

33%

1

39.6%

42.0%

43.8%

-6%

-10%

Net specific provision

(13)

1

(3)

n/a

large

Net non-accrual loans

17

32

43

-47%

-60%

Total employees

628

617

619

2%

1%

Operating expenses to operating income

1.

Operating expenses $55 million (Sep 2002: $55 million; Mar 2002: $57 million) excludes goodwill amortisation $1 million (Sep 2002: $1 million; Mar 2002:$1 million). Excluding goodwill amortisation decreases the ratio to operating income 0.7% (Sep 2002: 0.7%; Mar 2002: 0.8%)

Comparison with September 2002 half
The half year result of $60 million represents a 7% growth over the previous half notwithstanding difficult
regional and global market conditions. In particular, Asia’s results were influenced by:"

Increased equity accounted contribution from our investment in PT Panin. The Indonesian-based bankcontinued to perform well with organic growth and a one-off profit of $16 million from bond sales.

"

Improvement in fee-based income including a significant project finance transaction in Vietnam.

"

The favourable contributions were partially offset by lower interest income reflecting further risk reduction in
the corporate book and high levels of liquidity across the Asian region, bringing down margins.

"

Tight cost control ensured that operating expenses were kept in check and cost to income ratio improved to39.6% compared to 42.0% in the previous half.

"

The increase in specific provisioning relates to top-up of provisioning for an existing non-accrual project
loan. Asia continues to rebalance its portfolio towards lower risk and has not had any major new
non-performing loans for the last two years.

Comparison with March 2002 half
Net profit improved by 33% over the March 2002 half, largely brought about by the improvement in
performance of PT Panin. The ongoing focus on cost control and risk reduction has kept operating expenses
flatlined over the last two halves and a high quality Asian credit portfolio that continues to improve.

56

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Geographic Segment – Pacific
Bob Lyon

Halfyear
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Net interest income

48

50

46

-4%

4%

Fee income

23

21

20

10%

15%

Other operating income

36

30

25

20%

44%

Operating income

107

101

91

6%

18%

Operating expenses

(55)

(51)

(46)

8%

20%

Profit before debt provision

52

50

45

4%

16%

Provision for doubtful debts

(5)

(5)

(5)

-

-

Income tax expense

(14)

(14)

(12)

-

17%

-

-

-

n/a

n/a

33

31

28

6%

18%

50.5%

49.5%

49.5%

2%

2%

Net specific provision

1

(5)

-

n/a

n/a

Net non-accrual loans

12

11

14

9%

-14%

1,434

1,434

1,454

-

-1%

Outside equity interests
Net profit attributable to members of the Company
Operating expenses1 to operating income

Total employees
1.

Operating expenses $54 million (Sep 2002: $50 million; Mar 2002: $45 million) excludes goodwill amortisation $1 million (Sep 2002: $1 million; Mar 2002:$1 million). Excluding goodwill amortisation decreases the ratio to operating income 1.0% (Sep 2002: 1.0%; Mar 2002: 1.0%)

Comparison with September 2002 half
Profit after tax increased 6% despite a significant appreciation in the AUD. Excluding the exchange rate
impact, profit grew by 10%. Key influences on the result excluding the exchange rate impact include:"

Net interest income reduced 1% driven by declining margins in Papua New Guinea resulting from regulatory
pressure and increased competition following a rationalisation of the number of banks.

"

Other operating income grew 25% largely driven by increased foreign exchange earnings with volatility in
Pacific currencies combined with ANZ’s strong market position, while fee revenue increased with astandardisation of fees following a review of fee structures.

"

Expenses grew 11% following a review of the technology support required for Pacific businesses.

Comparison with March 2002 half
Profit after tax increased by 18%. After adjusting for the impact of exchange rate movements, profit increased
28%. Excluding the exchange rate impact operating income increased 27% with the full integration of thebusinesses acquired from the Bank of Hawaii, increased foreign exchange earnings and higher fees following an
increased focus on electronic distribution and a review of fee structures across the region. Increased expenses
largely reflect the impact of the integration of the businesses acquired from the Bank of Hawaii.

57

This page has been left blank intentionally

58

RISK MANAGEMENTGROUP RISKMark Lawrence

ANZ’S RISK MANAGEMENT VISION AND STRATEGYANZ is underpinned by an ongoing focus on risk issues and strategy at the highest levels and a comprehensive
risk management framework comprising:"

The Board, providing leadership, overseeing risk appetite and strategy and monitoring progress.

"

A strong framework for development and maintenance of Group-wide risk management policies, procedures
and systems, overseen by an independent central team of risk professionals reporting directly to the Chief
Executive Officer.

"

The use of sophisticated risk tools, applications and processes to execute our global risk management
strategy across the Group.

"

Primary Business Unit-level accountability for management of risks in alignment with the Group’s strategy.

The various risks inherent in the operations of the Group may be broadly grouped together under
the following three categories:% of Economic
Capital45%

Credit Risk
Group Risk Management’s responsibilities for credit risk policy and management are
principally executed through two dedicated departments - Wholesale Risk and Retail
Risk.
Wholesale Risk supports the Group’s Corporate, Institutional and Global Investment
Banking activities, while Retail Risk services the Group’s consumer-based businesses.
All major credit decisions (and automated decision processes) for the Group’s
corporate and consumer businesses require dual approval by both Group Risk
Management and Business Unit-based personnel.
Market Risk

13%

Market Risk is the risk that the Group will incur losses from changes in interest rates,
foreign exchange rates or the prices of equity shares and indices, commodities, debt
securities and other financial contracts, including derivatives. It is managed by avariety of different techniques with Group Risk Management setting limits to control
trading positions and interest rate risk up to a Board authorised total.
Operating Risk
Operating risk is the risk of direct or indirect loss resulting from inadequate or failed
internal processes, people and systems, or from external events.

21%

Group Risk Management is responsible for establishing Group policy; for themeasurement, monitoring and reporting of operational risk across the Group; forproviding leadership in the overall development of ANZ’s operational risk capability
and specialists in key risk areas.
Each business unit has its own operating risk management function responsible forthe performance of operating risk in the business.
Other

21%

There are a number of other risks, which are not classified as either Market, Credit orOperating Risk which ANZ holds economic capital for. These include, but are notlimited to, items such as investment risk and fixed asset risk.

59

RISK MANAGEMENT (continued)
Key risk issues for the Group are:"Offshore Exposures
This half year has continued to exhibit a significant degree of uncertainty in the global economic
environment. The hostilities in Iraq and on-going concerns in the US have negatively impacted upon the
global credit environment. This continued uncertainty has heightened the need for risk vigilance and closely
managing the risks within our portfolios. In this regard it has been pleasing to see the reduced levels ofdefault and loss within our portfolio this half year, compared to the September 2002 year.
Two sectors of continuing special focus for the Group remain Power (US power particularly) and
Telecommunications.
- US Power – total committed limits currently comprise $2.0 billion of which $1.2 billion comprises actual
drawn exposures.
- Offshore Telecommunications - total committed limits currently comprise $1.7 billion of which $1.0 billion
comprises actual drawn exposures.
It should be noted that whilst we had some significant defaults in project and corporate lending to these
sectors in 2002, ANZ has strong asset writing guidelines in place to ensure we pursue only top quality
infrastructure related projects and that a diversified portfolio mix is maintained. These include:- Focus on secured well-structured project finance transactions.
- Loan covenants and controls that keep a tight reign on a project’s financial and operating integrity.
- Avoid deals with any exposure to significant merchant/market risk in the mix.

"

Global Economic uncertainty created from the Iraq war
During late 2002 and early 2003 there was significant uncertainty in the global markets and particularly inoil prices which led to a large increase in the per barrel price in early 2003. The start of the Iraq war in mid
March coincided with USD barrel prices coming back down to more manageable levels. With the war now
largely over and Iraqi oil fields substantially intact, markets have settled down with more certainty now
evident. Assuming there are no further hostilities in the Middle East we expect minimal impact upon our
portfolios.

"

Drought
The impact of continuing drought in many rural locations is being closely monitored by our specialist
agricultural divisions. The drought impact on our portfolios has so far been minimal, which is a factor of:our relatively small market presence in rural NSW & QLD, excellent seasons in the lead up to the drought
and consistent conservative lending practices. ANZ recognises that drought is an inherent factor ofAustralian agriculture and is committed to supporting our affected farming and business customers, whoover the long term have viable operations.

"

Residential Property
A softening in the Australian housing market is expected as we consider it to be moderately oversupplied,
fuelled in part by unrealistic expectations of rapid appreciation in the investment market. Evidence ofincreasing rental vacancies, reducing yields and declining building approvals, indicates this softening may
already have begun. A significant market correction is not considered likely, as we believe the rapid asset
appreciation is primarily the result of a one-off structural shift from an economy of high and variableinflation and interest rates, to one of low stable inflation and interest rates. As monetary policy remains
consistent and unemployment close to record lows, we regard the risk of a significant market collapse as
low. Notwithstanding, pockets of risk exist within specific locations and markets, including some outersuburban development belts and close to city apartment developments. These risks continue to bemonitored closely, and where necessary, policies have been implemented to mitigate them.

60

RISK MANAGEMENT (continued)
Key risk issues for the Group (continued)"

Top 10 exposures as % of ACE%

Large Single Name Exposure Risk

140

Over the last 2 years ANZ has experienced increased credit losses
primarily driven by large single name losses as a result of the “fallenangels” phenomenon, where a few large investment grade exposures
rapidly became non accrual assets. ANZ has maintained its focus on
managing down its large exposure risks and over the last 6 months
has further reduced portfolio concentrations. Over this time we havealso experienced a significantly lower level of corporate defaults andlosses when compared to the 2002 year.
One measure of the concentration of large exposures in the Group’s
portfolio is the aggregate of the 10 largest committed corporate
exposures as a percentage of adjusted common equity (ACE). Thisratio has declined significantly over the past 18 months.

120
100
80
60
40
20
0
Sep 01

Sep 02Mar 03

Key Risk Enhancements:"

Credit Derivatives
Credit derivative activity over the half hascontinued to be modest, with close ongoing
monitoring by the Market Risk team. Credit
derivatives are being used as an efficientmechanism for reducing large exposures anddiversifying the risk in lending portfolios. A
comprehensive policy framework of strong
controls exists around these activities,
including restricting the sale of credit
derivatives (undertaken to reshape theportfolio “mix”) to Australian and New Zealandnames that meet specific investment grade
and other specific criteria.

Credit Default Swap positions
Bought

Sold

Net

863

(252)

611

Matched Trades
Outright Positions

1,557
752

(1,557)
(332)

0
420

Trading Book

2,309

(1,889)420

Total CDS

3,172

(2,141)

1,031

A$M

Portfolio Management

New activity continues to be related to active portfolio management of the Group’s overall Banking Book,and the undertaking of trades that are quickly matched off into the market. This trading continues to bebound by the usual market risk controls such as VaR limits, term limitations, asset quality requirements,
and daily revaluation of all positions independently performed by Market Risk.
In addition to direct use of credit derivatives for Portfolio Management and Trading Book purposes, as
reflected in the above table, ANZ holds investments in three structured transactions. Each of theseinvestments is in the amount of USD250 million, where ANZ has indirect exposure to a sold“First-to-Default” basket of credit derivatives in the amount of USD500 million, with a first-loss limit of
USD250 million. The underlying exposures are to a highly diversified group of 73 names, with no individual
exposure in excess of USD40 million. As with credit derivative activity associated with Portfolio
Management and the Trading Book, these exposures are independently monitored by Group Risk
Management, with key trigger points established to proactively manage the risk. To date, credit protection
totaling USD93 million has been purchased as a hedge against seven of the underlying names.

"

Reduced limits
To further reduce risk in the Group’s credit portfolio, Single Customer Concentration Limits (SCCL’s) havebeen reduced and increased granularity applied to ensure the portfolio mix is maintained within the Group’s
risk appetite. This includes reduced limits applied to facilities domiciled outside Australia and New Zealandand those that are unsecured.

61

RISK MANAGEMENT (continued)
Key Risk Enhancements (continued)"

Technology and Business Continuity
In light of ongoing security issues arising from the heightened incidence of global terrorism, our business
continuity and crisis management capabilities have been reviewed, tested and, where necessary,strengthened as new threats emerge. Special precautions have been put in place in response to the war in
Iraq and the Severe Acute Respiratory Syndrome (SARS) virus.
New and enhanced standards, tools and monitoring are being put in place to ensure ANZ provides a secureand reliable information technology capability for our customers, with an Information Security Executive
Committee to drive continuous improvement in that area.
Our focus on project and change-management risks has been strengthened. The Group has a substantial
portfolio of projects and other change initiatives. These projects and initiatives continue to receive
extensive Executive Management focus and are subject to a variety of enhanced risk management
disciplines and controls.

"

Further Operational Risk Enhancements
Considerable focus continues to be placed on regulatory compliance across the Group. Areas of particularfocus include the prevention of money laundering and financing of terrorism, compliance with the updated
Code of Banking Practice and preparation for the Implementation of the Financial Services Reform Act.

Basel II"

The common framework for determining the appropriate quantum of bank regulatory capital is set by the“Basel Committee”, a sub-committee of the Bank for International Settlements, and a new framework has
been developed over the past four years that is commonly known as “Basel II”. A key objective of Basel II
is to improve stability of the global financial system by encouraging improved risk management practices
and requiring banks to hold levels of regulatory capital commensurate with their risk profile. In particular,
Basel II will introduce a more risk-sensitive and detailed regulatory capital regime for credit risk and will
introduce for the first time an explicit regulatory capital charge for operational risk.

"

Preparation for the implementation of the new Accord has been and continues to be an area of significant
focus and activity across the ANZ Group.

"

A major innovation of the new Accord is that Basel II allows banks of varying sophistication in their risk
management practices to enter the new regulatory capital framework at one of three levels, with incentives
embedded (by way of reduced regulatory capital requirements) to attract banks with more sophisticated risk
measurement and management approaches to reach the more advanced levels. Banks will need to choose
their approach and be accredited at a level of compliance in each of credit and operational risk. Market risk
will remain largely unchanged from the current Accord, following its revision in 1996.

"

ANZ has completed an evaluation of the work effort required and high level cost estimates of complying withthe requirements of the new Accord. At this time ANZ intends pursuing accreditation under the mostadvanced approaches for both credit and operational risk, in line with the Group’s vision of risk management
as a strategic asset and source of competitive advantage. It has projects underway to address all of thenecessary requirements for accreditation at the most advanced levels for both areas under Basel II. Indeed,certain requirements, such as a credit risk rating system that measures default probabilities and likely losses
in the event of default, and a framework for operation risk measurement and capital allocation, are alreadyin place.

"

Basel II is still being finalised, with the final version due to be released in the fourth quarter 2003. ANZ
recently took part in an international exercise to help refine the calibration of the capital functions within the
new Accord. The results indicate that under the more advanced approaches which are planned to beincorporated within Basel II, ANZ would need less regulatory capital than must be held under current rules.
Although the precise details are yet to be finalised, APRA has stated that it is likely there will be somedifferences in the way Basel II is implemented in Australia.

62

COUNTRY EXPOSURESThe exposure definitions in the following tables are consistent with the ones used by Standard & Poor’s in theirassessment of regional risk published in February 1998.
Both local currency and cross border exposures are included.
Trade finance is captured at 100% of face value.
All cross border exposure is recorded on the basis of the Country where the asset is booked.
Treasury funded exposures includes predominantly bank Money Market lines and Certificates of Deposit.
Treasury unfunded exposure includes Foreign Exchange and Interest Rate contracts (forwards, options andswaps). The exposure is calculated using a conservative “mark to market plus potential exposure”
methodology. This methodology calculates the market value of a contract and adds a factor for the potentialchange in value from the valuation date to maturity. The mark to market of off balance sheet exposures is
netted by counterparty where the Group holds a valid legally enforceable netting agreement with thatcounterparty.
Financial guarantees represents lending to entities outside of Asia (typically Australia) where there is arelationship with the parent entity through a guarantee standby letter of credit.
Term lending is split into three categories: exposure to multinationals covers lending in countries tointernational or global companies, frequently involving US, UK, European or Australian parents of joint venture
partners, term lending in local currency which is principally franchise countries, and cross border term lending(mostly USD).
Project finance includes a mix of products and is net of Political Risk Insurance (PRI) cover provided by either alarge Government Multi Lateral Agency or a large Global Private Insurance company.
Securities include traded debt instruments and are measured at assessed market value (mark to market).

63

COUNTRY EXPOSURES (continued)
Product disclosure by selected regions
As at 31 March 2003 in USD millions (net exposures)
CROSS BORDER RISK AND LOCAL CURRENCY RISKCountries

ASIA
Brunei
China
Hong Kong
Indonesia
Japan
Laos
Macau
Malaysia
Philippines
Singapore
South Korea
TaiwanThailand
Vietnam
Total

Financial
Guarantees
Term
Securing
Treasury
TreasuryTerm
Performance
Lending Lending
Regional
Trade On Balance Off Balance
Bonds
Lending in
Sheet
Sheet
MNC's
XBR
Countries
not detailed

1
601
89
109
21

68

102
58
224
915
210
10
62

16
85
29

2,402

198

29
84
1

4

Total

114

4

Total
MIDDLE EAST
Bahrain
Egypt
GreeceIran
IsraelJordanKuwaitOman
Pakistan
Qatar
Saudi Arabia
U.A.E.
Political Risk Insurance
First Loss1
Total

21
12
130

28
250
1
27

3
87
13
97

27
87
25
26

100
210
100

Mortgage
Securities
Loans
Underwriting
Investment
Properties& Project
at Market
Risk
DomicledValue
in Aust/NZ

2
2
2
520
69
15
4
12

2
74
15
22
2
1

1
212
-51
17
-87
1
-1
17
70
177
26
-12
-9
51

6,294

412

89
258
1
18

-4
16
1
1

366

14

16
51

34
153
163
4
168
1
17
51

12
0
1
-1
6
1
0
-1

308

591

18

9
15
5
65
62
5
35
66
57
37
33
202

-2
5
-16
7
-2
4
10
19
10
15
-8
-45

8
44

1,029

279

6
234
32
5

583

10
86
10
21

19
38
17
138

18

22
314
3
50
6
21

345

581

692

16
26
32
11
17

70
40

37

16

2

53

2

1
93
15

2

29

6
1

106

23
50

13

1

106

73

13

11

20
60
51

3

1
139

9

8
15

1

145

1

97
4
20

3

0

132

110

5
56
1
5
34
10
5
5
164

303

EASTERN EUROPE
Hungary
Romania

1
4

Total

5

9
5

17

39
1

41
34
22

103

34

25
13
5
10
4
40

40

0

44

106

631

-3

1
4

0
4

5
5

22

13

53

Total Countries externally rated A or Better
Total Countries externally rated below A
Total all Countries
1.

Middle East project exposure is USD408 million, however ANZ has Political Risk Insurance. ANZ is liable for the first loss of USD40 million

64

Movement
from
Sep 02

Total

1
878
991
306
442
1
2
142
224
1,551
1,072
461
39
184

30

1

SOUTH ASIA
Bangladesh
India
Nepal
Sri Lanka

LATIN AMERICA
Argentina
BrazilChile
Colombia
MexicoPanamaPeru
Venezuela

21
239
2
141

Term
Lending
LCY

5

4

5,738
73%
2,144
27%

895
8%
-455
-8%

7,887

445

FOUR YEAR SUMMARY
Mar 03$M

Sep 02$M

Mar 02$M

Sep 01$M

Mar 01$M

Sep 00$M

Mar 00$M

Sep 99$M

Net interest income

2,140

2,053

1,965

1,954

1,879

1,929

1,872

1,839

Other operating income

1,352

1,561

1,409

1,333

1,240

2,422

1,335

1,221

Operating expenses(1,602)(1,575)(1,330)(1,553)(1,539)(2,622)(1,645)(1,654)

Note
Statement of Financial Performance

Provision for doubtful debts

(303)

(309)

(551)

(290)

(241)

(246)

(256)

(252)

Profit before income tax

1,587

1,730

1,493

1,444

1,339

1,483

1,306

1,154

Income tax expense

(444)

(457)

(441)

(468)

(443)

(552)

(488)

(389)

(2)

(1)

(2)

(1)

(1)

(1)

(1)

(2)

1,141

1,272

1,050

975

895

930

817

763

190,518

183,105

176,589

185,493

180,967

172,467

166,958

152,801

12,485

11,465

10,803

10,551

10,200

9,807

9,662

9,429

17.1%

Outside equity interests
Net profit attributable
to members of the Company
Statement of Financial Position
AssetsNet assets
Ratios

20.3%

24.8%

21.6%

20.9%

19.6%

19.7%

17.8%

Return on average assets

Return on average ordinary equity

1.2%

1.4%

1.2%

1.1%

1.0%

1.1%

1.0%

1.0%

Tier 1 capital ratio

7.7%

7.9%

7.8%

7.5%

7.3%

7.4%

7.5%

7.9%

45.6%

45.5%

46.5%

47.0%

49.1%

60.1%

51.1%

53.9%

Operating expenses1 to operating income
Shareholder value - ordinary shares
Total return to shareholders

4.1%

1.4%

13.7%

18.4%

6.4%

30.5%

4.4%

-8.2%

Market capitalisation(share price movement plus dividends)

27,13526,544

26,57923,783

20,48820,002

15,94816,045

Dividend

44 cents

46 cents

39 cents

40 cents

33 cents

35 cents

29 cents

30 cents

100.0%-

100.0%-

100.0%-

100.0%--

100.0%-

100.0%-

100.0%-

80.0%$12.45Franked portion- interim- finalShare price- high$ 18.96$20.38$18.61$17.39$16.08$13.46$11.67- low$ 15.95$16.33$16.36$13.44$13.20

$9.60

$9.71

$8.58

- closing$ 17.93$17.65$17.77$15.98$13.78$13.28$10.40$10.25

Share information (per fully paid
ordinary share)
Earnings per share - basic
Dividend payout ratio
Net tangible assets

$

72.0

81.0c

66.3c

61.6c

55.8c

57.6c

49.3C

45.9c

61.3%

57.0%

58.9%

65.0%

58.7%

60.2%

57.9%

65.6%

7.32

$

6.58

$

6.14

$

5.96

$

5.71

$

5.49

$

5.42

$

5.21

Number of fully paid ordinary shareson issue (millions)

1,513.4

1,503.9

1,495.7

1,488.3

1,486.8

1,506.2

1,533.4

1,565.4

Permanent employees (FTE's)

21,21821,38021,50821,403

21,617

21,77427,70328,744

Temporary employees (FTE's)

1,265

1,102

1,229

1,098

1,198

1,360

1,237

1,427

Other information

Total employees
Number of shareholders
1.

22,48322,482

22,73722,501

22,815

23,13428,94030,171

210,512

198,715

190,133

181,035

180,108

179,244

223,803214,151

Operating expenses $1,593 million (Sep 2002: $1,565 million; Mar 2002: $1,320 million, Sep 2001: $1,545 million; Mar 2001: $1,530 million, Sep 2000:$2,615 million; Mar 2000: $1,640 million, Sep 1999: $1,649 million) excludes goodwill amortisation and significant transactions $9 million (Sep 2002: $10 million;
Mar 2002: $10 million, Sep 2001: $8 million; Mar 2001: $9 million, Sep 2000: $7 million; Mar 2000: $5 million, Sep 1999: $5 million). Excluding these items
decreases the ratio by 0.3% (Sep 2002: 0.3%; Mar 2002: 0.3%, Sep 2001: 0.3%; Mar 2001: 0.1%, Sep 2000: 0.2%; Mar 2000: 0.2%, Sep 1999: 0.2%)

65This page has been left blank intentionally66

Australia and New Zealand Banking Group Limited

CONSOLIDATED FINANCIAL STATEMENTS & OTHER DISCLOSURES

Half year ended
31 March 2003

This Financial Report on the consolidated Group constitutes the Appendix 4B required by the Australian Stock
Exchange, and should be read in conjunction with the September 2002 Annual Financial Report. The financial
statements and notes to the financial statements have been reviewed by KPMG.

67

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

PAGE
Directors’ Report

69

Consolidated Statement of Financial Performance70

Consolidated Statement of Financial Position

71

Statement of Changes in Equity

72

Consolidated Statement of Cash Flows73

Notes to the Financial Statements

74

1.

Accounting policies

74

2.

Income763.

Operating expenses

78

4.

Income tax expense

80

5.

Dividends

81

6.

Earnings per ordinary share82

7.

Investment securities

84

8.

Net loans and advances

85

9.

Impaired assets

87

10. Provisions for doubtful debts

96

11. Capital adequacy97

12. Share capital and options

98

13. Average Balance Sheet and related interest101

14. Interest spreads and net interest average margins

104

15. Segment analysis

105

16. Derivative financial instruments

106

17. Contingent liabilities

108

18. Note to the Statement of Cash Flows110

19. Changes in composition of the Group111

20. Associates, joint venture entities and investments

111

21. US GAAP reconciliation

112

22. Exchange rates

114

23. Significant events since balance date114

Directors’ Declaration and Appendix 4B Statement

115

Auditors’ Review report

116

Definitions

117

Alphabetical Index

119

68

DIRECTORS’ REPORTThe directors present their report on the consolidated accounts for the half year ended 31 March 2003.
Directors
The names of the directors of the Company who held office during and since the end of the half year are:
Mr CB Goode AC - Chairman
Mr J McFarlane OBE - Chief Executive Officer
Mr JC Dahlsen
Dr RS Deane
Mr JK Ellis
Mr DM Gonski AO
Ms MA Jackson
Dr BW Scott AO
Result
The consolidated profit from ordinary activities after income tax attributable to shareholders of the Company
was $1,141 million. Further details are contained in the Chief Financial Officer’s Review on pages 7 to 57 andin the financial report.
Review of Operations
A review of the operations of the Group during the half year and the results of those operations are containedin the Chief Financial Officer’s Review on pages 7 to 57 and in the financial report.
Rounding of Amounts
The Company is a company of the kind referred to in the Australian Securities and Investments Commission
class order 98/100 dated 10 July 1998 pursuant to section 341(1) of the Corporations Act 2001. Consequently,
amounts in this report and the accompanying financial report have been rounded to the nearest million dollars
except where otherwise indicated.
Signed in accordance with a resolution of the directors

Charles Goode
ChairmanJohn McFarlane
Chief Executive Officer

23 April 2003

69

CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE

Note

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

2

6,364

6,211

5,796

2%

10%

Interest income

5,012

4,650

4,387

8%

14%

Interest expense(2,872)(2,597)(2,422)

11%

19%

Net interest income

2,140

2,053

1,965

4%

9%

Proceeds, net of costs, on disposal of investments

-

566

-

-100%

n/a

Carrying amount of assets given up

-

(392)

-

-100%

n/a

Total income

Net profit on disposal of investments

2

-

174

-

-100%

n/a

Other operating income

2

1,352

1,387

1,409

-3%

-4%

3,492

3,614

3,374

-3%

3%

(1,602)(1,575)(1,330)

2%

20%

1,890

2,039

2,044

-7%

-8%

(303)

(309)

(551)

-2%

-45%

1,587

1,730

1,493

-8%

6%

(444)

(457)

(441)

-3%

1%

1,143

1,273

1,052

-10%

9%

(2)

(1)

(2)

100%

-

1,141

1,272

1,050

-10%

9%

(49)

45

(143)

n/a

-66%

1,092

1,317

907

-17%

20%

72.0

81.0

66.3

-11%

9%

71.7

80.6

66.0

-11%

9%

44

46

39

-4%

13%

7.32

6.58

6.14

11%

19%

Operating income
Operating expenses

3

Profit before debt provision
Provision for doubtful debts

10

Profit before income tax
Income tax expense

4

Profit after income tax
Net profit attributableto outside equity interests
Net profit attributable
to members of the Company
Currency translation adjustments, net of hedges after tax
Total changes in equity other than those resulting
from transactions with shareholders as owners
Earnings per ordinary share (cents)
Basic

6

DilutedDividend per ordinary share (cents)

5

Net tangible assets per ordinary share ($)
The notes appearing on pages 74 - 114 form an integral part of these financial statements

Equity instruments issued to employees
Under existing Australian Accounting Standards, certain equity instruments issued to employees are notrequired to be expensed. The impact of expensing options, and shares issued under the $1,000 employee
share plan, have been calculated and are disclosed below.
Half
year
Mar 03$M
Net profit attributable to members of the Company

1,141

Expenses attributable to:
Options issued to Management Board1(4)

Options issued to general management1(11)

Shares issued under $1,000 employee share plan

(18)

Revised net profit attributable to members of the Company

1,108

Revised earnings per share basic (cents)
1.

69.8

Based on fair values estimated at grant date using a modified Black Scholes model. Value of options amortised over vesting period.

70

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Note

As at
Mar 03As at
Sep 02As at
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

$M

$M

7,759

7,410

6,752

5%

15%

AssetsLiquid assets
Due from other financial institutions

3,123

3,815

3,468

-18%

-10%

Trading securities1

5,219

5,873

5,189

-11%

1%

Investment securities

7

4,301

3,609

2,716

19%

58%

Net loans and advances

8

141,965

132,060

125,2678%

13%

13,27013,796

14,512

-4%

-9%

-

-

5,064

n/a

-100%

205

178

128

15%

60%

Shares in associates and joint venture entities

1,759

1,692

76

4%

large

Deferred tax assets

1,239

1,218

1,185

2%

5%

Customers' liabilities for acceptances
Life insurance investment assets
Regulatory deposits

Goodwill2

171

180

188

-5%

-9%

Other assets3

9,965

11,81010,613-16%-6%

Premises and equipment

1,542

1,464

1,431

5%

8%

190,518

183,105

176,5894%8%Due to other financial institutions

8,824

10,860

8,215

-19%

7%

Deposits and other borrowings

122,256

113,297

105,6168%

16%

Liability for acceptances

13,27013,796

14,512-4%-9%

Total assets
Liabilities

Income tax liabilities

1,031

1,340

1,193

-23%

-14%

Payables and other liabilities

12,29812,45011,958

-1%

3%

929

1,744

1,611

-47%

-42%

-

-

4,754

n/a

-100%

Bonds and notes

14,917

14,70814,437

1%

3%

Loan capital

4,508

3,445

3,490

31%

29%

Total liabilities

178,033

171,640

165,786

4%

7%

Net assets

12,485

11,465

10,8039%16%

Ordinary share capital

4,058

3,939

3,824

3%

6%

Preference share capital

1,225

1,375

1,410

-11%

-13%

485

534

523

-9%

-7%

6,700

5,600

5,032

20%

33%

12,468

11,448

10,7899%

16%

Provisions
Life insurance policy liabilities

Shareholders' equity

Reserves
Retained Profits
Share capital and reserves attributable tomembers of the Company
Outside equity interests
Total shareholders' equity

Derivative financial instruments

16

Contingent liabilities

17

1.
2.
3.

17

17

14

0%

21%

12,485

11,465

10,8039%16%

Includes bills held in portfolio (Mar 2003: $905 million; Sep 2002: $1,453 million; Mar 2002: $1,021 million) which are part of net advances
Excludes notional goodwill of $843 million included in the net carrying value of the INGA joint venture.
Includes interest revenue receivable (Mar 2003: $978 million; Sep 2002: $941 million; Mar 2002: $985 million)

The notes appearing on pages 74 - 114 form an integral part of these financial statements

71

STATEMENT OF CHANGES IN EQUITY
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

5,314

5,234

5,259

2%

1%

Dividend reinvestment plan

58

48

46

21%

26%

Group employee share acquisition scheme

25

26

29

-4%

-14%

Group share option scheme

36

41

16

-12%

large

Small shareholder voluntary top up scheme

-

-

-

n/a

n/a

New issues

-

-

-

n/a

n/a

Share buyback

-

-

-

n/a

n/a

Retranslation of preference shares

(150)

(35)

(116)

large

29%

Total share capital

5,283

5,314

5,234

-1%

1%

117

72

215

63%

-46%

(49)

45

(143)

n/a

-66%

68

117

72

-42%

-6%

237

271

322

-13%

-26%

-

(34)

(51)

-100%

-100%

237

237

271

-

-13%

Asset revaluation reserve

31

31

31

-

0%

Capital reserve

149

149

149

-

0%

Total reserves

485

534

523

-9%

-7%

5,600

5,032

4,562

11%

23%

to members of the Company

1,141

1,272

1,050

-10%

9%

Total available for appropriation

6,741

6,304

5,612

7%

20%

-

34

51

-100%

-100%

13

(681)

(571)

n/a

large

Share capital
Balance at start of period
Ordinary share

Foreign currency translation reserve
Balance at start of period
Currency translation adjustments,
net of hedges after tax

General reserve
Balance at start of period
Transfers (to) from retained profits

Retained profits
Balance at start of period
Net profit attributable

Transfers from (to) reserves
Ordinary share dividends provided for or paid
Preference share dividends paid
Retained profits at end of period

(54)

(57)

(60)

-5%

-10%

6,700

5,600

5,032

20%

33%

12,468

11,448

10,7899%16%

Total shareholders' equity attributable tomembers of the Company

The notes appearing on pages 74 - 114 form an integral part of these financial statements

72

CONSOLIDATED STATEMENT OF CASH FLOWS
Half
year
Mar 03
Inflows(Outflows)
$M

Half
year
Sep 02
Inflows(Outflows)
$M

Half
year
Mar 02
Inflows(Outflows)
$M

5,365
4
1,410
(2,763)
(938)
(124)
(968)

5,137
3
1,397
(2,638)
(958)
(134)
(972)

5,011
1,522
(2,729)
(942)
(134)
(921)

(890)
(32)
1
695
1,760

(162)
(101)
3
(667)
908

(515)
(75)
(31)
(363)
823

(531)
230
(40)
(10,210)
2

(736)
292
(53)
(5,964)
1

294
262
90
(3,477)(2)(2,188)1,358(1,718)738(1,133)
1,698

-

(981)
-

(69)
-

(253)
41
1,201

(172)
70
(313)

(213)
31
248
514

Net cash (used in) investing activities
Cash flows from financing activities
Net (decrease)increase
Due to other financial institutions
Deposits and other borrowings
Due from/to controlled entities and associates
Payables and other liabilities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Decrease in outside equity interests
Dividends paid
Share capital issues
Share buyback(10,390)(8,836)(1,757)(1,289)
9,432
495

2,423
6,753
(529)

(3,634)
2,399
891

3,431
(2,107)2,162(1,768)2,376(1,751)

1,857
(437)
(1)
(676)
61
-

259
(191)
1
(581)
68
-

500
(398)
(597)
44
-

Net cash provided by financing activities
Net cash provided by operating activities
Net cash (used in) investing activities
Net cash provided by financing activities
Net (decrease)increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign currency translation on opening balances

10,766
1,760(10,390)
10,7662,136
7,925(2,488)

8,597
908(8,836)
8,597
669
7,352
(96)

(170)
823
(1,757)(170)(1,104)
9,071
(615)

7,573

7,925

7,352

Note
Cash flows from operating activities
Interest received
Dividends received
Fees and other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Income taxes paid
Australia
Overseas
Net GST paid
Net (increase) decrease in trading securities
Net cash provided by operating activities
Cash flows from investing activities
Net decrease(increase)
Liquid assets - greater than three months
Due from other financial institutions
Regulatory deposits
Loans and advances
Shares in controlled entities and associates
Investment securities
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Recovery from NHB litigation
Other

18

Cash and cash equivalents at end of period18

The notes appearing on pages 74 - 114 form an integral part of these financial statements

73

NOTES TO THE FINANCIAL STATEMENTS
1.

Accounting policies

These consolidated financial statements:"

should be read in conjunction with the Annual Financial Report of the Group for the year ended
30 September 2002 and with any public announcements made by the Group and its controlled entities
during the year ended 30 September 2002 in accordance with the continuous disclosure obligations under
the Corporations Act 2001.

"

are made out in accordance with the Corporations Act 2001, listing rules, applicable Accounting Standards,
Urgent Issues Group Consensus Views and other mandatory reporting requirements.

"

are condensed financial statements as defined in AASB 1029 Interim Financial Reporting. This report does
not include all notes of the type normally included in the annual financial report.

"

have been prepared in accordance with the historical cost convention, as modified by the revaluation of
trading instruments and life insurance assets and liabilities and the deemed cost of properties.

Where necessary, amounts shown for previous periods have been reclassified to facilitate comparison.
The accounting policies followed in preparing these consolidated financial statements are the same as those
applied in the 30 September 2002 Annual Financial Report, except as noted below.
Changes in Accounting Policies
AASB 1044, Provisions, Contingent Liabilities and Contingent Assets became effective for the Group from
1 October 2002. Under the new Standard, provisions for dividends cannot be booked unless dividends are
declared, determined or publicly recommended on or before balance date. Accordingly the dividend applicableto the current reporting period has not been booked in this report. However, dividends declared after balancedate still need to be disclosed in the notes. The adoption of AASB 1044 results in an increase in Shareholders’Equity of $666 million and a reduction in return of ordinary shareholders’ equity of 0.7%.
The Group will continue its current practice of making a public announcement of the dividend after balancedate. Dividend information for the current period is provided in Note 5, Dividends.
AASB 1012, Foreign Currency Standard Translation became effective for the Group from 1 October 2002.
Under this new Standard foreign denominated equity must be reported using the spot rate applicable at thedate of issue and not be retranslated using the current spot rate at each reporting period. The Group has
retranslated its US preference share capital to the historical spot rates. As the translation adjustment isreported in the foreign currency translation reserve the impact of these changes are neutral on equity.
Critical Accounting Policies
The Group prepares its consolidated financial statements in accordance with Australian Accounting Standards
and other authoritative accounting pronouncements. However, notwithstanding the existence of relevant
accounting standards, there are a number of critical accounting treatments, which include complex or
subjective decisions or assessments. The Group requires all such applications of judgement to be reviewed andagreed by Group Finance, and where the impact is material, the accounting treatment be reviewed during theaudit process by the Group’s external auditors. All material changes to accounting policy are approved by the
Audit Committee of the Board.
Historical changes
Details of all critical accounting policies are provided in the 30 September 2002 Annual Report. There havebeen no material changes to the Group’s critical accounting policies since 30 September 2002.
The financial impact of the critical accounting policies on the Group, follows:74

NOTES TO THE FINANCIAL STATEMENTS
1.

Accounting policies (continued)

Economic Loss Provisioning
As at March 2003, the balance of the General Provision of $1,530 million (Sep 2002: $1,496 million; Mar 2002:$1,546 million) represents 1.03% (Sep 2002: 1.06%; Mar 2002: 1.14%) of risk weighted assets.
Specifically identified credit losses net of recoveries during the half year were $259 million (Sep 2002 half:$362 million; Mar 2002: $366 million). During the same period, the average charge to profit for ELP was
0.40% of average net lending assets (Sep 2002: 0.43%; Mar 2002: 0.42%) excluding the special generalprovision.
Specific Provisioning
The recognition of losses has an impact on the size of the General Provision rather than directly impacting
profit. However, to the extent that the General Provision is drawn down beyond a prudent amount it will be
restored through a transfer from the current year’s earnings. The amount of draw down from the General
Provision to the Specific Provision during the half was $259 million (Sep 2002: $362 million; Mar 2002:$366 million).
Deferred acquisition costs, software assets and deferred income
Deferred acquisition costs - At 31 March, the Group’s assets included $323 million (Sep 2002: $289 million;
Mar 2002: $272 million) in relation to costs incurred in acquiring interest earning assets. During the half,amortisation of $90 million (Sep 2002: $76 million; Mar 2002: $76 million) was recognised as an adjustment to
the yield earned on interest earning assets.
Software assets - At 31 March, the Group’s fixed assets included $451 million (Sep 2002: $419 million;
Mar 2002: $381 million) in relation to costs incurred in acquiring and developing software. During the half,
depreciation expense of $37 million (Sep 2002: $27 million; Mar 2002: $23 million) was recognised and$9 million (Sep 2002: $5 million; Mar 2002: $19 million) was written off in relation to software assets.
Deferred income - At 31 March, the Group’s liabilities included $182 million (Sep 2002: $128 million;
Mar 2002: $155 million) in relation to income received in advance.
International Financial Reporting Standards
From 1 January 2005, all Australian entities will be required to prepare their financial statements underInternational Financial Reporting Standards (IFRS) as adopted by the Australian Accounting Standards Board.
IFRS are determined by the International Accounting Standards Board (IASB).
ANZ will report for the first time under IFRS when the results for the half year ended 31 March 2006 areannounced. It is currently expected that comparatives will be required to be restated on initial adoption of
IFRS.
The final IFRS that will be applicable to ANZ in 2005/2006 are not yet available. In particular, the IASB has yet
to finalise the standard on recognition and measurement of financial instruments. Based on exposure drafts ofthis standard, adoption of IFRS may result in changes to accounting for hedges, doubtful debt provisioning andthe status of the general provision, securitisation and the recognition of fee income. Once this standard is final,
ANZ will assess how the standard will be interpreted in practice and provide a detailed explanation of thechanges that will be made to ANZ's accounting policies.
The Group has established a Steering Committee to monitor developments in IFRS and to assess the likely
impact on ANZ’s financial statements, accounting policies and systems. In addition, the Steering Committee isconsidering how IFRS will impact the financial statements of our customers, our credit assessments ofcustomers and the changes required to credit policies and debt covenants.

75

NOTES TO THE FINANCIAL STATEMENTS
2.

Income
Half

Half

Half

Movt

Movt

year

year

year

Mar 03Mar 03Mar 03

Sep 02Mar 02

v.Sep 02v.Mar 02

$M

$M

$M

%

%

Interest income

5,012

4,650

4,387

8%

14%

Interest expense(2,872)(2,597)(2,422)

11%

19%

Net interest income

2,140

2,053

1,965

4%

9%

2.29

2.34

2.28

n/a

n/a

(0.02)(0.03)(0.04)n/a

n/a

Net interest spread

2.27

2.31

2.24

n/a

n/a

Interest attributable to net non-interest bearing items

0.44

0.48

0.51

n/a

n/a

Net interest average margin

2.71

2.79

2.75

n/a

n/a

159,152

147,880

143,9488%

11%

Interest spread and net interest average margin (%)

Gross interest spread
Interest forgone on impaired assets

Average interest earning assets ($M)

Comparison with September 2002 half
Net interest income at $2,140 million was 4%($87 million) higher than the September 2002
half, primarily due to an 8% increase ininterest earning asset volumes, largely in
Mortgages ($5.6 billion), Institutional($2.3 billion) and Corporate ($1.3 billion).

Group Net Interest Income$B

2.0

Net Interest
Average
Margin

3.0%

1.5
2.8%

1.0
Gross spread decreased in Australia and New
Zealand due to:" Reduced margins in deposit based
0.5
2.6%
businesses.
Mar 01 Sep 01 Mar 02 Sep 02 Mar 03" The mix effect of increased mortgage
volumes.
Net Interest Income
Net Interest Average Margin" Lower asset and liability management
earnings in a stable and low interest rateenvironment (3 basis points).
Offset by:" Increased spreads in overseas markets with an increased proportion of high margin structured assets

The interest benefit from non-interest bearing items reduced due to a reduction in the volume of net
non-interest bearing items, notably in Capital Markets where reduced net interest on non-interest bearing items
was offset by increased profit on trading instruments.
Comparison with March 2002 half
Net interest income at $2,140 million was 9% ($175 million) higher than the March 2002 half, primarily due toa 11% increase in interest earning asset volumes.
Gross Spread has remained unchanged due to:"Increased margins in overseas markets with the maturity of low yielding assets in 2002 and an increased
proportion of high margin structured assets.

Offset by:" Lower asset and liability earnings in a low and stable interest rate environment. The March 2002 half year
benefited from falling interest rates.
" Lower margins on asset based businesses in Australia.
The interest benefit from non-interest bearing items reduced with lower net non-interest bearing volumes
offsetting an increase in the investment rate of these funds in Australia and New Zealand.

76

NOTES TO THE FINANCIAL STATEMENTS
2.

Income (continued)
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

5,012

4,650

4,387

8%

14%

469

459

417

2%

12%

521

599

597

-13%

-13%

990

1,058

1,014

-6%

-2%

Foreign exchange earnings

185

181

184

2%

1%

Profit on trading instruments

47

26

33

81%

42%

-

14

85

-100%

-100%

Interest income
Other operating income
Fee income
Lending1

Other, commissions
Total fee income
Other income

Life insurance margin on services
operating income
Net profit before tax from sale of business
-

174

-

-100%

n/a

Hedge of TrUEPrs2 Cash Flows

to ING Australia

36

37

35

-3%

3%

Profit from associated entities

23

16

13

44%

77%

Profit from ING Australia

19

2

-

large

n/a

Other

52

53

45

-2%

16%

Total other income

362

503

395

-28%

-8%

Total other operating income

1,352

1,561

1,409

-13%

-4%

Total income

6,364

6,211

5,796

2%

10%

Profit before income tax as a % of total income

24.9%

27.9%

25.8%

-11%

-3%

1.
2.

Includes commissions from funds management business
Preference shares are issued via the TrUEPrs structure

Comparison with September 2002 half
Other operating income, at $1,352 million, was 13% ($209 million) lower than the second half of last year.
Excluding profit on sale of business to INGA, other operating income decreased by 3%.
" Non-lending fee income was lower due to a one-off charge of $38 million as a result of an under-accrual ofloyalty points on co-branded cards covering the period back to 1999, the ongoing impact of higher loyalty
program costs, lower structured finance fee income reflecting difficult market conditions, and fees in
Personal Banking as customers are choosing transaction products with simpler fee structures and the sale of
ANZ’s funds management businesses to INGA.
" Profit on trading instruments increased 81% ($21 million) largely due to Capital Markets activities where alower proportion of trading revenue was booked as interest (total income in Capital Markets is up$6 million).
" The reduction in life insurance margin on services income is offset by increased profit from INGA following
the sale of the funds management business into INGA.
" The increased equity accounted profit from associated entities principally relates to a $16 million profit on
bond sales by PT Panin, partly offset by a $6 million write down of our holding in E*Trade.
" Profit from INGA increased $17 million, with increased risk income and capital investment earnings, together
with reduced costs reflecting integration benefits.
Comparison with March 2002 half
Other operating income was 4% ($57 million) lower than the first half of last year. Lending fee income was
12% higher largely in Institutional Banking, resulting from volume growth in the domestic lending portfolio.
Non-lending fee income was lower due to the same issues identified above in relation to comparison with theSeptember 2002 half. The increased equity accounted profit from associated entities principally arises fromPT Panin.

77

NOTES TO THE FINANCIAL STATEMENTS
3.

Operating expenses
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Fringe benefits tax

16

14

17

14%

-6%

Payroll tax

33

33

33

-

-

Pension fund

55

51

52

8%

6%

Provision for employee entitlements

16

20

12

-20%

33%

Personnel
Employee taxes

Salaries and wages

586

557

577

5%

2%

Other

167

186

162

-10%

3%

873

861

853

1%

2%

7

7

7

-

-

Total personnel expenses
Premises
Amortisation of leasehold improvements
Depreciation of buildings and integrals

8

9

8

-11%

-

Rent

73

80

81

-9%

-10%

Utilities and other outgoings

44

49

43

-10%

2%

Other

7

5

10

40%

-30%

139

150

149

-7%

-7%

Computer contractors

13

15

19

-13%

-32%

Data communications

30

33

29

-9%

3%

Depreciation and amortisation

88

75

65

17%

35%

Rentals and repairs

36

27

32

33%

13%

Software purchased

53

53

52

-

2%

Total premises expenses
Computer

Other
Total computer expenses

17

12

12

42%

42%

237

215

209

10%

13%

Other
Advertising and public relations

43

47

51

-9%

-16%

Amortisation of goodwill

9

10

10

-10%

-10%

Audit fees

2

2

1

-

100%

Depreciation of furniture and equipment

16

17

18

-6%

-11%

Freight and cartage

18

19

17

-5%

6%

Loss on disposal of premises and equipment

3

1

1

large

large

Non-lending losses, frauds and forgeries

25

28

23

-11%

9%

Postage

23

24

23

-4%

0%

Professional fees

46

54

43

-15%

7%

Stationery

23

25

25

-8%

-8%

Telephone

26

23

30

13%

-13%

Travel

38

42

35

-10%

9%

Other
Total other expenses
Restructuring
Operating expenses excluding NHB recovery
Recovery from NHB litigation

49

26

58

88%

-16%

321

318

335

1%

-4%

32

31

32

3%

-

1,602

1,575

1,578

2%

2%

-

-

(248)

n/a

-100%

Total operating expenses

1,602

1,575

1,330

2%

20%

Employees (FTE) - Permanent

21,21821,38021,508-1%-1%

Employees (FTE) - Temporary

1,265

1,102

1,229

15%

3%

Total employees

22,48322,482

22,737--1%

78

NOTES TO THE FINANCIAL STATEMENTS
3.

Operating expenses (continued)

Comparison with September 2002 half
Operating expenses increased by 2% ($27 million) compared to the second half of 2002. This increase waslargely driven by:"

Personnel expenses increasing by 1% mainly due to the full half impact from the Enterprise Bargaining
Agreement effective July 2002 as well as the impact of performance related salary increases for non-award
staff. Further, permanent staff numbers were higher due to an investment in the Restoring Customer Faithinitiative in Personal Banking as well as a higher headcount in Mortgages required to service the higher
volumes offset by lower use of temporary staff.

"

Premises costs reducing largely from a change in the method of accounting for rental costs.

"

Computer costs increasing 10% due to higher software amortisation charges as new systems (eg, sales andservice platform, Vision Plus and Nexus) became operational as well as increased rentals and repairs offset
by lower use of computer contractors.

"

Other expense increases were contained to 1%.

"

Restructuring expenses were flat reflecting the ongoing business as usual restructuring consistent withrecent levels.

"

Exchange rate movements increased operating expenses by $11 million with an increase in New Zealand of$15 million offset by a reduction in other offshore markets of $4 million.

Comparison with March 2002 half
Operating expenses excluding the NHB recovery increased by 2% ($24 million) compared to the first half of2002. This increase reflected salary increases from the 2002 EBA agreement as well as the impact ofperformance related salary increases for non-award staff, higher software amortisation offset by lower rent
charges, reduced usage of computer contractors, lower marketing spend and lower professional fees. These
increases were offset by a $50 million reduction in operating expenses related to the funds managementbusinesses sold into INGA.

79

NOTES TO THE FINANCIAL STATEMENTS
4.

Income tax expense
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

1,587

1,730

1,493

-8%

6%

476

519

448

-8%

6%

Overseas tax rate differential

15

12

12

25%

25%

Rebateable and non-assessable dividends

(9)

(6)

(5)

50%

80%

Other non-assessable income

(16)

(19)

(20)

-16%

-20%

Profit from associated entities and joint venture entities

(13)

(5)

(4)

large

large

Life insurance accounting

-

(3)

10

-100%

-100%

NHB settlement tax rate differential

-

-

15

n/a

-100%

Sale of business to ING joint venture

-

(48)

-

-100%

n/a

(12)

2

(12)

large

-

441

452

444

-2%

-1%

3

5

(3)

-40%

large

Total income tax expense on profit

444

457

441

-3%

1%

Australia

312

336

347

-7%

-10%

Overseas

132

121

94

9%

40%

444

457

441

-3%

1%

28.0%

26.4%

29.5%

6%

-5%

Operating profit before income tax
Prima facie income tax at 30%
Tax effect of permanent differences

Other

Income tax (over) under provided in prior years

Effective tax rate

Comparison with September 2002 half
The Group’s effective tax rate for the March 2003 half increased 1.6% from the September 2002 half largely
due to roll-over relief which shields from tax the capital gain arising on the sale of businesses to the joint
venture with INGA in the second half of 2002. Tax payable was also decreased by higher equity accounted
earnings, recognition of tax losses in Korea, a tax deduction for the employee share issue and research anddevelopment incentives.
Comparison with March 2002 half
The Group’s effective tax rate for the March 2003 half decreased 1.5% from the March 2002 half year due to
the NHB settlement tax rate differential booked in the first half of 2002 coupled with the life insurance
accounting permanent difference booked in the first half of 2002 but not repeated in 2003 due to the sale ofbusinesses to the joint venture with INGA.

80

NOTES TO THE FINANCIAL STATEMENTS
5.

Dividends
Halfyear
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Interim (fully franked)

44

n/a

39

n/a

13%

Final (fully franked)

-

46

n/a

-100%

n/a

-

n/a

583

n/a

-100%

-

692

n/a

n/a

n/a

(13)

(11)

(12)

18%

8%

(13)

681

571

large

large

61.3%

57.0%

58.9%

8%

4%

Dividend per ordinary share1, 2 (cents)

Ordinary share dividend1 ($M)
Interim dividend accrued
Proposed final dividend
Bonus option plan adjustment

3

Total

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

Excludes preference share dividend
Change in accounting standard. Refer to Note 1 Accounting Policies
This relates to prior period dividend payment
Dividend payout ratio calculated using proposed interim dividend for March 2003 of $666 million not included in the above table. 2002 ratios calculated using
accrued amounts

The directors propose that an interim dividend of 44 cents per share be paid on each ordinary share. The
dividend will be fully franked.
The Group has a dividend reinvestment plan and a bonus option plan. Participation in these plans is limited to
50,000 shares in each plan. Election notices for these plans must be received by 22 May 2003.
The interim dividend will be payable on 1 July 2003. Dividends payable to shareholders resident in the United
Kingdom and New Zealand will be converted to their local currency at ANZ’s daily forward exchange rate on
22 May 2003.
In 1998 the Company issued 124,032,000 preference shares which raised USD775 million (net USD748 million
after costs) via Trust Securities issues. The Trust Securities carry an entitlement to a distribution of 8%(USD400 million) or 8.08% (USD375 million). The amounts are payable quarterly in arrears.
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

54

57

60

-5%

-10%

25.1

25.1

25.1

-

-

Preference share dividend
Dividend paid ($M)

Dividend per preference share (USD cents)

81

NOTES TO THE FINANCIAL STATEMENTS
6.

Earnings per ordinary share
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Movt
Movt
Half
Mar 03Mar 03year
Mar 02 v. Sep 02 v. Mar 02%%$M

1,513.4

1,503.9

1,495.7

1%

1%

1,087

1,215

990

-11%

10%

1,510.2

1,501.5

1,492.2

1%

1%

72.0

81.0

66.3

-11%

9%

1,515.1

1,509.2

1,499.7

-

1%

71.7

80.6

66.0

-11%

9%

1,087

1,215

990

-11%

10%

-

(170)

16

-100%

-100%

Earnings excluding significant transactions

1,087

1,045

1,006

4%

8%

Earnings per share (cents) excluding significant transactions

72.0

69.6

67.4

3%

7%

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

1,087

1,215

990

-11%

10%

Significant transactions

-

(170)

16

-100%

-100%

Goodwill amortisation

31

28

10

11%

large

1,118

1,073

1,016

4%

10%

74.0

71.5

68.1

4%

9%

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

Net profit attributable to members of the Company1 ($M)
Weighted average number of ordinary shares (M)Basic earnings per share (cents)

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

Adjusted Basic

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

2

Earnings excluding significant transactions and goodwill amortisation
Earnings per share (cents) excluding significant transactions
and goodwill amortisation
1.
2.

Excludes preference share dividend
Includes INGA notional goodwill amortisation

82

NOTES TO THE FINANCIAL STATEMENTS
Statement of Financial Position
Assets$B

200

Trading andinvestment
securities

200

Liabilities$B

Interbankborrowing

150

150

Net loans andadvances
including
acceptances

100

Liquid assets
and interbank
lending

50

50

Other

0
Sep 02

Deposits andotherborrowings

100

Bonds, notes
and loancapital0

Mar 03

Other

Sep 02Mar 03

Total group assets increased by $7.4 billion (4%) over September 2002. The increase consisted of a$0.6 billion decrease due to exchange rate movements and an underlying increase of $8.0 billion. The
explanations below are movements from 30 September 2002 excluding the exchange rate movements.
"

Net loans and advances including acceptances increased $9.4 billion with a $5.5 billion increase in
Mortgages helped by continued low interest rates and a buoyant housing market in Australia. There wassolid growth in Australia and New Zealand, in Institutional ($0.6 billion), Small to Medium Enterprises($1.0 billion), Asset Finance ($0.5 billion), and Consumer Finance ($0.3 billion) while offshore lending was
relatively flat.

"

Liquid assets increased by $0.6 billion offsetting a $0.6 billion reduction in due from financial institutions.

"

Investment securities increased $0.8 billion as Treasury increased its holdings of longer dated securities,
while Trading securities decreased $0.7 billion.

"

Other assets decreased by $1.7 billion mainly due to the revaluation of off balance sheet derivative
instruments.

Total group liabilities increased by $6.4 billion (4%) over September 2002. The increase included a $1.4 billion
decrease due to exchange rate movements partly offsetting an underlying 5% increase of $7.8 billion. The
explanations below are movements from 30 September 2002 excluding the exchange rate movements:"

Deposits and other borrowings increased $9.4 billion reflecting:- Higher deposit volumes in Institutional ($2.6 billion), Personal Banking ($1.4 billion including V2 Plus),
Corporate ($0.7 billion), Asset Finance ($0.6 billion) and Asia Pacific ($0.4 billion) as customers haveincreased their cash holding in the uncertain economic environment.
- Increased Treasury funding ($3.2 billion) driven by balance sheet growth with a $4.9 billion increase incommercial paper, facilitating a reduced reliance on certificate of deposit funding.

"Amounts due to other financial institutions were $1.3 billion lower than September 2002 resulting from alower demand for short term funds, and increased funding from other sources.

"

Bonds, notes and loan capital increased by $1.3 billion with $1.7 billion in medium term note issuances
during the half year, in response to increased term funding requirements in Australia.

"

Provisions decreased by $0.8 billion mainly due to a change in accounting standards whereby the Group nolonger accrues dividends.

83

NOTES TO THE FINANCIAL STATEMENTS
7.

Investment securities
As at
Mar 03As at
Sep 02As at
Mar 02$M$M

Total book value

4,301

Total market value

4,302

84

$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

3,609

2,716

19%

58%

3,611

2,712

19%

59%

NOTES TO THE FINANCIAL STATEMENTS
8.

Net loans and advances
As at
Mar 03As at
Sep 02As at
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

$M

$M

Term loans - housing

56,942

52,38147,812

9%

19%

Term loans - non housing

37,49334,21233,33310%

12%

Lease finance/hire purchase

8,349

7,914

7,697

5%

8%

Overdrafts

3,406

3,151

2,752

8%

24%

Credit card outstandings

4,119

3,888

3,604

6%

14%

876

992

751

-12%

17%

111,185

102,538

95,9498%

16%

Term loans - housing

10,618

9,796

9,384

8%

13%

Term loans - non housing

7,697

6,460

6,157

19%

25%

Lease finance/hire purchase

899

852

765

6%

18%

Overdrafts

650

619

596

5%

9%

Credit card outstandings

515

462

425

11%

21%

1,084

908

1,140

19%

-5%

21,46319,097

18,467

12%

16%

338

323

297

5%

14%

10,844

11,93812,518-9%-13%

Lease finance/hire purchase

427

469

557

-9%

-23%

Overdrafts

872

860

625

1%

40%

Credit card outstandings

117

108

79

8%

48%

Other

79

16

15

large

large

12,677

13,714

14,091-8%-10%145,325

135,349

128,5077%

13%(2,088)(2,081)(2,135)0%-2%(1,272)(1,208)(1,105)5%

15%141,965

132,060

125,2678%

13%

Australia

Other

New Zealand

Other

Overseas markets
Term loans - housing
Term loans - non housing

1,2

Total gross loans and advances
Less:
Provisions for doubtful debts
Income yet to mature
Total net loans and advances
1.
2.

1,2

Bills held in portfolio, $1,223 million (Sep 2002: $1,453 million; Mar 2002: $1,021 million) are included in trading securities
Securitised mortgages outstanding $1,681 million (Sep 2002: $1,925 million; Mar 2002: $2,240 million) not included in net loans and advances

Comparison with September 2002 half
Net loans and advances grew by $9.9 billion with a $1.2 billion increase from an appreciating NZD offset by a
$1.2 billion reduction in overseas markets with a depreciation in the USD. Excluding these exchange rate
effects lending increased in:"Australia with a $4.6 billion growth in mortgages together with growth in term loans, largely in Institutional
Banking ($1.1 billion) and Corporate and Small to Medium Enterprises ($0.9 billion), overdrafts, leasefinance and credit card receivables.

"

New Zealand by $1.1 billion due to significant growth in non-housing loans ($0.8 billion) in Institutional,
New Zealand Banking and Asset Finance. Housing loans grew $0.2 billion following two half years of
subdued growth.

"

Overseas by $0.2 billion reflecting constrained lending to corporates in UK and US markets.

85

NOTES TO THE FINANCIAL STATEMENTS
8.

Net loans and advances (continued)

Comparison with March 2002 half
Net loans and advances grew by $16.7 billion with exchange rate movements accounting for an increase of$2.0 billion in New Zealand and a $0.9 billion reduction in overseas markets. Growth in Australia wasdominated by Mortgage growth of $9.1 billion, with term loan growth in Institutional Banking ($1.8 billion),
Small Business lending ($1.2 billion), overdrafts ($0.7 billion), lease finance ($0.7 billion) and credit card
receivables ($0.5 billion). Excluding the exchange rate impact, lending in New Zealand grew $0.9 billion andoverseas decreased by $0.5 billion.

Net loans and advances including commercial bills
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Personal Banking Australia

5,197

4,945

4,700

5%

11%

Institutional

42,181

41,702

42,676

1%-1%

Corporate

14,90913,633

12,9489%15%

Net advances

New Zealand Banking

3,871

3,466

3,176

12%

22%

Mortgages

70,18264,13959,2139%19%

Consumer Finance

5,523

5,184

4,858

7%

14%

Asset Finance

12,243

11,623

11,263

5%

9%Asia Pacific

1,222

1,204

1,165

1%

5%

(93)

(40)

(220)

large

-58%

Other
Net advances

155,235

145,856

139,779

6%

11%

less Customers' liabilities for acceptances(13,270)(13,796)(14,512)-4%-9%Net loans and advances

141,965

132,060

125,267

8%

13%

Net loans and advances including commercial bills, excluding foreign exchange impact
Net advances

Personal Banking Australia

5,197

4,945

4,700

5%

11%

Institutional

42,181

40,83842,272

3%

0%

Corporate

14,90913,633

12,948

9%

15%

New Zealand Banking

3,871

3,682

3,530

5%

10%

Mortgages

70,18264,71860,2158%17%

Consumer Finance

5,523

5,210

4,911

6%

12%

Asset Finance

12,243

11,732

11,441

4%

7%

Asia Pacific

1,222

1,150

1,100

6%

11%

(93)

(65)

(225)

43%

-59%

155,235

145,843

140,892

6%

10%

-

13

(1,113)

-100%

-100%

155,235

145,856

139,779

6%

11%

Other
Net advances (excl FX impact)

FX impact on reported net advances
Net advancesless Customers' liabilities for acceptances(13,270)(13,796)(14,512)-4%-9%Reported net loans and advances

141,965

132,060

125,267

8%

13%

The foreign exchange impact is calculated by retranslating prior period numbers at March 2003 exchange rates.

86

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired assets

Provision for doubtful debts
The charge for doubtful debts was determined under economic loss provisioning principles (ELP) and represents
the expected average annual loss on principal over the economic cycle for the average risk profile of thelending portfolio during the half. The ELP charge was $303 million for the March 2003 half year as compared to$309 million for the September 2002 half year. Due to the continued uncertainty in the offshore lending
portfolio, particularly in the Power and Telecommunications industries in US and Europe, in addition to thestandard modelled ELP charge, a further $52 million has been provided. This is consistent with the second halfof 2002 and represents 0.07% of average net lending assets.
The March 2003 half year charge as a percentage of average net lending assets was 40 basis points,
representing a 3 basis point decrease on the level reported for the September 2002 half year with a modest
improvement in average credit quality and continuing increase in the proportion of mortgages.
Half
year
Mar 03%

Halfyear
Sep 02%Halfyear
Mar 02%

Personal Banking Australia

0.49%

0.48%

0.53%

Institutional

0.37%

0.40%

0.38%

Corporate

0.34%

0.34%

0.36%

New Zealand Banking

0.39%

0.40%

0.43%

Mortgages

0.05%

0.05%

0.05%

Consumer Finance

2.68%

2.87%

3.51%

Asset Finance

0.53%

0.59%

0.62%

Asia Pacific

0.82%

0.86%

0.82%

Operating segments total

0.33%

0.36%

0.38%

Group Centre

0.07%

0.07%

0.40%

Total

0.40%

0.43%

0.78%

303

309

551

ELP rates1

ELP charge ($million)
1.

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

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Australia

176

181

242

-3%

-27%

New Zealand

22

25

29

-12%

-24%

Overseas markets

134

241

180

-44%

-26%

332

447

451

-26%

-26%

(47)

(52)

(58)

-10%

-19%

285

395

393

-28%

-27%

Recoveries of amounts previously written off

(26)

(33)

(27)

-21%

-4%

Net specific provisions

259

362

366

-28%

-29%

Net credit to general provision

44

(53)

185

n/a

-76%

Charge to statement of financial performance

303

309

551

-2%

-45%

Provision movement analysis
New and increased provisions

Provision releases

87NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired assets (continued)

Provision for doubtful debts (continued)
Actual loss experience or net specific provisions for the half year to 31 March totalled $259 million, a decreaseof $103 million over the half year to 30 September 2002. The reduction was mainly due to no large single
name losses in the March 2003 half, compared to the September 2002 full year where 43% of losses were due
to two large amounts in the offshore portfolios. While the Australian and New Zealand portfolio losses
remained relatively stable over the half year, the international portfolio reduced by 44%. Settlement of theGrindlays credit warranties ($27 million) was included in net specific provisions for the half.
At 31 March 2003, the general provision was strong and stood at $1,530 million, a surplus of $429 million over
the tax effected 0.5% of risk weighted assets guidelines indicated by the Australian Prudential Regulation
Authority.

Net Specific Provisions
$M
350
250
150
50
-50

Sep 01
Aust/NZ

Mar 02
UK/US

Sep 02Asia

Mar 03

Other International

Economic Loss Provision (ELP) vs Net Specific Provisions (SP) by
Business Segment

$M
260
210
160
110
60
10
(40)

Mar 02 Sep 02 Mar 03
Consumer Businesses
ELP

Mar 02 Sep 02 Mar 03
Corporate Businesses
SP

88

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired assets (continued)

Non-accrual loans
Gross non-accrual loans decreased to $1,153 million from $1,203 million at September 2002 mainly due to a
reduction in the International portfolio as a result of a stable level of non-accruals and write-offs. New
non-accruals of $409 million in the March 2003 half represent a reduction of $52 million compared to the
September 2002 half and well down on the September 2001 and March 2002 halves where ‘Fallen Angels’boosted the level of non-accruals.
Non Accruals

1,200

800

400

0
Sep 01
Aust/NZ

Mar 02
UK/US Europe

Sep 02Asia

Mar 03

Other International

New Non Accruals

750

500

250

0
Sep 01
Aust/NZ

Mar 02
UK/US Europe

Sep 02Asia

Mar 03

Other International

The Group remains well provided with a specific provision coverage ratio of 48%. Net non-accruals are$600 million (September 2002: $628 million) and represents 4.8% of shareholders’ equity at March 2003.

89

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired assets (continued)

Corporate Businesses Risk profile
The Corporate Business lending risk grade profile shows a small amount of slippage over the last half,
particularly in the BB+ to BB category. Given the weakening in the Australian equity markets, this was not
unexpected. The downgrades mainly from BBB- to BB+ and BB were account specific and at this point notreflective of any wider industry or portfolio trend. There has been a slight reduction in non-accrual loans as aresult of the partial write off of offshore corporate loans.
Corporate Businesses Risk Profile
Grade$51.6bn$51.0bn$52.0bn

AAA to
BBB

39%

41%

40%

BBB-

27%

26%

24%

BB+ to
BB

20%

20%

22%

BB-

9%

9%

9%

B+ andlower

Mar 02

Sep 02Mar 03Grade

Mar 02

Sep 02Mar 03

B+ to CCC

3.0%

2.9%

3.1%

CCC and lower

1.9%

1.7%

1.6%

Internal credit ratings have been mapped to external credit grades in this table

The two industry sectors that emerged as problems during the 2002 year were power and telecommunications.
These continue to be closely monitored.
Power industry exposure
ANZ's Exposure by Geography
Asia
Europe9%13%MiddleEast
4%

ANZ's Energy Portfolio Committed Limits$7.3bnAAA to
BBB

53%

BBB-

15%

BB+ to BB
BB<BB-

9%

Americas
24%

14%
9%

Australia &New
Zealand50%

Mar 03

Approximately 68% of ANZ’s exposure to the power industry is investment grade. Last year the US powerindustry underwent some specific sectoral stress following market deregulation and ensuing expansions. Whilelast year ANZ had been adversely affected by a small number of single name exposures (most notably Enron),
ANZ is of the view that the worst is past for the US electricity sector and that the sector will start to stabilise.

90

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired assets (continued)

Corporate Businesses Risk profile, continued
Telecommunication industry exposure
ANZ's Telecommunications Portfolio Committed Limits

ANZ's Exposure by GeographyAsia
4%$3.9bnAAA toBBB63%BBBBB+ to BB
BB<BB-

17%

12%

Europe31%

Australia &New
Zealand54%

5%
3%

Americas11%

Mar 03Many foreign Telecommunications companies continue to be exposed to high levels of debt. Last year ANZ had
been adversely affected by its exposures to Marconi and one other customer. This year the situation appears
to have stabilized, although the Group remains cautious about this sector internationally. Half of the limits are
Australian and New Zealand based, and 80% are investment grade.

Australian and New Zealand Industry Exposure
As at
Mar 03As at
Sep 02As at
Mar 02

Industry
Real estate operators and developers
Manufacturing

7.6%
6.1%

7.4%
6.6%

7.6%
7.0%

Retail Trade
Wholesale Trade
Agriculture
Business Services
Finance - Other
Finance Banks, Building Societies, Authorised Money Markets
Transport & Storage
Accommodation, Clubs, Pubs, Cafes & Restaurants
Utilities
Construction
Health & Community Services
MiningCultural & Recreational Services
Personal & Other Services
Forestry & Fishing
Communication Services
Education
Finance - Insurance & Superannuation
Government Administration & Defence
Consumer
Total

3.9%
2.4%
2.7%
2.0%
2.6%
2.1%
2.2%
1.9%
1.4%
1.2%
1.1%
0.8%
1.0%
0.4%
0.5%
0.3%
0.2%
0.3%
0.1%
59.2%
100%

4.0%
2.8%
2.6%
2.3%
2.2%
2.3%
2.1%
2.0%
1.6%
1.2%
1.2%
1.0%
1.1%
0.4%
0.4%
0.4%
0.2%
0.2%
0.2%
57.8%
100%

4.1%
2.9%
2.8%
2.3%
2.4%
2.4%
2.1%
2.0%
1.5%
1.3%
1.1%
1.0%
1.2%
0.4%
0.4%
0.3%
0.2%
0.2%
0.1%
56.7%
100%

91

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired Assets (continued)
As at
Mar 03As at
Sep 02As at
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

$M

$M

Non-accrual loans

1,153

1,203

1,357

-4%

-15%

Restructured loans

-

1

1

-100%

-100%

55

54

144

2%

-62%

1,208

1,258

1,502

-4%

-20%

(553)

(575)

(524)

-4%

6%

Unproductive facilities

(5)

(10)

(65)

-50%

-92%

Net impaired assets

650

673

913

-3%

-29%

Non-accrual loans

1,153

1,203

1,357

-4%

-15%

Specific provisions

(553)

(575)

(524)

-4%

6%

600

628

833

-4%

-28%

Australia

527

523

688

1%

-23%

New Zealand

38

37

34

3%

12%

Overseas markets

588

643

635

-9%

-7%

1,153

1,203

1,357

-4%

-15%

Australia

286

315

367

-9%

-22%

New Zealand

22

17

17

29%

29%

Overseas markets

292

296

449

-1%

-35%

Total net non-accrual loans

600

628

833

-4%

-28%

Summary of impaired assets

Unproductive facilities

Gross impaired assets
Less specific provisions:Non-accrual loans

Non-accrual loans

Total net non-accrual loans

Before specific provisions

Total non-accrual loans

After specific provisions

Provision
coverage
ratio

Non-Accrual Loans

$M

80%

1500

60%
1000
40%
500

20%

0

0%
Mar 01

Sep 01Gross non accrual

Mar 02

Sep 02

Net non accrual

Provision coverage92

Mar 03NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired Assets (continued)
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Australia

219

248

329

-12%

-33%

New Zealand

50

58

39

-14%

28%

Overseas markets

140

155

456

-10%

-69%

Total new non accrual loans

409

461

824

-11%

-50%

New and increased non accrual loans

Further analysis on non-accrual loans at 31 March 2003 and interest and/or other income received during theperiod is as follows:
Gross balance
outstanding$M

Specific Interest and/or
provisionother income$M
received

Non-accrual loans
Without provisions
Australia

58

-

2

New Zealand

4

-

-

Overseas markets

36

-

-

98

-

2

Australia

463

236

4

New Zealand

34

16

1

Overseas markets

550

295

7

1,047

547

12

6

5

-

With provisions and no, or partial, performance1

With provisions and full performance1
Australia
New Zealand

-

-

-

Overseas markets

2

1

1

Total non-accrual loans
Restructured loans
Unproductive facilities
Total
1.

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

93

8

6

1

1,153

553

15
-

-

-

55

5

-

1,208

558

15

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired assets (continued)

Interest and other income forgone on impaired assets
The following table shows the estimated amount of interest and other income forgone, net of interest
recoveries, on average impaired assets during the period.
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Australia

18

27

23

-33%

-22%

New Zealand

1

2

1

-50%

-

Overseas markets

15

12

18

25%

-17%

34

41

42

-17%

-19%

Australia

(6)

(4)

(6)

50%

-

New Zealand

(1)

(2)

(1)

-50%

-

Overseas markets

(8)

(12)

(4)

-33%

100%

(15)

(18)

(11)

-17%

36%
-29%

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

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

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

12

23

17

-48%

New Zealand

-

-

-

n/a

n/a

Overseas markets

7

-

14

n/a

-50%

19

23

31

-17%

-39%

As at
Mar 03As at
Sep 02As at
Mar 02

$M

$M

$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Australia

-

1

1

-100%

-100%

New Zealand

-

-

-

n/a

n/a

Overseas markets

-

-

-

n/a

n/a

-

1

1

-100%

-100%

-

-

-

n/a

n/a

Total net interest and other income forgone

Restructured loans

Other real estate owned (OREO)

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

94

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired assets (continued)
As at
Mar 03As at
Sep 02As at
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

$M

$M

Australia

27

Overseas markets

28

34

34

-21%

-21%

20

110

40%

-75%

Gross unproductive facilities

55

54

144

2%

-62%

Unproductive facilities

Specific provision
Australia

1

4

-

-75%

n/a

Overseas markets

4

6

65

-33%

-94%

Specific provision

5

10

65

-50%

-92%

Net unproductive facilities

50

44

79

14%

-37%

The following amounts are not classified as impaired assets and therefore are not included within the summary
on page 93.
Accruing loans past due 90 days or more
Australia

199

176

220

13%

-10%

New Zealand

23

25

51

-8%

-55%

Overseas markets

95

21

15

7

40%

large

243

216

278

13%

-13%

NOTES TO THE FINANCIAL STATEMENTS
10. Provisions for doubtful debts
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

1,496

1,546

1,386

-3%

8%

Adjustment for exchange rate fluctuations

(10)

3

(25)

large

-60%

Charge to statement of financial performance

303

309

551

-2%

-45%

Transfer to specific provision

(285)

(395)

(393)

-28%

-27%

26

33

27

-21%

-4%

1,530

1,496

1,546

2%

-1%

Balance at start of period

585

589

500

-1%

17%

Adjustment for exchange rate fluctuations

(29)

5

(11)

large

large

Bad debts written off

(283)

(404)

(293)

-30%

-3%

Transfer from general provision

285

395

393

-28%

-27%

Total specific provision

558

585

589

-5%

-5%

2,088

2,081

2,135

-

-2%

General provision
Balance at start of period

Recoveries
Total general provision
Specific provision

Total provisions for doubtful debts

General Provision

$M
2,400
303

2,100

(259)
(10)

1,496

1,530

1,800
1,500
429

1,200
900

1,101

600
300
0
Sep 02

ELP Charge

Net Transfer to
ForeignSpecific Provision Exchange Impact

Mar 03APRA Guidelines
Minimum

As at
Mar 03As at
Sep 02As at
Mar 02$M$M$M

Australia

242

211

New Zealand

16

20

Domestic Markets

258

Overseas markets
Total specific provisionMovt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

321

15%

-25%

17

-20%

-6%

231

338

12%

-24%

300

354

251

-15%

20%

558

585

589

-5%

-5%

General provision

1,530

1,496

1,546

2%

-1%

Total provisions for doubtful debts

2,088

2,081

2,135

0%

-2%

Specific provision balance96

NOTES TO THE FINANCIAL STATEMENTS
11. Capital adequacy
As at
Mar 03As at
Sep 02As at
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

$M

$M

16%

Qualifying capital
Tier 1
Total shareholders' equity and outside equity interests
Less:

12,485

11,465

10,8039%

Asset revaluation reserve

(31)

(31)

(31)

-

-

Interim dividend

(666)

-

-

n/a

n/a

Accumulated retained profits of insurance and reserves of
(99)

(48)

-

large

n/a

Unamortised goodwill

insurance, trustee and securitisation entities

(151)

(158)

(165)

-4%

-8%

Investment in ANZ Lenders Mortgage Insurance

(27)

(27)

(18)

-

50%

11,511

11,201

10,5893%

9%Tier 1 capital
Tier 2
Asset revaluation reserve

31

31

31

-

-

Perpetual subordinated notes

497

1,027

1,053

-52%

-53%

1,033

1,007

1,045

3%

-1%

1,561

2,065

2,129

-24%

-27%

Subordinated notes2

3,482

1,872

2,017

86%

73%

Tier 2 capital

5,043

3,937

4,146

28%

22%
-91%

General provision for doubtful debts1

Deductions
Investment in trustee and securitisation entities
Investment in joint venture with ING

57

45

608

27%

1,591

1,591

-

-

n/a

136

67

49

large

large

Other
Total deductions

1,784

1,703

657

5%

large

Total qualifying capital

14,77013,435

14,07810%

5%11,511

11,201

10,589

3%

9%

1,284

1,425

1,461

-10%

-12%

Adjusted common equity
Tier 1 capital
Less:

Preference share capital3
Deductions

1,784

1,703

657

5%

large

Adjusted common equity

8,443

8,073

8,471

5%

-

Ratios (%)
Inner Tier 1

6.9%

6.9%

6.8%

-

1%

Tier 1

7.7%

7.9%

7.8%

-3%

-1%
10%

Tier 2

3.4%

2.8%

3.1%

21%

11.1%

10.7%

10.9%

4%

2%

(1.2%)(1.2%)(0.5%)

-

large

Total

9.9%

9.5%

10.4%

4%

-5%

Adjusted common equity

5.7%

5.7%

6.3%

-

-10%

148,603

141,390

135,418

5%

10%

Less:

Deductions

Risk weighted assets
1.
2.
3.

Excluding attributable future income tax benefit
For capital adequacy calculation purposes, subordinated note issues are reduced each year by 20% of the original amount during the last five years to maturity
At current exchange rates, excluding issue costs

The increase in total capital position was driven by theincrease in Tier 2 capital with $1.9 billion in newissues during the half year. The total capital ratio iswell above APRA’s minimum guideline ratio of 8%.
Tier 1 capital ratio was slightly reduced as a result of
an increase in deduction for the deconsolidation items
for funds, insurance and trust companies.

%

Capital Adequacy Ratio

12
8
4

The ACE ratio remained at 5.7%, within our target
range of 5.25% to 5.75%, with strong risk weighted
assets growth absorbing internal capital generation.

0
Sep 00 Mar 01 Sep 01 Mar 02 Sep 02 Mar 03
Total

97

Tier 1NOTES TO THE FINANCIAL STATEMENTS
12. Share capital and options
Issued and quoted securities
NumberquotedIssue price Amount paid up
per shareper share

Ordinary shares
Total at 31 March 2003

1,513,387,858

Issued during half year

9,501,776

Preference shares
Total at 31 March 2003

124,032,000

US$6.25

US$6.25

Halfyear
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

18.3%

22.2%

19.5%

-18%

-6%

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

98

NOTES TO THE FINANCIAL STATEMENTS
12. Share capital and options (continued)
NumberExercise

Optionsissued

price

date

On issue

35,194$0.00

24/10/2003

Options
Issued during current half year

1.

Expiry75,000$8.97

27/10/2003

30,000$10.34

10/12/2003

10,000$10.4127/01/2004

62,000$11.4424/03/2004

23,186$0.00

24/04/2004

562,500$11.2001/06/2004

150,000$11.3011/07/2004

700,000$9.94

26/10/2004

750,000$11.4931/12/2004

750,000$14.7831/12/2004

500,000$17.2031/12/2005

849,000$10.11

22/02/2007

350,000$10.2007/03/2007

427,500$11.81

23/05/2007

200,000$12.2306/06/2007

65,000$12.7525/09/2007

2,137,258$14.34

21/11/2007

500,000$17.52

31/12/2007

1,000,000$17.41

31/12/2007

2,542,500$14.6307/02/2008

4,309,075$14.92

20/02/2008

75,000$15.4726/02/2008

3,387,077$13.7024/04/2008

194,800$13.7006/05/2008

433,250$15.3331/05/2008

76,000$16.4920/08/2008

78,750$16.81

26/08/2008

50,000$17.0523/10/2008

4,169,025$17.0524/10/2008

20,000$18.21

25/02/2009

4,649,823$18.7524/04/2009

145,000$19.27

13/05/2009

294,970$19.2727/06/2009

17,000$17.9021/07/2009

4,944,479$18.0622/10/20091

40,000$18.28

19/11/2009

NumberExercise

Expiryissued

price

date

1,000,000$17.41

31/12/2007

4,984,824$18.0622/10/2009

40,000$18.28

19/11/2009

The exercise price on these options is a minimum of $18.06 and increases with any appreciation in the banking and finance index from the date of issue

99

NOTES TO THE FINANCIAL STATEMENTS
12. SHARE CAPITAL AND OPTIONS (CONTINUED)

Options
Exercised during current half year

Options
Lapsed and surrendered during current half year

100

NumberExercise

Expiryissued

price

date

2,565

$11.4522/01/2003

325,000$9.51

23/02/2003

36,307$0.00

24/10/2003

175,000$8.97

27/10/2003

165,000$10.34

10/12/2003

20,000$11.4424/03/2004

1,290,000$11.2001/06/2004

2,500$11.2606/06/2004

200,000$9.94

26/10/2004

100,000$10.6330/01/2005

171,000$10.11

22/02/2007

10,000$11.81

23/05/2007
25/09/2007

7,500$12.75

216,000$14.34

21/11/2007

71,900$14.6307/02/2008

121,450$14.92

20/02/2008

50,000$15.6606/03/2008

93,550$13.7024/04/2008

17,250$15.3331/05/2008

3,000$16.81

26/08/2008

79,850$17.0524/10/2008

347$18.7524/04/2009

NumberExercise

Expiryissued

price

date

235

$0.00

24/04/2004

30,000$10.11

22/02/2007

10,000$11.81

23/05/2007

2,500$12.7525/09/2007

20,000$14.34

21/11/2007

62,350$14.6307/02/2008

79,500$14.92

20/02/2008

124,500$13.7024/04/2008

3,000$15.3331/05/2008

2,250$16.81

26/08/2008

150,750$17.0524/10/2008

172,010$18.7524/04/2009

3,000$19.2727/06/2009

40,345$18.0622/10/2009

NOTES TO THE FINANCIAL STATEMENTS
13. Average Balance Sheet and related interest
Averages used in the following tables are predominantly daily averages. Interest income figures are presented
on a tax-equivalent basis. Non-accrual loans are included under the interest earning asset category, “loans,advances and bills discounted”. Intragroup interest earning assets and interest bearing liabilities are treated as external
assets and liabilities for the geographic segments.
Half year Average Balance Sheet
Half year Mar 03

Half Year Sep 2002

Half Year Mar 02

Ave balInt

Rate

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

$M

$M

%

Interest earning assets
Due from other financial institutions
Australia

499

11

4.6%

470

8

3.4%

837

18

4.4%

New Zealand

649

13

4.0%

595

14

4.7%

545

12

4.3%

2,013

25

2.5%

2,354

31

2.6%

2,454

38

3.1%

Overseas markets
Investments in public securities
Australia

6,130

149

4.9%

5,875

145

4.9%

4,890

114

4.7%

New Zealand

1,763

42

4.7%

1,247

28

4.5%

1,259

27

4.2%

Overseas markets

1,861

40

4.3%

1,668

39

4.7%

1,431

43

5.9%

Loans, advances and bills discounted
106,031

3,507

6.6%

98,154

3,254

6.6%

93,525

3,001

6.5%

New ZealandAustralia

20,189786

7.8%

18,512711

7.7%

17,744652

7.4%

Overseas markets

13,310276

4.2%

13,065292

4.5%

15,331

335

4.4%
3.7%

Other assets
Australia

1,922

46

4.8%

1,721

12

1.4%

1,204

22

New Zealand

1,256

46

7.3%

1,349

46

6.8%

1,349

37

5.5%

Overseas markets

3,529

80

4.5%

2,870

81

5.6%

3,379

98

5.8%

9,002

98

2.2%

9,343

103

2.2%

9,708

108

2.2%

168,154

5,119

157,223

4,764

153,656

4,505

Intragroup assets
Overseas markets

Intragroup elimination(9,002)(98)

159,152

5,021

6.3%

(9,343)(103)

147,880

4,661

6.3%

(9,708)(108)

143,948

4,397

Non-interest earning assets
Acceptances
Australia

13,577

14,287

Overseas markets

115

89

215

Premises and equipment

1,436

1,351

1,347

15,23916,471

19,918Other assets

14,826

Provisions for doubtful debts(1,806)(1,928)(1,681)New ZealandAustralia

(207)

(184)

(168)

Overseas markets

(143)

(33)

(83)

28,21130,05334,374

187,363

177,933

178,322

Total assets

101

6.1%

NOTES TO THE FINANCIAL STATEMENTS
13. Average Balance Sheet and related interest (continued)
Half year Mar 03

Interest bearing liabilities
Time deposits
Australia
New ZealandOverseas markets
Savings deposits
Australia
New ZealandOverseas markets
Other demand deposits
Australia
New ZealandOverseas markets
Due to other financial institutions
Australia
New ZealandOverseas markets
Commercial paper
Australia
Overseas markets
Borrowing corporations' debt
Australia
New Zealand
Loan capital, bonds and notes
Australia
New ZealandOverseas markets
Other liabilities 1
Australia
New ZealandOverseas markets
Intragroup liabilities
Australia
New Zealand
Intragroup elimination
Non-interest bearing liabilities
Deposits
Australia
New ZealandOverseas markets
Acceptances
Australia
Overseas markets
Other liabilities

Total liabilities
1.

Half Year Sep 2002

Half Year Mar 02

Ave balInt

Rate

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

$M

$M

%

24,291
10,881
15,077

567
298
180

4.7%
5.5%
2.4%

22,046
9,219
14,541

506
240
199

4.6%
5.2%
2.7%

19,4298,567
15,688

431
216
218

4.5%
5.1%
2.8%

11,797
3,313
466

131
40
3

2.2%
2.4%
1.2%

11,338
3,176
499

122
37
4

2.2%
2.3%
1.6%

10,588
3,050
399

123
39
3

2.3%
2.5%
1.4%

26,591
2,070
660

476
49
4

3.6%
4.7%
1.3%

24,034
1,959
707

435
44
5

3.6%
4.5%
1.4%

22,756
1,847
701

357
34
6

3.1%
3.7%
1.8%

1,027
606
7,018

24
12
64

4.6%
3.8%
1.8%

1,000
507
6,548

26
8
72

5.2%
3.2%
2.2%

884
521
8,255

23
9
108

5.1%
3.4%
2.6%

5,104
3,355

125
24

4.9%
1.4%

3,711
3,878

88
35

4.7%
1.8%

4,066
3,403

90
38

4.4%
2.3%

6,561
1,828

178
55

5.4%
6.0%

6,217
1,578

161
47

5.2%
5.9%

5,976
1,365

155
41

5.2%
6.0%

18,359
453
196

466
17
2

5.1%
7.4%
2.1%

16,048
472
455

405
17
6

5.0%
7.2%
2.6%

15,228
410
625

351
13
9

4.6%
6.4%
2.9%

2,346
103
4

100
42
15

n/a
n/a
n/a

1,757
87
63

81
49
7

n/a
n/a
n/a

1,167
147
11

84
49
26

n/a
n/a
n/a

6,993
2,009
151,108

62
36
2,970

1.8%
3.6%

6,770
2,573
139,183

62
41
2,697

1.8%
3.2%

6,786
2,922
134,791

66
42
2,531

2.0%
2.9%

(9,002)
142,106

(98)
2,872

(9,343)
129,840

(103)
2,594

(9,708)125,083

(108)
2,423

4.0%

4.0%

3,585
1,107
689

3,795
860
590

4,056
886
604

13,577
115
14,19814,28789
17,306

14,826215
21,97533,271

36,92742,562

175,377

166,767

167,645

Includes foreign exchange swap costs

102

3.9%

NOTES TO THE FINANCIAL STATEMENTS
13. Average Balance Sheet and related interest (continued)
Half

Half

Half

year

year

year

Mar 03

Sep 02Mar 02$M$M$M

137,678

130,354

130,676

New Zealand

25,327

23,37921,831

Overseas markets

33,36033,54335,523

Total average assets
Australia

less intragroup elimination(9,002)(9,343)(9,708)187,363

177,933

178,322

26.5%

26.7%

26.7%

129,825

122,978

123,706

New Zealand

24,13622,18920,821

Overseas markets

30,41830,94332,826(9,002)(9,343)(9,708)

175,377

166,767

167,645

Ordinary share capital

10,761

9,807

9,205

Preference share capital

1,225

1,359

1,472

11,986

11,166

10,677

187,363

177,933

178,322

30.0%

30.3%

30.3%

114,581106,220

100,456

New Zealand

23,857

21,703

20,897

Overseas markets

29,71629,30032,303% of total average assets attributable
to overseas activities
Total average liabilities
Australia

less intragroup elimination

Total average shareholders' equity

Total average liabilities andshareholders' equity% of total average liabilities attributable
to overseas activities

Average interest earning assets
Australia

less intragroup elimination

103(9,002)(9,343)(9,708)159,152

147,880

143,948

NOTES TO THE FINANCIAL STATEMENTS
14. Interest spreads and net interest average margins
Intragroup interest earning assets and interest bearing liabilities are treated as external assets and liabilities forthe geographic segments.
Half

Half

Half

year

year

year

Mar 03

Sep 02Mar 02%%%Australia

6.50

6.42

6.30

New Zealand

7.45

7.34

6.98

Overseas markets

3.50

3.72

3.86

Total Group

6.33

6.29

6.13

Gross interest spread

2.38

2.42

2.45

Interest forgone on impaired assets(0.02)(0.05)(0.03)Net interest spread

2.36

2.37

2.42

Interest attributable to net non-interest bearing items

0.41

0.51

0.53

Net interest average margin - Australia

2.77

2.88

2.95

Gross interest spread

2.28

2.42

2.27

Interest forgone on impaired assets

-

-

-

Net interest spread

2.28

2.42

2.27

Interest attributable to net non-interest bearing items

0.56

0.48

0.47

Net interest average margin - New Zealand

2.84

2.90

2.74

Gross interest spread

1.35

1.26

1.13

Interest forgone on impaired assets(0.04)

0.01(0.09)Net interest spread

1.31

1.27

1.04

Interest attributable to net non-interest bearing items

0.22

0.21

0.29

Net interest average margin - Overseas markets

1.53

1.48

1.33

Gross interest spread

2.29

2.34

2.28

Interest forgone on impaired assets(0.02)(0.03)(0.04)Net interest spread

2.27

2.31

2.24

Interest attributable to net non-interest bearing items

0.44

0.48

0.51

Net interest average margin - Group

2.71

2.79

2.75

Gross earnings rate1

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

Australia

New ZealandOverseas markets

Group

1.

Average interest rate received on interest earning assets

104

NOTES TO THE FINANCIAL STATEMENTS
15. Segment analysis
The following analysis shows segment revenue, total assets and result for each business segment1.
Industry
Halfyear
Mar 03
$M

Half
year
Sep 02
$M

Movt
Movt
Half
Mar 03Mar 03year
Mar 02 v. Sep 02 v. Mar 02%%$M

Income1
Personal Banking Australia

1,077

1,044

992

3%

9%

Institutional

1,914

1,955

1,841

-2%

4%

Corporate

534

503

461

6%

16%

New Zealand Banking

516

467

419

10%

23%

Mortgages

2,178

1,997

1,795

9%

21%

Consumer Finance

505

515

507

-2%

0%

Asset Finance

540

526

511

3%

6%

ING Australia

55

40

137

38%

-60%

Asia Pacific

225

200

189

13%

19%

Treasury

731

583

554

25%

32%

Group Centre

383

312

274

23%

40%

Income from disposal of investments
Intragroup Eliminations

-

174

-

-100%

n/a

(2,294)(2,105)(1,884)

9%

22%

6,364

6,211

5,796

2%

10%

Net profit after income tax2
Personal Banking Australia

188

185

169

2%

11%

Institutional

382

364

348

5%

10%

Corporate

133

125

120

6%

11%

New Zealand Banking

74

69

61

7%

21%

Mortgages

131

124

123

6%

7%

Consumer Finance

47

71

79

-34%

-41%

Asset Finance

60

54

48

11%

25%

ING Australia

7

8

25

-13%

-72%

Asia Pacific

67

51

45

31%

49%

Treasury

49

61

63

-20%

-22%
large

Group Centre
Net profit (excl significant transactions)
Significant transactions

3

(10)

(15)

large

1,141

1,102

1,066

4%

7%

-

170

(16)

-100%

-100%

1,141

1,272

1,050

-10%

9%

Total assets
Personal Banking Australia

6,226

5,832

6,208

7%

0%

Institutional

59,33258,99458,371

1%

2%

Corporate

14,967

13,69913,001

9%

15%

New Zealand Banking

4,310

3,796

3,492

14%

23%

Mortgages

70,98164,826

59,8389%19%

Consumer Finance

5,930

5,551

5,182

7%

14%

Asset Finance

13,06912,41011,9925%

9%

ING Australia

1,696

1,638

5,170

4%

-67%

Asia Pacific

1,980

1,932

1,869

2%

6%

Treasury

9,827

11,692

9,134

-16%

8%

Group Centre

1.
2.

2,200

2,735

2,332

-20%

-6%

190,518

183,105

176,5894%8%Refer definitions on pages 117 - 118
Equity standardised including intersegment income

Further information on business segments and Group Centre is shown on pages 13 to 51 of the Consolidated
Results and Dividend Announcement.

105

NOTES TO THE FINANCIAL STATEMENTS
16. Derivative financial instruments
Derivatives

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments
or indices. They include swaps, forward rate agreements, futures, options and combinations of these
instruments. The use of derivatives and their sale to customers as risk management products is an integral
part of the Group’s trading activities. Derivatives are also used to manage the Group’s own exposure tofluctuations in exchange and interest rates as part of its asset and liability management activities. Derivatives
are subject to the same types of credit and market risk as other financial instruments, and the Group manages
these risks in a consistent manner.
The following table provides an overview of the Group’s exchange rate and interest rate derivatives. It includes
all contracts, both trading and other than trading.
31 March 2003

30 September 2002

Notional
Principal
AmountCreditEquivalent
AmountFair
Value

Notional
Principal
AmountCreditEquivalent
Amount

Fair
Value

$M

$M

$M

$M

$M

$M

Foreign exchange and commodities contracts
137,878

3,252

(51)

140,867

3,390

815

Swap agreements

Spot and forward contracts

27,728

1,900

(28)

23,834

1,807

(13)

Futures contracts1

380

n/a

-

337

n/a

-

8,441

333

166

8,779

435

272

14,9960(229)

11,741n/a(216)

Options purchased
Options sold 2
Other contracts

4,397

600

202

3,046

623

456

193,820

6,085

60

188,604

6,255

1,314

58,93811

435,89018

5634Interest rate contracts
Forward rate agreements
Swap agreements

227,824

3,626

896

212,765

3,491

Futures contracts 1

22,893n/a

14

26,934n/a(4)Options purchased

24,587

128

89

16,118

127

88

8,264

n/a

(74)

9,244

n/a

(65)

342,506

3,765

929

300,951

3,636

658

7,954

3,203

46

5,722

3,277

(13)

544,280

13,053

1,035

495,277

13,168

1,959

Options sold 2Credit Contracts
Credit default swaps 3

1.
2.
3.

Credit equivalent amounts have not been included as there is minimal credit risk associated with the exchange traded futures, where the clearing house is thecounterparty
Options sold have no credit exposures as they represent obligations rather than assets
The Group has entered structured transactions that expose it to the performance of certain assets under credit default swaps. The total investment of the Groupin these transactions is USD 750 million

Notional principal amount is the face value of the contract and represents the volume of outstandingtransactions. Credit equivalent amount is calculated in accordance with the APRA capital adequacy guidelines
and combines the aggregate value of all contracts in a positive market position plus an allowance for the
potential increase in value over the remaining term of the transaction. Fair value is the net position ofcontracts with positive market values and negative market values.

106

NOTES TO THE FINANCIAL STATEMENTS
16. Derivative financial instruments (continued)
Market Risk

Market risk is the risk to earnings arising from changes in interest rates, currency exchange rates, or fromfluctuations in bond, commodity or equity prices.
The Value at Risk (VaR) measure

A key measure of market risk is Value at Risk (“VaR”). VaR is a statistical estimate of the likely daily loss,
which is based on historical market movements. The confidence level is such that there is 97.5% probability
that the loss will not exceed the Value at Risk estimate on any given day.
The Bank’s standard VaR approach is historical simulation. The bank calculates VaR using historical changes inmarket rates and prices over the previous 500 business days.
It should be noted that because VaR is driven by actual historical observations, the methodology is not an
estimate of the maximum loss that the Bank could experience from an extreme market event.
Trading activities are focused on customer trading, distribution and underwriting of a range of securities andderivative instruments. The principal activities include foreign exchange, interest rate and capital markets.
These activities are well diversified and managed on a global product basis.
Below are aggregate VaR exposures covering both physical and derivatives trading positions for the Bank’s
principal trading centres.
Low forperiodMar 03$M

Ave forperiodMar 03$M

As at
Sep 02$M

High for
periodMar 03
$M

0.6

1.7

0.5

1.0

As at
Mar 03$M

High for
period
Sep 02$M

Low forperiod
Sep 02$M

Ave forperiod
Sep 02
$M

1.1

2.3

0.5

1.1

Value at risk at 97.5% confidence
Foreign exchangeInterest rate

1.8

2.1

0.6

1.0

1.0

3.4

0.7

1.5

Diversification benefit

(0.6)

(0.9)

(0.3)

(0.6)

(0.6)

(1.8)

(0.2)

(0.5)

1.8

2.9

0.8

1.4

1.5

3.9

1.0

2.1

Total VaR

Hedging

In addition to customer and trading activities, the Group uses, inter alia, derivatives to manage the risk
associated with its balance sheet and future revenue streams. During the half year $1.4 billion hedges of NZDrevenue were put in place to lock in historically high NZD exchange rates.
The table below shows the notional principal amount, credit equivalent amount and fair value of derivatives
held by the Group, split between those entered into for customer-related and trading purposes and thoseentered into for other than trading purposes.
31 March 03

External
Foreign exchange and commodities contracts
Customer-related and trading purposes
Balance sheet hedging purposes
Revenue related hedging

Interest rate and debt contracts
Customer-related and trading purposes
Balance sheet hedging purposes

Credit Derivatives
Customer-related and trading purposes
Balance sheet hedging purposes
Total

Notional
Principal
AmountCreditEquiv.
Amount$M

30 September 02

Fair
Value

Notional
Principal
AmountCreditEquiv.
Amount

Fair
Value

$M

$M

$M

$M

$M

157,816
34,317
1,687

3,414
2,654
17

124
(92)
28

161,290
26,926
388

3,689
2,562
4

(26)
1,361
(21)

193,820

6,085

60

188,604

6,255

1,314

292,631
49,875

3,001
764

654
275

257,947
43,004

2,992
644

320
338

342,506

3,765

929

300,951

3,636

658

4,199
3,755
7,954
544,280

465
2,738
3,203
13,053

1
45
46
1,035

1,718
4,004
5,722
495,277

189
3,088
3,277
13,168

2
(15)
(13)
1,959

107

NOTES TO THE FINANCIAL STATEMENTS
17. Contingent liabilities
GeneralThere are outstanding court proceedings, claims and possible claims against the Group, the aggregate amountof which cannot readily be quantified. Appropriate legal advice has been obtained and, in the light of suchadvice, provisions as deemed necessary have been made.

Sale of Grindlays businesses

As part of the sale on 31 July 2000 of ANZ Grindlays Bank Limited and the private banking business of ANZ in
the United Kingdom and Jersey, together with ANZ Grindlays (Jersey) Holdings Limited and its subsidiaries (theGrindlays businesses), to Standard Chartered Bank (SCB), ANZ provided warranties relating to thosebusinesses. Where it was anticipated that payments were likely under these warranties, provisions were madeto cover the anticipated liability. In addition ANZ provided SCB and/or Grindlays with certain indemnities.
Claims have been made under the above indemnities and also in relation to the warranties provided by ANZ at
the time of sale. During the half year ended 31 March 2003, the credit indemnity provided at the time of sale
was settled, with $27 million recorded against specific provisions. Other warranty claims made by SCB werealso settled against provisions taken at the time of sale. The indemnities under which ANZ remains exposed as
at 31 March 2003 are:"an indemnity relating to liabilities Grindlays may incur as a result of certain claims made against Grindlays
and its officers in India (the Indian Indemnity). Details of this indemnity are set out below; and"an indemnity relating to tax liabilities of Grindlays (and its subsidiaries) and the Jersey Sub-Group to theextent to which such liabilities have not been provided for in the Grindlays accounts as at 31 July 2000.

At present the Group is confident that resolution of the residual outstanding matters will occur within existing
provisions.
The Indian Indemnity requires ANZ to pay SCB for losses that Grindlays incurs as a result of certain claims thathave been or may be made against Grindlays and its officers in India. Under the terms of the Indian
Indemnity, ANZ will have control of matters for which it is potentially liable. No settlement offer can be madeor paid by Grindlays without the prior agreement of ANZ. ANZ will continue to manage these matters in thebest interests of shareholders taking into account its legal obligations.
ANZ remains liable for certain claims under the Indian Indemnity, including in relation to the following two
matters that are the subject of current proceedings involving Grindlays or its officers:"

In 1991, certain amounts were transferred from non-convertible Indian Rupee accounts maintained with
Grindlays in India. In making these transactions it would appear that the provisions of the Foreign
Exchange Regulation Act 1973 were inadvertently not complied with. Grindlays on its own initiative,
brought these transactions to the attention of the Reserve Bank of India. The Indian authorities have
served notices on Grindlays and certain of its officers in India that could lead to possible penalties.
Grindlays has commenced proceedings in the courts contesting the validity of these notices.

"

In July 2002, Grindlays was ordered to repay, with interest, two payments it received from a stockbroker in1991 in connection with securities transactions. Grindlays has commenced proceedings challenging thevalidity of these orders, which direct repayment of Indian Rupees 24 million (AUD 0.8 million at 31 March
2003 rates), plus interest accruing at 24% since 1991. Since July 2002 Grindlays has been given notice ofhearings in relation to further payments received by it in 1991 in similar circumstances totalling Indian
Rupees 302 million (AUD 10.5 million at 31 March 2003 rates).

108

NOTES TO THE FINANCIAL STATEMENTS
17. Contingent liabilities (continued)
Contingent tax liability

ANZ in Australia is being audited by the Australian Taxation Office (ATO). There are several issues that the
ATO is considering, including:"Lease assignments in 1991 and 1992. Tax assessments have been received and are being contested in theFederal Court. Profit after tax of approximately $50 million was earned from these transactions.

"

Sale of Grindlays in 2000. At ANZ’s request the ATO is reviewing the taxation treatment of this transaction.
ANZ’s profit after tax from this transaction was $404 million.

Based on external advice, ANZ has assessed the likely progress of these issues, and believes that it holds
appropriate provisions.
During the years 1996 - 2002 ANZ was involved in securities lending, equity swaps, and other similar kinds oftransactions in the normal course of its business of banking. The ATO had been reviewing these transactions
for some time. On 21 February 2003, a settlement was reached between the ATO and ANZ which involved thepayment of $262 million to the ATO. The amount was met from ANZ’s existing tax provisions.

Interbank Deposit Agreement

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

The Company has a commitment to participate in a loss sharing arrangement, in the event of a failure to settle
by a member institution, in the Continuous Linked Settlement System. This commitment is detailed in our
Settlement Member Agreement with CLS Bank International and CLS Group Holdings AG.

109

NOTES TO THE FINANCIAL STATEMENTS
18. Note to the Statement of Cash Flows
Half

Half

Half

year

year

year

Mar 03

Sep 02Mar 02

Inflows

Inflows

Inflows(Outflows)(Outflows)(Outflows)

$M

$M

$M

1,141

1,272

1,050

Provision for doubtful debts

303

309

551

Depreciation and amortisation

128

117

109

-

(170)

-

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

Profit on sale of businesses to joint venture
Recovery from NHB litigation

-

-

(248)

Provision for restructuring and other provisions

106

109

139

Payments from provisions

(241)

(197)

(239)

Provision for surplus lease space

1

1

-

(Profit) loss on property disposals

-

(4)

(1)

Decrease (increase) in interest receivable

(56)

51

277

(Decrease) increase in interest payable

109

(41)

(307)

(Increase) decrease in trading securities

695

(667)

(363)

(Increase) decrease in net tax assets

(478)

194

(148)

52

(66)

3

1,760

908

823

Liquid assets - less than 3 months

4,863

4,821

4,900

Due from other financial institutions - less than 3 months

2,710

3,104

2,452

7,573

7,925

7,352

58

48

46

Other
Net cash provided by operating activities
Reconciliation of cash and cash equivalents
Cash at the end of the period as shown in thestatement of cash flows is reconciled to therelated items in the balance sheet as follows

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

110

NOTES TO THE FINANCIAL STATEMENTS
19. Changes in composition of the GroupAcquisition of controlled entities

There were no material controlled entities acquired during the half year.
Disposal of controlled entities

On 1 May 2002, the controlled entities ANZ Life Assurance Company Limited, ANZ Managed Investments
Limited and ANZ General Insurance Pty Limited were sold. The profit before tax on disposal was $174 million($170 million after tax). The after-tax contribution prior to disposal was $15 million in the September 2002
half year and $25 million in the March 2002 half year.

20. Associates, joint venture entities and investments
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Operating profit (loss)

42

18

13

Income tax (expense) benefit
Profit (loss) after income tax

42

18

13

Aggregate associates and joint venture entities

Material contributions to profit
Contribution toGroup pre-tax profit

Ownership interest
held by Group

Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

As at
Mar 03As at
Sep 02As at
Mar 02

%

%

%

29
(6)

17
-

13
5

11
35

11
35

11
35

19

2

-

49

49

-

Associates
PT Panin Indonesia Bank1
E*Trade2
Joint Ventures
ING Australia Limited
1.
2.

In addition the Group holds options over a further 18% of PT Panin
The value of the investment in E*Trade was written down by $6 million

111

NOTES TO THE FINANCIAL STATEMENTS
21. US GAAP reconciliation
The consolidated financial statements of the Group are prepared in accordance with Generally Accepted
Accounting Principles applicable in Australia (Australian GAAP) which differ in some respects from Generally
Accepted Accounting Principles in the United States (US GAAP).
The following are reconciliations of the profit from ordinary activities after income tax, equity and total assets,
applying US GAAP instead of Australian GAAP.
Half
year
Mar 03
$M

Half
year
Sep 02
$M

Half
year
Mar 02$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02
%

1,141

1,272

1,050

-10%

9%

(21)

3

(43)

n/a

-51%

1

1

1

-

-

1

1

4

-

-75%

-

(1)

(8)

-100%

-100%

Amortisation of sale and leaseback gain over lease term

12

13

12

-8%

-

Amortisation of goodwill

31

6

(12)

large

large

Pension expense adjustment

5

8

10

-38%

-50%

-

(205)

-

-100%

n/a

Mark to market of non compliant derivative hedges (under SFAS 133)

28

107

(124)

-74%

large

Taxation on the above adjustments

(11)

(31)

33

-65%

large

1,187

1,174

923

1%

29%

(49)

45

(143)

n/a

-66%

Unrealised profit(loss) on available for sale securities

4

1

2

large

100%

Mark to market of cash flow hedges (under SFAS 133)

34

31

29

10%

17%

1,176

1,251

811

-6%

45%

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

Adjustment of gain and non-capitalised costs recognised onentering joint venture1

Net income according to US GAAP
Other comprehensive income
Currency translation adjustments, net of hedges after tax

Total comprehensive income according to US GAAP
1.

Australian GAAP required INGA transaction to be accounted for at fair value. US GAAP requires the use of historical cost for this specific transaction112

NOTES TO THE FINANCIAL STATEMENTS
21. US GAAP reconciliation (continued)

$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

11,448

10,789

9%

16%

(256)

(266)

(274)

-4%

-7%

Unrealised profit on available for sale securities

7

3

2

large

large

Adjustment to accumulated depreciation on buildings revalued

49

48

47

2%

4%

Restoration of previously deducted goodwill

745

714

692

4%

8%

Accumulated amortisation and impairment

(533)

(533)

(517)

0%

3%

Deferred profit on sale and leaseback transactions

(12)

(14)

(17)

-14%

-29%

Provision for dividend

-

681

571

-100%

-100%

Pension expense adjustment

91

88

82

3%

11%

Derivative and hedging activities

227

173

139

31%

63%

(203)

(203)

0

0%

n/a

12,583

12,13911,514

4%

9%

As at
Mar 03As at
Sep 02As at
Mar 02

$M

$M

$M

Movt
Mar 03v. Sep 02%

Movt
Mar 03v. Mar 02%

Total assets according to Australian GAAP

190,518

183,105

176,5894%

8%

Elimination of gross asset revaluation reserves

(204)

(205)

(206)

0%

-1%

Unrealised profit(loss) on available for sale securities

10

3

3

large

large

Adjustment to accumulated depreciation on buildings revalued

49

48

47

2%

4%

Restoration of previously deducted goodwill

745

714

692

4%

8%

Accumulated amortisation and impairment

(533)

(533)

(517)

0%

3%

67

67

65

0%

3%

(611)

(462)

(532)

32%

15%

620

501

123

24%

large

As at
Mar 03As at
Sep 02As at
Mar 02$M$M

12,468Elimination of gross asset revaluation reserves

Shareholders' equity according to Australian GAAP1

Adjustment on entering joint venture
Shareholders' equity according to US GAAP

Prepaid pension adjustment
Reclassification of deferred tax assets against deferred
tax liabilities
Revaluation of hedges (under SFAS 133)
Adjustment to carrying value of ING joint venture
Total assets according to US GAAP

(203)

(203)

-

0%

n/a

190,458

183,035

176,264

4%

8%

113

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

Profit and Loss Average

As at
Mar 03As at
Sep 02As at
Mar 02Halfyear
Mar 03

Halfyear
Sep 02Halfyear
Mar 02

Great British pound

0.38280.34770.3721

0.36240.36530.3589

United States dollar

0.60350.54410.5306

0.5756

0.54940.5151New Zealand dollar

1.0904

1.15851.2122

1.1025

1.17471.2256

23. Significant events since balance date
There have been no significant events since 31 March 2003 to the date of this report.

114

DIRECTORS’ DECLARATION AND APPENDIX 4B STATEMENT
The directors of Australia and New Zealand Banking Group Limited declare that the financial statements andnotes of the consolidated entity set out on pages 70 to 114 are in accordance with the Corporations Act 2001,
and(a) that they comply with AASB Standards, other AASB authoritative pronouncements, Urgent Issues Group
Consensus Views, APRA standards and other mandatory reporting requirements; and(b) that they have been prepared using the same accounting policies as those applied for the 30 September
2002 Annual Financial Reports other than the changes noted on page 74; and(c) that they give a true and fair view of the financial position of the consolidated entity as at 31 March 2003
and of its performance as represented by the results of its operations and its cash flows, for the half year
ended on that date; and(d) in the directors’ opinion at the date of this declaration there are reasonable grounds to believe that theCompany will be able to pay its debts as and when they become due and payable; and(e) confirm that the financial statements and notes of the consolidated entity set out on pages 70 to 114 havebeen reviewed by the Group’s auditors, KPMG; and(f)confirm that Australia and New Zealand Banking Group Limited has a formally constituted Audit
Committee.

Signed in accordance with a resolution of the directors.

Charles Goode
ChairmanJohn McFarlane
Chief Executive Officer

23 April 2003

115

AUDITORS’ REVIEW REPORT
Independent review report to the members of Australia and New Zealand Banking Group Limited
Scope

We have reviewed the financial report of Australia and New Zealand Banking Group Limited for the half-year
ended 31 March 2003, consisting of the consolidated statement of financial performance, consolidated
statement of financial position, statement of changes in equity and consolidated statement of cash flows,
accompanying notes and the directors’ declaration set out on pages 70 to 115. The financial report includes
the consolidated financial statements of the consolidated entity comprising the Company and the entities it
controlled at the end of the half-year or from time to time during the half-year. The Company’s directors are
responsible for the financial report.
We have performed an independent review of the financial report in order to state whether, on the basis ofprocedures described, anything has come to our attention that would indicate that the financial report is notpresented fairly in accordance with Accounting Standard AASB 1029 “Interim Financial Reporting” and othermandatory professional reporting requirements and statutory requirements in Australia so as to present a viewwhich is consistent with our understanding of the consolidated entity’s financial position, and performance as
represented by the results of its operations and its cash flows and in order for the company to lodge thefinancial report with the Australian Securities and Investments Commission.
Our review has been conducted in accordance with Australian Auditing Standards applicable to review
engagements. The review is limited primarily to inquiries of company personnel and analytical procedures
applied to the financial data. Our review has not involved a study and evaluation of internal accounting
controls, tests of accounting records or tests of responses to inquiries by obtaining corroborative evidence from
inspection, observation or confirmation. The procedures do not provide all the evidence that would be requiredin an audit, thus the level of assurance is less than given in an audit. We have not performed an audit and,accordingly, we do not express an audit opinion.
Statement

Based on our review, which is not an audit, we have not become aware of any matter that makes us believethat the half-year financial report of Australia and New Zealand Banking Group Limited is not in accordance
with:(a) the Corporations Act 2001, including:(i)giving a true and fair view of the consolidated entity’s financial position as at 31 March 2003 and of its
performance for the half-year ended on that date; and(ii) complying with Accounting Standard AASB 1029 “Interim Financial Reporting” and the Corporations
Regulations 2001; and(b) other mandatory professional reporting requirements in Australia.

KPMG
Chartered Accountants
Melbourne

PS NashPartner

23 April 2003

116

DEFINITIONS
Adjusted common equity is Tier 1 capital less preference shares at current rates and deductions from total
capital.
Consumer businesses comprise the following specialist business units; Personal Banking Australia, WealthManagement, New Zealand Banking, Small to Medium Enterprises Australia, Mortgages, Consumer Finance,
Asset Finance, and Asia Pacific.
Corporate business comprises the following specialist business units; Institutional Banking, Transaction
Services, Structured Finance International, Capital Markets, Foreign Exchange, Corporate Finance and Advisory
and Corporate Banking.
Economic loss provisioning (ELP) charge is determined based on the expected average annual loss ofprincipal over the economic cycle for the current risk profile of the lending portfolio.
Equity standardisation Economic Value Added (EVA) principles are in use throughout the Group, whereby
risk adjusted capital is allocated and charged against business units. Equity standardised profit is determinedby eliminating the impact of earnings on each business unit's book capital and attributing earnings on thebusiness unit’s risk adjusted capital. This enhances comparability of business unit performance. Geographic
results are not equity standardised.
Impaired assets are loans or other credit facilities where there is reasonable doubt about the collectability ofinterest, fees (past and future) or principal outstanding, or where concessional terms have been provided
because of the financial difficulties of the customer.
Net advances include gross loans and advances and acceptances less income yet to mature and provisions(for both as at and average volumes).
Net income after capital charge (NIACC) is the measure used by Corporate as a proxy for EVA. It is anaggregate measure of the value added from all activities including managing Corporate banking products andcross sell of other ANZ products. As NIACC includes the value of cross sell activities, a proportion of our NIACC
is a contribution to the profit of other business units.
Net interest average margin is net interest income as a percentage of average interest earning assets. Nonassessable interest income is grossed up to the equivalent before tax amount for the purpose of thesecalculations.
Net interest spread is the average interest rate received on interest earning assets less the average interest
rate paid on interest bearing liabilities. Non-assessable interest income is grossed up to the equivalent before
tax amount for the purpose of these calculations.
Net non-interest bearing items, referred to in the analysis of interest spread and net interest averagemargin, includes shareholders’ equity, provisions for doubtful debts, and deposits not bearing interest andother liabilities not bearing interest, offset by premises and equipment and other non-interest earning assets.
Non-accrual loans are included within interest bearing loans, advances and bills discounted.
Net specific provision is the transfer from the general provision to the specific provision (representing new
and increased specific provisions less specific provision releases) less recoveries.
Operating expenses exclude charge for doubtful debts.

117

DEFINITIONS (continued)
Service Transfer Pricing is used to allocate services that are provided by central areas to each of its business
units. The objective of service transfer pricing is to remove cross-subsidies between business units, and ensureeach business accounts for the costs of the services it uses. Transfer pricing arrangements are reviewed
periodically. The basis of pricing for internal services varies from cost recovery, to market equivalent.
Changes in transfer pricing arrangements in current periods are, to the extent possible, reflected in prior period
comparatives to assist comparability.

The profit and loss statement of each business unit includes net inter business unit fees and net inter business
unit expenses. This treatment is consistent with the Group’s strategy of managing along specialist businesslines. Net inter business unit fees includes intra-group receipts or payments for sales commissions. A productbusiness (for example, Mortgages) will pay a distribution channel (for example, Personal Banking) for productsales. Both the payment and receipt are shown as net inter business unit fees. Net inter business unit
expenses consist of the charges made to business units for the provision of support services. Examples ofservices provided include technology and payments, risk management, finance and human resourcesmanagement. Both payments by business units and receipts by service providers are shown as net interbusiness unit expenses.
The results of segments may include business units and a support unit. The services provided by the support
unit are allocated to the business units. As a result of this allocation, the sum of individual profit and loss line
items of the business units may not equal the corresponding line item in the profit and loss statement of thesegment.
Return on asset ratios include net intra group assets which are risk weighted at 0% for return on risk
weighted assets calculations.
Total advances include gross loans and advances and acceptances less income yet to mature (for both as at
and average volumes).
Unproductive facilities comprise facilities (such as standby letters of credit, bill endorsements, documentary
letters of credit, guarantees to third parties, undrawn facilities to which the Group is irrevocably committed andmarket related exposures) where the customer status is non-accrual.

118

ALPHABETICAL INDEX
Page
Accounting policies.............................................................................................................74
Associates, joint venture entities and investments ................................................................ 111
Auditors’ Review Report .................................................................................................... 116
Average Balance Sheet and related interest ......................................................................... 101
Capital adequacy ...............................................................................................................97
Changes in the composition of the Group ............................................................................ 111
Chief Financial Officer’s Review ............................................................................................. 7
Contingent liabilities ......................................................................................................... 108
Consolidated Statement of Cash Flows ..................................................................................73
Consolidated Statement of Financial Performance ...................................................................70
Consolidated Statement of Financial Position..........................................................................71
Country Exposures .............................................................................................................63
Definitions ...................................................................................................................... 117
Derivative Financial Instruments ........................................................................................ 106
Directors’ Declaration and Appendix 4B Statement ............................................................... 115
Directors’ Report ...............................................................................................................69
Dividends .........................................................................................................................81
Earnings per ordinary share ................................................................................................82
Exchange rates................................................................................................................ 114
Financial Highlights ............................................................................................................. 2
Four Year Summary ...........................................................................................................65
Highlights .......................................................................................................................... 1
Impaired assets.................................................................................................................87
Income ............................................................................................................................76
Income tax expense ...........................................................................................................80
Interest spreads and net interest average margins ............................................................... 104
Investment securities .........................................................................................................84
Net loans and advances ......................................................................................................85
Notes to the Statement of Cash Flows................................................................................. 110
Operating expenses ...........................................................................................................78
Provisions for doubtful debts ...............................................................................................96
Risk Management ..............................................................................................................59
Segment Analysis ............................................................................................................ 105
Share capital and options....................................................................................................98
Significant events since balance date .................................................................................. 114
Statement of Changes in Equity ...........................................................................................72
US GAAP reconciliation ..................................................................................................... 112

119