1 May 2018

Company Announcements
ASX Limited
Level 420 Bridge Street
SYDNEY NSW 2000

Australia and New Zealand Banking Group Limited (ABN 11 005 357 522)(“ANZBGL”) - Half-Yearly Financial Report submission under the Disclosure andTransparency Rules of the United Kingdom Financial Conduct Authority (“UKDTR Submission”)

The attached UK DTR Submission will be lodged by ANZBGL with the London Stock
Exchange (“LSE”) today, together with ANZ’s 2018 Half Year Results for the six month
period ended 31 March 2018. This UK DTR Submission has been prepared by ANZBGL inorder to comply with the applicable periodic reporting requirements of DTR 4 of theDisclosure and Transparency Rules of the United Kingdom Financial Conduct Authority inconnection with certain debt securities issued by ANZBGL. For completeness, in addition
to lodgement with the LSE, ANZBGL is lodging this UK DTR Submission with theAustralian Securities Exchange (“ASX”) and the New Zealand Stock Exchange today.

Yours faithfully

Simon Pordage
Company Secretary
Australia and New Zealand Banking Group Limited
Company Secretary’s Office
ANZ Centre Melbourne, Level 9, 833 Collins Street, Docklands Vic 3008
GPO Box 254, MELBOURNE VIC 3001 AUSTRALIA
www.anz.com

Australia and New Zealand Banking Group Limited

ABN 11 005 357 522

1 May 2018DISCLOSURE AND TRANSPARENCY RULES – HALF-YEARLY FINANCIAL REPORTSUBMISSION
Australia and New Zealand Banking Group Limited (ABN 11 005 357 522)(“ANZBGL”) together with its subsidiaries (“ANZ” or the “Group”) – Half-Yearly
Financial Report submission under the Disclosure and Transparency Rules(“DTR”) of the United Kingdom Financial Conduct Authority
The following attached documents constitute ANZ’s 2018 Half-Yearly Financial Report forthe purposes of the disclosure requirements of DTR 4.2:•

The Condensed Consolidated Financial Statements and Notes to Condensed
Consolidated Financial Statements for the half year ended 31 March 2018, Directors’
Report (including matters included by reference) and Directors’ Declaration (as set
out on pages 74 to 107 of ANZ’s Half Year 31 March 2018 Consolidated Financial
Report, Dividend Announcement and Appendix 4D);•

A description of the principal risks and uncertainties for the remaining six months of
the financial year provided in accordance with DTR 4.2.7 R (2); and•A responsibility statement of the Directors of ANZBGL provided in accordance withDTR 4.2.10 R (3)(b).

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ANZ’s Half Year 31 March 2018 Consolidated Financial Report, Dividend
Announcement and Appendix 4D
This document was separately lodged by ANZBGL with the ASX today

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Principal risks and uncertainties for the remaining six months of the financial
year (DTR 4.2.7 R (2))
1. Introduction
The Group’s activities are subject to risks that can adversely impact its business, operations andfinancial condition. The risks and uncertainties described below are not the only ones that theGroup may face. Additional risks and uncertainties that the Group is unaware of, or that the Groupcurrently deems to be immaterial, may also become important factors that affect it. If any of thelisted or unlisted risks actually occur, the Group’s business, operations, financial condition, or
reputation could be materially and adversely affected. In this section, where we refer to the impact
on the Group’s business, operations and financial condition and similar references, such references
include the impact on the business prospects of the Group.
2. Changes in political and general business and economic conditions, including
disruption in regional or global credit and capital markets, may adversely affect theGroup’s business, operations and financial condition
The Group’s financial performance is primarily influenced by the political and economic conditions
and the level of business activity in the major countries and regions in which the Group operates
or trades, i.e., Australia, New Zealand, Asia Pacific, Europe and the United States.
The economic and business conditions that prevail in the Group’s major operating and trading
markets are affected by, among other things, domestic and international economic events, politicalevents and natural disasters, and by movements and events that occur in global financial markets.
For example, the global financial crisis that commenced in 2007 saw a sudden and prolonged
dislocation in credit and equity capital markets, a contraction in global economic activity and theemergence of many challenges for financial services institutions worldwide.
The impact of the global financial crisis and its aftermath continue to affect regional and global
economic activity, confidence and capital markets. Prudential authorities have implemented andcontinue to implement increased regulations in an attempt to mitigate the risk of such eventsrecurring, although there can be no assurance that such regulations will be effective. The Group
believes that the global financial crisis has also had a lasting effect on consumer and businessbehaviour in the advanced economies, including the major countries and regions in which theGroup operates. Consumers in recent years have reduced their savings rates in the face of weak
income growth, while businesses have been reluctant to invest and inflation has remained low.
Monetary authorities responded to the global financial crisis by introducing zero or near-zero
interest rates across most countries, and the major central banks took unconventional steps to
support growth and raise inflation. While some economic factors have recently improved and somemonetary authorities have begun to increase interest rates, lasting impacts from the global
financial crisis and the potential for escalation in geopolitical risks suggest ongoing vulnerability
and potential adjustment of consumer and business behaviour.
Changes in global political conditions, such as the ‘Brexit’ referendum in the United Kingdom on
June 23, 2016 (and the related negotiations with the European Union), the commencement ofDonald Trump’s presidency in January 2017, and global trade developments relating to, among
other things, the imposition or threatened imposition of trade tariffs and levies by major countries
have resulted in increased political and economic uncertainty and volatility in the global financial
markets and may continue to do so. This is in part due to the unknown consequences for global
trade, the broader global economy and financial markets. Political and economic uncertainty has in
the past led to declines in market liquidity and activity levels, volatile market conditions, acontraction of available credit, lower or negative interest rates, weaker economic growth andreduced business confidence, each of which could adversely affect the Group’s business,
operations and financial condition. These conditions may also adversely affect the Group’s ability
to raise medium or long-term funding in the international capital markets.
Geopolitical instability, such as threats of, potential for, or actual conflict, occurring around theworld, such as the ongoing unrest and conflicts in Ukraine, North Korea, Syria, Egypt, Afghanistan,
Iraq and elsewhere, as well as the current high threat of terrorist activities, may also adversely
affect global financial markets, general business and economic conditions and the Group’s ability tocontinue operating or trading in an affected country or region, which in turn may adversely affect
the Group’s business, operations and financial condition.
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Should difficult economic conditions in the Group’s markets eventuate, asset values in the housing,commercial or rural property markets could decline, unemployment could rise and corporate andpersonal incomes could suffer. Also, deterioration in global markets, including equity, property,
currency and other asset markets, could impact the Group’s customers and the security the Groupholds against loans and other credit exposures, which may impact the Group’s ability to recoverloans and other credit exposures.
The Group’s financial performance could also be adversely affected if the Group were unable toadapt cost structures, products, pricing or activities in response to a drop in demand or lower than
expected revenues. Similarly, higher than expected costs (including credit and funding costs) could
be incurred because of adverse changes in the economy, general business conditions or theoperating environment in the countries or regions in which the Group operates.
Other current economic conditions impacting the Group and its customers include:••

Changes in the commercial and residential real estate markets in Australia and New Zealand(see risk factor 6 "Weakening of the real estate markets in Australia, New Zealand or othermarkets where the Group does business may adversely affect the Group’s business,
operations and financial condition"); andThe demand for natural resources given that sector is a significant contributor to Australia’s
economy and that sector’s significant exposure to Asia, particularly China and China’s
economic growth (see risk factor 7 "Credit risk may adversely affect the Group’s business,
operations and financial condition").

Natural and biological disasters such as, but not restricted to, cyclones (for example, Cyclone
Debbie in March 2017 and Cyclone Marcus in March 2018), floods, droughts, earthquakes andpandemics, and the economic and financial market implications of such disasters domestically andglobally, may negatively affect general business and economic conditions in the countries orregions in which the Group operates and in turn adversely affect the Group’s business, operations
and financial condition. (see risk factor 13: “Impact of future climate change, geological events,
plant, animal and human diseases, and other extrinsic events may adversely affect the Group’sbusiness, operations and financial condition”).
All or any of the negative political, business, environmental or economic conditions describedabove could cause a reduction in demand for the Group’s products and services and/or an increasein loan and other credit defaults and bad debts, which could adversely affect the Group’s business,
operations and financial condition.
3. Competition in the markets in which the Group operates may adversely affect theGroup’s business, operations and financial condition
The markets in which the Group operates are highly competitive and could become even more so.
Factors that contribute to competition risk include mergers and acquisitions, changes in customers’
needs, preferences and behaviours, entry of new participants, development of new distribution andservice methods and technologies, increased diversification of products by competitors andchanges in regulation such as the rules governing the operations of banks and non-bankcompetitors. For example:•••

Changes in the financial services sector in Australia and New Zealand have made it
possible for non-banks to offer products and services traditionally provided by banks, suchas payments, home loans, and credit cards. Digital technologies and business models arechanging customer behaviour and the competitive environment. Emerging competitors are
increasingly utilising new technologies and seeking to disrupt existing business models in
the financial services sector. Existing companies from outside of the traditional financial
services sector may seek to directly compete with the Group by offering products andservices traditionally provided by banks, including by obtaining banking licenses and/or by
partnering with existing providers.
Banks organised in jurisdictions outside Australia and New Zealand are subject to different
levels of regulation and some of these banks may have lower cost structures that may
make them more competitive in the markets where the Group operates.
Consumers and businesses may choose to transact using, or to invest in, new forms ofcurrency (such as cryptocurrencies) to which the Group may choose not to provide
financial services.
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Increasing competition for customers could also potentially lead to a compression in the Group’s
net interest margins or increased advertising and related expenses to attract and retain
customers.
The Group relies on deposits to fund a significant portion of its balance sheet. The Group competes
with banks and other financial services firms for such deposits. Increased competition for deposits
could increase the Group’s cost of funding. To the extent that the Group is not able to successfullycompete for deposits, the Group would be forced to rely more heavily on other, less stable or more
expensive forms of funding, or to reduce lending. This could adversely affect the Group’s business,
operations, or financial condition.
The impact on the Group of an increase in competitive market conditions or a technological changethat puts the Group’s business platforms at a competitive disadvantage, especially in the Group’s
main markets and products, would potentially lead to a material reduction in the Group’s market
share, customers and margins, which would adversely affect the Group’s business, operations andfinancial condition.
4. Regulatory changes or a failure to comply with laws, regulations or policies may
adversely affect the Group’s business, operations, financial condition and reputation
The Group’s businesses and operations are highly regulated. The Group is therefore subject to a
substantial number of laws, regulations and policies in the numerous jurisdictions in which it
carries on business and/or obtains funding and is supervised by a number of different regulatory
and supervisory authorities. These jurisdictions include, without limitation, Australia, New Zealand,
the United States, Europe and countries in the Asia Pacific region.
In Australia, these regulatory and supervisory authorities include, among others, the Australian
Prudential Regulation Authority (“APRA”), the Reserve Bank of Australia (“RBA”), the Australian
Securities and Investments Commission (“ASIC”), the Australian Securities Exchange (“ASX”), theAustralian Competition and Consumer Commission (“ACCC”), the Australian Transaction Reports
and Analysis Centre (“AUSTRAC”) and the Australian Taxation Office (“ATO”). In New Zealand,
the Reserve Bank of New Zealand (“RBNZ”) and the Financial Markets Authority (“FMA”) havesupervisory oversight of the Group’s New Zealand businesses. Prudential regulatory andsupervisory authorities such as APRA and RBNZ have extensive administrative, practical andinvestigative powers over the Group’s businesses.
The regulation and supervision of financial services groups such as the Group is increasingly
extensive and complex in Australia and the other jurisdictions where the Group conducts business
and/or raises funds. This is particularly the case in the areas of funding, liquidity, derivatives,
capital adequacy, provisioning, conduct, competition, mortgage pricing, consumer credit andconsumer protection (including in the design and distribution of financial products), remuneration,
privacy, data protection, data access, prudential regulation, anti-bribery and corruption, antimoney laundering and counter-terrorism financing, economic and trade sanctions and executive
accountability.
Changes to laws, regulations and policies in Australia and the other jurisdictions where the Group
conducts business and/or raises funds may materially and adversely affect the Group’s business,
operations, financial condition and reputation. Such changes may impact the corporate structures,
businesses, strategies, capital, liquidity, funding and profitability and the cost structures of theGroup. Examples of recent changes to laws, regulations and policies, or developments that may
lead to future changes include, without limitation:•

Royal Commission: On 30 November 2017, the Australian Government publicly announced aRoyal Commission into misconduct in the banking, superannuation and financial services
industry. The final terms of reference for the Royal Commission dated 14 December 2017,
among other things, require and authorise the Royal Commission to inquire into misconduct byfinancial services entities (including the Group). The Royal Commission must submit its final
report, including the results of its inquiry and the Royal Commission’s recommendations, notlater than 1 February 2019. The Royal Commission may choose to give an interim report byno later than 30 September 2018.

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•Productivity Commission: In May 2017, the Australian Government requested the Productivity
Commission to undertake an inquiry into competition in Australia’s financial system. The
Productivity Commission commenced the inquiry on 1 July 2017. On 7 February 2018, theProductivity Commission released a draft report finding that Australia’s regulation of thefinancial system has favoured stability over competition and making recommendations
intended to reset the balance between stability and competition in Australia’s financial system.
The final report is expected to be provided to the Australian Government by 1 July 2018. The
Australian Government’s response to the final report of the Productivity Commission may leadto regulatory change, which could materially and adversely affect the Group’s business,
operations and financial condition.

•

Financial System Inquiry Report: The Final Report of the Financial System Inquiry (“FSI”)(released on 7 December 2014) concluded a comprehensive inquiry into Australia’s financial
system, which was established by the Australian Government in late 2013. The Final Report of
the FSI included a wide-ranging set of recommendations. In Australia, APRA is responsible for
implementing the final recommendations of the Australian Government’s FSI that are aimed atstrengthening the resilience of Australia’s financial system including (among other things)
setting capital standards to ensure that capital ratios of Australian Authorised Deposit-taking
Institutions (“ADI”) are “unquestionably strong”.

•

Prudential Developments: Consistent with the FSI’s recommendation that the capital ratios of
ADIs should be “unquestionably strong”, effective from July 2016, APRA increased the capitalrequirements for Australian residential mortgage exposures for ADIs accredited to use the IRB
approach to credit risk (including the Group). Subsequently, on 19 July 2017, APRA released
an information paper outlining APRA’s conclusions with respect to the quantum and timing of
capital increases that will be required for ADIs to achieve “unquestionably strong” capitalratios. APRA indicated that, in the case of the four major Australian banks (including theGroup), it expects that the increased capital requirements will translate into the need for an
increase in Common Equity Tier-1 (“CET1”) capital ratios, on average, of around 100 basis
points above their December 2016 levels. In broad terms, that equates to a benchmark CET1
capital ratio, under the current capital adequacy framework, of at least 10.5 per cent. APRA
also stated that ADIs should, where necessary, initiate strategies to increase their capitalstrength to be able to meet these capital benchmarks by 1 January 2020 at the latest.
In February 2018, APRA released two discussion papers that commenced APRA’s consultation
on:

-

-

revisions to the capital framework that will produce “unquestionably strong” capital ratios.
The discussion paper summarises APRA’s proposal regarding risk-based capital approachfor credit, market and operational risk following finalisation of these requirements by theBasel Committee on Banking Supervision (“BCBS”) in December 2017. While the final
forms of these proposals will only be determined later in 2020, the Group expects theimplementation of any revisions to the current requirements will result in further changes
to the risk weighting framework for certain asset classes and other risk types (such as
market and operational risks). APRA has announced that it does not expect that thechanges to the risk weights will necessitate further increases in capital for ADIs, although
this could vary by ADI depending on the final requirements.
the design and application of a minimum leverage ratio requirement as a complement to
the risk-based capital framework proposal above. APRA has proposed a minimum leverage
ratio requirement of 4% (Basel minimum is 3%).

APRA’s consultation for the above is currently taking place with final prudential standards
planned to be made available by 2020. APRA has proposed an implementation date of 2021,
which is one year earlier than the BCBS’s equivalent, with no phase-in arrangements.
APRA’s prudential standards may also be further supplemented by yet to be released proposals
to implement other key FSI recommendations including:••to implement a minimum total loss absorbing capacity requirement where certain seniordebt could be “bailed in” to recapitalise a stressed financial institution.
potential adjustments to the overall design of the capital framework to improvetransparency, international comparability and flexibility.

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Given the number of items that are currently open for consultation with APRA, the final
outcome of the FSI including any further changes to APRA’s prudential standards or otherimpacts on the Group remains uncertain. Further changes to APRA’s prudential standards andthe final outcome of the FSI could increase the level of regulatory capital that the Group isrequired to maintain, restrict the Group’s flexibility, require it to incur substantial costs andimpact the profitability of one or more business lines, which could adversely affect the Group’sbusiness, operations, financial condition and reputation.
Implementation of the BCBS ‘Basel 3’ capital and liquidity reforms will continue over the
coming years. The BCBS has recently finalised its reform on the Basel 3 framework focussing
on reducing excessive variability in the calculation of Risk Weighted Assets (RWA) which is now
set for implementation from 2022. These reforms form the basis for APRA’s proposals on
revisions to capital framework as described above.
•

Banking Executive Accountability Regime: A Bank Executive Accountability Regime (“BEAR”)
was passed into law in February 2018.
BEAR is a strengthened responsibility andaccountability framework for the most senior and influential directors and executives in ADI
groups. Potential risks to the Group from the BEAR legislation include the risk of penalties andthe risk to its ability to attract and retain high-quality directors and senior executives.

•

ASIC Design and Product Intervention Powers: The Australian Government is consulting on a
proposal to introduce new legislation intended to enhance the regulation of the design anddistribution of financial products in Australia and to provide ASIC with product intervention
powers.

•The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures)
Act 2018 (“Crisis Management Act”) was recently passed into law. The Crisis Management
Act amends the Banking Act (among other statutes applicable to financial institutions inAustralia) to further enhance APRA’s powers to facilitate the orderly resolution of the entities it
regulates (and their subsidiaries) in times of distress. Additional powers which could impact
the Group, include greater oversight, management and directions powers in relation to theGroup entities which were previously not regulated by APRA, increased statutory management
powers over regulated entities within the Group and changes which are designed to give
statutory recognition to the conversion or write-off of regulatory capital instruments.

•

AML and CTF Compliance: Scrutiny of banks has increased following the commencement by
the AUSTRAC of civil penalty proceedings in 2017 against another major Australian bankrelating to alleged past and ongoing contraventions of the Anti-Money Laundering andCounter-Terrorism Financing Act 2006 (Commonwealth) (see risk factor 5 "Significant fines
and sanctions in the event of breaches of law or regulation relating to anti-money laundering,counter-terrorism financing and sanctions may adversely affect the Group’s business,
operations, financial condition and reputation").

•Bank Levies: As part of its 2017-18 federal budget, the Australian Government imposed a levy
on liabilities for certain large banks, including the Group, with effect from 1 July 2017 (“Major
Bank Levy”). The Major Bank Levy payable by the Group for the half year ended 31 March2018 is A$177m. There is a risk that Australian State and Territory Governments may
introduce similar levies. A bill to this effect was introduced into the South AustralianParliament in June 2017 but was not enacted.

•

Parliamentary Enquiries: There are several on-going Australian Government inquiries including
a House of Representatives inquiry into Australia’s four major banks (including the Group),
which resulted in two committee reports, one in November 2016 and another in April 2017that contain recommendations to improve the banking system for consumers, and a Senate
inquiry focused on consumer protection and transparency in the banking, insurance andfinancial sectors, which could lead to legislative or regulatory changes or other regulatory orother measures that may adversely affect the Group.

•

Offshore Developments: In addition to the BCBS reforms described above, there have been aseries of other regulatory releases from authorities in various jurisdictions outside of Australia
where the Group operates and/or raises funds that have proposed significant regulatorychanges for financial institutions. These changes include, among other things:

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-proposals for changes to financial regulations in the United States (including potential
legislative changes to the Dodd-Frank Act and potential revision to its Volcker Rule);changes to senior executive accountability in Singapore and Hong Kong;
introduction of greater data protection regulations in Europe, including the General Data
Protection Regulations expected to come into effect on 25 May 2018;
the Markets in Financial Instruments Directive 2 in the European Economic Area; andamendments to the United Kingdom’s Criminal Finances Bill (which has extraterritorial
reach).

In addition, United Kingdom and European authorities may also propose significant regulatorychanges as a result of ‘Brexit’ that may impact the Group.
Any failure by the Group to comply with laws, regulations and policies in the jurisdictions in which
it operates and/or obtains funds may result in a number of materially adverse effects for theGroup. This may include regulatory investigations, legal or regulatory sanctions, financial or
reputational loss, litigation, fines, penalties, restrictions on the Group’s ability to do business,
revocation, suspension or variation of conditions of relevant regulatory licenses or otherenforcement or administrative action or agreements (such as enforceable undertakings). Such
failures also may result in the Group being exposed to the risk of litigation brought by third parties(including through class action proceedings). The outcome of any litigation (including class action
proceedings) may result in the payment of compensation to third parties and/or further
remediation activities. For further information in relation to the Group’s litigation and contingent
liabilities, see risk factor 28 “Litigation and contingent liabilities may adversely affect the Group’sbusiness, operations, financial condition and reputation” and Note 19 to the Group’s 2018 Half
Year Results.

5. Significant fines and sanctions in the event of breaches of law or regulation relating
to anti-money laundering, counter-terrorism financing and sanctions may adversely
affect the Group’s business, operations, financial condition and reputation
Anti-money laundering, counter-terrorist financing and sanctions compliance have been thesubject of significant regulatory change and enforcement in recent years. The increasingly
complicated environment in which the Group operates has heightened these operational andcompliance risks. Furthermore, the upward trend in compliance breaches by global banks and therelated fines and settlement sums mean that these risks continue to be an area of focus for theGroup. Following the AUSTRAC civil penalty proceedings in 2017 against a major Australian bankrelating to alleged past and ongoing contraventions of the Anti-Money Laundering and CounterTerrorism Financing Act 2006 (Commonwealth), there may be increased regulatory scrutiny ofother Australian banks, including the Group, and significant changes to the anti-money laundering
regulatory framework. While the full scope of any changes, if any, is not known, the Group may
incur additional costs associated with regulatory compliance that may adversely affect the Group’sbusiness, operations, financial condition and reputation.
The risk of non-compliance with anti-money laundering, counter-terrorist financing and sanction
laws remains high given the scale and complexity of the Group. For example, emerging
technologies, such as cryptocurrencies, could limit the Group’s ability to track the movement offunds. A failure to operate a robust programme to combat money laundering, bribery and terrorist
financing or to ensure compliance with economic sanctions could have serious financial, legal andreputational consequences for the Group and its employees. Consequences can include fines,
criminal and civil penalties, civil claims, reputational harm and limitations on doing business incertain jurisdictions. These consequences, individually or collectively, could have a material
adverse effect on the Group’s business, operations, financial condition and reputation. The Group’s
foreign operations may place the Group under increased scrutiny by regulatory authorities, andsubject the Group to increased compliance costs.
6. Weakening of the real estate markets in Australia, New Zealand or other markets
where the Group does business may adversely affect the Group’s business,
operations and financial condition
Residential and commercial property lending, together with real estate development andinvestment property finance, constitute important businesses of the Group. Major sub-segments
within the Group's lending portfolio include:
residential housing loans (owner occupier and investment); andcommercial real estate loans.
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Since 2009, the world’s major central banks have embarked upon unprecedented monetary policy
stimulus. The resulting weight of funds searching for yield continues to drive underlying property
markets in the Group’s core property jurisdictions (Australia, New Zealand, Singapore and HongKong). Values for completed tenanted properties and residential house prices, particularly in metro
east coast Australian and New Zealand markets, have steadily risen although pace of growth isshowing signs of slowing in 2018.
Should the Group’s regulators impose supervisory measures impacting the Group’s residential orcommercial lending, or if Australian housing price growth subsides or property valuations decline,
the demand for the Group’s home lending products may decrease which may adversely affect theGroup’s business, operations and financial condition. For example, in March 2017, prompted byongoing Australian housing price appreciation and rising Australian household debt, APRA
introduced a new supervisory measure instructing Australian banks, including ANZ, to limit new
residential interest-only mortgages to 30% of total new residential mortgage lending.
Declining asset prices could impact customers and counterparties and the value of the security(including residential and commercial property) the Group holds against loans which may impair
the Group’s ability to recover amounts owing to the Group if customers or counterparties were todefault. A significant decrease in Australian and New Zealand housing valuations triggered by, forexample, an event or a series of events in the local or global economy or lack of confidence inmarket values, could adversely impact the Group’s home lending activities. In the case ofresidential loans, borrowers with loans in excess of their property value show a higher propensity
to default and, in the event of such defaults the Group’s security values would be eroded, causing
the Group to incur higher credit losses, which could adversely affect the Group’s financial
performance and condition. The demand for the Group’s home lending products may also decline
due to buyer concerns about decreases in values or concerns about rising interest rates, which
could make the Group’s lending products less attractive to potential homeowners and investors. A
material decline in residential housing prices could also cause losses in the Group’s residential
development portfolio if customers who are pre-committed to purchase these dwellings are unable
or unwilling to complete their contracts and the Group is forced to re-sell these dwellings at a loss.
The Group's portfolio of commercial property loans may be particularly susceptible to asset pricedeflation, tenancy risk and delivery risk, which may result in higher credit losses, refinance risk
and deteriorating security values. A significant decrease in commercial property valuations or asignificant slowdown in the commercial real estate markets where the Group does business could
result in a decrease in new lending opportunities which may in turn materially and adversely
impact the Group’s business, operations and financial condition.
7. Credit risk may adversely affect the Group’s business, operations and financial
condition
As a financial institution, the Group is exposed to the risks associated with extending credit toother parties, including incurring credit-related losses that can occur as a result of a counterparty
being unable or unwilling to honour its contractual obligations. Credit losses can and have resulted
in financial services organisations realising significant losses and in some cases failing altogether.
The Group is also subject to the risk that its rights against third parties may not be enforceable incertain circumstances, which could result in credit losses. Should material credit losses occur to
the Group’s credit exposures, it could have an adverse effect on the Group’s business, operations
and financial condition.
Less favourable business or economic conditions, whether generally or in a specific industry sector
or geographic region, or natural disasters, could cause customers or counterparties to fail to meettheir obligations in accordance with agreed terms.
For example, the Group’s customers and counterparties in or with exposure to:•

the Australian natural resources sector which is particularly exposed to any prolonged
slowdown in the Chinese economy could be materially and adversely impacted by a decline innatural resource prices;•former government owned and now privatised assets such as electricity distribution networks,
ports, road and rail networks could be materially and adversely impacted if these assets werebeing valued at historically high levels due to the value of the capital and profitability of theseinvestments being vulnerable to changes in government regulatory policy, interest rate andcurrency exchange rate movements. Long-term interest rate and currency hedges areprovided by banks, including the Group, to manage these risks. These long-term hedge
exposures have volatile mark to market characteristics which are unsupported by collateralised
security agreements for out of the money positions. Counterparty insolvency has the potential
to expose the Group to large uncovered derivative liabilities; andPage 9 of 21•the dairy industry in Australia and New Zealand, which is particularly exposed to excess milk
production from other developed countries being sold into traditional markets, could bematerially and adversely impacted by a decline in commodity prices.

Credit risk may also arise from certain derivative, clearing and settlement contracts the Group
enters into, and from the Group’s dealings with, and holdings of, debt securities issued by otherbanks, financial institutions, companies, governments and government bodies where the financial
conditions of such entities are affected by economic conditions in global financial markets.
The risk of credit-related losses may also be increased by a number of factors, including
deterioration in the financial condition of the economies in which the Group operates, a sustained
high level of unemployment in the markets in which the Group operates, more expensive imports
into Australia and New Zealand due to the reduced strength of the Australian and New Zealanddollars relative to other currencies, a deterioration of the financial condition of the Group’s
counterparties, a reduction in the value of assets the Group holds as collateral, and a reduction in
the market value of the counterparty instruments and obligations it holds.
In addition, in assessing whether to extend credit or enter into other transactions with customers
and/or counterparties, the Group relies on information provided by or on behalf of customers
and/or counterparties, including financial statements and other financial information. The Group
may also rely on representations of customers and independent consultants as to the accuracy andcompleteness of that information. The Group’s financial performance could be negatively impacted
to the extent that it relies on information that is inaccurate or materially misleading.
The Group holds provisions for credit impairment. The amount of these provisions is determined byassessing the extent of impairment inherent within the Group’s lending portfolio, based on current
information. This process, which is critical to the Group’s financial condition and results, requires
subjective and complex judgements, including forecasts of how current and future economic
conditions might impair the ability of borrowers to repay their loans. However, if the information
upon which the assessment is made proves to be inaccurate or if the Group fails to analyse theinformation correctly, the provisions made for credit impairment may be insufficient, which could
have a material adverse effect on the Group’s business, operations and financial condition.
8. Challenges in managing the Group’s capital base could give rise to greater volatility
in capital ratios, which may adversely affect the Group’s business, operations andfinancial condition
The Group’s capital base is critical to the management of its businesses and access to funding.
Prudential regulators of the Group include, but are not limited to, APRA, RBNZ and various
regulators in the, United States, the United Kingdom and the countries in the Asia Pacific region.
The Group is required by its primary regulator, APRA, to maintain adequate regulatory capital.
Under current regulatory requirements, risk-weighted assets and expected loan losses increase asa counterparty’s risk grade worsens. These regulatory capital requirements are likely to compoundthe impact of any reduction in capital resulting from lower profits in times of stress. As a result,greater volatility in capital ratios may arise and may require the Group to raise additional capital.
There can be no certainty that any additional capital required would be available or could be raisedon reasonable terms.
The Group’s capital ratios may be affected by a number of factors, such as (i) lower earnings(including lower dividends from its deconsolidated subsidiaries such as those in the insurance andfunds management businesses as well as from its investment in associates), (ii) increased asset
growth, (iii) changes in the value of the Australian dollar against other currencies in which theGroup operates (particularly the New Zealand dollar and U.S. dollar) that impact risk weighted
assets or the foreign currency translation reserve and (iv) changes in business strategy (including
acquisitions, divestments and investments or an increase in capital intensive businesses).
APRA has now implemented prudential standards to accommodate Basel 3. Certain otherregulators have either implemented or are in the process of implementing regulations, including
Basel 3, which seek to strengthen, among other things, the liquidity and capital requirements ofbanks, funds management entities and insurance entities, though there can be no assurance thatthese regulations have had or will have their intended effect. Some of these regulations, together
with any risks arising from any regulatory changes (including those arising from APRA’s response
Page 10 of 21

to the remaining FSI recommendations, further changes from APRA’s unquestionably strong
requirements or the requirements of the BCBS), are described in risk factor 4 "Regulatory changes
or a failure to comply with laws, regulations or policies may adversely affect the Group’s business,
operations or financial condition".
9. The Group’s credit ratings could change and adversely affect the Group’s ability toraise capital and wholesale funding and constrain the volume of new lending which
may adversely affect the Group’s business, operations, financial condition andreputation
The Group’s credit ratings have a significant impact on both its access to, and cost of, capital andwholesale funding. Credit ratings may be withdrawn, qualified, revised or suspended by credit
rating agencies at any time. The methodologies by which they are determined may also be revised
in response to legal or regulatory changes, market developments or for any other reason.
Since May 2017, Fitch, Standard & Poor’s and Moody’s affirmed or revised their respective ratingsand outlooks of the major Australian banks, including the Group, as follows:•

Fitch (February 2018): Affirmed the ratings of the major Australian banks, including ANZ, witha stable outlook;•

Moody’s (January 2018): Affirmed the rating of ANZ, with a stable outlook;•

Standard & Poor’s (May 2017): Lowered its assessment of Australia’s Banking Industry Country
Risk Assessment (“BICRA”) from 2 to 3 and subsequently lowered its assessment of thestandalone credit profiles of almost all financial institutions operating in Australia including ANZ.
This resulted in the downgrading of the ratings on hybrid and subordinated debt instruments
issued by ANZ and ANZ New Zealand by one notch (Basel 2 subordinated debt: downgradedfrom A- to BBB+; Basel 3 subordinated debt: downgraded from BBB+ to BBB; hybrid debt:
downgraded from BBB- to BB+). ANZ’s and ANZ New Zealand’s long term ratings remained at
AA- with negative outlook; and•Moody’s (June 2017): Revised its outlook for Australia’s macro profile from “Very Strong
negative”, to “Strong plus” and downgraded the long-term rating of ANZ (alongside the otherthree major Australian banks) from Aa2 to Aa3. In addition, ANZ’s hybrid and subordinateddebt were downgraded by one notch. Moody’s also revised the outlook for ANZ (and the othermajor Australian banks) from negative to stable. The long-term rating of ANZ New Zealand was
also downgraded one notch to A1 from Aa3, and the hybrid and subordinated debt downgradedby one notch. The outlook for ANZ New Zealand was revised from negative to stable.

The Group’s credit ratings could be revised at any time in response to a change in the credit ratingof the Commonwealth of Australia.
In addition, the ratings of individual securities (including, but not limited to, certain Tier 1 capitaland Tier 2 capital securities and covered bonds) issued by the Group (and other banks globally)
could be impacted from time to time by changes in the regulatory requirements for those
instruments as well as the ratings methodologies used by rating agencies.
Any future downgrade or potential downgrade to the Group’s credit rating may reduce access tocapital and wholesale debt markets, which could lead to an increase in funding costs, constraining
the volume of new lending and affect the willingness of counterparties to transact with the Group,
which may adversely affect the Group’s business, operations, financial condition and reputation.
Credit ratings are not a recommendation by the relevant rating agency to invest in securities
offered by the Group.
10. Disruption of information technology systems or failure to successfully implement
new technology systems could significantly interrupt the Group’s business, which
may adversely affect the Group’s business, operations and financial condition
The Group and its service offerings (including digital banking) are highly dependent on information
systems applications and technology. Therefore, there is a risk that these information systems
applications and technology, or the services the Group uses or is dependent upon, might fail,including because of unauthorised access or use.

Page 11 of 21

Most of the Group’s daily operations are computer-based and information systems applications andtechnology are essential to maintaining effective communications with customers. The Group isalso conscious that threats to information systems applications and technology are continuously
evolving and that cyber threats and risk of attacks are increasing. The Group may not be able toanticipate or implement effective measures to prevent or minimise disruptions that may be causedby all cyber threats because the techniques used can be highly sophisticated and those
perpetuating the attacks may be well-resourced. The exposure to systems risks includes thecomplete or partial failure of information technology systems, or data centre infrastructure, theinadequacy of internal and third-party information technology systems due to, among other things,
failure to keep pace with industry developments and the inability of the existing systems toeffectively accommodate growth, prevent unauthorised access and integrate existing and futureacquisitions and alliances.
To manage these risks, the Group has disaster recovery and information technology governance inplace. However, there can be no guarantee that the steps the Group is taking in this regard will beeffective and any failure of these systems could result in business interruption, customer
dissatisfaction, legal or regulatory breaches and liability and ultimately loss of customers, financial
compensation, damage to reputation and/or a weakening of the Group’s competitive position,
which could adversely impact the Group’s business and have a material adverse effect on theGroup’s business, operations and financial condition.
In addition, the Group has an ongoing need to update and implement new information systems
applications and technology, in part to assist the Group in satisfying regulatory demands, ensuring
information security, enhancing digital banking services for the Group’s customers and integrating
the various segments of the Group’s business. For example, the Group has recently implemented
voice biometrics for customer transactions on mobile devices and working towards implementing
the industry New Payments Platform (which will be an open access infrastructure for fast payments
in Australia). The Group may not implement these projects effectively or execute them efficiently,
which could lead to increased project costs, delays in the ability to comply with regulatory
requirements, failure of the Group’s information security controls or a decrease in the Group’s
ability to service its customers. ANZ New Zealand relies on the Group to provide a number of
information technology systems, and any failure of the Group’s systems could directly affect ANZ
New Zealand.
11. Risks associated with information security including cyber-attacks, may adversely
affect the Group’s business, operations, financial condition and reputation
Information security means protecting information and information systems from unauthorised
access, use, disclosure, disruption, modification, perusal, inspection, recording or destruction. As abank, the Group handles a considerable amount of personal and confidential information about its
customers and its own internal operations, including in Australia, New Zealand, India, the UnitedStates, Europe, Singapore and China.
The Group operates in 34 countries and the risks to its systems are inherently higher in certain
countries where, for example, political threats or targeted cyber-attacks by terrorist or criminalorganisations are greater.
The Group employs a team of information security experts who are responsible for thedevelopment and implementation of the Group’s Information Security Policy. The Group also uses
third parties to process and manage information on its behalf, and any failure by such third parties
could adversely affect the Group’s business.
The Group is conscious that threats to information systems are continuously evolving and thatcyber threats, including but not limited to, cyber compromise, advanced persistent threats,
distributed denial of service, malware and ransomware attacks, and the risk of such attacks are
increasing, and as such the Group may be unable to develop policies and procedures to adequately
address or mitigate such risks. Accordingly, information about the Group and/or its clients may be
inadvertently accessed, inappropriately distributed or illegally accessed or stolen.

Page 12 of 21

The Group may not be able to anticipate or to implement effective measures to prevent or
minimise damage that may be caused by all information security threats because the techniques
used can be highly sophisticated and those perpetuating the attacks may be well resourced. Any
unauthorised access of the Group’s information systems or unauthorised use of its confidential
information could potentially result in disruption of the Group’s operations, breaches of privacy
laws, regulatory sanctions, legal action, and claims for compensation or erosion to the Group’s
competitive market position, which could adversely affect the Group’s business, operations,financial conditions and reputation.
12. Disruption to electricity markets and gas markets may adversely affect the Group’sbusiness, operations and financial condition
During 2016 and 2017, there have been various events in Australia that have affected retail,commercial and industrial electricity and gas users. These events include the closure of theHazelwood coal power station in Victoria, black-outs in South Australia, export demand forQueensland liquefied natural gas and announcements relating to energy policy and investment by
the Australian federal government and the South Australian state government.
Some of these events resulted in higher electricity and gas prices, as well as disruption toelectricity and gas markets. The cost of sustained high prices may flow through to business andconsumers. The potential inability of businesses to pass through this cost increase to customers
may lead to credit risk associated with the Group’s customers. The impact of higher electricity costfor consumers could lead to reduced consumption and indirectly impact the demand for goods andservices, contributing to lower business profitability. Higher electricity costs may also increase theConsumer Price Index and influence upward adjustments to interest rate settings.
These effects may adversely affect the Group’s customers or the Group’s collateral position in
relation to credit facilities extended to such customers, which may adversely affect the Group’sbusiness, operations and financial condition.

13. Impact of future climate change, geological events, plant, animal and humandiseases, and other extrinsic events may adversely affect the Group’s business,
operations and financial condition
The Group and its customers are exposed to climate related events, including climate change.
These events include severe storms, drought, fires, cyclones (for example Cyclone Debbie in March2017 and Cyclone Marcus in March 2018), hurricanes, floods and rising sea levels. The Group andits customers may also be exposed to other events such as geological events (including volcanic
seismic activity or tsunamis), plant, animal and human diseases or a pandemic.
Depending on their severity, events such as these may temporarily interrupt or restrict theprovision of some local or Group services, and may also adversely affect the Group’s financial
condition or collateral position in relation to credit facilities extended to customers, which may
adversely affect the Group’s business, operations and financial condition.

14. Liquidity and funding risk events may adversely affect the Group’s financial
performance, liquidity, capital resources, business, operations and financial
condition
Liquidity risk is the risk that the Group is unable to meet its payment obligations as they fall due(including repaying depositors or maturing wholesale debt) or that the Group has insufficient
capacity to fund increases in assets. Liquidity risk is inherent in all banking operations due to thetiming mismatch between cash inflows and cash outflows.
Reduced liquidity could lead to an increase in the cost of the Group’s borrowings and constrain thevolume of new lending, which could adversely affect the Group’s profitability. Deterioration in
investor confidence in the Group could materially impact the Group’s cost of borrowing, and theGroup’s ongoing operations and funding.

Page 13 of 21

The Group raises funding from a variety of sources, including customer deposits and wholesalefunding in Australia and offshore markets to meet its funding obligations and to maintain or growits business generally. In times of liquidity stress, if there is damage to market confidence in theGroup or if funding inside or outside of Australia is not available or constrained, the Group’s ability
to access sources of funding and liquidity may be constrained and it will be exposed to liquidity
risk. In any such cases, the Group may be forced to seek alternative funding. The availability ofsuch alternative funding, and the terms on which it may be available, will depend on a variety offactors, including prevailing market conditions and the Group’s credit ratings (which are strongly
influenced by Australia’s sovereign credit rating). Even if available, the cost of these funding
alternatives may be more expensive or on unfavourable terms, which could adversely affect theGroup’s financial performance, liquidity, capital resources, business, operations and financial
condition.
Since the advent of the global financial crisis in 2007, developments in major markets (including
the United States, Europe and China) have adversely affected the liquidity in global capital
markets and increased funding costs, for significant periods, compared with the period
immediately preceding the global financial crisis.
More recently, the provision of significant amounts of liquidity by major central banks globally has
helped mitigate near term liquidity concerns, although no assurance can be given that suchliquidity concerns will not return, particularly when this liquidity is incrementally withdrawn by
central banks. The manner in which this process unfolds over the coming years will be a major
determinant of market conditions and a deterioration in market conditions may limit the Group’s
ability to replace maturing liabilities and access funding in a timely and cost-effective mannernecessary to fund and grow the Group’s businesses.
15. Changes in monetary policies may adversely affect the Group’s business, operations
and financial condition
Central monetary authorities (including the RBA, the RBNZ, the United States Federal Reserve, theBank of England and the monetary authorities in the Asian jurisdictions in which the Group
operates) set official interest rates or take other measures to affect the demand for money andcredit in their relevant jurisdictions. For instance, the U.S. Federal Reserve increased interest rates
in December 2016, March, June and December 2017, and March 2018, though the Australian
Reserve Bank lowered interest rates in May 2016 and August 2016 and has since kept the interest
rates on hold. In addition, in some jurisdictions, currency policy is also used to influence generalbusiness conditions and the demand for money and credit. These measures and policies cansignificantly affect the Group’s cost of funds for lending and investing and the return that theGroup will earn on those loans and investments. These factors impact the Group’s net interest
margin and can affect the value of financial instruments it holds, such as debt securities andhedging instruments. The measures and policies of the central monetary authorities can also affect
the Group’s borrowers, potentially increasing the risk that they may fail to repay loans. Changes ininterest rates and monetary policy are difficult to predict and may adversely affect the Group’sbusiness, operations and financial condition.
16. Acquisitions and/or divestments
operations and financial conditionmayadversely

affectthe Group’s business,

The Group regularly examines a range of corporate opportunities, including acquisitions anddivestments, with a view to determining whether those opportunities will enhance the Group’s
strategic position and financial performance.
Divestments that the Group has recently announced but not yet completed include:•

OnePath Pensions and Investments (P&I) and aligned dealer group businesses in Australia;
and•

One Path life insurance business in Australia.

The transactions above remain subject to regulatory approvals and other completion conditions.
During the six months to 31st March 2018:•

The Group completed the divestment of a 20% interest in Metrobank Card Corporation (theGroup also has a put option to sell the Group's remaining 20% interest);•

The Group completed the divestment of a 20% interest in Shanghai Rural Commercial Bank;
Page 14 of 21

•

The Group finalised the sale of its retail and wealth businesses in Indonesia, Taiwan and
Vietnam (in addition to China, Singapore and Hong Kong which completed during thepreceding financial year); and•The Group announced on 12th January 2018 that the agreement to sell UDC Finance Limited(“UDC”) to HNA Group had been terminated and the proposed divestment will not complete
following the Group’s previous announcement on 21 December 2017 that New Zealand's
Overseas Investment Office had declined HNA Group's application to acquire UDC. The Group
continues to assess its strategic options regarding the future ownership of UDC.

There can be no assurance that any acquisition (or divestment) would have the anticipatedpositive results, including results relating to the total cost of integration (or separation), the timerequired to complete the integration (or separation), the amount of longer-term cost savings, theoverall performance of the combined (or remaining) entity, or an improved price for the Group’s
securities. Additionally, there are risks relating to the completion of any particular transaction
occurring, including counterparty and settlement risk, or the non-satisfaction of any completion
conditions (for example, relevant regulatory or third party approvals). The Group’s operating
performance, risk profile and capital structure may be affected by these corporate opportunities
and there is a risk that the Group’s credit ratings may be placed on credit watch or downgraded if
these opportunities are pursued.
Integration (or separation) of an acquired (or divested) business can be complex and costly,
sometimes including combining (or separating) relevant accounting and data processing systems,
and management controls, as well as managing relevant relationships with employees, customers,
regulators, counterparties, suppliers and other business partners. Integration (or separation)
efforts could create inconsistencies in standards, controls, procedures and policies, as well as
diverting management attention and resources. This could adversely affect the Group’s ability to
conduct its business successfully and impact the Group’s operations or results. Additionally, there
can be no assurance that employees, customers, counterparties, suppliers and other business
partners of newly acquired (or retained) businesses will remain post-acquisition (or postdivestment), and the loss of employees, customers, counterparties, suppliers and other business
partners could adversely affect the Group’s operations or results. Further, there is a risk thatcompletion of an agreed transaction may not occur, including due to failure of the counterparty tosatisfy its completion conditions or because other completion conditions such as obtaining relevant
regulatory approvals are not satisfied.
17. Sovereign risk events may destabilise global financial markets and may adversely
affect the Group’s liquidity, business, operations and financial condition
Sovereign risk is the risk that foreign governments will default on their debt obligations, be unable
to refinance their debts as and when they fall due or nationalise parts of their economy. Sovereignrisk remains in many economies, including the United States, the United Kingdom, China, Europe
and Australia. Should one sovereign default, there could be a cascading effect to other markets
and countries, the consequences of which, while difficult to predict, may be similar to or worse
than those experienced during the global financial crisis and subsequent sovereign debt crises.
Such events could destabilise global financial markets and adversely affect the Group’s liquidity,
business, operations and financial condition.
18. Market risk events may adversely affect the Group’s business, operations andfinancial condition
Market risk is the risk of loss arising from adverse changes in interest rates, currency exchange
rates, credit spreads, or from fluctuations in bond, commodity or equity prices. For purposes offinancial risk management, the Group differentiates between traded and non-traded market risks.
Traded market risks principally arise from the Group’s trading operations in interest rates, foreignexchange, commodities and securities. The non-traded market risk is predominantly interest raterisk in the banking book. Other non-traded markets risks include transactional and structuralforeign exchange risk arising from capital investments in offshore operations, non-traded equity
risk and lease residual value risk.

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19. Changes in exchange rates may adversely affect the Group’s business, operations
and financial condition
As the Group conducts business in several different currencies, its businesses may be affected by achange in currency exchange rates. Additionally, as the Group’s annual and interim reports areprepared and stated in Australian dollars, any appreciation in the Australian dollar against othercurrencies in which the Group earns revenues (particularly to the New Zealand dollar and U.S.
dollar) may adversely affect the Group’s reported earnings.
The Group has put in place hedges to partially mitigate the impact of currency changes, but there
can be no assurance that the Group’s hedges will be sufficient or effective, and any further
appreciation could have an adverse impact upon the Group’s earnings.
20. Operational risk events may adversely affect the Group’s business, operations andfinancial condition
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people
and systems or from external events. This definition includes legal risk, and the risk of reputationalloss or damage arising from inadequate or failed internal processes, people, systems, managementof data and data integrity, but excludes strategic risk.
Operational risk is typically classified into risk event type categories to measure and compare risks
on a consistent basis. Examples of operational risk events according to category are as follows:
•
•

•
•
•

•
•
•

Internal Fraud: associated with the Group’s employees acting outside their normal
employment conditions/procedures to create a financial advantage for themselves or others;
External Fraud: fraudulent acts or attempts which originate from outside the Group, morecommonly associated with digital banking, lending, and cards products. Specific threats include
ATM skimming, malware and phishing attacks and fraudulent applications and transactions,where financial advantage is obtained;
Employment Practices and Workplace Safety: employee relations, diversity and discrimination,and health and safety risks to the Group’s employees;
Loss of key staff or inadequate management of human resources including the Chief Executive
Officer (CEO) and the management team of the CEO;Clients, Products and Business Practices: risk of market manipulation, product defects,
incorrect advice, money laundering and misuse or unauthorised disclosure of customer
information;
Business Disruption (including systems failures): risk that the Group’s banking operating
systems are disrupted or fail;
Damage to Physical Assets: risk that a natural disaster or terrorist or vandalism attack
damages the Group’s buildings or property; andExecution, Delivery and Process Management: is associated with losses resulting from, among
other things, process errors made by the Group’s employees caused by inadequate or poorly
designed internal processes, or the poor execution of standard processes, vendor, supplier oroutsource provider errors or failed mandatory reporting errors.

Loss from operational risk events could adversely affect the Group’s business, operations andfinancial condition. Such losses can include fines, penalties, loss or theft of funds or assets, legal
costs, customer compensation, loss of shareholder value, reputation loss, loss of life or injury topeople, and loss of property and/or information.
21. Reputational risk events may adversely affect the Group’s business, operations andfinancial condition
Reputational risk may arise as a result of an external event or the Group’s own actions, andadversely affect perceptions about the Group held by the public (including the Group’s customers),
shareholders, investors, regulators or rating agencies. The impact of a risk event on the Group’s
reputation may exceed any direct cost of the risk event itself and may adversely impact theGroup’s business, operations and financial condition.

Page 16 of 21

The Group may incur reputational damage where one of its practices fails to meet evolving
community expectations. As these expectations may exceed the standard required in order tocomply with applicable law, the Group may incur reputational damage even where it has met its
legal obligations. A divergence between community expectations and the Group’s practices could
arise in a number of ways, including in relation to our product and services disclosure practices,pricing policies and use of data.
Damage to the Group’s reputation may also have wide-ranging impacts, including adverse effects
on the Group’s profitability, capacity and cost of sourcing funding, increased regulatory scrutiny
and availability of new business opportunities. The Group’s ability to attract and retain customers
could also be adversely affected if the Group’s reputation is damaged, which could adversely affect
the Group’s business, operations and financial condition.
22. Conduct-related risk events or behaviours that do not appropriately consider theinterests of consumers, the integrity of financial markets and the expectations of thecommunity may adversely affect the Group’s business, operations, financial
condition and reputation
Conduct-related risks can result from:
•
•
•
•
•
•
•

the provision of unsuitable or inappropriate advice (for example, advice that is notcommensurate with a customer’s needs and objectives or appetite for risk);
the representation of, or disclosure about, a product or service which is inaccurate, or does notprovide adequate information about risks and benefits to customers;a failure to deliver product features and benefits in accordance with terms, disclosures,
recommendations and/or advice;a failure to appropriately avoid or manage conflicts of interest;
sales and/or promotion processes (including incentives and remuneration for staff engaged inpromotion, sales and/or the provision of advice);the provision of credit, outside of the Group’s policies and standards; andtrading activities in financial markets, outside of the Group’s policies and standards.

The Group is regulated under various legislative regimes in the countries in which it operates thatprovide for customer protection in relation to advisory, marketing and sales practices. These may
include, but are not limited to, appropriate management of conflicts of interest, appropriate
accreditation standards for staff authorised to provide advice about financial products and services,disclosure standards, standards for ensuring adequate assessment of client/product suitability,
quality assurance activities, adequate record keeping, and procedures for the management ofcomplaints and disputes.
Since September 2014, the Australian Senate Economics References Committee has been
conducting an inquiry into aspects of the financial advice industry, including unethical or
misleading financial advice and compensation processes for consumers impacted by that advice. In
June 2017 the final report from the Australian Senate Economic References Committee on the
Scrutiny of Financial Advice was released and stated that the culture and practises of the financial
advice industry “fall well short of the public’s expectations”. The current Royal Commission may
have negative outcomes which could result in discoveries that may adversely affect the Group’sbusiness, operations, financial condition and reputation. Inappropriate advice about financial
products and services may result in material litigation (and associated financial costs) and together
with the failure to avoid or manage conflicts of interest and/or inadequate improvement to culture
and practises, may expose the Group to regulatory actions, restrictions or conditions on banking
licences and/or reputational consequences which could adversely affect the Group's business,
operations, financial condition and reputation.
23. Unexpected changes to the Group’s license to operate in any jurisdiction may
adversely affect the Group’s business, operations and financial condition
The Group is licensed to operate in various countries, states and territories. Unexpected changes
in the conditions of the licenses to operate by governments, administrations or regulatory agencies
which prohibit or restrict the Group from trading in a manner that was previously permitted may
adversely impact the Group’s business, operations and financial condition.

Page 17 of 21

24. Insurance risk events may adversely affect the Group’s business, operations andfinancial condition
Insurance risk is the risk of loss due to unexpected changes in current and future insurance claim
rates. The Group is exposed to insurance risk events, predominantly in the Group’s life insurance
business in Australia which is a Discontinued Operation, the sale of which is expected in early
Financial Year 2019. In the Group’s life insurance business, insurance risk arises primarily throughmortality (death) and morbidity (illness and injury) risks being greater than expected and, in thecase of annuity business, should annuitants live longer than expected. If the Group incurs losses
due to insurance risk events, such losses may adversely affect the Group’s business, operations
and financial condition.
25. Increasing compliance costs, the risk of heightened penalties and ongoing regulatory
scrutiny with respect to the significant obligations imposed by global tax reporting
regimes (which are still evolving), may adversely affect the Group’s business,
operations, financial condition and reputation
There have been important and substantial changes to, and increasing regulatory focus on,compliance by all global financial institutions, including the Group, with global tax reporting
regimes, including the United States (“U.S.”) Foreign Account Tax Compliance Act (“FATCA”), theOECD’s Common Reporting Standard (“CRS”) and similar anti-tax avoidance regimes. Current
regulatory focus also includes enforcement and the due implementation of detailed global tax
reporting rules and frameworks to eliminate the circumvention of global tax reporting regimes andenforcement in the case of non-compliance.
As a global financial institution, the Group operates in a high volume and globally interlinked
operating environment. The highly complex and rigid nature of the obligations under the various
global tax reporting regimes in this context present heightened operational and compliance risks
for the Group. This may be coupled with the current increased regulatory scrutiny of global
financial institutions (including the Group) and the increasing trend in compliance breaches by
global financial institutions and related fines for non-compliance in general. Accordingly,
compliance with global tax reporting regimes will continue to be a key area of focus for the Group.
The scale and complexity of the Group, like other global financial institutions, means that the riskof inadvertent non-compliance with the FATCA, CRS and other tax reporting regimes is high. A
failure to successfully operate the implemented processes could lead to legal, financial andreputational consequences for the Group and its employees. Consequences include fines, criminaland civil penalties, civil claims, reputational harm, competitive disadvantage, loss of business andconstraints on doing business. These consequences, individually or collectively, could have an
adverse effect on the Group’s business, operations, financial condition and reputation.
FATCA requires financial institutions globally to undertake ongoing and extensive customer based
obligations, including collecting and providing information on account holders who are identified as
U.S. citizens or tax residents to the U.S. Internal Revenue Service (“IRS”), either directly or via
local tax authorities.
The CRS provides for the Automatic Exchange of (financial account) Information in tax matters.
Over 100 jurisdictions have committed to implement the CRS which now impacts the vast majorityof the Group’s business globally. Early implementation phases have commenced in many countries
in which the Group has operations, for example, Australia, New Zealand, Cayman Islands, Hong
Kong, Japan, Singapore and the United Kingdom.
Implementation is also required, but presents unique challenges in, developing countries where
the Group has operations, such as in the Pacific region. The local regulators in these countries are
generally assisted by a ‘partner’ country which may introduce standards which can be challenging
to implement.
CRS requirements, though similar to FATCA in spirit, have considerable country by country
variations and may have more significant and negative customer experience ramifications. For
example, CRS requires a higher standard of compliance in many respects, such as collection ofself-certification at the point of account opening, with significant penalties for non-collection or
failed reporting in respect of prescribed customer information.

Page 18 of 21

As one example of tightening regulatory focus, the OECD and certain countries the Group operates
within are now moving to mandate blocking (and eventual closure) of accounts where any aspectof the detailed requirements for collection have not been met (e.g. failure to provide the requisite
tax identification number(s)). Along with being a significant negative experience for the relevant
customers, this can also lead to an adverse effect on the Group’s business, operations, financial
condition and reputation (and if not similarly implemented by financial institution counterparts,
significant competitive disadvantage).
Ongoing OECD peer review and other regulatory review activities are also already resulting infurther extension and expansion of existing obligations together with increased focus oncompliance with the CRS pushing each country of adoption to ensure that its penalty regime issufficiently adequate to deter financial institution, intermediary and customer non-compliance.
In line with other global financial institutions, the Group has made, and is expected to continue tomake, significant investments in order to ensure ongoing compliance with the extensive andevolving requirements of FATCA, the CRS, avoidance and loophole model rules and the various
other in-country tax reporting initiatives in each country within its global network.
26. Changes in the valuation of some of the Group’s assets and liabilities may have amaterial adverse effect on the Group’s earnings and/or equity
The Group applies accounting standards which require that various financial instruments, including
derivative instruments, assets and liabilities classified as held for sale (where fair value is lower
than the carrying values) and certain other assets and liabilities (as per the Notes to the Group’s
2018 Half Year Results) are recognised at fair value with changes in fair value recognised inearnings or equity.
Generally, in order to establish the fair value of these instruments, the Group relies on quoted
market prices or, where the market for a financial instrument is not sufficiently active, fair values
are based on present value estimates or other accepted valuation techniques which incorporate
the impact of factors that would influence the fair value as determined by a market participant.
The fair value of these instruments is impacted by changes in market prices or valuation inputs
which could have a material adverse effect on the Group’s earnings.
In addition, the Group may be exposed to a reduction in the value of non-lending related assets asa result of impairments which are recognised in earnings. The Group is required to assess therecoverability of goodwill balances at least annually and other non-financial assets including
premises and equipment, investment in associates, capitalised software and other intangible
assets (including acquired portfolio of insurance and investment business and deferred acquisition
costs) where there are indicators of impairment.
For the purpose of assessing the recoverability of the goodwill balances, the Group uses either adiscounted cash flow or a multiple of earnings calculation. Changes in the assumptions upon which
the calculation is based, together with expected changes in future cash flows, could materially
impact this assessment, resulting in the potential write-off of a part or all of the goodwill balances.
In respect of other non-financial assets, in the event that an asset is no longer in use, or that the
cash flows generated by the asset do not support the carrying value, impairment may be recorded.
27. Changes to accounting policies may adversely affect the Group’s financial position
and results of operations
The accounting policies that the Group applies are fundamental to how it records and reports its
financial position and results of operations. Management must exercise judgement in selecting andapplying many of these accounting policies so that they not only comply with the applicableaccounting standards or interpretations but that they also reflect the most appropriate manner inwhich to record and report on the Group’s financial position and results of operations. However,these accounting policies may be applied inaccurately, resulting in a misstatement of the Group’s
financial position and results of operations. In addition, the application of new or revised
accounting standards or interpretations could have a material adverse effect on the Group’s
financial position and results of operations.

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In some cases, management must select an accounting policy from two or more alternatives, anyof which might comply with the relevant accounting standard or interpretation to the Group and bereasonable under the circumstances, yet might result in reporting materially different outcomesthan would have been reported under the alternative.
28. Litigation and contingent liabilities may adversely affect the Group’s business,
operations, financial condition and reputation
From time to time, the Group may be subject to material litigation, regulatory actions, legal or
arbitration proceedings and other contingent liabilities which may adversely affect the Group’sbusiness, operations and financial condition.
The Group had contingent liabilities as at March 31, 2018 in respect of the matters outlined in Note
19 to the Group’s 2018 Half Year Results.
Note 19 includes, among other things, descriptions of: bank fees litigation;
 benchmark/rate actions;
 franchisee litigation;
 regulatory reviews and customer exposures;
 the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services
Industry; and security recovery actions.
In recent years there has been an increase in the number of matters on which the Group engages
with its regulators. There have been significant increases in the nature and scale of regulatory
investigations and reviews, enforcement actions (whether by court action or otherwise) and thequantum of fines issued by regulators, particularly against financial institutions both in Australia
and globally. The Group also instigates engagement with its regulators. The nature of theseinteractions can be wide ranging and, for example, currently include a range of matters including
responsible lending practices, product suitability, wealth advice, pricing and competition, conduct
in financial markets and capital market transactions and product disclosure documentation . The
Group has received various notices and requests for information from its regulators as part of bothindustry-wide and Group-specific reviews and has also made disclosures to its regulators at its own
instigation. There may be exposures to customers which are additional to any regulatory
exposures. These could include class actions, individual claims or customer remediation orcompensation activities. The outcomes and total costs associated with such matters and possible
exposures remain uncertain.
There is a risk that contingent liabilities may be larger than anticipated or that additional litigation,
regulatory actions, legal or arbitration proceedings or other contingent liabilities may arise.

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Responsibility statement of the Directors of ANZBGL in accordance with DTR
4.2.10 R (3)(b) of the Disclosure and Transparency Rules of the United
Kingdom Financial Conduct Authority
The Directors of Australia and New Zealand Banking Group Limited confirm to the best of
their knowledge that:
ANZ’s 2018 Half-Yearly Financial Report (as defined on page 1 of this DTR half-yearlyfinancial report submission) includes a fair review of:(i)an indication of the important events that have occurred during the first six
months of the financial year, and their impact on the Condensed Consolidated
Financial Statements; and(ii)

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

Signed in accordance with a resolution of the Directors.

David M Gonski, AC
ChairmanShayne C Elliott
Director

30 April 2018

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