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

Consolidated Financial Report
Dividend Announcement
and Appendix 4D

Half year
31 March 2004

This Financial Report on the consolidated Group constitutes the Appendix 4D required by the Australian Stock
Exchange, and should be read in conjunction with the September 2003 Annual Financial Report.

Corporate Affairs
Level 22, 100 Queen Street
Melbourne Vic 3000
Facsimile 03 9273 4899
www.anz.com

For Release: 27 April 2004

ANZ interim cash earnings per share up 11%
Profit after tax (compared with first half 2003)• $1,396 million - up 22%• $1,312 million excluding significant items - up 15%• $1,241 million underlying* - up 10%
Earnings per share 76.8 cents - up 11%
Cash EPS excluding significant transactions 78.9 cents - up 11%
Interim dividend 47 cents - up 11% (adjusted for rights issue)
Cost-income ratio 45.1% - down from 45.6% (excluding significant items)
Return on equity 18.4% - down from 20.3% (excluding significant items)
Risk reduced, sustainability improved• Net specific provisions $196 million - down 24%• International assets down 19%• Australia and New Zealand account for 93% of total assets• Net non-accrual loans reduced by 14%• Average trading value at risk $1.4m million at 97.5% confidence
Profit after tax (compared with second half 2003)• Headline - up 16%• Excluding significant items - up 9%• Underlying* - up 4%• Cash EPS (excluding significant items) - up 5%
NBNZ acquisition cash EPS accretive. Revenue attrition better than
expected. Integration planning completed with no change in expectedsynergies. ANZ expects RBNZ approval such that legal amalgamationand first phase integration can take place from 30 June with full
integration completed by end 2005.
*

Excluding NBNZ, significant items and base adjusted for TrUEPrS.
Australia and New Zealand Banking Group Limited ABN 11 005 357 522

Corporate Affairs
Level 22, 100 Queen Street
Melbourne Vic 3000
Facsimile 03 9273 4899
www.anz.com

For Release: 27 April 2004

ANZ interim cash earnings per share up 11%
Australia and New Zealand Banking Group Limited (ANZ) today announced an operating profit
after tax of $1,396 million for the half year ended 31 March 2004, up 22% on the same period lastyear. Earnings per share were 76.8 cents, up 11%.
Excluding significant transactions in the half, the profit after tax was $1,312 million, up 15% on thesame period last year. Underlying earnings (excluding significant items, The National Bank of New
Zealand and adjusting last year’s base earnings for TrUEPrS) were up 10%. Cash earnings per
share were 78.9 cents, up 11% on the same basis.
ANZ’s 2004 interim earnings include four months’ contribution from The National Bank of New
Zealand (NBNZ), which was acquired in December 2003. The acquisition has been immediately
accretive to earnings per share for the Group. It has given ANZ a much stronger, moresustainable and diversified domestic base, which has increased the opportunity and lowered theaverage business risk for the Group.
Asset growth was particularly strong. Excluding NBNZ, net loans and advances grew by 10%.
Costs continued to be well-managed and the cost-income ratio marginally improved to 45%.
Return on equity fell below 20%, mainly as a consequence of the acquisition of NBNZ.
In the half, risks continued to be reduced. Net specific provisions were down by 24%, net nonaccrual loans down by 14% and international assets 19% lower. Australia and New Zealand now
account for 93% of Group assets. Trading risk continued to be modest, with total average value atrisk of $1.4 million for all trading activities in the half at a 97.5% confidence level.
Compared with the strong second half of last year, first half profits were up 16%. Excluding
significant transactions earnings were up 9%. Underlying earnings were up 4% and cash earnings
per share excluding significant transactions were up 5%.
New Zealand integration is on track and synergies remain in line with those estimated in the rights
issue prospectus. Integration planning has been completed and a common management structure
is in place. The brand strategy to maximise customer retention has been finalised. Legalamalgamation of the two banks is targeted for 30 June 2004 and non-systems integration willproceed immediately after amalgamation. Full systems integration is expected by the end of 2005.
The Reserve Bank of New Zealand, in the context of national financial stability, now requires thatmajor banks including ANZ-National, are able to operate independently in the event of a crisis of
the bank or of their parent. The board of the bank in New Zealand, or a statutory manager acting
in place of the board, needs to have unambiguous authority and practical ability to operate thebank and control its affairs. ANZ is confident its proposals satisfy these requirements.
ANZ has submitted a two-phase plan to the Reserve Bank of New Zealand for approval with eachphase subject to separate approval. Discussions are well advanced and ANZ believes it will beable to move to the first phase on schedule. The second phase will require further detailed
discussion and this is currently in progress.
Australia and New Zealand Banking Group Limited ABN 11 005 357 522

ANZ Chief Executive Officer Mr John McFarlane said: "ANZ has had a solid first half driven bystrong asset growth and prudent management of margins, risks and capital.
“We have maintained momentum in our specialist businesses. Segments in the personal, small
business and corporate markets performed well. In particular, we have better than expected
results in Consumer Finance where changes to credit card programs following Reserve Bank
reforms were well managed, and in Personal Banking, which benefited from the rising interest rateenvironment. ING Australia showed substantial improvement. Mortgages had strong volumes but
suffered substantial margin squeeze. Institutional was subdued due to adverse exchange rate
movements and a strategic decision to reduce risk with consequent earnings sacrifice.
“Geographically, our businesses in Australia performed particularly well. New Zealand businesses
performed respectably, despite significant competitive attack and the normal uncertainties
associated with a major acquisition. International earnings increased despite unfavourable
exchange rate movements. Europe and North America came off their cyclical lows. Our Pacificbusinesses performed well, but Asia was subdued.
“Banking is a complex and cyclical business. We recognise there are concerns regarding thematurity of the banking industry and its position in this economic cycle, particularly with a risinginterest rate environment, a softening housing and consumer sector, and an ongoing focus on
corporate governance. While the move towards stronger regulation globally will have its positiveeffects, it also comes at a cost.
“At ANZ, we have taken considerable steps to create a strong diversified business foundation. We
now have a much stronger franchise across Australia, New Zealand and the Pacific, with a numberof leading positions.
“I am satisfied with our progress on integration in New Zealand. The increased regulatory
requirements relating to the management of a crisis are understandable given the market share of
the integrated bank. I am confident our plans will satisfy these requirements and achieve ourtargeted timetable and results for the combined bank.
“Our risk domestically and internationally, particularly in our Institutional businesses, has been
reduced substantially such that overall risk is approaching an optimal level.
“We will continue on our journey to improve the growth and sustainability of the Group and to lower
risk while maintaining earnings momentum. We have a well-developed and demonstrated
execution capability, with world-class efficiency and a strong leadership and management teamthat can manage the business well across the cycle.
"ANZ is now a very different bank. Our specialised business model is unique. Our move to cluster
our specialist businesses around customers to develop greater coherence and synergy, while
maintaining their individual vitality, should enable us to continue to advance our strategic position.
“We also recognise shareholders are looking for growth as well as safety. Notwithstanding its
challenges, we believe the domestic and international environment is in a positive phase and ourstrength particularly in the corporate area should be an advantage in the period ahead. Goingforward we will have a greater emphasis on identifying, and investing in, organic growth
opportunities, mostly in Australia.
“All in all, we believe the environment is sufficiently favourable for us to be confident about ourprospects for the year as a whole,” Mr McFarlane said.
For media enquiries contact:

For analyst enquiries contact:

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

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

ANZ Management Structure

Chief Executive Officer
John McFarlane

Chief Financial Officer
Peter Marriott

Chief Operating Officer
Bob Edgar
Group Development
Peter Hawkins

Risk
Mark Lawrence

Personal Banking
Brian Hartzer

Institutional
Steve Targett

New Zealand
Sir John Anderson

Operations
Mike Grime

Asia Pacific
Elmer Funke Kupper

Commences 01.06.04

People Capital
Shane Freeman

Personal and
Wealth Distribution
Greg Camm

Mortgages

EsandaCorporate

Chris Cooper

Elizabeth Proust

Graham Hodges

New ZealandIntegration
Graham Miller

Australia and New Zealand Banking Group Limited
ABN 11 005 357 522
CONSOLIDATED FINANCIAL REPORT AND DIVIDEND ANNOUNCEMENT
Half year ended 31 March 2004

CONTENTSPAGEHIGHLIGHTS

1

FINANCIAL HIGHLIGHTSNet Profit
Significant transactions
Profit excluding significant transactions
Performance Measurements
Impact of National Bank of New Zealand acquisition (excluding significant transactions)
Statement of Financial Position
Assets and Capital

2
2
2
2
3
4
5
6

CHIEF FINANCIAL OFFICER’S REVIEW

7

BUSINESS PERFORMANCE REVIEW19

GEOGRAPHIC SEGMENT PERFORMANCE59

RISK MANAGEMENT

67

COUNTRY EXPOSURES

74

FOUR YEAR SUMMARY BY HALF YEAR

77

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS80

AUDITORS’ REVIEW REPORT131

DEFINITIONS

132

ALPHABETICAL INDEX133

All amounts are in Australian dollars unless otherwise stated. The information on which this announcement is based
has been reviewed by the Group’s auditors, KPMG. The Company has a formally constituted Audit Committee of theBoard of Directors. This report was approved by resolution of a Committee of the Board of Directors on 26 April
2004.

HIGHLIGHTSCHIEF EXECUTIVE OFFICERJohn McFarlane

Half year results

ChangeMar ‘03

Net profit after tax$1,396m

22%$1,141m

NPAT excluding significant transactions1$1,312m

15%$1,141m

ChangeMar ‘0376.8 cents

11%

69.1 cents

78.9 cents

11%

71.0 cents

ChangeMar ‘03

Earnings per share2
1,2,3

Cash EPS excluding significant transactions

Dividends per share

47 cents

7%

44 cents

Rights adjusted dividends per share4

47 cents

11%42.2 cents

Return on shareholders’ equity

19.1%(1.2%)

20.3%

Net specific provisions$196m($63m)

$259m

45.1%

(0.5%)

45.6%

Cost to income

1.

2.
3.
4.
5.
6.

5,6

Significant transactions during the March 2004 half year included $84 million profit after tax and $35 million cash dividends related to the buy back of
TrUEPrS shares. ANZ believes that the exclusion of significant transactions provides investors with a measure of the performance of the operating
business without the distortion of one-off gains and losses. Refer page 2 for reconciliation to net profit
Prior period EPS measures have been adjusted for the rights issue during November 2003. Refer page 96 for details
Cash EPS excludes goodwill amortisation and notional goodwill amortisation on INGA
March 2003 dividend of 44 cents per share adjusted for bonus element of rights issue by multiplying by 0.9597. Refer Note 6 on page 96
Excludes significant transactions. Refer page 2
Excludes goodwill amortisation. Refer to page 118 for a reconciliation and an explanation of the usefulness of this adjusted measure

1

FINANCIAL HIGHLIGHTSNet Profit
Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03$M%%

Net interest income

2,509

2,171

2,140

16%

17%

Other operating income

1,683

1,456

1,352

16%

24%

Operating income

4,192

3,627

3,492

16%

20%

Operating expenses(1,902)(1,626)(1,602)

17%

19%

Profit before debt provision

2,290

2,001

1,890

14%

21%

Provision for doubtful debts

(313)

(311)

(303)

1%

3%

Profit before income tax

1,977

1,690

1,587

17%

25%

Income tax expense

(578)

(482)

(444)

20%

30%

Outside equity interests
Net profit attributable to shareholders of the Company

(3)

(1)

(2)

large

50%

1,396

1,207

1,141

16%

22%

110

-

-

n/a

n/a

2

-

-

n/a

n/a

(28)

-

-

n/a

n/a

-

-

-

n/a

n/a

84

-

-

n/a

n/a

Significant transactions1
TrUEPrS
Swap income
Interest
Income tax expense
Cash dividends

2

Net profit attributable to shareholders of the Company
1.
2.

Refer Note 1 for discussion of significant transactions
Cash dividend of $35 million does not affect profit and loss. It is, however, included in the calculation of EPS. Tax benefit on $48 million dividend paid in October2003 was recognised in the September 2003 half.

Profit excluding significant transactions
Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03$M%%

Net interest income

2,507

2,171

2,140

15%

17%

Other operating income

1,573

1,456

1,352

8%

16%

Operating income

4,080

3,627

3,492

12%

17%

Operating expenses(1,902)(1,626)(1,602)

17%

19%

Profit before debt provision

2,178

2,001

1,890

9%

15%

Provision for doubtful debts

(313)

(311)

(303)

1%

3%

Profit before income tax

1,865

1,690

1,587

10%

18%

Income tax expense

(550)

(482)

(444)

14%

24%

(3)

(1)

(2)

large

50%

1,312

1,207

1,141

9%

15%

Outside equity interests
Net profit excluding significant transactions

2

FINANCIAL HIGHLIGHTS (continued)
Performance Measurements
Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03
$M

870

828

744

Average ordinary shareholders' equity 2

19.1%

20.9%

20.3%

Average ordinary shareholders' equity 2 (excluding significant transactions 3)

18.4%

20.9%

20.3%

EVA TM 1
Profitability ratios
Return on:

Average assets

1.21%

1.24%

1.22%

Average risk weighted assets

1.60%

1.60%

1.57%

Total income

16.2%

17.4%

17.1%

Net interest average margin

2.53%

2.65%
2.64%

2.71%

Profit per average FTE ($)

53,22653,34851,077

Efficiency ratios 3
Operating expenses 4 to operating income (excluding significant transactions 3)

45.1%

44.6%

45.6%

Operating expenses 4 to operating income

43.9%

44.6%

45.6%

Operating expenses 4 (excluding significant transactions3) to average assets

1.6%

1.7%

1.7%

Operating expenses 4 to average assets

1.6%

1.7%

1.7%

Economic loss provisioning ($M)

313

311

303

Net specific provisions ($M)

196

268

259

Earnings per ordinary share (basic)

76.8

73.3

69.1

Earnings per ordinary share (diluted)

75.7

73.0

68.8

74.0

73.3

69.1

78.9

75.2

71.0

Debt provisioning

Earnings per ordinary share (cents)

5

Earnings per ordinary share (basic) excluding significant transactions

3

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

47

n/a

44

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

n/a

51

n/a

Dividend payout ratio 7

63.8%

67.0%
67.0%

61.3%

64

48

54

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

7.

TM

TM

EVA refers to Economic Value Added, a measure of shareholder value. See page 16 for a reconciliation of EVA to reported net profit and a discussion of EVATM
and an explanation of its usefulness as a performance measure
Average ordinary shareholders’ equity of $13,949 million excluding outside equity interests
Refer footnote 1 on page 1 for an explanation of the usefulness of adjusting profit to remove the impact of significant transactions. For a reconciliation to net
profit, see page 2
Excludes goodwill amortisation. Refer to page 118 for a reconciliation and an explanation of the usefulness of this adjusted measure
Prior period EPS measures have been adjusted for the rights issue in November 2003. Refer page 96 for details
Earnings used in ratio of $1,368 million (Sep 2003 half: $1,190 million; Mar 2003 half: $1,118 million) excludes significant transactions $84 million (Sep 2003
half: $nil; Mar 2003 half: $nil) and goodwill and notional goodwill amortisation $85 million (Sep 2003 half: $31 million; Mar 2003 half: $31 million) and deducts$35 million of preference share dividends
Dividend payout ratio is calculated using the proposed dividend as at 31 March 2004

3

FINANCIAL HIGHLIGHTS (continued)
Impact of National Bank of New Zealand acquisition (excluding significant transactions)Half year March 2004

N et interest incom e

A cquisitio n &funding 2

G ro u p ex
N B N Z & sig
tra n sa ctio n s$MG ro u p

NBNZ1

Integ ration
costs

$M

$M

$M

$M

304

-

(3 1 )

2 ,5 0 7

2 ,2 3 4

O ther op erating incom e

1 ,5 7 3

106

-

-

1 ,4 6 7

O p erating incom e

4 ,0 8 0

410-(3 1 )

3 ,7 0 1

O p erating exp enses(1 ,9 0 2 )(1 6 8 )(7 )(5 4 )(1 ,6 7 3 )Profit b efore deb t prov ision

2 ,1 7 8

242

(7 )

(8 5 )

2 ,0 2 8

Prov isio n for do ubtful debts(3 1 3 )(2 7 )--(2 8 6 )P ro fit b efo re in co m e ta x

1 ,8 6 5

215

(7 )

(8 5 )

1 ,7 4 2

Inco m e tax exp ense

(5 5 0 )(6 4 )

211(4 9 9 )O utside eq uity interests
N et p rofit

(3 )

(1 )

-

-

(2 )

1 ,3 1 2

150

(5 )

(7 4 )

1 ,2 4 1

Funding of the NBNZ acquisition was provided to New Zealand by way of equity and interest bearing debt from
Australia and interest bearing debt from the UK.
Integration costs include $3 million in technology costs in Australia which to date have not yet been charged to New
Zealand.
The following table shows the geographic distribution of the integration, acquisition and funding costs shown above.
In te g ra tio n
C o s ts$M

A c q u is itio n &fu n d in g 3$M

G o o d w ill
$M

Tax
$M

P ro fit$M

N e w Z e a la n d(4 )(5 8 )(5 4 )

20(9 6 )

A u s tra lia

(3 )

7

-

(1 )

3

U n ite d K in g d o m

-

20

-

(6 )

14

(7 )

(3 1 )(5 4 )

13(7 9 )Halfy ear
Mar 04
$M

Half
y ear
Sep 03
$M

Half
year
Mar 03$M

Mov t
Mar 04v . Sep 03%

Mov t
Mar 04v . Mar 03%

Net interest income

2,234

2,171

2,140

3%

4%

Other operating income

1,467

1,456

1,352

1%

9%

Operating income

3,701

3,627

3,492

2%

6%

Operating expenses(1,673)(1,626)(1,602)

3%

4%

Profit before debt provision

2,028

2,001

1,890

1%

7%

Provision for doubtful debts

(286)

(311)

(303)

-8%

-6%

Profit before income tax

1,742

1,690

1,587

3%

10%

Income tax expense

(499)

(482)

(444)

4%

12%

Group excluding NBNZ and significant transactions

Outside equity interests
Net profit
1.
2.
3.

(2)

(1)

(2)

100%

0%

1,241

1,207

1,141

3%

9%

Four months profit since acquisition on 1 December 2003
Includes goodwill amortisation of $54 million
Includes employee share acquisition scheme costs of $4 million in New Zealand offset in Australia

4

FINANCIAL HIGHLIGHTS (continued)
Statement of Financial Position
As at
Mar 04As at
Sep 03As at
Mar 03Movt
Movt
Mar 04
Mar 04v. Sep 03 v. Mar 03
$M
%
%

$M

$M

Liquid assets

6,565

6,592

7,759

0%

-15%

Due from other financial institutions

4,396

2,427

3,123

81%

41%

AssetsTrading and investment securities

13,062

8,980

9,520

45%

37%

Net loans and advances including acceptances

204,080

162,643

155,235

25%

31%

Other

19,185

14,94914,88128%

29%

Total assets

247,288

195,591

190,518

26%

30%

Due to other financial institutions

6,147

6,467

8,824

-5%

-30%

Deposits and other borrowings

165,234

124,494

122,122

33%

35%

Liability for acceptances

13,35813,17813,270

1%

1%

Bonds and notes

20,215

16,572

14,917

22%

36%

Other

25,58621,09318,90021%35%

Total liabilities

230,540

181,804

178,033

27%

29%

Total shareholders' equity

16,74813,787

12,48521%

34%

Liabilities

Group
$M

NBNZ
$M

Liquid assets

6,565

1,432

Due from other financial institutions

4,396

648

Trading and investment securities

13,062

2,043

204,080

32,56019,1852,368

247,288

39,051

6,147-

165,234

33,548

Liability for acceptances

13,358-

Bonds and notes

20,215-

Other

25,586

3,215

230,540

36,763

16,7482,288

As at March 2004
AssetsNet loans and advances including acceptances
Other
Total assets
Liabilities
Due to other financial institutions
Deposits and other borrowings

Total liabilities
Total shareholders' equity
1.
2.

Includes commercial paper of $9.4 billion
Includes balances with related entities

5

1

2

FINANCIAL HIGHLIGHTS (continued)
Assets and Capital
Movt
Movt
Mar 04
Mar 04v. Sep 03 v. Mar 03
%
%

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

Total assets ($M)

247,288

195,591

190,518

26%

Risk weighted assets ($M)

186,157

152,164

148,603

22%

25%

Shareholders' equity1, 2 ($M)

16,731

13,77012,46822%

34%

Total advances ($M)

206,327

164,661

157,323

25%

31%

Net advances ($M)

204,080

162,643

155,235

25%

31%

6.94

7.49

7.32

-7%

-5%

Net tangible assets attributable to ordinary shareholders ($M)

12,542

11,398

11,072

10%

13%

Total number of ordinary shares (M)1,808.2

1,521.7

1,513.4

19%

19%

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

Net tangible assets per ordinary share ($)

30%

Movt
Movt
Mar 04
Mar 04v. Sep 03 v. Mar 03

Capital adequacy ratio (%)
Tier 1

7.0%

7.7%

7.7%

-9%

-9%

Tier 2

3.7%

4.0%

3.4%

-8%

9%

Total capital ratio

10.2%

11.1%

9.9%

-8%

3%

Adjusted common equity ratio3

5.2%

5.7%

5.7%

-9%

-9%

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

Impaired assets

Movt
Movt
Mar 04
Mar 04v. Sep 03 v. Mar 03%%

General provision ($M)

1,828

1,534

1,530

19%

General provision as a % of risk weighted assets

0.98%

1.01%

1.03%

-3%

19%
-5%

Gross non-accrual loans ($M)

931

1,007

1,153

-8%

-19%

Specific provisions ($M)

(414)

(482)

(553)

-14%

-25%

Net non-accrual loans

517

525

600

-2%

-14%

Specific provision as a % of total non-accrual loans

44.5%

47.9%

48.0%

-7%

-7%

Total provisions4 as a % of non-accrual loans

240.8%

200.2%

180.7%

20%

33%

Net non-accrual loans as a % of net advances

0.3%

0.3%

0.4%

0%

-25%

Net non-accrual loans as a % of shareholders' equity5

3.1%

3.8%

4.8%

-18%

-35%

27,971

23,13722,483

21%

24%

8.8

8.5

8.5

4%

4%

34,28427,314

27,13526%

26%

Other information
Full time equivalent staff (FTE's)
Assets per FTE ($M)
Market capitalisation of ordinary shares ($M)
1.
2.
3.
4.
5.

Excludes outside equity interests
Includes preference share capital of $987 million (Sep 2003: $2,212 million; Mar 2003: $1,225 million)
Adjusted common equity is calculated as Tier 1 capital less preference shares at current rates and deductions from total capital. This measure is commonly used
to assess the adequacy of common equity held. See page 15 for a reconciliation to Tier 1 capital
General provision plus specific provisions on non-accrual loans
Includes outside equity interests

6

CHIEF FINANCIAL OFFICER’S REVIEWCHIEF FINANCIAL OFFICERPeter Marriott

March 2004 half year
Australia and New Zealand Banking Group Limited (ANZ,or the Group) recorded a profit after tax of $1,396 million
for the half year ended 31 March 2004, an increase of
16% over September 2003 half year.

Profit after tax
$M
1,600
1,396

1,400

1,272

1,200

1

154

1,050

1,141

84

1,207

975
Excluding the significant transactions profit increased 9%
930
895
1,000
817
44
due largely to the contribution to profit of the National
800
Bank of New Zealand in the four months since acquisition600
of $71 million (net of $79 million funding, acquisition,400
integration and goodwill amortisation costs). After
200
adjusting for the income from the TrUEPrS swap in the
September 2003 half, and the acquisition of NBNZ, profit
Mar 00 Sep 00
Mar 01 Sep 01
Mar 02 Sep 02
Mar 03 Sep 03
Mar 04after tax increased by 4% driven by 3% growth in net
interest income with solid lending growth partly offset by
ProfitSignificant
Significanttransactions1transactions1
reduced margins. Other income was flat and expense
increases were constrained to 3%. Asset quality continued
to improve with the ELP rate down 6 basis points, resulting in a stable ELP charge despite a 20% increase in volume,and reduced net specific provisions evidencing that the de-risking of the offshore book is having its effect.

EPS excluding goodwill and significant transactions for the Group increased to 78.9 cents, up 5% or 3.7 cents on the
September 2003 half year and 7.9 cents on March 2003. Prior period EPS measures have been recalculated for therights issue in November 2003 (Refer page 96 for details).

Basic EPS
EPS excluding goodwill and significant
transactions2 (Cash EPS)

Half year
Mar 04cents

Half year
Sep 03cents

Half year
Mar 03cents

Movmt
Mar 04v Sep 03

Movmt
Mar 04v Mar 03

76.8

73.3

69.1

5%

11%

78.9

75.2

71.0

5%

11%

Growth in EPS excluding significant transactions andgoodwill was affected by:!

EPS excluding significant transactions and goodwill (Cash EPS)

Increased earnings in the existing ANZ businesses(refer page 4) increasing EPS by 3.5 cents.

3.5!

Impact of NBNZ purchase, and its capital funding
structure resulted in an accretion in EPS by 0.9 centsexcluding integration.

!

The issuance of 9,713,781 shares under dividend
reinvestment and bonus option plans and employee
share option schemes, representing 0.5% of shares on
issue. This reduced EPS by 0.4 cents.
2H 03 EPS

2.

(0.3)

(0.4)

78.9

NBNZ
accretion

NBNZ
integration
costs

Dilution fromshare issues

1H 04 EPS

75.2

The proposed fully franked interim dividend of 47 cents is
up 7% from 44 cents in 2003, however, after adjusting forthe bonus element of the rights issue, this represents an
11% increase. The interim dividend payout ratio has
increased to 63.8% from 61.3% in March 2003.
1.

0.9

Existing ANZBusiness
growthRefer footnote 1 on page 1 for an explanation of the usefulness of adjusting profit to remove the impact of significant transactions. For a reconciliation to net
profit, see page 2
Refer Note 6 on page 96 for reconciliation

7

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Comparison of March 2004 half year with the September 2003 half year

Change in Profit
March 2004 v September 2003

$M
1,800

106*

(175)*

273*

1,600

(54)*

11
1,400

(47)

1,207
1,200

(27)*
25

84

(52)*

1,396

1312
71*

(18)

63

1,000

1,241

800
600
Sep 03*

Net interest Other Income
incomeOperatingexpenses

Goodwill

Provision for
doubtfuldebts

Income tax
expense &outsideequityinterests

Mar 04 profit Significant Mar 04 profit
excludingTransactions
includingsignificant
significant
transactions
items

Contribution from NBNZ. Refer page 4

The following discussion excludes the impact of significant transactions as management believes this provides a better
indication of core business performance.
Net Interest#15%

Excl NBNZ#3%

VolumeAverage net loans and advances grew by $31.2 billion (22%) overall with growth attributable
to the acquisition of NBNZ ($21.3 billion), Mortgages Australia ($7.1 billion), Corporate($1.3 billion) and Institutional Financial Services Australia ($1.2 billion). Average net loans
and advances reduced by $1.5 billion (14%) in overseas markets as a result of the strategy to
reduce higher risk exposures ($0.7 billion) and the exchange rate impact of the weakening US
dollar ($0.8 billion).
Average deposits and other borrowings grew $27.6 billion (23%), with growth from NBNZ($21.5 billion), Institutional Financial Services Australia ($1.9 billion), Personal Banking
Australia ($1.7 billion) and Treasury ($1.2 billion). Average deposits and other borrowings
decreased $0.7 billion (3%) in overseas markets, with increases resulting from greatercommercial paper issuance in the US offset by a $2.3 billion reduction resulting from exchange
rate movements.
MarginNet Interest Margin contracted by 11 basis points:-

Margins on mortgages, credit cards and asset finance contracted during the half due to the
combined impact of increased funding costs and competitive pressures. This resulted in a
reduction in net interest margin of 6 points. In addition, the higher proportion ofmortgages in our balance sheet lowered the margin by 1 basis point.

-

The interest benefit from low interest savings accounts and non-interest balances increased
as the rate at which they were invested increased (2 basis points).

-

The proportion of the balance sheet funded by low interest savings accounts andnon-interest balances reduced during the half, offset by an increase in wholesale funding.
The change in funding mix reduced the net interest margin by 4 basis points. Partially
offsetting this however, was the replacement of TrUEPrS, which increased the net interest
margin by 3 basis points.

-

The funding cost associated with unrealised trading gains increased as a result of theappreciation of the AUD. Whilst resulting in a 2 basis point decline in net interest margin, it
is offset by an equivalent gain in trading income.

-The acquisition of NBNZ resulted in a net 3 basis point decline in the Group’s net interest
margin.

8

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Comparison of March 2004 half year with the September 2003 half year (continued)

Other Income#8%
Excl NBNZ#1%

NBNZ contributed $106 million in other income. After adjusting to remove the impact of theacquisition of NBNZ, other income was flat reflecting:- Lending fees increased 2% with volume growth in Mortgages, Corporate, Esanda andInstitutional Banking in Australasia.
- Non-lending fees increased 3% with increased merchant activity in Consumer Finance,increased transaction volumes in Personal Banking and higher international payment
volumes in Institutional Financial Services.
- Non-fee other income reduced by 4% ($17 million) with the September 2003 half including$27 million income on development property sales and $35 million revenue from TrUEPrS
interest rate swap hedges (which has ceased with the redemption of TrUEPrS). Increased
foreign exchange earnings, as a result of continued volatility in Asian & Pacific currencies,
and higher profit on trading instruments have partly offset these reductions. The latter isprincipally due to a change in the split of Capital Markets earnings between trading and net
interest income due to the timing of cash flows on derivatives.

Expenses#17%

NBNZ contributed $168 million in operating costs, together with $54 million goodwill
amortisation and $7 million integration costs. Excluding these amounts operating costs
increased 3% due largely to personnel costs and a greater focus on revenue growth initiatives.
Staff number increases included sales force, an increased back office to process higher
mortgage activity and additional staff required to implement the RBA interchange reforms.
Computer expense increases are mainly software amortisation and volume related data
communication expense.

Tax Expense#14%

Tax expense increased more than profit before tax due to the acquisition of NBNZ, with ahigher proportion of earnings in New Zealand which has a higher effective tax rate andincreased non-deductible goodwill amortisation.

Excl NBNZ#3%

Excl NBNZ#4%

Risk

ELP
$313 million#1%

Excl NBNZ$8%

The Group economic loss provision charge (ELP) was $313 million (of which $27 million
relates to NBNZ), compared with $311 million in the half year to September 2003. The ELP
charge to operating segments at $293 million increased $34 million from the half year to
September 2003 with increased volumes and the $27 million increase from NBNZ offset by an
improvement in overall average credit quality with an increased proportion of mortgage loans.
De-risking of offshore portfolios and reduced levels of default allowed a $30 million reductionin the Group Centre charge taken in prior halves for greater than expected offshore lending
defaults.
The ELP rate decreased 6 basis points from the September 2003 half to 33 basis points. This
reflects the lower Group Centre charge together with a reduction in the overall average risk ofthe portfolio resulting from domestic growth (principally mortgages) and the acquisition of
NBNZ which has a lower average risk profile.

Net specificprovision$196 million$27%

Excl NBNZ$28%

Net specific provisions were $196 million, down $72 million from the half year to September
2003 year with the reduction in losses principally in the Corporate and Asset Financebusinesses in the domestic market and Institutional businesses in offshore markets. The
largest individual name loss was $26 million. Recoveries helped reduce offshore net specificprovisions to only $12 million, down from $57 million in the September half and $117 million
in the March 2003 half. As a percentage of net lending assets, net specific provisions reduced
to 20 basis points this half, from 33 basis points last half.

9

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Comparison of March 2004 half year with the September 2003 half year (continued)
Risk

Power & Teleco$12.5 million#5.4%

Whilst the international power portfolio has continued to experience deterioration in someaccounts, there have been a number of positive developments in our exposures and we have
had few large single name losses in this half. Exposures to the offshore Telecommunicationsindustry have been further reduced in the current half. Downgrades of new customers havecontinued in the half although the loss given default has been substantially lower thanprevious experience.

Excl NBNZ$8.7%

In these two sectors additional specific provisions of $52 million were raised during the halfyear compared to $65 million in the September 2003 half year.
Net Non-accrualloans $517 million$2%

Net non-accrual loans were $517 million at March 2004 compared with $525 million at
September 2003. National Bank of New Zealand net non-accruals were $21 million.

General Provisionbalance$1,828 million#19%

The general provision balance at 31 March 2004 remains strong at $1,828 million (0.98% ofrisk weighted assets), compared with $1,534 million (1.01% of risk weighted assets) at
30 September 2003. This reduction reflects the acquisition of National Bank of New Zealand,
where the ratio of general provision to risk weighted assets is 0.87%.

Excl NBNZ$6%

Excl NBNZ#4%

The general provision balance increased $294 million including an amount of $216 million that
represents a fair value adjustment on acquisition in relation to National Bank of New Zealand.
This represents a surplus of $447 million over the APRA minimum guideline.

Comparison of March 2004 half year with the March 2003 half year

Change in Profit
March 2003 v March 2004

$M
106*

1,800
1,600

(175)*

273*

(54)*
115

1,400

(71)

(27)*

(52)*

1,141

1,396

71*

(55)

1,200

84

1,312

17

94

1,000

1,241

800
600
Mar 03*

Net interest
incomeOther
IncomeOperatingexpenses

Goodwill

Provision for Income tax Mar 04 profit Significant Mar 04 profit
excluding Transactions including
expense &doubtfulsignificant
significant
outsidedebts
items
transactions
equityinterests

Contribution from NBNZ. Refer page 4

Profit after tax at $1,396 million was 22% higher than the March 2003 half year. Earnings per share increased 11%
to 76.8 cents and return on ordinary shareholders’ equity reduced from 20.3% to 19.1%. Excluding the impact ofsignificant transactions profit after tax at $1,312 million was 15% up on the March 2003 half year. The result was
driven by the acquisition of NBNZ and strong performances in Personal Banking Australia, Consumer Finance, Esanda
and UDC, Corporate and ING Australia. Earnings in Mortgages, ANZ New Zealand Banking, Treasury and Asia Pacificreduced. The impact of the continued strengthening of the AUD against the USD reduced profit by 4%.

10

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Comparison of March 2004 half year with the March 2003 half year (continued)

The following discussion excludes the impact of significant transactions as management believes this provides a better
indication of core business performance.
Net Interest#17%

Excl NBNZ#4%

VolumeAverage net loans and advances grew by $37.9 billion (28%) overall, with growth from theacquisition of NBNZ ($21.3 billion), Mortgages Australia ($13.0 billion), Corporate($2.2 billion), Institutional Financial Services Australia ($1.5 billion) and ANZ New Zealand($1.1 billion). Average net loans and advances reduced by $3.6 billion (27%) in overseas
markets as a result of the strategy to reduce higher risk offshore exposures ($1.3 billion) andthe exchange rate impact of the weakening US dollar ($2.3 billion).
Average deposits and other borrowings increased by $31.1 billion (26%), with growth from
NBNZ ($21.5 billion), Personal Banking Australia ($2.9 billion), Treasury ($2.5 billion),
Corporate ($1.4 billion) and Esanda ($1.1 billion). Average deposits and other borrowings
increased $1.2 billion (6%) in overseas markets, with increases resulting from greatercommercial paper issuance in the US offset by a $3.7 billion reduction resulting from exchange
rate movements.
MarginNet Interest Margin contracted by 18 basis points:- Margin on mortgage loans decreased due to the combined impact of increased funding costs
and competitive pressures. This resulted in a net reduction in margin of 5 basis points- The proportion of the balance sheet funded by low interest savings accounts andnon-interest earning balances is now lower, offset by growth in term deposits and wholesalefunding. This change in funding mix has reduced the net interest margin by 15 basis points.
Partially offsetting this however, was the replacement of TrUEPrS, which increased the netinterest margin by 2 basis points.
- The acquisition of NBNZ resulted in a net 3 basis point decline in the Group’s net interest
margin.
- Treasury earnings fell during the half as a result of the sustained period of low and stableinterest rates which reduced the Group’s net interest margin by 1 basis point.
- Partially offsetting these declines was an increase in foreign currency hedge revenue as aresult of a strengthening AUD (4 basis points).

Other Income#16%
Excl NBNZ#9%

NBNZ contributed $106 million to other income in the current half year while the $38 million
under-accrual in Consumer Finance suppressed fees in the March 2003 half. This, together
with strong growth in Consumer Finance (after adjusting for the under accrual) Corporate,
Personal Banking Australia and Esanda resulted in the higher level of fee income.
Non-fee other income increased 5%, after excluding the NBNZ contribution of $31 million, withhigher equity accounted income from INGA and increased profit on trading instruments due toa change in the split of Capital Markets earnings between trading and net interest income,
offset by the loss of revenue from TrUEPrS cash flow hedges.

Expenses#19%

After excluding the $229 million costs associated with the NBNZ acquisition costs increased
4% driven by higher personnel costs (front-line and volume related back office staff numbers),
computer costs (higher software amortisation) and increased data communication costs.
Premises costs increased from the March 2003 half which included the impact of a change inthe method of accounting for rental costs.

Doubtful Debts#3%

Lending growth was offset by an improvement in average credit quality in operating segments
and the de-risking of offshore portfolios allowing a $30 million reduction in the charge taken
for greater than expected offshore lending defaults. The ELP rate declined from 40 basis
points to 33 basis points.

Tax Expense#24%

Tax expense increased as a result of increased profit and an increase in goodwill amortisation
which is non-deductible.

Excl NBNZ#4%

Excl NBNZ$6%

Excl NBNZ#12%

11

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
National Bank of New ZealandPrice1Price paid AUD million

2Less NTA purchased
Add Net fair value adjustments
Goodwill
1.
2.

ActualProspectus

4,833

4,940

1,901

1,790

179

133

3,111

3,283

Price converted to AUD at 31 March exchange rates; subject to finalisation of completion accounts
Includes acquisition costs

The price paid of $4,833 million, including acquisition costs, was $107 million lower than published in the rights issue
prospectus as a result of the AUD strengthening against the GBP and lower than anticipated acquisition costs.
Actual goodwill of $3,111 million was $172 million lower than published in October 2003 as a result of the lower pricepaid and an increase in net tangible assets with additional retained earnings (the pro-forma was based on the June
2003 balance sheet). This was partly offset by an increase in fair value adjustments for restructuring, tax anddepreciation.
Comparison with October 2003 Pro-forma Result
N BN Z1
4 m o n th s

NBNZ Movt Mar 04
P ro fo rm a 2 v . P ro fo rm a

N Z$M

N Z$M

%

N e t in te re s t in c o m e

347

338

3%

O th e r o p e ra tin g in c o m e

120

116

3%

O p e ra tin g in c o m e

467

454

3%

O p e ra tin g e x p e n s e s(1 9 2 )(1 9 5 )-2 %P ro fit b e fo re d e b t p ro v isio n

275

259

6%

P ro v is io n fo r d o u b tfu l d e b ts

(3 1 )(3 0 )

3%

P ro fit b e fo re in c o m e ta x

244

229

7%

In c o m e ta x e x p e n s e & O u ts id e e q u ity in te re s t(7 4 )(6 5 )

14%

N e t p ro fit

170

164

4%

1.
2.

NBNZ result for four months to 31 March 2004
Proforma results for the year to 30 June 2003 as published in the Renounceable Rights issue prospectus: converted from AUD to NZD at 1.1139 representing the
average exchange rate for the year ended 30 September 2003 and converted to four month equivalent result. Excludes goodwill amortisation.

The four month profit after tax for NBNZ is 4% higher than the pro-forma results published in the rights issue
prospectus.
!

Net interest income increased 3% with 7% growth in lending and 6% growth in deposit volumes. The lending
growth was achieved despite the flat rural sector in which settlements and dairy payouts occur in the June half.
This was partly offset by reduced margins in the lending portfolios following official cash rate increases during thefirst half.

!

Other operating income includes a $6 million benefit reflecting a change in accounting policy of capitalising yield
related loan acquisition costs for mortgages.

!

Financial Market income is $4 million lower reflecting a strong result across all desks in the 2003 pro forma period
which did not continue in the 4 month period.

!

The effective tax rate increased due to a change in the underlying mix of corporate transactions that resulted in a
relatively higher effective tax rate.

12

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Integration

Integration planning was completed and amalgamation programme management infrastructure and processes
established in the half.
!

The designated organisational structure and senior management of ANZ National (the amalgamated entity) has
been agreed.

!

The business model has been confirmed by the designated management team – utilising the best of ANZ and
NBNZ.

!

The brand strategy has been settled, including adopting a dual brand in the branch network. This focuses our
strategy on customer retention.

!

Choice of IT systems has been agreed.

The integration process requires regulatory approval to amalgamate the two existing banks. We expect to have thenecessary Reserve Bank of New Zealand approvals in time to give effect to amalgamation in June this year.
Practical completion of the total integration process is planned for the end of 2005 following the completion ofsystems conversion.
Planning has confirmed the estimate of $230 million (before tax) for the total cost of integration. Of this amount,approximately 10% will be met by a restructuring charge included in the calculation of goodwill; a further 10% relates
to equipment that will be capitalised and around 10% - 15% will come from existing resources. These costs relate
primarily to systems and technology integration and non-branch expenses. The majority of integration costs are
expected to be incurred in 2005, with expenditure completed in 2006. Integration costs of $7 million were incurred in
the first half of 2004.
While the main focus of integration planning is on customer retention and development of the retail banking
franchises, cost synergies are expected from migrating NBNZ onto ANZ’s core systems platforms and integrating backoffice and head office functions. Based on the completed integration plans and consistent with the current dialogue
with the RBNZ, the estimate of synergies is $110 million (before tax). This remains in line with the target publishedin the rights issue prospectus. These cost synergies will be achieved over three years to 2007.
Some loss of revenue and customer growth is expected from integrating NBNZ and ANZ’s businesses, particularly
caused by lending and transaction concentration in the institutional and corporate businesses. The approach tointegration attempts to reduce this loss by minimising change for customers and operating with two networks andbrands. In the first half of 2004 revenue and customer attrition has been better than expected. In the medium term,
customer attrition is expected to be largely offset by revenue benefits arising from synergies associated withcombining the two businesses.

Software Capitalisation

The Group capitalises the development of software for major projects. As at March 2004, the balance of software
capitalised was $447 million (Sep 2003:$465 million, Mar 2003: $451 million). Software is amortised over 3 to
5 years, commencing on the date of implementation (the only exception is the branch network platform, which isamortised over 7 years). During the half, a further $59 million of software build costs were capitalised compared to$54 million in the September 2003 half (Mar 2003: $62 million), while software amortisation of $63 million increased
from $46 million in the September 2003 half (Mar 2003: $37 million). During the half $20 million capitalised softwareon the Next Generation Switching/Tandem Replacement project was written off (in addition to $10 million provided
last half) as it became apparent that expected benefits would not materialise.
$M

120

Software capitalisation and amortisation

100
80
60
40
20
0
Mar 00 Sep 00 Mar 01 Sep 01 Mar 02 Sep 02 Mar 03 Sep 03 Mar 04

Amount Capitalised

13

Amortisation

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Major Projects
Amortisation
Period(years)Written down value
Mar 04
Sep 03$M$M

Telling (Personal Banking Australia)
Standard telling business model and improved telling workstation forbranch network implemented during first half of 2004 year

7

72

50

Sales Service Platform (Personal Banking Australia)
Multi-channel platform for branches, call centres, financial and mobile
planners

7

59

71

Common Administration System (Group)
Integrated web-based administration covering accounts payable, generalledger, fixed asset management, human resources processing and payroll
in Australia and New Zealand

5

52

57

Core Transaction Management (Personal Banking Australia)
System replacement for core transaction processing in Australia; common
set of business applications for related processing in Australia and New
Zealand5

27

17

Vision Plus Card System (Consumer Finance)
Back office processing system for Cards which provides increased flexibility
to develop and implement new products

5

22

26

Customer Value Management (Personal Banking Australia)
Systematic utilisation of customer information (across all points of contact)
to assist staff and customers in their decision strategies

5

21

24

Trade Centrix/Proponix (Institutional Financial Services)
Global trade processing services system

5

20

23

Straight Through Processing (Mortgages)
Stream-lining of back office processes to improve customer response time

3

16

15

Yuetsu (Esanda/UDC)
A single integrated system to e-enable the business and enhance customer
management, credit/risk and contract management

5

14

18

Next Generation Switching/Tandem Replacement (Operations,Technology and Shared Services)

-

-

26

Other (Below $14 million)

3 to 5

Total

14

144

138

447

465

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Capital management

The Group’s total capital adequacy ratio decreased from 11.1% to 10.2% over the half year to March 2004. The
Tier 1 ratio decreased from 7.7% to 7.0% and adjusted common equity reduced from 5.7% to 5.2% to be near the
top of our target range of 4.75% to 5.25%.

ACE reconciliation

Mar 04$B

Sep 03$B

Mar 03$B

Tier 1

13.0

11.7

11.5

Preference Shares

(2.4)

(2.1)

(1.3) 1

Deductions

(1.0)

(0.9)

(1.8)

Adjusted Common Equity ($B)

9.6

8.7

8.4

5.2%

5.7%

5.7%

% of risk weighted assets
1.

Converted at current rates

Significant events impacting the capital ratio are described below:
Risk weighted assets
In the March 2004 half year risk weighted assets increased $34 billion including $28 billion associated with thepurchase of NBNZ.
Tier 1 Capital!

Rights Issue- During the half ANZ issued 276,847,766 ordinary shares by way of a two for eleven rights issue at $13 perordinary share raising capital of $3,572 million (net of $27 million expenses) to fund the NBNZ acquisition.

!

US Hybrid- On 27 November 2003 ANZ raised USD1.1 billion via the issue of 1.1 million stapled securities comprising aninterest paying note issued by a wholly owned subsidiary of ANZ and a preference share on which dividends will
not be paid whilst it is stapled to a note. The notes are due on 15 December 2053 at which date the issue will
mandatorily convert to ordinary shares unless redeemed or bought back prior to that date.
- The hybrid loan capital is classified as debt on ANZ’s balance sheet under Australian and US GAAP with
distributions on the stapled securities classified as interest expense.
- The hybrid loan capital qualifies as Tier 1 capital for capital adequacy reporting.

!

ANZ TrUEPrS Buy Back
- On 12 December 2003, the Group bought back its 124,032,000 TrUEPrS preference shares that were issued for
USD775 million in 1998. Income, expenses and dividends relating to the TrUEPrS transaction including$77 million profit after tax from the close out of interest rate swaps have been recorded as significant
transactions.

!

Goodwill deductions- Purchased goodwill on the acquisition of NBNZ of $3.1 billion was deducted from Tier 1 capital in the March
2004 half. The $3.1 billion includes $0.4 billion of pre-acquisition goodwill in NBNZ.

Tier 2 Capital
Following the acquisition of NBNZ, ANZ has consolidated $0.5 billion subordinated debt that qualifies as Tier 2 capitalat the Group level.
Deductions from total capital
From July 2003, APRA required the intangible component of investments (such as purchased goodwill) to be deducted
directly from Tier 1 capital.
Capitalised expenses post 1 July 2004
APRA have announced that from 1 July 2004 certain capitalised expenses will become a deduction from Tier 1 capital.
As at 31 March 2004, the value of capitalised expenses that would be deducted under the new rules was $0.4 billion.
Pro-forma adjusted common equity at 31 March 2004 after adjusting for this is 4.9%.

15

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
EVA reconciliation

One measure of shareholder value is EVATM (Economic Value Added) growth relative to prior periods. EVATM for thehalf year ended 31 March 2004 was $870 million, up from $828 million for the September 2003 half and $744 million
for the half year ended 31 March 2003.
H alf
y ea rMar 04$M

H a lfy ea r
S ep 0 3
$M

H alf
yea r
Mar 03$M

M ovt
Mar 04v . S ep 0 3%

Movt
Mar 04v. Mar 03%

1 ,3 9 6

1 ,2 0 7

1 ,1 4 1

16%

22%

N otional goodw ill on IN G

22

22

22

0%

0%

O ther goodw ill

63

9

9

large

large

EV A T M
N et p rofit after tax

S ignificant transactions 1(8 4 )

-

-

n/a

n/a

Im p utation credits

269

249

215

8%

25%

R isk ad justed p rofit

1 ,6 6 6

1 ,4 8 7

1 ,3 8 7

12%20%

C o st of o rd inary cap ital

(7 6 7 )(6 1 1 )(5 8 9 )26%

30%

Cost of preference share capital

(29)

(48)

(54)

-40%

-46%

EV A T M

870

828

744

5%

17%

1.

Refer footnote 1 on page 1 for an explanation of the usefulness of adjusting profit to remove the impact of significant transactions. For a reconciliation to net
profit, see page 2

EVATM is a measure of risk adjusted accounting profit. It is based on operating profit after tax, adjusted for significant
transactions, the cost of capital, and imputation credits (measured at 70% of Australian tax). Of these, the major
component is the cost of capital, which is calculated on the risk adjusted or economic capital at a rate of 11%. At theGroup level, total capital is used so the cost of capital reflects the full resources provided by shareholders.
At ANZ, economic capital is the equity allocated according to a business unit’s inherent risk profile. It is allocated forseveral risk categories including: credit risk, operating risk, interest rate risk, basis risk, mismatch risk, investment
risk, trading risk and other risk. The methodology used to allocate capital to business units for risk is designed tohelp drive appropriate risk management and business strategies.
At ANZ EVATM is a key measure for evaluating business unit performance and correspondingly is a key factor in
determining the variable component of remuneration packages. Business unit results are equity standardised, by
eliminating the impact of earnings on each business unit’s book capital and attributing earnings on the business unit’s
risk adjusted or economic capital.

16

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
International Financial Reporting Standards

ANZ will be required to prepare financial statements using Australian Standards that comply with International
Financial Reporting Standards and their related pronouncements (IFRS) when the Group reports in 2006.
The Group will report for the first time in compliance with IFRS when the results for the half year ended 31 March
2006 are released. IFRS require that entities complying with IFRS for the first time also restate their comparative
financial statements using all IFRS except for IAS 32 Financial Instruments: Disclosure and Presentation, IAS 39
Financial Instruments: Recognition and Measurement, and IFRS 4 Insurance Contracts. This means that ANZ’s
opening IFRS balance sheet will be a restated comparative balance sheet, dated 1 October 2004. Most adjustments
required on transition to IFRS will be made, retrospectively, against opening retained earnings on 1 October 2004;
however transitional adjustments relating to those standards where comparatives are not required will only be madeat 1 October 2005. Comparatives restated under IFRS will not be reported in financial statements until March 2006,
being the first half year reported in compliance with IFRS.
During 2002, ANZ established a Steering Committee to monitor and plan for the adoption of IFRS. This Committee
has been following developments in IFRS and the likely impact that these standards will have on our products and ourcustomers, and on our own financial reports and accounting policies. The Committee has set up twelve workstreams,
each responsible for evaluating the impact of a specific group of accounting changes. Each workstream is progressing
through three phases of work: technical evaluation, design and implementation. The Group has largely completed thetechnical evaluation phases of each work-stream, and is moving into design and implementation. Several of thework-streams have commenced implementation.
The following areas have been identified as significant for the Group:
Debt v Equity
classification
New liabilities recognised
Fee Revenue
Initial impact on retained
earnings at 1 October 2005
Increased deferral of fee
incomeGoodwill
Initial impact on retained
earnings at 1 October 2004
Lower expenses

The Group has issued a number of hybrid tier one instruments. The ANZ StEPS
issue, which is currently treated as equity, will be reclassified as debt. Distributions
on ANZ StEPS will be treated as interest rather than dividends.
More stringent rules governing the accounting for fee income will result in more fees
being deferred on initial payment, and recognised either as an adjustment to yieldor over the period of service. On initial application, certain fees that havepreviously been recognised in the statement of financial performance will berecognised in the statement of financial position, with a corresponding adjustment
to retained earnings. The annual impact on net profit from this change is notexpected to be material, however the classification of income will change.
Goodwill acquired in a business combination, such as our acquisition of NBNZ, will
not require amortisation, but instead be subject to impairment testing at least
annually. If there is any impairment, it will be recognised immediately in thestatement of financial performance.

Volatility in results in eventof impairment
Hedging
Initial impact on retained
earnings at 1 October 2005
Volatility in future earnings
New assets/liabilities
recognised

All derivatives contracts, whether used as hedging instruments or otherwise, will be
carried at fair value on the Group’s statement of financial position. IFRS recognise
fair value hedge accounting, cash flow hedge accounting, and hedges ofinvestments in foreign operations. Fair value and cash flow hedge accounting canonly be considered where effectiveness tests are met.
Ineffectiveness outside the prescribed range precludes the use of hedge accounting
and can result in significant volatility in the statements of financial performance.
ANZ expects to predominantly use cash flow hedging in respect of its interest raterisk hedges, which will create volatility in equity reserve balances.
The hedging rules will impact the way the Group accounts for hedges of its funding
and for hedges of its statement of financial position. Customer trading, where allderivatives are currently marked to market, will not be impacted.

17

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
International Financial Reporting Standards (continued)

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

IFRS adopts an approach known as ‘incurred losses’ for loan provisioning andprovides guidance on measurement of incurred losses. Provisions are raised forlosses that have already been incurred for loans that are known to be impaired. The
estimated losses on these impaired loans are then discounted to their present value.
As this discount unwinds, there is a resulting recognition of interest in the statementof financial performance during the period between recognition of impairment andrecovery of the written down amount.
Loans found not to be impaired are placed into pools of similar assets with similar risk
characteristics to be collectively assessed for impairment. The required provision isestimated on the basis of historical loss experience for assets with credit risk
characteristics similar to those in the collective pool. The historical loss experience isadjusted based on current observable data.
The current ELP charge to profit will be replaced, on adoption of IFRS, by a charge for
specific provisions on impaired loans, plus a charge for movements in the provisionthat is held for loans that are being collectively assessed for impairment.
It is anticipated that the proposed changes will result in a reduction in the level ofprovisioning which the bank holds against its credit exposures.

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

Securitisation
Initial impact on retained
earnings at 1 October 2005
New assets/liabilities
recognised

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

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

The Group does not currently recognise an asset or liability for the net position of thedefined benefit superannuation schemes including those which operate in Australia,
New Zealand and the United Kingdom. On adoption of Australian standards thatcomply with IFRS, the Group will recognise the net position of each scheme on thestatement of financial position, with a corresponding entry to the statement offinancial performance. The initial adjustment will be made, retrospectively, against
opening retained earnings as at 1 October 2004, and will be based on valuations ofeach scheme made at that date in accordance with the standard IAS 19 Employee
Benefits. After the transitional adjustment, further movements in the net position ofeach scheme will be recognised in the statement of financial performance.
IFRS introduces new requirements for the recognition of financial assets, including
those transferred to a special purpose vehicle for securitisation. Existing
securitisations, both of our own assets and of our customers’ assets, require review
to determine whether they are grandfathered under IFRS, and if not, an assessmentof the accounting treatment that will be required under IFRS. Further, a different
interpretation of the consolidation rules applicable to special purpose vehicles may
result in some vehicles being consolidated by the Group. Securitisations commenced
on or after 1 January 2004 will be assessed in accordance with IFRS and current
Australian GAAP.
The Group currently recognises immediately an expense equal to the full fair value ofall deferred shares issued as part of the short and long term incentive arrangements.
The deferred shares vest over one to three years, and may be forfeited under certain
conditions. The Group does not currently recognise an expense for options issued tostaff, shares issued under the $1,000 employee share plan, nor for the 5% discountapplicable to the ANZ Share Save Scheme. On adoption of IFRS based standards, theGroup will recognise an expense for all share-based remuneration, including deferredshares and options, and will amortise those expenses over the relevant vesting
periods. The Group will also recognise an expense for shares issued under the$1,000 employee share plan, and for the 5% discount on shares granted in the ANZ
Share Save Scheme.
A "balance sheet" approach will be adopted, replacing the "statement of financial
performance" approach currently used by Australian companies. This method
recognises deferred tax balances when there is a difference between the carrying
value of an asset or liability, and its tax base. It is expected that the standard may
require the Group to carry higher levels of deferred tax assets and liabilities.

Capital measurement – Many of the changes above will impact the Group’s assets and equity. Both asset andequity measurement are central to the capital adequacy requirements set by prudential regulators. The Group
anticipates that APRA will revise the measurement rules in its prudential standards in response to these changes,
however it is unclear at present whether capital measurement will be fully immunised from the IFRS changes. The
main changes impacting capital measurement are changes to hybrid capital instruments, hedge accounting, defined
benefits superannuation funds, securitisation transactions, loan loss provisioning, effective interest rate adjustments
and transitional adjustments.

18

BUSINESS PERFORMANCE REVIEWCHIEF OPERATING OFFICER
Bob Edgar

Business Segment Performance
Business Segm ent Perform ance
$M

1,400

54

1,200

68

10

N et N Z

O ther

1,312

16

(4)

1,141
27*
(Loyalty charge 1H03)

1,000

800
M ar 03

A ustralianConsum er
Businesses

IFS

Corporate

M ar 04* Under-accrual of loyalty points in March 2003!

Australian Consumer Businesses
Australian Consumer Businesses includes Personal Banking Australia, Mortgages Australia and Consumer Finance. The
consumer businesses were the key driver of profit growth for ANZ (excluding NBNZ impact), with profit up 23% on March
2003. Individual business performance was as follows:- Personal Banking Australia – up 13% over March 2003 (up 8% on September 2003) reflecting strong growth inconsumer deposits, lending and sales commissions (driven by continued mortgage growth). This result was achieved
despite significant investments in the branch network and technology.
- Mortgages Australia – profit was flat over March 2003 (down 7% on September 2003), with strong FUM growth
offset by margin contraction in the March half, principally caused by short term rates moving up in advance of theofficial cash rate. Expense growth reflected the high proportion of variable costs in the business given strong volume
growth.
- Consumer Finance – a strong result, up 39% over March 2003, after adjusting for the loyalty points under accrual in
the first half 2003 (up 9% on September 2003). Increased points of representation, strong turnover throughout theChristmas period, and a well managed response to the RBA interchange reforms contributed to growth.

!

Institutional Financial Services
Profit down 1% over March 2003 (down 2% on September 2003) largely as a result of de-risking within the lending
portfolio and the appreciation of the AUD. The rebalancing of the portfolio significantly reduced earnings in somesegments of the business, particularly Corporate and Structured Financing.

!

Corporate
Strong lending growth over March 2003 in both Small to Medium Enterprises and Corporate Banking (24% and 16%
respectively) was the key driver in 12% profit growth (up 5% on September 2003). Strong revenue growth was partly
offset by footprint expansion in SME, resulting in a 7% increase in staff numbers, largely in the frontline.

!

New Zealand Business
NBNZ experienced strong growth in residential lending, which was offset by subdued rural lending, largely cyclical, andreduced Corporate and Institutional volumes. ANZ (NZ) result was adversely impacted by AUD appreciation and marginpressure in Mortgages, with profit down 10% over March 2003 (down 3% on September 2003).

!

Other
- Esanda & UDC - a buoyant new car market, driving higher new business writings, was the key driver in profit growthof 11% over March 2003.
- Asia Pacific - improved underlying performance was offset by a stronger AUD and lower bond sales in PT Panin Bank,
resulting in profit being down 6% over March 2003.
- Treasury - a benign interest rate environment adversely affected earnings that were down 8% compared with March
2003.
- ING JV - improvements in equity markets have driven increased FUM and profit, up 52% over March 2003. Costs
decreased 4% over March 2003 reflecting the delivery of synergy benefits and tight cost control.
- Group Centre - recorded a loss of $103 million, down $65 million on March 2003 due to a reduction in interest
earnings on surplus capital, the buy back of TrUEPrS and increased goodwill amortisation on the NBNZ acquisition.

19

BUSINESS PERFORMANCE REVIEW (continued)
Business Segment Performance (continued)
Profit & Loss (including effect of movements in foreign currencies)

Ha lf
year
Ma r 04
$M

Ha lf
year
Se p 03$M

Pe rsonal B ank ing A ustralia

220

204

195

8%

13%

Mortgage s A ustralia

111

119

111

-7%

0%

C onsum er Finance

104

95

48

9%

large

435

418

354

4%

23%

Institutional Financial S e rv ices

381

388

385

-2%

-1%

New Z e aland B usine ss

228

86

92

large

large

C orporate A ustralia

146

139

130

5%

12%

Esanda and UD C

69

67

62

3%

11%

A sia Pacific

64

65

68

-2%

-6%

ING A ustralia

47

43

39

9%

21%

Tre asury

45

46

49

-2%

-8%

(103)

(45)

(38)

large

large

1,312

1,207

1,141

9%

15%

84

-

-

n/a

n/a

1,396

1,207

1,141

16%

22%

Ha lf
Mo v tMo v tyear
Ma r 04
Ma r 04
Ma r 03 v . Se p 03 v . Ma r 03
$M%%

Ne t pr o fit a fte r inc o m e ta x
C onsum e r B usine sse s

G roup C e ntre
Ne t pr o fit (e x c l s ignific a nt tra ns a c tio ns )S ignificant transactions

1

Ne t pr o fit
1.

ANZ has classified the $84 million net profit after tax and $35 million dividends arising from the TrUEPrS transaction during the March 2004 half year as significant
transactions. ANZ excludes significant transactions to eliminate the distorting effect of one-off transactions on the results of its core business

The Group from time to time modifies the organisation of its businesses to enhance the focus on delivery of
specialised products or services to customers. Prior period numbers are adjusted for such organisational changes toallow comparability. During the half ended 31 March 2004 the significant changes were:!

A new business unit “New Zealand Business” was created which consists of New Zealand Banking, the National
Bank of New Zealand, and Integration costs. New Zealand Banking now includes New Zealand Mortgages.

!

The Mortgages unit has been renamed “Mortgages Australia” and excludes the New Zealand Mortgages business.

!

Within Institutional Financial Services the operations of Structured Finance International and Corporate Financeand Advisory have been brought together and are being managed as one global business, called Corporate andStructured Financing.

!

ANZ has moved the goodwill amortisation on investments to the Group Centre. This is an extension of equity
standardisation and facilitates better comparisons across different business units.

!

In addition, there have been a number of function transfers including some minor segmentation between
Institutional Banking, Corporate, and Asia Pacific together with a number of relatively minor methodology changes
to revenue and cost allocations.

20

BUSINESS PERFORMANCE REVIEW (continued)
Business Segment Performance (continued)
Profit & Loss (prior period figures retranslated at current exchange rates1)

Ha lf
year
Ma r 04
$M

Ha lf
year
Se p 03$M

Personal Banking Australia

220

204

195

8%

13%

Mortgages Australia

111

119

111

-7%

0%

C onsum er Finance

104

95

48

9%

large

435

418

354

4%

23%

Institutional Financial Services

381

386

370

-1%

3%

New Zealand Business

228

85

89

large

large

C orporate Australia

146

139

130

5%

12%

Esanda and UD C

69

67

61

3%

13%

Asia Pacific

64

62

64

3%

0%

ING Australia

47

43

39

9%

21%

Treasury

45

44

45

2%

0%

Ha lf
Mo v tMo v tyear
Ma r 04
Ma r 04
Ma r 03 v . Se p 03 v . Ma r 03
$M%%

Ne t pro fit a fte r incom e ta x
C onsum er Businesses

G roup C entre

(103)

(50)

(51)

large

large

Ne t pro fit (e x cl significa nt tra nsa ctions)

1,312

1,194

1,101

10%

19%

84

-

-

n/a

n/a

1,396

1,194

1,101

17%

27%

-

13

40

-100%

-100%

1,396

1,207

1,141

16%

22%

Significant transactions

2

Ne t pro fit
FX im pact on reported Net Profit
Re porte d ne t pro fit
1.
2.

ANZ has removed the impact of exchange rate movements to provide investors with a better indication of the business unit performance in local currency terms
ANZ has classified the $84 million net profit after tax and $35 million dividends arising from the TrUEPrS transaction during the March 2004 half year as significant
transactions. ANZ excludes significant transactions to eliminate the distorting effect of one-off transactions on the results of its core business

The Group benefited from USD and NZD revenue hedges during this half. Earnings before tax on revenue hedges
were $29 million (Sep 2003: $20 million; Mar 2003 $1 million). Excluding the impact of these revenue hedges, theGroup’s profit was reduced by $13 million after tax from the September 2003 half and $40 million from the March
2003 half because of foreign exchange movements.

21

BUSINESS PERFORMANCE REVIEW (continued)
External Environment

Official short-term interest rates

Exchange Rates

US$% per annum
7
New Zealand

AUD

0.8

6

0.7

5

0.6

4

NZD

Australia

3

0.5

2

0.4
0.3
Sep-02US

10

Mar-03

Sep-03Mar-04

Sep-02

Sep-04Mar-03

Sep-03Mar-04

Sep-04Australian Conditions

The Australian economy continued to grow strongly during the half, although higher interest rates in late 2003 havedampened activity in the housing market. The sharp appreciation in the AUD over the half has affected exporters’
income and competitiveness, but has also provided a boost to consumer spending through lower prices. Economic
activity in Australia is expected to strengthen from 2.75% in 2003 to 4% in 2004, with an improvement in exports
due to a stronger world economy expected to be the primary driver of growth.
Institutional environment! Business investment has been very strong due to robust domestic demand, lower imported capital goods prices asa result of the stronger AUD and a number of major resource investment projects.
! After growing by 16% in 2003, business investment is expected to rise by 10% in 2004, before slowing to 4% in2005 as major projects are completed. While corporate profitability growth has been strong, some moderation isin prospect.
Corporate and SME Banking environment! The strong domestic economy has buoyed the corporate and SME sector. Housing demand has been strong as has
consumer spending, supported by low unemployment and rising house prices.
! High levels of business confidence, solid operating conditions and relatively high capacity utilisation should
continue to underpin corporate and SME borrowing in the near term.
! The corporate and SME sector remains fundamentally healthy with balance sheets in generally good shape. Whilehigher interest rates are unlikely to deter businesses from borrowing, some sectors may be affected by a slowing
in consumer spending and housing construction over the course of the year.
Mortgages! Mortgage credit continues to grow strongly, with volumes rising 23% over the year to December 2003. The valueof housing finance approvals has fallen 16% from peak levels in October 2003 but is still up 10% over the year to
January 2004.
! Recent interest rate rises already appear to be affecting the appetite for residential property and associated debt
accumulation. Mortgage approvals are expected to decline over much of 2004 but given still high levels of activity,
volume growth is expected to ease to around 17% by September 2004.
! Providing conditions remain supportive, there could be greater growth in consumer-driven rather than investment
driven loan growth.
Consumer Finance! Low unemployment and rising household wealth has supported consumer spending, which rose at its fastest pacein four years through to the December quarter 2003. More recently consumer confidence has slipped, following
the interest rate rises in late 2003.
! A modest slowing in employment is expected from mid-2004 and with the likelihood of more moderate house pricegains, these factors should dampen consumer spending.
! With interest rates likely to be at or near a peak, personal non-housing lending is unlikely to slow sharply. We
expect credit growth to remain at around 13% by year end.
Leasing! Motor vehicle sales hit record levels in calendar 2003, with the market strong across the board. Sales havecontinued to rise in early 2004 but a modest easing is forecast over 2004.
! Lease approvals strengthened in late 2003, particularly for construction and earth-moving equipment. Shopequipment approvals rose due to buoyant retail trade. Business expansion plans should boost equipment financein the near term but slower domestic growth will dampen demand from late 2004.

22

BUSINESS PERFORMANCE REVIEW (continued)
Australian conditions (continued)

Personal/Wealth Management!

Funds under management is showing signs of expanding. A solid lift in earnings has coincided with improving net
flows – a trend which is expected to gather pace over coming quarters as household asset portfolios are
re-weighted towards the sector. Sustaining net flows at this higher level will however, depend in large part on
expectations of solid growth in equity markets which in turn needs a healthy and stable global economic
environment.

!

Reduced expectations for residential housing prices growth and already very low rental market yields should drive
sobering sentiment towards residential property, re-generating interest in the funds management sector. Some‘cashing in’ of recent property market gains is also likely to find its way back to managed funds products.

New Zealand

While overall growth in the New Zealand economy showed early signs of slowing during the half, the domestic sector(and the housing market in particular) continued to deliver reasonable growth. However, the influence of weaker
export incomes due to rises in the New Zealand dollar exchange rate against its major partners, and slowing
population growth (due to slowing net immigration) are expected to have a mildly adverse impact on growth in thesecond half of 2004. GDP growth is expected to slow from 3½% in 2003 to 2¾% in 2004.
Mortgages! Housing market activity was strong in early 2004. While house sales have slowed in recent months they remain
well above historical averages.
! Slowing population growth will see some easing in housing demand, at a time when the supply of new dwellings isincreasing significantly. Converging demand and supply will result in a slowing of housing market activity over2004 and 2005.
! Market growth in mortgage lending accelerated over the half year, with annual growth of 17.1% in the 12 months
to January 2004 (compared with 8.7% in the January 2003 year).
Corporate environment! The full effect of the strengthening New Zealand dollar on exporters is yet to be manifested with exporters having
generally covered their short-term forward currency positions in the half.
! Consumer confidence remains generally optimistic across most regions and customer segments, while competitive
pressures are placing net interest margins under pressure.
! Residential /Commercial construction is still buoyant with strong demand and levels of work in progress. Domestic
and international travel is showing strong positive growth.
! Sustained high capacity utilisation has prompted a positive response to investment intentions, which has been
assisted by a strong New Zealand dollar reducing the cost of imported investment goods.

Asia Pacific

Economic growth should strengthen in South East Asia over 2004. GDP in Japan is expected to be close to 3.5%,
which would represent the strongest annual increase since 1996. Faster growth is also expected in most other East
Asian countries in 2004. China is likely to be an exception with growth forecast to slow, from the high levels it has
experienced over the last five years to around 6%, in response to policy measures aimed at curbing economic
over-heating.

23

BUSINESS PERFORMANCE REVIEW (continued)
PERSONAL BANKING AUSTRALIA
Elmer Funke Kupper♦ Personal Distribution♦ Banking Products

Half
year
Mar 04
$M

Half
year
Sep 03$M

Net interest income

461

430

421

7%

10%

Other external operating income

194

192

187

1%

4%

Net inter business unit fees

189

181

166

4%

14%

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03$M%%

Operating income

844

803

774

5%

9%

External operating expenses

(440)

(415)

(400)

6%

10%

Net inter business unit expenses

(79)

(86)

(84)

-8%

-6%

Operating expenses

(519)

(501)

(484)

4%

7%

Profit before debt provision

325

302

290

8%

12%

Provision for doubtful debts

(12)

(14)

(13)

-14%

-8%

Profit before income tax

313

288

277

9%

13%

Income tax expense and outside equity interests

(93)

(84)

(82)

11%

13%

Net profit attributable to members of the Company

220

204

195

8%

13%

Net loans & advances including acceptances

6,362

5,902

5,197

8%

22%

Other external assets

1,033

794

1,034

30%

0%

External assets

7,395

6,696

6,231

10%

19%

Deposits and other borrowings

33,45331,82430,425

5%

10%

Other external liabilities

1,481

1,254

1,105

18%

34%

External liabilities

34,93433,07831,5306%

11%

Net interest average margin

2.82%

2.78%

2.84%

1%

-1%

Return on assets

1.28%

1.26%

1.26%

2%

2%

Return on risk weighted assets

3.85%

3.86%

3.94%

0%

-2%

Operating expenses to operating income

61.5%

62.4%

62.5%

-1%

-2%

Operating expenses to average assets

3.02%

3.08%

3.11%

-2%

-3%

(6)

(10)

(9)

-40%

-33%

0.20%

0.37%

0.36%

-46%

-44%

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

9

10

7

-10%

29%

Net non-accrual loans as a % of net advances

0.14%

0.17%

0.13%

-18%

8%

Total employees

6,597

6,597

6,517

0%

1%

24

BUSINESS PERFORMANCE REVIEW (continued)
PERSONAL BANKING AUSTRALIA
Elmer Funke Kupper
Comparison with September 2003 half

Profit after tax increased by 8% with profit growth in Banking Products and Personal Distribution of 11% and 6%
respectively. Within Personal Distribution, all business units delivered profit increases. Significant factors affecting
the result were:!

Net interest income increased 7% with volume growth in Rural Banking (lending and deposits grew 8%), and in
Banking Products with growth in consumer deposits (5%) and margin lending (18%). Net interest marginincreased by 4 basis points with increases in the cash rate increasing deposit margins, but was partly offset byhigher growth in lower margin cash management and term deposits.

!

Other external operating income increased 1% with fees from core transaction products in Banking Products up
6%, and sales and retention payments from INGA up 2.3%, reflecting the improvement in the equity markets.
Fees from Rural Banking were flat reflecting a seasonally lower March half with farmers tending to repay debt
rather than hold cash balances or invest in their businesses.

!

Sales and retention commissions received from the sale of ANZ products through the branch network increased
4% reflecting strong demand for mortgages and the effects of our investment in training sales staff.

!

Operating costs increased 4% due largely to costs associated with the rollout of the new telling platform andincreased depreciation associated with investments in technology and the branch network.

!

Provision for doubtful debts, non-accrual loans and net specific provisions remained low reflecting sound credit
quality, and the deposit driven nature of the business.

Comparison with March 2003 half

Profit after tax increased 13%, with growth in Banking Products and Personal Distribution of 20% and 8%
respectively. Revenues grew by 9% with net interest income benefiting from consumer deposit growth of 10% andlending growth of 22% largely in Rural Banking (18%) and margin lending (80%). This was in part offset by a 2 basis
point decline in margins.
Sales and retention commissions received from the sale of mortgages and consumer products through the branch
network increased by 14% reflecting strong growth in mortgages and other sales activity.
Operating costs were 7% higher with additional staff training, the cost of rolling out the telling platform and anincrease in depreciation of the investment in technology and refurbished branches.
Provision for doubtful debts reduced slightly.

25

BUSINESS PERFORMANCE REVIEW (continued)
PERSONAL BANKING AUSTRALIA
Elmer Funke Kupper
Our businessR e v e nue S ource

Our business generates revenue through four major
activities:!

Managing and selling proprietary products (including
savings products, transaction accounts and agri-lending)from which we earn interest and fees.

!

Selling other ANZ products from which we earn salescommissions and, in some cases, trailer commissions.

!

Providing financial advice to individuals and distributing
investment products.

!

Providing branch and network services to ANZ’s personaland corporate customers (e.g. cash deposit facilities), ona cost-recovery basis.

P ro duc t
dis tributio n &Serv ic e
c o m m is io ns
22%

N et interes t
55%
F ees
23%

Half
year
Sep 03
31.8
5.9
2.27
6.42
1,043
78.9
3.20

Half
year
Mar 04
33.5
6.4
2.33
6.54
1,138
80.9
3.23

Key Performance Indicators
Deposit balances ($ billion)
Lending balances ($ billion)
Deposit interest margin (%)
Mortgage sales ($ billion)
Managed investment flows ($ million)
Sales commissions ($ million)
Customers (million)

Half
year
Mar 03
30.4
5.2
2.34
5.06
970
69.9
3.17

Executing our strategy

We are a distribution business, and are looking to improve our sales performance and customer retention. Our key
areas of focus are:Focus
Our People! Give customers
someone local to turnto; contribute to thecommunities we live in
Our Customers! Provide products withexcellent features which
are simple tounderstand and meettheir needs every time

Strategy!
!

Progress

Re-focus on our local teams and thecommunities they serve
Invest in recruiting, training and coaching

!
!
!

!
!
!
!

Leading “entry” products for all channels
Needs based discovery and sales process
Needs based packaging and cross sellSpecialist advice

!
!

!

!
Our service! Accessible; deliver on
the basics!
!
!

Provide a welcoming retailing environment
Reliable service every day
Simple straight through processes

!
!
!

!

26

Local management teams implemented
Continued positive recognition in local
media for community support
Trained over 5,000 branch staff in sales
skills including FSRA complianceIndustry transaction account award forlast three years
Growth in accounts 4.3% since
September 2003 and 8.9% since March
2003
Growth in cash management FUM of
10% since September 2003 and 24%
since March 2003
Market share of deposits increased
Reduced peak queue times and queue
complaints
Over 30% of branch network refreshedor refurbished since 2002
Successfully implemented new Telling
platform throughout the branch
network
Improved customer satisfaction with
branches at 8.2 out of 10 comparedwith 7.7 in last half

BUSINESS PERFORMANCE REVIEW (continued)
PERSONAL BANKING AUSTRALIAPERSONAL DISTRIBUTION – Satyendra Chelvendra (Personal Banking); Mike Guerin (Rural Banking)Michael Saadie (Private Banking); Dean Nalder (Financial Planning)

Provides a full range of banking and financial planning services to personalcustomers across Australia, and to small business and agri customers in rural
Australia

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

Net profit after tax

130

123

120

6%

8%

Revenue

610

585

566

4%

8%

Operating expenses

(417)

(403)

(390)

3%

7%

Provision for doubtful debts

(8)

(9)

(8)

-11%

0%

Net specific provisions

(3)

(7)

(5)

-57%

-40%

Net non-accrual loans

9

10

7

-10%

29%

The March 2004 half showed continued strong sales performance in Personal Banking on the back of strong demand
for mortgages and higher sales productivity. The rural sector was relatively quiet in a seasonally slower first half witha trend for customers to repay debt rather than invest in their businesses. An increase in gross flows in equity
markets saw increased distribution of investment management products.
The March 2004 half saw continued investment in improving the sales and service performance of the business. In
addition to continued investment in the skills of our sales force, we increased our investment in service with theimplementation of our new telling platform and our branch refurbishment program. During the half we opened four
new branches.

BANKING PRODUCTS - Craig Coleman
Banking Products manufactures deposit, transaction accounts and Margin
Lending products. In addition, the business manages ANZ’s direct channels
covering Phone Banking, ATMs and Internet Banking

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

Net profit after tax

90

81

75

11%

20%

Revenue

234

218

208

7%

13%

Operating expenses

(102)

(98)

(94)

4%

9%

Provision for doubtful debts

(4)

(5)

(5)

-20%

-20%

Net specific provisions

(3)

(3)

(4)

0%

-25%

Net non-accrual loans

-

-

-

n/a

n/a

Demand for deposits remained strong in the March 2004 half with deposit balances growing by 6% over the half,slightly increasing our market share of deposits. Margin lending continued to grow strongly, with loan balances
increasing by 18% over the half. Transaction volumes via direct channels increased 3% reflecting our ATM fleet
expansion and continued growth in internet banking.

27

BUSINESS PERFORMANCE REVIEW (continued)
MORTGAGES AUSTRALIA
Chris Cooper

Provision of mortgage finance secured by residential real estate in Australia

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

Net interest income

337

344

311

-2%

8%

Other external operating income

52

42

41

24%

27%

Net inter business unit fees

(118)

(113)

(101)

4%

17%

Operating income

271

273

251

-1%

8%

External operating expenses

(75)

(70)

(62)

7%

21%

Net inter business unit expenses

(21)

(19)

(19)

11%

11%

Operating expenses

(96)

(89)

(81)

8%

19%

Profit before debt provision

175

184

170

-5%

3%

Provision for doubtful debts

(16)

(14)

(13)

14%

23%

Profit before income tax

159

170

157

-6%

1%

Income tax expense and outside equity interests

(48)

(51)

(46)

-6%

4%

Net profit attributable to members of the Company

111

119

111

-7%

0%

35.4%

32.6%

32.3%

9%

10%

(2)

(3)

(6)

-33%

-67%

Operating expenses to operating income
Net specific provisions
Net non-accrual loans
Total employees

7

14

23

-50%

-70%

1,289

1,269

1,154

2%

12%

Comparison with September 2003 half

Profit after tax reduced 7%. Significant influences on the result were:!

Net interest income reduced 2%. A 10% increase in mortgage volumes during the half resulting from record sales
volumes being written through all key channels was offset by a 12 basis point reduction in margin due to higher
funding costs following two increases in the cash rate and market rates rising in anticipation of further official rate
rises which did not eventuate.

!

Other operating income increased by 24% with higher levels of customer activity and strong performance from theMortgage Insurance business.

!

Sales and retention commissions paid to Personal Banking Distribution increased 4% with increased sales throughthe branch network.

!

Expenses increased 8% due to the impact of annual wage increases, increased staffing to maintain service levels
with continued high new business volumes and increased amortisation of capitalised software.

!

Provisioning remains low reflecting the quality of the portfolio.

Comparison with March 2003 half

Profit after tax was flat. Net interest increased 8% with a 22% growth in the loan portfolio partly offset by reduced
margins resulting from higher wholesale funding rate. Other external income grew 27% driven primarily by increased
volumes. These increases were partly offset by increased search and valuation costs. Expenses increased by 19%,largely as a result of volume related staff increases and software amortisation. Provision for doubtful debts increased
23%, driven by increased lending volumes.

28

BUSINESS PERFORMANCE REVIEW (continued)
MORTGAGES AUSTRALIA
Chris Cooper
Our business

ANZ Mortgages has 11.1%1 of the home finance market in
Cannex Awards March 2004 1
Australia. Mortgages are sourced through the business’12
own specialist salesforce, the Bank’s branch network and10mortgage brokers, with the business continuing tomaintain a dominant market share of broker loans in
8Australia. The business also provides wholesale mortgage
funding to other non-bank mortgage lenders. Business6
critical success factors are:4
! Meeting customer needs through the delivery ofmarket leading products (measured by product awards
2
received)0! Maintaining industry leadership in the delivery of
ANZ
Westpac
NAB
CBA
St George
Wizardquality service to our customers (measured byindependent surveys)
Five Star Awards Four Star Awards! Significantly enhancing distribution capability and1.
Cannex independently analyse over 2,000 mortgage products
capacity (measured by sales by distribution channel)
from 150 Australian institutions. Cost, features, flexibility and! Delivering significant business improvements toconditions of mortgage product are compared.
enhance the customer experience and deliver material
cost savings(measured by customer surveys and average acquisition/servicing costs).
! Managing risk (measured by arrears levels)
Key Performance Indicators
Interest margin (%)
Loan balance growth (%)
Proportion of Cannex 5 Star awards received (%)
Customer satisfaction ratings
Proportion of Australian sales through brokers (%)
Proportion of broker applications submitted electronically (%)
1.

Half
year
Mar 04
0.95
10.1
53
8.2
42
23

Half
year
Sep 03
1.07
11.2
40
7.8
40
n/a

Half
year
Mar 03
1.08
9.5
45
7.8
35
n/a

Source: Reserve Bank of Australia February 2004

Executing our strategy

Mortgages Australia has a series of key strategic initiatives that will provide the foundation for continued strong
growth. Key areas of focus include:
Focus

Strategy

Business improvement!

Delivering end-to-end improvements inmortgage processing!

Improved processing times and reduced
associated costs through a number of
initiatives including enhancing automation of
approval process

Distribution strategy!

Expansion of our mortgage specialist
sales force
Establishment of ANZ Mortgage Solutions– franchised mobile salesforce!

Mortgage specialist sales force operationalfrom October 2003
Substantial progress made on building
supporting technology, documentation andoperational process for ANZ Mortgage
Solutions. First franchisees planned second
half of 2004!

Progress!

Loan approvals!

Automated application and approvalsystems for brokers and mortgage
specialists!

National roll-out of eMOS systemcommenced in mid October – 23% of
applications currently being submitted
electronically resulting in faster customer
response times

Marketing!
!

Superior products
Move into new market opportunities!
!

Continue to dominate Cannex awards
Key product initiatives currently being
pilotedRisk management!

Portfolio and collection management!

Collections strategy continuing to beenhanced with focus on high risk customers
Delinquencies maintained at historically low
levels!

29

BUSINESS PERFORMANCE 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 04
$M

Half
year
Sep 03
$M

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03$M%%

Net interest income

234

235

214

0%

9%

Other external operating income

219

205

152

7%

44%

Net inter business unit fees

(35)

(37)

(36)

-5%

-3%

Operating income

418

403

330

4%

27%

External operating expenses

(132)

(131)

(126)

1%

5%

Net inter business unit expenses

(56)

(56)

(57)

0%

-2%

Operating expenses

(188)

(187)

(183)

1%

3%

Profit before debt provision

230

216

147

6%

56%

Provision for doubtful debts

(79)

(77)

(75)

3%

5%

Profit before income tax

151

139

72

9%

large

Income tax expense and outside equity interests

(47)

(44)

(24)

7%

96%

Net profit attributable to members of the Company

104

95

48

9%

large

45.0%

46.4%

55.5%

-3%

-19%

Net specific provisions

(78)

(72)

(65)

8%

20%

Net non-accrual loans

1

2

2

-50%

-50%

1,088

1,234

1,074

-12%

1%

Operating expenses to operating income

Total employees

Comparison with September 2003 half

Profit after tax increased by 9%. Significant influences on the result were:! Net interest income was flat, with a 13 basis point reduction in net interest margin following increased wholesale
rates being offset by a 1% increase in lending volumes.
! Other external operating income increased 7% reflecting growth in merchant turnover (7%), particularly over the
Christmas period. Whilst the Australian Issuing Business was impacted by reduced revenue due to the Reserve
Bank of Australia’s (RBA) interchange reforms, a proportion of this was recovered through savings in loyalty point
costs. In addition, we conducted a full repricing of our merchant base to reflect the new schedule of interchange
rates and market pricing in various segments. All of our other businesses contributed solid profit growth in thehalf.
! Internal commissions paid to the Personal Banking business decreased 5%, largely as a result of reduced branch
visits and increased use of electronic channels.
! Operating expenses increased by 1%. Personnel costs increased as a result of annual salary increases and atemporary increase in staff in the customer services team (124 FTEs) during the first quarter to handle a higher
level of calls associated with the RBA interchange reform project.
! ELP increased 3% as a result of an anticipated slight deterioration in credit quality in the current environment.
Comparison with March 2003 half

Profit after tax increased $56 million. Of this, $27 million related to the after-tax effect of the under-accrual of loyalty
points booked in the March 2003 half year. Adjusting for this write-back, which is not indicative of core businessperformance, net profit increased by 39%. Net interest income increased 9%, and other operating income increased
by 15% reflecting a higher proportion of credit card balances paying interest and higher merchant activity
respectively. Solid profit growth was recorded in all our other businesses. Operating expenses increased 3% in partdue to increased FTEs and marketing spend relating to the RBA interchange reform project.

30

BUSINESS PERFORMANCE REVIEW (continued)
CONSUMER FINANCE
Brian Hartzer
Our business

Cards Issuing [Australia, New Zealand, Indonesia, and the Philippines]! We earn interest income on cardholder outstandings (excluding the interest free period), fee income on eachaccount, and interchange revenue.
! We offer credit cards under the Visa, MasterCard, Diners Club, and Bankcard brands. We are responsible formarket-leading co-brand partnerships with Qantas, Telstra, and Diners Club.
Cards Acquiring [Australia and New Zealand]! We earn transaction and terminal fees from merchants using our MultiPOS terminals, and processing fees frommerchants using their own terminals.
! We offer a full range of MultiPOS chip-capable terminals in stand-alone, integrated POS, and mobile versions.
Personal Loans [Australia and New Zealand]! We provide unsecured personal instalment loans to customers through our branch network and through directchannels, which generates interest and fee income.
Executing our strategy

The ANZ Consumer Finance vision is to be one of the best managed Consumer Finance businesses in the world.
Focus/Strategy! Know ourcustomers andour businessbetter thananyone else!

!

Have the bestproduct foreach profitablecustomersegment
Easy to dobusiness with

Progress! The Australian credit card
Total Consumer Finance Profit After Tax: 1H04 v 2H03
business was impacted by
reduced revenue due to theReserve Bank of Australia’s
104
22
(34)
95
credit card reforms. The reforms
22(1)
reduced interchange revenue by$34 million after tax in the half.
This was partially offset by the
restructure of loyalty programs
to reduce loyalty costs and the
Net impact to Australian Issuing Business $(13)mestablishment of a relationshipwith Diners Club Australia toprovide an alternative productSep 2003
Interchange rate
Loyalty changes
Other Issuing
Other Bus Units
Mar 2004
for high spending customers.
Impacts
The implementation of thechanges was well managed.
Despite initial concerns, minimal customer attrition was experienced as a result of the system oftiering reward points to protect rewards earned by the majority of customers, an alterative productoffered to high spenders as a result of the Diners Club relationship, and the application ofsignificant resources to customer retention.
! In Cards Acquiring, we conducted a full repricing of our merchant base to reflect the newinterchange rates and market dynamics. At the same time, ANZ continues to grow the customer
base in its acquiring business. This has been assisted by new products such as the MultiPOS
terminal and strong cross-selling results to our existing Small Business customer base. As aresult, new customers in the small business segment grew by 11% for the half year. At the sametime, merchant turnover has continued to increase, up 7% in the period, particularly over the
Christmas period.
! Our new 40% interest in Metrobank Card Corporation (Philippines) has contributed to profit asexpected, and is progressing well
!
!
!
!
!
!
!

!

Superior
execution in
everything we
do

!
!
!

Launched Low Rate MasterCard, ANZ Frequent Flyer Diners, and Telstra Diners Cards
Re-launched the Qantas ANZ Visa card in New Zealand. The new program is simpler for
cardholders, with points automatically credited to their Qantas Frequent Flyer accountCompleted the conversion of our Australian merchant terminals to MultiPOS, which leads theindustry in functionality, and can support chip security features
Our Quality program is making a significant impact on customer service, with customer complaints
reducing by 37% in the half
60 second approval on the Internet is now a cornerstone of customer acquisition; 90% of new
applications are processed within 24 hours
Our merchant customer base in Australia grew 6% in the half
In New Zealand, monthly customer satisfaction surveys were introduced in August 2003. Our
overall service is consistently rated as “good” or “excellent” by over 90% of merchant customers
We are on track to becoming a “best employer”, with 83% of staff in Consumer Finance indicating
they would recommend ANZ as a place to work (up 4%)
Our investments in reengineering and new technology platforms have continued to deliver
efficiency gains: average cost per account and per merchant are down 11% and 22% respectively
We have continued to strengthen our financial control and compliance framework

31

BUSINESS PERFORMANCE REVIEW (continued)
INSTITUTIONAL FINANCIAL SERVICES
Bob Edgar♦ Institutional Banking♦ Transaction Services♦ Foreign Exchange♦ Capital Markets♦ Corporate & Structured Financing

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

Net interest income

327

330

374

-1%

-13%

Other external operating income

614

619

580

-1%

6%

Net inter business unit fees

(10)

(12)

(14)

-17%

-29%

Operating income

931

937

940

-1%

-1%

External operating expenses

(277)

(268)

(280)

3%

-1%

Net inter business unit expenses

(62)

(60)

(63)

3%

-2%

Operating expenses

(339)

(328)

(343)

3%

-1%

Profit before debt provision

592

609

597

-3%

-1%

Provision for doubtful debts

(86)

(84)

(80)

2%

8%

Profit before income tax

506

525

517

-4%

-2%

Income tax expense and outside equity interests

(125)

(137)

(132)

-9%

-5%

Net profit attributable to members of the Company

381

388

385

-2%

-1%

Net loans & advances including acceptances

38,986

40,51042,292-4%-8%

Other external assets

15,821

16,05817,158-1%-8%External assets

54,80756,56859,450-3%-8%

Deposits and other borrowings

28,35026,96529,045

5%-2%

Other external liabilities

20,167

20,81020,992-3%-4%

External liabilities

48,517

47,77550,037

2%-3%

Net interest average margin

1.65%

1.63%

1.76%

1%

-7%

Return on assets

1.35%

1.33%

1.27%

2%

6%

Return on risk weighted assets

1.17%

1.19%

1.16%

-2%

1%

Operating expenses to operating income

36.4%

35.0%

36.5%

4%

0%

Operating expenses to average assets

1.20%

1.12%

1.13%

7%

6%

Net specific provisions

(62)

(94)

(123)

-34%

-50%

0.31%

0.46%

0.57%

-33%

-46%

360

352

406

2%

-11%

Net non-accrual loans as a % of net advances

0.92%

0.87%

0.96%

6%

-4%

Total employees

2,843

2,768

2,697

3%

5%

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

32

BUSINESS PERFORMANCE REVIEW (continued)
INSTITUTIONAL FINANCIAL SERVICES
Bob Edgar
Comparison with September 2003 half

Profit after tax reduced by 2%. After adjusting for the effect of the appreciating AUD on translation of offshore
earnings, profit reduced by 1%.
This result was also affected by the major progress made in rebalancing the portfolio to lower risk sectors. The
decision to exit higher risk non-strategic offshore assets and non-core complex structured transactions has
significantly reduced earnings in some segments of the business. Adjusting for the revenue loss resulting from thisrisk reduction strategy, and the effect of currency appreciation in the half, those areas of the business where we arefocusing our growth efforts achieved profit growth of approximately 5%.
Profit increased in Trade & Transaction Services (9%) and Capital Markets (5%). This was offset by lower profits in
Institutional Banking (-3%) and Corporate & Structured Financing (-10%) with earnings in both businesses being
affected by a significant reduction in the offshore lending portfolio as a consequence of the strategy to lower risk, anda $19 million profit after tax on the final sale of development properties in the September 2003 half in Institutional
Banking. Foreign Exchange (-10%) profit was lower due to subdued customer activity and lower margins as
customers reduced derivative hedging activity.
Significant influences on the result (excluding the impact of exchange rates were):! Net interest income increased 1%. An 11% increase in Trade & Transaction Services, driven by increased custodyand cash management deposit volumes, a 2% increase in Institutional Banking, resulting from increased interest
recoveries offsetting the impact of asset reductions offshore; partly offset by a 3% reduction in Corporate &Structured Financing, where offshore lending assets have been substantially reduced as part of the strategy tolower risk. Overall lending volumes were 2% lower, deposit volumes increased 7% and margins were flat.
! Other operating income increased 1%. Excluding a $19 million profit after tax on the final sale of development
properties in the September 2003 half, other operating income increased by 5%. Non-interest income increased
7% in Corporate & Structured Financing reflecting strong progress in reducing balance sheet risk and shifting therevenue mix away from net interest income. Fee revenue in Trade & Transaction Services increased 5% despite
being suppressed by the impact of the weaker USD on trade flows, reflecting improved trade volumes andimproved revenue from international payments. Capital Markets increased 11% and Foreign Exchange reduced
2%, though the split of net interest income and other operating income can vary considerably in markets trading
depending on economic conditions.
! While operating expenses were 5% higher, continuing cost discipline was evident across the business. The
increase is largely due to increased pension funding costs in the United Kingdom ($2 million), further investment
in Foreign Exchange capability in London and Asia, and an increase in Capital Markets presence in Asia.
! Provision for doubtful debts (economic loss provision) increased 6% due to growth in lending assets in Australia,
and exchange rate movements increasing the credit risk on derivative positions. Net specific provisions were 34%
lower, with new specific provisions of $62 million relating largely to further provisioning against the offshore power
and telecommunications sectors and a final provision on a large Australian corporate that defaulted in 2002. While
net non-accrual loans increased marginally due to offshore power and telecommunications exposures, substantial
progress has been made in lowering risk in the offshore portfolio. Offshore net lending assets are now only 3% of
the Group’s balance sheet.
! Income tax expense reduced 9% reflecting lower profit and a $7 million release of over provision of prior year tax
expense in the US.
Comparison with March 2003 half

Profit after tax reduced by 1%. After adjusting for the impact of the appreciating AUD on translation of offshore
earnings, profit increased by 3%.
Profit increased in Institutional Banking (5%), Trade & Transaction Services (4%) and Capital Markets (14%). Thiswas offset by lower profits in Corporate & Structured Financing (-16%) and Foreign Exchange (-16%).
Significant influences on the result (excluding the impact of exchange rates were):! Operating income increased 4%. Income in Institutional Banking increased 3% driven by increased lending
volumes in Australia and New Zealand. Trade & Transaction Services revenue increased 10% despite theappreciation of the AUD and NZD against the USD, impacting trade revenue flows. Corporate & Structured
Financing revenue increased 1%. Revenue in Capital Markets increased 12% while Foreign Exchange revenues
reduced 5% with reduced customer activity in a very competitive market.
! Operating expenses increased 5%. The increase is a result of consolidation of the TradeCentrix processing hub,higher software amortisation charges and increased pension funding costs in the United Kingdom ($2 million).
Expenses in other segments of the business were well contained.
! Provision for doubtful debts (economic loss provision) increased 14% due to growth in lending assets in Australia
and exchange rate movements increasing the credit risk on derivative positions. Net specific provisions are 33%
lower and net non-accrual loans decreased by 2%, reflecting good progress in rebalancing the portfolio towards
lower risk sectors.

33

BUSINESS PERFORMANCE REVIEW (continued)
INSTITUTIONAL FINANCIAL SERVICES
Bob Edgar
Our businessInstitutional Financial Services (IFS) provides a complete
range of financial solutions for our large corporate clients,
bringing together the Institutional Banking customer
segment and the specialist product segments of Trade &Transaction Services, Foreign Exchange & Commodities,
Capital Markets and Corporate & Structured Financing.

Profit Contribution
Transaction
Services
23%

Major revenue sources are net interest income on loans andadvances, fees for lending and non lending services
including advisory services, and financial markets productincome from foreign exchange and capital markets
activities.

Institutional
Banking39%

Corporate &Structured
Financing17%
Foreign
Exchange
10%

Capital Markets
11%

Asset quality, including the level of impaired assets, is a key
factor in IFS performance.

IFS operates globally, with a presence in Australia, New Zealand, United Kingdom, Europe, United States and the
Asian region.
Profit After Tax - Geography
Americas
6%

$B

Asia
6%

Offshore lending assets dramatically reduced

14
12
3.2

UK/Europe& Other
6%

10
8

2.5
3.1

2.7

1.9

6

1.5
1.7
1.5

4

NZ
16%

6.1

5.7

2

Australia
66%

4.2

3.6

0
Sep-01

Sep-02

Sep-03Structured Finance

US/UK

Mar-04Asia

IFS has a leading market position in Australia and New Zealand and is well positioned in offshore market niches todeliver profitable growth. Institutional Banking has maintained its leadership position in the Australian and New
Zealand markets through industry specialisation, which has now been rolled out globally, and continues to lead themarket in overall quality of Relationship Management.
Each of the product segments hold strong market positions. Selected achievements during the half include:
Product Segment

Achievement

Foreign Exchange!
!

Capital Markets

Holds top 3 market position for all products in its portfolio in Australasia! Best Bond Deal of the Year - AsiaMoney! Best Securitisation Deal of the Year - AsiaMoney! Best Syndicated Loan House of the Year - AsiaMoney

Corporate & Structured Financing

A market leader in project and structured finance! Best Bank in Project Finance in Australasia - Global Finance! Oil & Gas Deal of the Year - PFI! Best Asian Project Finance Deal - Euroweek

Trade & Transaction Services

Domestic market leader in Trade and Clearing; and has a top 2 position in cash
management

Best FX Bank in Australia & New Zealand - Global FinanceBest FX house in Australia - Euromoney

34

BUSINESS PERFORMANCE REVIEW (continued)
INSTITUTIONAL FINANCIAL SERVICES
Bob Edgar
Executing our strategy

The strategy for Institutional Financial Services is to continue to move the mix of business towards a fee based
advisory, solutions oriented, value added proposition with a low risk balance sheet. The best of investment banking
together with our strong balance sheet, traditional product capability, and our leading corporate franchise are
expected to deliver strong revenue opportunities. Key themes in executing this strategy are:
Key priorities

Progress/Plan

Deepen our domestic leadership
position!

The industry specialisation model continues to be extended with additional
resources committed for sub segment specialists in Institutional Banking
Corporate & Structured Financing has reorganised to increase its focus on
industry specialisation in project and structured finance
Product penetration has increased across every major product group
The Corporate Portal now provides customers with a single view of IFS products
The penetration of “sophisticated” trading products into the Corporate andSmall to Medium Enterprise segments is progressing very successfully
anz.com FX Online has been extended to offshore points
Good progress continues to be made in acquiring and/or launching specialist
wholesale funds for infrastructure finance
Focus continues to be given to expansion of the commodities businessCorporate relationship lending has been disaggregated from Structured FinanceInternational and is now managed on global industry lines
A stronger foreign exchange and interest rate business presence has been
established in Asia
Commodity & Trade Finance capability has been strengthened with further
investment in resources in Asia
Standardisation of the Asian operating platforms is progressing well
Major progress has been made in exiting non-core lending, with total offshore
net lending assets reduced to 3% of the Group’s balance sheet
Lower single customer limits offshore have substantially reduced the size ofindividual offshore customer exposures
A selective asset writing strategy in Asia has successfully focused on lending tocorporates with a connection to Australasia
Large name single exposure risk has continued to improve with the Top 10
exposures as a percentage of ACE now at 72%, down from 103% at September
2002
A new systems platform for the Capital Markets business has been
implemented, providing improved functionality and risk management capability!
!
!

Develop new revenue streams forsustainable growth

!
!
!
!

Maintain a viable offshore franchise byleveraging the strengths of ourdomestic business

!
!
!
!
!

Maintain excellence in Risk
Management

!
!
!

!

Grade

Institutional Risk Profile$44.2 billion$44.3 billion$42.2 billion

Top 10 Exposures as % of ACE reduced to 68% from103% in Sep 03$41.2 billion
0AAA

AAA to BBB

44%

45%

43%

46%

AA A+
AAA

BBB

BB+ to BB
B+ and
lower

22%

23%

26%

AA -

21%

A-

21%

19%

17%

A

20%

A-

8%

9%

9%

10%

Sep-02Mar-03

Sep-03Mar-04Grade

Sep 02

M ar 03

Sep 03

B+ to CCC

2.7%

3.2%

3.5%

1.9%

Below CCC

1.8%

1.7%

1.6%

1.4%

AA

M ar 04

35

100

200

300

400

500

600

700

800

900

1000

BUSINESS PERFORMANCE REVIEW (continued)
INSTITUTIONAL FINANCIAL SERVICESINSTITUTIONAL BANKING – Murray HornManaging customer relationships through nine specialised industry
segments. Developing financial services solutions and strategies for large
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
Mar 04
$M

Half
y ear
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Mov t
Mar 04v . Mar 03%

Net profit after tax

152

157

145

-3%

5%

Revenue

348

368

350

-5%

-1%

Operating expenses

(82)

(85)

(87)

-4%

-6%

Provision for doubtful debts

(58)

(60)

(55)

-3%

5%

Net specific provisions

(45)

(38)

(42)

18%

7%

Net non-accrual loans

126

137

199

-8%

-37%

ANZ has maintained its leading market position in Australia and, with the acquisition of NBNZ, also has the leading
market position in New Zealand. The half has seen substantial progress in the strategy to reduce high risk exposures,
particularly in the UK and US markets. Overall credit quality has continued to improve, reflected in the improvementin economic loss provisions, and the positive trend in net non-accrual loans. Net specific provisions included a final
provision relating to a large Australian corporate that defaulted in 2002. The September 2003 results benefited froma $19 million profit after tax on the final sale of development properties. After adjusting for this item, growth in theunderlying business was approximately 10%.

TRANSACTION SERVICES – Mark Paton
Provision of trade finance, cash management, international payments,
clearing and custodian services principally to institutional and corporate
customers in Australasia and overseas

Ha lf
year
Ma r 04
$M

Ha lf
year
Se p 03
$M

Ha lf
year
Ma r 03$M

Mov t
Ma r 04v . Se p 03%

Mov t
Ma r 04v . Ma r 03%

Ne t profit a fte r ta x

87

80

84

9%

4%

Revenue

225

212

211

6%

7%

Operating expenses

(97)

(96)

(92)

1%

5%

Provision for doubtful debts

(4)

(3)

(4)

33%

0%

Net specific provisions

-

(6)

3

-100%

-100%

Net non-accrual loans

1

4

4

-75%

-75%

The profit result reflects solid performance across all segments of the business. Cash Management has continued toexperience strong deposit growth, while Custodian Services increased assets under custody and transaction volumes
with the acquisition of new customers over the half. International Payments benefited from increased activity withimproved channel management. Trade Finance revenues have experienced strong growth despite the impact of the
AUD and NZD appreciation against the USD denominated trade flows. Expenses were well contained while increasing
investment in upgrading our customer servicing platforms.

36

BUSINESS PERFORMANCE REVIEW (continued)
INSTITUTIONAL FINANCIAL SERVICESFOREIGN EXCHANGE – Rick Sawers

Provision of products and services that assist ANZ customers globally to
manage Foreign Exchange risk and Commodity risk

Half
year
Mar 04
$M

Half
y ear
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Mov t
Mar 04v . Mar 03%

Net profit after tax

37

41

44

-10%

-16%

Revenue

115

118

127

-3%

-9%

Operating expenses

(60)

(57)

(63)

5%

-5%

Provision for doubtful debts

(1)

-

(1)

n/a

0%

Net specific provisions

(10)

(9)

(24)

11%

-58%

Net non-accrual loans

36

45

53

-20%

-32%

Revenue was slightly lower than last half, as a result of the rapid weakening of the US dollar against all currencies
during the period. This sustained movement presented customers with a strong one-way directional trend, and theconsequent lack of volatility subdued customer activity in the half. Margins were also negatively affected ascustomers reduced derivative product hedging activity because of uncertainty around the effectiveness of derivative
hedging under revised International Accounting Standards. During the half, our capabilities in London were
strengthened in recognition of the increasing dominance of the London FX market and its importance to our risk
management needs. We also added capabilities in the Asia region in recognition of customer growth and the future
potential of these regions. Net specific provisions and non-accrual loans relate to one large Australian Corporate that
defaulted in 2002.

CAPITAL MARKETS – David Hornery

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

Half
year
Mar 04
$M

Half
y ear
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Mov t
Mar 04v . Mar 03%

Net profit after tax

41

39

36

5%

14%

Revenue

107

100

98

7%

9%

Operating expenses

(44)

(42)

(44)

5%

0%

Provision for doubtful debts

(3)

(2)

-

50%

n/a

Net specific provisions

(6)

(5)

-

20%

n/a

Net non-accrual loans

30

12

19

large

58%

The markets in the March 2004 half have been characterised by continuing low credit spreads and interest rates, withcustomer expectations that these historically low levels would continue in the medium term. The business saw
moderate but improving levels of customer derivative activity, with outstanding customer satisfaction polling in theInterest Rate Derivative businesses. Reduced activity in structured finance as a result of the strategy to lower risk inthe business has had a flow on impact into Capital Markets with fewer structured derivative transactions.
Underwriting, Syndication and Securitisation activity has been strong over the half, with 5 major industry awards
ranging from Most Innovative Deal of the Year to Syndication House of the Year. Non-accrual loans and net specificprovisions relate to one US power exposure.

37

BUSINESS PERFORMANCE REVIEW (continued)
INSTITUTIONAL FINANCIAL SERVICESCORPORATE AND STRUCTURED FINANCING – Gordon Branston, Peter Hodgson
Provision of complex financing and advisory services, structured financial
products, leasing, private equity and development capital, project, export
and leveraged finance and infrastructure investment

Half
year
Mar 04
$M

Half
y ear
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Mov t
Mar 04v . Mar 03%

Net profit after tax

64

71

76

-10%

-16%

Revenue

136

138

153

-1%

-11%

Operating expenses

(56)

(48)

(57)

17%

-2%

Provision for doubtful debts

(20)

(19)

(20)

5%

0%

Net specific provisions

(1)

(36)

(60)

-97%

-98%

Net non-accrual loans

167

154

131

8%

27%

In the March 2004 half, the activities of Corporate Financing & Advisory and Structured Finance International werebrought together to leverage synergies across the markets in which we operate. The March 2004 result reflects theimpact of the stronger AUD on offshore earnings and the impact of revenue foregone as the portfolio is rebalanced
towards lower risk sectors. In addition, contributions have commenced to the UK defined benefit scheme. Net
lending assets for the business have been reduced by 12% ($1.2 billion) since September 2003 and 22%($2.4 billion) since September 2002. Strong performances from Leasing & Structured Asset Finance and Corporate
Finance have partly offset lower activity in Project Financing as a consequence of subdued market conditions and theasset writing strategy which is focused on lowering risk. The increase in net non-accrual loans relates to a small
number of exposures to the power sector.

38

This page has been left blank intentionally

39

BUSINESS PERFORMANCE REVIEW (continued)
NEW ZEALAND BUSINESS
Sir John Anderson♦♦♦

ANZ New Zealand Banking
National Bank of New Zealand
New Zealand integration costs

Half
year
Mar 04
$M

Half
year
Sep 03$M

Net interest income

514

211

219

large

large

Other external operating income

200

94

95

large

large

8

8

8

0%

0%

Operating income

722

313

322

large

large

External operating expenses

(299)

(121)

(120)

large

large

Net inter business unit expenses

(55)

(55)

(55)

0%

0%

Operating expenses

(354)

(176)

(175)

large

large

Profit before debt provision

368

137

147

large

large

Provision for doubtful debts

(36)

(9)

(9)

large

large

Profit before income tax

332

128

138

large

large

Income tax expense and outside equity interests

(104)

(42)

(46)

large

large

Net profit attributable to members of the Company

228

86

92

large

large

46,486

13,42913,456

large

large

Net inter business unit fees

Net loans & advances including acceptances

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03$M%%

Other external assets

6,892

381

501

large

large

External assets

53,37813,81013,957

large

large

Deposits and other borrowings

45,334

11,693

11,963

large

large

Other external liabilities

2,721

288

346

large

large

External liabilities

48,055

11,981

12,309

large

large

Net interest average margin

2.72%

3.11%

3.30%

-13%

-18%

Return on assets

1.15%

1.25%

1.38%

-8%

-17%

Return on risk weighted assets

1.63%

1.80%

2.13%

-9%

-23%

Operating expenses to operating income

49.0%

56.2%

54.3%

-13%

-10%

Operating expenses to average assets

1.78%

2.56%

2.60%

-30%

-31%

(4)

(3)

-

33%

n/a

0.02%

0.04%

0.00%

-50%

n/a

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

26

8

13

large

100%

Net non-accrual loans as a % of net advances

0.06%

0.06%

0.10%

0%

-40%

Total employees

7,581

2,727

2,613

large

large

40

BUSINESS PERFORMANCE REVIEW (continued)
NEW ZEALAND BUSINESS
Sir John Anderson
Comparison with September 2003 half

Profit after tax increased $142 million, with the National Bank of New Zealand (NBNZ) contributing $150 million(excluding integration costs) since acquisition on 1 December 2003 (refer page 12 for a discussion of the performanceof NBNZ compared to the proforma results published in the rights issue prospectus). Profit after tax in ANZ New
Zealand Banking reduced $3 million, including a $1 million reduction resulting from the depreciation in the NZD overthe half. Integration costs incurred in the half were $5 million after tax.
Key influences on the result include the following:!

Net interest income increased $303 million. Excluding the contribution of NBNZ, net interest income was flat.
Lending volumes increased 4% in ANZ New Zealand Banking, driven by growth in Mortgages (5%), Corporate(6%) and Business and Rural (4%). Lending in NBNZ since acquisition increased 2%, driven by an 11% increasein home loans, and 3% growth in rural which experiences seasonally lower growth in the March half year. These
increases were partly offset by a 8% reduction in Corporate and Institutional.
ANZ New Zealand Banking deposit volumes increased 1%. Deposits in NBNZ have grown 2%.
Reduced asset margins, particularly in mortgages as a result of the rises in bond rates and bank bill rates, haveoffset the growth in lending and deposit volumes.

!

The NBNZ contribution to other operating income was $106 million in the 4 months to March 2004. Fees in ANZ
New Zealand Banking were flat with increased fees in corporate banking being offset by the ongoing impact ofsimplified fee structures and generally lower fees in Personal.

!

Operating expenses increased $178 million, of which $168 million related to the inclusion of NBNZ. Integration
costs of $7 million have been incurred with integration at the planning stage. Costs in ANZ New Zealand Banking
increased 2%, reflecting annual salary increases, an increased number of frontline staff with two new branches
being opened, an increase in mobile mortgage managers and an increased spend on brand and sales training.

!

Credit quality remains sound with the increase in provision for doubtful debts charge in ANZ New Zealand Banking
substantially in line with lending growth. Net specific provisions continue to be well below our ELP charge.
Economic loss provisioning methodologies are in the process of being implemented in NBNZ and a $27 million
charge was recognised in the four months to March 2004.

!

NBNZ results have not been equity standardised, and ANZ Group full service transfer pricing methodologies have
not yet been adopted in NBNZ.

Comparison with March 2003 half

Profit after tax increased $136 million largely as a result of the consolidation of NBNZ. The NBNZ result reflected
steady growth, mainly from net interest income with solid lending volumes, particularly in home and rural, partly
offset by lower margins. Profit after tax in ANZ New Zealand Banking reduced by 10%, or 7% in local currency
terms. Excluding the exchange rate impact, revenue was flat largely reflecting the impact of reduced mortgage
margins caused by rises in bond rates as well as short term rates; and narrowed deposit margins with the Official
Cash Rate lower than in the March 2003 half. These margin impacts have more than offset the contribution fromvolume growth (8% lending growth in Corporate and 12% in Business & Rural lending, and 3% growth in Personal
deposit volumes). Operating costs increased by 6% driven by growth in frontline staff.
Reconciliation to geographic result
H a lfyear
M ar 04$M

H a lfyear
Sep 03$M

H a lfyear
M ar 03$M

M ovt
M ar 04
v. Sep 03%

M ovt
M ar 04v. M ar 03%

N e t p r o fit a ft e r t a x
N e w Z e a la n d B u s in e s s

228

86

93

la r g ela r g e

I n s t it u t io n a l F in a n c ia l S e r v ic e s

59

59

59

0%

0%

UDC

18

18

18

0%

0%

C o n s u m e r F in a n c e

20

19

15

5%

33%

8

6

5

33%

60%

G ro u p C e n tr e /O th e r(1 0 6 )(1 2 )(1 8 )

la r g ela r g e

N e w Z e a l a n d g e o g r a p h ic

227

176

172

29%

32%

T rea su ry

41BUSINESS PERFORMANCE REVIEW (continued)
NEW ZEALAND BUSINESS
Sir John Anderson
Our business

!

!

!

‘New Zealand Business’ comprises the ANZ New Zealand Banking business unit, and the National Bank of New
Zealand (NBNZ) acquired on 1 December 2003. For the first time this half-year, ANZ New Zealand’s mortgage
business is included within New Zealand Banking, and excluded from the Mortgages business. All other ANZ
businesses operating in New Zealand through global lines are excluded from ‘New Zealand Business’. Thesebusinesses are: Consumer Finance, UDC, the IFS businesses and Treasury. However, all of NBNZ’s businesses,
including Institutional Financial Services and Treasury markets, are presently part of New Zealand Business.
The ANZ New Zealand Business provides full service banking operations in the Personal, Corporate, Business andRural sectors in New Zealand. The wealth management sector is serviced by Private Banking and by ING New
Zealand and by the NBNZ funds management, life insurance and fire and general insurance businesses.
Together, New Zealand Business provides banking and related products and services to close to two million New
Zealanders, around half New Zealand’s population.
Revenue by segment - Half Year March 2004
250

1

ANZ

Main B ank Provider
A NZ
20%

NBNZ

200
150
100
Other
60%

50

NB NZ
20%

Personal

1.

Small
Business

Rural

Corporate

IFS

Other

NBNZ figures are for 4 months; IFS results for NZ geography booked in IFS business

ANZ New Zealand Strategy

ANZ New Zealand Banking continued to roll out its ‘human face’ strategy in Personal Banking. Further progress has
been made in the following areas:
Focus
Brand

Strategy!

Launch campaign to reinvigorate
overall brand!

Products(Personal)
Products(Corporate)!

!

Sales & Service(Personal)!

Simplify products and improve theircompetitiveness
Deliver Wall Street to Main Street(Investment Banking solutions to the
mid-market)
Introduce team-based incentive
programEstablish new training programs on
induction, needs-based sales andsales management
Continue branch revitalising program
Expand Mobile Mortgage Manager
program
Segment customer base

!

!

!

!
!
!

Progress

Sales & Service(Mortgages)
Sales & Service(Business & Rural)!
!
!

Utilise technology to enhance service
proposition
Expand frontline sales force
Drive industry specialisation

Sales & Service(Corporate)!

Deliver segmentation strategies

42

!

!
!
!
!
!
!

!
!
!
!

New advertising launched in November 2003,
which has resulted in favourable customer
responses
Realignment of fees for existing customers
Continued progress on enhancing customer
segmentation and providing investmentbanking solutions to those markets
Incentive program rolled out to frontline staff
Sales and leadership training delivered forfrontline staff across Branch Network
New branch openings in North Auckland andChristchurch
Branch refurbishments underway
Continued expansion of Mobile Mortgage
sales force
Segmentation of the retail client base andtailor of services accordingly
Implemented automated credit approval
process in Branch Network
Continued recruitment of new staff
Launch of Business Brand campaign to takeplace in next half (aligned with overall brand)Continued focus on industry specialisation
Overall portfolio growth

BUSINESS PERFORMANCE REVIEW (continued)
NEW ZEALAND BUSINESS
Sir John Anderson
National Bank of New Zealand Strategy

The underlying NBNZ strategy has been to adopt a customer-centric business model and to drive organic growth inmarket share across all segments by leveraging a strong brand position, investing in front line sales capability andtargeting error-free service.
Focus

Strategy

Exceptional brand!
!

Progress

Build awareness of NBNZ brand
Maintain high customer satisfaction!
!

Targeted Growth (Personal)

Aligning resources withgrowth opportunities

!
!
!
!

Focus on High-Value Customers
Grow retail deposit funds
Main Bank Share
Focus on youth acquisition and retention

!

!
!
!
!

Optimise branch representation
Pilot new customer service model
Proactive customer contact management
Invest in our people

!

!
!

!
!

!

Efficient, quality customer
service experience!
!

Continued focus on maintaining
leadership position for customer service
Sales & Service Automation program

!
!

!
!
!

Brand awareness measure exceeds 2003
targets
Customer satisfaction levels lead themarketMain Bank share growth from 17.6% in2002 to 18.5% in 2003
Growth in deposit market share over 2003
2004 Tertiary campaign underway
Dominion Road branch reopened as new
Mt Eden branch (Auckland)
Completing pilot of new Personal Manager
role in early to mid 2004
Proactive outbound calling program
embedded into branch and contact centre
staff roles
Increased front line staff numbers
Branch Service program
Ongoing development of recruitment
model, training programs and performance
review framework
Implemented SDA (Single front-end viewto core systems across all channels)
Automation of loan processing
Major upgrade of Contact Centre and ATM
network systems architecture underway

Efficient, quality customer
service experience (Rural)!

Enhance credit approval process!

Commenced improvement of automatedcredit tools

Reputation for customer
service (Small Business)!

Provide referral service at customer
point of contact
Establishing a culture of thinking andacting like a business person!
!
!

Branch network referrals
Increased relationships with influencers
Communications and training program
underway!

Integration

Legal amalgamation of ANZ New Zealand and NBNZ is expected in the second half of 2004. Integration planning iswell progressed and in line with plan. The focus of the New Zealand Business is to continue to progress integration todeliver benefits as efficiently as possible while maintaining the momentum of business growth and initiatives of bothbanks to deliver a superior financial outcome for ANZ.

43

BUSINESS PERFORMANCE REVIEW (continued)
NEW ZEALAND BUSINESSANZ NEW ZEALAND BANKING – Sir John Anderson
Provides a full range of banking services, including mortgage lending andwealth management, through branches, call centres, relationship managers
and on-line banking. New Zealand Banking excludes Institutional Financial
Services, Consumer Finance and Asset Finance. New Zealand geography(page 61) includes all ANZ operations in New Zealand.

Half
year
Mar 04
$M

Half
y ear
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Mov t
Mar 04v . Mar 03%

Net profit after tax

83

86

92

-3%

-10%

Revenue

312

313

322

0%

-3%

Operating expenses

(179)

(176)

(175)

2%

2%

(9)

(9)

(9)

0%

0%

Net specific provisions

-

(3)

-

-100%

n/a

Net non-accrual loans

5

8

13

-38%

-62%

Provision for doubtful debts

ANZ has experienced strong demand in the residential housing market reflecting a turnaround from the recent trendof flat or reducing volumes, with a significant slowing in the erosion of market share. Margins in the mortgage sector
have been squeezed over the half with cash rates increasing, and ANZ and NBNZ deliberately delaying passing on theimpact of these rate rises to customers. Investment in the frontline continues with the opening of two new branches
during the half, and an increased spend on brand image and sales training to counter the impact of recent underinvestment in these areas.

NATIONAL BANK OF NEW ZEALAND - Sir John Anderson
Provides a full range of banking services for personal, rural, small business,
corporate and institutional customers in New Zealand. The National Bank of
New Zealand results on this page exclude goodwill amortisation. New
Zealand geography (page 61) includes all NBNZ operations.

FourmonthsMar 04
$M

Half
y ear
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Mov t
Mar 04v . Mar 03%

Net profit after tax

150

-

-

n/a

n/a

Revenue

410

-

-

n/a

n/a

Operating expenses

(168)

-

-

n/a

n/a

Provision for doubtful debts

(27)

-

-

n/a

n/a

Net specific provisions

(4)

-

-

n/a

n/a

Net non-accrual loans

21

-

-

n/a

n/a

This table shows the results of the NBNZ business for the four months since it was acquired by ANZ on 1 December
2003. The National Bank has continued to experience strong growth in the residential housing market, fueled by abuoyant market particularly in the Auckland region. Lower rural lending growth reflects the cyclical nature of theindustry where settlements and dairy payouts occur principally in the June half. Corporate and institutional volumes
have reduced 8% since acquisition, as a result of some large repayments. The above figures exclude integration
costs of $5 million after tax. Refer page 12 for a comparison to the Rights Issue Prospectus proforma.

44

This page has been left blank intentionally45

BUSINESS PERFORMANCE REVIEW (continued)
CORPORATE AUSTRALIA
Graham Hodges♦ Small to Medium Enterprises Australia♦ Corporate Banking Australia

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Movt
Movt
Half
Mar 04
Mar 04year
Mar 03 v. Sep 03 v. Mar 03%%$M

Net interest income

267

249

238

Other external operating income

112

109

Net inter business unit fees

(24)

(22)

Operating income

355

External operating expenses

7%

12%

100

3%

12%

(22)

9%

9%

336

316

6%

12%

(97)

(91)

(87)

7%

11%

Net inter business unit expenses

(23)

(22)

(20)

5%

15%

Operating expenses

(120)

(113)

(107)

6%

12%

Profit before debt provision

235

223

209

5%

12%

Provision for doubtful debts

(26)

(24)

(24)

8%

8%

Profit before income tax

209

199

185

5%

13%

Income tax expense and outside equity interests

(63)

(60)

(55)

5%

15%

Net profit attributable to members of the Company

146

139

130

5%

12%

17,762

16,03014,827

11%

20%

61

55

58

11%

5%

External assets

17,82316,085

14,88511%

20%

Deposits and other borrowings

13,517

12,846

11,881

5%

14%

Other external liabilities

5,403

5,104

4,636

6%

17%

External liabilities

18,92017,95016,5175%

15%

Net interest average margin

3.82%

3.83%

3.82%

0%

0%

Return on assets

1.57%

1.63%

1.60%

-4%

-2%

Net loans & advances including acceptances
Other external assets

Return on risk weighted assets

1.74%

1.84%

1.86%

-5%

-7%

Operating expenses to operating income

33.8%

33.6%

33.9%

1%

-0%

Operating expenses to average assets

1.29%

1.32%

1.31%

-3%

-2%

(18)

(49)

(8)

-63%

large

0.21%

0.64%

0.11%

-67%

91%

40

74

87

-46%

-54%

Net non-accrual loans as a % of net advances

0.22%

0.46%

0.58%

-51%

-62%

Total employees

1,632

1,594

1,520

2%

7%

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

46

BUSINESS PERFORMANCE REVIEW (continued)
CORPORATE AUSTRALIA
Graham Hodges
Comparison with September 2003 half

Profit after tax increased by 5%. Significant influences on the result were:!

Net interest income increased 7% with strong growth in both lending and deposit volumes. SME achieved 7%revenue growth from 14% growth in average lending volumes. This growth resulted from increased activity withexisting customers and new customer acquisition through a very competitive customer service proposition and 3rdparty origination. SME lending margins on variable rate products were negatively impacted by a market-based
rise in the business-funding rate, which could not be matched in the rate charged to customers. Corporate
Banking average lending volumes grew by 10% with commercial bills growing at a somewhat faster pace.
(Commercial Bill income is reported in other external operating income). Deposit volumes grew solidly over thehalf with average volumes up 9% in SME and 8% in Corporate. Margins on funds placed in transaction accounts
increased reflecting the impact of the rising interest rate environment.

!

Other external operating income increased 3% driven by growth in commercial bill fees in Corporate Banking. The
SME business is traditionally subject to a degree of seasonality, which results in a cyclically stronger September
half year.

!

Net inter business unit fees, which represents net payments made to the branch network, were 9% higher withincreased investment in the branch network and increased transaction volumes associated with customer growth.

!

Operating expenses increased 6% driven by higher personnel costs in both SME and Corporate Banking withannual salary increases, as well as continued investment in new graduate roles where the business recruited over
50 staff into the frontline. Cost to income ratio increased marginally, but at 33.8%, remains low.

!

Provision for doubtful debts have increased $2 million, driven by the 11% growth in average lending volumes.
Credit quality in the SME sector remains sound with the portfolio quality reviewed every quarter to detect any
early adverse trends. Portfolio analysis on GST payment funding indicates that this sector continues to perform
strongly in terms of its cash generation ability.

!

Net specific provision is down significantly as a result of higher provisioning against two large Corporate Banking
customer exposures in the September half year. The reduction in net non-accrual loans has predominantly been
driven by the successful management of the non-accrual loan portfolio.

Comparison with March 2003 half

Profit after tax increased 12% with growth in Small to Medium Enterprises of 14% and Corporate Banking of 9%.
Revenue increased 12% with strong growth in both lending and deposit volumes (20% and 14% respectively)
resulting in increased net interest and fee income in both the Corporate and SME sectors.
Operating costs increased by 12% driven by an annual salary increase and 7% increase in staff numbers. Increased
software amortisation costs and business volume related increases in technology costs contributed to the increase in
net interbusiness unit expense.

47

BUSINESS PERFORMANCE REVIEW (continued)
CORPORATE AUSTRALIA
Graham Hodges
Our business

The Corporate and SME Banking businesses were brought together in December 2002. The businesses are atdifferent stages of development, but synergies continue to be extracted from the closer alignment of the teams.
Small to Medium Enterprises Australia

!

!

!

There has been strong growth in revenue and businessprofits in the SME business over the past few years,
which has allowed a significant investment in thebusiness to drive future growth. FUM growth in the SME
business continues to outperform the segment based on
RBA data (business lending <$2 million).
Credit quality has been maintained during a period ofstrong lending growth. The portfolio is ~80% fully
secured and is reviewed via behaviour scoring on aquarterly basis.

$B

Funds Unde r Mana ge m e nt

35
30
25
20

15.2

13.8

12.8

15
10
5

16.1

15.1

14.0

0

M arc h 2003

SME employs over 700 frontline staff, with 79 businesscentres across Australia and over 36,000 customers.

C o rpo rate

Sept 2003

M arc h 2004
SM E

Corporate Banking Australia!

Corporate Banking has a strong market position in a relatively mature market place, supported by a leading
customer proposition and the broadest product offering. The business is focused on excellence in customer service
and new customer acquisition, as well as great emphasis on the cross-selling of other business units products to
the Corporate customer base. Strong revenue growth in the past year has enabled the Corporate segment toinvest in the business in order to drive future growth.

!

Corporate employs nearly 400 frontline staff, with 31 business centres across Australia and nearly 3,000
customers.

Executing our strategy

The strategy of the business unit remains unchanged, with a high degree of staff engagement. This clarity and focus
has delivered good progress over the current half year.
Focus
SME
Increased revenue
opportunities

Enhance operational
effectivenessCorporate
Sales culture andexcellent customer
service
Customer solutions focus

Strategy

Progress• Expanding specialised businesssegments• Leveraging 3rd party origination
capabilities• Leverage cross-selling
opportunities• Specialised business segments account for around$0.5 billion of FUM, from a zero base two years ago• 3rd party originated business is approaching nearly$1 billion of FUM (lending and deposits), from a minimalbase two years ago• Appointed new dedicated product specialists at the SME
frontline• Maximise efficiency of frontline
network• Maximise efficiency of sharedservices and operational
support• Greater use of remote customer calling and enhancementof relationship management desktop tools• Incremental platform development, including Straight
Through Processing for loan origination• Implement a more disciplined
sales regime• 9% growth in average FUM over current half

• Maintain a strong focus on crosssell to corporate customer base

• Increased activity in sophisticated solutions (‘Wall Street
to Main Street’ programme) and investment in “WallStreet” specialist teams

48

BUSINESS PERFORMANCE REVIEW (continued)
CORPORATE AUSTRALIASMALL 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
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

Net profit after tax

87

82

76

6%

14%

Revenue

197

184

170

7%

16%

Operating expenses

(64)

(59)

(53)

8%

21%

Provision for doubtful debts

(9)

(8)

(8)

13%

13%

Net specific provisions

(3)

(3)

(2)

0%

50%

Net non-accrual loans

6

5

6

20%

0%

Revenues have continued to grow strongly, supported by the development of a strong customer proposition,
increased investment in the business, continued leverage of 3rd party origination and industry specialisation channels.
Total average FUM grew strongly over the half, with average lending up 14% and average deposits up 9%.
Investment continues to be centered on expanding the number of customer relationship staff, industry specialists andbusiness related support staff. There is an ongoing focus on monitoring the credit portfolio, which is reflected in
specific provisioning being well below economic loss provisioning levels.

CORPORATE BANKING AUSTRALIA – Graham Hodges

Managing customer relationships and developing financial solutions for
medium sized businesses (turnover $10 million to $100 million) in Australia

Ha lf
year
Ma r 04
$M

Ha lf
year
Se p 03
$M

Ha lf
year
Ma r 03$M

Mo v t
Ma r 04v . Se p 03%

Mov t
Ma r 04v . Ma r 03%

Ne t pro fit a fte r ta x

59

57

54

4%

9%

Revenue

158

152

146

4%

8%

Operating expenses

(56)

(54)

(54)

4%

4%

Provision for doubtful debts

(17)

(16)

(16)

6%

6%

Net specific provisions

(15)

(46)

(6)

-67%

large

Net non-accrual loans

34

69

81

-51%

-58%

The business has continued its focus on acquiring new customers and cross-selling the products of other ANZ business
units, particularly through the continued success of the “Wall Street to Main Street” customer service proposition.
Total customer profitability increased by 5% over the previous half year with 46% of total profitability being reported
in the profits of other product businesses. Overall credit quality of the portfolio has improved, with net specificprovisions down from high levels due to two large specific customer charges in the September 03 half. Net
non-accrual loans have reduced due to a strong focus on the active management of the Corporate portfolio.

49

BUSINESS PERFORMANCE REVIEW (continued)
ESANDA AND UDC
Elizabeth Proust

Provides vehicle and equipment finance and rental services. Operates inAustralia as Esanda and Esanda FleetPartners and in New Zealand as UDC
and Esanda FleetPartners.

Half
year
Mar 04
$M

Half
year
Sep 03$M

Net interest income

179

177

173

1%

3%

Other external operating income

48

44

42

9%

14%

Net inter business unit fees

(5)

(3)

(4)

67%

25%

Operating income

222

218

211

2%

5%

External operating expenses

(75)

(77)

(78)

-3%

-4%

Net inter business unit expenses

(14)

(12)

(12)

17%

17%

Operating expenses

(89)

(89)

(90)

0%

-1%

Profit before debt provision

133

129

121

3%

10%

Provision for doubtful debts

(33)

(32)

(32)

3%

3%

Profit before income tax

100

97

89

3%

12%

Income tax expense and outside equity interests

(31)

(30)

(27)

3%

15%

Net profit attributable to members of the Company

69

67

62

3%

11%

40.1%

40.8%

42.7%

-2%

-6%

Net specific provisions

(24)

(47)

(25)

-49%

-4%

Net non-accrual loans

59

49

55

20%

7%

1,247

1,311

1,290

-5%

-3%

Operating expenses to operating income

Total employees

Movt
Movt
Half
Mar 04
Mar 04year
Mar 03 v. Sep 03 v. Mar 03%%$M

Comparison with September 2003 half

Profit after tax increased by 3%. Significant influences on the result were:! Net interest income grew by 1% with a 4% increase in lending volumes partly offset by a 4 basis point decline in
margins brought about by the scheduled run off of higher yielding loans during the half. New business writings
were in line with previous half, achieving record growth during 2003.
! Other operating income increased by 9% due mainly to changes in the fee structure for business lending.
! A general uplift in wages and other costs was offset by back office efficiency gains from our end to end processreview. As a result operating expenses for the half were flat. The continued control of expenses has resulted in
the cost to income ratio falling to 40.1%.
! Provision for doubtful debts increased by 3% reflecting the increase in lending volumes. Net specific provisions
were significantly lower than the September half year reflecting the $20 million write-down associated with thediscontinued aircraft lease business in the September half year and an ongoing improvement in the overall credit
quality of the business portfolio.
! Net Non Accrual loans increased by 20%, reflecting the increase in lending assets and the impact of two
single-name non accrual loans in New Zealand.
Comparison with March 2003 half

Profit after tax grew by 11%. A buoyant new car market drove higher new business writings in the year to March
2004, which flowed through to a 3% increase in net interest income and 14% growth in fee income. Operating
expenses declined by 1%, despite a 5% increase in income and 7% growth in assets, with efficiency gains made inback office operations. Provision for doubtful debts increased in line with asset volumes while net specific provisions
reduced by 4% with an improvement in the credit quality of the portfolio. Net Non Accrual loans increased in line withlending volumes and the impact of the two single-name non accrual loans in New Zealand.

50

BUSINESS PERFORMANCE REVIEW (continued)
ESANDA AND UDC
Elizabeth Proust
Our business

!

!
!
!
!
!
!
!
!

Esanda provides:
Le nding A sse t D istribution by S e gm e nt
- motor vehicle and equipment finance;
UD C- equipment operating lease and management
14%
services;- fleet management services; andC o rpo rate
- investment products
C o ns um er
8%53%
to customers in Australia and New Zealand through its
businesses – Esanda (Australia), Esanda FleetPartners(Australia & New Zealand), UDC (New Zealand) andSm all toSpecialised Asset Finance (Australia)
M edium
B us ines s
Approximately 74% of our profit is derived in Australia.
25%
Our loan book totals $13.2 billion
Approximately 70% of our loan book is funded throughthe issue of debentures
Our debenture portfolio grew by 7% in 1H04 reaching $9 billion for the first time
84% of debenture customers renew their investments on maturity
We employ 965 staff in Australia and 282 in New Zealand
Our primary distribution channels for providing finance are our dealer and broker networks in both Australia and
New Zealand, and ANZ
Critical success factors for us are:
- Capturing growth in selected segments of the market- Risk Management- Ongoing productivity improvement and cost control
Half
year
Mar 04
3,337
346.8
0.37

Key Performance Indicators
New business writings ($m)
Annualised Revenue per FTE ($000’s)
Specific Provision/Net Lending Assets (%)

Half
year
Sep 03
3,356
328.6
0.77

Half
year
Mar 03
3,190
321.3
0.42

Executing our strategy

Esanda’s goal is to be the leading provider of vehicle and equipment finance and rental services in Australia and New
Zealand by delivering superior shareholder returns, excellent customer service, value for our channel partners andcontributing to our community. In order to achieve this, we have developed and are implementing strategies under
the themes of Redesign, Refocus and Reshape
Focus/Strategy

Progress of strategic initiatives and projects

Redesign - Improve economics of existing business! End to End (E2E) Redesign!

!

Improve economics of dealer channel

Refocus - Create sustainable growth! Increase new business generation through existingbrokers! Increase penetration of new business products through
ANZ SME channel! Increase motor vehicle finance through ANZ branches!

Increase penetration of Fleet and Specialised Asset
Finance (SAF) products and rental services into ANZ
Corporate & Institutional customers

Reshape - Deliver excellent customer experience! Reshape the way we present to the market, with a new
brand in both Australia and New Zealand and anincreased focus on excellent customer experience andcustomer retention!
!

Twenty of thirty five initiatives implemented sinceNovember 2003
Estimated benefit of $2.3 million to date
Change in dealer remuneration structures and business
lending fees implemented!

Writings 2% up on 2H03!

Writings of $148 million are up 22% on the same time
last year$24 million written year to date compared to $32 million
full year 2003
Stronger ties with Corporate and IFS business; writings
up 7.5% year to date

!
!

!
!

51

Esanda promoted as easy to deal with, progressive andforward thinking
Pre-approval of loans for existing customers has resulted
in new business writings of $80 million since October
2002

BUSINESS PERFORMANCE REVIEW (continued)
ASIA PACIFIC
Bob Lyon
Provision of primarily retail banking services in the Pacific Region and Asia,
including ANZ’s share of PT Panin Bank in Indonesia; this business unit
excludes Institutional and Corporate transactions that are included in thegeographic results for Asia

Half
year
Mar 04
$M

Half
year
Sep 03$M

Net interest income

57

59

58

-3%

-2%

Other external operating income

92

88

97

5%

-5%

-

-

-

n/a

n/a

Operating income

149

147

155

1%

-4%

External operating expenses

(47)

(44)

(48)

7%

-2%

Net inter business unit expenses

(14)

(15)

(16)

-7%

-13%

Operating expenses

(61)

(59)

(64)

3%

-5%

Profit before debt provision

88

88

91

0%

-3%

Provision for doubtful debts

(5)

(5)

(5)

0%

0%

Profit before income tax

83

83

86

0%

-3%

Income tax expense and outside equity interests

(19)

(18)

(18)

6%

6%

Net profit attributable to members of the Company

64

65

68

-2%

-6%

40.9%

40.1%

41.3%

2%

-1%

Net specific provisions

(2)

7

1

large

large

Net non-accrual loans

17

18

12

-6%

42%

1,579

1,545

1,526

2%

3%

Net inter business unit fees

Operating expenses to operating income

Total employees

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03$M%%

Comparison with September 2003 half

Profit after tax decreased by 2%. Excluding the impact of foreign exchange movements profit increased 3%.
Significant influences on the result, excluding exchange rate movements, were:!

Net interest increased by 3% with a 7% increase in deposit volumes, and 8% increase in lending volumes, driven
by continued improvement in Fiji’s tourism industry.

!

Other operating income increased 9% due largely to higher foreign exchange earnings partly offset following theReserve Bank of Fiji’s suspension of trading forward foreign exchange by all banks. Fee income increased 4% withhigher lending volumes. Profit of $25 million from PT Panin was flat half on half.

!

Operating expenses increased 8% as we build capability in Quest (100% owned subsidiary company) to support
further centralisation of regional operations; the cost increase is exaggerated by the lags in extracting thesebenefits from in-country savings. An amended consumption tax assessment in PNG also contributed to the uplift.

!

Credit quality remains sound. Net specific provisions remain at very low levels.

Comparison with March 2003 half

Profit after tax decreased by 6%. However, after excluding the impact of exchange rate movements:! Profit after tax was flat.
! Operating income increased 4% due to an 11% increase in net interest income, driven by a 17% increase inlending volumes, and increased fees, predominantly due to the alignment of fee structures across the Pacific.
These increases were partly offset by lower equity accounted income from PT Panin reflecting lower profit on bondsales.
! Operating expenses increased 6% as we build capacity in Quest and from the amended consumption tax
assessment in PNG.

52

BUSINESS PERFORMANCE REVIEW (continued)
ASIA PACIFIC
Bob Lyon
Our business!

In the Pacific, ANZ is a clear banking leader being
number 1 or 2 in the 10 countries in which we operate.
We service consumer and business customers, we offer
foreign exchange services and we leverage operational
expertise from the broader ANZ group!

We manage ANZ’s consumer banking business in
Singapore, Japan and Vietnam!

We equity account 29% of the profits of PT Panin Bankin Indonesia. PT Panin Bank has 154 branches!

PT Panin, Papua New Guinea and Fiji together comprise
76% of our 2004 half year profit!

In 2002 we established ‘Quest’ in Fiji as the Operational
Hub in Pacific Region to build scale within the region,
reduce operating risks, optimise costs and create acentre of expertise. A highlight for this period has been
gaining Colonial Bank Fiji as an insourced customer for
local voucher processing

Sources of NPAT
Singapore
Personal
5%

Other
11%
Panin
35%

Vanuatu
8%

Fiji
14%
PNG
27%

Executing our strategy

To ensure sustainability of our position, we are pursuing a four-point strategy for growth based on the following:
Focus

Strategy

Progress

Customer delight• Installation of automatic queuingsystem aimed at reducing queue
waiting time by 50%• Automated queuing system installed in 9 countries• Strengthen customer advocacy androll out customer charter to all
countries• Regional customer charter and standardised complaints
management to be introduced in 2004

• Develop our local staff• 80% of management roles in Pacific Business Unit areheld offshore (outside Australia), of these around 73%
are held by locally employed nationals

Develop our people• Customer charter and advocacy established in Fiji complaints reduced by over 40%• Greater focus on training anddevelopment• Pacific Development Centre to be established in June
2004

• Promote gender diversity• Currently 30% of Senior Management roles filled bywomen

Organisational
efficiency• Strengthen the business operatingmodel• Phase one of sales and service re-engineering to be rolled
out in April 2004, covering 80% of front line processes• Leverage Quest to centralise
operational support• Quest now running fully operational help desk, financeand credit card back office functions for 8 Pacificcountries. IT help desk support is provided to the entire
Asia/Pacific region• Centralised ANZ Fiji voucher processing and imaging to
be rolled out in June 2004. Voucher processing andimaging services have been extended to Colonial National
Bank Fiji

Tactical growth
options• Build scale.

• Continue searching for acquisition opportunities• Increase revenue through insourcing
into Quest• Continue seeking insourced customers

53

BUSINESS PERFORMANCE REVIEW (continued)
ING AUSTRALIA (JOINT VENTURE)Paul Bedbrook
ING Australia, the joint venture between ANZ and ING Group, provides
integrated manufacture and distribution of wealth creation, management andprotection products and services aligned to ANZ distribution and the open
marketING Australia

Funds management income
Risk income

Costs (excl goodwill on purchase of ANZ business)

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03
%

206

202

190

2%

8%

80

82

76

-2%

5%

286

284

266

1%

8%

(198)

(196)

(207)

1%

-4%

88

88

59

0%

49%

Capital investment earnings

65

61

24

7%

large

Net income

153

149

83

3%

84%

Income tax expense

(27)

(29)

-

-7%

n/a

Profit after tax

126

120

83

5%

52%

62

58

41

7%

51%

ANZ share
ANZ share of INGA earnings @ 49%
Notional goodwill

-

-

-

n/a

n/a

ANZ equity accounted profits

62

58

41

7%

51%

ANZ capital hedges

(6)

(8)

2

-25%

large

Net funding cost

(9)

(7)

(4)

29%

large

Net return to ANZ

47

43

39

9%

21%

1

1.

Notional Goodwill amortisation of $22 million (Sep 03: $22 million; Mar 03: $22 million) is now reported in the Corporate Centre

Comparison with September 2003 half

Profit after tax increased by 5%. Significant influences on the result include:! Funds management income increased marginally due to higher fees arising from growth in funds undermanagement. Net funds flows have performed well compared to major competitors with INGA maintaining its
number 4 position in Retail Funds Under Management as measured by ASSIRT.
! Life risk income decreased by 2% due to slower sales over the Christmas period and related seasonality factors,
with increased sales of life insurance products through the ANZ network and continued positive claims experience
being the major contributors.
! Capital investment earnings increased by 7% over the September half due to strong equity markets and risinginterest rates. ANZ continues to hedge against volatility in this income stream; as a result, gains in capital
investment earnings were partially offset by hedge losses.
! Costs remained flat due to continued tight expense controls.
! Tax expense declined due to the increased risk and capital investment earnings, higher sales of investment
products through life companies which receive favourable taxation treatment.
Comparison with March 2003 half

Profit after tax increased 52%. Funds management income increased by 8% primarily due to favourable market
value adjustments arising from equity market improvements. Life risk income increased by 5% driven by positive
claims experience and increased insurance sales. Costs have decreased by 4% reflecting the delivery of synergy
benefits of the joint venture and continued tight cost control. Capital investment earnings have increased over the
March 2003 half which was adversely impacted by the global uncertainties at that time. These gains are partly offset
by losses on ANZs hedges. Tax expense increased due to the increased risk and capital investment earnings and aone-off tax credit recorded in the March 2003 result.

54

BUSINESS PERFORMANCE REVIEW (continued)
ING AUSTRALIA (JOINT VENTURE)
Our business

Funds under management, Australia (excluding cash)

Funds under management increased in the second halfreflecting an improvement in domestic and international
equity markets. Wholesale and Master Trust Super inflows
were offset by outflows from mezzanine, closed productand, to a lesser degree, retail. However, the overall resultis pleasing, with INGA strengthening its position as thenumber 4 ranked position in Retail Funds Under
Management.

$B
35.0

2.9

28.7

29.6

1.1

30.0

(3.1)

25.0
20.0
15.0
10.0
5.0
0.0
Starting FUM 30
September 2003

Inflows

Outflows

Retail FUM

Key retail products and platforms including Master Trust
Super and V2+ 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 specificindividual outflows.

Market Movements

Closing FUM 31March
2004

Wholesale FUM

Net Flows
$M
800
600
400
200
0
-200
-400
Ret ailV 2+

M ast er Trust
Super / Wrap /APM

Net Flo ws 6 M o nths September 2002
Net Flo ws 6 M o nths September 2003

M ezzanine

Wholesale Life
Invest ment s

ClosedNet Flo ws 6 M o nths M arch 2003
Net Flo ws 6 M o nths M arch 2004

Executing our strategy
Focus

StrategyMarket Share and Performance! Target top 3 position!

Align closely with ANZ’s businesses!

!

Target increased net inflows from allchannels, with particular emphasis on
ANZ channel!

!

Build Life Risk business!

!

Grow advice businesses!

!

Continue focus on cost reduction!

!

Tailor financial advice to meet needs ofour customers
Reduce business complexity - simplify!

Rationalise and improve platforms
Deliver simple straight throughprocesses
Measure customer satisfaction!

Efficient and cost effective! Efficient delivery of quality
products and services to ourchosen markets!
Be easy to do business with
! Provide a positive customer
experience every time!
!
!

Progress!

Sales targets and structures morealigned. Focus on Planner recruitment,
training and productivity
Distribution channels restructured todrive increases in net flows overprevious half. MIS changes, due in theJune quarter, to accelerate change
Small increase in earned premium
over previous half. Improved claims
management capability and tighter
underwriting is improving overallprofitability
Agreement reached to re-structure
RetireInvest’s franchise agreements
The cost to income ratio of 65%
shows a 10% improvement from 77%
for the same period last year
Obtained Financial Services Licenses
on March 1
Project to simplify products, booking
and legal entities commenced
Various strategic projects areunderway to transform the back-officeand convert from legacy systems tonew, modern platforms

Valuation of investment in INGA

A valuation of INGA has been prepared by Ernst & Young ABC Pty Ltd as at 31 March 2004. Based on this valuation,
the directors’ believe the current carrying value of the Group’s investment in INGA is supported, and accordingly nochange has been made to the carrying value.

55

BUSINESS PERFORMANCE REVIEW (continued)
TREASURY
Michael Dontschuk
The banker for all ANZ businesses. Charged with providing cash flow
support, ensuring liquidity, managing interest rate risk and providing capitalto the businesses

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Movt
Half
Movt
Mar 04year
Mar 04
Mar 03 v. Sep 03 v. Mar 03$M%%

Net interest income

75

74

81

1%

-7%

Other external operating income

1

-

-

n/a

n/a

Net inter business unit fees

-

-

-

n/a

n/a

Operating income

76

74

81

3%

-6%

External operating expenses

(8)

(7)

(7)

14%

14%

Net inter business unit expenses

(3)

(2)

(3)

50%

0%

Operating expenses

(11)

(9)

(10)

22%

10%

Profit before debt provision

65

65

71

0%

-8%

Provision for doubtful debts

-

-

-

n/a

n/a

Profit before income tax

65

65

71

0%

-8%

Income tax expense and outside equity interests

(20)

(19)

(22)

5%

-9%

Net profit attributable to members of the Company

45

46

49

-2%

-8%

Total employees

46

43

43

7%

7%

Comparison with September 2003 half

Net profit for the year was $1 million lower than the September half, as the mismatch was structured to benefit fromthe rising interest rate environment in Australia and New Zealand:!

The Australian operations continued to be impacted by the run-off in high yielding assets written in previous
periods. This has been offset by a gain in “short end” earnings through favourable positioning of the portfolio totake advantage of market conditions around the RBA rate increases in November and December 2003.

!

The NZD market, similar to the AUD market, has experienced increases in the overnight cash rate during the half,
which has increased short end earnings.

!

The offshore operations are predominately exposed to USD interest rates and have continued to suffer revenue
declines through the lack of opportunity on the yield curve for writing term assets given the low and largely benign
USD interest rate environment prevailing for much of the last twelve to eighteen months.

!

Looking ahead to the second half, modest economic growth combined with relatively low inflationary pressures,are likely to result in the continuation of relatively flat yield curves which may lead to a continued contraction inearnings, both on term assets and the short end of the portfolios. The extent of the impact will largely depend on
the performances of the US and Australian economies and the associated outlook for interest rates.

Comparison with March 2003 half

Profit after tax is $4 million lower than March 2003 half with lower earnings from maturing assets not being able to be
replaced at similar margins due to the lower and more benign interest rate environment. This was offset by higher
earnings at the short end due to favourable positioning at the time of the RBA rate increases in the current half.

56

BUSINESS PERFORMANCE REVIEW (continued)
TREASURY
Michael Dontschuk
Our business
Capital Management

ANZ pursues an active approach to capital management.
This involves a continual review of the level and compositionof the Group’s capital base, assessed against a range ofobjectives including the maintenance of sufficient capital toensure that ANZ retains its ‘AA’ rating category.

C a p ita l Ra tio
12%

11.1%
10 .2 %

9 .9 %

10%

7.7%

8%

In November 2003, the Group raised a net A$3.6 billion ofordinary equity to fund the NBNZ acquisition, and executed
US$1.1 billion of Tier 1 hybrid equity to further support thecapital and funding base of the business post the NBNZ
acquisition. In December, ANZ bought back its TrUEPrS
hybrid Tier 1 capital instrument. This reduced funding
costs.

7.7%
5.7%

6%

7.0 %

5.7%

5.2 %

4%
2%
0%
Ma r 03S e p 03
To ta l

Ma r 04

Tie r 1

AC E

During the half, ANZ reduced its target capital range to
4.75% to 5.25% - calculated as adjusted common equity (ACE) as a percentage of risk weighted assets. The lower
ACE ratio recognised the reduction in the risk profile of thebusiness, which was further enhanced by the NBNZ acquisition.
Wholesale Funding

ANZ’s term wholesale funding of $32 billion is managed within Management and Board approved metrics, and isdesigned to achieve:!

Funding diversification by structure, investor, geography and maturity; and!

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

In the half, $8 billion of term debt was issued ($7.5 billion in senior debt and $500 million in subordinated debt),
which is over half of the expected $14 billion expected to be required for the full year.
Significant transactions during the period include €800 million 5 year fixed rate note issue and AUD1.075 billion
5 year fixed/floating rate domestic Transferable Certificate of Deposit issue. These transactions continue our pursuitof establishing fixed rate yield curves in the major global capital markets that ANZ accesses.
Non-traded interest rate risk

Non-traded interest rate risk arises principally from themismatch in repricing terms of interest bearing assets andliabilities, plus the investment of capital and other noninterest bearing items. These interest rate exposures aremanaged to enhance net interest income and, ultimately,shareholder value. Given that Treasury is usually funding
term assets with shorter term liabilities, its profitability
trends tend to be correlated to the spread between longand short term interest rates. However, with interest rate
markets being at historical low levels, coupled with a shortend inverted yield curve, positioning around variable rate
assets has been a key factor to Treasury’s earnings overthe last year. The graph compares income for theAustralasian mismatch operations to the Australian yield
curve spreads of the average rolling 90 day rates to boththe average rolling 3 year (long end margins) and theaverage rolling 30 day rate (short end margins).

A u stra lia n & N e w Z e a la n d M ism a tch

pt s

pt s
8

200

6
150

52

46

100

47

37

35

31

45

2
-2

17

50

4

-4

7

-6

-

-8
-50

-10
1H 00

2H 00

1H 01

2H 01

1H 02

2H 02

1H 03

2H 03

1H 04

To tal Inco m e (A$ m )Aus Yield Spread - Ro lling 3 y ear av g rate Vs ro lling 9 0 day av g rate (LHS)
Aus Yield Spread - Ro lling 3 0 day av g rate Vs ro lling 9 0 day avg rate (RH S)

Interest rate exposures are 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. Non-traded interest raterisk continues to be maintained at low levels to stabilise the balance sheet’s overall fair value without having asignificant impact on earnings.

57

BUSINESS PERFORMANCE REVIEW (continued)
GROUP CENTRE♦ Group People Capital♦ Group Risk Management♦ Capital Funding Unit
& Group Items♦ Call Centre♦ Group Strategic Development♦ CFO Units♦ Operations, Technology &Shared Services

Movt
Half
Movt
Mar 04
Mar 04year
Mar 03 v. Sep 03 v. Mar 03
%
%
$M

Half
year
Mar 04
$M

Half
year
Sep 03$M

Net interest income

68

72

57

-6%

19%

Other external operating income

(13)

17

14

large

large

Net inter business unit fees

(5)

(2)

3

large

large

Operating income

50

87

74

-43%

-32%

External operating expenses

(452)

(403)

(395)

12%

14%

Net inter business unit expenses

328

328

330

0%

-1%

Operating expenses

(124)

(75)

(65)

65%

91%

Profit before debt provision

(74)

12

9

large

large

Provision for doubtful debts

(20)

(52)

(52)

-62%

-62%

Profit before income tax

(94)

(40)

(43)

large

large

Income tax expense and outside equity interests

(9)

(5)

5

80%

large

Net profit attributable to members of the Company

(103)

(45)

(38)

large

large

Total employees

4,069

4,050

4,045

0%

1%

Comparison with September 2003 half

The result for the Group Centre was a loss of $103 million compared with a loss of $45 million in the September 2003
half. Significant influences on the result were:!

The level of the Group’s surplus capital reduced as a result of the acquisition of NBNZ partly offset by retained
earnings growth and further de-risking of offshore credit portfolios.

!

Income in 2003 benefited from earnings on an interest rate swap ($35 million in the September 2003 half) that
hedged the distributions to TrUEPrS investors.

!

The continued strengthening of the AUD over the year resulted in gains on contracts put in place to hedge USD
denominated offshore earnings. Relativity between the NZD and the AUD was maintained through the current half
resulting in continued interest revenue from NZD hedge contracts entered during the 2003 year.

!

The Group withdrew from plans to overhaul its core ATM banking platform to focus on integrating the NBNZ and
ANZ systems. The remaining $20 million capitalised project costs of the Next Generation Switching/Tandem
Replacement project were written off in the Group Centre.

!

Goodwill amortisation increased $54 million as a result of the NBNZ acquisition - all goodwill amortisation isbooked in the Group Centre. Other external operating expenses increased as a result of a higher technology
spend, and the transfer of certain functions to the Corporate Centre.

!

Provision for doubtful debts reduced $32 million. De-risking of the offshore lending portfolio and reduced defaults
have allowed reduction in the charge that was taken in prior halves. This charge is based on uncertainty inoffshore portfolios.

Comparison with March 2003 half

The half year loss of $103 million compared with a loss of $38 million in the March 2003 half. Revenue reduced 32%
as a result of lower earnings on surplus capital following the acquisition of NBNZ and lower earnings from the TrUEPrS
interest rate hedge. Operating costs increased with higher goodwill amortisation on the NBNZ acquisition. Provision
for doubtful debts reduced $32 million with a reduction in the charge taken in prior halves for greater than expectedlevels of default in offshore portfolios.

58

GEOGRAPHIC SEGMENT PERFORMANCE

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03
$M
%
%

1,000

895

804

12%

24%

227

176

172

29%

32%

Net profit attributable to shareholders of the Company 1
Australia
New Zealand
UK / USA and Other

77

45

72

71%

7%

Asia

55

56

60

-2%

-8%

Pacific

37

35

33

6%

12%

1,396

1,207

1,141

16%

22%

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03$M%%

Australia

161,542

151,538

142,547

7%

13%

New Zealand

67,921

25,69626,037

large

large

UK / USA and Other

10,181

10,635

13,417

-4%

-24%

Asia

6,054

6,202

6,941

-2%

-13%

Pacific

1,590

1,520

1,576

5%

1%

247,288

195,591

190,51826%

30%

Australia

122,982

117,018

110,001

5%

12%

New Zealand

46,90018,60518,758

large

large

UK / USA and Other

10,931

10,734

13,442

2%

-19%

Asia

4,219

4,690

5,161

-10%

-18%

Pacific

1,125

1,117

1,241

1%

-9%

186,157

152,164

148,603

22%

25%

External assets

Risk weighted assets

1.

Includes significant transactions

59

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
Australia
Halfyear
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03
$M

1,701

1,627

1,584

5%

7%

Fee income

818

786

711

4%

15%

Other operating income

357

271

215

32%

66%

Operating income

2,876

2,684

2,510

7%

15%

Operating expenses(1,246)(1,192)(1,160)5%

7%

Net interest income

Movt
Movt
Mar 04
Mar 04v. Sep 03 v. Mar 03%%

Profit before debt provision

1,630

1,492

1,350

9%

21%

Provision for doubtful debts

(220)

(237)

(234)

-7%

-6%

Income tax expense

(410)

(360)

(312)

14%

31%

Net profit attributable to members of the Company

1,000

895

804

12%

24%

Net interest average margin

2.54%

2.64%

2.77%

-4%

-8%

Return on risk weighted assets

1.65%

1.59%

1.50%

4%

10%

-2%

-6%

Operating expenses to operating income

43.2%

44.3%

46.1%

Operating expenses 1 to average assets

1.58%

1.61%

1.68%

-2%

-6%

Net specific provision

(165)

(192)

(132)

-14%

25%

Net specific provision as a % of average net advances

0.24%

0.30%

0.22%

-20%

9%

275

256

286

7%

-4%

0.19%

0.19%

0.24%

0%

-21%

Total employees

16,411

16,40015,894

0%

3%

Lending growth

7.2%

8.3%

7.1%

-13%

1%

1

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

External assets

161,542

151,538

142,547

7%

13%

Risk weighted assets

122,982

117,018

110,001

5%

12%

1.

This excludes goodwill amortisation. Refer to page 118 for a reconciliation and an explanation of the usefulness of this adjusted measure

Comparison with September 2003 half

Profit after tax increased by 12%. Excluding the Australian component of significant transactions that increased profit
by $84 million and the associated lower TrUEPrS swap hedge income in September 2003, profit grew 6% reflecting:! Net interest income increasing 4% with higher lending volumes in Personal Banking Australia and Small to Medium
Enterprises. Margin reduced 10 basis points as a result of a 12 basis point reduction in Mortgages following cashrate increases partly offset by increased deposit margins in Personal Banking.
! Fee income increased by 4% largely in Consumer Finance from higher merchant activity over the Christmas period
and Personal Banking with increased customer numbers and higher transaction volumes, together with increased
M&A activity in Corporate and Structured Financing.
! Other operating income decreased 9% with the September half including profit on the sale of development
properties in Institutional Banking. Profit from the sale of trading securities increased, principally from a change inthe split of Capital Markets earnings between trading and net interest income.
! Operating expense growth was contained to 5% reflecting higher staff and technology costs largely in Personal
Banking and Consumer Finance.
! Provision for doubtful debts decreased 7% reflecting the de-risking of offshore portfolios and lower defaults
allowing a reduction in the charge taken in previous halves for greater than expected offshore lending.
Comparison with March 2003 half

Profit after tax increased by 24%. After adjusting for the Australian component of significant transactions, and the$27 million after tax charge resulting from the under accrual of loyalty points in the March 2003 half:! Profit increased 10%.
! Net interest income increased 7% on increased lending volumes partly offset by a 23 basis point reduction ininterest margin.
! Fee income increased 9% largely in Consumer Finance, Institutional Financial Services and Corporate.
! Other income increased 14% as a result of higher profit and loss on trading securities and increased equity
accounted profit from the INGA Joint Venture.
! Operating expenses increased 7% with increased staff in Mortgages and Personal Banking Australia; higher
technology costs and higher premises costs (largely as a result of the change in the method of accounting forrental costs in March 2003).

60

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
New Zealand

Sir John Anderson
Half
year
Mar 04
$M

Half
year
Sep 03$M

Net interest income

600

346

329

73%

82%

Fee income

230

155

159

48%

45%

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03$M%%

Other operating income

61

37

43

65%

42%

Operating income

891

538

531

66%

68%

Operating expenses

(488)

(260)

(259)

88%

88%

Profit before debt provision

403

278

272

45%

48%

Provision for doubtful debts

(55)

(27)

(28)

large

96%

Income tax expense

(119)

(75)

(72)

59%

65%

Outside equity interests

(2)

-

-

n/a

n/a

227

176

172

29%

32%

Net interest average margin

2.52%

2.99%

2.84%

-16%

-11%

Return on risk weighted assets

1.22%

1.89%

1.96%

-35%

-38%

1

Operating expenses to operating income

48.4%

47.8%

48.2%

1%

0%

1

Operating expenses to average assets

1.59%

2.03%

2.02%

-22%

-21%

Net specific provision

(19)

(18)

(10)

6%

90%

0.09%

0.18%

0.10%

-50%

-10%

41

13

22

large

86%

Net non-accrual loans as a % of net advances

0.08%

0.06%

0.10%

33%

-20%

Total employees

8,596

3,822

3,715

large

large

Lending growth (including FX impact)

162.4%

-2.5%

12.4%

large

large

Lending growth (excluding FX impact)

163.3%

2.3%

5.8%

large

large

External assets

67,921

25,69626,037

large

large

Risk weighted assets

46,90018,60518,758

large

large

Acquisition& funding2

Half year
ANZ
Proforma

Half year
Sep 03$M$M

Net profit attributable to members of the Company

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

1.

This excludes goodwill amortisation. Refer to page 118 for a reconciliation and an explanation of the usefulness of this adjusted measure

Geographic reconciliation
Half year
New
Zealand$M

Fourmonths Integration
NBNZ
costs
$M

$M

$M

Net interest income

600

304

-

(54)

350

346

Other operating income

291

106

-

-

185

192

Operating income

891

410

-

(54)

535

538

Operating expenses

(488)

(168)

(4)

(58)

(258)

(260)

Profit before debt provision

403

242

(4)

(112)

277

278

Provision for doubtful debts

(55)

(27)

-

-

(28)

(27)

Profit before income tax

348

215

(4)

(112)

249

251

Income tax expense

(119)

(64)

1

19

(75)

(75)

(2)

(1)

-

-

(1)

-

227

150

(3)

(93)

173

176

Outside equity interests
Net profit attributable to members of the Company
2.

Includes goodwill amortisation of $54 million

61

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
New Zealand, continued
Sir John Anderson
National Bank of New Zealand (NBNZ)NBNZ contributed $150 million profit (excluding goodwill amortisation, integration costs and employee share plan
costs) in the four months since acquisition on 1 December 2003 (refer page 12 for comparison with proforma results
published in the rights issue prospectus).
The National Bank has experienced 5% annualised growthin lending volumes since November 2003 with strong
growth in the residential housing market, partly offset byseasonally lower rural lending growth and reduced
corporate and institutional volumes. Deposits have grown
6% on an annualised basis over November 2003. Other
operating income for the 4 months of $106 million
represents a slightly lower run-rate than prior toacquisition, with lower fee income from the corporate andinstitutional businesses. Operating expenses remained
low with a reduced infrastructure spend while integration
planning takes place. Economic loss provisioning
methodologies are in the process of being rolled out in
NBNZ with a $27 million charge in the four months toMarch 2004 representing an annualised charge of 0.25%
of net lending assets.

Revenue by segment - Half Year March 2004 (4 Months)
160
140
120
100
80
60
40
20
Personal

Small
Business

Rural

Corporate

IFS

Other

Acquisition and funding costs

The National Bank of New Zealand was purchased by ANZ Banking Group (New Zealand) Limited on 1 December
2003. The acquisition was internally funded by three main sources: $1.0 billion ordinary shares, $1.3 billion
redeemable preference shares and $2.6 billion intra-group interest bearing debt. The pre-tax cost of this funding was$58 million for the four months.
The actual purchase price of $4,833 million differed from the $4,940 million published in the prospectus due toexchange rate movements, the impact of hedging and reduced acquisition costs. The resulting goodwill of$3,111 million is being amortised in accordance with Australian Accounting Standards over 20 years with a charge of$54 million in the four months since acquisition.
Integration costs

Incremental integration costs of $3 million after tax have been incurred in New Zealand with integration at theplanning stage. Integration activity is limited until the two companies are merged following Reserve Bank of New
Zealand approval.
ANZ New Zealand results
Comparison with September 2003 half

Profit after tax reduced 2% in ANZ New Zealand, which includes 1% as a result of AUD/NZD exchange rate
movements. Key influences on the result include:! Net interest income increased 1% with lending volumes increasing 3% driven by growth in Mortgages (5%) andBusiness and Rural (5%). These increases were partly offset by the maturity of a structured financing transaction.
Deposit volumes increased 5%, assisted by strong growth in Trade and Transaction Services.
! Reduced asset margins, including a 14 basis point reduction in mortgages as a result of the rise in wholesaleinterest rates and the deliberate delay in passing this cost on to customers, has offset the higher net interest
income from growth in lending and deposit volumes.
! Fee growth was modest, with increases in Corporate and Institutional being partly offset by a decline in honour
fees. The reduction in other income reflects reduced activity in the private equity business, and run off of certain
structured financing activities.
! Operating expenses decreased 1% with annual salary increases, an increased number of frontline staff, and anincreased spend on brand image and sales training. These increases were offset by cost savings in the support
areas.
! Credit quality remains sound with economic loss provisions well in excess of net specific provisions.
Comparison with March 2003 half

Profit after tax at $173 million was flat with the March 2003 half. After adjusting for the impact of exchange rate
movements, profit after tax increased 4% driven by a 4% increase in revenue with strong growth in Consumer
Finance, Treasury and UDC. Solid lending growth in Mortgages, Corporate, and Business and Rural, together withdeposit growth in Personal contributed to solid growth in net interest income. However, this was partly offset by
reduced mortgage margins caused by the rise in bond rates as well as short-term rates; and narrowed deposit
margins, with the official cash rate on average lower than during the March 2003 half. Operating costs increased 3%
in NZD terms, driven by an investment in frontline staff.

62

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
UK / USA and Other

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

Net interest income

99

86

119

15%

-17%

Fee income

62

64

67

-3%

-7%

Other operating income

24

14

19

71%

26%

Operating income

185

164

205

13%

-10%

Operating expenses

(66)

(68)

(72)

-3%

-8%

Profit before debt provision

119

96

133

24%

-11%

Provision for doubtful debts

(20)

(28)

(25)

-29%

-20%

Income tax expense

(22)

(23)

(35)

-4%

-37%

-

-

(1)

n/a

-100%

77

45

72

71%

7%

35.7%

41.5%

34.9%

-14%

2%

Net specific provision

(2)

(62)

(100)

-97%

-98%

Net non-accrual loans

177

223

261

-21%

-32%

Total employees

833

821

807

1%

3%

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

Comparison with September 2003 half

Profit after tax increased by 71% as a result of three main factors: an additional $14 million after tax benefit fromintergroup funding of the NBNZ acquisition, the release to profit of tax that was over-provided in previous years(transferred to Australia) and reduced provision for doubtful debts reflecting the strategy to de-risk offshore
portfolios. The weakening of the USD and GBP against the AUD reduced profit 5%. Significant influences on the
result excluding exchange rate movements include:!

Net interest income increased 22% due to an additional $19 million interest earnings on increased capital levels in
the UK associated with intergroup funding of the acquisition of NBNZ.

!

Fee income rose 3% largely in Corporate and Structured Financing.

!

Other operating income increased by 74% due to higher customer driven foreign exchange earnings.

!

Operating expenses increased 3% reflecting a 1% increase in staff numbers with a strengthening of the London
team and increased contributions into the UK defined benefit superannuation scheme offset by ongoing tight cost
control.

!

Provision for doubtful debts reduced by 8% and net specific provisions reduced to $2 million from $62 million in
the September 2003 half, reflecting a general improvement in credit quality as a result of the strategy to de-risk
offshore portfolios and some recoveries of prior period provisions.

!

Income tax expense reduced as a result of the release of a $7 million over provision of prior year tax expense in
the US.

Comparison with March 2003 half

Profit after tax increased 7% with the favourable impact of the NBNZ acquisition funding and the release of the tax
provision mentioned above offsetting the impact of the significant weakening of the USD which suppressed profit by$12 million. After adjusting for the impact of exchange rate movements:
Profit increased 31% driven by a 12% increase in fee income, mainly in Corporate and Structured Financing andInstitutional Banking, and a 39% increase in other income largely due to higher customer driven foreign exchangeearnings in the UK. Operating expenses increased 9% in reflecting increased staff numbers and higher performance
related payments - these were significantly reduced in March 2003 as a result of the large credit losses suffered atthat time. Provision for doubtful debts and net specific provisions have reduced significantly reflecting the de-riskingof offshore portfolios and in particular the reduction in exposure to the power and telecommunications sectors.

63

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
Asia
John Winders

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
Movt
Movt
Mar 04
Mar 04year
Mar 03 v. Sep 03 v. Mar 03$M%%

Net interest income

56

60

60

-7%

-7%

Fee income

29

30

30

-3%

-3%

Other operating income

44

45

49

-2%

-10%

Operating income

129

135

139

-4%

-7%

Operating expenses

(50)

(56)

(56)

-11%

-11%

Profit before debt provision

79

79

83

0%

-5%

Provision for doubtful debts

(13)

(14)

(11)

-7%

18%

Income tax expense

(10)

(8)

(11)

25%

-9%

Outside equity interests

(1)

(1)

(1)

0%

0%

Net profit attributable to members of the Company

55

56

60

-2%

-8%

1

38.8%

40.7%

39.4%

-5%

-2%

Net specific provision

(8)

(3)

(13)

large

-38%

Net non-accrual loans

7

13

17

-46%

-59%

645

644

628

0%

3%

Operating expenses to operating income

Total employees
1.

This excludes goodwill amortisation. Refer to page 118 for a reconciliation and an explanation of the usefulness of this adjusted measure

Comparison with September 2003 half

Profit after tax reduced by 2%. Excluding the impact of exchange rate movements, which are not indicative of corebusiness performance, profit increased by 2%. The main features of the result excluding the exchange rate impact
were:! Net interest income increased by 6% mainly due to the expansion of the Cards business in Indonesia. Corporate
lending activity continues to be constrained as risk is improved and high levels of regional liquidity are contributing
to a further reduction in balance sheet levels for the Asian business.
! Fee income increased 10% with an increase in Trade Finance activity and credit cards on issue. These increases
were offset by lower Corporate and Structured Financing fees resulting from reduced market activity.
! Equity accounted profit from PT Panin was flat at $25 million, with reduced profit on bond sales being offset by awithholding tax credit in the current half.
! Operating expenses reduced 2% resulting from the wind up of the Hong Kong Cards business.
! Provision for doubtful debts increased 8% with lending growth occurring in the relatively higher risk cards businessin Indonesia. The decrease in the non-accrual loans relates to one large corporate exposure recovery in Hong
Kong.
! Income tax expense returned to more normal levels with the September 2003 half including $2 million tax credit.
Comparison with March 2003 half

Net profit decreased 8%. After adjusting for the impact of exchange rate movements profit increased 3%. Excluding
exchange rate movements: revenue increased 10% with volume driven increases in net interest and fees partly offset
by a lower equity accounted contribution from PT Panin (March 2003 included $16 million profit on the sale of bonds),
and operating expenses increased 9% with an increase in personnel costs resulting from a strengthening of theInstitutional Banking presence in Asia.

64

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
Pacific
Bob Lyon

Halfyear
Mar 04
$M

Half
year
Sep 03$M

Net interest income

53

52

48

2%

10%

Fee income

22

23

23

-4%

-4%

Other operating income

36

31

36

16%

0%

Operating income

111

106

107

5%

4%

Operating expenses

(52)

(50)

(55)

4%

-5%

Profit before debt provision

59

56

52

5%

13%

Provision for doubtful debts

(5)

(5)

(5)

0%

0%

Income tax expense

(17)

(16)

(14)

6%

21%

-

-

-

n/a

n/a

Outside equity interests
Net profit attributable to members of the Company

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03
%
%
$M

37

35

33

6%

12%

1

45.9%

46.2%

50.5%

-1%

-9%

Net specific provision

(2)

7

1

large

large

Net non-accrual loans

17

18

12

-6%

42%

1,486

1,452

1,434

2%

4%

Operating expenses to operating income

Total employees
1.

This excludes goodwill amortisation. Refer to page 118 for a reconciliation and an explanation of the usefulness of this adjusted measure

Comparison with September 2003 half

Profit after tax increased by 6% despite a significant appreciation in the AUD. Excluding the exchange rate impact,which is not indicative of core business performance, profit increased by 13%. The main features of the result,excluding the impact of exchange rate movements were:!

Net interest income increased by 6% with strong loan growth particularly in Fiji as the tourism industry has
continued to improve.

!

Other operating income increased by 24% mainly driven by a 25% increase in foreign exchange earnings.

!

Operating expenses grew 8% due to an amended consumption tax assessment in PNG relating to prior years and a
9% increase in personnel expenses as we build capability in Quest to support further centralisation of regional
operations.

!

Credit quality remains sound with the increase in net specific provisions due to the write-back/recovery of specificprovisions in the prior two halves.

Comparison with March 2003 half

Profit after tax increased by 12%. However, after adjusting for the impact from exchange rate movements profit
after tax increased by 25%. Excluding exchange rate movements: operating income increased 15% with a 20%
increase in net interest income driven by higher lending volumes, particularly in Fiji. Other income increased 10%
largely from foreign exchange earnings arising from ANZ’s strong market position. Operating expenses haveincreased 5% as a result of strengthening the Quest team and the consumption tax assessment in PNG.

65

This page has been left blank intentionally

66

RISK MANAGEMENTGROUP RISKMark Lawrence

KEY DEVELOPMENTS OVER THE HALF
!
!
!
!
!
!

Net specific provision down 27% from $268 million to $196 million.
Gross non-accrual loans down 8% from $1,007 million to $931 million.
Reduction in offshore Telco credit limits by 25% to $1.2 billion.
Reduction in exposure to the US power industry from $1.3 billion to $0.9 billion.
Portfolio concentrations reduced - aggregate of 10 largest committed corporate exposures as a percentage ofadjusted common equity down from 75% to 68%.
Retail delinquencies further reduced.

RISK MANAGEMENT FRAMEWORK AND STRATEGY
ANZ’s risk management capability gives confidence to grow the Group’s businesses consistent with our objective to bea medium growth bank with low risk. Through a robust governance structure, risk and return are evaluated to
produce sustainable revenue, to reduce earnings volatility and increase shareholder value.
This competitive advantage is underpinned by an ongoing focus on risk and compliance issues and strategy at thehighest levels, and a comprehensive risk and compliance management framework comprising:
Board

Board of Directors
Members - 8 Independent Directors + CEO
Meetings - At least 9 times/year
Risk Focus - Leadership; overseeing risk appetite & strategy; ensuring a robust risk & compliance culture

Board
Committees

Risk Management Committee of the Board
Members - 4 Independent Directors
Meetings - At least 6 times/year
Focus- Overseeing the Group’s risk
management policies and controls
and compliance with regulatory andinternal requirements; mayapprove credit transactions andother matters beyond the approval
discretion of executive
management

Group Audit

Independent oversight reporting directly to the Chairman of the Audit Committee of the Board.

Group
Executives

Compliance and Risk Control
Review Committee
Members - CEO, CFO, COO, Chief
Risk Officer (CRO)
Meetings - Monthly
Focus- The most material risk
& compliance issues
arising anywhere acrossthe organisation

Group Asset and Liability
Committee
Members - Senior Executives
Meetings - Monthly
Focus- Asset and liability
management,
capital, liquidity, andfunding issues, andoversees market
risks in the balance
sheet

Operational Risk Executive Committee
Members - Senior Executives
Meeting - Monthly
Focus- Key operational risks faced by thegroup, and the overall operationalrisk governance framework
Risk
Executives

Audit Committee of the Board
Members - 4 Independent Directors (including one
financial expert)
Meetings - At least 7 times/year
Focus- Oversight of the Company’s financial
reporting policies/controls, integrity of theCompany’s financial statements, Group(internal) Audit, the Audit Committees ofthe subsidiary companies, prudential
returns and compliance with regulatory
requirements

Credit & Trading Committee
Members - Senior Executives
Meetings - At least weekly
Focus- Transactional
credit approvals,
market risks in the
trading book, andoverall credit andmarket risk
governanceframeworks

Project Initiative Review Committee
Members - Senior Executives
Meeting - Monthly
Focus- All major projects across the Group,
organisational priorities for projects, andthe overall project governance framework

Risk & Compliance Council
Members - Senior risk professionals (Executives) from Group Risk Management & Business Units
Meeting - Monthly
Focus- Ensure alignment of goals, strategies, and risk approaches across the Group’s wider risk andcompliance organisation, including the risk and compliance staff within the business units.

67

RISK MANAGEMENT (continued)
Group Risk
Management

Group
Market Risk
Operational &Retail Risk
Wholesale Risk
ComplianceTechnology Risk
Members/staff - Risk and compliance professionals
Reporting- Independently directly through the Chief Risk Officer to the CEO & the Risk Committee of
the Board
Focus- Responsible for the development and maintenance of Group-wide global risk andcompliance management policies, procedures and systems

Business Units

Risk Focus - Accountability for management of risks & compliance with all external & internal obligations

Market Risk Management-

Risk philosophy and current risk profile

ANZ has for many years adopted a low-risk philosophy and reduced its level of trading risk. ANZ’s risk profile isthe lowest of the big four Australian banks, and has been on a consistent downward trend over the last six years,
as reflected in the following chart

Traded "Value At Risk" (VAR) at 97.5% confidence level
VAR (AUD m)
25
20
15
10
5
0
1998

1999

2000

2001

Average Daily VaR

-

2002

2003

Half end
March 2004

Maximum Daily VaR

Recent review of controls

Best practice risk management requires that the organisation be continually alert to emerging risks and changes
in its risk profile, and to learn the applicable lessons from relevant internal and external experience.
In light of this, ANZ has recently conducted a detailed review of its trading risks and controls. This review
concluded that ANZ’s markets control framework was appropriate for the scope and volume of trading activity
undertaken. More importantly, it highlighted a strong market risk capability and culture, featuring seniorindependent oversight of the markets business, including daily risk analysis and reporting generated by a fully
independent Market Risk team and characterised by an environment in which limit excesses are rare and closed
immediately. Trading exposures are monitored daily against Value-at-Risk limits, along with an extensive rangeof other specific control limits, and daily stress-testing of the portfolio is performed by Market Risk to ensure thatrisks in the portfolio are understood across a wide range of scenarios.
The market risk control framework has continued to be strengthened, with the implementation of a single
integrated front-office system for the Capital Markets business. In light of the success of this implementation, theForeign Exchange and Commodities business is currently investigating a similar, integrated systems solution.
With the acquisition of NBNZ in December 2003, ANZ’s Market Risk department has established independent risk
oversight of NBNZ trading activities. The full integration of NBNZ into the ANZ market risk framework wascompleted by the end of March 2004, with Value-at-Risk figures incorporated into consolidated ANZ reportingfrom the date of acquisition on 1 December 2003.

68

RISK MANAGEMENT (continued)
Credit Risk Management

From a credit risk perspective, the risk environment for ANZ has improved over the last half, while the focus has been
maintained on areas of concern in our portfolios.
Over the half, reductions in corporate risk (particularly offshore) led to a reduction in overall credit risk levels as
measured by Economic Loss Provisioning, which reduced by 6 basis points of average net lending assets to 33 basis
points, along with a reduction of $72 million in net specific provisions compared to the September 2003 half.

Net Specific Provisions
$M
400
350
300
250
200
150
100
50
0
Sep 02Mar 03

Sep 03

Aust/NZ-

Mar 04

UK/US and Other

Offshore exposures

Major inroads have been achieved in reducing our offshore credit risk. Many of the benefits are only justbeginning to bear tangible results. We have remained vigilant in controlling risk including:- continued focus on large “single name” risk limit concentrations for offshore and Structured Finance Lending.
- disciplined asset writing strategy for offshore Institutional borrowers, focused on our Australasian franchise.
- continued winding down and refocusing our involvement in non-core or higher risk sectors.

On Balance Sheet Lending Assets
4%

15%

26%

15%

70%

70%

Sep-96Mar-04Australia

New Zealand69

International

32% - Asia
35% - Europe
22% - Americas
11% - Pacific

RISK MANAGEMENT (continued)-

Offshore exposures (continued)

This half has continued to see some residual impact from legacy issues attached to our Power (US power
particularly) and Telecommunications exposures. These portfolios are continuing to be actively managed down.
!

Offshore Telecommunications – as a result of active portfolio management of this sector, credit limits foroffshore telecommunication operators fell by 25% over the half, representing a 50% reduction intelecommunications exposures over the last year.

!

US Power – Whilst there is still concern over the US power industry, no new signs of deterioration haveemerged over the last half. We have continued to work actively in reducing these exposures and manage
them closely. Since March 2003 our US power exposures have been reduced by 48%.
ANZ's Telecomunications Exposure byGeography

ANZ Telecommunications Portfolio Limits
Grade$3.8 billion$3.5 billion1

Asia
14%

AAA to BBB
69%

Middle East2%

82%
Europe9%Australia & New
Zealand
66%

1.

BBB-

14%

BB+ to BBB+ and lower

6%
11%

7%
3%
8%

Sep 03Mar 04

Americas9%

Includes NBNZ $0.3 billion

At March 2004 committed limits are $2.7 billion
ANZ's Power Exposure by Geography

ANZ's Energy Portfolio Limits
Grade

AAA to BBBBBBBB+ to BBB+ and lower$8.0 billion

61%$9.0 billion

74%

10%
18%

Middle East
4%

UK/Europe
9%
Asia
6%

11%

Sep 03
2.

Americas
12%

2

6%

Australia &New Zealand
69%

14%
6%

Mar 04

Includes NBNZ $1.3 billion

At March 2004 committed limits are $8.3 billion
Operational Risk Management-

Measurement frameworkSignificant improvements have been made in the half to the Group's framework for operational risk measurement
and capital allocation, which was first implemented in 2000. ANZ employs a "Risk Drivers and Controls Approach"to the measurement of operational risk, which assesses the level of the Group's exposure to specified drivers ofrisk in 13 different categories of operational risk, and the scope and quality of the key operational processes andrisk mitigants, and directly links these assessments to risk capital.
This framework:- Directly connects operational risk measurement with the day-to-day operational risk management process;- Provides increased understanding and transparency of operational risk exposures;- Provides a ‘road map’ for reducing risk; and- Provides transparent behavioural incentives through the EVA framework for the specialist businesses to invest
in internal controls where these investments are most needed.
-

Technology and Projects

The Group’s reliance on technology demands a rigorous approach to technology risk management. A specialist
Technology Risk function has been established within Group Risk Management to enhance the approach totechnology risk management and to provide additional focus on large and high-risk technology projects.
Governance and reporting has also been strengthened with added Executive Management oversight andmonitoring through the Project Initiative Review Committee.

70

RISK MANAGEMENT (continued)
Operational Risk Management (continued)

-

Fraud

Fraud prevention and detection is a key focus area for risk management, particularly due to the growing trend inelectronic fraud. We are making increased use of technical tools to detect anomalies in customer transactions to
reduce potential fraudulent activity. Education continues to be an essential component in fraud prevention forboth staff and customers. In response to incidents such as hoax emails, false websites and computer viruses, awide range of information has been made available to customers via the new "Protect your banking" site.
-

Business Continuity and Crisis Management

The monitoring and continuous assessment of country security risk has been strengthened by the implementationof a country security risk rating framework, which assists ANZ’s response to changing risks in the international
business environment and the ongoing safety of ANZ’s staff and operations. Business continuity capabilities
continue to be subject to regular review and testing.
Other

There are a number of other risks, which are not classified as either Market, Credit or Operational Risk, for which ANZ
holds economic capital. These include, but are not limited to, items such as investment risk (including $3.2 billion
goodwill and our $1.7 billion investment in ING Australia) and fixed asset risk.

Key risk issues for the Group!

NBNZ

The acquisition of the NBNZ on 1 December 2003 represents a major change to ANZ’s risk profile, further
increasing the percentage of the Group’s portfolio represented by retail exposures.
Group Risk Management is closely monitoring the management of integration risks, with regular reporting ofintegration risks to both Executive Management and the Risk Management Committee of the Board.
We are progressively aligning the NBNZ risk management framework with the ANZ approach, with appropriate
adjustments to reflect local business strategies and conditions.
!

Residential property and consumer exposures
Arrears > 60 days

2.5%

2.0%
Mortgages (incl. Origin)

1.5%

Credit Cards
Personal Loans

1.0%
Personal Banking &Wealth Management
Personal Businesses

0.5%

0.0%

Mar-04Jan-04

Nov-03

Sep-03

Jul-03May-03Mar-03Jan-03

Nov-02

Sep-02

Jul-02

May-02Mar-02Jan-02

Nov-01

Sep-01

Australia’s strong economic conditions have helped the unemployment rate to fall to 5.6%, its lowest points since1981. This coupled with our prudent credit practices have seen our Retail delinquency and loss rates remain atvery low levels. Credit risk however is cyclical and we remain alert to the fact that rising interest rates, increasing
household debt and subdued residential property prices, may change the risk environment. Our risk policies
remain firmly entrenched, based on sound loan-to-value ratios, conservative debt servicing capacity and the
avoidance of speculative lending. Regular stress-testing of the Mortgages portfolio supports the assessment thatwhilst some increase in delinquencies can be expected over the next 24 months, the impact is unlikely to bematerial. Our Credit Card portfolio also remains strong and as yet there has been no material effect as a result of
the RBA reforms, however, this continues to be closely monitored.

71

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

Large “single name” exposures

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). This ratio
has declined significantly over the past 2 years and is now 68% as at
31 March 2004. This is mainly due to our focus on reducing large risk
concentrations and substantial changes to the structure of limits granted
to large individual customers.

Top 10 exposures as % of ACE
%

140
120
100
80
60
40
20
0
Sep 01

Sep 02

Sep 03Mar 04

Key Risk Enhancements!

Strategy engagement

Group Risk Management is actively involved in key strategy developments and major investment decisions. “Best
Practice” risk management involves an independent group providing input into strategy development and key
investment decisions, ensuring that all risks are transparently reflected and properly understood at key decisionlevels. Specific engagements over the last six months have included the decision to acquire NBNZ and theestablishment of a strategic alliance with the Shanghai Rural Credit Cooperatives Union.
!

Compliance

A dedicated compliance function within Group Risk Management, Group Compliance is responsible for the Group’s
overall compliance framework, across all regulatory and internal operating policy requirements. Group Complianceis responsible for:- overseeing appropriate Group and Business Unit policies and processes and ensuring they underpin compliancewith all applicable business rules, including both regulatory requirements and internal operating policies;- anticipating emerging regulatory issues; and- assisting business units in interpreting Group policies and embedding strong compliance processes, including
execution and compliance testing.
Some specific activities:-

Australian Financial Services Licence (AFSL) - ANZ was the first major Australian bank to acquire its AFSL from
ASIC under the FSRA amendments to the Corporations Act, while 8 specialist businesses have acquired theirown separate AFSLs. Group Compliance supports all specialist businesses in meeting their obligations byproviding specialist technical support and advice.

-

Anti-Money Laundering and Terrorist Financing (AMLTF)- Group Compliance is driving compliance with AMLTF
requirements throughout all points of representation, including the USA and UK. During the half, it establishedan Anti Money Laundering Oversight Committee (AMLOC) to provide leadership and oversight of the Group’s
compliance with anti-money laundering and terrorist financing regulatory obligations in all points ofrepresentation.

-

Specialist compliance management by other Group functions – Group Compliance also oversees the programfor specialist compliance management by other Group functions, such as that required under APRA Prudential
Standards, thus bringing a complex array of diverse regulatory obligations under a single Group complianceframework.

72

RISK MANAGEMENT (continued)
Basel II

The common framework for determining the appropriate quantum of bank regulatory capital is set by the “BaselCommittee”, a sub-committee of the Bank for International Settlements. The new Accord, commonly known as“Basel II”, has been designed 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.
The final version of Basel II is due to be released in the second quarter of 2004. Basel II is scheduled to commence
in ANZ in 2006 for a year of parallel running with the current Accord with full implementation from 2007. ANZ istaking the following steps towards readiness for the new Accord:!

At this time ANZ intends pursuing accreditation under the most advanced approaches for both credit andoperational risk, in line with the Group’s vision of risk management as a strategic asset and source of competitive
advantage!

A Central project team, reporting to a steering committee, is working with all areas of ANZ to ensure that systems
and processes are ready for the change.

!

The National Bank of New Zealand also has an extensive Basel programme which is in the process of being
integrated with the broader ANZ Group programme.

!

ANZ is currently in the design and implementation phase of its Basel II Programme.

!

Certain requirements are already in place including:- a credit risk rating system that separately measures default probabilities and likely losses in the event ofdefault, and- a framework for operational risk measurement and capital allocation.

ANZ took part in an international exercise in late 2002 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 be incorporated
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 some differences in the way Basel II is
implemented in Australia, which will lessen this reduction.

73

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 include predominantly bank Money Market lines and Certificates of Deposit.
Treasury unfunded exposures include Foreign Exchange and Interest Rate contracts (forwards, options and swaps).
The exposure is calculated using a conservative “mark to market plus potential exposure” methodology. Thismethodology calculates the market value of a contract and adds a factor for the potential change in value from thevaluation date to maturity. The mark to market of off balance sheet exposures is netted by counterparty where theGroup holds a valid legally enforceable netting agreement with that counterparty.
Financial guarantees represents lending to entities outside of Asia (typically Australia) where there is a relationshipwith the parent entity through a guarantee standby letter of credit.
Term lending is split into three categories: exposure to multinationals covers lending in countries to international or
global companies, frequently involving US, UK, European or Australian parents of joint venture partners, term lendingin 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 a large
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).

74

COUNTRY EXPOSURES (continued)
Product disclosure by selected regions
As at 31 March 2004 in USD millions (net exposures)
CROSS BORDER RISK AND LOCAL CURRENCY RISKCountries

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

Treasury
Treasury
Perf ormance
Trade On Balance Of f Balance
Bonds
Sheet
Sheet

1,030
219
140
40
152
87
98
1,005
167
20
93
3,051

SOUTH ASIA
Bangladesh
India
Nepal
Sri Lanka
Total
LATIN AMERICA
Argentina
BrazilChile
Colombia
MexicoPanamaPeru
Venezuela
Total
MIDDLE EAST
Bahrain
Egypt
GreeceIran
IsraelJordanKuwaitLebanonOman
Pakistan
Qatar
Saudi Arabia
U.A.E.
Political Risk Insurance

15
182

114
25
7

3

13
268
3
176
3
10
1
564
30
56
8
15

316

1147

47
104
16

24
158
1
27

37
66
11
183

30
102
14

250
26
2

182

14

1
1

1
54
67

2

7
1

10

Term
Lending
LCY

Underwrit ing& Project
Risk

M ovement
f rom
Sep 0 3Tot al

0
1,377
1,089
357
559
3
187
223
1,473
1,135
466
33
236

-2
399
147
-2
86
2
40
38
105
163
12
-6
1

130

7,13 8

983

-8
-15
-1
-3

101
224
135
8

28
23
36

51
3
16

14
46
327
34
56

9
22

148

6

6

9

103

494

373

632

813

1

17

26

14
40
1

64
269
0
17

1

17

26

55

3 50

-27

11
48

1
66
63

13
122
178

20

56

79

7
46
239

134
1
7
50

-17
-34
55
-4
-27
0
-8
0

50 5

-35

49
63
1
98
49
1
5

16
78

9
3

35
3

52

11
33
1
87
2
1
4

Term
Lending
X BR

2
4
1
28
5
2
1

1

4
174

Term
Lending
M NC' s

4
10
125

198

48

Financial
Guarant ees
Securing
Regional
Lending inCount ries
not det ailed

3

3

3

35
30

31

54
11
58
18
12

104
39
101
59
115
40

37
26
1
17
-20
-4
-6
-1
-160
-4
32
2
-23
0

34

229

72 4

- 10 3

1

1

0
-1
-3

1

1

-4

Total Countries externally rated Investment grade
Total Countries externally rated below Investment Grade

7,006
1,712

266
548

Total all Countries

8 ,718

8 14

11
2

32

13
1

3
3
2
24
50

40
25
23
6
22

7
6

221

118

38

12
11

1

First Loss
Total

EASTERN EUROPE
Hungary
PolandRomania
Total

1.

44

Middle East project exposure is USD453 million, however ANZ has Political Risk Insurance. ANZ is liable for the first loss of USD40 million

75

This page has been left blank intentionally76

FOUR YEAR SUMMARY BY HALF YEAR
Mar 04$M

Sep 03$M

Mar 03$M

Sep 02$M

Mar 02$M

Sep 01$M

Mar 01$M

Sep 00$M

Net interest income

2,509

2,171

2,140

2,053

1,965

1,954

1,879

1,929

Other operating income

1,683

1,456

1,352

1,561

1,409

1,333

1,240

2,422

Operating expenses(2,622)

Statement of Financial Performance(1,902)(1,626)(1,602)(1,575)(1,330)(1,553)(1,539)Provision for doubtful debts

(313)

(311)

(303)

(309)

(551)

(290)

(241)

(246)

Profit before income tax

1,977

1,690

1,587

1,730

1,493

1,444

1,339

1,483

Income tax expense

(578)

(482)

(444)

(457)

(441)

(468)

(443)

(552)

(3)

(1)

(2)

(1)

(2)

(1)

(1)

(1)

1,396

1,207

1,141

1,272

1,050

975

895

930

247,288

195,591

190,518

183,105

176,589

185,493

180,967

172,467

16,74813,787

12,485

11,465

10,803

10,551

10,200

9,807

19.1%

20.9%

20.3%

24.8%

21.6%

20.9%

19.6%

19.7%

Outside equity interests
Net profit attributable
to members of the Company
Statement of Financial Position
AssetsNet assets
RatiosReturn on average ordinary equity
Return on average assets

1.2%

1.2%

1.2%

1.4%

1.2%

1.1%

1.0%

1.1%

Tier 1 capital ratio

7.0%

7.7%

7.7%

7.9%

7.8%

7.5%

7.3%

7.4%

45.1%

44.6%

45.6%

45.5%

46.5%

47.0%

49.1%

60.1%

Operating Expenses1 to operating income
Shareholder value - ordinary shares
Total return to shareholders

13.6%

2.5%

4.1%

1.4%

13.7%

18.6%

6.4%

30.9%

Market capitalisation(share price movement plus dividends)

34,28427,314

27,13526,544

26,57923,783

20,48820,002

Dividend

47 cents

51 cents

44 cents

46 cents

39 cents

40 cents

33 cents

35 cents

100.0%

-

100%

-

100%

-

100%

-

-

100.0%

-

100%

-

100%

-

100%

$12.87Franked portion- interim- finalShare price2- high$ 19.40$

18.45$18.19$19.70$17.90$16.71$15.38- low$ 15.94$

16.66$15.01$16.18$15.23$12.85$12.63$9.90- closing$ 18.96$17.17$17.15$16.88$17.00$15.28$13.18$12.70Share information (per fully paid
ordinary share)
Earnings per share - basic2

76.8c

73.3c

69.1c

77.7c

63.6c

59.1c

53.6c

55.3c

Dividend payout ratio

63.8%

67.0%

61.3%

57.0%

58.9%

65.0%

58.7%

60.2%

Net tangible assets

$

6.94

$

7.49

$

7.32

$

6.58

$

6.14

$

5.96

$

5.71

$

5.49

Number of fully paid ordinary shareson issue (millions)

1,808.2

1,521.7

1,513.4

1,503.9

1,495.7

1,488.3

1,486.8

1,506.2

26,585

21,586

21,21821,38021,50821,403

21,617

21,774

Other information
Permanent employees (FTE's)
Temporary employees (FTE's)
Total employees
Number of shareholders
1.

2.

1,386

1,551

1,265

1,102

1,229

1,098

1,198

1,360

27,971

23,13722,48322,482

22,73722,501

22,815

23,134245,173

223,545

210,512

198,715

190,133

181,035

180,108

179,224

Operating expenses $1,839 million (Sep 2003: $1,617 million; Mar 2003: $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) excludes goodwill amortisation of $63 million (Sep 2003: $9 million; Mar 2003: $9 million;
Sep 2002: $10 million; Mar 2002: $10 million; Sep 2001: $8 million; Mar 2001: $9 million; Sep 2000: $7 million) and significant transactions in 2004 and 2002.
Refer to page 118 for an explanation of the usefulness of this adjusted measure
Prior periods adjusted for the bonus element of the rights issue77This page has been left blank intentionally78

Australia and New Zealand Banking Group Limited

CONSOLIDATED FINANCIAL STATEMENTS & OTHER DISCLOSURES

Half year ended
31 March 2004

79

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

PAGE
Directors’ Report

81

Consolidated Statement of Financial Performance

82

Consolidated Statement of Financial Position

83

Statement of Changes in Equity

84

Consolidated Statement of Cash Flows85

Notes to the Financial Statements

86

1.

Accounting policies and significant transactions

86

2.

Income893.

Operating expenses

92

4.

Income tax expense

94

5.

Dividends

95

6.

Earnings per share

96

7.

Investment securities

99

8.

Net loans and advances

99

9.

Impaired assets

102

10. Provisions for doubtful debts

108

11. Loan capital109

12. Capital adequacy

110

13. Share capital112

14. Average Balance Sheet and related interest

113

15. Interest spreads and net interest average margins

116

16. Segment analysis

117

17. Derivative financial instruments

119

18. Contingent liabilities and contingent assets

122

19. Note to the Statement of Cash Flows124

20. Changes in composition of the Group126

21. Associates, joint venture entities and investments

126

22. US GAAP reconciliation

127

23. Exchange rates

129

24. Significant events since balance date129

Directors’ Declaration

130

Auditors’ Review report

131

Definitions

132

Alphabetical Index

133

80

DIRECTORS’ REPORTThe directors present their report on the consolidated accounts for the half year ended 31 March 2004.
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
Dr GJ Clark (appointed 1 February 2004)
Mr JC Dahlsen
Dr RS Deane
Mr JK Ellis
Mr DM Gonski AO
Ms MA Jackson AC
Dr BW Scott AO

Result

The consolidated profit from ordinary activities after income tax attributable to shareholders of the Company was$1,396 million. Further details are contained in the Chief Financial Officer’s Review and Business Performance Review
on pages 7 to 58 and in 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 contained in the
Chief Financial Officer’s Review and Business Performance Review on pages 7 to 58 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 classorder 98/100 dated 10 July 1998 pursuant to section 341(1) of the Corporations Act 2001. Consequently, amounts inthis report and the accompanying financial report have been rounded to the nearest million dollars except whereotherwise indicated.
Signed in accordance with a resolution of the directors

Charles Goode
ChairmanJohn McFarlane
Chief Executive Officer

26 April 2004

81

CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE

Note

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03
%

2

8,226

6,659

6,364

24%

29%

Interest income

6,543

5,203

5,012

26%

31%

Interest expense(4,034)(3,032)(2,872)

33%

40%

Net interest income

2,509

2,171

2,140

16%

17%

1,683

1,456

1,352

16%

24%

4,192

3,627

3,492

16%

20%

(1,902)(1,626)(1,602)

17%

19%

2,290

2,001

1,890

14%

21%

(313)

(311)

(303)

1%

3%

1,977

1,690

1,587

17%

25%

(578)

(482)

(444)

20%

30%

1,399

1,208

1,143

16%

22%

(3)

(1)

(2)

large

50%

1,396

1,207

1,141

16%

22%

(254)

(307)

(49)

-17%

large

(254)

(307)

(49)

-17%

large

1,142

900

1,092

27%

5%

76.8

73.3

69.1

5%

11%

75.7

73.0

68.8

4%

10%

47

51

44

-8%

7%

6.94

7.49

7.32

-7%

-5%

Total income

Other operating income

2

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

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

6

DilutedDividend per ordinary share (cents)

5

Net tangible assets per ordinary share ($)
The notes appearing on pages 86 - 129 form an integral part of these financial statements

Equity instruments issued to employees

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

Net profit attributable to shareholders of the Com pany

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03
%

1,396

1,207

1,141

16%

22%

Expense attributable to:
Options issued to Managem ent Board 1

(4)

(4)

(4)

-

-

Options issued to general m anagem ent1

(12)

(13)

(11)

-8%

9%

Shares issued under $1,000 em ployee share plan
Revised net profit attributable to shareholders of the Com pany
1.

(22)

-

(18)

n/a

22%

1,358

1,190

1,108

14%

23%

Based on fair values estimated at grant date. Value of options amortised on a straight line basis over the vesting period.

82

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Note

As at
Mar 04As at
Sep 03

$M

$M

As at
Mar 03Movt
Movt
Mar 04
Mar 04v. Sep 03 v. Mar 03$M%%

AssetsLiquid assets

6,565

6,592

7,759

0%

-15%

Due from other financial institutions

4,396

2,427

3,123

81%

41%

1

6,393

4,213

5,219

52%

22%

Trading securities

Investment securities

7

6,669

4,767

4,301

40%

55%

Net loans and advances

8

190,722

149,465

141,96528%

34%

13,35813,17813,270

1%

1%

107

101

205

6%

-48%

Shares in associates and joint venture entities

1,905

1,814

1,759

5%

8%

Deferred tax assets

1,319

1,165

1,239

13%

6%

Goodwill2

3,202

160

171

large

large

Other assets

11,117

10,224

9,965

9%

12%

Premises and equipment

1,535

1,485

1,542

3%

0%

247,288

195,591

190,518

26%

30%

Due to other financial institutions

6,147

6,467

8,824

-5%

-30%

Deposits and other borrowings

165,234

124,494

122,122

33%

35%

Liability for acceptances

13,35813,17813,270

1%

1%

1,454

1,083

1,031

34%

41%

15,918

13,611

12,591

17%

26%

Customers' liabilities for acceptances
Regulatory deposits

3, 4Total assets
Liabilities

Income tax liabilities
Payables and other liabilities

4

Provisions

857

769

770

11%

11%

20,215

16,572

14,917

22%

36%

7,357

5,630

4,508

31%

63%

Total liabilities

230,540

181,804

178,033

27%

29%

Net assets

16,74813,787

12,48521%

34%

Ordinary share capital

7,865

4,175

4,058

88%

94%

Preference share capital

987

2,212

1,225

-55%

-19%

Reserves

106

180

485

-41%

-78%

7,773

7,203

6,700

8%

16%

16,731

13,77012,46822%

34%

Bonds and notes
Loan capital5

11

Shareholders' equity

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

Derivative financial instruments

17

Contingent liabilities and contingent assets

18

1.
2.
3.
4.
5.

17

17

17

0%

0%

16,74813,787

12,48521%

34%

Includes bills held in portfolio $1,387 million (Sep 2003: $820 million; Mar 2003: $943 million) which are part of net advances
Excludes notional goodwill of $799 million included in the net carrying value of INGA (Sep 2003: 821 million; Mar 2003 $843 million)
Includes interest revenue receivable $1,310 million (Sep 2003: $1,085 million; Mar 2003: $978 million)
Other assets includes life insurance assets of $52 million (Sep 2003: nil; March 2003: nil). Payables and other liabilities includes policy holder liabilities of$25 million (Sep 2003: nil; March 2003: nil)
Includes $1,450 million hybrid loan capital that qualifies for Tier 1 capital as defined by the Australian Prudential Regulation Authority

The notes appearing on pages 86 - 129 form an integral part of these financial statements

83

STATEMENT OF CHANGES IN EQUITY
Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03
$M
%
%

6,387

5,283

5,314

21%

20%

3,572

-

-

n/a

n/a

Dividend reinvestment plan

65

57

58

14%

12%

Group employee share acquisition scheme

24

23

25

4%

-4%

Group share option scheme

29

37

36

-22%

-19%

-

987

-

-100%

n/a

(1,225)

-

-

n/a

n/a

Share capital
Balance at start of period
Ordinary shares
Rights issue

Preference shares
New preference share issues
Redemption of preference shares
Retranslation of preference shares

-

-

(150)

n/a

-100%

8,852

6,387

5,283

39%

68%

(239)

68

117

large

large

net of hedges after tax

(254)

(307)

(49)

-17%

large

Transfer to general reserves

224

-

-

n/a

n/a

(269)

(239)

68

13%

large

Balance at start of period

239

237

237

1%

1%

TrUEPrS preference share gain on buy back

180

-

-

n/a

n/a

Transfers from retained profits/FC TR

(224)

2

-

large

n/a

195

239

237

-18%

-18%

Total share capital
Foreign currency translation reserve
Balance at start of period
C urrency translation adjustments,

General reserve

Asset revaluation reserve

31

31

31

0%

0%

Capital reserve

149

149

149

0%

0%

Total reserves

106

180

485

-41%

-78%

7,203

6,700

5,600

8%

29%

1,396

1,207

1,141

16%

22%

8,599

7,907

6,741

9%

28%

-

(2)

-

-100%

n/a

(762)

(654)

13

17%

large

Retained profits
Balance at start of period
Net profit attributable
to shareholders of the C ompany
Total available for appropriation
Transfers from (to) reserves
Ordinary share dividends provided for or paid
Preference share dividends paid
Retained profits at end of period

(64)

(48)

(54)

33%

19%

7,773

7,203

6,700

8%

16%

16,731

13,77012,46822%

34%

Total shareholders' equity attributable toshareholders of the Company
The notes appearing on pages 86 - 129 form an integral part of these financial statements

84

CONSOLIDATED STATEMENT OF CASH FLOWSNoteCash 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)
Premises and equipment
Purchases
Proceeds from sale
Recovery from NHB litigation
Other
Net cash (used in) investing activities
Cash flows from financing activities
Net (decrease)increase
Due to other financial institutions
Deposits and other borrowings
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
StEPs preference share issue
StEPs issues costs
Preference share buyback
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
Cash and cash equivalents at end of period

19

19

The notes appearing on pages 86 - 129 form an integral part of these financial statements

85

Half
year
Mar 04
Inflows(Outflows)
$M

Half
year
Sep 03
Inflows(Outflows)
$M

Half
year
Mar 03
Inflows(Outflows)
$M

6,732
1
1,235
(3,729)
(990)
(156)
(952)

5,522
3
1,714
(2,961)
(910)
(155)
(984)

5,365
4
1,456
(2,763)
(938)
(124)
(968)

79
(112)
(11)
(556)
1,541

(256)
(134)
974
2,813

(890)
(32)
1
695
1,806

(318)
(629)
(13)
(10,556)
(21)

1,644
(274)
92
(9,734)
(4)

(531)
230
(40)
(10,210)2(4,178)2,355(1,683)
1,087(2,188)1,358(3,292)

-

-

(176)
61
1,142
(15,625)

(115)
41
246
(8,700)

(253)
10
1,155
(10,467)(89)
10,223(630)(1,657)
4,563
505(1,289)
9,432
495

6,531
(1,692)

4,824(1,988)3,431(2,107)

2,009
(368)
(1)
(761)
3,625
(1,045)17,802
1,541(15,625)
17,802
3,718
7,315(2,579)
8,454

1,523
(646)
59
1,000
(13)
8,170
2,813
(8,700)
8,170
2,283
7,573
(2,541)
7,315

1,857
(437)
(1)
(676)
61
10,766
1,806(10,467)
10,7662,105
7,925(2,457)
7,573

NOTES TO THE FINANCIAL STATEMENTS
1.

Accounting policies and significant transactions

These consolidated financial statements:! should be read in conjunction with the ANZ Financial Report and Annual Report for the year ended 30 September
2003 and with any public announcements made by the Parent Entity and its controlled entities (the Group) for thehalf year ended 31 March 2004 in accordance with the continuous disclosure obligations under the Corporations
Act 2001.
! are made out in accordance with the Corporations Act 2001, ASX listing rules, applicable Accounting Standards,
Urgent Issues Group Consensus Views and other mandatory reporting requirements.
! are condensed financial statements as defined in AASB 1029 Interim Financial Reporting. This report does notinclude all notes of the type normally included in the annual financial report.
! have been prepared in accordance with the historical cost convention, as modified by the revaluation of trading
instruments and the deemed cost of properties.
Where necessary, amounts shown for previous periods have been reclassified to facilitate comparison.
The accounting policies followed in preparing these consolidated financial statements are the same as those applied inthe 30 September 2003 Annual and Financial Reports.
Critical Accounting Policies

The Group prepares its consolidated financial statements in accordance with Australian Accounting Standards andother authoritative accounting pronouncements. However, notwithstanding the existence of relevant accounting
standards, there are a number of critical accounting treatments, which include complex or subjective decisions orassessments. The Group requires all such applications of judgement to be reviewed and agreed by Group Finance,
and where the impact is material, the accounting treatment be reviewed during the audit process by the Group’s
external auditors. All material changes to accounting policy are approved by the Audit Committee of the Board.
Details of all critical accounting policies are provided in the 30 September 2003 Financial Report. There have been nomaterial changes to the Group’s critical accounting policies or their related methodologies over the last 3 years.
A brief discussion of critical accounting policies, and their impact on the Group, follows:a)Economic Loss Provisioning
The average charge to profit for ELP was 0.33% of average net lending assets (Sep 2003: 0.39%; Mar 2003: 0.40%).
During the same period specifically identified credit losses net of recoveries during the half year were $196 million (Sep
2003: $268 million; Mar 2003: $259 million).
As at 31 March 2004, the balance of the General Provision of $1,828 million (Sep 2003: $1,534 million; Mar 2003:$1,530 million) represents 0.98% (Sep 2003: 1.01%; Mar 2003: 1.03%) of risk weighted assets.

b)

Specific Provisioning
The Group maintains a specific provision for doubtful debts arising from its exposure to organisations and credit
counterparties. Once a specific doubtful debt loss is identified as being probable, its value is transferred from theGeneral Provision to the Specific Provision, thus 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 beyonda certain amount, it will be restored through a transfer from the current year’s earnings. The net transfer from theGeneral Provision to the Specific Provision, net of recoveries, during the half year was $196 million (Sep 2003:$268 million; Mar 2003 $259 million).

c)Deferred acquisition costs, software assets and deferred income
Deferred acquisition costs – As at 31 March 2004, the Group’s assets included $401 million in relation to costs incurred inacquiring interest earning assets (Sep 2003: $362 million; Mar 2003: $323 million). During the half, amortisation of$102 million was recognised as an adjustment to the yield earned on interest earning assets (Sep 2003: $97 million; Mar
2003: $81 million).

The deferred acquisition costs as at period end were:Mortgages Australia
Consumer FinanceInstitutional Financial Services
New Zealand BusinessEsanda and UDC

Mar 04
$M
125
2
14
24
236

Sep 03
$M
102
2
16
15
227

Mar 03
$M
81
2
21
12
207

401

362

323

Total

Software assets – As at 31 March 2004, the Group’s fixed assets included $447 million in relation to costs incurred inacquiring and developing software (Sep 2003: $465 million; Mar 2003: $451 million). During the half, amortisation
expense of $63 million (Sep 2003: $46 million; Mar 2003: $37 million) was recognised.
Deferred income – As at 31 March 2004, the Group’s liabilities included $135 million in relation to income received inadvance (Sep 2003: $272 million; Mar 2003: $182 million).

86

NOTES TO THE FINANCIAL STATEMENTS
1.

Accounting policies and significant transactions (continued)d)Valuation of investment in ING Australia Limited (INGA)
The Group adopts the equity method of accounting for its 49% interest in INGA. As at 31 March 2004, the carrying
value of INGA is $1,688 million (Sep 2003: $1,648 million; Mar 2003: $1,612 million).
The carrying value is subject to a recoverable amount test, to ensure that this does not exceed its recoverable amount at
the reporting date. This involves the Group obtaining an independent valuation of INGA to determine current
recoverable amount. The independent valuation is based on a discounted cashflow approach, with allowance for the costof capital.
Any excess of carrying value above recoverable amount is written off to the Statement of Financial Performance.
As at 31 March 2004, based on this review no change is required to the carrying value of the investment (September
2003 and March 2003 nil writedown).

e)Derivatives and Hedging
The Group buys and sells derivatives as part of its trading operations and to hedge its interest rate risk, foreignexchange risk and the equity risk in INGA.
Derivative instruments entered into for the purpose of hedging are accounted for on the same basis as the underlying
exposures or risks. Derivative instruments entered into to hedge exposures that are not recorded at fair value do nothave their fair values recorded in the Group’s Statement of Financial Position.
Hedge accounting is only applied when the hedging relationship is identified at the time the Group enters into thehedging derivative transaction. If a hedge ceases to be effective, the hedging derivative transaction will be recognised
at fair value. Gains and losses on derivative instruments not carried at their fair value amounts are recognised at thesame time as the gain or loss on the hedged exposure is booked.
Movements in the value of foreign exchange contracts that are hedging investments in overseas operations are notrecognised as income or expenses. Instead these movements are recognised in the Foreign Currency Translation
Reserve together with the net difference arising from the translation of the overseas operation.
Derivatives entered into as part of the Group’s trading operations are carried at their fair values with any change in fairvalue being immediately recognised as part of trading income.

f)Special purpose and off balance sheet vehicles
The Group may invest in or establish special purpose companies, or vehicles (SPVs), to enable it to undertake specifictypes of transactions. Where the Group controls such vehicles, they are consolidated into the Group financial results.
The table below summarises the main types of SPV’s not consolidated into the Group:
Type of Special
Purpose Vehicle (SPV)

Reason for establishment

Key Risks

Securitisation vehicles

Assets are transferred to an SPV,
which funds the purchase by issuing
securities.

ANZ may manage
securitisation vehicles,
service assets in a vehicle
or provide liquidity or othersupport, and retains therisks associated with theprovision of these services.
Credit and market risks
associated with theunderlying assets are notretained or assumed by
ANZ, except to the limited
extent through theprovision of arms length
services and facilities.

Sep 2003: $9,954
Mar 2004: $10,509

Enables ANZ or customers toincrease diversity of funding
sources.
The amounts disclosed here are thetotal assets of SPV’s managed or
arranged by ANZ. It includes SPV’s
that purchase assets from sellers
other than ANZ.

SPV Assets$m

Structured financeentities

These entities are set up to assist
with the structuring of client
financing.

ANZ may retain liquidity
risk, if it provides liquidity
support to the vehicle. ANZ
may also manage thesevehicles.

Sep 2003: $2,124
Mar 2004: $1,730

Managed funds

These funds invest in specified
investments on behalf of clients.

The ANZ/INGA joint
venture, and NBNZ, asmanagers of funds, expose
ANZ to operational risk andreputational risk.

Sep 2003: $28,655
Mar 2004: $29,578

87

NBNZ
Mar 2004: $1,311

NOTES TO THE FINANCIAL STATEMENTS
1.

Accounting policies and significant transactions (continued)

International Financial Reporting Standards

ANZ will be required to prepare financial statements using Australian Standards that fully comply with International
Financial Reporting Standards and their related pronouncements (IFRS) when the Group reports in 2006.
The Group will report for the first time in compliance with IFRS when the results for the half year ended 31 March
2006 are released. IFRS require that entities complying with IFRS for the first time also restate their comparative
financial statements using all IFRS except for IAS 32 Financial Instruments: Disclosure and Presentation, IAS 39
Financial Instruments: Recognition and Measurement and IFRS 4 Insurance Contracts. This means that ANZ’s
opening IFRS balance sheet will be a restated comparative balance sheet, dated 1 October 2004. Most adjustments
required on transition to IFRS will be made, retrospectively, against opening retained earnings on 1 October 2004;
however transitional adjustments relating to those standards where comparatives are not required will only be madeat 1 October 2005. Comparatives restated under IFRS will not be reported in financial statements until March 2006,
being the first half year reported in compliance with IFRS.
The following areas have been identified as significant for the Group: Post employment benefits, share based
payments, loan provisioning, fee revenue, securitisation, hedging, debt/equity classification, goodwill, taxation andregulatory capital.
A more detailed discussion of the impacts of each area is shown in the Chief Financial Officer’s Review.
Significant transactions

During the half, the Group bought back TrUEPrS, a hybrid Tier 1 instrument. Previously deferred income that wasearned on close out of interest rate swaps that had been hedging the TrUEPrS distributions was recognised in profit.
The impact of TrUEPrS on this half, being the release of deferred swap income of $108 million before tax, $2 million
other swap income, the periodic and final cash dividends paid to holders of TrUEPrS ($35 million), and the funding
benefit from holding TrUEPrS for part of this half, has been classified as a significant transaction.
The significant transaction increases profit after tax by $84 million. Earnings per share, including the significant
transaction, is 76.8 cents; excluding the significant transactions, EPS is 74.0 cents.

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

TrUEPrS
Swap income
Interest
Income tax expense
C ash dividends

1

Net profit attributable to members of the Company
1.

110

-

-

n/a

n/a

2

-

-

n/a

n/a

(28)

-

-

n/a

n/a

-

-

-

n/a

n/a

84

-

-

n/a

n/a

Cash dividend of $35 million does not affect profit and loss. It is, however, included in the calculation of EPS. Tax benefit on $48 million dividend paid in October2003 was recognised in the September 2003 half.

88

NOTES TO THE FINANCIAL STATEMENTS
2.

Income
Half

Half

Half

Movt

Movt

year

year

year

Mar 04

Mar 04

Mar 04

Sep 03Mar 03v.Sep 03v.Mar 03

$M

$M

$M

%

%

Interest income

6,543

5,203

5,012

26%

31%

Interest expense(4,034)(3,032)(2,872)

33%

40%

Net interest income

2,509

2,171

2,140

16%

17%

Gross interest spread

2.14

2.27

2.29

n/a

n/a

Interest forgone on impaired assets(0.03)(0.03)(0.02)n/a

n/a

Net interest spread

2.11

2.24

2.27

n/a

n/a

Interest attributable to net non-interest bearing items

0.42

0.40

0.44

n/a

n/a

Interest spread and net interest average margin (%)

Net interest average margin
Average interest earning assets ($M)

2.53

2.64

2.71

n/a

n/a

199,086

165,141

159,152

21%

25%

Comparison with September 2003 half

Net interest income at $2,509 million was 16%($338 million) higher than the September 2003 half.

Net Interest Average Margin

VolumeAverage net loans and advances grew by $31.2 billion(22%) overall with growth attributable to the acquisition
of NBNZ ($21.3 billion), Mortgages Australia ($7.1 billion),
Corporate ($1.3 billion) and Institutional Financial Services
Australia ($1.2 billion). Average net loans and advances
reduced by $1.5 billion (14%) in overseas markets as aresult of the strategy to reduce higher risk exposures($0.7 billion) and the exchange rate impact of theweakening US dollar ($0.8 billion).

3.0%

2.0%
Mar
99

Sep
99

Mar
00

Sep
00

Mar
01

Sep
01

Mar
02

Sep
02

Mar
03

Sep
03

Mar
04

Average deposits and other borrowings grew
$27.6 billion (23%), with growth from NBNZ ($21.5 billion), Institutional Financial Services Australia ($1.9 billion),
Personal Banking Australia ($1.7 billion) and Treasury ($1.2 billion). Average deposits and other borrowings
decreased $0.7 billion (3%) in overseas markets, with increases resulting from greater commercial paper issuance inthe US offset by a $2.3 billion reduction resulting from exchange rate movements.
MarginNet Interest Margin contracted by 11 basis points!

Margins on mortgages, credit cards and asset finance contracted during the half due to the combined impact ofincreased funding costs and competitive pressures. This resulted in a reduction in net interest margin of 6 points.
In addition the higher proportion of mortgages in our balance sheet lowered the margin by 1 basis point.

!

The interest benefit from low interest savings accounts and non-interest balances increased as the rate at which
they were invested increased (2 basis points).

!

The proportion of the balance sheet funded by low interest savings accounts and non-interest balances reduced
during the half, offset by an increase in wholesale funding. The change in funding mix reduced the net interest
margin by 4 basis points. Partially offsetting this however, was the replacement of TrUEPrS, which increased thenet interest margin by 3 basis points.

!

The funding cost associated with unrealised trading gains increased as a result of the appreciation of the AUD.
Whilst resulting in a 2 basis point decline in net interest margin, it is offset by an equivalent gain in trading
income.

!

The acquisition of NBNZ resulted in a net 3 basis point decline in the Group’s net interest margin.

89

NOTES TO THE FINANCIAL STATEMENTS
2.

Income (continued)

Comparison with March 2003 half

Net interest income at $2,509 million was 17% ($369 million) higher than the March 2003 half.
VolumeAverage net loans and advances grew by $37.9 billion (28%) overall, with growth from the acquisition of NBNZ($21.3 billion), Mortgages Australia ($13.0 billion), Corporate ($2.2 billion), Institutional Financial Services Australia($1.5 billion) and ANZ New Zealand ($1.1 billion). Average net loans and advances reduced by $3.6 billion (27%) in
overseas markets as a result of the strategy to reduce higher risk offshore exposures ($1.3 billion) and the exchange
rate impact of the weakening US dollar ($2.3 billion).
Average deposits and other borrowings increased by $31.1 billion (26%), with growth from NBNZ ($21.5 billion),
Personal Banking Australia ($2.9 billion), Treasury ($2.5 billion), Corporate ($1.4 billion) and Esanda ($1.1 billion).
Average deposits and other borrowings increased $1.2 billion (6%) in overseas markets, with increases resulting fromgreater commercial paper issuance in the US offset by a $3.7 billion reduction resulting from exchange rate
movements.
MarginNet Interest Margin contracted by 18 basis points:!

Margin on mortgage loans decreased due to the combined impact of increased funding costs and competitive
pressures. This resulted in a net reduction in margin of 5 basis points!

The proportion of the balance sheet funded by low interest savings accounts and non-interest earning balances is
now lower, offset by growth in term deposits and wholesale funding. This change in funding mix has reduced thenet interest margin by 15 basis points. Partially offsetting this however, was the replacement of TrUEPrS, which
increased the net interest margin by 2 basis points.

!

The acquisition of NBNZ resulted in a net 3 basis point decline in the Group’s net interest margin.

!

Treasury earnings fell during the half as a result of the sustained period of low and stable interest rates which
reduced the Group’s net interest margin by 1 basis point.

!

Partially offsetting these declines was an increase in foreign currency hedge revenue as a result of a strengthening
AUD (4 basis points).

90

NOTES TO THE FINANCIAL STATEMENTS
2.

Income (continued)
Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
Movt
Movt
year
Mar 04
Mar 04
Mar 03 v. Sep 03 v. Mar 03
$M
%
%

6,543

5,203

5,012

26%

31%

Lending

496

464

469

7%

6%

Other, commissions

665

594

521

12%

28%

1,161

1,058

990

10%

17%

Foreign exchange earnings

198

163

185

21%

7%

Profit on trading instruments

80

63

47

27%

70%

108

-

-

n/a

n/a

Hedge of TrUEPrS C ash Flows

2

35

36

-94%

-94%

Share of joint venture: Profit from INGA joint venture

40

36

19

11%

large

Share of associates profit (net of writeoffs)

27

28

23

-4%

17%

Other

67

73

52

-8%

29%

Interest income
Other operating income
Fee income

Total fee income
Other income

Net profit before tax from the close out of the
TrUEPrS swap1

Total other income

522

398

362

31%

44%

Total other operating income

1,683

1,456

1,352

16%

24%

Total income

8,226

6,659

6,364

24%

29%

Profit before income tax as a % of total income

24.0%

25.4%

24.9%

-5%

-3%

1.

Significant transaction, refer Note 1

Comparison with September 2003 half

Other operating income, at $1,683 million, was 16% higher than the September 2003 half year due largely to the$106 million contribution from the National Bank of New Zealand, and $110 million income from the close out of theinterest rate swap on the TrUEPrS transaction compared to $35 million from the swap in the prior half. The
appreciation of the AUD reduced overseas other income by $15 million. Excluding all these factors other operating
income increased 4% due to:!

Lending fee income increased 3%, with volume related increases in Mortgages, Esanda, Corporate and Institutional
Banking suppressed by a reduction in offshore structured finance fees and flat fees in other business units.

!

Non-lending fee income increased 4% driven by an increase in consumer and merchant activity over the Christmas
period in Consumer Finance. International payments and corporate advisory fees increased in Institutional
Financial Services as did transactional fees through the branch network.

!

Foreign exchange earnings increased 10% with continued volatility in Asian and Pacific currencies partly offset by
reduced hedging activity by customers, with uncertainty over the impact of International Accounting Standards.

!

Profit on trading instruments increased $14 million largely in Capital Markets where a lower proportion of trading
revenue was booked as interest due to funding of cash flows. Total income in Capital Markets is up $7 million.

!

Other operating income reduced $7 million. The increase in other operating income in the second half of 2003 wasdue to the sale of development properties in Institutional Banking.

Comparison with March 2003 half

Other operating income increased 24% largely due to the $106 million contribution from the NBNZ income, income
from the close out of the interest rate swap on the TrUEPrS transaction and the impact of the $38 million underaccrual of loyalty points on co-branded cards booked in the first half of 2003. Exchange rate impacts resulted in a
$35 million reduction in other operating income. Excluding these factors fees increase 8% largely in Institutional
Financial Services, Esanda and Corporate. Foreign Exchange earnings were flat while the increase in profit on trading
instruments was offset in net interest. Profit from ING Australia was up $21 million.

91

NOTES TO THE FINANCIAL STATEMENTS
3.

Operating expenses
Half
year
Mar 04
$M

Half
year
Sep 03
$M

69

54

Movt
Half
Movt
Mar 04
Mar 04year
Mar 03 v. Sep 03 v. Mar 03%%$M

Personnel
Pension fund

55

28%

25%

Employee entitlements & taxes

71

57

65

25%

9%

Salaries and wages

684

591

586

16%

17%

Other

188

175

167

7%

13%

1,012

877

873

15%

16%

Amortisation & depreciation

12

16

15

-25%

-20%

Rent

96

81

73

19%

32%

Utilities and other outgoings

50

44

44

14%

14%

Total personnel expenses
Premises

Other

9

15

7

-40%

29%

167

156

139

7%

20%

10

5

13

100%

-23%

Data communications

42

31

30

35%

40%

Depreciation and amortisation

117

95

88

23%

33%

Rentals and repairs

32

34

36

-6%

-11%

Total premises expenses
ComputerComputer contractors

Software purchased

55

50

53

10%

4%

Other

18

13

17

38%

6%

274

228

237

20%

16%

Advertising and public relations

57

48

43

19%

33%

Amortisation of goodwill

63

9

9

large

large

Audit fees

2

1

2

100%

-

Depreciation of furniture and equipment

19

17

16

12%

19%

Freight and cartage

20

17

18

18%

11%

Loss on disposal of premises and equipment

1

4

3

-75%

-67%

Total computer expenses
Other

Non-lending losses, frauds and forgeries

24

23

25

4%

-4%

Postage & stationery

50

46

46

9%

9%

Professional fees

50

56

46

-11%

9%

Telephone

28

23

26

22%

8%

Travel

44

40

38

10%

16%

Other
Total other expenses
Restructuring

60

53

49

13%

22%

418

337

321

24%

30%

31

28

32

11%

-3%

Operating expenses

1,902

1,626

1,602

17%

19%

Employees (FTE) - Permanent

26,585

21,586

21,21823%

25%

Employees (FTE) - Temporary

1,386

1,551

1,265

-11%

10%

Total employees

27,971

23,13722,483

21%

24%

92

NOTES TO THE FINANCIAL STATEMENTS
3.

Operating expenses (continued)

Comparison with September 2003 half

Operating expenses increased 17% driven largely by the $229 million expenses (including $54 million goodwill
amortisation) of NBNZ since acquisition. The appreciation of the AUD suppressed costs by $16 million. Excluding
NBNZ and exchange rate impacts operating costs increased 4% driven by:!

Personnel expenses increased 5% largely as a result of annual salary increases together with increased front line
staff in Corporate Australia, ANZ New Zealand Banking, higher back office staffing required in Mortgages to service
the higher volumes and in Consumer Finance to implement the Reserve Bank credit card reforms.

!

Premises costs decreased 2%.

!

Computer costs increased 12% due to higher software amortisation charges as new systems including the newbranch sales and service and Telling platforms become operational together with increased data communication
costs largely due to increased transaction volumes in Consumer Finance.

!

Other expenses decreased by 3% due largely to lower consultants costs with the strategic focus being on
integrating the National Bank of New Zealand.

!

Restructuring expenses increased $3 million, reflecting the write-off of capitalised software on the Next Generation
Switching project following the decision to consolidate the ATM and EFTPOS networks for ANZ and NBNZ on the
Tandem platform and ongoing business as usual restructuring.

Comparison with March 2003 half

Operating expenses increased $300 million primarily due to the $229 million in costs and goodwill amortisation
associated with NBNZ. The appreciation of the AUD suppressed overseas costs by $36 million. Excluding NBNZ andexchange rate impacts operating expenses increased 7% with: Personnel costs up 7% reflecting a 4% increase in theEnterprise Bargaining Agreement in July 2003 and a 3% increase in staff numbers. Premises costs increased 12% asa result of the favourable impact in the first half of 2003 of the change in the method of accounting of rentals costs.
Computer costs increased 9% largely due to higher software amortisation, together with increased data
communication costs due to increased transaction volumes in Consumer Finance while other expenses were 4%
higher with small increases spread across a number of other categories.

93

NOTES TO THE FINANCIAL STATEMENTS
4.

Income tax expenseMovt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03
%

1,587

17%

25%

507

476

17%

25%

9

6

9

50%

0%

Rebateable and non-assessable dividends

(10)

(7)

(9)

43%

11%

Other non-assessable income

(15)

(15)

(16)

0%

-6%

Profit from associated entities and joint venture entities

(20)

(19)

(13)

5%

54%

Life insurance accounting

(2)

-

-

n/a

n/a

Goodwill amortisation

19

3

3

large

large

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

Half
year
Mar 04
$M

Half
Half
year
year
Sep 03 Mar 03
$M
$M

1,977

1,690

593

Tax effect of permanent differences
Overseas tax rate differential

Other

5

9

(5)

-44%

large

579

484

445

20%

30%

(1)

(2)

(1)

-50%

0%

Total income tax expense on profit

578

482

444

20%

30%

Australia

410

360

312

14%

31%

Overseas

168

122

132

38%

27%

Income tax (over) under provided in prior years

Effective tax rate

578

482

444

20%

30%

29.2%

28.5%

28.0%

2%

4%

Legislation has been enacted to allow Australian resident entities to elect to consolidate and be treated as a single
entity for Australian tax purposes. At the date of this report, the Directors of the parent entity have not made adecision whether or not to elect to be taxed as a single entity. Should the parent entity enter the tax consolidation
regime, tax balances will no longer be recorded by subsidiaries if they form part of a consolidated tax group. Taxbalances for the consolidated tax group will be recorded in the financial statements of the parent entity.
Comparison with September 2003 half

The Group’s effective tax rate for the half year ended 31 March 2004 increased 0.7% from 30 September 2003 largely
due to the increase in goodwill amortisation expense, which is non-deductible, and a higher overseas tax rate
differential due to higher earnings in New Zealand, after the acquisition of NBNZ, partially offset by a tax deduction
for the employee share issue booked in the first half of 2004.
Comparison with March 2003 half

The Group’s effective tax rate for the half year ending 31 March 2004 increased 1.2% from the March 2003 halflargely due to the increase in goodwill amortisation expense, which is non-deductible.

94

NOTES TO THE FINANCIAL STATEMENTS
5.

Dividends
Ha lf
year
Mar 04
$M

Ha lf
year
Se p 03$MHa lf
y e ar
Ma r 03$M

Mov t
Ma r 04v . Se p 03%

Mov t
Ma r 04v . Ma r 03%

Interim (fully franked)

47

n/a

44

n/a

7%

Final (fully franked)

n/a

51

n/a

n/a

n/a

-

666

-

n/a

n/a

Div ide nd pe r ordina ry share 1 (ce nts)

Ordina ry share div ide nd 1 , 2 ($M)
Interim dividend paid
Final dividend paid

777

-

-

n/a

n/a

Bonus option plan adjustment3

(15)

(12)

(13)

25%

15%

762

654

(13)

12%

large

63.8%

67.0%

61.3%

5%

9%

Total

Ordina ry share div ide nd pa y out ra tio (%) 4
1.
2.
3.
4.

Excludes preference share dividend
Change in accounting standard in 2003. Dividends no longer accrued
This relates to prior period and interim dividend payment
Dividend payout ratio calculated using proposed interim dividend of $850 million not included in the above table. Dividend payout ratio for September 2003
calculated using $777 million dividends paid in the March 2004 half. Dividend payout ratio for March 2003 calculated using $666 million dividends paid in the
September half.

The directors propose that an interim dividend of 47 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 20 May 2004.
The interim dividend will be payable on 1 July 2004. Dividends payable to shareholders resident in the United
Kingdom and New Zealand will be converted to their local currency at ANZ’s daily forward exchange rate on 20 May
2004.
Ha lf
year
Ma r 04
$M

Ha lf
year
Se p 03
$M

Ha lf
year
Ma r 03$M

Mo v t
Ma r 04v . Se p 03%

Mo v t
Ma r 04v . Ma r 03%

TrUEPrS

35

48

54

-27%

-35%

A NZ S tEPS

29

-

-

n/a

n/a

64

48

54

33%

19%

TrUEPrS (US D cents)

20.7

25.1

25.1

-18%

-18%

A NZ S tEPS (A UD )

$2.94

-

-

n/a

n/a

Pr e fe re nc e s ha r e d iv id e nd

Div id e nd p e r p r e fe re nc e s ha reIn 1998 the Company issued 124,032,000 preference shares which raised USD775 million (net USD748 million after
costs) via Trust Securities issues (TrUEPrS). On 12 December 2003, the Group bought back its 124,032,000 TrUEPrS
preference shares. The Trust Securities carried an entitlement to a distribution of 8% (USD400 million) or 8.08%(USD375 million). The amounts were payable quarterly in arrears and recognised when paid.
On 23 September 2003, the Group issued 10 million ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS) at$100 each raising $1 billion ($987 million net of issue costs of $13 million). ANZ StEPS comprise 2 fully paid
securities - an interest paying unsecured note stapled to a fully paid preference share.
Distributions on ANZ StEPS are non-cumulative and are payable quarterly in arrears based upon a floating distribution
rate equal to the 90 day bank bill rate plus a margin. Dividends are not payable on the preference share while it isstapled to the note. If distributions are not paid on ANZ StEPS, the Company may not pay dividends or return capitalon its ordinary shares or any other share capital ranking below the preference share component.

95

NOTES TO THE FINANCIAL STATEMENTS
6.

Earnings per share

Number of fully paid ordinary shares on issue (M)

Half
year
Mar 04
$M

Half
Half
Movt
Movt
year
year
Mar 04
Mar 04
Sep 03 Mar 03 v. Sep 03 v. Mar 03
$M
$M
%
%

1,808.2

1,521.7 1,513.4

19%

19%

1,087

15%

23%

1,518.3 1,510.2

0%

1%

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

1,332

Weighted average number of ordinary shares prior to rights issue (M)1,521.8

1,159

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

4.7

-

-

n/a

n/a

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

187.1

-

-

n/a

n/a

13%

13%

Weighted average number of shares prior to dilution for rights issue (M)1,713.6

1,518.3 1,510.2

Discount factor based on Theoretical Rights2

0.9866

0.95970.959763.8

63.4

Adjustment for the impact of rights issue (M)20.7

Adjusted weighted average number of shares (M)1,734.3

Basic earnings per share (cents)3

1,582.1 1,573.6

76.8

73.3

69.1

5%

11%

1,358

1,159

1,087

17%

25%

1,582.1 1,573.6

10%

10%

12%

10%

DilutedNet profit attributable to members of the company excluding interest
on Hybrid securities ($M)
4Adjusted weighted average number of shares on issue (M)1,734.3

Weighted average number of Options outstanding (M)

6.6

5.9

6.0

-

-

n/a

n/a

1,588.0 1,579.6

13%

14%

Weighted average number of convertible US Hybrid securities
at current market price4 (M)52.2

Adjusted weighted average number of shares - diluted (M)1,793.1

Diluted earnings per share (cents)3

75.7

73.0

68.8

4%

10%

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

1,332

1,159

1,087

15%

23%

- included in profit after tax5

(84)

-

-

n/a

n/a

- preference dividend5 for TrUEPRs

35

-

-

n/a

n/a

Earnings excluding significant transactions

1,283

1,159

1,087

11%

18%

Earnings per share (cents) excluding significant transactions3

74.0

73.3

69.1

1%

7%

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

Significant transactions

Significant transactions

1,332

1,159

1,087

15%

23%

- included in profit after tax5

(84)

-

-

n/a

n/a

- preference dividend

35

-

-

n/a

n/a

31

31

31

0%

0%

5 for TrUEPrS

Goodwill amortisation (excluding NBNZ)6
Goodwill amortisation - NBNZ
Earnings excluding significant transactions and goodwill amortisation

54

-

-

n/a

n/a

1,368

1,190

1,118

15%

22%

78.9

75.2

71.0

5%

11%

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

Adjusted for preference share dividend
Refer page 97 for calculation details
Discounted for rights issue
Interest expense on US Hybrid securities was $26 million. Current share price $18.96. Refer Note 11 for details on US Hybrid
Refer Note 1 for an explanation
Includes INGA notional goodwill amortisation

96

NOTES TO THE FINANCIAL STATEMENTS
6.

Earnings per share (continued)

The EPS figures in the above table are different to those published at September 2003, having been adjusted for thebonus element of the rights issue. AASB 1027 “Earnings per Share” requires, restatement of prior period Basic EPS
and Diluted EPS for the bonus element included in the rights issue. In a rights issue, if the exercise price is less thanthe market price of the shares, the rights issue includes a bonus element. EPS for all reporting periods have beenadjusted by the following factor:
Theoretical ex-rights value per share
Market price per share immediately prior to exercise of rights
The theoretical ex-rights value per share is:Aggregate market price per share immediately prior to exercise of rights+ proceeds from exercise of rights
Number of shares outstanding after exercise of rights

Calculation of discount factors is as follows:! The last date existing shares traded cum rights prior to rights issue: 28 October 2003
! The date rights shares allotted: 28 November 2003
! Eleven existing shares received two rights share
Calculation

Market price (ex dividend) on 28 October 2003

$17.63

Theoretical ex rights price$16.92($17.63 x 5.5 + $13.00) / 6.5

Discount factor for prior years

0.9597$16.92 / $17.63

Discount factor for current year

0.98661(1 / 0.9597) (59 / 183) + (124 / 183)

Dilution effect of US Stapled Trust Security Issue

The US Stapled Trust securities issued on 27 November 2003 mandatorily convert to ordinary shares in 2053 unlessredeemed or bought back prior to that date. The US Stapled Trust Security issue can be de-stapled and the investor
left with a coupon paying preference shares at ANZ’s discretion at any time, or at the investor’s discretion undercertain circumstances.
AASB 1027 requires that potential ordinary shares for which conversion to ordinary share capital is mandatory must
be included in the calculation of diluted EPS.

97

NOTES TO THE FINANCIAL STATEMENTS
Statement of Financial Position
Assets
$B
300.0
39.0

250.0
200.0

9.7

(1.4)

247.3

4.4

Trading andinvestment
securities

195.6

Net loans andadvances
including
acceptances

150.0
100.0

Liquid assets
and interbank
lending

50.0

Other

Sep 03NBNZ

FXNet loans andadvances
including
acceptances

Other

Mar 04

Total Group assets increased by $51.7 billion (26%) since September 2003. The purchase of NBNZ contributed$39.0 billion to this total, whilst exchange rate movements accounted for a net reduction of $1.4 billion consisting of a
$1.3 billion reduction in overseas markets and $0.1 billion in New Zealand. Excluding the impact of NBNZ acquisitionand exchange rate movements:! Net loans and advances including acceptances increased $9.7 billion (6%) with a $5.3 billion growth in housing
loans and $3.1 billion in non housing loans in Australia and New Zealand. For further commentary refer Note 8.
! Goodwill has increased $3.0 billion as a result of the $3.1 billion goodwill arising on the acquisition of NBNZ. Refer
page 12 for further details.
! Investment Securities increased $1.8 billion (39%) as Treasury increased its holdings of long dated securities inAustralia ($1.0 billion) and Overseas ($0.8 billion) and Trading security volumes increased $0.4 billion.
! Due from non group banks increased by $1.5 billion (64%) largely in Capital Markets ($0.6 billion) as a result of
increased repo activity, and in Treasury ($0.4 billion) increased liquidity levels.
! Liquid assets reduced by $1.3 billion (20%) largely in New Zealand where balances with NBNZ now eliminated on
consolidation.
! Other Assets reduced by $0.7 billion (7%) mainly due to movement in revaluations on off-balance sheet
instruments.

Liabilities
$B
250.0
200.0

36.0

(2.2)

9.0

230.5

5.9

Other
Bonds, notes
and loancapital

181.8

150.0

Deposits andotherborrowings

100.0
50.0

Interbankborrowing

Sep 03NBNZ

FX

Deposits andotherborrowings

Other

Mar 04

Total Group liabilities increased by $48.7 billion (27%) from September 2003 with NBNZ contributing $36.0 billion ofthis growth. Exchange rate movement accounted for a net reduction of $2.2 billion consisting of a $2.1 billion
reduction in overseas markets and $0.1 billion New Zealand. Excluding the impact of NBNZ acquisition and exchange
rate movements:! Deposits and other borrowings increased $9.0 billion (7%) reflecting:- a $3.4 billion increase in certificates of deposit in Treasury resulting from increased short term funding
requirements.
- higher Term Deposits volumes recorded in Treasury ($2.0 billion), Personal Banking ($1.6 billion) andInstitutional Financial Services ($1.4 billion).
! Bonds and notes increased $3.6 billion (22%) in response to increased term funding requirements in Australia.
! Loan capital increased $1.3 billion as a result of the US$1.1 billion stapled security issue in November 2003.

98

NOTES TO THE FINANCIAL STATEMENTS
7.

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

Total book value

6,669

4,767

4,301

40%

55%

Total market value

6,693

4,766

4,302

40%

56%

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

67,74562,482

56,9428%

19%

44,186

41,13337,4937%

18%

Lease finance/hire purchase

9,178

8,741

8,349

5%

10%

Overdrafts

4,149

3,915

3,406

6%

22%

Credit card outstandings

4,348

4,265

4,119

2%

6%

Other

1,018

784

876

30%

16%

130,624

121,320

111,185

8%

17%

Term loans - housing

28,243

10,551

10,618

large

large

Term loans - non housing 1

22,008

7,425

7,697

large

large

872

866

899

1%

-3%

1,540

611

650

large

large

983

491

515

large

91%

8.

As at
Mar 03Movt
Movt
Mar 04
Mar 04v. Sep 03 v. Mar 03$M%%

Net loans and advances
Movt
Movt
Mar 04
Mar 04v. Sep 03 v. Mar 03%%

Australia
Term loans - housing
Term loans - non housing

1

New Zealand

Lease finance/hire purchase
Overdrafts
Credit card outstandings
Other

826

985

1,084

-16%

-24%

54,472

20,92921,463

large

large

385

361

338

7%

14%

7,986

8,984

10,844-11%-26%

Overseas markets
Term loans - housing
Term loans - non housing

1

Lease finance/hire purchase

87

239

427

-64%

-80%

Overdrafts

554

740

872

-25%

-36%

Credit card outstandings

117

134

117

-13%

0%

Other

109

80

79

36%

38%

9,238

10,53812,677-12%-27%

194,334

152,787

145,32527%

34%(2,247)(2,018)(2,088)11%

8%(1,365)(1,304)(1,272)

5%

7%

190,722

149,465

141,965

28%

34%

Total gross loans and advances 2,3
Less:Provisions for doubtful debts
Income yet to mature
Total net loans and advances
1.
2.
3.

2, 3

Includes Equity Loans which are reported in Mortgages
Bills held in portfolio, $1,387 million (Sep 2003: $820 million; Mar 2003: $943 million) are included in trading securities
Securitised mortgages outstanding $1,066 million (Sep 2003: $1,295 million; Mar 2003: $1,681 million) not included in net loans and advances

99

NOTES TO THE FINANCIAL STATEMENTS
8.

Net loans and advances (continued)

Comparison with September 2003 half

Net loans and advances increased by $41.3 billion since 30 September 2003, with National Bank of New Zealandcontributing $32.6 billion. Exchange rate movements accounted for a net reduction of $0.8 billion consisting of areduction of $0.7 billion in overseas markets and $0.1 billion in New Zealand.
!

Growth in Australia ($9.3 billion) was dominated by growth in:- Housing loans ($5.3 billion) in Mortgages arising from strong customer demand despite two interest rate risesin the half.
- Non-housing term loans ($3.1 billion) largely in Corporate ($1.2 billion) from increased activity with existingcustomers and new customer acquisitions, Mortgages ($1.5 billion) relating to Equity Loans, and Personalbanking ($0.5 billion) largely rural and margin lending.
- Lease finance ($0.4 billion) driven by strong new business writing through Esanda’s consumer and SMB
segments.
- Overdrafts ($0.2 billion), credit card outstandings ($0.1 billion) and other ($0.2 billion).

Excluding the impact of exchange rate movements:! New Zealand increased by $33.3 billion due to the acquisition of NBNZ ($32.6 billion), and growth in ANZ of$0.7 billion largely in housing loans ($0.4 billion).
! Overseas Markets declined by $0.6 billion largely due to reduction in exposures of the US and UK markets.
Comparison with March 2003 half

Net loans and advances increased by $48.8 billion. Exchange rate movements accounted for a reduction of$2.9 billion consisting of a reduction of $1.0 billion in New Zealand and $1.8 billion in Overseas Markets. Growth wasrecorded through National Bank of New Zealand acquisition of $32.6 billion and:!

In Australia growth was dominated by;- Housing loan growth of $10.8 billion in Mortgages.
- Term loan growth of $6.7 billion, largely equity loans in Mortgages ($2.7 billion), Corporate ($1.8 billion),
Institutional Financial Services ($1.0 billion) and Personal Banking ($1.0 billion).
- Lease Finance $0.8 billion largely in Esanda.
- Increases were also recorded for Overdrawn accounts ($0.7 billion), Credit cards ($0.2 billion) and Other($0.2 billion).

!

Excluding the impact of exchange rate movements and the acquisition of NBNZ;- New Zealand increased $1.1 billion mainly in housing loans.
- Overseas market decreased by $1.6 billion evidencing the de-risking of offshore portfolios.

100NOTES TO THE FINANCIAL STATEMENTS
8.

Net loans and advances (continued)

Net loans and advances including commercial bills by segment

As at
Ma r 04$M

As at
Se p 03
$M

As at
Mov t
Mo v t
Ma r 03
Ma r 04
Ma r 04$M v . Se p 03 v . Ma r 03%%

Personal Banking Australia

6,362

5,902

5,197

8%

22%

Mortgages A ustralia

74,144

67,34260,59610%

22%

C onsum er Finance

5,762

5,672

5,523

2%

4%

Institutional Financial Services

38,986

40,51042,293-4%-8%

New Zealand Business

46,485

13,42913,456

large

large

C orporate Australia

17,762

16,02914,82811%

20%

Esanda and UD C

13,043

12,57912,243

4%

7%

A sia Pacific

1,235

1,215

1,192

2%

4%

301

(35)

(93)

large

large

Ne t a dv a nce s

204,080

162,643

155,235

25%

31%

less C ustom ers' liabilities for acceptances(13,358)(13,178)(13,270)

1%

1%

Ne t loa ns a nd a dv a nc e s

190,722

149,465

141,965

28%

34%

Ne t a dv a nce s

Other

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

Net advances
Personal Banking Australia

6,362

5,902

5,197

8%

22%

Mortgages Australia

74,144

67,34060,57410%22%

Consumer Finance

5,762

5,656

5,473

2%

5%

Institutional Financial Services

38,98639,87740,413-2%-4%

New Zealand Business

46,485

13,387

12,796

large

large

Corporate Australia

17,762

16,02914,82811%

20%

Esanda and UDC

13,043

12,572

12,146

4%

7%

Asia Pacific

1,235

1,146

1,058

8%

17%

301

(39)

(110)

large

large

204,080

161,870

152,375

26%

34%

-

773

2,860

-100%

-100%

Other
Net advances (excl FX impact)
FX impact on reported net advances
Net advances

204,080

162,643

155,235

25%

31%

less Customers' liabilities for acceptances(13,358)(13,178)(13,270)1%

1%

Reported net loans and advances

190,722

149,465

141,965

28%

34%

The foreign exchange impact is calculated by retranslating prior period numbers at March 2004 exchange rates.

101

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired assets

Provision for doubtful debts

The charge for doubtful debts was determined under economic loss provisioning (ELP) principles and represents theaverage annual loss on principal for the average risk profile of the lending portfolio during the period. The ELP charge
was $313 million as compared to $311 million for the half year to September 2003. Included in this amount was acharge of $20 million (2 basis points) taken to recognise continued uncertainty and expected levels of default in theoffshore lending portfolios. This charge has reduced $30 million from prior halves following de-risking of offshore
portfolios and lower levels of default.
The charge to March 2004 as a percentage of average net lending assets was 33 basis points, representing a 6 basis
point decrease on the level reported for the September 2003 half year with a reduction in the additional charge(3 basis points) and an improvement in average credit quality resulting from the acquisition of NBNZ, the continuing
increase in the proportion of mortgages as a percentage of the lending portfolio, and the reduction of the charge
taken for uncertainty in the offshore portfolios.
Ha lf
year
Ma r 04
%

Ha lf
year
Se p 03
%

Ha lf
year
Ma r 03%

Personal Banking A ustralia

0.38%

0.53%

0.49%

Mortgages A ustralia

0.05%

0.05%

0.05%

C onsum er Finance

2.67%

2.65%

2.70%

Institutional Financial Services

0.41%

0.40%

0.36%

New Zealand B usiness

0.20%

0.13%

0.14%

C orporate A ustralia

0.31%

0.31%

0.34%

Esanda and UD C

0.52%

0.50%

0.53%

Asia Pacific

0.76%

0.76%

0.82%

Ope ra ting se gm e nts tota l

0.31%

0.32%

0.33%

G roup C entre

0.02%

0.07%

0.07%

T o ta l

0.33%

0.39%

0.40%

ELP cha rge ($m illion)

313

311

303

ELP ra te s by se gm e nt 1

1.

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

Specific Provision
Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

Australia

212

242

176

-12%

20%

New Zealand

40

23

22

74%

82%

Overseas markets

35

78

134

-55%

-74%

287

343

332

-16%

-14%

(59)

(40)

(47)

48%

26%

228

303

285

-25%

-20%

Recoveries of amounts previously written off

(32)

(35)

(26)

-9%

23%

Net specific provisions

196

268

259

-27%

-24%

Provision movement analysis
New and increased provisions

Provision releases

Net credit to general provision

117

43

44

large

large

Charge to statement of financial performance

313

311

303

1%

3%

102

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 was $196 million, a decrease of$72 million over the 30 September 2003 half year. The reduction was due to the continued risk reduction in theinstitutional portfolio, mainly offshore, and reduced single name losses in Corporate and Esanda. Australian andInternational portfolio losses fell over the current half by 14% and 79% respectively.
At 31 March 2004, the general provision was $1,828 million, a surplus of $447 million over the tax effected 0.5% ofrisk weighted assets guidelines indicated by the Australian Prudential Regulation Authority.
Non-accrual loans

Gross non-accrual loans decreased to $931 million from $1,007 million at September 2003, however this reduction is
net of the inclusion of $76 million of non-accruals as part of the NBNZ portfolio. The overall reduction in non-accruals
was primarily a result of the realisation and writeoff of a number of large outstanding balances in the corporate andinstitutional portfolios over the half.
The principal source of new non-accrual loans continues to be the offshore power and telecommunications sectors,
however the position is stabilising and loss given default moderating. New non-accruals over the half, whilst stable indollar terms, showed a reduction in the default rate to 62 basis points of average net lending assets from 72 basis
points for the September 2003 half.

$M$M

Gross Non Accruals
750

1,200

New Non Accruals
Default rates
0.64%

0.53%

Sep 02Mar 03

0.72%

0.62%

Sep 03Mar 04

500

800

250

400

-

-

Sep 02Mar 03
Aust/NZ

Sep 03

UK/US and Europe

Mar 04

Other

Aust/NZ

UK/US Europe

Other

The Group has a specific provision coverage ratio of 44%. Net non-accruals are $517 million (September 2003:$525 million) and represents 3.1% of shareholders’ equity at March 2004.

103

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired assets (continued)

Corporate Businesses Risk profile

The quality of the Corporate Businesses lending portfolios have remained strong over the half. Significant reductions
in high risk and non accruals over the half have been mainly driven by the International portfolios.
Corporate Businesses Risk ProfileGrade$54.4 billion$52.8 billion$60.8 billion

40%

39%

41%

23%

22%

20%

22%

24%

23%

BB-

10%

10%

13%

B+ and lower*

5%

5%

3%

Mar 03

Sep 03Mar 041

AAA to BBB

BBB-

BB+ to BB

1(March 04 includes NBNZ data)*GradeMar 03

Sep 03

B+ to CCC

3.1%

3.3%

Mar 042.2%

CCC and lower

1.6%

1.5%

1.1%

Internal credit ratings have been mapped to external credit grades in these tables

Australian and New Zealand Industry Exposure
As at
Mar 04As at
Sep 03As at
Mar 03

Industry
Real estate operators and developers

7.1%

7.9%

7.6%

Manufacturing

4.4%

5.7%

6.3%

Retail Trade

3.2%

3.9%

4.1%

W holesale Trade

2.2%

2.6%

2.5%

Agriculture

5.8%

2.9%

2.9%

Business Services

2.2%

2.4%

2.2%

Finance - Other

2.0%

2.5%

2.6%

Finance Banks, Building Societies, Authorised Money Markets

2.3%

2.0%

2.1%

Transport & Storage

2.1%

2.5%

2.6%

Accom modation, Clubs, Pubs, Cafes & Restaurants

1.6%

1.8%

1.9%

Utilities

1.4%

1.4%

1.4%

Construction

1.5%

1.4%

1.4%

Health & Comm unity Services

1.0%

1.1%

1.1%

Mining

0.5%

0.7%

0.9%

Cultural & Recreational Services

1.2%

1.0%

1.1%

Personal & Other Services

0.4%

0.4%

0.4%

Forestry & Fishing

0.5%

0.5%

0.5%

Comm unication Services

0.4%

0.4%

0.3%

Education

0.2%

0.2%

0.2%

Finance - Insurance & Superannuation

0.6%

0.1%

0.3%

Government Administration & Defence

0.3%

0.2%

0.1%

59.1%
100%

58.4%
100%

57.5%
100%

Consumer
Total

104

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired Assets (continued)
A s atM ar 0 4

A s atS ep 0 3

A s atM ar 0 3$M

M ovt
M ar 0 4
v. Sep 0 3%

M ovt
M ar 04v. M ar 0 3
%

$M

$M

931

1,007

1,153

-8%

-19%

Sum m ary of im paired assets
Non-accrual loans
Restructured loans

-

-

-

n/a

n/a

44

39

55

13%

-20%

975

1,046

1,208

-7%

-19%

Unproductive facilities
Gross im paired assets
Less specific provisions:Non-accrual loans

(414)

(482)

(553)

-14%

-25%

Unproductive facilities

(5)

(2)

(5)

large

0%

N et im paired assets

556

562

650

-1%

-14%

Non-accrual loans

931

1,007

1,153

-8%

-19%

Specific provisions

(414)

(482)

(553)

-14%

-25%

Total net non-accrual loans

517

525

600

-2%

-14%

Australia

516

522

527

-1%

-2%

New Zealand

109

22

38

large

large

N on-accrual loans

Before specific provisions

O verseas m arkets

306

463

588

-34%

-48%

Total non-accrual loans

931

1,007

1,153

-8%

-19%

275

256

286

7%

-4%

41

13

22

large

86%

O verseas m arkets

201

256

292

-21%

-31%

Total net non-accrual loans

517

525

600

-2%

-14%

After specific provisions
Australia
New Zealand

Provision Coverage
Ratio

Non-Accrual Loans

$M

80%

1500

60%
1000

40%

500
20%

0%

0
Sep 01Mar 02

Sep 02Gross non-accruals

Mar 03
Net non-accrual105

Sep 03Mar 04

Provision coverage

NOTES TO THE FINANCIAL STATEMENTS
9.

Impaired Assets (continued)
Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

Australia

329

319

219

3%

50%

New Zealand

73

48

50

52%

46%

Overseas markets

194

212

140

-8%

39%

Total new non accrual loans

596

579

409

3%

46%

New and increased non accrual loans

Further analysis on non-accrual loans at 31 March 2004 and interest and/or other income received during the period
is as follows:
Gross balance
outstanding$M

Specific
provision$M

Interest
and/orother income
received

Australia

31

-

1

New Zealand

10

-

-

Overseas markets

46

-

6

87

-

7

Australia

482

241

2

New Zealand

99

68

-

Overseas markets

259

103

2

840

412

4

Australia

31-Overseas markets

1

1

-

4

2

-

931

414

11

Non-accrual loans
Without provisions

With provisions and no, or partial, performance1

With provisions and full performance1

Total non-accrual loans
Unproductive facilities

44

5

-

Total

975

419

11

1.

A loan’s performance is assessed against its contractual repayment schedule106

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.
Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03
%

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03
$M

17

18

18

-6%

-6%

4

1

1

large

large

14

16

15

-13%

-7%

35

35

34

0%

3%

(3)

(4)

(6)

-25%

-50%
-100%

Gross interest and other incom e receivable on non-accrualloans, restructured loans and unproductive facilities
Australia
New ZealandOverseas markets
Total gross interest and other income receivableon impaired assets
Interest and other incom e received
Australia
New Zealand

-

-

(1)

n/a

Overseas markets

(8)

(4)

(8)

100%

0%

(11)

(8)

(15)

38%

-27%

14

14

12

0%

17%

Total interest income and other income received
Net interest and other incom e forgone
Australia
New Zealand

4

1

-

large

n/a

Overseas markets

6

12

7

-50%

-14%

24

27

19

-11%

26%

Total net interest and other incom e forgone

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.

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

Australia

27

Overseas markets
Gross unproductive facilities

$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03
%

23

27

17%

0%

17

16

28

6%

-39%

44

39

55

13%

-20%

Australia

-

1

1

-100%

-100%

Overseas markets

5

1

4

large

25%

Specific provision

5

2

5

large

0%

Net unproductive facilities

39

37

50

5%

-22%

Unproductive facilities

Specific provision

The following amounts are not classified as impaired assets and therefore are not included within the summary on
page 105.

Accruing loans past due 90 days or m ore
Australia
New ZealandOverseas markets

107

170

175

199

-3%

-15%

65

18

23

large

large

21

20

21

5%

0%

256

213

243

20%

5%

NOTES TO THE FINANCIAL STATEMENTS
10. Provisions for doubtful debts
H alf
year
M ar 04
$M

H alf
year
Sep 03
$M

H alf
year
M ar 03$M

M ovt
M ar 04
v. Sep 03%

M ovt
M ar 04v. M ar 03%

Balance at start of period

1,534

1,530

1,496

0%

3%

Acquisition of provisions

216

-

-

n/a

n/a

Adjustm ent for exchange rate fluctuations

(39)

(39)

(10)

-

large

Charge to statem ent of financial perform ance

313

311

303

1%

3%

Transfer to specific provision

(228)

(303)

(285)

-25%

-20%

General provision

Recoveries

32

35

26

-9%

23%

1,828

1,534

1,530

19%

19%

Balance at start of period

484

558

585

-13%

-17%

Acquisition of provisions

57

-

-

n/a

n/a

Total general provision
Specific provision

Adjustm ent for exchange rate fluctuations

(11)

(20)

(29)

-45%

-62%

Bad debts w ritten off

(339)

(357)

(283)

-5%

20%

Transfer from general provision

228

303

285

-25%

-20%

Total specific provision
Total provisions for doubtful debts

419

484

558

-13%

-25%

2,247

2,018

2,088

11%

8%

General Provision

$M
2,500
216

(196)

313

2,000

(39)

1,828

1,534
447

1,500

1,000

500

Sep 03

ELP Charge

Acquisition ofprovisions

Net Transfer to
ForeignSpecific Provision Exchange Impact

Mar 04APRA Guidelines
Minimum

As at
M ar 04

As at
Sep 03As at
M ar 03

M ovt
M ar 04
v. Sep 03%

M ovt
M ar 04v. M ar 03
%

$M

$M

$M

243

267

242

-9%

0%

68

9

16

large

large

D om estic Markets

311

276

258

13%

21%

O verseas m arkets

108

208

300

-48%

-64%

Specific provision balance
Australia
New Zealand

Total specific provision

419

484

558

-13%

-25%

General provision

1,828

1,534

1,530

19%

19%

Total provisions for doubtful debts

2,247

2,018

2,088

11%

8%

108

NOTES TO THE FINANCIAL STATEMENTS
11. Loan capital
Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
Movt
Movt
Mar 04
Mar 04year
Mar 03 v. Sep 03 v. Mar 03
$M
%
%

1,450

-

-

n/a

n/a

396

442

497

-10%

-20%

Subordinated notes

5,511

5,188

4,011

6%

37%

Total Loan Capital

7,357

5,630

4,508

31%

63%

Hybrid loan capital
US stapled trust security issue
Perpetual subordinated notes

1.

Loan capital is subordinated in right of payment to the claims of depositors and all other creditors of the parent entity and its controlled entities which have issued
the notes. Hybrid loan capital constitutes Tier 1 capital as defined by the Australian Prudential Regulation Authority for capital adequacy purposes.

US Stapled Trust Security Issue

On 27 November 2003, ANZ raised USD1.1 billion via the issue of non-cumulative trust securities, to support thecapital and funding base of the Group following the decision to acquire NBNZ. The issue was structured as a stapled
security along similar lines as ANZ StEPS, with investors purchasing a fully paid, non-coupon paying, preference shareissued by the parent and a fully paid, coupon paying, note issued by a special purpose NZ subsidiary (Samson
Funding Limited). The Trust Security can be de-stapled and the investor left with a coupon paying preference shareat ANZ’s discretion at any time, or at the investor’s discretion under certain circumstances. The issue was made in
two tranches:!

USD750 million tranche with a coupon of 5.36%. After 15 December 2013 and at any coupon date thereafter,
ANZ has the discretion to redeem the Trust Securities for cash. If it does not exercise this discretion, the investor
is entitled to require ANZ to exchange the Trust Security into a number of ordinary shares based on the formula in
the offering memorandum.

!

USD350 million tranche with a coupon of 4.484% which has the same conversion features as the USD750 million
but from 15 January 2010.

If the Trust Securities are not redeemed or bought back prior to 15 December 2053 they will convert into preference
shares, which in turn will mandatorily convert into a number of ordinary shares, based on the formula in the offering
memorandum.
The US Stapled Trust Securities qualify as Tier 1 capital as defined by the Australian Prudential Regulation Authority,
however, the Securities are reported as debt under Australian International and US Accounting Standards, with thecoupon payments classified as interest expense.

109

NOTES TO THE FINANCIAL STATEMENTS
12. Capital adequacy
Movt
Movt
Mar 04
Mar 04v. Sep 03 v. Mar 03
%
%
$M

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

Total shareholders' equity and outside equity interests

16,74813,787

12,48521%

34%

Hybrid loan capital1

1,450

-

-

n/a

n/a

Qualifying capital
Tier 1

Less:

Asset revaluation reserve

(31)

(31)

(31)

0%

0%

Dividend

(850)

(777)

(666)

9%

28%

Accumulated retained profits and reserves of insurance,
funds management and securitisation entities
Unamortised goodwill and other intangibles2
Investment in ANZ Lenders Mortgage Insurance
Tier 1 capital

(169)

(168)

(99)

1%

71%

(4,096)(1,044)

(151)

large

large

(27)

(27)

(27)

0%

0%

13,025

11,74011,511

11%

13%

Tier 2
Asset revaluation reserve

31

31

31

0%

0%

Perpetual subordinated notes

396

442

497

-10%

-20%

1,232

1,029

1,033

20%

19%

General provision for doubtful debts3

1,659

1,502

1,561

10%

6%

Subordinated notes4

5,198

4,563

3,482

14%

49%

Tier 2 capital

6,857

6,065

5,043

13%

36%

78

56

57

39%

37%
-55%

Deductions
Investment in Funds Management and securitisation entities
Investment in joint venture with INGA

708

708

1,591

0%

190

156

136

22%

40%

976
18,906920
16,885

1,784
14,770

6%
12%

-45%
28%

Tier 1 capital

13,025

11,74011,511

11%

13%

Less:

2,450

2,141

1,284

14%

91%

976
9,599

920
8,679

1,784
8,443

6%
11%

-45%
14%

7.0%

7.7%

7.7%

-9%

-9%

2

Other
Total deductions
Total qualifying capital
Adjusted common equity
Preference share capital5

Deductions
Adjusted common equity
Ratios (%)
Tier 1
Tier 2Less:

Deductions

Total
Adjusted common equity
Risk weighted assets
1.
2.
3.
4.
5.

3.7%

4.0%

3.4%

-8%

9%

10.7%

11.7%

11.1%

-9%

-4%
-56%

(0.5%)(0.6%)(1.2%)

-13%

10.2%

11.1%

9.9%

-8%

3%

5.2%
186,157

5.7%
152,1645.7%
148,603

-9%
22%

-9%
25%

Represents the US Stapled Trust Security Issue approved by APRA as qualifying for Tier 1 status. Refer Note 11
From 1 July 2003 the intangible component of investments is deducted from Tier 1 Capital, prior to this the deduction was from total capital
Net of 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

110NOTES TO THE FINANCIAL STATEMENTS
12. Capital adequacy (continued)
AssetsRisk Weighted Assets

Mar

Sept

Mar

Sept

2004

2003

2004

2003

$M

$M

$M

$M

Zero risk weighted assets

24,32819,81700Claims on approved banks and local governments

10,598

8,350

2,120

1,670

Statement of financial position

Advances secured by mortgages eligibile for 50% risk weighting

97,48876,711

48,74438,355

Other assets - credit risk
Total statement of financial position assets - credit risk

108,615

88,042

108,615

88,042241,029

192,920

159,479

128,067

6,259

2,671

n/a

n/a

247,288

195,591

159,479

128,067

Trading Assets - market risk
Total statement of financial position assets

Notional AmountOff-balance sheet exposures
Direct credit substitutes4

Credit Equivalent

Risk Weighted Assets

Mar

Sept

Mar

Sept

Mar

Sept

2004

2003

2004

2003

2004

2003

$M

$M

$M

$M

$M

$M

9,758

9,771

9,758

9,771

7,805

8,115

Trade and performance related items

10,286

10,782

4,533

4,864

4,186

4,502

Commitments
Foreign exchange, interest rate and other market
related transactions

73,18065,396

11,864

7,632

10,005

7,422

594,771516,773

12,064

11,469

3,813

3,387

Total off balance sheet exposures - credit risk

687,995

602,722

38,21933,73625,80923,426

185,288

151,493

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

%

869

671

186,157

152,164

Capital Adequacy Ratio

12

8

ACE
Target Range 4.75 – 5.25
From 1 December 2003

40
Sep 01Mar 02

Sep 02Total

Mar 03Tier 1

111

Sep 03

ACE

Mar 04NOTES TO THE FINANCIAL STATEMENTS
13. Share capital
Issued and quoted securities

NumberquotedIssue price Amount paid
per share up per share

Ordinary shares
As at 31 March 2004

1,808,248,107

Issued during half year
Rights Issue

276,847,766

Other

9,713,781

Preference shares
As at 31 March 2004
ANZ StEPS

10,000,000

$100

$100

Redeemed during half year TrUEPrS

124,032,000

US$6.25

US$6.25

Rights issue

In accordance with the Prospectus lodged with ASIC on 24 October 2003, ANZ issued 276,847,766 ordinary shares by
way of two for eleven rights issue at $13 per ordinary shares raising capital of $3,572 million (net of $27 million
expenses). The rights were closed on 24 November 2003 and the shares allotted on 28 November 2003 and4 December 2003.
ANZ Stapled Exchangeable Preference Shares (ANZ StEPS)

On 23 September 2003, the Group issued 10 million ANZ StEPS at $100 each raising $1 billion ($987 million net ofissue costs). ANZ StEPS comprise 2 fully paid securities - an interest paying unsecured note issued by ANZ Holdings(New Zealand) Limited, (a wholly owned subsidiary) stapled to a fully paid non-coupon paying preference shareissued by the parent entity.
ANZ TrUEPrS

On 12 December 2003, the Group bought back its 124,032,000 TrUEPrS preference shares that were issued at
US$6.25 per share in 1998. Income, expenses and dividends relating to the TrUEPrS transaction have been recorded
as significant transactions. Profit after tax related to the TrUEPrS transaction of $84 million included $77 million fromthe close out of interest rate swaps. Dividends of $35 million were paid in the March 2004 half year.

Half
y ear
Mar 04
$M

Half
y ear
Sep 03
$M

Half
y ear
Mar 03$M

Mov t
Mar 04v . Sep 03%

Mov t
Mar 04v . Mar 03
%

16.7%

17.5%

18.3%

-5%

-9%

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

112

NOTES TO THE FINANCIAL STATEMENTS
14. Average Balance Sheet and related interest
Averages used in the following tables are predominantly daily averages. Interest income figures are presented on a
tax-equivalent basis. Non-accrual loans are included under the interest earning asset category, “loans, advances andbills discounted”. Intragroup interest earning assets and interest bearing liabilities are treated as external assets andliabilities for the geographic segments.
Half year Average Balance Sheet
Half year Mar 04
Ave bal
Int
Rate
$M
$M
%

Half year Sep 03
Ave bal
Int
Rate
$M
$M
%

Half year Mar 03
Ave bal
Int
Rate
$M
$M
%

Interest earning assets
Due from other financial institutions
Australia

864

21

4.9%

364

9

4.9%

499

11

New Zealand

572

8

2.8%

514

10

3.9%

649

13

4.0%

1,980

20

2.0%

2,079

22

2.1%

2,013

25

2.5%

Overseas markets

4.6%

Investments in public securities
Australia

6,778

183

5.4%

6,648

152

4.5%

6,130

149

4.9%

New Zealand

3,133

67

4.3%

1,521

31

4.1%

1,763

42

4.7%

Overseas markets

2,889

46

3.2%

1,880

38

4.0%

1,861

40

4.3%

125,003

4,235

6.8%

114,466

3,755

6.5%

106,031

3,507

6.6%

42,845

1,614

7.5%

20,540790

7.7%

20,189

786

7.8%

9,642

213

4.4%

11,122

227

4.1%

13,310276

4.2%

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

1,034

68

13.2%

1,295

61

9.4%

1,922

46

4.8%

New Zealand

2,275

26

2.3%

1,451

60

8.2%

1,256

46

7.3%

Overseas markets

2,071

56

5.4%

3,261

60

3.7%

3,529

80

4.5%

11,059109

2.0%

10,710

102

1.9%

9,002

98

2.2%

210,145

6,666

175,851

5,317

168,154

5,119

Intragroup assets
Overseas markets
Intragroup elimination(11,059)(109)

199,086

6,557

6.6%

(10,710)(102)

165,141

5,215

6.3%

(9,002)(98)

159,152

5,021

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

13,635

13,23148

61

13,577
115

1,460

1,435

1,436

17,936

16,322

15,239(1,782)(1,869)(1,806)

(408)

(215)

(207)

(75)

(8)

(143)

30,814229,900

28,957
194,098

28,211
187,363

Provisions for doubtful debts
Australia
New ZealandOverseas markets
Total assets

113

6.3%

NOTES TO THE FINANCIAL STATEMENTS
14. Average Balance Sheet and related interest (continued)
Half year Mar 04
Ave bal
Int
Rate
$M
$M
%
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
New ZealandOverseas markets
Borrowing corporations' debt
Australia
New Zealand
Loan capital, bonds and notes
Australia
New ZealandOverseas markets
Other liabilities1
Australia
New ZealandOverseas markets
Intragroup liabilities
Australia
New Zealand
Intragroup elimination

Half year Sep 03
Ave bal
Int
Rate
$M
$M
%

Half year Mar 03
Ave bal
Int
Rate
$M
$M
%

29,003
18,94012,967

732
508
129

5.0%
5.4%
2.0%

26,047
10,451

599
272

4.6%
5.2%

24,291
10,881

567
298

4.7%
5.5%

14,401156

2.2%

15,077180

2.4%

12,782
5,788
381

165
88
1

2.6%
3.0%
0.5%

12,120
3,257
344

148
39
-

2.4%
2.4%
0.0%

11,797
3,313
466

131
40
3

2.2%
2.4%
1.2%

29,356
5,586
634

566
105
2

3.9%
3.8%
0.6%

26,846
2,146
624

486
50
4

3.6%
4.6%
1.3%

26,591
2,070
660

476
49
4

3.6%
4.7%
1.3%

1,379
792
3,984

38
15
45

5.5%
3.8%
2.3%

889
656
5,877

25
12
47

5.6%
3.6%
1.6%

1,027
606
7,018

24
12
64

4.6%
3.8%
1.8%

4,924
5,783
6,579

132
154
35

5.4%
5.3%
1.1%

5,328
-

127
-

4.7%
0.0%

5,104
-

125
-

4.9%
0.0%

6,117

34

1.1%

3,355

24

1.4%

7,036
1,871

186
52

5.3%
5.6%

6,690
1,820

175
53

5.2%
5.8%

6,561
1,828

178
55

5.4%
6.0%

27,189
991
149

698
31
1

5.1%
6.3%
1.3%

21,198
588
172

544
21
1

5.1%
7.1%
1.2%

18,359
453
196

466
17
2

5.1%
7.4%
2.1%

3,752
433
111

285
43
24

n/a
n/a
n/a

3,077

176

n/a

2,346

100

n/a

90
63

55
8

n/a
n/a

103
4

42
15

n/a
n/a

6,492
4,567
191,469(11,059)
180,410

4
105
4,144
(109)
4,035

0.1%
4.6%

8,855
1,855

72
30

1.6%
3.2%

6,993
2,009

62
36

1.8%
3.6%

4.5%

159,511(10,710)
148,801

3,134
(102)
3,032

4.1%

151,108(9,002)
142,106

2,970
(98)
2,872

4.0%

Non-interest bearing liabilities
Deposits
Australia
New ZealandOverseas markets
Acceptances
Australia
Overseas markets
Other liabilities

Total liabilities
1.

4,006
2,141
826

3,727
1,211
677

3,585
1,107
689

13,63548
13,39834,054
214,464

13,231
61
14,03032,937
181,738

13,577
115
14,19833,271
175,377

Includes foreign exchange swap costs

114

NOTES TO THE FINANCIAL STATEMENTS
14. Average Balance Sheet and related interest (continued)
H alf
year
M ar 0 4
$M

H alf
year
S ep 0 3$M

H a lfyea r
M a r 03$M

T otal a verag e a ssets
Australia

15 7 ,0 4 8147,102137,678

New Zealand

5 4 ,0 8 925,33825,327O verseas m arkets

2 9 ,8 2 232,36833,360(11 ,0 59 )(10,710)(9,002)22 9 ,9 0 0

194,098

187,363

3 1 .7 %

24.2%

26.5%

less intragroup elim ination% of total average assets attributable
to overseas activities
T otal a verag e liabilities
Australia

1 47 ,8 97

138,899

129,825

New Zealand

51 ,2 16

24,00624,136O verseas m arkets

26 ,4 1029,54330,418(11 ,0 59 )(10,710)(9,002)

2 14 ,4 64

181,738

175,377

O rdinary share capital

13 ,9 66

11,096

10,761

Preference share capital

1 ,47 0

1,264

1,225

15 ,4 36

12,36011,986

2 29 ,9 00

194,098

187,363

3 4 .1 %

28.4%

30.0%

less intragroup elim ination
T otal a verag e sha reh olders' eq uity

T otal a verag e liabilities an d
sh areh old ers' equ ity% of total average liabilities attributable
to overseas activities
A verag e in terest earnin g assets
Australia

1 33 ,6 79

122,773

114,581

New Zealand

48 ,8 25

24,02623,857O verseas m arkets

27 ,6 41

29,052

29,716less intragroup elim ination

115(11 ,0 59 )(10,710)(9,002)

1 99 ,0 86

165,141

159,152

NOTES TO THE FINANCIAL STATEMENTS
15. Interest spreads and net interest average margins
Intragroup interest earning assets and interest bearing liabilities are treated as external assets and liabilities for thegeographic segments.
Half
year
Mar 04%

Halfyear
Sep 03%Halfyear
Mar 03%Australia

6.74

6.46

6.50

New Zealand

7.03

7.40

7.45

Gross earnings rate1

Overseas markets

3.21

3.09

3.50

Total Group

6.59

6.30

6.33

Gross interest spread

2.16

2.26

2.38

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

2.14

2.24

2.36

Interest attributable to net non-interest bearing items

0.40

0.40

0.41

Net interest average margin - Australia

2.54

2.64

2.77

Gross interest spread

2.12

2.33

2.28

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

2.11

2.33

2.28

Interest attributable to net non-interest bearing items

0.41

0.66

0.56

Net interest average margin - New Zealand

2.52

2.99

2.84

Gross interest spread

1.36

1.37

1.35

Interest forgone on impaired assets(0.05)(0.09)(0.04)Net interest spread

1.31

1.28

1.31

Interest attributable to net non-interest bearing items

0.19

0.09

0.22

Net interest average margin - Overseas markets

1.50

1.37

1.53

Gross interest spread

2.14

2.27

2.29

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

2.11

2.24

2.27

Interest attributable to net non-interest bearing items

0.42

0.40

0.44

Net interest average margin

2.53

2.64

2.71

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

116

NOTES TO THE FINANCIAL STATEMENTS
16. Segment analysis
The following analysis shows segment revenue, total assets and result for each business segment1.
Industry
Halfyear
Mar 04$M

Income1

Halfyear
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

Personal Banking Australia

1,346

1,346

1,092

0%

23%

Mortgages Australia

2,308

1,991

1,816

16%

27%

Consumer Finance

591

564

487

5%

21%

Institutional Financial Services

2,049

2,059

1,924

0%

6%

New Zealand Business

1,525

582

595

large

large

Corporate Australia

617

558

533

11%

16%

Esanda and UDC

567

551

540

3%

5%

Asia Pacific

204

207

219

-1%

-7%

Treasury

1,010

608

731

66%

38%

53

46

45

15%

18%

Group Centre

98

69

151

42%

-35%

Income from significant transactions2

112

-

-

n/a

n/a

(2,254)(1,922)(1,769)

17%

27%

8,226

6,659

6,364

24%

29%

Personal Banking Australia

220

204

195

8%

13%

Mortgages Australia

111

119

111

-7%

0%

Consumer Finance

104

95

48

9%

large

Institutional Financial Services

381

388

385

-2%

-1%

New Zealand Business

228

86

92

large

large

Corporate Australia

146

139

130

5%

12%

Esanda and UDC

69

67

62

3%

11%

Asia Pacific

64

65

68

-2%

-6%

ING Australia

47

43

39

9%

21%

Treasury

45

46

49

-2%

-8%

Group Centre

(103)

(45)

(38)

large

large

Net profit (excl significant transactions2)

1,312

1,207

1,141

9%

15%

84

-

-

n/a

n/a

1,396

1,207

1,141

16%

22%

ING Australia

Intragroup Eliminations
Net profit after income tax3

Significant transactions2
Total assets
Personal Banking Australia

7,395

6,696

6,231

10%

19%

Mortgages Australia

74,85268,001

61,33510%22%

Consumer Finance

6,173

6,135

5,930

1%

4%

Institutional Financial Services

54,80756,56859,450-3%-8%

New Zealand Business

53,37813,81013,957

large

large

Corporate Australia

17,82316,085

14,88511%

20%

Esanda and UDC

13,93813,46013,0694%

7%

Asia Pacific

1,986

1,910

1,943

4%

2%

ING Australia

1,790

1,736

1,696

3%

6%

Treasury

9,923

9,085

9,827

9%

1%

Group Centre

5,223

2,105

2,195

large

large

247,288

195,591

190,518

26%

30%

1.
2.
3.

Refer definitions on page 132
Refer Note 1
Equity standardised including intersegment income

Further information on business segments and Group Centre is shown on pages 19 to 58 of the Consolidated Resultsand Dividend Announcement.

117

NOTES TO THE FINANCIAL STATEMENTS
16. Segment analysis (continued)
Reconciliation of Cost to Income

Management believes that excluding goodwill amortisation from operating expenses in the operating expense tooperating income ratio provides a better indication of the operating efficiency of the Group.
The amount of goodwill amortisation excluded from the calculation, and the reduction in the operating expense tooperating income ratio as a result of excluding goodwill amortisation is shown in the tables below.
Operating expense to operating income ratio
Half
year
Mar 04%

Halfyear
Sep 03%Halfyear
Mar 03%Australia

43.2%

44.3%

46.1%

New Zealand

48.4%

47.8%

48.2%

Asia

38.8%

40.7%

39.4%

Pacific

45.9%

46.2%

50.5%

43.9%

44.6%

45.6%

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Australia

44

4

New Zealand

58

3

3

-

1

1

Pacific1

1

1

Group Total

63

9

9

Geographic segment

1

Group Total
1.

Includes significant transactions (refer Note 1)

Goodwill Amortisation excluded from operating expense to operating income ratio

Geographic segment

Asia

Reduction in operating expenses to operating income ratio as a result of excluding Goodwill amortisation
Half
year
Mar 04%

Halfyear
Sep 03%Halfyear
Mar 03%Australia

0.1%

0.1%

0.2%

New Zealand

6.5%

0.6%

0.6%

Asia

0.0%

0.7%

0.7%

Pacific

0.9%

0.9%

0.9%

Group Total

1.5%

0.2%

0.3%

Geographic segment

The results of INGA also include $22 million notional goodwill amortisation (Sep 2003: $22 million; Mar 2003:$22 million) in the derivation of the equity accounted income amount. This notional goodwill has not been excluded
from income in calculating the ratio of operating expenses to operating income.

118

NOTES TO THE FINANCIAL STATEMENTS
17. Derivative financial instruments
Derivatives

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments orindices. They include swaps, forward rate agreements, futures, options and combinations of these instruments. The
use of derivatives and their sale to customers as risk management products is an integral part of the Group’s trading
activities. Derivatives are also used to manage the Group’s own exposure to fluctuations in exchange and interest
rates as part of its asset and liability management activities. Derivatives are subject to the same types of credit andmarket risk as other financial instruments, and the Group manages these risks in a consistent manner.
The following table provides an overview of the Group’s exchange rate and interest rate derivatives. It includes all
contracts, both trading and other than trading.
31 March 2004
Notional

CreditPrincipal

Equivalent

Amount$M

30 September 2003
Notional

CreditFair

Principal

Equivalent

Fair

AmountValue

AmountAmount

Value

$M

$M

$M

$M

$M

Foreign exchange and commodities contracts
Spot and forward contracts

168,043

4,716(1,294)

144,687

3,717

(683)

Swap agreements

38,6442,386

188

42,528

3,124

(121)

Futures contracts1

467

n/a

-

353

n/a

-

Options purchased

18,278545

316

10,971

433

395

Options sold2

26,725n/a(389)

15,889n/a(451)

Other contracts

2,712

291

45

3,818

408

112

254,869

7,938(1,134)

218,246

7,682

(748)

Interest rate agreements
Forward rate agreements

49,8265

247,617

10

11

Swap agreements

281,279

3,613

412

236,083

3,232

487

Futures contracts1

18,173n/a(13)

13,458n/a

3

Options purchased

12,733122

74

11,961

117

61

Options sold2

13,447n/a(43)

13,987n/a(23)

375,458

3,740

432

323,106

3,359

539

7,379

2,545

39

8,520

2,836

73

637,706

14,223(663)

549,872

13,877(136)

Credit contracts
Credit default swaps3

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
Credit default swaps include structured transactions that expose the Group to the performance of certain assets. The total investment of the Group in thesetransactions is USD 750 million

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

119

NOTES TO THE FINANCIAL STATEMENTS
17. 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 isbased on historical market movements. The confidence level is such that there is 97.5% or 99% probability that theloss will not exceed the Value at Risk estimate on any given day. The 99% confidence level encompasses a wider
range of potential outcomes.
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 at 97.5% and 99% confidence levels covering both physical and derivatives
trading positions for the Bank’s principal trading centres. Figures are converted from USD at closing exchange rates.

97.5% confidence level 1 day holding period
As at
Mar 04$M

High for
periodMar 04$M

Low forperiodMar 04$M

Ave forperiodMar 04$M

As at
Sep 03$M

High for
period
Sep 03$M

Low forperiod
Sep 03$M

Ave forperiod
Sep 03$M

Value at risk at 97.5% confidence
Foreign exchange

0.9

1.9

0.3

0.7

1.4

2.0

0.3

0.8

Interest rate

0.7

2.1

0.7

1.2

1.1

2.1

0.5

1.0

Diversification benefit

(0.3)

(1.5)

(0.2)

(0.5)

(0.8)

(1.5)

(0.1)

(0.5)

1.3

2.5

0.8

1.4

1.7

2.6

0.7

1.3

High for
periodMar 04$M

Low forperiodMar 04$M

Ave forperiodMar 04$M

As at
Sep 03High for
period
Sep 03$M

Low forperiod
Sep 03$M

Ave forperiod
Sep 03$M

Total VaR

99% confidence level 1 day holding period
As at
Mar 04$M$M

Value at risk at 99% confidence
Foreign exchange

1.2

2.8

0.4

0.9

1.6

3.2

0.5

1.3

Interest rate

0.9

2.6

0.9

1.6

1.4

3.0

0.9

1.7

Diversification benefit

(0.4)

(2.0)

(0.3)

(0.6)

(0.8)

(2.6)

(0.4)

(0.9)

1.7

3.4

1.0

1.9

2.2

3.6

1.0

2.1

Total VaR

120

NOTES TO THE FINANCIAL STATEMENTS
17. Derivative financial instruments (continued)
Hedging

In addition to customer and trading activities, the Group uses, inter alia, derivatives to manage the risk associatedwith its balance sheet and future revenue streams. Revenue related hedges are listed in a separate table below.
The table below shows the notional principal amount, credit equivalent amount and fair value of derivatives held by
the Group, split between those entered into for customer-related and trading purposes and those entered into forother than trading purposes.
31 March 2004

30 September 2003

Notional

CreditNotional

CreditPrincipal

Equivalent

Fair

Principal

Equivalent

Fair

AmountAmountValue

AmountAmount

Value

$M

$M

$M

$M

$M

$M

Customer-related and trading purposes

199,822

5,178

1,611

179,609

5,795

1,019

Balance sheet hedging purposes

53,831

2,662(2,831)37,3601,784(1,857)

Revenue related hedging

1,216

98

86

1,277

103

90

254,869

7,938(1,134)

218,246

7,682

(748)

Customer-related and trading purposes

291,552

3,087

249

268,930

2,931

365

Balance sheet hedging purposes

83,906653

183

54,176428

174

375,458

3,740

432

323,106

3,359

539

External
Foreign exchange and commodities contracts

Interest rate contracts

Credit derivatives
Customer-related and trading purposes

4,616

386

(4)

5,298

427

(1)

Balance sheet hedging purposes

2,763

2,159

43

3,222

2,409

74

Total

7,379

2,545

39

8,520

2,836

73

637,706

14,223(663)

549,872

13,877(136)

Revenue related hedges

The table below shows all outstanding revenue hedges, interest income earned and fair value of these hedges.
During the half year ended March 2004, an additional NZD0.3 billion hedges of NZD revenue were put in place to lockin historically high NZD exchange rates (Sep 2003: nil; Mar 2003: $1.6 billion). There were no new USD or GBP
revenue hedges put in place in the March 2004 half (Sep: 2003: nil; Mar 2003: nil).
31 March 2004
Notional
Half year
Principal amount taken to
AmountIncomeUSD & GBP Revenue Hedges

Unrealised
Gains/(Losses)

30 September 2003
Notional
Half year
Unrealised
Principal amount taken to
Gains/(Losses)
AmountIncome

$M

$M

$M

$M

$M

$M

78

15

35

151

12

37

NZD Revenue Hedges

1,138

14

51

1,126

8

53

Total

1,216

29

86

1,277

20

90

121

NOTES TO THE FINANCIAL STATEMENTS
18. Contingent liabilities and contingent assets
GeneralThere are outstanding court proceedings, claims and possible claims against the Group, the aggregate amount of
which cannot readily be quantified. Appropriate legal advice has been obtained and, in the light of such advice,provisions as deemed necessary have been made.
Sale of Grindlays businesses

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 (the Grindlays
businesses), to Standard Chartered Bank (SCB), ANZ provided warranties relating to those businesses. Where it isanticipated that payments are likely under these warranties, provisions have been made to cover the anticipatedliability.
In addition, ANZ provided SCB and/or Grindlays with certain indemnities. Those indemnities under which ANZ remain
exposed as at 31 March 2004 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 the extent towhich such liabilities have not been provided for in the Grindlays accounts as at 31 July 2000.

Claims have been made under the above indemnities and also in relation to certain warranties made by ANZ at thetime of sale. At present the Group is confident that they will have no material impact on the Group.
The Indian Indemnity requires ANZ to pay SCB for losses that Grindlays incurs as a result of certain claims that havebeen 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 made or paid by Grindlays without
the prior agreement of ANZ. ANZ will continue to manage these matters in the best interests of the shareholders
taking into account its legal obligations.
ANZ remains liable for certain claims under the Indian Indemnity, including in relation to the following two mattersthat 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 theattention 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 June 2003, Grindlays was successful in its appeal against orders to repay, with interest, two payments it
received from a stockbroker in 1991 in connection with securities transactions. These orders, had directed
repayment of Indian Rupees 24 million (AUD 0.7 million at 31 March 2004 rates), plus interest accruing at 24%
since 1991. Proceedings, commenced prior to the decision in above appeal, in relation to a further twelve
payments received by it in 1991 in similar circumstances totalling Indian Rupees 277 million (AUD 8.3 million at
31 March 2004 rates) have not been pursued since the appeal was successful in June 2003.

Contingent tax liability

ANZ in Australia is being audited by the Australian Taxation Office (ATO) as part of normal ATO procedures. The
Group has received various assessments that are being disputed and may receive further assessments.
At ANZ’s request the ATO is reviewing the taxation treatment of the Sale of Grindlays in 2000. ANZ’s profit after tax
from this transaction was $404 million.
ANZ and the ATO have reached agreement to settle the dispute over the taxation treatment of lease assignments
undertaken in 1991 and 1992. The settlement is within existing provisions.
The ANZ and NBNZ Groups in New Zealand are being audited by local revenue authorities as part of normal revenue
authority procedures, with a particular focus on structured finance transactions. No tax assessments have been
issued.
Based on external advice, ANZ has assessed the likely progress of these issues, and believes that it holds appropriate
provisions.

122

NOTES TO THE FINANCIAL STATEMENTS
18. Contingent liabilities and contingent assets (continued)
Interbank Deposit Agreement

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

In accordance with the clearing and settlement arrangements set out in the Australian Payments Clearing Association
Limited (APCA) Regulations for the Australian Paper Clearing System, the Bulk Electronic Clearing System and theHigh Value Clearing System (HVCS) and in the Austraclear System Regulations, the Company has a commitment toparticipate in loss-sharing arrangements in the event of a failure to settle by a member institution.
For both the APCA HVCS and Austraclear, the obligation arises only in limited circumstances.
Contingent Asset matters

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

123

NOTES TO THE FINANCIAL STATEMENTS
19. Note to the Statement of Cash Flows(a) Reconciliation of profit after income tax to net cash provided by operating activities
Half
Half
Half
year
year
year
Mar 04
Sep 03Mar 03
Inflows
Inflows
Inflows(Outflows) (Outflows) (Outflows)
$M
$M
$M

Profit after income tax

1,396

1,207

1,141

Provision for doubtful debts

313

311

303

Depreciation and amortisation

211

137

128

Adjustments to reconcile to net cash
provided by operating activities

Expense provisions

208

113

106

Payments from provisions

(150)

(108)

(241)

-

(12)

1

Provision for surplus lease space(Profit) loss on property disposals

(10)

5

-

Decrease (increase) in interest receivable

(245)

(133)

(56)

(Decrease) increase in interest payable

304

71

109

(Increase) decrease in trading securities

(556)

974

695

(Increase) decrease in net tax assets

545

92

(478)

Unrealised (gain) loss on revaluation of treasury instruments

(430)

216

46

Other

(45)

(60)

52

1,541

2,813

1,806

Liquid assets - less than 3 months

5,260

5,508

4,863

Due from other financial institutions - less than 3 months

3,194

1,807

2,710

8,454

7,315

7,573

65

57

58

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

124

NOTES TO THE FINANCIAL STATEMENTS
19. Note to the Statement of Cash Flows (continued)(b) Acquisition of National Bank of New Zealand

Half
year
Mar 04$M
Consideration paid
C ash paid at 1 December 2003

4,910

Foreign exchange movement(77)

C onsideration including acquisition costs at 31 March 2004 rates

4,833

Fair value of net assets acquired
AssetsLiquid assets

1,618

Trading securities

1,626

Investment securities

210

Net loans and advances

31,782Other assets

1,692

Premises and equipment

158

Total assets

37,086

Liabilities
Deposits and borrowings

32,363

Provisions

107

C reditor and other liabilities

2,414

Loan capital

480

Total liabilities

35,364

Net assets acquired at fair value

1,722

Goodwill on acquisition

3,111

C ash paid

4,910

C ash acquired

1,618

Cash outflow on acquisition

3,292

125

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

On 1 December 2003, the Company acquired NBNZ Holdings Ltd and its controlled entities. The contribution of these
entities to the Group’s profit after tax during the 4 months to 31 March 2004 was $136 million. The results of NBNZ
Holdings Limited and its controlled entities, for the 6 months ended 31 March 2004, included fair value adjustments
on acquisition. These adjustments of $196 million impact the results of the NBNZ group, however on consolidation
into ANZ the fair value adjustments impact the balance sheet. For the NBNZ group, loss after tax for the 6 months to
31 March 2004 was $38 million (including fair value adjustment of $196 million) compared to $236 million profit after
tax for the September 2003 half year and $239 million profit after tax in the March 2003 half year.
Disposal of controlled entities

There were no material controlled entities disposed of during the half year to 31 March 2004.

21. Associates, joint venture entities and investments
Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03
$M

67
67

64
64

42
42

Aggregate associates and joint venture entities
Operating profit
Profit after income tax

Material contributions to profit
Contribution toGroup pre-tax profit

Ownership interest
held by Group

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

As at
Mar 04As at
Sep 032

As at
Mar 032

%

%

%

25
1

26
-

29
(6)

29
35

11
35

11
35

40

36

19

49

49

49

Associates
PT Panin Indonesia Bank
E*Trade1
Joint Ventures
ING Australia Limited3
1.
2.
3.

The value of the investment in E*Trade was written down by $6 million in the March 2003 half year
In addition the Group held options over a further 18% of PT Panin
After charging notional goodwill of $22 million per half126

NOTES TO THE FINANCIAL STATEMENTS
22. 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 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03
%

1,396

1,207

1,141

16%

22%

(46)

-

(21)

n/a

large

1

1

1

0%

0%

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

4

1

1

large

large

Deferred profit on sale and leaseback transactions

(1)

(4)

-

-75%

n/a

Amortisation of sale and leaseback gain over lease term

13

13

12

0%

8%

Amortisation of goodwill

85

31

31

large

large

Pension expense adjustment

(5)

(3)

5

67%

n/a

(118)

(75)

28

57%

n/a

Interest on reclassified preference shares & amortisation of costs

(30)

(1)

-

large

n/a

Guarantee fee obligation

(11)

-

n/a

n/a

Pension plan deficit amortisation

(5)

-

n/a

n/a

Acquisition cost of NBNZ purchase adjustment

(37)

-

-

n/a

n/a

Taxation on the above adjustments

42

23

(11)

83%

n/a

1,288

1,193

1,187

8%

9%

(254)

(307)

(49)

-17%

large

5

(6)

4

large

25%

(3)

42

34

large

n/a

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

Net income according to US GAAP-

Other comprehensive income
Currency translation adjustments, net of hedges after tax. Tax is:(HY Mar 2004:$21; HY Sep 2003:$25; HY Mar 2003:$29)
Unrealised profit(loss) on available for sale securities net of tax. Tax is:(HY Mar 04:$2; HY Sep 2003:-$2; HY Mar 2003:$2m)
Mark to market of cash flow hedges net of tax. Tax is: (HY Mar 2004:-$1;
HY Sep 2003:$18; HY Mar 2003:$15m)
Pension plan deficit net of tax. Tax is: (HY Mar 2004:$1; HY Sep 2003:-$42)
Total comprehensive income according to US GAAP

127

3

(99)

-

large

n/a

1,039

823

1,176

26%

-12%

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

Shareholders' equity according to Australian GAAP
Elimination of gross asset revaluation reserves

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

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03
%

$M

$M

16,731

13,77012,468

22%

34%

(234)

(247)

(256)

-5%

-9%

Unrealised profit on available for sale securities

7

1

7

large

0%

Adjustment to accumulated depreciation on buildings revalued

51

50

49

2%

4%

Restoration of previously deducted goodwill

695

695

695

0%

0%

Accumulated amortisation and impairment

(367)

(452)

(483)

-19%

-24%

Deferred profit on sale and leaseback transactions

(14)

(17)

(17)

-18%

-18%

Pension expense adjustment

(19)

(14)

130

36%

large

Derivative and hedging activities

143

309

324

-54%

-56%

Adjustment on entering joint venture

(203)

(203)

(203)

0%

0%

Reclassification of equity

(988)

(988)

-

0%

n/a

Guarantee fee obligation

(8)

-

-

n/a

n/a

Acquisition Cost of NBNZ purchase adjustment

(37)

-

-

n/a

n/a

Taxation on the above adjustments

(32)

(84)

(131)

-62%

-76%

15,725

12,82012,583

23%

25%

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

$M

$M

$M

Movt
Mar 04v. Sep 03%

Movt
Mar 04v. Mar 03%

Total assets according to Australian GAAP

247,288

195,591

190,518

26%

30%

Elimination of gross asset revaluation reserves

(198)

(203)

(204)

-2%

-3%

Unrealised profit on available for sale securities

9

2

10

large

-10%

Shareholders' equity according to US GAAP

Adjustment to accumulated depreciation on buildings revalued

51

50

49

2%

4%

Restoration of previously deducted goodwill

695

695

695

0%

0%

Accumulated amortisation and impairment

(367)

(452)

(483)

-19%

-24%

60

66

67

-9%

-10%

(708)

(726)

(611)

-2%

16%

Revaluation of hedges (under SFAS 133)

409

397

620

3%

-34%

Issue costs

12

13

-

-8%

n/a

Adjustment to carrying value of ING joint venture

(203)

(203)

(203)

0%

0%

Consolidation of Variable Interest Entities

2,297

-

-

n/a

n/a

3

-

-

n/a

n/a

Prepaid pension adjustment
Reclassification of deferred tax assets against deferred
tax liabilities

Guarantee Receivable
NBNZ Goodwill due to Acquisition Cost adjustment
Total assets according to US GAAP

128

(37)

-

-

n/a

n/a

249,311

195,230

190,458

28%

31%

NOTES TO THE FINANCIAL STATEMENTS
23. 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 Av erage

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

Great British pound

0.4137

United States dollar

0.7585

New Zealand dollar

1.1467

$M

Half
year
Mar 04
$M

Half
year
Sep 03
$M

Half
year
Mar 03$M

0.40700.38280.41790.40190.36240.67950.60350.74030.64910.5756

1.14311.09041.14011.1252

1.1025

24. Significant events since balance date
There have been no significant events from 31 March 2004 to the date of this report.

129

DIRECTORS’ DECLARATION

The directors of Australia and New Zealand Banking Group Limited declare that the financial statements and notes of
the consolidated entity set out on pages 82 to 129 are in accordance with the Corporations Act 2001, and(a) that they comply with AASB Standards including AASB 1029 “Interim Financial Reporting”, other AASB
authoritative pronouncements, Urgent Issues Group Consensus Views, and other mandatory reporting
requirements; and(b) that they give a true and fair view of the financial position of the consolidated entity as at 31 March 2004 and ofits performance as represented by the results of its operations and its cash flows, for the half year ended on that
date; and(c) in the directors’ opinion at the date of this declaration there are reasonable grounds to believe that the Company
will be able to pay its debts as and when they become due and payable.
Signed in accordance with a resolution of the directors.

Charles Goode
ChairmanJohn McFarlane
Chief Executive Officer

26 April 2004

130

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 (“the Company”) for thehalf year ended 31 March 2004, 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 82 to 130. The financial report includes theconsolidated 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 thefinancial 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 Australian Accounting Standard AASB 1029 “Interim Financial Reporting” andother mandatory financial 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 the financial
report with the Australian Securities and Investments Commission.
Our review has been conducted in accordance with Australian Auditing Standards applicable to review engagements.
A 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 required in an audit, thus the level of assurance is less thangiven 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 believe that thehalf-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 2004 and of its
performance for the half-year ended on that date; and(ii) complying with Australian Accounting Standard AASB 1029 “Interim Financial Reporting” and the
Corporations Regulations 2001; and(b) other mandatory professional reporting requirements in Australia.

KPMG
Melbourne

Chris Hall
Partner

26 April 2004

131

DEFINITIONS
Adjusted common equity is Tier 1 capital less preference shares at current rates and deductions from total capital.
Corporate business comprises the following specialist business units; Institutional Financial Services and Corporate
Banking.
Economic loss provisioning (ELP) charge is determined based on the expected average annual loss of principal over the
economic cycle for the current risk profile of the lending portfolio.
Equity standardisation Economic Value Added (EVA) principles are in use throughout the Group, whereby risk adjusted
capital is allocated and charged against business units. Equity standardised profit is determined by eliminating the impact ofearnings on each business unit's book capital and attributing earnings on the business unit’s risk adjusted capital. Thisenhances comparability of business unit performance. The results of the National Bank of New Zealand have not been equity
standardised. Geographic results are not equity standardised.
Impaired assets are loans or other credit facilities where there is reasonable doubt about the collectability of interest, fees
(past and future) or principal outstanding, or where concessional terms have been provided because of the financial
difficulties of the customer.
Income includes external interest income, other external operating income, and if positive, net inter business unit fee andnet intersegment interest income.
Net advances include gross loans and advances and acceptances less income yet to mature and provisions (for both as at
and average volumes).
Net interest average margin is net interest income as a percentage of average interest earning assets. Non-assessableinterest income is grossed up to the equivalent before tax amount for the purpose of these calculations.
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 purposeof these calculations.
Net non-interest bearing items, referred to in the analysis of interest spread and net interest average margin, includes
shareholders’ equity, provisions for doubtful debts, and deposits not bearing interest and other liabilities 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.
Service Transfer Pricing is used to allocate services that are provided by central areas to each of its business units. The
objective of service transfer pricing is to remove cross-subsidies between business units, and ensure each 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, tothe extent possible, reflected in prior period comparatives to assist comparability. NBNZ has not yet adopted full transfer
pricing.
The profit and loss statement of each business unit includes net inter business unit fees and net inter business unit expenses.
This treatment is consistent with the Group’s strategy of managing along specialist business lines. Net inter business unit
fees includes intra-group receipts or payments for sales commissions. A product business (for example, Mortgages) will pay
a distribution channel (for example, Personal Banking) for product sales. 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 of services provided include technology and payments, risk management, finance and humanresources management. Both payments by business units and receipts by service providers are shown as net inter business
unit expenses.
The results of segments may include business units and a support unit. The services provided by the support unit areallocated to the business units. As a result of this allocation, the sum of individual profit and loss line items of the business
units may not equal the corresponding line item in the profit and loss statement of the segment.
Return on asset ratios include net intra group assets which are risk weighted at 0% for return on risk weighted assets
calculations.
Revenue in business segments includes equity standardised net interest, other operating income and net inter business
unit fees.
Total advances include gross loans and advances and acceptances less income yet to mature (for both as at and averagevolumes).
Unproductive facilities comprise facilities (such as standby letters of credit, bill endorsements, documentary letters ofcredit, guarantees to third parties, undrawn facilities to which the Group is irrevocably committed and market related
exposures) where the customer status is non-accrual.

132

ALPHABETICAL INDEX
Page
Accounting policies and significant transactions..................................................................................... 86
Associates, joint venture entities and investments ............................................................................... 126
Auditors’ Review report ................................................................................................................... 131
Average Balance Sheet and related interest........................................................................................ 113
Business Performance Review............................................................................................................. 19
Capital adequacy ............................................................................................................................ 110
Changes in the composition of the Group ........................................................................................... 126
Chief Financial Officer’s Review............................................................................................................. 7
Contingent liabilities and contingent assets......................................................................................... 122
Consolidated Statement of Cash Flows................................................................................................. 85
Consolidated Statement of Financial Performance .................................................................................. 82
Consolidated Statement of Financial Position ........................................................................................ 83
Country Exposures............................................................................................................................ 74
Definitions ..................................................................................................................................... 132
Derivative Financial Instruments ....................................................................................................... 119
Directors’ Declaration ...................................................................................................................... 130
Directors’ Report .............................................................................................................................. 81
Dividends ........................................................................................................................................ 95
Earnings per ordinary share ............................................................................................................... 96
Exchange rates .............................................................................................................................. 129
Financial Highlights ............................................................................................................................. 2
Four Year Summary by Half Year ........................................................................................................ 77
Geographic Segment Performance ...................................................................................................... 59
Highlights.......................................................................................................................................... 1
Impaired assets ............................................................................................................................. 102
Income ........................................................................................................................................... 89
Income tax expense.......................................................................................................................... 94
Interest spreads and net interest average margins .............................................................................. 116
Investment securities........................................................................................................................ 99
Loan capital ................................................................................................................................... 109
Net loans and advances ..................................................................................................................... 99
Notes to the Statement of Cash Flows ............................................................................................... 124
Operating expenses .......................................................................................................................... 92
Provisions for doubtful debts ............................................................................................................ 108
Risk Management ............................................................................................................................. 67
Segment Analysis ........................................................................................................................... 117
Share capital ................................................................................................................................. 112
Significant events since balance date................................................................................................. 129
Statement of Changes in Equity .......................................................................................................... 84
US GAAP reconciliation .................................................................................................................... 127

133