AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

THE COMPANY
2020 Financial Report
30 September 2020

1

FINANCIAL STATEMENTS
Income Statement
Statement of Comprehensive Income
Balance Sheet
Cash Flow Statement
Statement of Changes in Equity

3
4
5
6
7

NOTES TO THE FINANCIAL STATEMENTS
1 About the Financial Statements
2 Operating Income
3 Operating Expenses
4 Income Tax
5 Dividends
6 Segment Reporting
7 Cash and Cash Equivalents
8 Trading Securities
9 Derivative Financial Instruments
10 Investment Securities
11 Net Loans and Advances
12 Allowance for Expected Credit Losses
13 Deposits and Other Borrowings
14 Debt Issuances
15 Financial Risk Management
16 Fair Value of Financial Assets and Financial Liabilities
17 Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets
18 Offsetting
19 Goodwill and Other Intangible Assets
20 Other Provisions
21 Shareholders’ Equity
22 Capital Management
23 Shares in Controlled Entities
24 Transfers of Financial Assets
25 Superannuation and Post Employment Benefit Obligations
26 Employee Share and Option Plans
27 Related Party Disclosures
28 Commitments, Contingent Liabilities and Contingent Assets
29 Auditor Fees
30 Events Since the End of the Financial Year

8
14
17
19
21
22
23
23
24
32
34
35
45
46
47
61
66
67
68
70
72
74
75
76
77
78
83
85
88
89

Directors’ Declaration
Lead Auditor’s Independence Declaration
Independent Auditor’s Report

90
90
91

2

FINANCIAL REPORTFINANCIAL REPORTINCOME STATEMENT
2020
$m

2019
$m

Interest income1

21,73927,599Interest expense(11,855)(17,452)

For the year ended 30 September

Note

Net interest income

2

9,884

10,147

Other operating income

2

4,204

4,553

Net income from insurance business

2

-

7

Share of associates’ (loss)/profit

2

(1)

(1)

14,087

14,706

3(7,788)(7,784)

6,299

6,922

12

(2,337)

(714)

3,962

6,208

(1,156)(1,761)

2,806

4,447

Operating income
Operating expenses
Profit before credit impairment and income tax
Credit impairment charge
Profit before income tax
Income tax expense
Profit for the year
1.

4

Includes interest income calculated using the effective interest method of $18,232 million on financial assets measured at amortised cost or fair value through other comprehensive income (2019: $23,678
million).

The notes appearing on pages 8 to 89 form an integral part of these financial statements.

3

ANZ 2020 ANNUAL REPORTFINANCIAL REPORT (continued)
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September

2020
$m

2019
$m

Profit for the year

2,806

4,447

Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Investment securities - equity securities at FVOCI

(151)

45

23

98

Foreign currency translation reserve

(109)

209

Other reserve movements

587

915

Income tax attributable to the above items
Other comprehensive income after tax

(149)
201

(301)
966

Total comprehensive income for the year

3,007

5,413

Other reserve movements
Items that may be reclassified subsequently to profit or loss

The notes appearing on pages 8 to 89 form an integral part of the financial statements.

4

FINANCIAL REPORTBALANCE SHEETAs at 30 September

Note

2020
$m

2019
$m

7

98,083

77,949

7,116

3,442

AssetsCash and cash equivalents
Settlement balances owed to ANZ

13,012

13,461

Trading securities

Collateral paid
838,42334,217

Derivative financial instruments

9130,552

116,544

Investment securities

10

80,28473,355Net loans and advances

11

488,002484,655

Regulatory deposits
Due from controlled entities
Shares in controlled entities

23

199

215

100,654

88,87415,022

15,467

Investments in associates

20

18

Current tax assets

155

254

Deferred tax assets1

1,744

1,245

1,097

1,367

2,643

971

Goodwill and other intangible assets

19

Premises and equipment1
Other assets

2,072

2,798

Total assets

979,078

914,832

Liabilities
Settlement balances owed by ANZ

19,556

9,342

Collateral received

8,074

7,005

Deposits and other borrowings

13

558,136524,241

Derivative financial instruments

9131,230

117,340

100,932

89,683Current tax liabilities

81

118

Deferred tax liabilities

79

67

8,070

6,621

Due to controlled entities

1

Payables and other liabilities
Employee entitlements

441

450

Other provisions

20

2,157

1,905

Debt issuances

14

97,050104,846

Total liabilities

925,806

861,618

Net assets

53,27253,214

Shareholders' equity
Ordinary share capital

21

26,454

26,413

Reserves

21

1,018

840

Retained earnings

21

25,80025,961

Total shareholders' equity

21

53,27253,214

1

1.

On adoption of AASB 16 on 1 October 2019, ANZ recognised right-of-use assets of $2.1 billion presented within Premises and equipment and lease liabilities of $2.1 billion presented within Payables andother liabilities. This resulted in a reduction to opening retained earnings of $72 million and an increase in deferred tax assets of $31 million. Comparative information has not been restated. Refer to Note 1
for further details.

The notes appearing on pages 8 to 89 form an integral part of the financial statements.

5

ANZ 2020 ANNUAL REPORTFINANCIAL REPORT (continued)
CASH FLOW STATEMENT
For the year ended 30 September

2020
$m

2019
$m

Profit after income tax

2,806

4,447

Adjustments to reconcile to net cash provided by/(used in) operating activities:
Allowance for expected credit losses
Depreciation and amortisation1, 2
Goodwill impairment
Net derivatives/foreign exchange adjustment
Impairment of investment in Wealth Australia
Impairment of investment in ANZ Share Investing(Gain)/Loss on sale from divestments
Other non-cash movements

2,337
1,214
10
(2,175)
42
2
11
20

714
738
5,004
147
(273)
31

Net(increase)/decrease in operating assets:
Collateral paid
Trading securities
Net loans and advances
Net intra-group loans and advances
Other assets

33
1,908
(7,526)(393)(26)(3,839)(6,393)(3,740)5,301(85)

Net increase/(decrease) in operating liabilities:
Deposits and other borrowings
Settlement balances owed by ANZ
Collateral received
Other liabilities
Total adjustments

40,662
10,286
1,426(9,121)
38,710(1,109)
(642)
619
955
(2,572)

Net cash provided by operating activities3

41,516

1,875(33,731)
25,346
(800)
688
(75)

(22,583)
18,440
800
185
(132)

(567)
(9,139)(648)(3,938)10,064(17,179)(2,861)(122)(267)(10,365)

20,450(18,938)

22,012
77,949(6,264)80,227(1,878)98,083

3,986
77,949Cash flows from investing activities
Investment securities assets:
Purchases
Proceeds from sale or maturity(Repayment of)/Proceeds from IOOF secured notes
Proceeds from divestments, net of cash disposed
Net movement in shares in controlled entities
Other assets
Net cash (used in) investing activities
Cash flows from financing activities
Debt issuances:4
Issue proceeds
Redemptions
Dividends paid5
On market purchase of treasury shares
Repayment of lease liabilities6
Share buy-back
Net cash (used in)/provided by financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year

(4,481)(112)(1,120)(4,201)

1.

Includes depreciation of right-of-use assets recognised on 1 October 2019 following the adoption of AASB 16. Comparatives have not been restated.
Includes accelerated amortisation of $184 million following the Company’s change in the application of its software amortisation policy to reflect the shorter useful life of software caused by rapidlychanging technology and business requirements. Refer to Note 19 Goodwill and Other Intangible Assets for further details.
3.
Net cash provided by operating activities includes income taxes paid of $1,596 million (2019: $1,875 million).
4.
Non-cash changes in debt issuances includes fair value hedging losses of $532 million (2019: $2,106 million loss) and foreign exchange gains of $858 million (2019: foreign exchange losses $3,290 million).
5.
Cash outflow for shares purchased to satisfy the dividend reinvestment plan are classified in Dividends paid.
6.
Relates to repayments of lease liabilities which the Company commenced recognising on 1 October 2019 following the adoption of AASB 16. Comparative information has not been restated.
2.

The notes appearing on pages 8 to 89 form an integral part of the financial statements.

6

FINANCIAL REPORTFINANCIAL REPORT (continued)
STATEMENT OF CHANGES IN EQUITY

As at 1 October 2018

Ordinaryshare capital$m
27,533

Reserves$m

Retainedearnings$m

Total
shareholders’equity$m(56)

26,39953,876

Impact on transition to AASB 9

-

5

(483)

(478)

Profit for the year

-

-

4,447

4,447

Other comprehensive income for the year

-

894

72

966

Total comprehensive income for the year

-

894

4,519

5,413
-

Transactions with equity holders in their capacity as equity holders:
Dividends paid
Group share buy-back2--(4,481)(4,481)(1,120)--(1,120)

Other equity movements:
Other items
As at 30 September 2019

26,413

(3)

7

4

840

25,961

53,214

(72)

(72)

2,806

2,806

Impact on transition to AASB 16
Profit for the year--

Other comprehensive income for the year

-

183

18

201

Total comprehensive income for the year

-

183

2,824

3,007

Transactions with equity holders in their capacity as equity holders:
Dividends paid
Dividend Reinvestment Plan1--(2,922)(2,922)

61

-

-

61

(20)

-

-

(20)

-

(5)

9

4

26,454

1,018

25,80053,272Other equity movements:
Group employee share acquisition scheme
Other items
As at 30 September 2020
1.

3.4 million shares were issued under the Dividend Reinvestment Plan (DRP) for the 2020 interim dividend (nil shares for the 2019 final dividend; nil shares for the 2019 interim dividend as the shares werepurchased on-market and provided directly to shareholders participating in the DRP). On-market share purchases for the DRP in 2020 were $185 million (Sep 19 full year: $432 million).
2.
The Company has completed a $3.0 billion on-market share buy-back of ANZ ordinary shares purchasing $1,120 million worth of shares in 2019 resulting in 42.0 million shares being cancelled in 2019.

The notes appearing on pages 8 to 89 form an integral part of the financial statements.

7

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
1. ABOUT THE FINANCIAL STATEMENTS
These are the financial statements for Australia and New Zealand Banking Group Limited (the Company or ANZ) for the year ended 30 September
2020. The Company is incorporated and domiciled in Australia. The address of the Company’s registered office and its principal place of business is
ANZ Centre, 833 Collins Street, Docklands, Victoria, Australia 3008.
On 4 November 2020, the Directors resolved to authorise the issue of these financial statements.
Information in the financial statements is included only to the extent we consider it material and relevant to the understanding of the financial
statements. A disclosure is considered material and relevant if, for example:
 the amount is significant in size (quantitative factor); the information is significant by nature (qualitative factor); the user cannot understand the Company’s results without the specific disclosure (qualitative factor); the information is critical to a user’s understanding of the impact of significant changes in the Company’s business during the period, for example:
business acquisitions or disposals (qualitative factor); or the information relates to an aspect of the Company’s operations that is important to its future performance (qualitative factor) and;
 the information is required under legislative requirements of the Corporations Act 2001, the Banking Act 1959 (Cth) or by the Company’s principal
regulators, including the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
This section of the financial statements:
 outlines the basis upon which the Company’s financial statements have been prepared; and discusses any new accounting standards or regulations that directly impact the financial statements.

BASIS OF PREPARATIONThis financial report is a general purpose (Tier 1) financial report (as defined under the Corporations law) prepared by a ‘for profit’ entity, in accordancewith Australian Accounting Standards (AASs) and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) the
Corporations Act 2001, and the International Financial Reporting Standards (IFRS) and interpretations published by the International Accounting Standards
Board (IASB).
The Company is a reporting entity under the Corporations Act 2001, and is not exempt from preparing consolidated financial statements. The financial
statements for the Company have been prepared for the purpose of the Company fulfilling its financial reporting obligations under part 7.8 of the
Corporations Act 2001, as required for Australian Financial Services Licensees.
The Company is the ultimate parent entity of the ANZ Group. The Company consists of the following operations undertaken in Australia and in its
overseas branches: Retail and Commercial operations, Institutional operations, and Technology Services & Operations and Group Centre operations.
The consolidated financial statements of the Group can be found as part of the 2020 Annual Report at
https://www.anz.com/shareholder/centre/reporting/annual-report-annual-review/ and copies are available from the Company’s registered office andprincipal place of business.
We present these financial statements in Australian dollars, which is the Company’s functional and presentation currency. We have rounded values tothe nearest million dollars ($m), unless otherwise stated, as allowed under the Australian Securities and Investments Commission (ASIC) Corporations(Rounding in Financial/Directors Report) Instrument 2016/191.

BASIS OF MEASUREMENT
We have prepared the financial information in accordance with the historical cost basis - except the following assets and liabilities which we havestated at their fair value: derivative financial instruments and in the case of fair value hedging, a fair value adjustment made to the underlying hedging exposure; financial instruments held for trading; financial assets and liabilities designated at fair value through profit and loss; and financial assets at fair value through other comprehensive income.
In accordance with AASB 119 Employee Benefits defined benefit obligations are measured using the Projected Unit Credit Method.

8

1. ABOUT THE FINANCIAL STATEMENTS (continued)
FOREIGN CURRENCY TRANSLATION
TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into the relevant functional currency at the exchange rate prevailing at the date of the transaction. At thereporting date, monetary assets and liabilities denominated in foreign currencies are translated into Australian dollars, being the functional currency,
at the relevant spot rate. Any foreign currency translation gains or losses are included in profit or loss in the period they arise.
We measure translation differences on non-monetary items at fair value through profit or loss and report them as part of the fair value gain or loss onthese items. For non-monetary items classified as investment securities measured at fair value through other comprehensive income the translationdifferences are included as part of the fair value gains or losses recorded in other comprehensive income.

KEY JUDGEMENTS AND ESTIMATES
In the process of applying the Company’s accounting policies, management has made a number of judgements and applied estimatesand assumptions about past and future events. Further information on the key judgements and estimates that we consider material to
the financial statements are contained within the relevant note to the financial statements.
Coronavirus (COVID-19) pandemic
The COVID-19 pandemic and its effect on the global economy have impacted our customers, operations and Company performance.
The outbreak necessitated governments to respond at unprecedented levels to protect the health of the population, local economies
and livelihoods. It has affected different regions at different times and at varying degrees and there remains a risk of subsequent waves
of infection. Thus the pandemic has significantly increased the estimation uncertainty in the preparation of these financial statements
including:•the extent and duration of the disruption to business arising from the actions of governments, businesses and consumers tocontain the spread of the virus;•

the extent and duration of the expected economic downturn, and subsequent recovery. This includes the impacts on capital
markets and liquidity, credit quality, increasing unemployment, declines in consumer spending, reductions in production, andother restructuring activities; and•the effectiveness of government and central bank measures to support businesses and consumers through this disruption andeconomic downturn.

The Company has made various accounting estimates in these financial statements based on forecasts of economic conditions whichreflect expectations and assumptions as at 30 September 2020 about future events that the Directors believe are reasonable in thecircumstances. There is a considerable degree of judgement involved in preparing these estimates. The underlying assumptions arealso subject to uncertainties which are often outside the control of the Company. Accordingly, actual economic conditions are likely to
be different from those forecast since anticipated events frequently do not occur as expected, and the effect of those differences may
significantly impact accounting estimates included in these financial statements.
The significant accounting estimates impacted by these forecasts and associated uncertainties are predominantly related to expectedcredit losses, fair value measurement, and the assessment of the recoverable amount of non-financial assets.
The impact of the COVID-19 pandemic on each of these estimates is discussed further in the relevant note of these financial
statements. Readers should carefully consider these disclosures in light of the inherent uncertainty described above.

9

1. ABOUT THE FINANCIAL STATEMENTS (CONTINUED)ACCOUNTING STANDARDS ADOPTED IN THE PERIODAASB 16 Leases (AASB 16)
AASB 16 became effective for the Company from 1 October 2019 and replaced the previous standard AASB 117 Leases (AASB 117). AASB 16 primarily
impacts the Company’s property and technology leases which were previously classified as operating leases. Under AASB 117, operating leases were
not recognised on balance sheet and rent payments were expensed over the lease term.
Under AASB 16, the Company recognises all leases (except for leases of low value assets and short term leases) on balance sheet under a single
accounting model. Accordingly, the Company recognises its right to use an underlying leased asset over the lease term as a right-of-use (ROU) asset,
and its obligation to make lease payments as a lease liability. In the income statement, the Company recognises depreciation expense on the ROU
asset and interest expense on the lease liability. As a result, lease expenses will be higher in the early periods of a lease and lower in the later periods ofthe lease compared to the previous standard where expenses were constant over the lease term. Cumulative expenses over the life of a lease will notchange.
As permitted by the standard, the Company does not recognise ROU assets and lease liabilities for leases of low value items and short term leases (lessthan 12 months). Instead, the lease payments associated with these leases are recognised as an operating expense in the income statement on astraight-line basis over the lease term.
The Company has applied the modified retrospective transition approach whereby initial lease liabilities are recognised based on the present value ofremaining lease payments as of the transition date. The initial ROU asset recognised for certain large commercial and retail leases was measured as if
AASB 16 had always been applied to the leases. For all other leases, the initial ROU asset was measured as equal to the initial lease liability.
The implementation of AASB 16 requires management to make certain key judgements including the determination of lease terms, discount rates
and identifying arrangements that contain a lease. Extension options are included in the lease term if the Company is reasonably certain the option
will be exercised. This assessment includes consideration of facts and circumstances that create an economic incentive for the Company to exercise
the option.
Based on the modified retrospective transition approach, the Company recognised lease liabilities of $2.1 billion presented within Payables and otherliabilities and ROU assets of $2.1 billion presented within Premises and equipment. This resulted in a reduction to opening retained earnings of $72
million and an increase in deferred tax assets of $31 million as of 1 October 2019. Comparatives have not been restated.
In addition, the Company elected to apply the following practical expedients as permitted under the modified retrospective transition approach:a) Impairment of ROU assets at the transition date was assessed by relying on onerous lease provisions previously recognised as of 30 September
2019 under AASB 117;b) Initial direct costs associated with entering leases prior to the transition date were excluded from the carrying value of ROU assets recognised attransition;c) No ROU assets or lease liabilities were recognised for certain leases with less than 12 months remaining as of the transition date; these leases weretreated as short-term leases with all lease payments recognised in rent expense as incurred; andd) Hindsight was used to determine the lease term of contracts that contained options to extend the lease.

101. ABOUT THE FINANCIAL STATEMENTS (continued)
ACCOUNTING STANDARDS ADOPTED IN THE PERIOD (continued)
The following table reconciles the operating lease commitments disclosed under AASB 117 as at 30 September 2019 to the opening lease liabilities
recognised under AASB 16 as at 1 October 2019.
Operating Lease Commitments as at 30 September 2019
Increase in lease term for extension options
Exclusion of low value leases and leases of less than 12 months
Exclusion of service components
Other
Total Undiscounted Lease Payments
Effect of discounting at a weighted average incremental borrowing rate of 2.06%

$m
1,757
559
(19)
(8)
(3)
2,286
(138)

Total lease liabilities under AASB 16 as at 1 October 2019

2,148

During the reporting period, ANZ recognised the following amounts in the income statement
Depreciation expense on ROU assets
Interest expense on lease liabilities
Interest expense on makegood provisions
Rent expense in relation to low value leases and leases of less than 12 months
Other income in relation to subleases

$m
353
43
1
13
21

The Company's accounting policies with respect to lease arrangements where it acts as lessor have not changed under AASB 16 except where theCompany subleases certain leased properties. Where the Company acts as intermediate lessor, it classifies the sublease as either a finance lease oroperating lease by reference to the ROU asset of the head lease. Income from operating subleases is recognised in Other operating income in the
Income Statement.
Interest Rate Benchmark Reform
Background
Interbank offered rates (IBORs), such as the London Interbank Offered Rate (LIBOR), play a critical role in global financial markets, serving as reference
rates for derivatives, loans and securities, and as parameters in the valuation of financial instruments.
Uncertainty surrounding the integrity of IBOR rates has in recent years, led regulators, central banks and market participants to work towards atransition to alternative risk-free benchmark reference rates (RFRs) and market-led working groups in respective jurisdictions have recommended
alternative risk-free reference rates, which are gradually being adopted. Progress in the transition to these new benchmarks has resulted in significant
uncertainty in the future of IBOR benchmarks beyond 1 January 2022.
Accounting amendments
In response to the uncertainty about the long-term viability of these benchmark rates, and LIBOR in particular, the International Accounting Standards
Board (IASB) has established a project to consider the financial reporting implications of the reform. The transition from IBORs is expected to have an
impact on various elements of financial instrument accounting, including hedge accounting, as well as fair value methodologies and disclosures.
In October 2019, the AASB issued AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform, which amends certain
existing hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the interest rate benchmark reform. The
Company elected to early adopt the amendments from 1 October 2019 which have not had a significant impact on the Company. These
amendments address the accounting effects of uncertainty in the period leading up to the reform arising from the Company’s ability to satisfy theexisting prospective hedge effectiveness requirements of AASB 139. This uncertainty arises as it is not known when the hedged items (such as debt
issuances) and associated hedging instruments (such as interest rate swaps) will be changed to reference the RFRs, or if both the hedging item andthe associated hedging instrument will move to the new rates at the same time. The Company has applied this amendment to all hedge accounted
relationships (cash flow or fair value hedges) where the reform gives rise to uncertainties about the timing or amount of IBOR based cash flows of thehedged item or hedging instrument.
In September 2020, the AASB issued AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform – Phase 2 which ismandatory for the Company for the 2022 financial year. This standard addresses issues that may affect the Company at the point of transition from anexisting IBOR rate to a RFR, including the effects of changes to contractual cash flows or hedging relationships. The standard includes amendments in
respect of:11

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
1. ABOUT THE FINANCIAL STATEMENTS (continued)
ACCOUNTING STANDARDS ADOPTED IN THE PERIOD (continued)


Modification of a financial asset or a financial liability measured at amortised cost
IBOR reform is expected to result in a change to the basis for determining contractual cash flows of impacted assets and liabilities of theCompany. The amendments provide a practical expedient to account for a change in the basis for determining the contractual cash flows as aresult of IBOR reform by updating the effective interest rate. As a result, no immediate gain or loss is recognised. This applies only when thechange is necessary as a direct consequence of the reform, and the new basis for determining the contractual cash flows is economicallyequivalent to the previous basis.

Additional relief for hedging relationships
The Standard also amends a number of existing hedge accounting requirements that will assist the Company to maintain its existing hedge
accounted relationships post IBOR transition. The Company will continue to record any ongoing hedge ineffectiveness, including thatgenerated by changes as a result of interest rate reform, within the Income statement.

The Company is in the process of assessing the impact of the new standard on its financial statements.
Impact of IBOR reform
The Company has exposure to IBOR through its issuance of debt, the structural interest rate risk position, holdings of investment securities, products
denominated in foreign currencies and associated hedging activities in our treasury and markets businesses within the TSO and Group Centre andInstitutional divisions respectively.
The Company has established an enterprise-wide Benchmark Transition Program to manage the transition. The program includes the assessment andactions necessary to accommodate the transition to RFRs as they apply to internal processes and systems including pricing, risk management,
documentation and hedge arrangements. The program includes management of the impact on customers.
Impact of IBOR reform on the Company’s hedging relationships
Certain IBOR rates are subject to replacement by RFRs. The Company has hedge accounted relationships referencing IBORs, with the most significant
interest rate benchmarks to which the Company's hedging relationships are exposed to are USD LIBOR, Euro Interbank Offered Rate (EURIBOR), BankBill Swap Rate (BBSW) and Bank Bill Market (BKBM).
Of these benchmarks the Company expects BBSW, BKBM and EURIBOR to exist as benchmark rates for the foreseeable future and therefore does notbelieve its BBSW, BKBM or EURIBOR benchmark fair value or cash flow hedges will be directly impacted by IBOR reform.
The table below details the carrying values of the Company's exposures designated in hedge accounting relationships that will be impacted by IBOR
reform, principally USD LIBOR. The nominal value of the associated hedging instruments is also included:

As at 30 September 2020
Hedged items

USD LIBOR exposures$m
15,002

Investment securities at FVOCINet loans and advances

111

Debt issuances

23,701

Fair value hedges

Notional designated up to
31 December 2021$m
10,316

Notional designatedbeyond 31 December 2021$m
26,625

Total Notional Amount$m
36,941

Cash flow hedges

-

1,055

1,055

Hedging instruments

As at 30 September 2020 the Company also has GBP LIBOR and JPY LIBOR exposures designated in hedge accounting relationships of $927 million
and $2,131 million respectively.
In addition to hedge accounted relationships that will be impacted by IBOR reform, the Company has exposures to other financial instruments
referencing an IBOR rate that are also subject to reform. The Company is continuing to monitor market developments in relation to the transition to
RFRs from IBOR rates and their impact on the Company’s financial assets and liabilities to ensure that there are no unexpected consequences or
disruption from the transition.
AASB Interpretation 23 Uncertainty over Income Tax Treatments (AASB Interpretation 23)
AASB Interpretation 23 became effective for the Company from 1 October 2019. The interpretation clarifies application of recognition andmeasurement requirements in AASB 112 Income Taxes where there is uncertainty over income tax treatments. As the Company’s existing policyaligned with the requirements of AASB Interpretation 23, the interpretation had no material impact on the Company.

12

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
1. ABOUT THE FINANCIAL STATEMENTS (continued)
ACCOUNTING STANDARDS NOT EARLY ADOPTED
A number of new standards, amendments to standards and interpretations have been published but are not mandatory for the financial statements
for the year ended 30 September 2020, and have not been applied by the Company in preparing these financial statements. Further details of theseare set out below.
GENERAL HEDGE ACCOUNTINGAASB 9 introduces new hedge accounting requirements which more closely align accounting with risk management activities undertaken when
hedging financial and non-financial risks. AASB 9 provides the Company with an accounting policy choice to continue to apply the AASB 139 hedge
accounting requirements until the International Accounting Standards Board’s ongoing project on macro hedge accounting is completed. The
Company currently applies the hedge accounting requirements of AASB 139.
AASB 17 Insurance Contracts (AASB 17)
The final version of AASB 17 was issued in July 2017 and is not effective for the Company until 1 October 2023. It will replace AASB 4 Insurance
Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. AASB 17 establishes principles for the recognition,measurement, presentation and disclosure of insurance contracts.
The measurement, presentation and disclosure requirements under AASB 17 are significantly different from current accounting standards. Although
the overall profit recognised in respect of insurance contracts will not change, it is expected that the timing of profit recognition will change.
AASB 17 is not expected to have a material impact on the Company.
REVISED CONCEPTUAL FRAMEWORKIn June 2019 the AASB issued a revised Conceptual Framework for Financial Reporting. The new Framework includes updated definitions and criteria
for the recognition and derecognition of assets and liabilities. Additionally, it introduces new concepts on measurement, including factors to consider
when selecting a measurement basis. The revised Conceptual Framework will apply to the Company from 1 October 2020 and is not expected to havea material impact on the Company.

13

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
2. OPERATING INCOME
2020
$m

2019
$m

Net interest income
Interest income by type of financial asset
Investment securities - FVOCIFinancial assets at amortised cost
Trading securities
Interest income - externalInterest income - controlled entities
Interest income

883
17,349429
18,661
3,078
21,7391,329
22,349627
24,305
3,294
27,599Interest expense by type of financial liability
Financial liabilities at amortised cost
Securities sold shortFinancial liabilities designated at fair value through profit or loss
Interest expense - externalInterest expense - controlled entities
Interest expense
Major bank levy
Net interest income(7,602)(91)(65)(7,758)(3,691)(11,449)
(406)
9,884

(13,191)(104)(81)(13,376)(3,713)(17,089)(363)
10,147

532
2,087
67
34
2,720
855
3,575
(999)
2,576

546
2,241
76
25
2,888
905
3,793
(999)
2,794

1,443
195
(11)
(2)
26
(23)
1,628
4,204
(1)
14,087

896
873
69
(147)
28
40
1,759
4,553
7
(1)
14,706

Other operating incomei) Fee and commission income
Lending fees1
Non-lending fees
Commissions
Funds management income
Fee and commission income - external
Fee and commission income - controlled entities
Fee and commission income
Fee and commission expense
Net fee and commission incomeii) Other income
Net foreign exchange earnings and other financial instruments income2
Dividends received from controlled entities
Gain/(Loss) on divestments
Write down of investments
Dividend income on equity securities
Other
Other income3
Other operating income
Net income from insurance business
Share of associates' (loss) / profit
Operating income4

Lending fees excludes fees treated as part of the effective yield calculation in interest income.
Includes fair value movements (excluding realised and accrued interest) on derivatives not designated as accounting hedges entered into to manage interest rate and foreign exchange risk on funding
instruments, ineffective portions of cash flow hedges, and fair value movements in financial assets and liabilities designated at fair value through profit or loss.
3.
Total other income includes external dividend income from Bank of Tianjin of $26 million (2019: $27 million).
4.
Includes charges to customer remediation of $286 million for 2020 (2019: $226 million).
1.
2.

14

NOTES TO THE FINANCIAL STATEMENTS

2. OPERATING INCOME (continued)

RECOGNITION AND MEASUREMENTNET INTEREST INCOME
Interest Income and Expense
We recognise interest income and expense for all financial instruments, including those classified as held for trading, assets measured at fairvalue through other comprehensive income or designated at fair value, through profit or loss in net interest income. The Company uses
the effective interest rate method to calculate the amortised cost of assets held at amortised cost and to recognise interest income on
financial assets measured at fair value through other comprehensive income. The effective interest rate is the rate that discounts the streamof estimated future cash receipts or payments over the expected life of the financial instrument or, when appropriate, a shorter period, tothe net carrying amount of the financial asset or liability. For assets subject to prepayment, we determine their expected life on the basis ofhistorical behaviour of the particular asset portfolio - taking into account contractual obligations and prepayment experience.
We recognise fees and costs, which form an integral part of the financial instrument (for example loan origination fees and costs), using theeffective interest method. This is presented as part of interest income or expense depending on whether the underlying financial
instrument is a financial asset or financial liability.
Major Bank Levy
The Major Bank Levy Act 2017 (‘Levy’ or ‘Major bank levy’) applies a rate of 0.06% to certain liabilities of the Company. The Company has
determined that the levy represents a finance cost for the Company and $406 million (2019: $363 million) is presented in interest expensein the Income Statement.
OTHER OPERATING INCOME
Fee and Commission Revenue
We recognise fee and commission revenue arising from contracts with customers: (a) over time when the performance obligation issatisfied across more than one reporting period or (b) at a point in time when the performance obligation is satisfied immediately or issatisfied within one reporting period.
 lending fees exclude fees treated as part of the effective yield calculation of interest income. Lending fees include certain guarantee andcommitment fees where the loan or guarantee is not likely to be drawn upon and other fees charged for providing customers a distinct
good or service that are recognised separately from the underlying lending product (including annual package fees that provide benefits
on other ANZ products).
 non-lending fees includes fees associated with deposit and credit card accounts, interchange fees and fees charged for specific customertransactions such as international money transfers. Where the Company provides multiple goods or services to a customer under thesame contract, the Company allocates the transaction price of the contract to those performance obligations based on the relative standalone selling price of each performance obligation. Revenue is recognised as each performance obligation is satisfied.
 commissions represent fees from third parties where ANZ acts as an agent by arranging a third party (such as an insurance provider) to
provide goods and services to a customer. In such cases, ANZ is not primarily responsible for providing the underlying good or service tothe customer. If the Company collects funds on behalf of a third party when acting as an agent, the Company only recognises the net
commission it retains as revenue. When the commission is variable based on factors outside the control of the Company (such as a trail
commission), revenue is only recognised if it is highly probable that a significant reversal of the variable amount will not be required infuture periods.
 funds management income represent fees earned from customers for providing financial advice and fees for asset management services
and advice provided to investment funds. Revenue is recognised either at the point the financial advice is provided or over the period inwhich the asset management services are delivered. Performance fees associated with funds management activities are only recognised
when it becomes highly probable the performance hurdle will be achieved.
Net Foreign Exchange Earnings and Other Financial Instruments Income
We recognise the following as net foreign exchange earnings and other financial instruments income: exchange rate differences arising on the settlement of monetary items and translation differences on monetary items translated at rates
different to those at which they were initially recognised or included in a previous financial report;
 fair value movements (excluding realised and accrued interest) on derivatives that we use to manage interest rate and foreign exchange
risk on funding instruments not designated as accounting hedges;

15

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
2. OPERATING INCOME (continued)

RECOGNITION AND MEASUREMENT (continued)
 the ineffective portions of fair value hedges, cash flow hedges and net investment hedges;
 immediately upon sale or repayment of a hedged item, the unamortised fair value adjustments in items designated as fair value
hedges and amounts accumulated in equity related to designated cash flow hedges.
 fair value movements on financial assets and financial liabilities designated at fair value through profit or loss or held for trading; amounts released from the fair value through other comprehensive income (FVOCI) reserve when a debt instrument classified asmeasured at FVOCI is sold; and the gain or loss on derecognition of financial assets or liabilities measured at amortised cost.
Dividends Received from Controlled Entities
Dividends are recognised as revenue when the right to receive payment is established.
Gain or Loss on Disposal of Non-Financial Assets
The gain or loss on the disposal of assets is the difference between the carrying value of the asset and the proceeds of disposal net of costs.
This is recognised in other income in the year in which the significant risks and rewards from the asset transfer to the buyer.
SHARE OF ASSOCIATES’ PROFITThe equity method is applied to accounting for associates. Under the equity method the Company’s share of the after tax results ofassociates is included in the Income Statement and the Statement of Comprehensive Income.

16

NOTES TO THE FINANCIAL STATEMENTS

3. OPERATING EXPENSES
2020
$m

2019
$m

Personnel
Salaries and related costs

3,147

3,141

Superannuation costs

277

252

Other

142

161

3,566

3,554

Rent

58

383

Depreciation

427

99

Other

139

169

Premises2

624

651

Depreciation and amortisation2,3

786

639

Subscription licences and outsourced services

586

477

Other

189

185

1,561

1,301

127

56

1

Personnel
Premises

Technology (excluding personnel)

1

Technology (excluding personnel)
Restructuring
Other
Advertising and public relations

136

188

Professional fees

614

482

Freight, stationery, postage and communication

166

173

Royal Commission legal costs-

15

Other4994

1,364

Other 1

1,910

2,222

Operating expenses1

7,788

7,784

1.

Includes customer remediation expenses of $146 million in 2020 (2019: $380 million).
Following the adoption of AASB 16 on 1 October 2019, with the exception of low value leases and leases of less than 12 months, expenses associated with operating leases are shown as depreciation of theright-of-use asset and interest expense associated with the lease liability (comparatives not restated).
3.
During the 2020 financial year, the Company amended the application of its software amortisation policy to reflect the shorter useful life of software caused by rapidly changing technology and business
requirements. As a result of these changes, the Company recognised accelerated amortisation of $184 million during the year. Refer to Note 19 Goodwill and Other Intangible Assets for further details.
4.
Includes goodwill write-off of $10 million in the September 2020 financial year.
2.

RECOGNITION AND MEASUREMENTOPERATING EXPENSES
Operating expenses are recognised as services are provided to the Company over the period in which an asset is consumed or once
a liability is created.
SALARIES AND RELATED COSTS - ANNUAL LEAVE, LONG SERVICE LEAVE AND OTHER EMPLOYEE BENEFITS
Wages and salaries, annual leave, and other employee entitlements expected to be paid or settled within twelve months of employees
rendering service are measured at their nominal amounts using remuneration rates that the Company expects to pay when the liabilities aresettled.
We accrue employee entitlements relating to long service leave using an actuarial calculation. It includes assumptions regarding staff
departures, leave utilisation and future salary increases. The result is then discounted using market yields at the reporting date. The market
yields are determined from a blended rate of high quality corporate bonds with terms to maturity that closely match the estimated future cash
outflows.
If we expect to pay short term cash bonuses, then a liability is recognised when the Company has a present legal or constructive obligation to
pay this amount (as a result of past service provided by the employee) and the obligation can be reliably measured.

17

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
3. OPERATING EXPENSES (continued)

RECOGNITION AND MEASUREMENT (continued)
Personnel expenses also include share-based payments which may be cash or equity settled. We calculate the fair value of equity settled
remuneration at grant date, which is then amortised over the vesting period, with a corresponding increase in share capital or the share option
reserve as applicable. When we estimate the fair value, we take into account market vesting conditions, such as share price performance
conditions. We take non-market vesting conditions, such as service conditions, into account by adjusting the number of equity instruments
included in the expense.
After the grant of an equity-based award, the amount we recognise as an expense is reversed when non-market vesting conditions are notmet, for example an employee fails to satisfy the minimum service period specified in the award on resignation, termination or notice ofdismissal for serious misconduct. However, we do not reverse the expense if the award does not vest due to the failure to meet a marketbased performance condition.
Further information on share-based payment schemes operated by the Company during the current and prior year is included in Note 26
Employee Share and Option Plans.

18

NOTES TO THE FINANCIAL STATEMENTS

4. INCOME TAX
INCOME TAX EXPENSE
Reconciliation of the prima facie income tax expense on pre-tax profit with the income tax expense recognised in profit or loss:
2020
$m

2019
$m

Profit before income tax

3,962

6,208

Prima facie income tax expense at 30%

1,189

1,862

-

(8)

Tax effect of permanent differences:
Tax provisions no longer required
Non-deductible interest on debt instruments

52

81

Overseas tax rate differential

(31)

(40)

Rebatable and non-assessable dividends

(58)

(262)

Provision for foreign tax on dividend repatriation

18

34

Wealth Australia divestment adjustments

8

74

Other

(2)

39

Subtotal

1,176

1,780

Income tax over provided in previous years

(20)

(19)

Income tax expense

1,156

1,761

Current tax expense

1,689

1,901

Adjustments recognised in the current year in relation to the current tax of prior years

(20)

(19)

Deferred tax expense/(income) relating to the origination and reversal of temporary differences
Income tax expense
Australia

(513)

(121)

1,156

1,761

1,028

1,583

128

178

Income tax expense

1,156

1,761

Effective tax rate

29.2%

28.4%

Overseas

19

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
4. INCOME TAX (continued)
TAX CONSOLIDATIONThe Company and all its wholly owned Australian resident entities are part of a tax consolidated group under Australian taxation law. The Company is
the head entity in the tax consolidated group. We recognise each of the following in the separate financial statements of members of the tax
consolidated group on a ‘group allocation’ basis: tax expense/income, and deferred tax liabilities/assets that arise from temporary differences of themembers of the tax consolidated group. The Company (as head entity in the tax consolidated group) recognises current tax liabilities and assets of thetax consolidated group.
Under a tax funding arrangement between the entities in the tax consolidated group, amounts are recognised as payable to or receivable by theCompany and each member of the tax consolidated group in relation to the tax contribution amounts paid or payable between the Company andthe other members of the tax consolidated group.
Members of the tax consolidated group have also entered into a tax sharing agreement that provides for the allocation of income tax liabilities
between the entities were the head entity to default on its income tax payment obligations.

UNRECOGNISED DEFERRED TAX ASSETS AND LIABILITIES
Unrecognised deferred tax assets related to unused realised tax losses (on revenue account) total $5 million (2019: $6 million).
Unrecognised deferred tax liabilities related to additional potential foreign tax costs (assuming all retained earnings in offshore branches are
repatriated) total $14 million (2019: $13 million).

RECOGNITION AND MEASUREMENT
INCOME TAX EXPENSE
Income tax expense comprises both current and deferred taxes and is based on the accounting profit adjusted for differences in theaccounting and tax treatments of income and expenses (that is, taxable income). We recognise tax expense in profit or loss except to theextent to which it relates to items recognised directly in equity and other comprehensive income, in which case we recognise it directly inequity or other comprehensive income respectively.
CURRENT TAX EXPENSE
Current tax is the tax we expect to pay on taxable income for the year, based on tax rates (and tax laws) which are enacted at the reporting
date. We recognise current tax as a liability (or asset) to the extent that it is unpaid (or refundable).
DEFERRED TAX ASSETS AND LIABILITIESWe account for deferred tax using the balance sheet method. Deferred tax arises because accounting income is not always the same as thetaxable income. This creates temporary differences, which usually reverse over time. Until they reverse, we recognise a deferred tax asset, or
liability, on the balance sheet. We measure deferred taxes at the tax rates that we expect will apply to the period(s) when the asset isrealised, or the liability settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date.
We offset current and deferred tax assets and liabilities only to the extent that:

they relate to income taxes imposed by the same taxation authority;

there is a legal right and intention to settle on a net basis; and

it is allowed under the tax law of the relevant jurisdiction.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required in determining provisions held in respect of uncertain tax positions. The Company estimates its tax
liabilities based on its understanding of the relevant law in each of the countries in which it operates and seeks independent
advice where appropriate.

20

NOTES TO THE FINANCIAL STATEMENTS

5. DIVIDENDS
ORDINARY SHARE DIVIDENDSDividends are provided for in the financial statements once determined, accordingly, the final dividend announced for the current financial year isprovided for and paid in the following financial year.
Dividends% of total

Amountper share

Total dividend$m

80 cents
80 cents

2,295
2,267

Financial Year 20192018 final dividend paid1,2
2019 interim dividend paid1,2
Bonus option plan adjustment(81)

Dividends paid during the year ended 30 September 2019

4,481

Cash

90.4%

4,049

Dividend reinvestment plan

9.6%

432
4,481

Dividends paid during the year ended 30 September 2019
Financial Year 20202019 final dividend paid2,3

80 cents

2,2682020 interim dividend paid1,2

25 cents

709

Bonus option plan adjustment(55)

Dividends paid during the year ended 30 September 2020

2,922

Cash

93.7%

Dividend reinvestment plan

6.3%

2,737
185

Dividends paid during the year ended 30 September 2020

Dividends announced and to be paid after year-end
2020 final dividend (fully franked for Australian tax, New Zealand imputationcredit NZD 4 cents per share)
1.
2.
3.

2,922

Payment dateAmountper share

Total
dividend$m

16 December 2020

35 cents

994

Fully franked for Australian tax purposes (30% tax rate).
Carries New Zealand imputation credits of NZD 3 cents for the 2020 interim dividend, NZD 9 cents for the 2019 final dividend, 2019 interim dividend and the 2018 final dividend.
Partially franked at 70% for Australian tax purposes (30% tax rate).

DIVIDEND REINVESTMENT PLAN AND BONUS OPTION PLAN
Eligible shareholders can elect to reinvest their dividend entitlement into ANZ ordinary shares under the Company’s Dividend Reinvestment Plan
(DRP). Eligible shareholders can elect to forgo their dividend entitlement and instead receive ANZ ordinary shares under the Company’s Bonus Option
Plan (BOP). For the 2020 final dividend, DRP participation and BOP participation will be satisfied by an issue of new ANZ ordinary shares. There will be
no discount applied to the DRP and BOP price.
See Note 21 Shareholders’ Equity for details of shares the Company issued or purchased in respect of the DRP and BOP.

DIVIDEND FRANKING ACCOUNT
Currency

2020
$m

2019
$m

Australian franking credits available at 30% tax rate

AUD

477

35

New Zealand imputation credits available (which can be attached to our Australian
dividends but may only be used by New Zealand resident shareholders)

NZD

4,583

4,068

The above amounts represent the balances of the franking accounts as at the end of the financial year, adjusted for:
 franking credits that will arise from the payment of income tax payable as at the end of the financial year; and franking credits/debits from the receipt/payment of dividends that have been recognised as tax receivables/payables as at the end of the financialyear.
The proposed final 2020 dividend will utilise $426 million of the franking credits available at 30 September 2020.

21

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
5. DIVIDENDS (continued)
RESTRICTIONS ON THE PAYMENT OF DIVIDENDS
APRA’s written approval is required before paying dividends on ANZ ordinary shares: if the aggregate dividends exceed the Company’s after tax earnings (in calculating those after tax earnings, we take into account any payments wemade on senior capital instruments) in the financial year to which they relate; or if the Group’s Common Equity Tier 1 capital ratio falls within capital range buffers specified by APRA.
If the Company fails to pay a dividend or distribution on its ANZ Capital Notes or ANZ Capital Securities on the scheduled payment date, it may(subject to a number of exceptions) be restricted from resolving to pay or paying any dividend on the ANZ ordinary shares.
In July 2020, APRA provided an update to their guidance on capital management. In the updated guidance, APRA acknowledged that the uncertainty
in the economic outlook has reduced somewhat since April 2020 and APRA had the opportunity to review ADIs’ financial projections and stresstesting results. Taking these and other developments since April 2020 into account, APRA advised ADIs to maintain caution in planning capital
distributions, including dividend payments and that for the remainder of the calendar year, the ADIs’ Board should: seek to retain at least half of their earnings when making decisions on capital distributions (and utilise dividend reinvestment plans and otherinitiatives to offset the diminution in capital from capital distributions where possible); conduct regular stress testing to inform decision-making and demonstrate ongoing lending capacity; and make use of capital buffers to absorb the impacts of stress, and continue to lend to support households and businesses.
The Company’s 2020 interim dividend of 25 cents per share (paid to shareholders on 30 September 2020) and 2020 final dividend of 35 cents per
share took into account the updated regulatory guidance above.

6. SEGMENT REPORTING
No operating segment disclosures have been presented in these Company financial statements. Disaggregated information for the Company’s
segments is not information which is regularly provided to the Chief Executive Officer, who is the Chief Operating Decision Maker (CODM) of theCompany.
Full details of the operating segments of the Group are provided in Note 7 Segment Reporting in the ANZ 2020 Group Annual Report located athttps://www.anz.com/shareholder/centre/reporting/annual-report-annual-review/

FINANCIAL ASSETS
Outlined below is a description of how we classify and measure financial assets relevant to the subsequent note disclosures.

CLASSIFICATION AND MEASUREMENT
Financial assets - general
There are three measurement classifications for financial assets under AASB 9: amortised cost, fair value through profit or loss (FVTPL) and fair value
through other comprehensive income (FVOCI). Financial assets are classified into these measurement classifications on the basis of two criteria:
 the business model within which the financial asset is managed; and the contractual cash flow characteristics of the financial asset (specifically whether the contractual cash flows represent solely payments ofprincipal and interest).
The resultant financial asset classifications are as follows: Amortised cost: Financial assets with contractual cash flows that comprise solely payments of principal and interest and which are held in abusiness model whose objective is to collect their cash flows;
 FVOCI: Financial assets with contractual cash flows that comprise solely payments of principal and interest and which are held in a businessmodel whose objective is to collect their cash flows or to sell the assets; and FVTPL: Any other financial assets not falling into the categories above are measured at FVTPL.
Fair Value Option for Financial Assets
A financial asset may be irrevocably designated FVTPL on initial recognition when the designation eliminates or significantly reduces an accounting
mismatch that would otherwise arise.

22

NOTES TO THE FINANCIAL STATEMENTS

7. CASH AND CASH EQUIVALENTS
2020
$m

2019
$m

Coins, notes and cash at bank

1,084

934

Securities purchased under agreements to resell in less than 3 months

34,501

24,939Balances with central banks

39,362

24,218Settlement balances owed to ANZ within 3 months

23,13627,858Cash and cash equivalents

98,083

77,949

2020
$m

2019
$m

Government debt securities and notes1

27,917

24,789Corporate and financial institution securities1

4,873

3,411

Commodities

5,464

5,920

8. TRADING SECURITIES

1

Equity and other securities
Trading securities

169

97

38,42334,217

1.

In 2020, ANZ reclassified trading securities issued by development banks and supra-nationals from Corporate and financial institution securities and Equity and other securities to Government debt securities
and notes. Comparative information has been restated accordingly, with $1,796 million reclassified as Government debt securities and notes made up of $1,584 million from Corporate and financial institution
securities and $212 million from Equities and other securities.

RECOGNITION AND MEASUREMENT
Trading securities are financial instruments we either:acquire principally for the purpose of selling in the short-term; orhold as part of a portfolio we manage for short-term profit making.

We recognise purchases and sales of trading securities on trade date:

initially, we measure them at fair value; and

subsequently, we measure them in the balance sheet at their fair value with any change in fair value recognised in the profit andloss.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when applying the valuation techniques used to determine the fair value of trading securities not valued using
quoted market prices. Refer to Note 16 Fair Value of Financial Assets and Financial Liabilities for further details.

23

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS

Fair Value
Derivative financial instruments - held for trading
Derivative financial instruments - designated in hedging relationships
Derivative financial instruments

Assets2020$m

Liabilities
2020$m

Assets2019$m

Liabilities2019$m

126,561(128,028)

113,369(114,413)

3,991(3,202)

3,175(2,927)130,552(131,230)

116,544(117,340)

FEATURES
Derivative financial instruments are contracts:
 whose value is derived from an underlying price index (or other variable) defined in the contract – sometimes the value is derived from morethan one variable; that require little or no initial net investment; and that are settled at a future date.
Movements in the price of the underlying variables, which cause the value of the contract to fluctuate, are reflected in the fair value of the derivative.

PURPOSEThe Company’s derivative financial instruments have been categorised as following:
Trading

Derivatives held in order to: Meet customer needs for managing their own risks.
 Manage risks in the Company that are not in a designated hedge accounting relationship (balance
sheet management).
 Undertake market making and positioning activities to generate profits from short-term fluctuations in prices or
margins.

Designated in Hedging
Relationships

Derivatives designated into hedge accounting relationships in order to minimise profit or loss volatility by matching
movements to underlying positions relating to: Hedges of the Company’s exposures to interest rate risk and currency risk.
 Hedges of other exposures relating to non-trading positions.

TYPES
The Company offers and uses four different types of derivative financial instruments:
Forwards

A contract documenting the rate of interest, or the currency exchange rate, to be paid or received on a notional
principal amount at a future date.

Futures

An exchange traded contract in which the parties agree to buy or sell an asset in the future for a price agreed on thetransaction date, with a net settlement in cash paid on the future date without physical delivery of the asset.

Swaps

A contract in which two parties exchange a series of cash flows for another.

Options

A contract in which the buyer of the contract has the right - but not the obligation - to buy (known as a “call option”)
or to sell (known as a “put option”) an asset or instrument at a set price on a future date. The seller has thecorresponding obligation to fulfil the transaction to sell or buy the asset or instrument if the buyer exercises theoption.

RISKS MANAGED
The Company offers and uses the instruments described above to manage fluctuations in the following market factors:
Foreign Exchange

Currencies at current or determined rates of exchange.

Interest Rate

Fixed or variable interest rates applying to money lent, deposited or borrowed.

Commodity

Soft commodities (that is, agricultural products such as wheat, coffee, cocoa and sugar) and hard commodities (thatis, mined products such as gold, oil and gas).

CreditCounterparty risk in the event of default.

24

NOTES TO THE FINANCIAL STATEMENTS

9. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
DERIVATIVE FINANCIAL INSTRUMENTS – HELD FOR TRADINGThe majority of the Company’s derivative financial instruments are held for trading. The fair values of derivative financial instruments held for tradingare:

Fair Value

Assets2020$m

Liabilities
2020$m

Assets2019$m

Liabilities
2019
$m

92

(91)

80

(84)

Interest rate contracts
Forward rate agreements
Futures contracts

23

(124)

32

(99)

Swap agreements

102,260(100,765)

82,258(81,074)

Options purchased

1,673

-

1,451

-

-

(2,609)-(2,317)104,048(103,589)

83,821(83,574)

Spot and forward contracts

10,525(10,105)

13,723(13,599)

Swap agreements

9,008(12,002)

13,591(15,151)

Options purchased

378

-

394

-

-

(476)

-

(501)

Total

19,911(22,583)

27,708(29,251)

Commodity contracts

2,571(1,834)

1,806(1,555)

Options sold
Total
Foreign exchange contracts

Options sold

Credit default swaps
Structured credit derivatives purchased

18

-

16

-

Other credit derivatives purchased

4

(3)

4

(10)

22

(3)

20

(10)

Structured credit derivatives sold

-

(18)

-

(19)

Other credit derivatives sold

9

(1)

14

(4)

9

(19)

14

(23)

Credit derivatives purchased

Credit derivatives sold
Total
Derivative financial instruments - held for trading

31

(22)

34

(33)

126,561(128,028)

113,369(114,413)

25

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
DERIVATIVE FINANCIAL INSTRUMENTS – DESIGNATED IN HEDGING RELATIONSHIPS
There are three types of hedge accounting relationships the Company utilises:
Fair value hedge

Cash flow hedge

Net investment hedge

Objective of thishedgingarrangement

To hedge our exposure to changes tothe fair value of a recognised asset or
liability or unrecognised firm
commitment caused by interest rateor foreign currency movements.

To hedge our exposure tovariability in cash flows of arecognised asset or liability, a firm
commitment or a highly probable
forecast transaction caused byinterest rate, foreign currency andother price movements.

To hedge our exposure to exchange rate
differences arising from the translation of
our foreign operations from theirfunctional currency to Australian dollars.

Recognition ofeffective hedge
portionThe following are recognised in profit
or loss at the same time: all changes in the fair value ofthe underlying item relating to
the hedged risk; and the change in the fair value ofderivatives.

We recognise the effective portionof changes in the fair value ofderivatives designated as a cash
flow hedge in the cash flow hedge
reserve.

We recognise the effective portion ofchanges in the fair value of the hedging
instrument in the foreign currencytranslation reserve (FCTR).

Recognition of
ineffective hedge
portionRecognised immediately in Other operating income.

If a hedging
instrument expires,or is sold, terminated,or exercised; or nolonger qualifies forhedge accounting

When we recognise the hedged itemin profit or loss, we recognise therelated unamortised fair value
adjustment in profit or loss. This may
occur over time if the hedged item isamortised to profit or loss as part ofthe effective yield over the period tomaturity.

Only when we recognise thehedged item in profit or loss is theamount previously deferred in the
cash flow hedge reserve transferred
to profit or loss.

The amount we defer in the foreign
currency translation reserve remains inequity and is transferred to profit or loss
only when we dispose of, or partiallydispose of, the foreign operation.

Hedged item sold or
repaidWe recognise the unamortised fairvalue adjustment immediately in
profit or loss.

Amounts accumulated in equity aretransferred immediately to profit orloss.

The gain or loss, or applicableproportion, we have recognised inequity is transferred to profit or loss on
disposal or partial disposal of a foreign
operation.

Under the policy choice provided by AASB 9 Financial Instruments, the Company has continued to apply the hedge accounting requirements of AASB
139 Financial Instruments: Recognition and Measurement.
The fair value of derivative financial instruments designated in hedging relationships are:

Fair value hedges
Foreign exchange swap agreements
Foreign exchange spot and forward contracts
Interest rate swap agreements
Interest rate futures contracts
Cash flow hedges
Interest rate swap agreements
Foreign exchange swap agreements
Foreign exchange spot and forward contracts
Net investment hedges
Foreign exchange spot and forward contracts
Derivative financial instruments - designated in
hedging relationships

Nominalamount$m

Assets2020$m

Liabilities
2020$m

Nominalamount$m

Assets2019$m

Liabilities
2019
$m

558
79,416
9,380

2,272
-

(9)
(2,773)
(103)

21
581
84,195
3,139

1
1,752
-

(9)
(2,479)(27)

59,037
2,943
153

1,643
63
-

(261)
(54)
-

49,409
2,934
159

1,347
75
-

(311)
(91)
(1)

404

13

(2)

540

-

(9)

151,891

3,991(3,202)140,978

3,175(2,927)26

NOTES TO THE FINANCIAL STATEMENTS

9. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
The maturity profile of the nominal amounts of our hedging instruments held as at 30 September 2020 is:

Less than 3

3 to 12

1 to 5

After

Average ratemonths$mmonths
$m

years
$m

5 years
$m

Total
$m

Interest Rate
HKD/AUD FX Rate

1.57%
5.59

3,475
558

7,852
-

53,250-24,219-88,796558

Interest Rate
AUD/USD FX Rate
USD/EUR FX Rate

1.65%
0.72
0.91

4,253

12,69240,013

2,079

59,037

38

613

1,157

1,288

3,096

TWD/AUD FX Rate

20.29

258

146

-

-

404

Nominal Amount
Fair value hedges
Interest rate
Foreign exchange
Cash flow hedges
Interest rate
Foreign exchange1
Net investment hedges
Foreign exchange

The maturity profile of the nominal amounts of our hedging instruments held at 30 September 2019 is:Less than 3

3 to 12

1 to 5

After

Average ratemonths$mmonths
$m

years
$m

5 years
$m

Total
$m

Interest Rate
HKD/AUD FX Rate

1.97%
5.38

3,195
602

14,463-

48,727-

20,949-87,334602

Interest Rate
AUD/USD FX Rate
USD/EUR FX Rate

2.10%
0.72
0.91

596

7,429

39,6301,754

49,409

40

120

1,652

1,281

3,093

TWD/AUD FX Rate

21.41

111

429

-

-

540

Nominal Amount
Fair value hedges
Interest rate
Foreign exchange
Cash flow hedges
Interest rate
Foreign exchange1
Net investment hedges
Foreign exchange
1.

Hedges of foreign exchange risk cover multiple currency pairs. The table reflects the larger currency pairs only.

27

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
The impact of ineffectiveness from our designated hedge relationships by type of hedge relationship and type of risk being hedged are:

2020
Fair value hedges1
Interest rate
Foreign exchange
Cash flow hedges1
Interest rate
Foreign exchange
Net investment hedges1
Foreign exchange

2019
Fair value hedges1
Interest rate
Foreign exchange
Cash flow hedges1
Interest rate
Foreign exchange
Net investment hedges1
Foreign exchange
1.

Change invalue ofhedging
instrument$m

IneffectivenessChange inHedge
value ofineffectivenesshedgedrecognised in
item
profit and loss$m$m

Amount reclassified
from the cash flow
hedge reserve or
FCTR to profit and
loss
$m

166
23

(154)
(23)

12
-

-

352
(15)

(351)
15

1
-

(5)
(2)

16

(16)

-

(15)

IneffectivenessChange inHedge
value ofineffectivenesshedgedrecognised in
item
profit and loss$m$m

Amount reclassified
from the cash flow
hedge reserve or
FCTR to profit andloss$mChange invalue ofhedging
instrument
$m
158
(36)

(155)
36

3
-

-

850
20

(840)
(20)

10
-

1
2

(35)

35

-

-

All hedging instruments are held within Derivative Financial Instruments.

Hedge ineffectiveness recognised is classified within Other operating income. Reclassification adjustments to the Statement of Comprehensive
Income are recognised within Net interest income and Other operating income.

28

NOTES TO THE FINANCIAL STATEMENTS

9. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Hedged items in relation to the Company’s fair value hedges at 30 September 2020 are as follows:
Accumulated fair value
hedge adjustments on
the hedged item

Carrying amount
AssetsLiabilities

AssetsLiabilities

$m

$m

$m

$m

5,946

-

43

-

Interest rate-

(44,159)-(1,923)

Interest rate

46,747

-

1,958

-

558

-

29

-

53,251(44,159)

2,030(1,923)Fixed rate loans and advances

Balance sheet
presentation
Hedged risk
Net loans and advances Interest rate

Fixed rate debt issuance

Debt issuances

Fixed rate investment securities (FVOCI)1 Investment securities
1

Equity securities at FVOCI

Investment securities

Foreign exchange

Total

Hedged items in relation to the Company’s fair value hedges at 30 September 2019 are as follows:
Accumulated fair value
hedge adjustments on
the hedged item

Carrying amount
AssetsLiabilities

AssetsLiabilities

$m

$m

$m

$m

1,242

-

12

-

Interest rate-

(49,928)-(1,412)

Interest rate

41,362

-

1,662

-

581

-

52

-

43,185(49,928)

1,726(1,412)

Fixed rate loans and advances

Balance sheet
presentation
Hedged risk
Net loans and advances Interest rate

Fixed rate debt issuance

Debt issuances

Fixed rate investment securities (FVOCI)1 Investment securities
1

Equity securities at FVOCI
Total
1.

Investment securities

Foreign exchange

The carrying amount of debt and equity instruments at fair value through other comprehensive income does not include the fair value hedge adjustment as the hedge assets are measured at fair value. The
accounting for the hedge relationship results in transfer of the hedge adjustment out of other comprehensive income into the Income Statement.

The cumulative amount of fair value hedge adjustments relating to ceased hedge relationships remaining on the Balance Sheet is nil (2019: $5
million).

29

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Hedged items in relation to the Company’s cash flow and net investment hedges for 30 September 2020 are as follows:

Hedged risk

Cash flow
hedge reserve
Continuing Discontinued
hedgeshedges$m$m

Foreign currencytranslation reserve
Continuing Discontinued
hedgeshedges$m$m

Cash Flow hedges
Floating rate loans and advancesInterest rate

1,508

30

-

-

Floating rate customer deposits

Interest rate

(193)

(15)

-

-

Foreign currency debt issuance

Foreign exchange

(2)

-

-

-

Foreign currency investment securities

Foreign exchange

10

-

-

-

Highly probable forecast transactions

Foreign exchange

(1)

-

-

-

Foreign exchange

-

-

36

(149)

Net investment hedges
Foreign operations

Hedged items in relation to the Company’s cash flow and net investment hedges for 30 September 2019 are as follows:

Hedged risk

Cash flow
hedge reserve
Continuing Discontinued
hedgeshedges$m$m

Foreign currencytranslation reserve
Continuing Discontinued
hedgeshedges$m$m

Cash Flow hedges
Floating rate loans and advancesInterest rate

1,252

33

-

-

Floating rate customer deposits

Interest rate

(274)

(24)

-

-

Foreign currency debt issuance

Foreign exchange

14

-

-

-

Foreign currency investment securities

Foreign exchange

6

-

-

-

Highly probable forecast transactions

Foreign exchange

3

-

-

-

Foreign exchange

-

-

35

(149)

Net investment hedges
Foreign operations

The table below details the reconciliation of the cash flow hedge reserve by risk type:Interest Rate$m

Foreign Currency
$m

Total
$m

Balance at 1 October 2018

106

-

106

Fair value gains

840

20

860

1

2

3

Transferred to income statement
Income taxes and others

(257)

(5)

(262)

Balance at 30 September 2019
Fair value gains

690
351

17
(15)

707
336

Transferred to income statement

(5)

(2)

(7)

Income taxes and others

(105)

4

(101)

Balance at 30 September 2020

931

4

935

Hedges from net investments in a foreign operation resulted in a $16 million increase in the foreign currency translation reserve during the year
(2019: -$35 million). Of that, $15 million (2019: nil) was reclassified from FCTR to the income statement during the year.

30

NOTES TO THE FINANCIAL STATEMENTS

9. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

RECOGNITION AND MEASUREMENT
Recognition

Initially and at each reporting date, we recognise all derivatives at fair value. If the fair value of a
derivative is positive, then we carry it as an asset, but if its value is negative, then we carry it as aliability.
Valuation adjustments are integral in determining the fair value of derivatives. This includes:

a credit valuation adjustment (CVA) to reflect the counterparty risk and/or event of default; anda funding valuation adjustment (FVA) to account for funding costs and benefits in the derivatives
portfolio.

Derecognition ofassets and liabilities

We remove derivative assets from our balance sheet when the contracts expire or we have transferred
substantially all the risks and rewards of ownership. We remove derivative liabilities from our balance
sheet when the Company’s contractual obligations are discharged, cancelled or expired.

Impact on the
Income Statement

How we recognise gains or losses on derivative financial instruments depends on whether thederivative is held for trading or is designated into a hedging relationship. For derivative financial
instruments held for trading, gains or losses from changes in the fair value are recognised in profit orloss.
For an instrument designated into a hedging relationship the recognition of gains or losses depends
on the nature of the item being hedged. Refer to the table on page 24 for profit or loss treatment
depending on the hedge type.
Sources of hedge ineffectiveness may arise from basis risk and differences in discounting between thehedged items and the hedging instruments. The hedging instruments are discounted using OvernightIndex Swaps discount curves which are not applied to the hedged items.

Hedge effectivenessTo qualify for hedge accounting a hedge is expected to be highly effective. A hedge is highly effective
only if the following conditions are met:

the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash
flows attributable to the hedged risk during the period for which the hedge is designated(prospective effectiveness); andthe actual results of the hedge are within the range of 80-125% (retrospective effectiveness).

The Company monitors hedge effectiveness on a regular basis but at a minimum at least at eachreporting date.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when we select the valuation techniques used to determine the fair value of derivatives, particularly the selection ofvaluation inputs that are not readily observable, and the application of valuation adjustments to certain derivatives. Refer to Note 16 Fair
Value of Financial Assets and Financial Liabilities for further details.

31

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
10. INVESTMENT SECURITIES
2020
$m

2019
$m

Debt securities

73,936

67,400Equity securities

994

1,168

5,354

4,787

80,28473,355Investment securities measured at fair value through other comprehensive income

Investment securities measured at amortised cost
Debt securities1
Total

Less than 3months$m

2020 Investment securities
Government securities2
2

Corporate and financial institution securities
Other securities2
Equity securities
Total

3 to 12months 1 to 5 years After 5 years No maturity
$m
$m
$m
$m

Total
$m

5,770

12,76330,887

633

1,700

-

-

17,600-67,020

7,104

71

-

9,508

532

2,230

-

2,762

-

-

-

-

994

994

6,403

14,46338,523

19,901

994

80,284

7,359

13,86329,306

11,711-

62,239-7,4582019 Investment securities
Government securities2
2

Corporate and financial institution securities

247

1,069

6,121

21

2

-

-

773

1,717

-

2,490

Equity securities

-

-

-

-

1,168

1,168

7,606

14,932

36,20013,4491,168

73,355

Other securities
Total
1.
2.

Includes allowance for expected credit losses of $1 million (2019: $1 million).
In 2020, ANZ reclassified investment securities issued by development banks and supra-nationals from Corporate and financial institution securities to Government securities. Comparative information has
been restated accordingly, with $9,185 million reclassified as Government securities from Corporate and financial institution securities. In addition, ANZ reclassified certain investment securities from
Government securities to Other securities and comparative information was restated with $577 million reclassified.

During the year, the Company recognised a net gain (before tax) in Other operating income from the recycling of gains previously deferred in equityof $21 million (2019: $26 million) in respect of investment securities.
The carrying value of equity securities classified as FVOCI securities is $994 million (2019: $1,168 million). This includes the Company’s $934 million(2019: $1,106 million) investment in the Bank of Tianjin (BoT).

32

NOTES TO THE FINANCIAL STATEMENTS

10. INVESTMENT SECURITIES (continuing)

RECOGNITION AND MEASUREMENT
Investment securities are those financial assets in security form (i.e. transferable debt or equity instruments) that are not held for trading
purposes. By way of exception, bills of exchange (a form of security/transferable instrument) which are used to facilitate the Bank’s
customer lending activities are classified as Loans and advances (rather than Investment securities) to better reflect the substance of thearrangement.
Non-traded equity investments may be designated at FVOCI on an instrument by instrument basis. If this election is made, gains or losses
are not reclassified from other comprehensive income to profit or loss on disposal of the investment. However, gains or losses may bereclassified within equity.
Assets disclosed as investment securities are subject to the general classification and measurement policy for Financial Assets outlined at
the commencement of the Company’s financial asset disclosures on page 22. Additionally, expected credit losses associated with
“Investment securities - debt securities at amortised cost” and “Investment securities - debt securities at fair value through comprehensive
income” are recognised and measured in accordance with the accounting policy outlined in Note 12. For “Investment securities – debt
securities at fair value through other comprehensive income” the allowance for Expected Credit Loss (ECL) is recognised in the FVOCI
reserve in equity with a corresponding charge to profit or loss.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when we select valuation techniques used to determine the fair value of assets not valued using quoted market
prices, particularly the selection of valuation inputs that are not readily observable. Refer to Note 16 Fair Value of Financial Assets andFinancial Liabilities for further details.

33

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
11. NET LOANS AND ADVANCES
2020
$m

2019
$m

Overdrafts

4,466

6,265

Credit cards

5,990

7,788

6,383

6,159

Term loans – housing

275,579

265,810

Term loans – non-housing

197,117

199,659

Commercial bills

Other

2,133

1,454

Subtotal

491,668

487,135

(19)

(144)

Unearned income

572

585

Gross loans and advances (including assets classified as held for sale)492,221487,576

Allowance for expected credit losses (refer to Note 12)(4,219)(2,921)

Net loans and advances

488,002484,655

Within one year

98,736

83,848After more than one year

389,266

400,807

Net loans and advances

488,002484,655

483,986

483,858

4,016

797

488,002484,655

Capitalised brokerage/mortgage origination fees

Residual contractual maturity:

Carried on Balance Sheet at:
Amortised cost
Fair value through profit or loss (designated on initial recognition)1
Net loans and advances1.

From 1 October 2019, the Company changed its accounting treatment for certain gold loan and deposit products which are now designated as at fair value through the profit and loss.

RECOGNITION AND MEASUREMENT
Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market
and are facilities the Company provides directly to customers or through third party channels.
Loans and advances are initially recognised at fair value plus transaction costs directly attributable to the issue of the loan or advance,
which are primarily brokerage/mortgage origination fees which we amortise over the estimated life of the loan. Subsequently, we thenmeasure loans and advances at amortised cost using the effective interest rate method, net of any provision for credit impairment, or
at fair value when they are specifically designated on initial recognition as fair value through profit or loss or when held for trading.
We classify contracts to lease assets and hire purchase agreements as finance leases if they transfer substantially all the risks andrewards of ownership of the asset to the customer or an unrelated third party. We include these facilities in ‘Other’ in the table above.
The Company enters into transactions in which it transfers financial assets that are recognised on its balance sheet. When the
Company retains substantially all of the risks and rewards of the transferred assets then the transferred assets remain on the Company’sbalance sheet, however, if substantially all the risks and rewards are transferred then the Company derecognises the asset.
If the risks and rewards are partially retained and control over the asset is lost, then the Company derecognises the asset. If control over
the asset is not lost, the Company continues to recognise the asset to the extent of its continuing involvement.
We separately recognise the rights and obligations retained, or created, in the transfer as assets and liabilities as appropriate.
Assets disclosed as net loans and advances are subject to the general classification and measurement policy for Financial Assets
outlined at the commencement of the Company’s Financial Asset disclosures on page 22. Additionally, expected credit losses
associated with loans and advances at amortised cost are recognised and measured in accordance with the accounting policy outlined
in Note 12.

34

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES
The following tables present the movement in the allowance for ECL for the year. The total allowance for ECL at 30 September 2020 was $4,951 million(30 September 2019: $3,479 million).

Net loans and advances - at amortised cost
Allowance for ECL is included in Net loans and advances.

As at 1 October 2018
Transfer between stages
New and increased provisions (net of releases)
Write-backs
Bad debts written off (excluding recoveries)
Foreign currency translation and other movements2
As at 30 September 2019
Transfer between stages
New and increased provisions (net of releases)
Write-backs
Bad debts written off (excluding recoveries)
Foreign currency translation and other movements2
As at 30 September 2020
1.
2.

Stage 31

Stage 1
$m
729
139
(136)
14
746

Stage 2
$m
1,199
(270)
246
6
1,181

Collectively
assessed
$m
308
(90)
143
361

Individuallyassessed
$m
695
221
995
(331)
(953)
6
633

Total
$m
2,931
1,248
(331)
(953)
26
2,921

168
122

(258)
1,198
(7)
2,114

(122)
135
(1)
373

212
1,171
(286)
(1,003)
(23)
704

2,626
(286)
(1,003)
(39)
4,219

(8)
1,028

The Company’s credit exposures that are purchased or originated credit-impaired financial assets are insignificant.
Other movements include the impact of discount unwind on individually assessed allowance for ECL.

Investment securities - debt securities at amortised cost
Allowance for ECL is included in Investment securities.

Stage 3As at 1 October 2018
New and increased provisions (net of releases)
Foreign currency translation
As at 30 September 2019

Stage 1$m
1
1Stage 2$m-

Collectively
assessed$m-

Individuallyassessed
$m
-

Total
$m
1
1

New and increased provisions (net of releases)
Foreign currency translation
As at 30 September 2020

1
(1)
1

-

-

-

1
(1)
1

35

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)
Investment securities - debt securities at FVOCIAs FVOCI assets are measured at fair value there is no separate allowance for ECL. Instead, the allowance for ECL is recognised in Other
Comprehensive Income (OCI), with a corresponding charge to profit or loss.
Stage 3As at 1 October 2018
New and increased provisions (net of releases)
Foreign currency translation
As at 30 September 2019

Stage 1$m
4
1
5

Stage 2$m-

Collectively
assessed$m-

Individuallyassessed
$m
-

Total
$m
4
1
5

New and increased provisions (net of releases)
Foreign currency translation
As at 30 September 2020

2
7

-

-

-

2
7

Off-balance sheet commitments - undrawn and contingent facilities
Allowance for ECL is included in Other provisions.
Stage 31

As at 1 October 2018
Transfer between stages
New and increased provisions (net of releases)
Write-backs
Foreign currency translation
As at 30 September 2019

Stage 1
$m
408
21
(33)
9
405

Stage 2
$m
141
(23)
7
1
126

Collectively
assessed
$m
8
1
5
14

Individuallyassessed
$m
18
1
(1)
(6)
12

Total
$m
575
(21)
(1)
4
557

15
100

(20)
78
(1)
183

(2)
3
15

7
13
(12)
20

194
(12)
(8)
731

Transfer between stages
New and increased provisions (net of releases)
Write-backs
Foreign currency translation
As at 30 September 2020
1.

(7)
513

The Company’s credit exposures that are purchased or originated credit-impaired financial assets are insignificant.

36

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)
CREDIT IMPAIRMENT CHARGE - INCOME STATEMENT

Credit impairment charge/(release)
2020
$m

2019
$m

New and increased provisions (net of releases)1- Collectively assessed

1,420

11

- Individually assessed

1,403

1,217

Write-backs

(298)

(332)

Recoveries of amounts previously written-off

(188)

(182)

Total credit impairment charge

2,337

714

1.

Includes the impact of transfers between collectively assessed and individually assessed.

The contractual amount outstanding on financial assets that were written off during the period ended 30 September 2020 and that are still subject toenforcement activity is $321 million (2019: $141 million).

COVID-19 REPAYMENT DEFERRAL PACKAGES OFFERED TO CUSTOMERS1
Since March 2020, the Company has offered various forms of assistance to customers to counteract the impact of COVID-19 on the ability ofcustomers to meet their loan obligations. The assistance provided has included arrangements such as temporary deferral of principal and interest
repayments, replacing principal and interest with interest only repayments, and extension of loan maturity dates. Refer to Key Judgements andEstimates in this Note for details on the impact of deferrals when determining if there has been a Significant Increase in Credit Risk (SICR).
The loan repayment deferral package is considered to be a loan modification under AASB 9. This either results in the loan being derecognised andreplaced with a new loan (substantial modification) or the existing loan continuing to be recognised (non-substantial modification). The table below
shows the outstanding balance as at 30 September 2020 of all loans that have been modified (both substantial and non-substantial modifications):

Assistance package category
Loan deferral package
RetailCommercial and other
Interest only
RetailCommercial and otherTerm extensions
RetailCommercial and otherTotal2RetailCommercial and otherTotal2

Total loan outstanding
At 30 September 2020$m
26,117
8,989
126
33
3
24
35,292
26,246
9,046
35,292

1. COVID-19 loan deferral packages are available to customers if either their loan repayments are less than 30 days past due, or if their repayments are less than 90 days past due but were up to date at 1 March 2020.
2. The gross carrying amount of loans at the date of modification that were considered non-substantial modifications and had loss allowances based on lifetime expected losses was $9,462 million. No gain or loss wasrecognised as a result of the modification and none of the loans have subsequently changed to a 12 month expected loss allowance.

37

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENTEXPECTED CREDIT LOSS IMPAIRMENT MODEL
The measurement of expected credit losses reflects an unbiased, probability weighted prediction which evaluates a range of scenarios andtakes into account the time value of money, past events, current conditions and forecasts of future economic conditions.
Expected credit losses are either measured over 12 months or the expected lifetime of the financial asset, depending on credit
deterioration since origination, according to the following three-stage approach: Stage 1: At the origination of a financial asset, and where there has not been a Significant Increase in Credit Risk (SICR) since origination,an allowance equivalent to 12 months ECL is recognised reflecting the expected credit losses resulting from default events that are
possible within the next 12 months from the reporting date. For instruments with a remaining maturity of less than 12 months, expectedcredit losses are estimated based on default events that are possible over the remaining time to maturity.
 Stage 2: Where there has been a SICR since origination, an allowance equivalent to lifetime ECL is recognised reflecting expected credit
losses resulting from all possible default events over the expected life of a financial instrument. If credit risk were to improve in a
subsequent period such that the increase in credit risk since origination is no longer considered significant, the exposure returns to a
Stage 1 classification and a 12 month ECL applies.
 Stage 3: Where there is objective evidence of impairment, an allowance equivalent to lifetime ECL is recognised.
Expected credit losses are estimated on a collective basis for exposures in Stage 1 and Stage 2, and on either a collective or individual basis
when transferred to Stage 3.
MEASUREMENT OF EXPECTED CREDIT LOSSECL is calculated as the product of the following credit risk factors at a facility level, discounted to incorporate the time value of money:
 Probability of default (PD) - the estimate of the likelihood that a borrower will default over a given period;
 Exposure at default (EAD) - the expected balance sheet exposure at default taking into account repayments of principal and interest,
expected additional drawdowns and accrued interest; and Loss given default (LGD) - the expected loss in the event of the borrower defaulting, expressed as a percentage of the facility's EAD,
taking into account direct and indirect recovery costs.
These credit risk factors are adjusted for current and forward-looking information through the use of macro-economic variables.
EXPECTED LIFE
When estimating ECL for exposures in Stage 2 and 3, the Company considers the expected lifetime over which it is exposed to credit risk.
For non-retail portfolios, the Company uses the maximum contractual period as the expected lifetime for non-revolving credit facilities. For
non-retail revolving credit facilities, such as corporate lines of credit, the expected life reflects the Company’s contractual right to withdraw
a facility as part of a contractually agreed annual review, after taking into account the applicable notice period.
For retail portfolios, the expected lifetime is determined using a behavioural term, taking into account expected prepayment behaviourand substantial modifications.
DEFINITION OF DEFAULT, CREDIT IMPAIRED AND WRITE-OFFS
The definition of default used in measuring expected credit losses is aligned to the definition used for internal credit risk management
purposes across all portfolios. This definition is also in line with the regulatory definition of default. Default occurs when there are indicatorsthat a debtor is unlikely to fully satisfy contractual credit obligations to the Company, or the exposure is 90 days past due.
Financial assets, including those that are well secured, are considered credit impaired for financial reporting purposes when they default.
When there is no realistic probability of recovery, loans are written off against the related impairment allowance on completion of theCompany’s internal processes and when all reasonably expected recoveries have been collected. In subsequent periods, any recoveries ofamounts previously written-off are credited to credit impairment charge in the income statement.

38

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENT (continued)
MODIFIED FINANCIAL ASSETS
If the terms of a financial asset are modified or an existing financial asset is replaced with a new one for either credit or commercial reasons,an assessment is made to determine if the changes to the terms of the existing financial asset are considered substantial. This assessment
considers both changes in cash flows arising from the modified terms as well as changes in the overall instrument risk profile; for example,
changes in the principal (credit limit), term, or type of underlying collateral. Where a modification is considered non-substantial, the existing
financial asset is not derecognised and its date of origination continues to be used to determine SICR. Where a modification is considered
substantial, the existing financial asset is derecognised and a new financial asset is recognised at its fair value on the modification date, which
also becomes the date of origination used to determine SICR for this new asset.
SIGNIFICANT INCREASE IN CREDIT RISK (SICR)
Stage 2 assets are those that have experienced a Significant Increase in Credit Risk (SICR) since origination. In determining what constitutes a
SICR, the Company considers both qualitative and quantitative information:i.

Internal credit rating grade
For the majority of portfolios, the primary indicator of a SICR is a significant deterioration in the internal credit rating grade of a facility sinceorigination and is measured by application of thresholds.
For non-retail portfolios, a SICR is determined by comparing the Customer Credit Rating (CCR) applicable to a facility at reporting date to
the CCR at origination of that facility. A CCR is assigned to each borrower which reflects the probability of default of the borrower andincorporates both borrower and non-borrower specific information, including forward-looking information. CCRs are subject to review
at least annually or more frequently when an event occurs which could affect the credit risk of the customer.
For retail portfolios, a SICR is determined, depending on the type of facility, by either comparing the scenario weighted lifetime probabilityof default at the reporting date to that at origination, or by reference to customer behavioural score thresholds. The scenario weighted
lifetime probability of default may increase significantly if: there has been a deterioration in the economic outlook, or an increase in economic uncertainty; or there has been a deterioration in the customer’s overall credit position, or ability to manage their credit obligations.

ii. Backstop criteria
The Company uses 30 days past due arrears as a backstop criteria for both non-retail and retail portfolios. For retail portfolios only, facilities
are required to demonstrate three to six months of good payment behaviour prior to being allocated back to Stage 1.
iii. COVID-19 initiatives
For facilities subject to the COVID-19 repayment deferral arrangements noted above, an assessment of SICR has been determined basedon various measures of the customer’s current financial position and earnings capacity from which the facilities are categorised into risk
categories. SICR is then determined based on the resulting risk categorisation. Customers in high risk categories, and those who haverequested a deferral extension have been classified as having a SICR.
FORWARD-LOOKING INFORMATION
Forward-looking information is incorporated into both our assessment of whether a financial asset has experienced a SICR since its initialrecognition and in our estimate of ECL. In applying forward-looking information for estimating ECL, the Company considers four probabilityweighted forecast economic scenarios as follows:i.

Base case scenario
The base case scenario is ANZ’s view of the most likely future macro-economic conditions. It reflects management’s assumptions used forstrategic planning and budgeting, and also informs ANZ’s Internal Capital Adequacy Assessment Process (ICAAP) which is the process ANZ
applies in strategic and capital planning over a 3-year time horizon;

ii. Upside and iii. Downside scenarios
The upside and downside scenarios are fixed by reference to average economic cycle conditions (that is, they are not based on theeconomic conditions prevailing at balance date) and are based on a combination of more optimistic (in the case of the upside) andpessimistic (in the case of the downside) economic events and uncertainty over long term horizons; andiv. Severe downside scenario
The severe downside scenario is fixed by reference to average economic cycle conditions and accounts for the potentially severe impactof less likely extremely adverse economic conditions. It reflects macro-economic conditions of a downturn economic event with aprobability of occurrence once every 25 years.

39

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENT (continued)
FORWARD-LOOKING INFORMATION (continued)
The four scenarios are described in terms of macro-economic variables used in the PD, LGD and EAD models (collectively the ECL models)depending on the portfolio and country of the borrower. Examples of the variables include unemployment rates, GDP growth rates, house
price indices, commercial property price indices and consumer price indices.
Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base caseeconomic scenario, as well as specific portfolio considerations where required.
The Group Asset and Liability Committee (GALCO) is responsible for reviewing and approving the base case economic forecast scenario and
the Credit and Market Risk Committee (CMRC) approves the probability weights applied to each scenario.
Where applicable, temporary adjustments may be made to account for situations where known or expected risks have not been adequately
addressed in the modelling process. CMRC is responsible for approving such adjustments.

KEY JUDGEMENTS AND ESTIMATES
In estimating collectively assessed ECL, the Company makes judgements and assumptions in relation to: the selection of an estimation technique or modelling methodology, noting that the modelling of the Company’s ECL estimates arecomplex; and the selection of inputs for those models, and the interdependencies between those inputs.
The following table summarises the key judgements and assumptions in relation to the model inputs and the interdependencies between
those inputs, and highlights significant changes during the current period.
The judgements and associated assumptions have been made within the context of the impact of COVID-19, and reflect historicalexperience and other factors that are considered to be relevant, including expectations of future events that are believed to be reasonable
under the circumstances. In relation to COVID-19, judgements and assumptions include the extent and duration of the pandemic, theimpacts of actions of governments and other authorities, and the responses of businesses and consumers in different industries, alongwith the associated impact on the global economy. Accordingly, the Company’s ECL estimates are inherently uncertain and, as a result,actual results may differ from these estimates.
Judgement/
Assumption
Determining
when aSignificant
Increase in
Credit (SICR)
Risk hasoccurred

Description

Considerations for the year ended 30 September 2020

In the measurement of ECL, judgement is involved insetting the rules and trigger points to determine whether
there has been a SICR since initial recognition of a loan,
which would result in the financial asset moving from ‘Stage
1’ to ‘Stage 2’. This is a key area of judgement sincetransition from Stage 1 to Stage 2 increases the ECL from anallowance based on the probability of default in the next 12months, to an allowance for lifetime expected credit losses.
Subsequent decreases in credit risk resulting in transition
from Stage 2 to Stage 1 may similarly result in significant
changes in the ECL allowance.
The setting of precise trigger points requires judgement
which may have a material impact upon the size of the ECL
allowance. The Company monitors the effectiveness of SICR
criteria on an ongoing basis.

In response to the impacts of COVID-19, various packages,
such as repayment deferrals, have been offered to eligible
retail and commercial customers in Australia. The
Company does not consider that when a customer is firstprovided assistance, all other things being equal, that
there has been a SICR and a consequent impact on ECL
when assessing provisions.
Subsequent to take-up, customers have been contacted to
discuss available options once the packages reach theirend date. This additional information on the customer’s
financial position and ability to recommence their loan
repayments is used to assist in classification of customers
into risk categories. Customers in higher risk categories,
and those who have requested a deferral extension, havebeen classified as having a SICR.

40

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

KEY JUDGEMENTS AND ESTIMATES (continued)
Judgement/
Assumption
Measuring both12-month andlifetime credit
lossesBase caseeconomic forecast

Description

Considerations for the year ended 30 September 2020

The PD, LGD and EAD credit risk parameters used indetermining ECL are point-in-time measures reflecting
the relevant forward-looking information determinedby management. Judgement is involved indetermining which forward-looking information
variables are relevant for particular lending portfolios
and for determining each portfolio’s point-in-time
sensitivity.

The PD, EAD and LGD models are subject to the Company’s
model risk policy that stipulates periodic model monitoring,
periodic re-validation and defines approval procedures andauthorities according to model materiality.

In addition, judgement is required where behaviouralcharacteristics are applied in estimating the lifetime ofa facility to be used in measuring ECL.

There were no changes to behavioural lifetime estimatesduring the year ended 30 September 2020.

The Company derives a forward-looking “base case”
economic scenario which reflects ANZ’s view of themost likely future macro-economic conditions.

There have been no changes to the types of forward-looking
variables (key economic drivers) used as model inputs in thecurrent year.

There were no material changes to the policies during theyear ended 30 September 2020.

As at 30 September 2020, the base case assumptions havebeen updated to reflect the rapidly evolving situation withrespect to COVID-19. This includes an assessment of the
impact of central bank policies, governments’ actions, theresponse of business, and institution specific responses (suchas repayment deferrals). These are considered in determining
the length and severity of the forecast economic downturn.
The expected outcomes of key economic drivers for the basecase scenario as at 30 September 2020 are described below
under the heading “Base case economic forecast
assumptions”.
Probability
weighting of eacheconomic
scenario (basecase, upside,
downside andsevere downside
scenarios)1,2

Probability weighting of each economic scenario is
determined by management considering the risks anduncertainties surrounding the base case economic
scenario at each measurement date.

The key consideration for probability weightings in thecurrent period is the continuing impact of COVID-19.
The Company considers these weightings in each geography
to provide the best estimate of the possible loss outcomes
and has analysed inter-relationships and correlations (overboth the short and long term) within the Company’s credit
portfolios in determining them.
In addition to the base case forecast which reflects thenegative economic consequences of COVID-19, greater
weighting has been applied to the downside scenario given
the Company’s assessment of downside risks.
The assigned probability weightings in Australia and Rest ofworld are subject to a high degree of inherent uncertainty
and therefore the actual outcomes may be significantly
different to those projected.

1.

2.

The upside and downside scenarios are fixed by reference to average economic cycle conditions (that is, they are not based on the economic conditions prevailing at balance date) and are based on a
combination of more optimistic (in the case of the upside) and pessimistic (in the case of the downside) economic conditions.
The severe downside scenario is fixed by reference to average economic cycle conditions and accounts for the potentially severe downside impact of less likely extremely adverse economic conditions.

41

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
1

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

KEY JUDGEMENTS AND ESTIMATES (continued)
Judgement/
Assumption
Management
temporaryadjustments

Description

Considerations for the year ended 30 September 2020

Management temporary adjustments to the ECL allowance
are used in circumstances where it is judged that ourexisting inputs, assumptions and model techniques do not
capture all the risk factors relevant to our lending portfolios.
Emerging local or global macroeconomic, microeconomic
or political events, and natural disasters that are notincorporated into our current parameters, risk ratings, or
forward-looking information are examples of suchcircumstances. The use of management temporary
adjustments may impact the amount of ECL recognised.

Management have applied a number of adjustments to themodelled ECL primarily due to the uncertainty associatedwith COVID-19.
Management overlays (including COVID-19 overlays) which
add to the modelled ECL provision have been made for risks
particular to small business and commercial banking inAustralia, for retail, commercial and agri banking in New
Zealand and for tourism in the Pacific.

The uncertainty associated with the COVID-19 pandemic,
and the extent to which the actions of governments,
businesses and consumers mitigate against potentiallyadverse credit outcomes are not fully incorporated into
existing ECL models. Accordingly, management overlays
have been applied to ensure credit provisions areappropriate.

Base case economic forecast assumptions
The uncertain evolution of the COVID-19 pandemic increases the risk to the economic forecast resulting in an understatement oroverstatement of the ECL balance due to uncertainties around:The extent and duration of measures to stop or reduce the speed of the spread of COVID-19;



The extent and duration of the economic downturn, along with the time required for economies to recover; andThe effectiveness of government stimulus measures, in particular their impact on the magnitude of economic downturn and the extent
and duration of the recovery.

The economic drivers of the base case economic forecasts at 30 September 2020 are set out below. These reflect ANZ’s view of the most
likely future macro-economic conditions as at 30 September 2020. For years beyond the near term forecasts below, the ECL models project
future year economic conditions including an assumption to eventual reversion to mid-cycle economic conditions.
Forecast calendar year
2020
2021
2022
Australia
GDP
Unemployment
Residential property prices
Consumer price index
New ZealandGDP
Unemployment
Residential property prices
Consumer price index
Rest of worldGDP
Consumer price index

-4.3%
7.3%
-2.2%
0.8

1.6%
8.8%
-4.8%
1.2

4.0%
7.7%
2.0%
1.3

-5.6%
5.7%
-0.3%
1.6

2.0%
9.1%
0.9%
1.0

5.6%
6.5%
4.1%
1.2

-4.5%
1.0

2.5%
1.8

2.5%
2.0

42

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

KEY JUDGEMENTS AND ESTIMATES (CONTINUED)
The base case economic forecasts as at 30 September 2020 reflect a significant deterioration in current and expected economic conditions
from the forecasts as at 30 September 2019 reflecting the emergence and ongoing impact of the COVID-19 pandemic.
Probability weightings
Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base caseeconomic scenario. The key consideration for probability weightings in the current period is the continuing impact of COVID-19.
In addition to the base case economic forecast which reflects the negative economic consequences of COVID-19, greater weighting has been
applied to the downside economic scenario given the Company’s assessment of downside risks.
The assigned probability weightings in Australia and Rest of world are subject to a high degree of inherent uncertainty and therefore the actual
outcomes may be significantly different to those projected. The Company considers these weightings in each geography to provide the best
estimate of the possible loss outcomes and has analysed inter-relationships and correlations (over both the short and long term) within the
Company’s credit portfolios in determining them. The average weightings applied in the Company are set out below:
2020
The Company
Base
UpsideDownside
Severe Downside

2019

50.0%
10.9%
33.4%
5.7%

50.0%
15.7%
29.3%
5.0%

ECL - Sensitivity analysis
The uncertainty of the impact of COVID-19 introduces significant estimation uncertainty in relation to the measurement of the Company’s
allowance for expected credit losses. The rapidly evolving consequences of COVID-19 and government, business and consumer responses could
result in significant adjustments to the allowance in future financial years.
Given current economic uncertainties and the judgment applied to factors used in determining the expected default of borrowers in future
periods, expected credit losses reported by the Company should be considered as a best estimate within a range of possible estimates.
The table below illustrates the sensitivity of collectively assessed ECL to key factors used in determining it as at 30 September 2020:
ECL$m

Impact$m

If 1% of Stage 1 facilities were included in Stage 2
If 1% of Stage 2 facilities were included in Stage 1

4,272
4,218

45
(9)

100% upside scenario
100% base scenario
100% downside scenario
100% severe downside scenario

1,566
3,501
4,423
5,374

(2,661)
(726)
196
1,147

43

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
FINANCIAL LIABILITIESOutlined below is a description of how we classify and measure financial liabilities relevant to the subsequent note disclosures.

CLASSIFICATION AND MEASUREMENT
Financial liabilities
Financial liabilities are measured at amortised cost, or fair value through profit or loss when they are held for trading. Additionally, financial
liabilities can be designated at FVTPL where:the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise;a group of financial liabilities are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk
management strategy; or

the financial liability contains one or more embedded derivatives unless:a) the embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract, orb) the embedded derivative is closely related to the host financial liability.

Where financial liabilities are designated as measured at fair value, gains or losses relating to changes in the entity’s own credit risk are included inother comprehensive income, except where doing so would create or enlarge an accounting mismatch in profit or loss.

44

NOTES TO THE FINANCIAL STATEMENTS

13. DEPOSITS AND OTHER BORROWINGS
The table below presents our total deposits and other borrowings by type:
2020
$m

2019
$m

Certificates of deposit

30,57434,952

Term deposits

148,839

173,641

On demand and short term deposits

262,236

214,002

Deposits not bearing interest

22,016

15,765

Deposits from banks and securities sold under repurchase agreements1

86,94776,468Commercial paper

7,524

9,413

558,136524,241

544,324

522,125

Deposits and other borrowings
Residual contractual maturity:- to be settled within 1 year
- to be settled after 1 year

13,812

2,116

Deposits and other borrowings

558,136524,241556,676524,2201,460

21558,136524,241

Carried on Balance Sheet at:
Amortised cost
2

Fair value through profit or loss (designated on initial recognition)
Deposits and other borrowings
1.

2.

Includes $12 billion of funds drawn under the RBA’s Term Funding Facility (TFF). TFF is initially recognised at fair value and is subsequently measured at amortised cost using the effective interest rate
method.
From 1 October 2019, the Company changed its accounting treatment for certain gold and loan deposit products which are now designated as at fair value through profit and loss.

RECOGNITION AND MEASUREMENT
For deposits and other borrowings that are: not designated at fair value through profit or loss on initial recognition, we measure them at amortised cost and recognise theirinterest expense using the effective interest rate method; and managed on a fair value basis, reduce or eliminate an accounting mismatch or contain an embedded derivative, we designate them asmeasured at fair value through profit or loss.
Refer to Note 16 Fair Value of Financial Assets and Financial Liabilities for further details.
For deposits and other borrowings designated at fair value we recognise the amount of fair value gain or loss attributable to changes in the
Company’s own credit risk in other comprehensive income in retained earnings. Any remaining amount of fair value gain or loss werecognise directly in profit or loss. Once we have recognised an amount in other comprehensive income, we do not later reclassify it toprofit and loss.
Securities sold under repurchase agreements represent a liability to repurchase the financial assets that remain on our balance sheet since
the risks and rewards of ownership remain with the Company. Over the life of the repurchase agreement, we recognise the difference
between the sale price and the repurchase price and charge it to interest expense in the profit and loss.

45

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
14. DEBT ISSUANCESThe Company uses a variety of funding programmes to issue senior debt (including covered bonds) and subordinated debt. The difference between
senior debt and subordinated debt is that holders of senior debt take priority over holders of subordinated debt owed by the Company. In thewinding up of the Company, the subordinated debt will be repaid by the Company, only after the repayment of claims of depositors, other creditors
and the senior debt holders.
2020
$m

2019
$m

Senior debt

64,591

71,767

Covered bonds

11,761

16,826

Total unsubordinated debt

76,352

88,593- Additional Tier 1 capital

7,833

7,838

- Tier 2 capital

12,865

8,415

Total subordinated debt

20,69816,253

Total debt issued

97,050104,846

Subordinated debt

For further information relating to debt issuances, refer to the ANZ 2020 Group Annual Report (Note 15 Debt Issuances) available athttps://www.anz.com/shareholder/centre/reporting/annual-report-annual-review/.

46

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENTRISK MANAGEMENT FRAMEWORK AND MODELINTRODUCTION
The use of financial instruments is fundamental to the Company’s businesses of providing banking and other financial services to our customers. The
associated financial risks (primarily credit, market, and liquidity risks) are a significant portion of the Company’s key material risks.
We disclose details of all key material risks impacting the Company, and further information on the Company’s risk management activities, in the
Governance and Risk Management section in the ANZ 2020 Group Annual Report available athttps://www.anz.com/shareholder/centre/reporting/annual-report-annual-review/.
This note details the Company’s financial risk management policies, processes and quantitative disclosures in relation to the key financial risks.
Key material financial risks

Key sections applicable to this risk

OverviewAn overview of our Risk Management Framework

Credit riskCredit risk overview, management and control responsibilities

The risk of financial loss resulting from:

Maximum exposure to credit risk

 a counterparty failing to fulfil its obligations; orCredit quality

 a decrease in credit quality of a counterparty resulting in afinancial loss.

Concentrations of credit riskCollateral management

Market riskMarket risk overview, management and control responsibilities

The risk to the Company’s earnings arising from:

Measurement of market risk

 changes in interest rates, foreign exchange rates, credit spreads,
volatility and correlations; or

Traded and non-traded market risk

Equity securities designated at FVOCI

 fluctuations in bond, commodity or equity prices.



Foreign currency risk – structural exposuresLiquidity risk overview, management and control responsibilities

Key areas of measurement for liquidity risk

Liquidity risk outcomes

Residual contractual maturity analysis of the Company’s liabilities

Credit risk incorporates the risks associated with us lending tocustomers who could be impacted by climate change or by changes
to laws, regulations, or other policies adopted by governments or
regulatory authorities, including carbon pricing and climate change
adaptation or mitigation policies.

Liquidity and funding risk
The risk that the Company is unable to meet payment obligations as
they fall due, including: repaying depositors or maturing wholesale debt; or the Company having insufficient capacity to fund increases in
assets.

47

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
15. FINANCIAL RISK MANAGEMENT (continued)
OVERVIEWAN OVERVIEW OF OUR RISK MANAGEMENT FRAMEWORKThis overview is provided to aid the users of the financial statements to understand the context of the financial disclosures required under AASB 7
Financial Instruments: Disclosures. It should be read in conjunction with the Governance and Risk Management section in the ANZ 2020 Group Annual
Report available at https://www.anz.com/shareholder/centre/reporting/annual-report-annual-review/.
The Board is responsible for establishing and overseeing the Company’s Risk Management Framework (RMF). The Board has delegated authority to
the Board Risk Committee (BRC) to develop and monitor compliance with the Company’s risk management policies. The BRC reports regularly to theBoard on its activities.
The Board approves the strategic objectives of the Company including: the Risk Appetite Statement (RAS), which sets out the Board’s expectations regarding the degree of risk that the Company is prepared to accept in
pursuit of its strategic objectives and business plan; and the Risk Management Strategy (RMS), which describes the Company’s strategy for managing risks and the key elements of the RMF that gives
effect to this strategy. This includes a description of each material risk, and an overview of how the RMF addresses each risk, with reference to therelevant policies, standards and procedures. It also includes information on how the Company identifies, measures, evaluates, monitors, reports
and controls or mitigates material risks.
The Company, through its training and management standards and procedures, aims to maintain a disciplined and robust control environment inwhich all employees understand their roles and obligations. At the Company, risk is everyone’s responsibility.
The Company has an independent risk management function, headed by the Chief Risk Officer who:
 is responsible for overseeing the risk profile and the risk management framework; can effectively challenge activities and decisions that materially affect the Company’s risk profile; and has an independent reporting line to the BRC to enable the appropriate escalation of issues of concern.
The Company’s Internal Audit Function reports directly to the Board Audit Committee (BAC). Internal Audit provides:
 an independent evaluation of the Company’s RMF annually that seeks to ensure compliance with, and the effectiveness of, the risk management
framework; facilitation of a comprehensive review every three years that seeks to ensure the appropriateness, effectiveness and adequacy of the risk
management framework; and recommendations to improve the framework and/or work practices to strengthen the effectiveness of day to day operations.

CREDIT RISKCREDIT RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Granting credit facilities to customers is one of the Company’s major sources of income. As this activity is also a principal risk, the Company dedicatesconsiderable resources to its management. The Company assumes credit risk in a wide range of lending and other activities in diverse markets and inmany jurisdictions. Credit risks arise from traditional lending to customers as well as from inter-bank, treasury, trade finance and capital markets
activities around the world.
Our credit risk management framework ensures we apply a consistent approach across the Company when we measure, monitor and manage thecredit risk appetite set by the Board. The Board is assisted and advised by the BRC in discharging its duty to oversee credit risk. The BRC: sets the credit risk appetite and credit strategies; and approves credit transactions beyond the discretion of executive management.

48

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
We quantify credit risk through an internal credit rating system (masterscales) to ensure consistency across exposure types and to provide a consistentframework for reporting and analysis. The system uses models and other tools to measure the following for customer exposures:
Probability of Default (PD)Expressed by a Customer Credit Rating (CCR), reflecting the Company’s assessment of a customer’sability to service and repay debt.

Exposure at Default (EAD)

The expected balance sheet exposure at default taking into account repayments of principal andinterest, expected additional drawdowns and accrued interest at the time of default.

Loss Given Default (LGD)

Expressed by a Security Indicator (SI) ranging from A to G. The SI is calculated by reference to thepercentage of loan covered by security which the Company can realise if a customer defaults. The A-G
scale is supplemented by a range of other SIs which cover factors such as cash cover and sovereign
backing. For retail and some small business customers, we group exposures into large homogenous
pools – and the LGD is assigned at the pool level.

Our specialist credit risk teams develop and validate the Company’s PD and LGD rating models. The outputs from these models drive our day-to-day
credit risk management decisions including origination, pricing, approval levels, regulatory capital adequacy, economic capital allocation, and credit
provisioning.
All customers with whom the Company has a credit relationship are assigned a CCR at origination via either of the following assessment approaches:
Large and more complex lending

Retail and some small business lending

Rating models provide a consistent and structured assessment, withjudgement required around the use of out-of-model factors. We
handle credit approval on a dual approval basis, jointly with thebusiness writer and an independent credit officer.

Automated assessment of credit applications using a combination ofscoring (application and behavioural), policy rules and external credit
reporting information. If the application does not meet the automatedassessment criteria, then it is referred out for manual assessment.

We use the Company’s internal CCRs to manage the credit quality of financial assets. To enable wider comparisons, the Company’s CCRs are mapped
to external rating agency scales as follows:
Credit Quality
Description

Internal CCR

ANZ Customer Requirements

Moody’s
RatingStandard &Poor’s Rating

Strong

CCR 0+ to 4-

Demonstrated superior stability in their operating and financial
performance over the long-term, and whose earnings capacity is
not significantly vulnerable to foreseeable events.

Aaa – Baa3

AAA – BBB-

Satisfactory

CCR 5+ to 6-

Demonstrated sound operational and financial stability over the
medium to long-term, even though some may be susceptible tocyclical trends or variability in earnings.

Ba1 – B1

BB+ – B+Weak

CCR 7+ to 8=

Demonstrated some operational and financial instability, withvariability and uncertainty in profitability and liquidity projected
to continue over the short and possibly medium term.

B2 - Caa

B - CCC

Defaulted

CCR 8- to 10

When doubt arises as to the collectability of a credit facility, thefinancial instrument (or “the facility”) is classified as defaulted.

N/A

N/A

MAXIMUM EXPOSURE TO CREDIT RISKFor financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances there may
be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below. Principally, thesedifferences arise in respect of financial assets that are subject to risks other than credit risk, such as equity instruments which are primarily subject tomarket risk, or bank notes and coins.
For undrawn facilities, this maximum exposure to credit risk is the full amount of the committed facilities. For contingent exposures, the maximum
exposure to credit risk is the maximum amount the Company would have to pay if the instrument is called upon.
The table below shows our maximum exposure to credit risk of on-balance sheet and off-balance sheet positions before taking account of any
collateral held or other credit enhancements.

49

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)

On-balance sheet positions
Net loans and advances
Other financial assets:
Cash and cash equivalents
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments
Investment securities- debt securities at amortised costs- debt securities at FVOCI- equity securities at FVOCIRegulatory deposits
Due from controlled entities
Other financial assets2
Total other financial assets
Subtotal
Off-balance sheet positions
Undrawn and contingent facilities3
Total

Maximum exposure
to credit risk

Excluded1

Reported
2020
$m

2019
$m

2020
$m

2019
$m

2020
$m

2019
$m

488,002484,655--

488,002484,655

98,083
7,116
13,012
38,423
130,552

77,9493,442
13,461
34,217
116,544

1,084
7,116
5,465
-

934
3,442
5,922
-

96,99913,012
32,958130,552

77,015
13,461
28,295116,5445,354
73,936994
199
100,6541,460
469,783
957,785

4,787
67,4001,168
215
88,8742,167
410,224
894,879994
14,65914,6591,168
11,466
11,466

5,354
73,936
199
100,6541,460
455,124
943,126

4,787
67,400215
88,874
2,167
398,758
883,413226,714
1,184,499

211,796
1,106,675

14,65911,466

226,7141,169,840

211,796
1,095,2091.

Bank notes and coins and cash at bank within Cash and cash equivalents; Trade dated assets within Settlement balances owed to ANZ; Equity securities and precious metal exposures within Trading
securities; Equity securities within Investment securities were excluded as they do not have credit risk exposure.
Other financial assets mainly comprise accrued interest and acceptances.
3.
Undrawn and contingent facilities include guarantees, letters of credit and performance related contingencies, net of collectively assessed and individually assessed allowance for expected credit losses.
2.

50

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
CREDIT QUALITY
An analysis of the Company’s credit risk exposure is presented in the following tables based on the Company’s internal rating by stage without taking
account of the effects of any collateral or other credit enhancements:
Net loans and advances
2020

StrongSatisfactory
Weak
Defaulted
Gross loans and advances at amortised cost
Allowance for ECL
Net loans and advances at amortised cost
Coverage ratio
Loans and advances at fair value through profit or loss
Unearned income
Capitalised brokerage/mortgage origination fees
Net carrying amountStage 1$m
300,174
115,7458,348
424,267(1,028)423,239
0.24%

Stage 2$m
12,69230,20014,74057,632(2,114)55,518
3.67%

Stage 3
Collectively Individuallyassessedassessed
$m
$m
3,936
1,817
3,936
1,817
(373)
(704)
3,563
1,113
9.48%
38.75%

Total$m
312,866
145,945
23,088
5,753
487,652(4,219)483,433
0.87%
4,016
(19)
572
488,0022019

StrongSatisfactory
Weak
Defaulted
Gross loans and advances at amortised cost
Allowance for ECL
Net loans and advances at amortised cost
Coverage ratio
Loans and advances at fair value through profit or loss
Unearned income
Capitalised brokerage/mortgage origination fees
Net carrying amountStage 1$m
330,531
95,2866,462
432,279(746)
431,533
0.17%

Stage 2$m
16,72023,717
7,770
48,207(1,181)47,026
2.45%

Stage 3
Collectively Individuallyassessedassessed
$m
$m
4,248
1,604
4,248
1,604
(361)
(633)
3,887
971
8.50%
39.46%

Total$m
347,251
119,003
14,232
5,852
486,338(2,921)
483,417
0.60%
797
(144)
585
484,65551

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Investment securities - debt securities at amortised cost
2020

StrongSatisfactory

Stage 3
Collectively Individuallyassessedassessed$m$m

Stage 1$m

Stage 2
$m

Total
$m

5,271

-

-

-

5,271

84

-

-

-

84

Weak

-

-

-

-

-

Defaulted

-

-

-

-

-

5,355

-

-

-

5,355

(1)

-

-

-

(1)

Net investment securities - debt securities at amortised cost

5,354

-

-

-

5,354

Coverage ratio

0.02%

-

-

-

0.02%

Stage 3
Collectively Individuallyassessedassessed
$m
$m

Total
$m

Gross investment securities - debt securities at amortised cost
Allowance for ECL

2019Stage 1$m

Stage 2
$m

4,714

-

-

-

4,714

74

-

-

-

74

Weak

-

-

-

-

-

Defaulted

-

-

-

-

-

4,788

-

-

-

4,788

(1)

-

-

-

(1)

Net investment securities - debt securities at amortised cost

4,787

-

-

-

4,787

Coverage ratio

0.02%

-

-

-

0.02%

StrongSatisfactory

Gross investment securities - debt securities at amortised cost
Allowance for ECL

52

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)

Investment securities - debt securities at FVOCI
2020
Stage 3
Collectively Individuallyassessedassessed$m$m

Stage 1$m

Stage 2$m

73,936---73,936

Satisfactory

-

-

-

-

-

Weak

-

-

-

-

-

StrongDefaulted
Investment securities - debt securities at FVOCIAllowance for ECL recognised in other comprehensive income
Coverage ratio

Total
$m

-

-

-

-

-

73,936---73,936

(7)

-

-

-

(7)

0.01%

-

-

-

0.01%

Stage 3
Collectively Individuallyassessedassessed
$m
$m

Total
$m

2019

StrongStage 1$m

Stage 2$m

67,400---67,400Satisfactory

-

-

-

-

-

Weak

-

-

-

-

-

Defaulted

-

-

-

-

-

67,400---67,400Investment securities - debt securities at FVOCIAllowance for ECL recognised in other comprehensive income
Coverage ratio

(5)
0.01%

-

-

-

(5)
0.01%

53

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)

Other financial assets

StrongSatisfactory
Weak
Defaulted

2020
$m

2019
$m

365,532

317,051

9,724

9,138

577

382

1

-

375,834

326,571

Stage 3
Collectively Individuallyassessedassessed
$m
$m

Total
$m

Total carrying amountOff-balance sheet commitments - undrawn and contingent facilities
2020

Stage 1$m

Stage 2$m

Strong159,158

2,984

-

-

162,142

Satisfactory

18,874

2,944

-

-

21,818

Weak

1,107

915

-

-

2,022

-

-

102

165

267

179,139

6,843

102

165

186,249

(513)

(183)

(15)

(20)

(731)

178,626

6,660

87

145

185,518

0.29%

2.67%

14.71%

12.12%

Defaulted
Gross undrawn and contingent facilities subject to ECLAllowance for ECL included in Provisions
Net undrawn and contingent facilities subject to ECL
Coverage ratio

0.39%

Undrawn and contingent facilities not subject to ECL141,196

Net undrawn and contingent facilities

226,7142019Stage 1$m

Stage 2$m

Strong139,051

1,816

Satisfactory

19,546

2,923

271

793

-

-

158,868

Weak
Defaulted
Gross undrawn and contingent facilities subject to ECLAllowance for ECL included in Provisions
Net undrawn and contingent facilities subject to ECL
Coverage ratio
Undrawn and contingent facilities not subject to ECL

1

Net undrawn and contingent facilities
1.

Stage 3
Collectively Individuallyassessedassessed
$m
$m
-

Total
$m

-

140,867--

22,469

-

-

1,064

96

38

134

5,532

96

38

164,534

(405)

(126)

(14)

(12)

(557)

158,463

5,406

82

26

163,977

0.25%

2.28%

14.58%

31.58%

0.34%
47,819211,796

Commitments that can be unconditionally cancelled at any time without notice.

54

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
CONCENTRATIONS OF CREDIT RISK
Credit risk becomes concentrated when a number of customers are engaged in similar activities, have similar economic characteristics, or have similar
activities within the same geographic region – therefore, they may be similarly affected by changes in economic or other conditions. The Company
monitors its credit portfolio to manage risk concentration and rebalance the portfolio. The Company also applies single customer counterparty limits
to protect against unacceptably large exposures to one single customer.
Composition of financial instruments that give rise to credit risk by industry group are presented below:

Loans
and advances

Off-balance sheet credit
relatedcommitments

Other financial
assets

Total

2020
$m

2019
$m

2020
$m

2019
$m

2020
$m

2019
$m

2020
$m

2019
$m

Agriculture, forestry, fishing and mining

19,555

20,163946

860

15,837

16,11736,33837,140Business services

7,544

7,063

105

112

5,747

6,075

13,396

13,250Construction

4,649

4,859

19

33

5,331

5,140

9,999

10,032

Electricity, gas and water supply

4,842

5,293

1,843

1,543

6,841

5,226

13,526

12,062Entertainment, leisure and tourism

11,477

11,170

560

652

3,522

2,877

15,55914,699Financial, investment and insurance

49,254

52,333

364,478

321,569

44,678

39,107458,410413,009

Government and official institutions

3,347

2,002

75,55462,886

1,224

1,637

80,12566,525

Manufacturing

21,452

19,338

1,661

2,196

33,71636,31956,82957,853

Personal lending

279,899

274,357

697

1,072

49,421

42,246330,017317,675

Property services

37,60534,196

1,024

1,009

14,52615,12653,15550,331Retail trade

9,023

10,771

164

131

7,279

5,737

16,466

16,639Transport and storage

11,59911,955

1,016

966

7,412

6,844

20,027

19,765Wholesale trade

9,973

12,665

2,237

2,784

17,151

16,34729,361

31,796

Other

21,44920,970

4,821

2,946

14,76013,55541,03037,471Gross total

491,668

487,135

455,125

398,759

227,445

212,353

1,174,238

1,098,247

Provision for credit impairment(4,219)(2,921)

(1)

(1)

(731)

(557)

(4,951)(3,479)Subtotal

487,449484,214455,124

398,758

226,714

211,796

1,169,287

1,094,768

Unearned income

(19)

(144)

-

-

-

-

(19)

(144)

Capitalised brokerage/mortgage
origination fees

572

585

-

-

-

-

572

585

Maximum exposure to credit risk

488,002484,655

455,124

398,758

226,714

211,796

1,169,840

1,095,209

55

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
COLLATERAL MANAGEMENT
We use collateral for on and off-balance sheet exposures to mitigate credit risk if a counterparty cannot meet its repayment obligations. Where there issufficient collateral, an expected credit loss is not recognised. This is largely the case for certain lending products that are secured by corresponding
investment for which the margin loans are utilised and for reverse repurchase agreements. For some products, the collateral provided by customers isfundamental to the product’s structuring, so it is not strictly the secondary source of repayment - for example, lending secured by trade receivables istypically repaid by the collection of those receivables. During the period there was no change in our collateral policies.
The nature of collateral or security held for the relevant classes of financial assets is as follows:
Net loans and advances
Loans - housing andpersonal

Housing loans are secured by mortgage(s) over property and additional security may take the form ofguarantees and deposits.
Personal lending (including credit cards and overdrafts) is predominantly unsecured. If we take security, thenit is restricted to eligible vehicles, motor homes and other assets.

Loans - businessBusiness loans may be secured, partially secured or unsecured. Typically, we take security by way of amortgage over property and/or a charge over the business or other assets.
If appropriate, we may take other security to mitigate the credit risk, for example: guarantees, standby lettersof credit or derivative protection.

Other financial assets
Trading securities,
Investment securities,
Derivatives and Other
financial assets

For trading securities, we do not seek collateral directly from the issuer or counterparty. However, thecollateral may be implicit in the terms of the instrument (for example, with an asset-backed security). The
terms of debt securities may include collateralisation.
For derivatives, we typically terminate all contracts with the counterparty and settle on a net basis at market
levels current at the time of a counterparty default under International Swaps and Derivatives Association(ISDA) Master Agreements.
Our preferred practice is to use a Credit Support Annex (CSA) to the ISDA so that open derivative positions
with the counterparty are aggregated and cash collateral (or other forms of eligible collateral) is exchanged
daily. The collateral is provided by the counterparty when their position is out of the money (or provided tothe counterparty by the Company when our position is out of the money).

Off-balance sheet positions
Undrawn and contingent
facilities.

Collateral for off-balance sheet positions is mainly held against undrawn facilities, and they are typically
performance bonds or guarantees. Undrawn facilities that are secured include housing loans secured by
mortgages over residential property and business lending secured by commercial real estate and/or charges
over business assets.

The table below shows the estimated value of collateral we hold and the net unsecured portion of credit exposures:
Credit exposure

Unsecured portion of
credit exposure

Total value of collateral

2020
$m

2019
$m

2020
$m

2019
$m

Net loans and advances

488,002484,655

393,548

374,041

94,454

110,614

Other financial assets

455,124

398,758

42,00029,998413,124

368,760

Off-balance sheet positions
Total

2020
$m

2019
$m

226,714

211,796

36,37233,984

190,342

177,8121,169,840

1,095,209

471,920

438,023

697,920

657,186

56

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISKMARKET RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIESMarket risk stems from the Company’s trading and balance sheet management activities, the impact of changes and correlation between interest
rates, foreign exchange rates, credit spreads and volatility in bond, commodity or equity prices.
The BRC delegates responsibility for day-to-day management of both market risks and compliance with market risk policies to the Credit & Market Risk
Committee (CMRC) and the Group Asset & Liability Committee (GALCO).
Within overall strategies and policies established by the BRC, business units and risk management have joint responsibility for the control of market
risk at the Company level. The Market Risk team (a specialist risk management unit independent of the business) allocates market risk limits at various
levels and monitors and reports on them daily. This detailed framework allocates individual limits to manage and control exposures using risk factors
and profit and loss limits.
Management, measurement and reporting of market risk is undertaken in two broad categories:
Traded Market Risk

Non-Traded Market Risk

Risk of loss from changes in the value of financial instruments due
to movements in price factors for both physical and derivative
trading positions. Principal risk categories monitored are:Risk of loss associated with the management of non-traded interest rate risk,
liquidity risk and foreign exchange exposures. This includes interest rate riskin the banking book. This risk of loss arises from adverse changes in theoverall and relative level of interest rates for different tenors, differences in
the actual versus expected net interest margin, and the potential valuation
risk associated with embedded options in financial instruments and bankproducts.

1. Currency risk – potential loss arising from changes in foreignexchange rates or their implied volatilities.
2. Interest rate risk – potential loss from changes in market
interest rates or their implied volatilities.
3. Credit spread risk – potential loss arising from a movement inmargin or spread relative to a benchmark.
4. Commodity risk – potential loss arising from changes incommodity prices or their implied volatilities.
5. Equity risk – potential loss arising from changes in equity
prices.

MEASUREMENT OF MARKET RISKWe primarily manage and control market risk using Value at Risk (VaR), sensitivity analysis and stress testing.
VaR gauges the Company’s possible daily loss based on historical market movements.
The Company’s VaR approach for both traded and non-traded risk is historical simulation. We use historical changes in market rates, prices andvolatilities over: the previous 500 business days, to calculate standard VaR; and a 1-year stressed period, to calculate stressed VaR.
We calculate traded and non-traded VaR using one-day and ten-day holding periods. For stressed VaR, we use a ten-day period. Back testing is used toensure our VaR models remain accurate.
The Company measures VaR at a 99% confidence interval which means there is a 99% chance that a loss will not exceed the VaR for the relevant
holding period.

57

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
15. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISK (continued)
TRADED AND NON-TRADED MARKET RISK
Traded market risk
The table below shows the traded market risk VaR on a diversified basis by risk categories:

30 September 2020

30 September 2019

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

2.0

5.6

1.0

2.8

1.3

9.0

1.2

3.6

Interest rate

7.2

10.6

2.9

5.8

2.8

9.5

2.8

5.3

Credit

13.6

16.9

1.6

8.2

4.8

4.8

1.1

2.8

Commodity

2.7

4.3

1.3

2.2

1.5

4.0

1.1

1.8

Traded value at risk 99% confidence
Foreign exchange

-

-

-

-

-

-

-

-

Diversification benefit1(10.5)

n/a

n/a

(7.9)

(4.9)

n/a

n/a

(5.9)

Total VaR

15.0

24.5

5.3

11.1

5.5

13.1

5.3

7.6

Equity1.

The diversification benefit reflects the historical correlation between the regions. The high and low VaR figures reported for the region did not necessarily occur on the same day as the high and low VaRreported for the Company as a whole. Consequently, a diversification benefit for high and low would not be meaningful and is therefore omitted from the table.

Non-traded market risk
Balance sheet risk management
The principal objectives of balance sheet risk management are to maintain acceptable levels of interest rate and liquidity risk to mitigate the negative
impact of movements in interest rates on the earnings and market value of the Company’s banking book, while ensuring the Company maintains
sufficient liquidity to meet its obligations as they fall due.
Interest rate risk management
Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Company’s future net interest income.
This risk arises from two principal sources, namely mismatches between the repricing dates of interest bearing assets and liabilities; and theinvestment of capital and other non-interest bearing liabilities and assets. Interest rate risk is reported using VaR and scenario analysis (based on theimpact of a 1% rate shock). The table below shows VaR figures for non-traded interest rate risk for the combined Company as well as Australia, New
Zealand and Asia Pacific, Europe and Americas (APEA) geographies which are calculated separately.

30 September 2020

30 September 2019

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

60.8

60.8

18.8

33.4

22.7

22.7

16.4

18.9

Non-traded value at risk 99% confidence
Australia
New Zealand

0.0

0.1

0.0

0.0

0.0

0.1

0.0

0.0

Asia Pacific, Europe & America

28.5

30.9

17.7

24.1

17.6

17.6

12.7

16.1

Diversification benefit1(43.3)

n/an/a(21.4)(10.7)

n/an/a(11.0)

Total VaR

46.0

47.6

25.5

36.1

29.6

29.6

21.2

24.0

1.

The diversification benefit reflects the historical correlation between the regions. The high and low VaR figures reported for the region did not necessarily occur on the same day as the high and low VaRreported for the Company as a whole. Consequently, a diversification benefit for high and low would not be meaningful and is therefore omitted from the table.

58

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISK (continued)
We undertake scenario analysis to stress test the impact of extreme events on the Company’s market risk exposures. We model a 1% overnight parallel
positive shift in the yield curve to determine the potential impact on our net interest income over the next 12 months. This is a standard risk measure
which assumes the parallel shift is reflected in all wholesale and customer rates.
The table below shows the outcome of this risk measure for the current and previous financial years, expressed as a percentage of reported net
interest income. A positive number signifies that a rate increase is positive for net interest income over the next 12 months.

2020

20191

As at period end

0.78%

1.01%

Maximum exposure

1.78%

1.01%

Minimum exposure

0.06%

0.02%

Average exposure (in absolute terms)

0.78%

0.42%

Impact of 1% rate shock1.

Prior period numbers have been restated to reflect IRR model enhancements

EQUITY SECURITIES DESIGNATED AT FVOCI
Our investment securities contain equity investment holdings which predominantly comprise investments we hold for longer-term strategic reasons.
The market risk impact on these equity investments is not captured by the Company’s VaR processes for traded and non-traded market risks.
Therefore, the Company regularly reviews the valuations of the investments within the portfolio and assesses whether the investments are impaired
based on the recognition and measurement policies set out in Note 10 Investment securities.
FOREIGN CURRENCY RISK – STRUCTURAL EXPOSURES
Our investment of capital in foreign operations — for example, branches, subsidiaries or associates with functional currencies other than theAustralian Dollar — exposes the Company to the risk of changes in foreign exchange rates. Variations in the value of these foreign operations arising
as a result of exchange differences are reflected in the foreign currency translation reserve in equity.
Where it is considered appropriate, the Company takes out economic hedges against larger foreign exchange denominated revenue streams(primarily New Zealand Dollar, US dollar and US dollar correlated). The primary objective of hedging is to ensure that, if practical, the effect of changes
in foreign exchange rates on the consolidated capital ratios are minimised.

LIQUIDITY AND FUNDING RISKLIQUIDITY RISK AND FUNDING POSITION
For information related to the liquidity risk and funding position refer to the ANZ 2020 Group Annual Report (Note 16 Financial Risk Management),
available at https://www.anz.com/shareholder/centre/reporting/annual-report-annual-review/.
RESIDUAL CONTRACTUAL MATURITY ANALYSIS OF THE COMPANY’S LIABILITIESThe table below provides residual contractual maturity analysis of financial liabilities at 30 September within relevant maturity groupings. The tablebelow excludes “Due to controlled entities” liabilities of $100.9 billion (2019: $89.7 billion) as the contractual maturity is linked to the repayment ofunderlying assets which are managed on a pool basis which is continuously reviewed. All outstanding Debt Issuance and Subordinated Debt is
profiled on the earliest date on which the Company may be required to pay. All at-call liabilities are reported in the “Less than 3 months” category. Anyother items without a specified maturity date are included in the “After 5 years” category. The amounts represent principal and interest cash flows - sothey may differ from equivalent amounts reported on balance sheet. It should be noted that this is not how the Company manages its liquidity risk.
The management of this risk is detailed in the ANZ 2020 Group Annual Report (Note 16 Financial Risk Management), available athttps://www.anz.com/shareholder/centre/reporting/annual-report-annual-review/.

59

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
15. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISK (continued)

Less than
3 months$m

3 to 12months$m

1 to 5
years
$m

After
5 years
$m

Total
$m

Settlement balances owed by ANZ

19,556---

19,556

Collateral received

8,074

-

-

-

8,074

479,498

65,77914,419158

559,8542020

Deposits and other borrowings
Liability for acceptances

224

-

-

-

224

4,627

21,48364,102

12,775102,987

66

234

855

1,114

2,269

Receive leg(8,430)(14,025)(51,487)(13,620)(87,562)

Pay leg

8,038

12,93049,365

12,942

83,275

Receive leg(74,219)(40,186)(8,321)(8,343)(131,069)

Pay leg

74,09739,327

8,048

7,029

128,501

Less than
3 months$m

3 to 12months$m

1 to 5
years
$m

After
5 years
$m

Total
$m

Settlement balances owed by ANZ

9,313

29

-

-

9,342

Collateral received

7,005

-

-

-

7,005

447,479

74,6463,818

97526,040

293

-

-

-

293

Debt issuances1
Derivative liabilities (excluding those held for balance sheet management)2
Lease liabilities3

124,027

124,027

4

Derivative assets and liabilities (balance sheet management)- Funding- Other balance sheet management

2019

Deposits and other borrowings
Liability for acceptances
1

7,579

13,95879,37013,207

114,114

108,457---

108,457

Receive leg(24,570)(22,462)(62,851)(15,524)(125,407)

Pay leg

23,832

20,392

58,62914,668

117,521

Receive leg(84,339)(24,538)(8,350)(1,583)(118,810)

Pay leg

84,52525,088

9,373

1,972

120,958

Debt issuances

Derivative liabilities (excluding those held for balance sheet management)2
Derivative assets and liabilities (balance sheet management)4- Funding- Other balance sheet management1.

Any callable wholesale debt instruments have been included at their next call date. Balance includes subordinated debt instruments that may be settled in cash or in equity, at the option of the Company,
and perpetual debt instruments after 5 years.
The full mark-to-market of derivative liabilities not held for balance sheet management purposes is included in the “less than 3 months” category.
3.
On adoption of AASB 16 on 1 October 2019, the Company recognised a Lease liability of $2.1 billion presented within Payables and other liabilities. Comparative information has not been restated. Refer toNote 1 for further details.
4.
Includes derivatives designated into hedging relationships of $3,202 million (2019: $2,927 million) and $4,001 million (2019: $5,956 million) categorised as held for trading but form part of the Company’sbalance sheet management.
2.

At 30 September 2020 $191,300 million (2019: $171,881 million) of the Company’s undrawn facilities and $36,146 million (2019: $40,472 million) of its
issued guarantees mature in less than 1 year, based on the earliest date on which the Company may be required to pay.

60

NOTES TO THE FINANCIAL STATEMENTS

16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESThe Company carries a significant number of financial instruments on the balance sheet at fair value. The fair value is the best estimate of the pricethat would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

VALUATION
The Company has an established control framework, including appropriate segregation of duties, to ensure that fair values are accurately determined,
reported and controlled. The framework includes the following features: products are approved for transacting with external customers and counterparties only where fair values can be appropriately determined; quoted market prices used to value financial instruments are independently verified with information from external pricing providers; fair value methodologies and inputs are evaluated and approved by a function independent of the party that undertakes the transaction;
 movements in fair values are independently monitored and explained by reference to underlying factors relevant to the fair value; and valuation adjustments (such as funding valuation adjustments, credit valuation adjustments and bid-offer adjustments) are independently
validated and monitored.
If the Company holds offsetting risk positions, then the Company uses the portfolio exemption in AASB 13 Fair Value Measurement (AASB 13) tomeasure the fair value of such groups of financial assets and financial liabilities. We measure the portfolio based on the price that would be received tosell a net long position (an asset) for a particular risk exposure, or to transfer a net short position (a liability) for a particular risk exposure.
Fair value designation
We designate certain loans and advances and certain deposits and other borrowings and debt issuances as fair value through profit or loss:
 where they contain a separable embedded derivative which significantly modifies the instruments’ cash flow; or in order to eliminate an accounting mismatch which would arise if the asset or liabilities were otherwise carried at amortised cost. This mismatcharises as we measure the derivative financial instruments (which we acquired to mitigate interest rate risk of the assets or liabilities) at fair value
through profit or loss.
Our approach ensures that we recognise the fair value movements on the assets or liabilities in profit or loss in the same period as the movement on
the associated derivatives.
We may also designate certain loans and advances and certain deposits and other borrowings and debt issuances as fair value through profit or loss
where they are managed on a fair value basis to align the measurement with how the instruments are managed.

FAIR VALUE APPROACH AND VALUATION TECHNIQUESWe use valuation techniques to estimate the fair value of assets and liabilities for recognition, measurement and disclosure purposes where no quoted
price in an active market exists for that asset or liability. This includes the following:
Asset or Liability

Fair Value Approach

Financial instruments classified as:

Valuation techniques are used that incorporate observable market inputs for financial
instruments with similar credit risk, maturity and yield characteristics. Equity
instruments that are not traded in active markets may be measured using
comparable company valuation multiples.

- Trading securities- Securities sold short- Derivative financial assets and liabilities- Investment securities
Financial instruments classified as:- Net loans and advances- Deposits and other borrowings

Discounted cash flow techniques are used whereby contractual future cash flows of
the instruments are discounted using wholesale market interest rates, or market
borrowing rates for debt with similar maturities or yield curve appropriate for theremaining term to maturity.

- Debt issuances

61

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
CLASSIFICATION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESThe following tables set out the classification of financial asset and liability categories according to measurement bases together with their carrying
amounts as reported on the balance sheet.
2020
2019

Note

At
amortised
cost
$m

At
fair
value
$m

Total
$m

At
amortised
cost
$m

At
fair
value
$m

Total
$m

7

98,083-98,083

7,116

-

7,116

77,949-77,949

3,442

-

3,442

-

Financial assets
Cash and cash equivalents
Settlement balances owed to ANZ

13,012

13,461-

13,461

Trading securities

8-

38,42338,423-34,21734,217

Derivative financial assets and liabilities

9-130,552

130,552-

116,544

116,544

Collateral paid

13,012

Investment securities

10

5,354

74,93080,284

4,787

68,56873,355Net loans and advances

11483,986

4,016

488,002483,858797

484,655

Regulatory deposits

199

Due from controlled entities

98,726

Other financial assets

1,460

Total

707,936

1,928
249,849

199

215

-

215

100,654

86,907

1,967

88,874

1,460

2,167

-

2,167

957,785

672,786

222,093

894,879

Financial liabilities
Settlement balances owed by ANZ

19,556-

19,556

9,342

-

9,342

Collateral received

8,074

-

8,074

7,005

-

7,005

556,676

1,460

558,136524,22021

524,241

Deposits and other borrowings

13

Derivative financial instruments

9

Due to controlled entities
Payables and other liabilities
Debt issuances
Total

14

-

131,230

131,230-

117,340

117,340

100,932-

100,932

89,683-89,683

4,377

3,693

8,070

4,231

2,390

6,621

92,832

4,218

97,050100,199

4,647

104,846

782,447

140,601

923,048734,680

124,398

859,078

FAIR VALUE HIERARCHY
The Company categorises assets and liabilities carried at fair value into a fair value hierarchy as required by AASB 13 based on the observability of
inputs used to measure the fair value:
 Level 1 - valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
 Level 2 - valuations using inputs other than quoted prices included within Level 1 that are observable for a similar asset or liability, either directly or
indirectly; and Level 3 - valuations where significant unobservable inputs are used to measure the fair value of the asset or liability.

62

NOTES TO THE FINANCIAL STATEMENTS

16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FAIR VALUE HIERARCHY (continued)
The following table presents assets and liabilities carried at fair value in accordance with the fair value hierarchy:
Fair value measurements
Quoted price in active
markets(Level 1)
2020
2019
$m
$m

Using observable
inputs (Level 2)

Using unobservable
inputs (Level 3)

Total

2020
$m

2019
$m

2020
$m

2019
$m

2020
$m

2019
$m

29,439

3,253

4,778

-

-

38,42334,217

AssetsTrading securities1

35,170Derivative financial instruments

662

351

129,832

116,13758

56

130,552

116,544

73,83867,182

105

228

987

1,158

74,93068,568Net loans and advances

-

-

4,016

797

-

-

4,016

797

Due from controlled entities

-

-

1,928

1,967

-

-

1,928

1,967

109,670

96,972

139,134

123,907

1,045

1,214

249,849

222,093

Deposits and other borrowings2

-

-

1,460

21

-

-

1,460

21

Derivative financial instruments

1,109

868

130,066

116,42155

51

131,230

117,340

Payables and other liabilities3

3,680

2,352

13

38

-

-

3,693

2,390

996

1,009

3,222

3,638

-

-

4,218

4,647

5,785

4,229

134,761

120,11855

51

140,601

124,398

Investment securities1
2

Total
Liabilities

Debt issuances (designated at fair value)
Total
1.

During the year, $127 million of assets were transferred from Level 2 to Level1 (2019: nil) following increased trading activity to support quoted prices. There were no other material transfers during the year.
Transfers into and out of levels are measured at the beginning of the reporting period in which the transfer occurred.

2.

From 1 October 2019, the Company changed its accounting treatment for certain gold loan and deposit products which are now designated as at fair value through profit and loss.
Payables and other liabilities relates to securities sold short, which we classify as held for trading and measured at fair value through profit or loss.

3.

FAIR VALUE MEASUREMENT INCORPORATING UNOBSERVABLE MARKET DATA
Level 3 fair value measurements
The net balance of Level 3 is an asset of $990 million (2019: $1,163million). The assets and liabilities which incorporate significant unobservable inputs
primarily include: equities for which there is no active market or traded prices cannot be observed;
 structured credit products for which credit spreads and default probabilities relating to the reference assets and derivative counterparties cannot
be observed;
 other derivatives referencing market rates that cannot be observed primarily due to lack of market activity.
Movement in the Level 3 balance is mainly due to the revaluation of the Company’s investment in Bank of Tianjin.
There were no other material transfers in or out of Level 3 during the period.
Bank of Tianjin (BoT)The investment is valued based on comparative price-to-book (P/B) multiples (a P/B multiple is the ratio of the market value of equity to the bookvalue of equity). The extent of judgement applied in determining the appropriate multiple and comparator group from which the multiple is derived
are non-observable inputs which have resulted in the Level 3 classification.

63

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FAIR VALUE MEASUREMENT INCORPORATING UNOBSERVABLE MARKET DATA (continued)
Sensitivity to Level 3 data inputs
When we make assumptions due to significant inputs not being directly observable in the market place (Level 3 inputs), then changing theseassumptions changes the Company’s estimate of the instrument’s fair value. Favourable and unfavourable changes are determined by changing the
primary unobservable parameter used to derive the valuation.
Bank of Tianjin (BoT)The valuation of the BoT investment is sensitive to the selected unobservable input, being the P/B multiple. If the P/B multiple was increased or
decreased by 10% it would result in a $93 million (Sep 19: $111 million) increase or decrease to the fair value of the investment, which would berecognised in shareholders’ equity.
Other
The remaining Level 3 balance is immaterial and changes in the Level 3 inputs have a minimal impact on net profit and net assets of the Company.
Deferred fair value gains and losses
Where fair values are determined using unobservable inputs, the Company does not immediately recognise the difference between the transaction
price and the amount we determine based on the valuation technique (day one gain or loss) in profit or loss. After initial recognition, we recognise thedeferred amount in profit or loss on a straight line basis over the life of the transaction or until all inputs become observable.
The day one gains and losses deferred are not material.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE
The following table sets out the Company’s basis of estimating fair values of financial instruments carried at amortised cost:
Financial Asset and Liability

Fair Value Approach

Investment securities – debt securities at amortised cost

Calculated based on quoted market prices or observable inputs as applicable. If
quoted market prices are not available, we use a discounted cash flow modelusing a yield curve appropriate for the remaining term to maturity of the debt
instrument. The fair value reflects adjustments to credit spreads applicable forthat instrument.

Net loans and advances to banks

Discounted cash flows using prevailing market rates for loans with similar credit
quality.

Net loans and advances to customers

Present value of future cash flows, discounted using a curve that incorporates
changes in wholesale market rates, the Company’s cost of wholesale funding
and the customer margin, as appropriate.

Deposit liability without a specified maturity or at call

The amount payable on demand at the reporting date. We do not adjust thefair value for any value we expect the Company to derive from retaining thedeposit for a future period.

Interest bearing fixed maturity deposits and other borrowings
and acceptances with quoted market rates

Market borrowing rates of interest for debt with a similar maturity are used to
discount contractual cash flows to derive the fair value.

Debt issuances

Calculated based on quoted market prices or observable inputs as applicable. If
quoted market prices are not available, we use a discounted cash flow modelusing a yield curve appropriate for the remaining term to maturity of the debt
instrument. The fair value reflects adjustments to credit spreads applicable to
the Company for that instrument.

64

NOTES TO THE FINANCIAL STATEMENTS

16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE (continued)
The financial assets and financial liabilities listed in the table below are carried at amortised cost on the Company’s balance sheet. While this is thevalue at which we expect the assets will be realised and the liabilities settled, the Company provides an estimate of the fair value of the financial assets
and financial liabilities at balance date in the table below.

At amortised cost

Categorised into fair value hierarchy
Quoted price in
active markets(Level 1)

Fair value (total)

With significant nonobservable inputs(Level 3)

Using observable
inputs (Level 2)

2020
$m

2019
$m

2020
$m

2019
$m

2020
$m

2019
$m

2020
$m

2019
$m

2020
$m

2019
$m

483,986

483,858--

16,05621,425468,367

462,909484,423484,334

Financial assets
Net loans and advances
Investment securities

5,354

4,787

-

-

5,352

4,790

-

-

5,352

4,790

Due from controlled entities

98,72686,907----

98,72686,907

98,72686,907

Total

588,066

575,552--

21,40826,215567,093549,816

588,501

576,031556,676524,220--556,805

524,383-

556,805

524,383

23,214

39,62071,133

61,832--

94,347

101,452---

100,932

89,683

100,932

89,68339,620627,938

586,215

100,932

89,683752,084

715,518

Financial liabilities
Deposits and other borrowings
Debt issuances

92,832

100,199

Due to controlled entities

100,932

89,683

Total

750,440

714,10223,214KEY JUDGEMENTS AND ESTIMATESThe Company evaluates the material accuracy of the valuations incorporated in the financial statements as they can involve a high degreeof judgement and estimation in determining the carrying values of financial assets and liabilities at the balance sheet date.
The majority of valuation models the Company uses employ only observable market data as inputs. This has not changed as a result of
COVID-19, however the Company has considered the impact of related economic and market disruptions on fair value measurement
assumptions and the appropriateness of valuation inputs, notably valuation adjustments, as well as the impact of COVID-19 on theclassification of exposures in the fair value hierarchy.
However, for certain financial instruments, we may use data that is not readily observable in current markets. If we use unobservable market
data, then we need to exercise more judgement to determine fair value depending on the significance of the unobservable input to theoverall valuation. Generally, we derive unobservable inputs from other relevant market data and compare them to observed transaction
prices where available.
When establishing the fair value of a financial instrument using a valuation technique, the Company considers valuation adjustments indetermining the fair value. We may apply adjustments (such as bid/offer spreads, credit valuation adjustments and funding valuation
adjustments – refer Note 9 Derivative Financial Instruments) to reflect the Company’s assessment of factors that market participants would
consider in setting fair value.

65

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
17. ASSETS CHARGED AS SECURITY FOR LIABILITIES AND COLLATERAL ACCEPTED AS
SECURITY FOR ASSETS
The following disclosure excludes the amounts presented as collateral paid and received in the Balance Sheet that relate to derivative liabilities andderivative assets respectively. The terms and conditions of those collateral agreements are included in the standard Credit Support Annex that forms
part of the International Swaps and Derivatives Association Master Agreement.

ASSETS CHARGED AS SECURITY FOR LIABILITIESAssets charged as security for liabilities include the following types of instruments:
 Securities provided as collateral for repurchase transactions. These transactions are governed by standard industry agreements;
 Specified residential mortgages provided as security for notes and bonds issued to investors as part of the Company’s covered bond programs;
 Collateral provided to central banks; and Collateral provided to clearing houses.
The carrying amount of assets pledged as security are as follows:
2020
$m

2019
$m

Securities sold under arrangements to repurchase1

60,61242,640Residential mortgages provided as security for covered bonds

17,937

20,052

Other

4,921

4,421

1.

The amounts disclosed as securities sold under arrangements to repurchase include both: assets pledged as security which continue to be recognised on the Company's balance sheet; and assets repledged, which are included in the disclosure below.

COLLATERAL ACCEPTED AS SECURITY FOR ASSETSThe Company has received collateral associated with various financial instruments. Under certain transactions the Company has the right to sell, or to
repledge, the collateral received. These transactions are governed by standard industry agreements.
The fair value of collateral we have received and that which we have sold or repledged is as follows:
2020
$m

2019
$m

Fair value of assets which can be sold or repledged

53,11837,526

Fair value of assets sold or repledged

32,30829,38466

NOTES TO THE FINANCIAL STATEMENTS

18. OFFSETTING
We offset financial assets and financial liabilities on the balance sheet (in accordance with AASB 132 Financial Instruments: Presentation) when there is: a current legally enforceable right to set off the recognised amounts in all circumstances; and an intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.
If the above conditions are not met, the financial assets and liabilities are presented on a gross basis.
The Company does not have any arrangements that satisfy the conditions necessary to offset financial assets and financial liabilities within the balance
sheet. The following table identifies financial assets and financial liabilities which have not been offset but are subject to enforceable master netting
agreements (or similar arrangements) and the related amounts not offset in the balance sheet. We have not taken into account the effect of overcollateralisation.
Amount subject to master netting agreement or similar

2020

Amounts not
Total amounts
subject torecognised in master netting
the agreement orBalance Sheetsimilar
$m
$m

Total
$m

Financial
instruments$mFinancialcollateral(received)/pledged$mNetamount$m

Derivative financial assets

130,552(2,531)

128,021(117,039)(5,625)

5,357

Reverse repurchase, securities borrowing andsimilar agreements1

52,322(4,810)47,512(1,566)(45,946)-

Total financial assets

182,874(7,341)

175,533(118,605)(51,571)

5,357

Derivative financial liabilities(131,230)

1,567(129,663)

117,0399,402(3,222)

Repurchase, securities borrowing and similar
agreements2(54,951)

13,589(41,362)

1,566

39,796-

Total financial liabilities(186,181)

15,156(171,025)

118,605

49,198(3,222)

Amount subject to master netting agreement or similar

2019

Amounts not
Total amounts
subject torecognised in master netting
the agreement orBalance Sheetsimilar
$m
$m

Total
$m

Financial
instruments$mFinancialcollateral(received)/pledged$mNetamount$m

Derivative financial assets

116,544(2,323)

114,221(102,761)(6,232)

5,228

Reverse repurchase, securities borrowing andsimilar agreements1

36,648(4,845)31,803(1,414)(30,389)-

Total financial assets

153,192(7,168)146,024(104,175)(36,621)

5,228

Derivative financial liabilities(117,340)

1,648(115,692)

102,761

9,803(3,128)

Repurchase, securities borrowing and similar
agreements2(40,826)

17,240(23,586)

1,414

22,172-

Total financial liabilities(158,166)

18,888(139,278)

104,175

31,975(3,128)

1.

Reverse repurchase agreements:
 with less than 90 days to maturity are presented on the Balance Sheet within cash and cash equivalents; or with 90 days or more to maturity are presented on the Balance Sheet within net loans and advances.
2.
Repurchase agreements are presented on the Balance Sheet within deposits and other borrowings.

67

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
19. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill1

Balance at start of year
Additions

Software

Other Intangibles

Total

2020
$m

2019
$m

2020
$m

2019
$m

2020
$m

2019
$m

2020
$m

2019
$m

82

73

1,285

1,373

-

-

1,367

1,446

-

10

372

412

6

-

378

422

Amortisation expense²

-

-

(625)

(497)

(1)

-

(626)

(497)

Impairment expense3

(10)

-

(2)

(4)

-

-

(12)

(4)

Written off on disposal

(10)

-

-

-

-

-

(10)

-

-

(1)

-

1

-

-

-

-

Balance at end of year

62

82

1,030

1,285

5

-

1,097

1,367

Cost4
Accumulated
amortisation/impairment
Carrying amount

72

82

7,006

6,767

6

-

7,084

6,849

(10)

n/a

(5,976)(5,482)(1)-(5,987)(5,482)

62

82

1,030

1,285

5

-

1,097

1,367

Foreign currency exchange difference

1.
2.
3.
4.

Goodwill excludes notional goodwill in equity accounted investments.
During the second half of the 2020 financial year, the Company amended the application of its software amortisation policy. The Company recognised accelerated amortisation of $184 million.
During the September 2020 year, the Company recognised an impairment charge of $10 million to fully write off the goodwill relating to its business in the Pacific.
Includes impact of foreign currency translation differences.

RECOGNITION AND MEASUREMENT
The table below details how we recognise and measure different intangible assets:

Definition

Carrying value

Goodwill

Software

Other Intangible Assets

Excess amount the Company has
paid in acquiring a business overthe fair value of the identifiable
assets and liabilities acquired.

Purchases of “off the shelf” software
assets are capitalised as assets.

Intangible asset arising fromcontractual rights.

Cost less any accumulated
impairment losses.

Initially, measured at cost.

Allocated to the cash generating
unit to which theacquisition relates.

Internal and external costs incurred inbuilding software and computer
systems costing greater than $20
million are capitalised as assets. Thoseless than $20 million are expensed in
the year in which the costs are
incurred.

Subsequently, carried at cost lessaccumulated amortisation andimpairment losses.
Costs incurred in planning or
evaluating software proposals or inmaintaining systems after
implementation are
not capitalised.

Initially measured at fair value atacquisition.
Subsequently carried at cost lessaccumulated amortisation andimpairment losses.

68NOTES TO THE FINANCIAL STATEMENTS

19. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)

RECOGNITION AND MEASUREMENT (continued)

Useful life

Goodwill

Software

Other Intangible Assets

Indefinite.

Except for major core infrastructure,amortised over periods between
2-5 years; however major core
infrastructure may be amortised up to
7 years subject to approval by the
Audit Committee.

Useful life of 3 years.

Goodwill is reviewed for
impairment at least annually or
when there is an indication of
impairment.

Purchased software is amortised over
2 years unless it is considered integral
to other assets with a longer useful life.
Depreciation
methodNot applicable.

Straight-line method.

Straight-line method.

KEY JUDGEMENTS AND ESTIMATESManagement judgement is used to assess the recoverable value of goodwill, and other intangible assets, and the useful economic lifeof an asset, or if an asset has an indefinite life. We reassess the recoverability of the carrying value at each reporting date.
At each reporting date, software and other intangible assets are assessed for indicators of impairment and, where such indicators are
identified, an impairment assessment is performed. In the event that an asset’s carrying amount is determined to be greater than its
recoverable amount, the carrying value of the asset is written down immediately. Those assets not yet ready for use are tested for
impairment annually.
In addition, the expected useful lives of intangible assets are assessed at each reporting date. The assessment requires management
judgement, and in relation to our software assets, a number of factors can influence the expected useful lives. These factors include
changes to business strategy, significant divestments and the underlying pace of technological change.
During the Financial year the Company amended the application of the software policy to reflect the shorter lives of various types ofsoftware, including regulatory and compliance focused assets and purchased assets. These changes better reflect the Company’s
rapidly changing technology and business needs and ongoing reinvestment in purchased and internally developed software to ensure
assets remain fit for purpose.

69

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
20. OTHER PROVISIONS
2020
$m

2019
$m

ECL allowance on undrawn and contingent facilities1

731

557

Customer remediation

969

967

Restructuring costs

70

37

Non-lending losses, frauds and forgeries

57

63

Other

330

281

2,157

1,905

Non-lending
losses, frauds andforgeries
$m

Other
$m

75

113

Total other provisions
1.

Refer to Note 12 Allowance for Expected Credit Losses for movement analysis.

Customer
remediation Restructuring costs$m$mBalance as at 1 October 2018

556

94

New and increased provisions made during the year

608

46

1

308

Provisions used during the year

(150)

(91)

(5)

(40)

Unused amounts reversed during the year

(47)

(12)

(8)

(100)

Balance at 30 September 2019

967

37

63

281

New and increased provisions made during the year

673

105

5

376

Provisions used during the year

(303)

(65)

(8)

(191)

Unused amounts reversed during the year1

(368)

(7)

(3)

(136)

Balance at end of year

969

70

57

330

1.

Customer remediation includes a $72 million transfer to the purchaser on completion of divestment of part of Wealth Australia discontinued operations.

Customer remediation
Customer remediation includes provisions for expected refunds to customers, remediation project costs and related customer and regulatory
claims, penalties and litigation outcomes.
Restructuring costs
Provisions for restructuring costs arise from activities related to material changes in the scope of business undertaken by the Company or themanner in which that business is undertaken and include employee termination benefits. Costs relating to on-going activities are not provided
for and are expensed as incurred.
Non-lending losses, frauds and forgeries
Non-lending losses include losses arising from certain legal actions not directly related to amounts of principal outstanding for loans andadvances and losses arising from forgeries, frauds and the correction of operational issues. The amounts recognised are the best estimate of theconsideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties that surround theevents and circumstances that affect the provision.
Other
Other provisions comprise various other provisions including workers compensation, make-good provisions associated with leased premises andcontingent liabilities recognised as part of a business combination.

70

NOTES TO THE FINANCIAL STATEMENTS

20. OTHER PROVISIONS (continued)

RECOGNITION AND MEASUREMENTThe Company recognises provisions when there is a present obligation arising from a past event, an outflow of economic resources isprobable, and the amount of the provision can be measured reliably.
The amount recognised is the best estimate of the consideration required to settle the present obligation at reporting date, taking into
account the risks and uncertainties surrounding the obligation. Where a provision is measured using the estimated cash flows required tosettle the present obligation, its carrying amount is the present value of those cash flows.

KEY JUDGEMENTS AND ESTIMATESThe Company holds provisions for various obligations including customer remediation, restructuring costs and surplus lease space,
non-lending losses, fraud and forgeries and litigation related claims. These provisions involve judgements regarding the timing andoutcome of future events, including estimates of expenditure required to satisfy such obligations. Where relevant, expert legal advice
has been obtained and, in light of such advice, provisions and/or disclosures as deemed appropriate have been made.
In relation to customer remediation, determining the amount of the provisions, which represent management’s best estimate of thecost of settling the identified matters, requires the exercise of significant judgement. It will often be necessary to form a view on anumber of different assumptions, including, the number of impacted customers, the average refund per customer, the associatedremediation project costs, and the implications of regulatory exposures and customer claims having regard to their specific facts andcircumstances. Consequently, the appropriateness of the underlying assumptions is reviewed on a regular basis against actual
experience and other relevant evidence including expert legal advice and adjustments are made to the provisions where appropriate.

71

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
21. SHAREHOLDERS’ EQUITYSHAREHOLDERS’ EQUITY

Ordinary share capital

2020
$m

2019
$m

26,454

26,413

Reserves:
(131)

(21)

Share option reserve

85

89

FVOCI reserve

129

65

Foreign currency translation reserve

935

707

Total reserves

Cash flow hedge reserve

1,018

840

Retained earnings

25,80025,961

Total shareholders’ equity

53,27253,214

ORDINARY SHARE CAPITAL
The table below details the movement in ordinary shares and share capital for the period.

2020

Balance at start of the year
1

Bonus option plan

2

Dividend reinvestment plan

Group employee share acquisition scheme
Share buy-back3
Balance at end of year

2019

Number ofshares$m

Number ofshares$m

2,834,584,923

26,4132,873,618,118

27,5332,412,280-

2,999,796-

3,373,022

61

-

-

-

(20)

-

-

-

-

(42,032,991)(1,120)2,840,370,225

26,454

2,834,584,923

26,413

1.

The Company issued 0.8 million shares under the Bonus Option Plan (BOP) for the 2020 interim dividend and 1.6 million shares for the 2019 final dividend (1.4 million shares for the 2019 interim dividendand 1.6 million shares for the 2018 final dividend).
3.4 million shares were issued under the Dividend Reinvestment Plan (DRP) for the 2020 interim dividend (nil shares for the 2019 final dividend, nil shares for the 2019 interim dividend as the shares werepurchased on-market and provided directly to shareholders participating in the DRP).
3.
The Company completed a $3.0 billion on-market share buy-back of ANZ ordinary shares purchasing $1,120 million in the September 2019 full year resulting in 42.0 million ANZ ordinary shares being
cancelled in the September 2019 full year.
2.

72

NOTES TO THE FINANCIAL STATEMENTS

21. SHAREHOLDERS’ EQUITY (continued)

RECOGNITION AND MEASUREMENT
Ordinary shares

Ordinary shares have no par value. They entitle holders to receive dividends, or proceeds available
on winding up of the Company, in proportion to the number of fully paid ordinary shares held.
They are recognised at the amount paid per ordinary share net of directly attributable costs. Everyholder of fully paid ordinary shares present at a meeting in person, or by proxy, is entitled to: on a show of hands, one vote; and on a poll, one vote, for each share held.

Treasury shares

Treasury shares are shares in the Company which: the ANZ Employee Share Acquisition Plan purchases on market and have not yet distributed, or the Company issues to the ANZ Employee Share Acquisition Plan and have not yet been
distributed.
Treasury shares are deducted from share capital and excluded from the weighted average numberof ordinary shares used in the earnings per share calculations.

Reserves:
Foreign currency translation
reserve

Includes differences arising on translation of assets and liabilities into Australian dollars when thefunctional currency of a foreign operation (including subsidiaries and branches) is not Australian
dollars. In this reserve, we reflect any offsetting gains or losses on hedging these exposures,
together with any tax effect.

Cash flow hedge reserve

Includes fair value gains and losses associated with the effective portion of designated cash flow
hedging instruments together with any tax effect.

FVOCI reserve

Includes changes in the fair value of certain debt securities and equity securities included within
Investment Securities together with any tax effect.
In respect of debt securities classified as measured at FVOCI, the FVOCI reserve records
accumulated changes in fair value arising subsequent to initial recognition, except for thoserelating to allowance for expected credit losses, interest income and foreign currency exchange
gains and losses which are recognised in profit or loss. As debt securities at FVOCI are recorded atfair value, the balance of the FVOCI reserve is net of the ECL allowance associated with such assets.
When a debt security measured at FVOCI is derecognised, the cumulative gain or loss recognised in
the FVOCI reserve in respect of that security is reclassified to profit or loss and presented in Other
operating income.
In respect of the equity securities classified as measured at FVOCI, the FVOCI reserve records
accumulated changes in fair value arising subsequent to initial recognition (including any related
foreign exchange gains or losses). When an equity security measured at FVOCI is derecognised, thecumulative gain or loss recognised in the FVOCI reserve in respect of that security is not recycled to
profit or loss.

Share option reserve

Includes amounts which arise on the recognition of share-based compensation expense.

73

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
22. CAPITAL MANAGEMENTCAPITAL MANAGEMENT STRATEGY
ANZ’s capital management strategy aims to protect the interests of depositors, creditors and shareholders. We achieve this through an Internal Capital
Adequacy Assessment Process (ICAAP) whereby ANZ conducts detailed strategic and capital planning over a 3 year time horizon. The process
involves:forecasting economic variables, financial performance of ANZ’s divisions and the financial impact of new strategic initiatives to be implemented
during the planning period;



performing stress tests under different economic scenarios to determine the level of additional capital (‘stress capital buffer’) needed to absorb
losses that may be experienced under an economic downturn;reviewing capital ratios and targets across various classes of capital against ANZ’s risk profile; anddeveloping a capital plan, taking into account capital ratio targets, current and future capital issuances requirements and options around capital
products, timing and markets to execute the capital plan under differing market and economic conditions.

The capital plan is approved by the Board and updated as required. The Board and senior management are provided with regular updates of ANZ’scapital position. Any material actions required to ensure ongoing prudent capital management are submitted to the Board for approval. Throughout
the year, ANZ maintained compliance with all the regulatory requirements related to Capital Adequacy in the jurisdictions in which it operates.

REGULATORY ENVIRONMENTAs ANZ is an Authorised Deposit-taking Institution (ADI) in Australia, it is regulated by APRA under the Banking Act 1959 (Cth). ANZ must comply withthe minimum regulatory capital requirements, prudential capital ratios and specific reporting levels that APRA sets and which are consistent with theglobal Basel III capital framework. This is the common framework for determining the appropriate level of bank regulatory capital as set by the BaselCommittee on Banking Supervision (BCBS).
For reporting purposes as part of the ANZ 2020 Annual Report, Capital Adequacy Ratios are presented for the Level 2 ADI and are not presented for
the Company as a standalone entity. Refer to Note 23 Capital Management in the ANZ 2020 Group Annual Report for details of the Capital Adequacy
Ratios, which can be found at https://www.anz.com/shareholder/centre/reporting/annual-report-annual-review/.

74

NOTES TO THE FINANCIAL STATEMENTS

23. SHARES IN CONTROLLED ENTITIES
Incorporated in

Nature of business

2020
$m

2019
$m

Australia

Holding Company-

5

ACN 003 042 082 Ltd (in liquidation)

Laos

Finance26

26

ANZ Bank (Vietnam) Ltd

VietnamBanking

205

205

ANZ Capel Court Ltd

Australia

Securitisation Manager

18

18

ANZ Centre Chattels Trust

Australia

Property

167

167

ANZ Centre Trust

Australia

Property

550

550

ANZ Funds Pty Ltd

Australia

Holding Company

11,862

11,870

ANZ Lenders Mortgage Insurance Pty Ltd

Australia

Mortgage Insurance

398

398

ANZ (Lao) Sole Company Ltd

ANZ Properties (Australia) Pty Ltd

Australia

Property

7

7

ANZ Rewards No.2 Pty Ltd

Australia

Credit Card Loyalty Program

40

40

ANZ Securities (Holdings) Pty Ltd

Australia

Holding Company

39

39

India

IT Services

25

25

Australia

Holding Company

37

538

Australia

Holding Company

132

56

Australia and New Zealand Bank (China) Company Ltd

China

Banking

1,121

1,121

Australia and New Zealand Banking Group (PNG) Ltd

Papua New Guinea

Banking

40

40

Chongqing Liangping ANZ Rural Bank Company Ltd

China

Banking

-

5

Guam

Holding Company

41

41

Australia

Non-operating

43

43

ANZ Support Services India Private Ltd
ANZ Wealth Australia Ltd

1

ANZi Holdings Pty Ltd

Citizens Bancorp

2

E S & A Holdings Pty Ltd
Esanda Finance Corporation Ltd

Australia

Non-operating

5

5

Looking Together Pty Ltd

Australia

Non-operating-

6

PT Bank ANZ Indonesia (99% ownership)

Indonesia

Banking262

262

Share Investing Ltd

Australia

Trustee

Shares in controlled entities
1.
2.

4

-

15,022

15,467

ANZ Wealth Australia Ltd returned $501 million of capital following the sale of its OnePath funds management business in January 2020.
Comparative amount has been updated to reclassify $17 million previously classified as ANZ Guam, Inc.

RECOGNITION AND MEASUREMENTThe Company’s subsidiaries are those entities it controls through being exposed to, or having rights to, variable returns from the entity andbeing able to affect those returns through its power over the entity. The Company assesses whether it has power over those entities by
examining the Company’s existing rights to direct the relevant activities of the entity. Investments in controlled entities are carried at costless any accumulated impairment losses.
At least at each reporting date, the Company reviews investments in controlled entities for any indication of impairment. If an indication of
impairment exists, then the Company determines the recoverable amount of the controlled entity using the higher of:the controlled entity’s fair value less cost of disposal; and

its value-in-use.

We use a discounted cash flow methodology, and other methodologies (such as capitalisation of earnings methodology), to determine therecoverable amount.

75

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
24. TRANSFERS OF FINANCIAL ASSETSIn the normal course of business, the Company enters into transactions where it transfers financial assets directly to third parties or to Structured
Entities (SEs). These transfers may give rise to the Company fully, or partially derecognising those financial assets depending on the Company’s
exposure to the risks and rewards or control over the transferred assets. If the Company retains substantially all of the risk and rewards of a transferredasset, the transfer does not qualify for derecognition and the asset remains on the Company’s balance sheet in its entirety.

SECURITISATIONSNet loans and advances include residential mortgages securitised under the Company’s securitisation programs which are assigned to bankruptcy
remote SEs to provide security for obligations payable on the notes issued by the SEs. The holders of the issued notes have full recourse to the pool ofresidential mortgages which have been securitised and the Company cannot otherwise pledge or dispose of the transferred assets.
In some instances, the Company is also the holder of the securitised notes. In addition, the Company is entitled to any residual income of the SEs andsometimes enters into derivatives with the SEs. The Company retains the risks and rewards of the residential mortgages and continues to recognise
the mortgages as financial assets. The obligation to pay this amount to the SE is recognised as a financial liability of the Company.
The Company is exposed to variable returns from its involvement with these securitisation SEs and has the ability to affect those returns through its
power over the SEs activities. The SEs are therefore consolidated by the Company when preparing consolidated Group financial statements.

COVERED BONDS
The Company operates various global covered bond programs to raise funding in its primary markets. Net loans and advances include residential
mortgages assigned to bankruptcy remote SEs associated with these covered bond programs. The mortgages provide security for the obligations
payable on the issued covered bonds.
The covered bond holders have dual recourse to the issuer and the cover pool of assets. The issuer cannot otherwise pledge or dispose of thetransferred assets, however, subject to legal arrangements it may repurchase and substitute assets as long as the required cover is maintained.
The Company is required to maintain the cover pool at a level sufficient to cover the bond obligations. In addition, the Company is entitled to any
residual income of the covered bond SEs and enters into derivatives with the SEs. The Company retains the majority of the risks and rewards of theresidential mortgages and continues to recognise the mortgages as financial assets. The obligation to pay this amount to the SEs is recognised as afinancial liability of the Company.
The Company is exposed to variable returns from its involvement with the covered bond SEs and has the ability to affect those returns through its
power over the SEs activities. The SEs are therefore consolidated by the Company when preparing consolidated Group financial statements. The
covered bonds issued externally are included within debt issuances.

REPURCHASE AGREEMENTS
When the Company sells securities subject to repurchase agreements under which we retain substantially all the risks and rewards of ownership, thenthose assets do not qualify for derecognition. An associated liability is recognised for the consideration received from the counterparty.
The table below sets out the balance of assets transferred that do not qualify for derecognition, along with the associated liabilities:
Securitisations1,2

Covered bonds

Repurchase agreements

2020
$m

2019
$m

2020
$m

2019
$m

2020
$m

2019
$m

Current carrying amount of assets transferred

78,79365,947

17,937

20,05260,61242,640Carrying amount of associated liabilities

78,79365,947

17,937

20,052

54,95140,826

1.
2.

The balances relate to transfers to internal structured entities.
The securitisation noteholders have recourse only to the pool of residential mortgages which have been securitised. The carrying value of securitised assets and the associated liabilities approximates theirfair value.

76

NOTES TO THE FINANCIAL STATEMENTS

25. SUPERANNUATION AND POST EMPLOYMENT BENEFIT OBLIGATIONS
Set out below is a summary of amounts recognised in the Balance Sheet in respect of the defined benefit superannuation schemes:
2020
$m

2019
$m

Defined benefit obligation and scheme assets
Present value of funded defined benefit obligation(1,282)(1,353)

Fair value of scheme assets

1,541

1,591

Net defined benefit asset

259

238

Net liabilities arising from defined benefit obligations included in payables and other liabilities

(15)

(17)

As represented in the Balance Sheet
Net assets arising from defined benefit obligations included in other assets

274

255

Net defined benefit asset

259

238

Weighted average duration of the benefit payments reflected in the defined benefit obligation (years)

14.9

14.9

As at the most recent reporting dates of the schemes, the aggregate surplus of net market value of assets over the value of accrued benefits on afunding basis was $93 million (2019: surplus of $38 million). In 2020, the Company made defined benefit contributions totalling $2 million (2019: $2
million). It expects to make contributions of around $2 million next financial year.

GOVERNANCE OF THE SCHEMES AND FUNDING OF THE DEFINED BENEFIT SECTIONS
The main defined benefit superannuation schemes in which the Company participates operate under trust law and are managed and administeredon behalf of the members in accordance with the terms of the relevant trust deed and rules and all relevant legislation. These schemes have corporate
trustees, which are wholly owned subsidiaries of the Company. The trustees are the legal owners of the assets, which are held separately from theassets of the Company and are responsible for setting investment policy and agreeing funding requirements with the employer through the triennial
actuarial valuation process.
The defined benefit section of the ANZ Australian Staff Superannuation Scheme and ANZ UK Staff Pension Scheme are the two largest defined benefit
plans and have been closed to new members since 1987 and 2004 respectively. These plans did not have a material deficit, or surplus, at the lastfunding valuations. The Company has no present liability under the schemes’ trust deeds to fund a deficit (measured on a funding basis). A contingent
liability of the Company may arise if any of these schemes were wound up.

RECOGNITION AND MEASUREMENT
Defined benefit superannuation schemes
For the Company’s defined benefit schemes, an independent actuary calculates the liability and expenses related to providing benefits toemployees under each defined benefit scheme. They use the Projected Unit Credit Method to value the liabilities. The balance sheet
includes: a defined benefit liability if the obligation is greater than the fair value of the schemes assets; and an asset (capped to its recoverable amount) if the fair value of the assets is greater than the obligation.
In each reporting period, the movements in the net defined benefit liability are recognised as follows: the net movement relating to the current period’s service cost, net interest on the defined benefit liability, past service costs and othercosts (such as the effects of any curtailments and settlements) as operating expenses;
 remeasurements of the net defined benefit liability (which comprise actuarial gains and losses and return on scheme assets, excludinginterest income included in net interest) directly in retained earnings through other comprehensive income; and contributions of the Company directly against the net defined benefit position.
Defined contribution superannuation schemes
The Company operates a number of defined contribution schemes. It also contributes (according to local law, in the various countries inwhich it operates) to Government and other plans that have the characteristics of defined contribution plans. The Company’s contributions
to these schemes are recognised as personnel expenses when they are incurred.

77

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
25. SUPERANNUATION AND POST EMPLOYMENT BENEFIT OBLIGATIONS (continued)

KEY JUDGEMENTS AND ESTIMATES
The main assumptions we use in valuing defined benefit obligations are listed in the table below. A change to any assumptions, orapplying different assumptions, could affect the Statement of Other Comprehensive Income and Balance Sheet.

Sensitivity analysis
change in significant
assumptions
2020

2019

1.55 - 1.7

1.7 – 2.0

2.95

3.15

1.5 –
2.8/2.15

1.75 3.0/2.35

2020
$m

2019
$m

0.5% increase

(91)

(101)

0.5% increase73

74

1 year increase

65

65

Assumptions
Discount rate (% p.a.)
Future salary increases (% p.a.)

Increase/(decrease) in
defined benefit obligation

Future pension indexation
In payment (% p.a.)/In deferment (% p.a)Life expectancy at age 60 for current pensioners– Males (years)

26.0 - 28.7

25.6 – 28.6

– Females (years)

28.9 - 30.4

28.8 – 30.3

26. EMPLOYEE SHARE AND OPTION PLANS
The Company operates a number of employee share and option schemes under the ANZ Employee Share Acquisition Plan and the ANZ Share Option
Plan.

ANZ EMPLOYEE SHARE ACQUISITION PLAN
ANZ Employee Share Acquisition Plan schemes that operated during the 2020 and 2019 years were the Employee Share Offer and the Deferred Share
Plan.
Employee Share Offer

Eligibility

Most permanent employees employed in either Australia or New Zealand with three years continuous service for themost recent financial year.

Grant

Up to AUD 1,000 in Australia (and AUD 800 in New Zealand) of ANZ shares, subject to Board approval.

Allocation value

One week Volume Weighted Average Price (VWAP) of ANZ shares traded on the ASX in the week leading up to andincluding the date of grant.

Australia

ANZ ordinary shares are granted to eligible employees for nil consideration. The shares vest on grant and are held in
trust for three years from grant date, after which time they may remain in trust, be transferred to the employee’s nameor sold. Dividends are automatically reinvested in the Dividend Reinvestment Plan.

New ZealandShares are granted to eligible employees on payment of NZD one cent per share. Shares vest subject to satisfaction ofa three-year service period, after which they may remain in trust, be transferred to the employee’s name or sold.
Unvested shares are forfeited if the employee resigns or is dismissed for serious misconduct. Dividends are either paidin cash or reinvested into the Dividend Reinvestment Plan.

Expensing value(fair value)

In Australia, the fair value of the shares is expensed in the year shares are granted, as they are not subject to forfeiture.
In New Zealand, the fair value is expensed on a straight-line basis over the three year vesting period.
The expense is recognised as a share-based compensation expense with a corresponding increase in equity.

2020 and 2019 grants

698,862 shares were granted on 2 December 2019 at an issue price of $24.96, noting this is the final Employee Share
Offer in its current form following changes to variable remuneration (effective financial year 2020) as part of the
Reimagining Reward initiative.
656,738 shares were granted on 3 December 2018 at an issue price of $26.91.
78

NOTES TO THE FINANCIAL STATEMENTS

26. EMPLOYEE SHARE AND OPTION PLANS (continued)
Deferred Share Plani) ANZ Incentive Plan (ANZIP) - Chief Executive Officer (CEO), Group Executive Committee (ExCo) and other Banking Executive Accountability
Regime (BEAR) Accountable Executives
EligibilityGroup CEO, ExCo and Group General Manager Internal Audit (GGM IA).

Grant

50% of the CEO’s Annual Variable Remuneration (AVR), 25% of ExCo’s Variable Remuneration (VR) (except for the
Chief Risk Officer (CRO)), and 33% of the CRO and GGM IA’s VR, is received as deferred shares.

Conditions
Deferred over at least one to four years from the date the Board approved the variable remuneration award.
ii) ANZIP (all employees excluding the CEO, ExCo and other BEAR Accountable Executives1) and Business Unit Incentive Plans (BUIPs)
Eligibility

All employees excluding the CEO, ExCo and GGM IA (i.e. other BEAR Accountable Executive).

Grant

If VR is at or exceeds AUD 150,000, then 60% of VR amounts exceeding AUD 80,000 (subject to a minimum deferral
amount of AUD 42,000) is deferred as shares.
Deferred over three years from grant date.

Conditionsiii) Long Term Incentives (LTIs)
Eligibility

Selected employees (excludes the CEO, ExCo and GGM IA (i.e. other BEAR Accountable Executive).

Grant

100% deferred shares.

Conditions

Vest three years from grant date.

iv) Exceptional circumstances
Remuneration foregone

In exceptional circumstances, we grant deferred shares to certain employees when they start with the Company tocompensate them for remuneration they have foregone from their previous employer. The vesting period generallyaligns with the remaining vesting period of the remuneration they have foregone, and therefore varies between
grants.

Retention

We may grant deferred shares to high performing employees who are regarded as a significant retention risk to theCompany.

v) Further information
Cessation

Unless the Board decides otherwise, employees forfeit their unvested deferred shares if they resign, are terminatedon notice, or are dismissed for serious misconduct. The deferred shares may be held in trust beyond the deferral
period.

Dividends

Dividends are paid in cash or reinvested in the Dividend Reinvestment Plan.

Instrument

Deferred share rights may be granted instead of deferred shares in some countries as locally appropriate (seedeferred share rights section).

Allocation value

All deferred shares are issued based on the VWAP of ANZ shares traded on the ASX in the week leading up to andincluding the date of grant.

Expensing value (fair value)

We expense the fair value of deferred shares on a straight-line basis over the relevant vesting period and we
recognise the expense as a share-based compensation expense with a corresponding increase in equity.
During the 2020 year, we granted 2,259,897 deferred shares (2019: 1,945,668) with a weighted average grant priceof $24.94 (2019: $25.39).
Deferred shares remain at risk and the Board has the discretion to adjust the number of deferred shares
downwards, including to zero at any time before the vesting date. ANZ’s malus (downward adjustment) provisions
are detailed in section 5.3 of the 2020 Remuneration Report.
Board discretion was not exercised to adjust downward any deferred shares in 2020 (2019: 9,810).

2020 and 2019 grants
Malus (downward
adjustment)

1.

Specific deferral arrangements also exist under ANZIP for roles defined as United Kingdom Material Risk Takers and China Material Risk Takers, in line with local regulatory requirements.

Expensing of the ANZ Employee Share Acquisition Plan
Expensing value(fair value)

The fair value of shares we granted during 2020 under the Employee Share Offer and the Deferred Share Plan,
measured as at the date of grant of the shares, is $73.4 million (2019: $67.7 million) based on 2,958,759 shares (2019:
2,602,406) at VWAP of $24.81 (2019: $26.01).

79

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
26. EMPLOYEE SHARE AND OPTION PLANS (continued)

ANZ SHARE OPTION PLAN
Allocation

We may grant selected employees options/rights which entitle them to acquire fully paid ordinary ANZ shares at a
fixed price at the time the options/rights vest. Voting and dividend rights will be attached to the ordinary shares
allocated on exercise of the options/rights.
Each option/right entitles the holder to one ordinary share subject to the terms and conditions imposed on grant.
Exercise price of options, determined in accordance with the rules of the plan, is generally based on the VWAP of theshares traded on the ASX in the week leading up to and including the date of grant. For rights, the exercise price is nil.

Rules

Prior to the exercise of the option/right if the Company changes its share capital due to a bonus share issue, pro-rata
new share issue or reorganisation the following adjustments are required: Issue of bonus shares - When the holder exercises their option, they are also entitled to be issued the number ofbonus shares they would have been entitled to had they held the underlying shares at the time of the bonus
issue;
 Pro-rata share offer - We will adjust the exercise price of the option in the manner set out in the ASX Listing Rules;
and Reorganisation - In respect of rights, if there is a bonus issue or reorganisation of the Company’s share capital,
then the Board may adjust the number of rights or the number of underlying shares so that there is no advantage
or disadvantage to the holder.
Holders otherwise have no other entitlements to participate: in any new issue of the Company’s securities before they exercise their options/rights; or in a share issue of a body corporate other than ANZ (such as a subsidiary).
Any portion of the award which vests may, at the Board’s discretion, be satisfied by a cash equivalent payment rather
than shares.

Expensing

We expense the fair value of options/rights on a straight-line basis over the relevant vesting period and we recognise
the expense as a share-based compensation expense with a corresponding increase in equity.

Cessation

The provisions that apply if the employee’s employment ends are in section 8.2.3 of the 2020 Remuneration Report.

Malus (downward
adjustment)

The Company’s malus (downward adjustment) provisions are detailed in section 5.3 of the 2020 Remuneration
Report.

Option Plans that operated during 2020 and 2019i) Performance Rights

1.

Allocation

We grant performance rights to the CEO and ExCo, and have granted performance rights to selected employees, aspart of ANZ’s variable remuneration plans. Performance rights provide the holder with the right to acquire ANZ sharesat nil cost, subject to a four-year vesting period1 and Total Shareholder Return (TSR) performance hurdles. Further
details on the performance hurdles are in section 5.2.3a of the 2020 Remuneration Report.

Satisfying vesting

Any portion of the award of performance rights (that have met the performance hurdles) may be satisfied by a cash
equivalent payment rather than shares at the Board’s discretion. In 2020, all performance rights lapsed due to notmeeting the performance hurdles. In 2019, the performance rights that vested were satisfied through a shareallocation, other than 47,195 performance rights for which a cash payment was made.

2020 and 2019 grants

During the 2020 year, we granted 520,172 performance rights (2019: 885,810).

Malus (downward
adjustment)

Board discretion was not exercised to adjust downward any performance rights in 2020 (2019: 59,012).

gThree years for grants during 2019.

80

NOTES TO THE FINANCIAL STATEMENTS

26. EMPLOYEE SHARE AND OPTION PLANS (continued)ii) Deferred Share Rights (no performance hurdles)
Allocation

Deferred share rights provide the holder with the right to acquire ANZ shares at nil cost after a specified
vesting period. We adjust the fair value of rights for the absence of dividends during the restriction period.

Satisfying vesting

Any portion of the award of share rights may be satisfied by a cash equivalent payment rather than shares at
the Board’s discretion. All share rights were satisfied through a share allocation, other than 99,891 deferredshare rights (2019: 68,357) for which a cash payment was made.

2020 and 2019 grants

During the 2020 year, 2,393,424 deferred share rights (no performance hurdles) were granted(2019: 2,078,427).

Malus (downward adjustment)

Board discretion was not exercised to adjust downward any deferred share rights in 2020 (2019: 11,824).

Options, Deferred Share Rights and Performance Rights on Issue
As at 4 November 2020, there were 543 holders of 4,489,045 deferred share rights on issue and 125 holders of 2,216,062 performance rights on issue.
Options/Rights Movements
This table shows the options/rights over unissued ANZ shares and their related weighted average (WA) exercise prices as at the beginning and end of2020 and the movements during 2020:

Number of options/rights
WA exercise price

Options/rightsexpiredOptions/rightsexercised

Closingbalance
30 Sep 2020

(976,468)

0(1,901,109)

6,724,557

$0.00

$0.00

$0.00

$0.00

Openingbalance
1 Oct 2019

Options/rightsgrantedOptions/rightsforfeited1

6,688,538

2,913,596

$0.00

$0.00

$19.94WA closing share price
WA remaining contractual life

1.9 years

WA exercise price of all exercisable
options/rights outstanding$0.00

Outstanding exercisable options/rights

151,829

This table shows the options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of 2019
and the movements during 2019:
Options/
Options/
Closing
Opening
Options/
Options/rightsrightsbalancebalancerightsrightsexpiredexercised
30 Sep 2019
1 Oct 2018
grantedforfeited1
Number of options/rights
WA exercise price

7,148,573

2,964,237(1,589,109)

0(1,835,163)

6,688,538

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00

WA closing share price
WA remaining contractual life
WA exercise price of all exercisable
options/rights outstanding
Outstanding exercisable options/rights
1.

$26.66
1.9 years$0.00
181,581

Refers to any circumstance where equity can be forfeited (for example on cessation, downward adjustment or performance conditions not met).

All of the shares issued as a result of the exercise of options/rights during 2020 and 2019, were issued at a nil exercise price.
As at the date of the signing of the Directors’ Report on 4 November 2020:
 no options/rights over ordinary shares have been granted since the end of 2020; and 15,592 shares issued as a result of the exercise of options/rights since the end of 2020, all with nil exercise prices.

81

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
26. EMPLOYEE SHARE AND OPTION PLANS (continued)
Fair Value Assumptions
When determining the fair value, we apply the standard market techniques for valuation, including Monte Carlo and/or Black Scholes pricing models.
We do so in accordance with the requirements of AASB 2 Share-based Payments. The models take into account early exercise of vested equity, nontransferability and internal/external performance hurdles (if any).
The table below shows the significant assumptions we used as inputs into our fair value calculation of instruments granted during the period. We
present the values as weighted averages, but the specific values we use for each allocation are the ones we use for the fair value calculation.
2020

1.

2019
PerformancerightsDeferred
share
rightsPerformancerights

0.00

0.00

0.00

0.00

Share closing price at grant date ($)

24.78

24.93

25.83

25.52

Expected volatility of ANZ share price (%)1

20.0

20.0

20.0

20.0

Equity term (years)

2.5

6.0

2.5

4.8

Vesting period (years)

2.1

4.0

2.1

3.0

Expected life (years)

2.1

4.0

2.1

3.0

Expected dividend yield (%)

6.0

6.0

6.0

6.0

Risk free interest rate (%)

0.77

0.74

1.96

2.05

Fair value ($)

21.95

9.07

22.87

9.40

Deferred
share
rightsExercise price ($)

Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the rights. The measure of volatility used in the model is the annualised standard
deviation of the continuously compounded rates of return on the historical share price over a deferred period of time preceding the date of grant. This historical average annualised volatility is then used toestimate a reasonable expected volatility over the expected life of the rights.

SATISFYING EQUITY AWARDS
All shares underpinning equity awards may be purchased on market, reallocated or be newly issued shares, or a combination.
The equity we purchased on market during the 2020 financial year (either under the ANZ Employee Share Acquisition Plan and the ANZ Share Option
Plan, or to satisfy options or rights) for all employees amounted to 4,882,936 shares at an average price of $25.06 per share (2019: 4,317,094 shares at
an average price of $25.99 per share).

82

NOTES TO THE FINANCIAL STATEMENTS

27. RELATED PARTY DISCLOSURESKEY MANAGEMENT PERSONNEL COMPENSATIONKey Management Personnel (KMP) are defined as all directors and those personnel with a key responsibility for the strategic direction andmanagement of the Company and report directly to the CEO. KMP compensation included within total personnel expenses in Note 3 Operating
Expenses as follows:
2020
$000

2019
$0001

19,26015,784Post-employment benefits

414

415

Other long-term benefits

397

213

Short-term benefits

-

2,112

Share-based payments

8,198

6,184

Total

28,26924,708Termination benefits

1.

Includes former disclosed KMP until the end of their employment.

KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Loans made to KMP are made in the ordinary course of business and on normal commercial terms and conditions that are no more favourable thanthose given to other employees or customers, including: the term of the loan, security required and the interest rate. Details of the terms andconditions of lending products can be found on ANZ.com. No amounts have been written off during the period, or individual provisions raised in
respect of these balances. The aggregate of loans made, guaranteed or secured to KMP, including their related parties, were as follows:
2020
$000

2019
$000

Loans advanced1,2

18,51913,551

Interest charged

518

285

1.

Prior period balance has been restated to reflect minor timing variances and omissions.
2.
Balances are as at the balance sheet date (for KMP in office at balance sheet date) or at the date of cessation of former KMP.

KEY MANAGEMENT PERSONNEL HOLDINGS OF ANZ SECURITIESKMP, including their related parties, held subordinated debt, shares, share rights and options over shares in the Company directly, indirectly or
beneficially as shown below:

Shares, options and rights
Subordinated debt
1.

2020
Number1

2019
Number1

2,211,879

1,892,754

21,052

11,802

Balances are at the balance sheet date (for KMP in office at balance sheet date) or at the date of cessation of former KMP.

OTHER TRANSACTIONS OF KEY MANAGEMENT PERSONNEL AND THEIR RELATED PARTIESThe aggregate of deposits with the Bank of KMP and their related parties was $37 million (2019: $42 million).
Other transactions with KMP and their related parties included amounts paid to the Company in respect of investment management service fees,
brokerage and bank fees and charges. The Company has reimbursed KMP for the costs incurred for security and secretarial services associated withthe performance of their duties. These transactions are conducted on normal commercial terms and conditions and no more favourable than thosegiven to other employees or customers.

83

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
27. RELATED PARTY DISCLOSURES (continued)
ASSOCIATESDuring the course of the financial year, the Company conducted transactions with all associates on terms equivalent to those made on an arm’s
length basis as shown below:
2020
$000
Amounts payable to associates
Other expenses paid to associates

2019
$000

746

697

7,706

7,624

There have been no material guarantees given or received. No amounts have been written-off during the period, or individual provisions raised in
respect of these balances.

SUBSIDIARIESWe disclose material controlled entities in Note 23 Shares in Controlled Entities. During the financial year, subsidiaries conducted transactions witheach other and with associates on terms equivalent to those on an arm’s length basis. As of 30 September 2020, we consider all outstanding amounts
on these transactions to be fully collectible.
Transactions between the Company and its subsidiaries include providing a wide range of banking and other financial facilities. Details of amounts
paid to, or received from, related parties, in the form of dividends or interest, are set out in Note 2 Operating Income.
Other intragroup transactions include providing management and administrative services, staff training, data processing facilities, transfer of tax losses,
and the leasing of Premises and equipment.

84

NOTES TO THE FINANCIAL STATEMENTS

28. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETSCREDIT RELATED COMMITMENTS AND CONTINGENCIES
2020

2019

$m

$m

Contract amount of:
Undrawn facilities

191,300

171,881

Guarantees and letters of credit

20,64020,375

Performance related contingencies

15,50520,097

Total

227,445

212,353

UNDRAWN FACILITIESThe majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many of these facilities
are expected to be only partially used, and others may never be used at all. As such, the total of the nominal principal amounts is not necessarily
representative of future liquidity risks or future cash requirements. Based on the earliest date on which the Company may be required to pay, the total
undrawn facilities of $191,300 million (2019: $171,881 million) mature within 12 months.
GUARANTEES, LETTERS OF CREDIT AND PERFORMANCE CONTINGENCIES
Guarantees and contingent liabilities relate to transactions that the Company has entered into as principal – including: guarantees, standby letters ofcredit and documentary letters of credit.
Documentary letters of credit involve the Company issuing letters of credit guaranteeing payment in favour of an exporter. They are secured against
an underlying shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingents are liabilities that oblige the Company to make payments to a third party if the customer fails to fulfil its nonmonetary obligations under the contract.
To reflect the risk associated with these transactions, we apply the same credit origination, portfolio management and collateral requirements that weapply to loans. The contract amount represents the maximum potential amount that we could lose if the counterparty fails to meet its financial
obligations. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements. Basedon the earliest date on which the Company may be required to pay, the total guarantees and letters of credit of $20,640 million (2019: $20,375 million)
and total performance related contingencies of $15,505 million (2019: $20,097 million) mature within 12 months.

85

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
28. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (continued)
OTHER CONTINGENT LIABILITIESAs at 30 September 2020, the Company had contingent liabilities in respect of the matters outlined below. Where relevant, expert legal advice has
been obtained and, in the light of such advice, provisions (refer to note 20) and/or disclosures as deemed appropriate have been made. In someinstances we have not disclosed the estimated financial impact of the individual items either because it is not practicable to do so or because suchdisclosure may prejudice the interests of the Company.
REGULATORY AND CUSTOMER EXPOSURESIn recent years there has been an increase in the number of matters on which the Company engages with its regulators. There have also beensignificant increases in the nature and scale of regulatory investigations, surveillance and reviews, civil and criminal enforcement actions (whether bycourt action or otherwise), formal and informal inquiries, regulatory supervisory activities and the quantum of fines issued by regulators, particularly
against financial institutions both in Australia and globally. The Company has received various notices and requests for information from its regulators
as part of both industry-wide and Company-specific reviews and has also made disclosures to its regulators at its own instigation. The nature of theseinteractions can be wide ranging and, for example, currently include a range of matters including responsible lending practices, regulated lending
requirements, product suitability and distribution, interest and fees and the entitlement to charge them, customer remediation, wealth advice,
insurance distribution, pricing, competition, conduct in financial markets and financial transactions, capital market transactions, anti-money launderingand counter-terrorism financing obligations, reporting and disclosure obligations and product disclosure documentation. There may be exposures tocustomers which are additional to any regulatory exposures. These could include class actions, individual claims or customer remediation orcompensation activities. The outcomes and total costs associated with such reviews and possible exposures remain uncertain.
BENCHMARK/RATE ACTIONSIn July and August 2016, class action complaints were brought in the United States District Court against local and international banks, including theCompany – one action relating to the bank bill swap rate (BBSW), and one action relating to the Singapore Interbank Offered Rate (SIBOR) and theSingapore Swap Offer Rate (SOR). The class actions are expressed to apply to persons and entities that engaged in US-based transactions in financial
instruments that were priced, benchmarked, and/or settled based on BBSW or SIBOR. The claimants seek damages or compensation in amounts not
specified, and allege that the defendant banks, including the Company, violated US anti-trust laws and (in the BBSW case only) anti-racketeering laws,
the Commodity Exchange Act, and unjust enrichment principles. The Company is defending the proceedings.
In February 2017, the South African Competition Commission commenced proceedings against local and international banks including the Company
alleging breaches of the cartel provisions of the South African Competition Act in respect of trading in the South African rand. The potential civil
penalty or other financial impact is uncertain.
CAPITAL RAISING ACTIONSIn June 2018, the Commonwealth Director of Public Prosecutions commenced criminal proceedings against the Company and a senior employee
alleging that they were knowingly concerned in cartel conduct by the joint lead managers of the Company’s August 2015 underwritten institutional
equity placement of approximately 80.8 million ordinary shares. The Company and its senior employee are defending the allegations.
In September 2018, the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings against the Company alleging
failure to comply with continuous disclosure obligations in connection with the Company’s August 2015 underwritten institutional equity placement.
ASIC alleges the Company should have advised the market that the joint lead managers took up approximately 25.5 million ordinary shares of theplacement. The Company is defending the allegations.
CONSUMER CREDIT INSURANCE LITIGATIONIn February 2020, a class action was brought against the Company alleging breaches of financial advice obligations, misleading or deceptive conduct
and unconscionable conduct in relation to the distribution of consumer credit insurance products. The issuers of the insurance products, QBE and
OnePath Life, are also defendants to the claim. The Company is defending the allegations.
ESANDA DEALER CAR LOAN LITIGATIONIn August 2020, a class action was brought against the Company alleging unfair conduct, misleading or deceptive conduct and equitable mistake inrelation to the use of flex commissions in dealer arranged Esanda car loans. The Company is defending the allegations.
ROYAL COMMISSION
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released its final report on 4 February 2019.
The findings and recommendations of the Commission are resulting in additional costs and may lead to further exposures, including exposuresassociated with further regulator activity or potential customer exposures such as class actions, individual claims or customer remediation orcompensation activities. The outcomes and total costs associated with these possible exposures remain uncertain.
SECURITY RECOVERY ACTIONS
Various claims have been made or are anticipated, arising from security recovery actions taken to resolve impaired assets. These claims will bedefended.

86

NOTES TO THE FINANCIAL STATEMENTS

28. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (continued)
WARRANTIES AND INDEMNITIESThe Company has provided warranties, indemnities and other commitments in favour of the purchaser and other persons in connection with various
disposals of businesses and assets and other transactions, covering a range of matters and risks. It is exposed to claims under those warranties,
indemnities and commitments.
CLEARING AND SETTLEMENT OBLIGATIONSThe Company has a commitment to comply with rules governing various clearing and settlement arrangements which could result in a credit risk
exposure and loss if another member institution fails to settle its payment clearing activities. The Company’s potential exposure arising from thesearrangements is unquantifiable in advance.
The Company holds memberships of central clearing houses, including ASX Clear (Futures), London Clearing House (LCH) SwapClear and RepoClear,
Korea Exchange (KRX), Hong Kong Exchange (HKEX) and the Clearing Corporation of India. These memberships allow the Company to centrally clear
derivative instruments in line with cross-border regulatory requirements. Common to all of these memberships is the requirement for Company tomake default fund contributions. In the event of a default by another member, the Company could potentially be required to commit additional
default fund contributions which are unquantifiable in advance.
PARENT ENTITY GUARANTEESThe Company has issued letters of comfort and guarantees in respect of certain subsidiaries in the normal course of business. Under these letters andguarantees, the Company undertakes to ensure that those subsidiaries continue to meet their financial obligations, subject to certain conditions
including that the entity remains a controlled entity of the Company.
SALE OF GRINDLAYS BUSINESSESOn 31 July 2000, the Company completed the sale to Standard Chartered Bank (SCB) of ANZ Grindlays Bank Limited (Grindlays) and certain otherbusinesses. The Company provided warranties and indemnities relating to those businesses.
The indemnified matters include civil penalty proceedings and criminal prosecutions brought by Indian authorities against Grindlays and certain of its
officers, in relation to certain transactions conducted in 1991 that are alleged to have breached the Foreign Exchange Regulation Act, 1973.
Civil penalties were imposed in 2007 which are the subject of appeals. The criminal prosecutions are being defended.

CONTINGENT ASSETSNATIONAL HOUSING BANKThe Company is pursuing recovery of the proceeds of certain disputed cheques which were credited to the account of a former Grindlays customer inthe early 1990s.
The disputed cheques were drawn on the National Housing Bank (NHB) in India. Proceedings between Grindlays and NHB concerning the proceeds ofthe cheques were resolved in early 2002.
Recovery is now being pursued from the estate of the Grindlays customer who received the cheque proceeds. Any amounts recovered are to beshared between the Company and NHB.

87

ANZ 2020 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS (continued)
29. AUDITOR FEES
2020
$’000

2019
$’000

7,262

7,058

Audit-related services

3,540

2,642

Non-audit services225
10,827

114
9,814

2,107

1,924

Audit-related services

1,008

714

Non-audit services2

44

2

KPMG Australia
Audit or review of financial reports
1

Total3
Overseas related practices of KPMG Australia
Audit or review of financial reports
1

Total

3,159

2,640

Total auditor fees

13,986

12,4541.

Comprises prudential and regulatory services of $3.07 million (2019: $2.56 million), comfort letters $0.72 million (2019: $0.45 million) and other services $0.76 million (2019: $0.34 million).
The nature of the non-audit services includes training and methodology and procedural reviews.
3.
Inclusive of goods and services tax.
2.

The Company’s policy allows KPMG Australia or any of its related practices to provide assurance and other audit-related services that, while outside thescope of the statutory audit, are consistent with the role of external auditor. These include regulatory and prudential reviews requested by regulatorssuch as APRA. Any other services that are not audit or audit-related services are non-audit services. The Policy allows certain non-audit services to beprovided where the service would not contravene auditor independence requirements. KPMG Australia or any of its related practices may not provide
services that are perceived to be in conflict with the role of the external auditor or breach auditor independence. These include consulting advice andsubcontracting of operational activities normally undertaken by management, and engagements where the external auditor may ultimately berequired to express an opinion on its own work.

88

NOTES TO THE FINANCIAL STATEMENTS

30. EVENTS SINCE THE END OF THE FINANCIAL YEAR
There have been no significant events from 30 September 2020 to the date of signing this report.

89

ANZ 2020 ANNUAL REPORTDIRECTORS’ AND LEAD AUDITOR’S INDEPENDENCE DECLARATIONDIRECTORS’ DECLARATIONThe Directors of Australia and New Zealand Banking Group Limited declare that:a) in the Directors’ opinion, the financial statements and notes of the Company:i) are prepared in accordance with Part 7.8 of the Corporations Act 2001, including that they comply with the Australian Accounting Standards andthe applicable regulations of the Corporations Regulations 2001; andii) give a true and fair view of the financial position of the Company as at 30 September 2020 and of its performance for the year ended on that
date; andb) The auditor’s report lodged with the financial statements is a true copy of the report on the financial statements.
Signed in accordance with a resolution of the Directors.

Paul D O’Sullivan
ChairmanShayne C ElliottManaging Director

4 November 2020

LEAD AUDITOR'S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE
CORPORATIONS ACT 2001
To the Directors of Australia and New Zealand Banking Group Limited declare that:
I declare that, to the best of my knowledge and belief, in relation to the audit of Australia and New Zealand Banking Group Limited for the financial
year ended 30 September 2020 there have been:i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; andii) no contraventions of any applicable code of professional conduct in relation to the audit.

KPMG

Alison Kitchen
Partner
Melbourne
4 November 202090

NOTES TO THE FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORTTO THE SHAREHOLDERS OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDREPORT ON THE AUDIT OF THE FINANCIAL REPORTOPINION
We have audited the Financial Report of Australia and New Zealand Banking Group Limited (the Company).
In our opinion, the accompanying Financial Report of the Company is in accordance with the part 7.8 of the Corporations Act 2001, including: giving a true and fair view of the Company’s financial position as at 30 September 2020 and of its financial performance for the year ended on that
date; and
 complying with Australian Accounting Standards and the relevant Corporations Regulations 2001.
The Financial Report comprises the: balance sheet as at 30 September 2020;
 income statement, statement of comprehensive income, statement of changes in equity, and statement of cash flows for the year then ended; notes 1 to 30 including a summary of significant accounting policies; and Directors’ Declaration.

BASIS FOR OPINION
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report.
We are independent of the Company in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional andEthical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our
audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.

KEY AUDIT MATTERS
The Key Audit Matters we identified are:

 Allowance for expected credit losses;
 Subjective and complex valuation of Financial Instruments held at Fair Value; Provisions for customer remediation; and IT systems and controls.
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current
period.
These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do notprovide a separate opinion on these matters.

©2020 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent
member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation

91

ANZ 2020 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORT (continued)
KEY AUDIT MATTERS (continued)
ALLOWANCE FOR EXPECTED CREDIT LOSSES ($4,951M)
Refer to the critical accounting estimates and judgements disclosures in relation to the allowance for expected credit losses in Note 12 to the Financial Report.
The Key Audit Matter
Allowance for expected credit losses is a key audit matter due to the significance of the loans and advances balance to the financial statements andthe inherent complexity of the Company’s Expected Credit Loss (ECL) models (ECL models) used to measure ECL allowances. These models are reliant
on data and a number of estimates including the impact of multiple economic scenarios and other assumptions such as defining a significant increasein credit risk (SICR).
AASB 9 Financial Instruments requires the Company to measure ECLs on a forward-looking basis reflecting a range of economic conditions, of which
GDP and unemployment levels are considered key assumptions. Post-model adjustments are made by the Company to address known ECL model
limitations or emerging trends in the loan portfolios. We exercise significant judgement in challenging the economic scenarios used and thejudgmental post model adjustments the Company applies to the ECL results.
The Company’s criteria selected to identify a SICR, such as a decrease in customer credit rating (CCR), are key areas of judgement within the
Company’s ECL methodology as these criteria determine if a forward-looking 12 month or lifetime allowance is recorded.
The COVID-19 pandemic has meant that assumptions regarding the economic outlook are more uncertain which, combined with varying
government responses, increases the level of judgement required by the Company in calculating the ECL, and the associated audit risk.
Additionally, allowances for individually assessed wholesale loans exceeding specific thresholds are individually assessed by the Company. We exercise
significant judgment in challenging the assessment of specific allowances based on the expected future cash repayments and estimated proceedsfrom the value of the collateral held by the Company in respect of the loans.
How the matter was addressed in our audit
Our audit procedures for the allowance for ECL and disclosures included assessing the Company’s significant accounting policies against therequirements of the accounting standard. Additionally, our procedures included:
Testing key controls of the Company in relation to: the ECL model governance and validation processes which involved assessment of model performance; the assessment and approval of the forward-looking macroeconomic assumptions and scenario weightings through challenge applied by theCompany’s internal governance processes;
 reconciliation of the data used in the ECL calculation process to gross balances recorded within the general ledger as well as source systems;
 counterparty risk grading for wholesale loans (larger customer exposures are monitored individually). This covered elements such as: approval of
new lending facilities against the Company’s lending policies, monitoring of counterparty credit quality against the Company’s exposure criteria
for internal factors specific to the counterparty or external macroeconomic factors, and accuracy and timeliness of counterparty risk assessments
and risk grading against the requirements of the Company’s lending policies and regulatory requirements; and IT system controls which record retail loans lending arrears, group exposures into delinquency buckets, and re-calculate individual allowances. We
tested automated calculation and change management controls and evaluated the Company’s oversight of the portfolios, with a focus oncontrols over delinquency monitoring.
We tested relevant General Information Technology Controls (GITCs) in relation to the key IT applications used by the Company in measuring ECL
allowances as detailed in the IT Systems and Controls key audit matter below.
In addition to controls testing, our procedures included:
 re-performing credit assessments of a sample of wholesale loans controlled by the Company’s specialist workout and recovery team assessed as
higher risk or impaired, and a sample of other loans, focusing on larger exposures assessed by the Company as showing signs of deterioration, orin areas of emerging risk (assessed against external market conditions and in particular considering the impacts of COVID-19 and climate change).
For each loan sampled, we challenged the Company’s CCR and Security Indicator (SI), taking into account our assessment of the customer’s
financial position and, where relevant, the risk of stranded assets, and our overall assessment of loan recoverability, the valuation of security, andthe impact on the credit allowance. To do this, we used the information on the Company’s loan file, discussed the facts and circumstances of thecase with the loan officer, and performed our own assessment of recoverability. Exercising our judgment, our procedures included using ourunderstanding of relevant industries and the macroeconomic environment and comparing data and assumptions used by the Company inrecoverability assessments to externally sourced evidence, such as commodity prices, publicly available audited financial statements andcomparable external valuations of collateral held. Where relevant we assessed the forecast timing of future cash flows in the context of underlying
valuations and approved business plans and challenged key assumptions in the valuations;92

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KEY AUDIT MATTERS (continued)
 obtaining an understanding of the Company’s processes to determine ECL allowances, evaluating the Company’s ECL model methodologies
against established market practices and criteria in the accounting standards;
 working with KPMG risk consulting specialists, we assessed the accuracy of the Company’s ECL model estimates by re-performing, for a sample ofloans, the ECL allowance using our independently derived calculation tools and comparing this to the amount recorded by the Company;
 working with KPMG economic specialists, we challenged the Company’s forward-looking macroeconomic assumptions and scenarios
incorporated in the Company’s ECL models. We compared the Company’s forecast GDP, unemployment rates, CPI and property price indices torelevant publicly available macro-economic information, and considered other known variables and information obtained through our other audit
procedures to identify contradictory indicators;
 testing the implementation of the Company’s SICR methodology by re-performing the staging calculation for a sample of loans taking into
consideration movements in the CCR from loan origination CCR and comparing our expectation to actual staging applied on an individual
account level in the Company’s ECL model; and assessing the accuracy of the data used in the ECL models by confirming a sample of data fields such as account balance and CCR to relevant
source systems.
We challenged key assumptions in the components of the Company’s post-model adjustments to the ECL allowance balance. This included:
 assessing the requirement for additional allowances considering the Company’s ECL model and data deficiencies identified by the Company’s ECL
model validation processes, particularly in light of the extreme volatility in economic scenarios caused by the current COVID-19 pandemic andgovernment responses;
 evaluating underlying data used in concentration risk and economic cycle allowances by comparing underlying loan portfolio characteristics torecent loss experience, current market conditions and specific risks in the Company’s loan portfolios;
 assessing the impacts on the modelled ECL and the requirement for out of model adjustments to account for the portion of customers on loandeferral packages that are not aged. We also assessed assumptions used to determine whether a SICR event has occurred; and assessing the completeness of additional allowance overlays by checking the consistency of risks we identified in the loan portfolios against theCompany’s assessment.
SUBJECTIVE AND COMPLEX VALUATION OF FINANCIAL INSTRUMENTS HELD AT FAIR VALUE:
FAIR VALUE OF LEVEL 3 ASSET POSITIONS $1,045M
FAIR VALUE OF LEVEL 2 ASSET POSITIONS $139,134M
FAIR VALUE OF LEVEL 3 LIABILITY POSITIONS $55M
FAIR VALUE OF LEVEL 2 LIABILITY POSITIONS $134,761M
Refer to the critical accounting estimates, judgements and disclosures of fair values in Note 16 to the Financial Report.
The Key Audit Matter
The fair value of the Company’s Level 2 and 3 financial instruments is determined by the Company through the application of valuation techniques
which often involve the exercise of judgement and the use of assumptions and estimates.
The valuation of Level 3 and Level 2 financial instruments held at fair value is a Key Audit Matter due to: the high degree of estimation uncertainty and potentially significant range of reasonable outcomes associated with the valuation of financial
instruments classified as Level 3 where significant pricing inputs used in the valuation methodology and models are not observable; and the complexity associated with the valuation methodology and models of certain more complex Level 2 financial instruments leading to anincrease in subjectivity and estimation uncertainty. Level 2 financial instruments represented 56% of the Company’s financial assets carried at fairvalue and 96% of the Company’s financial liabilities carried at fair value.
Level 3 financial instruments represented 0.4% of the Company’s financial assets carried at fair value and 0.04% of the Company’s financial liabilities
carried at fair value. This population is made up of: investment securities at fair value through other comprehensive income; derivative assets and liabilities; and net loans and advances.

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KEY AUDIT MATTERS (continued)
How the matter was addressed in our audit
Our audit procedures in relation to the valuation of financial instruments held at fair value included:
 we performed an assessment of the population of Financial instruments held at fair value to identify portfolios that have a higher risk of
misstatement arising from significant judgements over valuation either due to unobservable inputs or complex models.
 we tested the design and operating effectiveness of key controls relating specifically to these financial instruments, including:o controls in relation to Independent Price Verification (IPV), including completeness of portfolios and valuation inputs subject to IPV;o controls in relation to model validation at inception and periodically, including assessment of model limitation and assumptions;o controls in relation to the review and challenge of daily profit and loss (P&L) by a control function;o control over the collateral management process, including review of margin reconciliations with clearing houses; ando controls over fair value adjustments (FVAs), including exit price and portfolio level adjustments.
 with the assistance of KPMG valuation experts, we independently re-valued a selection of financial instruments and FVAs. This involved sourcing
independent inputs from markets data providers or external sources and using our own valuation models. We challenged the Company where
our revaluations significantly differed from the Company’s.
 in relation to the subjective valuation of Level 3 Investment Securities, with our valuation specialists, we:o assessed the reasonableness of key inputs and assumptions using comparable data in the market and available alternatives; ando compared the Company’s valuation methodology to industry practice and the criteria in the accounting standards.
 we assessed the Company’s financial statements disclosures, including key judgements and assumptions using our understanding obtained fromour testing and against the relevant accounting standard requirements.
PROVISIONS FOR CUSTOMER REMEDIATION ($969M)
Refer to the critical accounting estimates, judgements and disclosures in Notes 20 and 28 to the Financial Report.
The Key Audit Matter
The Company has assessed the need to recognise provisions in relation to certain customer remediation activities arising from both internal andexternal investigations and reviews.
The provision for customer remediation activities is a key audit matter due to the judgements required by us in assessing the Company’s
determination of: the existence of a present legal or constructive obligation arising from a past event using the conditions of the event against the criteria in theaccounting standards;
 the number of investigations and the quantum of amounts being paid arising from the present obligation;
 reliable estimates of the amounts which may be paid arising from investigations, including estimates of related costs; and the potential for legal proceedings, further investigations, and reviews from its regulators leading to a wider range of estimation outcomes for us
to consider.
How the matter was addressed in our audit
Our audit procedures for customer remediation provisions included:
 obtaining an understanding of the Company’s processes and controls for identifying and assessing the potential impact of the investigations into
customer remediation activities;
 enquiring with the Company regarding ongoing legal, regulatory and other investigation into remediation activities;
 conducting independent discussions on significant matters with external legal counsel;
 reading the minutes and other relevant documentation of the Company’s Board of Directors, Board Committees, various management
committees, and attending the Company’s Audit and Risk Committee meetings;
 inspecting correspondence with relevant regulatory bodies; for a sample of individual customer remediation matters, assessing the basis for recognition of a provision and associated costs against therequirements of the accounting standards. We did this by understanding and challenging the provisioning methodologies and underlying
assumptions;
 testing completeness by evaluating where exposures may have arisen based upon our knowledge and experience of broader industry matters,
the Company's documentation and the current regulatory environment. We also checked the features of these exposures against the criteria
defining a provision or a contingency in the accounting standards;

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NOTES TO THE FINANCIAL STATEMENTS

KEY AUDIT MATTERS (continued)
 assessing the appropriateness of the Company’s conclusions against the requirements of Australian Accounting Standards where estimates wereunable to be reliably made for a provision to be recognised; and evaluating the related disclosures using our understanding obtained from our testing and against the requirements of Australian AccountingStandards.
IT SYSTEMS AND CONTROLSThe Key Audit Matter
As a major Australian bank, the Company’s businesses utilise many complex, interdependent Information Technology (IT) systems to process andrecord a high volume of transactions. Controls over access and changes to IT systems are critical to the recording of financial information and the
preparation of a financial report which provides a true and fair view of the Company’s financial position and performance.
The IT systems and controls, as they impact the financial recording and reporting of transactions, is a key audit matter as our audit approach could
significantly differ depending on the effective operation of the Company’s IT controls. We work with our KPMG IT specialists as a core part of our audit
team.
How the matter was addressed in our audit
We tested the technology control environment for key IT applications (systems) used in processing significant transactions and recording balances in
the general ledger. We also tested automated controls embedded within these systems which link the technology-enabled business processes. Our
further audit procedures included:
 assessing the governance and higher-level controls across the IT Environment, including those regarding Company policy design, review andawareness, and IT Risk Management practices; design and operating effectiveness testing of controls across the User Access Management Lifecycle, including how users are on-boarded,
reviewed, and removed on a timely basis from critical IT applications and supporting infrastructure. We also examined how privileged roles andfunctions are managed across each IT Application and the supporting infrastructure; design and operating effectiveness testing of controls to enable Change Management including how changes are initiated, documented,
approved, tested and authorised prior to migration into the production environment of critical IT Applications. We assessed the appropriatenessof users with access to release changes to IT application production environments across the Company; design and operating effectiveness testing of controls used by the Company’s technology teams to schedule system jobs and monitor system
integrity;
 design and operating effectiveness testing of controls related to significant IT application programs delivered per the ANZ Delivery Framework; design and operating effectiveness testing of automated business process controls including those relating to enforcing segregation of duties toavoid conflicts from inappropriate role combinations within IT applications. We tested:o configurations in place to perform calculations, mappings and flagging of financial transactions, and automated reconciliation controls (bothbetween systems and intra-system); ando data integrity of critical system reporting used by us in our audit to select samples and analyse data used by management to generate
financial reporting.
OTHER INFORMATIONOther Information is both financial and non-financial information in Australia and New Zealand Banking Group Limited’s annual reporting which isprovided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form ofassurance conclusion thereon.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other
Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performedon the Other Information that we obtained prior to the date of this Auditor’s Report, we have nothing to report.

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ANZ 2020 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORT (continued)
RESPONSIBILITIES OF DIRECTORS FOR THE FINANCIAL REPORTThe Directors are responsible for:
 preparing a Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
 implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error
 assessing the Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This
includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend toliquidate the Company or to cease operations or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL REPORTOur objective is: to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or
error; and to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at:https://www.auasb.gov.au/admin/file/content102/c3/ar2_2020.pdf. This description forms part of our Auditor’s Report.

KPMG

Alison Kitchen
Partner
Melbourne
4 November 202096