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Page 3

ANNUAL REPORTAUSTRALIA AND
NEW ZEALAND
BANKING GROUP
LIMITEDME26987_54_H_annual report

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Page 4

AT ANZ WE ARE

Building a truly unique financial company
Transforming the way we do business
Making dealing with ANZ an enjoyable customer experience
Creating an environment where people excel
Focused on delivering superior growth and financial performance

CONTENTS
1998 Highlights

01

Chairman’s Report

02

Chief Executive Officer’s Review 04
ANZ at a Glance06

Chief Financial Officer’s Review 08

KEY DATES

Commentaries
Personal Banking

10

Corporate Banking

12

Funds Management

14

Operations and Technology

15

Risk Management

16

Community Involvement

18

Board of Directors

20Group Senior Management

21

Corporate Governance22

Concise Financial Report

25

Record Date for Final Dividend
20 November 1998

Annual General Meeting
21 December 1998

Payment of Final Dividend
21 December 1998

Announcement of Interim Results
26 May 1999*

Record Date for Interim Dividend
11 June 1999*

Payment of Interim Dividend
5 July 1999*

Australia and New Zealand Banking Group Limited
ACN 005 357 522
Printed on environmentally sensitive paper*tentative dates only

ME26987_54_H_annual report

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Page 5HIGHLIGHTS

Profit before abnormals steady at $1,175m
Profit after abnormals up to $1,106m
Annual dividend increased 8% to 52 cents,
60% franked
Record results in Australia and New Zealand
Strong performance by Personal Banking
Unfavourable international credit and trading
environment
Risk profile reduced
Costs down through significant restructuring
Named Australian “Bank of the Year”...again

400

Sharemarket
Accumulation Index
ANZ

300
293

Named best foreign bank in India

200

219
All Ords

100

Sept: 91 92 93 94 95 96 97 98

01

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Page 6CHAIRMAN’S REPORTThis was a challenging year. Nevertheless profit before
abnormals was broadly in line with last year, and Directors werepleased to increase the dividend to reflect the underlying
strength of the business and its future prospects.
In the context of the deteriorating international environment,
it was a creditable result.

Earnings broadly in line with 1997,
dividends up¢
90

Our businesses in Australia and
New Zealand performed very well,
as did many of our international

77.2
60
52

operations.
However, the well publicised Asianturmoil and collapse in emerging

30

market bond markets resulted inlower earnings from our investment

0bank, offsetting the improvements
achieved elsewhere.

–30

Earnings per share
Dividends per share

Under Chief Executive Officer,

95

Mr John McFarlane, who started on

–60
91

92

93

94

96

97

98

1 October last year, the Group has

Before abnormals

made considerable progress in reducing costs and lowering therisk profile of the Bank.We are now placing greater focus onbuilding lower risk consumer franchises while maintaining ourleadership positions in business/corporate markets.We aremoving out of non-core marginal activities.
There has been a strengthening of our management team andconsiderable progress in improving our technology. It will taketwo or three years for us to see the benefits of much of the work
now underway.
The annual dividend was increased by 8% to 52 cents per share.
As we foreshadowed last year, franking has been reduced to 60%.
This is due to the higher level of dividend and the tax deduction
02

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Page 7for costs associated with the restructuring underway to position
ANZ for the future.
There have been two changes to the Board during the year withthe retirement of Mr Bruce Vaughan and the appointment of
Mr Gary Toomey. Mr Vaughan, who provided wise counsel to the
Bank for ten years, reached

Australia and New Zealandprofit up, International down

retirement age in December 1997
but continues his involvement with
the Group’s superannuation funds.

$M
1250

Mr Gary Toomey joined the Board

International
1000

in March 1998. He is the Chief
New ZealandFinancial Officer and Executive

750

General Manager Operations of
Qantas Airways Limited.

Australia
500

The events of the past year haveincreased the uncertainty in respect
to the short term prospects for theworld economy.There will be many
challenges ahead of us and we will

250

0
1997

1998

Before abnormals

also remain open to the opportunities which are expected to arise.
With improving efficiency, a reduction in our risk profile and asound capitalisation, ANZ is well positioned to prosper in thisenvironment. We remain confident we are building the foundations
which will add to shareholder value over the medium term.

Charles Goode
Chairman

03

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Page 8CHIEF EXECUTIVE OFFICER’S REVIEWOur domestic businesses are performing well.
We have dealt decisively with several
international issues and our transformation
programme is building a strong foundation
for the future.

My first year as Chief Executive Officer
of ANZ has been both challenging
and rewarding.
Whilst Australia and New Zealand have felt
some effect from the Asian crisis, international
financial markets have been in turmoil,
substantially impacting international banks
around the world, including ourselves.
Nevertheless, ANZ has delivered a profit
broadly similar to last year. We achieved this byproducing record results in both Australia and
New Zealand, which were up 16% and 28%
respectively, to offset a 39% declineinternationally. This is a significant
achievement in a difficult environment, andserves to underscore the transformation of ourdomestic businesses over the past two years, aswell as the diversified nature of our group.
This said, I do not wish to mask some very real
problems we have experienced overseas withthe onset of material increases in both country
and market risk in emerging markets,particularly in Asia and Russia, which caused
credit and trading losses. Faced with this, we
acted quickly and decisively to protect earnings
by reducing non-core exposure, halting
proprietary trading, and withdrawing fromhigh risk segments. This has served to mitigate
the potential impact on profits and shareholder
value.Whilst slipping against our domestic
competitors recently, our share price trend
compares favourably with international banks
in the USA and Europe, many of which are
trading at almost half of their recent values.
For the long haul we remain convinced thathaving an international presence is the rightstrategy for ANZ.
04

Record Results DomesticallyOur businesses in Australia and New Zealandachieved a significant profit improvement of$144 million after tax in aggregate, notably as aresult of our success in reducing costs by $121
million. In both countries we reduced the costincome ratio by more than 5%.
Personal Banking results were up 29% to $462
million, principally following the successful cost
rationalisation of the business. In Australia, there
has been strong product growth in mortgage
lending and cards. ANZ frequently recorded
the highest monthly inflows in mortgage
lending during the year. In credit cards, we
remain the clear market leader. Our retail funds
management strategy was enhanced by the
introduction of the ‘Gateway’ master trust,which achieved good customer acceptance.
Business Banking in Australia, where we hold aleading position, achieved sound growth while
rebalancing its risk position. Asset Financeachieved strong growth in new businesswritings while lowering the cost base tomaintain leadership in this segment. Ourforeign exchange and domestic capital markets
activities had an excellent year. ANZ Securities
faced substantially increased competition,
mainly from foreign entrants, which jeopardised
its future prospects. We therefore took thedecision to withdraw from institutional
stockbroking and to focus on retail broking.
In summary, domestically we simultaneously
reduced costs per customer, increased revenue
per customer, and increased our market share.
We believe this is an excellent set of outcomes.

ME26987_54_H_annual report

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Page 9Overseas Profits Hit by Deteriorating
Environment

income.This repositioning of the bank is underway, as has already been demonstrated this year.

1998 has been a year of considerable turmoil ininternational financial markets – the most
turbulent period since the 1930s. The current
downturn in Asia is the most severe for at least
50 years, and full recovery is unlikely for three
to five years. Our long established international
positioning, which served us well in the early
1990s when domestic markets were weak, felt
the adverse impact of this environment. In
response we reduced non-core Asian exposures;
total Asian exposures were reduced by 47%.
The increase in non-accrual loans of $790
million came mainly from overseas, leading to
net specific provisions of $512 million beingtransferred from the general provision.

We are a major domestic bank but differentiate
ourselves by our international presence.
However new market conditions overseas
require us to be more selective. Everyone iswell aware of our strengths in South Asia andthe Pacific Islands, but we are underweight inEast Asia and have indicated our intention tostrengthen this through acquisition when thetime is right.As things stand, the environmentin East Asia has remained too risky for us toproceed.We have consciously slowed thisprocess, pending an improved environment.
Going forward, we intend to maintain roughly
the current balance of domestic versus
international with effort overseas concentrated
on markets that offer the greatest potential forshareholder value, at a lower level of risk.

The contagion effect spread westwards andemerging markets bond markets collapsed,
notably in Russia, resulting in sizeable trading
losses for our operations in London. Following
a strategic review aimed at lowering risk, wewithdrew from this business.The costs ofexiting, including the write-down of theresidual bond portfolio, and exiting institutional
broking, were taken as abnormal items.
We are not proud of this aspect of the result.
While we made the most of the volatility inexchange rates and earned good profits fromour foreign exchange activities, this more
hostile environment tested our existing
strategies to their limits, exposing some flaws.
We have used this year to put these issues
largely behind us and we believe that the
reduction in risk, which followed ourdecisions, will contribute substantially to
improved quality of earnings in the future.
Preparing for the Future
Conditions in the year ahead are likely toremain challenging. Most forecasters predict a
slowing in economic activity worldwide,
including Australia, and market volatility islikely to persist. Indeed, the outlook for the
next five years is radically different to theconditions of the last five years. In this lower
growth and more volatile environment, we willcontinue to reduce risk, reduce cost and focus
on building our customer businesses.
We are now pursuing a strategy to reposition
our business increasingly towards consumer
banking and small business, including retailfunds management and related products.
Nevertheless, we intend to maintain ourstrength in Corporate Banking but with alower risk profile and stronger non-interest

We also intend to bring alive our promise of
making dealing with ANZ an enjoyable
experience for our customers, and of creating
an environment at ANZ where people excel.
We are building a performance based culture,with increasing levels of accountability, better
performance management and increased
remuneration for those who contribute most.
Improving the skills and leadership abilities ofour people is a priority. Without jeopardisingthese objectives, we will continue ouremphasis on cost reduction and on theestablishment of a more technologicallyoriented approach to banking.
All of these changes are in the pursuit ofincreased shareholder value by achieving
superior financial performance.
Notwithstanding a more hostile environment
and a flatter result than we had hoped, we havedemonstrated good progress in deliveringsuperior earnings performance domestically.
This, together with actions already taken tolower risk, give sufficient confidence toreiterate our promises to shareholders on future
profit, return on equity and on lowering ourcost income ratio.
Our People have Done Well
The achievements of the last year, especially ina tough external environment, could not havebeen made without the loyalty, commitment
and hard work of many people throughout
ANZ. I would like personally to thank all our
people for their substantial contribution.
I am conscious that there is still a lot to be
done. I am however confident we will rise to
the challenge.
05

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Page 10

Personal Banking

South Asia

Asia Pacific• Australian ‘Bank of
the Year’ award forthe second
consecutive year

• Assets $5 billion• Assets $7.1 billion• Profit $78 million• Profit $108 million• Branches 71• Branches 44• Staff 4,319• Staff 2,558• Stable asset quality• Asian Exposure
reduced 47%• Housing and small
business market
share up

• Solid growth• Non accrual loans
up $339 million to$357 million• Acquired Primary
Industry Bank ofAustralia’s
mortgage business• Moratorium on rural
branch closures• Branch of the Futureroll-out completed• Business Direct
Centre for smaller
businesses
launched

Cards• Cards on issue –Aust 2,786,000,
NZ 289,000,
International
350,000.
• Market share up
to 25%, led by
Qantas Telstra
Visa Card• ANZ-AustralianFootball League
FootyCard andWestfield Visa Cardlaunched• Strong growthinternationally

Private Banking• Grindlays Private
Bank performed
well• ANZ Private Bank
grew strongly inAustralia; will belaunched in New
Zealand

New ZealandAustralia• Assets $20.2 billion• Assets $94.2 billion• Profit $158 million
up 28%• Profit $796 million
up 16%

06• Branches 160• Branches 806• Staff 4,273• Staff 17,395• Margins reduced• Market share gains• Strong foreignexchange earnings• Systems being
standardised with
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Page 11

Funds Management

ANZ AT A GLANCE
Americas

UK & Europe• Assets $4.9 billion• Assets $13.8 billion• Profit $36 million• Loss $56 million• Branches 1,
4 Representative
Offices• Branches 7• Staff 165• Funds undermanagement inAustralia$10.9 billion• Successful launch of
Gateway Investment
Program:$1 billion retail sales• Staff 872• Emerging market
losses• Preparations for Euro

Asset Finance• Esanda leading
provider of asset
finance in Australia• New asset writing
volumes up 30%• Restructuring
reduced costs andimproved customer
service• Funds undermanagement in
New Zealand$3 billion• Financial planning
services launched in
India• Increase in numberof financial planners

Business Banking

Operations &Technology• Australian and
New Zealandoperations fully
integrated• Year 2000
programme onschedule• Strong businessgrowth• Quality oflending portfolio
further improved• 55% of
Australian
corporate
customers now
bank electronically• International
Services maintained
earning levels
despite the Asiancrisis• Global technology
platforms
rationalised to
improveproductivity• Trans Tasman
integration
advanced• Commercial
Banking System
now operating in
12 countries• ANZ’s systems
globally are being
prepared for
the Euro

Investment Banking• Trading losses in
London, businesses
exited• No.1 in foreignexchange forthe second
consecutive year
Middle East
• Assets $4.5 billion• Profit $55 million• Branches 44• Staff 1,245• Project finance growth• Named Indian Loan
House of the Year
• Institutional
broking exited,
ANZ Securities
focused on retailbroking• Increased provisions
07

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Page 12CHIEF FINANCIAL OFFICER’S REVIEWProfit before abnormals steady$M
1400

Operating Profit
Operating Profit before abnormals$1,175m (1997 – $1,171m).

1200
1000
800

Profit boosted by lending growth, fee andforeign exchange income and lower costs.

600
400
200

Offset came from trading losses, higher
economic loss provisioning, higher
restructuring cost and tax.

0Peter Marriott
Chief Financial Officer

-200
-400
-600
91

92

93

94

95

96

97

98

Profit after abnormals up

Abnormal Items

$M
1400

$69m after tax cost of exiting institutional
broking and London based Capital Markets
including writedown of emerging markets
portfolio.

1200
1000
800
600
400

Operating profit after abnormal items$1,106m (1997 – $1,024m).

200
0
-200
-400
-600
91

92

93

94

95

96

97

98

Increased profit from Personal
Banking, lower earnings from ANZIB$M
1250

Business Unit Performance
Personal Banking up 29%.

ANZIB
Other

1000

International (excl. ANZIB)

750

Business Banking up 22%.

Business Banking
and Asset FinanceFunds Management up 30%.

500

Funds Management

Investment Banking down 55%.

250

Personal Banking

0
1997

1998

Loan growth and FX earnings
offset trading losses
$M
6000

2099

5000
4000

Operating Income
Loan growth of 12%, 14% in Australia,
and stable margins drove higher net
interest income.

3547

Emerging market trading losses led to$83m loss ($182m income in 1997) on
securities income partially offset by growthin foreign exchange income and fees.

3000
2000
1000
0
91

92

93

94

95

Net Interest Income
Non-Interest Income

08

96

97

98

ME26987_54_H_annual report

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Page 13

Costs reduced,
cost income ratio lower

Operating Expenses
Costs lower than 1997, second half costs
lower than first.

%
80
75

Cost income ratio reduced by 2.2% to60.9%. Ratio for continuing businesses
down 5.0%.

70Management cost income ratio target
53% in 2000.

55

65

60.9

60

50
92

91

93

94

95

96

97

98

Non-accrual loans increased as
proportion of shareholders’ equity
Asset Quality
Impacted by Asian turmoil.

%
80
71.8

70

66.9

60

The growth in non-accrual loans camefrom Asia, Middle East and isolated casesin Australia.

50
42.6

40

31.9

30
20

Non-accrual loans equate to 10.7% ofshareholders’ equity.

18.8
11.4

10
91

92

93

94

$M
2100

487

96

1500

1,401

1,430
ELP

1200

SP
Surplus

907

600
300
0
Sep
97

Reduction in Asian assets.
Reduction in trading securities.

Sep
98

APRA
Guideline

Growth in assets

Balance Sheet
Lending growth in mortgage and business
lending in Australia.

98

Asia SP

900

General provision has surplus ofapproximately $500m over the Australian
Prudential Regulation Authority(APRA) Guideline.

97

(512)

1800

Specific Provisioning (SP) drawdown$512m of which $263m relates to Asia,$113m Australia, $60m Middle East.

95

General provision surplus
maintained

Doubtful Debts
General provision increased by $487m
using Economic Loss Provisioning (ELP).

10.7
6.1

0

$B
160
149.7
140
120

116.1

100
80
60

Tier 1 lifted to 7.2% (APRA minimum4%),10.7% total, primarily as a result of
US preference share issue undertaken
in September 1998.

40
20
0
91

92

93

94

95

96

97

98

Total Assets
Risk-Weighted Assets

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Page 14

ANZ provides a full range of retailbanking services to three million
customers in Australia, one million
customers in New Zealand and has
one million customers internationally.

10

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Page 15PERSONAL BANKING

In 1998,ANZ was awarded Australian ‘Bank of
theYear’by Personal Investment Magazine for thesecond consecutive year.In addition to ANZ’sestablished position in Australia and New Zealand,
ANZ is the leading bank in the Pacific Islands and
ANZ Grindlays is the leading foreign retail bankin South Asia.
Personal Banking had a strong year with theAustralian and New Zealand operations
increasing profit contribution by 29% to$462 million. Lower costs were the key
driver, as margin contraction offset reasonablegrowth in mortgage and small business
lending. The cost income ratio was reduced
from 73% to 67%.
The Group’s personal banking business isorganised to manage separately the servicing ofcustomers, products and delivery channels.This
enables business unit managers to focus onrevenue and efficiency while providing a strong
incentive for co-operation with other areas of
the Bank. Branch and telephone sales staff
require competitive products to sell, whilemortgage and banking product managers are
dependent on sales staff providing ongoingcustomer service.
Retail Banking
ANZ gained market share in the key housing
and small business lending markets.The
acquisition in October 1998 of the Primary
Industry Bank of Australia’s $1.5 billion homeloan portfolio boosted market share by afurther 1%.
Increasing demand for phone banking has seencustomer registrations up to 1.7 million, an
increase of 97% over the year after being
introduced in September 1996.Approximately
100,000 calls a day are received through thecentralised call centre in Melbourne, 60% of
which are handled automatically by thecomputerised voice response system withresponses available in Mandarin and Cantoneseas well as English.
During the year, several distribution initiatives
were completed or announced.
• The ‘Branch of the Future’ has beensuccessfully implemented across Australia

and New Zealand. Redesigned procedures
and branch layout allows more efficient
operation and frees staff from administrative
tasks to focus on sales and customer service.
• PC Banking’s pilot phase has been
completed and following further productand system development will be launched
in 1999.
• A Business Direct Centre that offers
significantly lower priced products forsmaller businesses with simple lending
and financial services needs,
commenced operation.
• Fee structures were realigned to betterreflect cost of providing services.

Peter Hawkins
Global Head of
Personal Banking

Cards
In Australia,ANZ is the leading card issuer andhas nearly three million cards on issue with thenumber of Telstra and Qantas Telstra Visa Cards
on issue exceeding 1.4 million.ANZ Cards’
market share of cards on issue rose from 24%
last year to over 25% reflecting the success ofco-branded cards.The strong performance of
co-branded cards is expected to continue with
the ANZ-Australian Football League
FootyCard launched in June and the Westfield
Visa Card launched in August.

Roll-out of the ‘Branch of the
Future’ with redesigned
procedures and layout allows
more efficient operation andfrees staff from administrative
tasks to focus on sales andcustomer service.

ANZ has card activities in 15 countries outside
Australia. Cards on issue maintained strong
growth, more than doubling in India andtrebling in Pakistan, Bangladesh and Sri Lanka.
Commercial implementation of the Mondex‘electronic purse’ began in Melbourne withseveral retailers accepting Mondex smart cards.
Private Banking
Grindlays Private Bank, which provides fullprivate banking and asset management services
to high net worth individuals primarily from
Asia and the Middle East, through offices in
London, Geneva, Channel Islands andSingapore, performed well.

Branch and telephone sales
staff require competitive
products to sell, whilemortgage and banking productmanagers are dependent onsales staff providing ongoingcustomer service.

ANZ Private Bank, which provides a premium
service to high net worth customers has grownstrongly in Australia and will be launched in
New Zealand by the end of 1998.
11

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Page 16CORPORATE BANKINGThe Group’s domestic wholesale banking
activities had a solid year increasing theirprofit contribution by 17% to $492 million,
with foreign exchange the strongest
performer. However, asset quality issues
flowing from the turmoil in Asia andemerging market bond trading losses in
London led to profits from our international
corporate operations falling from $298
million to $104 million.
Business Banking
ANZ provides banking services and products
to around one-third of Australian and
New Zealand corporates.The Group also
provides international commercial banking
products to many leading corporates across theMiddle East, South Asia and Asia Pacific.
The Australian and New Zealand businessbanking operations are now fully integrated,
providing a single service proposition. Process
improvement which emphasised relationshipmanagement and previously focused on
Australia, has been implemented in
New Zealand.
To improve the delivery of consistent service
standards, sales strategy and risk management
across the network, Business Banking
operations are being integrated in a Global
Business Banking unit.
The quality of the lending portfolio inAustralia and New Zealand remains good.
Management strategies to further reduce therisk profile of the lending portfolio are inplace.
The rapid take-up of electronic banking
continued with 55% of major customers now
using products such as ‘ANZ Online’ for PC
based banking.
ANZ’s international operations also underpin
our leading position in the provision of tradefinance services in Australia, New Zealand andacross our international network.

12ME26987_54_H_annual report

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Page 17

ANZ is a leader in business banking, asset
finance, trade finance and investment banking
products in Australia and New Zealand.
ANZ Grindlays has the largest foreign bankpresence in the Indian sub-continent and theGroup also provides international commercial
banking in the Middle East and Asia.
Following trading losses in emerging markets,
the Group has closed its capital markets
activities in London.

This position has been further reinforcedby the support we have extended to
network customers this year in volatileeconomic conditions.
As non-strategic international exposures havebeen reduced, we have been able to refocus ourinternational activities on supporting the tradefinance needs of our global customers,
including some of Australia and New Zealand’s
largest exporters.
‘Finance Asia’ named ANZ as the Best Foreign
Commercial Bank in India.
Investment Banking
ANZ Investment Bank provides large corporate
and institutional customers active in Australia,
New Zealand and Greater Asia with financial
solutions involving a wide range of sophisticatedfinancial products.

John Ries
Executive Director

named us the number one manager of Pakistan
and Indian eurobond issues over three years.
The volatility in Asian financial markets led toasset quality issues and reduced opportunities
for our structured and project finance businessbut created the environment for our foreignexchange activities to increase earnings
significantly. ANZ was exposed to the collapse
in emerging markets bond prices through our
trading activities in London and this led tolosses of $83 million on trading securities(profit of $182 million in 1997). Proprietary
trading was stopped in July and subsequently
the decision was made to exit this businesscompletely and close our capital markets
operations in London. The decision was also
made to focus on retail stockbroking andwithdraw from institutional stockbroking.

ANZ voted No. 1 in foreignexchange.

Asset FinanceOur investment banking expertise extends
across our international network reflecting theincreasingly global nature of our largest
customers’ businesses.This includes leading
positions in some global products and in the
key parts of ANZ’s network.

ANZ is the leading provider of asset finance inAustralia through Esanda and in New Zealandthrough UDC with particular strength inautomobile finance. New asset writing
volumes were 30% higher in Australia than in
1997; margins however, contracted.

‘Business Review Weekly’ magazine again
ranked ANZ number one in foreign exchange,
while ‘Asiamoney’ magazine ranked ANZamong Asia’s top five foreign exchange houses.
Reflecting the strength of our franchise inSouth Asia,‘International Financing Review’magazine named ANZ as the Indian Loan
House of the Year, and ‘Euromoney’ magazine

Organisational restructuring during 1998 hassignificantly improved staff productivity andcustomer service levels.These processes are
now being rolled out in New Zealand.

The Australian and New
Zealand business banking
operations are now fully
integrated, providing asingle service proposition.

Internationally, asset finance operations inIndia are in the process of being integrated.

13

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Page 18

FUNDS MANAGEMENTPeter Jonson
Managing Director
ANZ Funds Management

The choice of investment
funds and insurance products
for ANZ customers around theworld has been increased.
ANZ manages $17 billion of investment funds forcustomers around the world. In our two principal
domestic markets of Australia and New Zealand we havein excess of $10.9 billion and $3 billion respectively.
Further growth of the funds management businessremains a key priority for the Group.
The profit contribution from the Group’s funds
management activities increased to $61 million.
Gateway Investment Program, created in a strategic
alliance with the Frank Russell Company, has met withwidespread acceptance. Funds under administration are$1.4 billion, well ahead of target. Under this alliance
ANZ is using its brand and distribution strengths to
combine with world class investment management
expertise. To support this growth, additional financial
planners are being recruited.
ANZ’s Superpool Growth Fund topped the industry
performance tables for the 12 month period to
September 1998.This fund also recorded strong
performance over two, three and five years.
ANZ Funds Management launched financial planning
services in India in July 1998. Sales of insurance products
expanded in selected Pacific nations during 1998. These
international programmes will be accelerated in 1999.
14

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Page 19

OPERATIONS & TECHNOLOGYDavid Boyles
Chief Information Officer

To support the transformation in the way ANZ
does business, we are investing in newtechnologies that expand delivery channels,
improve customer service and lower costs.
Technological advance is transforming the waythat banking is done. Developing a world classoperations and technology capability toprovide cost effective support to the business
units remains a critical area of focus for ANZ.
The Group’s global technology platforms
are being rationalised to improve linkages
between business units and to achieve
economies of scale.
Year 2000
Significant effort continues to be directed toaddressing Year 2000 issues, with costs expected
to be $183 million.A detailed report was madeto the Australian Stock Exchange.
All of ANZ’s systems have been analysed andrepair and stand-alone testing of ANZ’sinternal applications are on schedule forcompletion by the end of December 1998.
ANZ has already begun testing interbank
interfaces. Full end-to-end interbank testing
and retesting of payment streams is scheduled
to continue into 1999. Completion ofinterbank testing is scheduled for March 1999
in New Zealand, June 1999 in Australia.
A review of externally provided products andservices is also under way.Year 2000 has thepotential to adversely impact the broader
economy and therefore have negative
implications for credit quality. ANZ is activein assessing the impact of Year 2000 on thecreditworthiness of our customers and inraising their awareness of the effect it could
have on their businesses.

Other Major Projects
ANZ’s systems globally, particularly in the areasof ANZ Investment Bank,ANZ Private Bankand payments, are being prepared for the Euro,the new European currency which will be
introduced electronically on 1 January 1999.
Through Project Tasman, the Group is moving
ANZ New Zealand’s customer accountprocessing and core transaction management
systems from an external supplier to a unified
core banking system based on its Australianretail banking technology. Project Tasman isscheduled for completion in July 1999.
ANZ’s standard technology platform for its
international network, the Commercial
Banking System, is now operating in 12
countries including Bangladesh, Fiji and Papua
New Guinea. Implementation in the major
sites of India and Pakistan is scheduled to becompleted by April 1999.
Other major initiatives under way in the
Operations and Technology division to
improve customer service, productivity andefficiency across the Group include:• establishing an E-Commerce Centre of
Excellence to develop electronic delivery
channels for ANZ’s products and services and• a cost efficiency review to reduce mortgage
establishment and processing costs.

15

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Page 20RISK MANAGEMENT

This enabled the Group to provide focusedmanagement to the situation. At the Annual
General Meeting in January the Chairman
indicated the Group’s specific provisions for theyear would be contained within the Economic
Loss Provision of “around $500 million”.
Specific provisions for the year were $512
million, including $263 million for Asia.
The Group has significantly reduced its nonstrategic assets in Asia. This resulted in a
reduction in total exposure to the region of 47%
in US dollar terms during the year.

Elmer Funke KupperGroup General Manager
Risk Management

Review of 1998
The last twelve months have tested our risk
management systems and procedures. While
our record is not unblemished, we did reduce
the amplitude of the impact as 1998 turned out
to be one of the most turbulent years infinancial markets since the 1930s with the crisis
in Asia unfolding in a way that few economists
or governments predicted.
The events of the last twelve months have led
to a reassessment and strategic rebalancing of
our management of risk. Tangible evidence of
this is seen in the decision to close the capital
markets operation in London, wind down ofinterbank money market activities andreduction in non-strategic Asian exposures.
Going forward, there will be a continuing
rebalancing of our portfolio with reducedemphasis upon wholesale activities. Ourinternational activities will be sharpened withgreater focus upon lower risk assets reflecting
our areas of traditional strength in trade,
foreign exchange and supporting the needsof our network customers and building
consumer franchises.
Asia
Four of the 20 largest declines in exchange rates
since 1970 have occurred in Asia since mid
1997. Economic activity in the region has gonefrom an annual growth rate of 7% in the period
1992–1997 to a likely contraction of 5% in
1998. The region continues to be burdened byhigh levels of bad debts with non performing
loans expected to peak between 45% and 75%
in Korea,Thailand and Indonesia.
ANZ through its long established international
franchise was adversely affected by the Asianturmoil. To address the situation and manage
our exposures down, the Group established a
specialist team early in the year.
16

Lending policies have been reviewed andtightened to focus on network business,particularly trade finance, rather than foreign
currency lending to local entities.While further
problem exposures in Asia can be expected,
these are likely to be well below 1998 levels.
Emerging Markets
Contagion effects from the Asian turmoil havebeen felt across other emerging markets.
Between March and September 1998, the JP
Morgan Emerging Markets Bond Index Plus
fell by up to 36%, while the problems in Russia
led to a drop in the Russian Country
Composite Index of 85%.
ANZ was exposed to the emerging bondmarkets through its capital markets trading
activities in London, and incurred losses.
In July,ANZ made the decision to exit all
proprietary trading activities. Exposures werereduced but some positions could not be
exited due to lack of liquidity in the global
bond markets, and losses continued to be
incurred in the period between July andAugust. The decision to close our London
capital markets activities was made as part ofthe programme to rebalance away from higher
risk wholesale banking activities. The residual
portfolio was written down to market value asat 30 September.
Risk Management Processes
Risk management processes are subject tooversight by the Risk Management
Committee of the Board. This includes thereview of risk portfolios and the establishmentof prudential policies and controls.
The Risk Management Committee is
supported by Group Risk Management, which
has global responsibility for the effectiveness of
the Group’s risk management framework.
In order to establish a common ‘language’ forrisk across all risk types, ANZ allocates
economic capital to each line of business andkey product area.

ME26987_54_H_annual report

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Credit Risk Management
Credit risk is the potential financial loss
resulting from the failure of a customer tohonour fully the terms of a loan or contract.
Credit risk represents approximately 55% of
the Group’s risk exposures.
The Board approves a set of policy controlsthat aim to develop and maintain a welldiversified credit portfolio.The authority for
individual credit decisions that are withinpolicy has been delegated to the Credit
Approvals Committee.The Credit Approvals
Committee is also responsible for the ongoingdevelopment of credit policy.
At operational levels, all major lending
decisions are made under dual authority,
involving signoff by a separate and independent
credit line. Dedicated business and credit areas
have been established for the larger portfolios(eg commercial real estate), whilst a specialist
group manages high risk and problem loans.
The credit process is supported by an advanced
risk grading system that allows for the objective
measurement of the customer’s default risk.
Under Group policy, the expected loss on theportfolio of credit risks is charged to profit andadded to the General Provision.ANZ believes
that this expectation provides a betterreflection of the fundamental risk of theportfolio for the year than the actual losses
brought to account in that period.Actual credit
losses are subsequently transferred from theGeneral Provision.
Market Risk Management
Market risk is the risk to earnings arising fromchanges in interest rates or exchange rates, orfrom fluctuations in bond, equity orcommodity prices such as happened inemerging markets this year.
The management of market risk andcompliance with policy is overseen by the
Global Funds Management Committee.The
responsibilities of this Committee include themonitoring of risk exposures, the approval of
new products and activities, and themaintenance of the limit and control
framework.
Trading Risk Management
The Group’s trading activities focus on
customer trading, distribution andunderwriting of a range of securities andderivative instruments. The Group’s
proprietary trading activities have been closed.
Trading risk is controlled by a specialist
function within Risk Management.This
function provides specific oversight of each ofPage 21the main trading areas and is responsible
for the establishment of Value at Risk andsupplementary limits.
Value at Risk for trading risk represents
an estimate of the potential loss over a one
day holding period based on a 97.5%
confidence interval.
ANZ has implemented models across all trading
areas that provide Value at Risk information andcomparison against risk limits on a daily basis.
These models comply with the Prudential
Supervision Statement C3 (Capital for Market
Risk).
Balance Sheet Risk Management
The balance sheet risk management processembraces the management of balance sheet
interest rate risk, liquidity and risk to capital andearnings as a result of exchange rate movements.
These risks are managed by a specialist Global
Balance Sheet Management unit.
The objective of balance sheet management isto produce strong and stable net interest
income over time. ANZ uses models tosimulate the impact of interest rate changes on
earnings and on the market value of thebalance sheet.
Structural foreign exchange positions aremanaged with the objective of ensuring that
the ANZ capital ratio is not adversely impacted
by movements in exchange rates.
Operating Risk Management
Operating risk arises from the potential break
down of day to day operational processes, which
directly or indirectly can result in loss. This may
arise from failure to comply with policies, laws
and regulations, from fraud or forgery, or from a
breakdown in the availability or integrity ofservices, systems and information.
Some operating risks can be insured and where
possible, appropriate cover has been taken.
Most operating risks, however, are not insurable.
The day to day management of operating risk
is by its very nature largely in the hands of thelines of business and country organisations.
A structured methodology has been developed
to support the business areas in theidentification and management of key risks.
The Operating Risk Executive Committee,
supported by specialist staff, is responsible forthe development and implementation of thepolicies surrounding operating risk.
Risk Management regularly reviews progressand ensures that any Group-wide issues receive
sufficient attention across all lines of businesswith the most significant risks reported to the
Risk Management Committee of the Board.
17

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Page 22

Major Project: ANZ Conservation Theatre– Taronga Zoo, Sydney, New South Wales.
The ANZ Conservation Theatre at Taronga Zoo opened
officially on 6 November, 1998. The 300 seat theatre,
built with $300,000 financial assistance from ANZ, isdesigned to provide a venue for world-renowned
conservationists and experts to share their knowledge
on conservation and environmental education withthe community.

18

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Page 23

COMMUNITY INVOLVEMENTAt ANZ we are conscious of our
responsibilities to the communities inwhich we operate.

Charitable Donations
ANZ supports the community throughcharitable contributions to a wide range oforganisations for community welfare, medical
research, educational and cultural projects.
Major charitable donations include:• ANZ Conservation Theatre – Taronga Zoo,
Sydney $300,000.
• Disaster relief: $68,879 for the Katherine
Flood Appeal, $52,400 to Papua New
Guinea for victims of the drought and thetsunami and $25,000 to Bangladesh for thevictims of the flood.
• Food Bank: $40,000 in New South Wales
and $40,000 in Victoria in support of
distribution of meals and provisions to morethan 40,000 people each week throughwelfare organisations such as the Salvation
Army, Lions Club, Melbourne City Mission
and Odyssey House.

ANZ Foundation
The ANZ Foundation is a charitable trust thatassists those in need by making grants toeligible charities. It is funded by contributions
made by ANZ and its staff.ANZ matches staff
contributions dollar-for-dollar and meetsadministration costs.The Foundation may also
accept contributions from the public which aretax deductible.
ANZ Foundation grants amounted to$152,776 and included $38,600 to the Down
Syndrome Association of Victoria, $32,300 toYouth Insearch (NSW) and $10,000 to
Ngaimpe Aboriginal Corporation (NSW).

Photo: World Vision.

ANZ is aware of the profound effects thatchanges in the banking industry are having on
many communities, especially in country areas.
A 12 month freeze on country branch closures
was announced in July. In addition, $10 million
has been allocated for ANZ to work withpeople in rural communities affected by branchclosures to develop and implement alternatives
to meet their banking needs.

A child wades throughfloodwaters in Bangladesh in
September 1998. ANZ andstaff donated $25,000 toflood victims.

For more information about the ANZFoundation, please ring (03) 9273 4492.
Political Donations
ANZ supports a vigorous multi-party
democracy as the best guarantee of a market
oriented economy with strong private andcommercial rights and freedoms. Accordingly
we provide some level of support for the major
parties in our home markets.
In the year to September 1998 in Australia, wedonated $95,000 to the Liberal Party, $20,000
to the Australian Labor Party and $10,000 to
the National Party of Australia.
In New Zealand, we donated NZ$7,500 to the
National Party, NZ$2,500 to the Labor Party
and NZ$2,500 to the A.C.T. Party.

ANZ Foundation grants
amounted to $152,776.

19

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Page 24

BOARD of DIRECTORSMr C B Goode

Mr J McFarlane OBE

B Com (Hons) (Melb), MBA (Columbia
University, New York), FCPA, FSIA

Chief Executive Officer.

MA, MBA, MSI, FHKIB, FRSA, FAIBF

ChairmanCompany Director.
Director since July 1991, appointed
Chairman August 1995. Director of CSR
Limited, Pacific Dunlop Ltd, Queensland
Investment Corporation, Woodside
Petroleum Ltd and other companies.

Appointed Group Managing Director andChief Executive Officer in October 1997.
Former Group Executive Director,
Standard Chartered plc (1993–1997),
Head of Citibank, United Kingdom(1990–1993) and Director London Stock
Exchange (1989–1991).

Lives in Melbourne. Age 60.

Lives in Melbourne. Age 51.

Dr B W Scott AO

Mr C J Harper

Mr J K Ellis

Mr J C Dahlsen

B Ec, MBA, DBA

CA (Scots)

MA (Oxon) FAIMM FTS

LLB, MBA (Melb)

Company Director.

Company Director.

Solicitor and Company Director.

Director since August 1985. Chairman ofManagement Frontiers Pty Ltd, W.D.
Scott International Development
Consultants Pty Ltd, Television Makers
Pty Ltd and The Foundation for
Development Co-operation Ltd. Directorof Air Liquide Australia Ltd and the James
N. Kirby Foundation Ltd. Australian
member of the Board of Governors of the
Asian Institute of Management andChairman of the Australia-Korea
Foundation. Chairman and Counsellor of
the Australian Simon University. Former
Chairman of the Australian Government’s
Trade Development Council (1984–1990).
Former Federal President, Institute of
Directors in Australia (1982–1986)

Director since October 1976. Chairman of
CSL Ltd. Former General Manager andChief Executive of the merchant bankAustralian United Corporation Ltd(1968–1976) and since then aprofessional non-executive director.
Inaugural National Vice President of The
Australian Institute of Company Directors.

Chairman, The Broken Hill
Proprietary Co Ltd.
Director since October 1995. Chairman of
Sandvik Australia Pty Ltd and theInternational Copper Association Ltd.
Patron of the Australian-Korea BusinessCouncil. Board Member of the Museumof Contemporary Art.

Lives in Melbourne. Age 61.

Lives in Melbourne. Age 67.

Director since May 1985. Consultant toand former Partner of the legal firm Corrs
Chambers Westgarth. Chairman of
Woolworths Ltd and Melbourne Business
School Ltd, Director of Southern Cross
Broadcasting (Australia) Ltd, Mining
Project Investors Pty Ltd, The Smith
Family, GS Private Equity Pty Limited and
J. C. Dahlsen Pty Ltd Group. Former
Chairman of The Herald and Weekly
Times Ltd and Deputy Chairman Myer
Emporium Ltd.

Lives in Melbourne. Age 63.

Lives in Sydney. Age 63.

Mr J F Ries
B Bus, FCPA, FAIBF

Executive Director
Executive Director since August 1992.
Thirty-eight years experience in banking
with the Group including Managing
Director, ANZ Grindlays Bank plc, London(1988–1990) and Chief General Manager,
International Banking (1990–1992).

Lives in Melbourne. Age 54.

20

Dr R S Deane

Ms M A Jackson

PhD, B Com (Hons), FCA, FCIS, FNZIM

MBA, B Econ, FCA

Chief Executive and Managing
Director, Telecom New Zealand
Limited.

Company Director.

Director since September 1994. Directorof Fletcher Challenge Limited, IHC
Mortgages Ltd, The Centre for
Independent Studies Ltd and Institute of
Policy Studies, Victoria University,
Wellington. Formerly Chief Executive,
Electricity Corporation of New ZealandLtd, Chairman State Services
Commission, Alternate Executive
Director, International Monetary Fundand Deputy Governor, Reserve Bank of
New Zealand.

Lives in Wellington, New Zealand.
Age 57.

Director since March 1994. Chairman ofTransport Accident Commission (Victoria)
and the Playbox Theatre. Director of The
Broken Hill Proprietary Co Ltd, Pacific
Dunlop Ltd and Qantas Airways Ltd.
Trustee of The Brain Imaging Research
Foundation, member of the French
Australian Industrial Research Program
Steering Committee, Interim Board
member of Melbourne University Private
Limited and Patron of the Salvation Army
Capital Appeal for homeless youth
in Victoria.

Lives in Melbourne. Age 45.

Mr G K Toomey
B Com, FCPA, FCA, FCIS

Director, Qantas Airways Limited
Director since March 1998. Chief
Financial Officer and Executive General
Manager Operations, Qantas Airways Ltd.
Director of subsidiary and associatedcompanies as well as holding a wide
range of executive responsibilities in
the Qantas Group.

Lives in Sydney. Age 43.

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Page 25

GROUP SENIOR MANAGEMENT
During the year the management team wasstrengthened through the recruitment of
external executives as well as internal
promotions. Key external appointments
included John McFarlane, Larry Crawford,
David Boyles, Elizabeth Proust, Rod Slater,
Jane Slatter and Michael Domann.

Executive Management Committee
Chief Executive Officer

John McFarlane

Executive Director

John Ries

Global Head Personal Banking

Peter Hawkins

Chief Financial Officer

Peter MarriottBusiness Heads
Business Bank

Bob Edgar

Australasian Branch Network

Larry Crawford

Asset FinancePeter McMahon

Investment Bank

Grahame Miller

Cards

Charles Carbonaro

Funds Management

Peter Jonson

Private Banking

David Airey

ANZ New Zealand

Murray Horn

Mortgages

Greg Camm

Financial Markets

Mark Coombs

Banking Products

Kathryn Fagg

International Services

John Winders

Direct Distribution

Satyendra Chelvendra

Group Functions
Chief Information Officer

David Boyles

Strategy(External Search)

Human Resources & Management Services

Elizabeth Proust

Risk Management

Elmer Funke Kupper

Acquisitions

David Valentine

Finance & Information Management

Ian SnapeMarketing

Rod Slater

General Counsel and Company Secretary

Jane Slatter

Audit

Michael DomannCEO’s OfficeDavid Ward21

ME26987_54_H_annual report

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Page 26CORPORATE GOVERNANCE

Good Corporate Governanceunderpins all ANZ’s activities
to ensure the company meetsthe objectives of shareholders,
employees, customers andregulators around the world.

Role of the Board of Directors
The Board of Directors is responsible toshareholders for the overall governance andperformance of ANZ.The Board:• charts the direction of the Group by setting
objectives and strategy and establishingpolicy guidelines and performance targets• monitors management’s running of thebusiness to ensure implementation is inaccordance with the agreed framework• through the Audit, Compliance & FinanceCommittee, liaises with the external
auditors on accounting policies andpractices, compliance issues and reporting
to shareholders.
Composition of Board
To achieve its objectives, a well structured
Board is necessary. Details of the qualifications
and experience of directors are set out on
page 20.
The Board Nominations Committee identifies
and nominates suitable candidates forconsideration by the full Board.
Although flexible, criteria include theindividual’s background, experience, skills andgeographical considerations and availability tocommit sufficient time to Board matters.
To ensure the benefit of independent views,
the constitution of the Company states that
there must be a majority of non-executive
directors on the Board and that the role of
Chairman cannot be held by an executive
director, ensuring that the roles of Chairman
and Chief Executive Officer are separate.
Committees of the Board are chaired by nonexecutive directors.
The Board has eight non-executive directors
and two executive directors.
All non-executive directors are regarded as
independent, having no substantial supplier/customer relationship and no prior executive
role in the Group.

22

ME26987_54_H_annual report

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Page 27

Both non-executive and executive directors(other than the Chief Executive Officer) are
subject to re-appointment by shareholders on arolling three year basis and must retire upon
attaining the age of 70. In the interests ofensuring smooth succession and a reasonable
range and turnover of skills, non-executive
directors appointed since 1993 have agreed thatthey will not, in normal circumstances, serve asa director beyond 15 years. Executive directors
retire as directors on the cessation of theiremployment with the Group.
Board Activities
The Board meets regularly ten times a year andthere are special meetings from time to time.
Committee meetings are held at regularintervals. The Board receives reports on
performance and outlook, and reviews
activities and strategies of the Group and eachdivision. Overall strategic direction is also
reviewed at a two day retreat each year.
Directors participate in a programme of visits
to operations and opportunities are created for
directors to meet and discuss current issues
with management and staff.

The Board carries out its duties to a significant
extent through four main committees whichmeet regularly and make recommendations to
the main Board.
Each non-executive director is on two of thesecommittees.The four main committees are:• Audit, Compliance and Finance Committee• Risk Management Committee• Human Resources Committee• Strategic Issues Committee.
Membership of the committees and attendanceat Board and committee meetings during theyear is set out below. Details of the function ofthese committees are set out on page 24.
Directors have also participated in meetings ofCommittees of the Board (seven meetings
during 1998) to sign accounts and to declare
dividends, and Share Committees (36 meetings
during 1998) to make allotments under theCompany’s various dividend reinvestment andemployee share schemes.

ANZ Chairman, Charles Goode,listens to a shareholder at theJanuary 1998 AGM.

There is also an Executive Committee of theBoard (11 meetings during 1998) which has
general executive authority to deal with allmatters relating to the Company’s affairs
which require attention between scheduled
Board meetings.

Di recto rs’ M eeti n g s
The number of directors’ meetings, including meetings of committees of directors held in the period each director held officeduring the year, and the number of meetings attended by each director were:

Board

Risk
Management

Audit,
Compliance& Finance

Human
Resources

Strategic
IssuesExecutive
Committee

Donations
Committee

A

B

A

B

A

B

A

B

A

B

A

B

A

B

J C Dahlsen

12

11

-

-

10

9

-

-

8

7

6

6

-

-

RS Deane1

12

9

20

14

-

-

2

2

8

4

3

3

-

-

J K Ellis

12

12

20

13

-

-

10

8

-

-

3

3

-

-

C B Goode

12

12

20

16

10

10

10

10

8

8

10

10

4

4

C J Harper

12

12

20

19

-

-

10

9

-

-

10

10

-

-

M A Jackson

12

12

-

-

10

7

-

-

8

8

5

5

-

-

J McFarlane

12

12

20

14

-

-

10

10

8

5

9

9

4

4

J F Ries

12

12

20

19

-

-

-

-

-

-

7

7

-

-

10

10

10

10

-

-

5

5

-

-

12

12

-

-

2

G K Toomey

6

6

6

6

-

-

6

6

-

-

1

1

-

-

R B Vaughan3

3

3

-

-

3

2

-

-

-

-

2

2

-

-

B W ScottColumn A – Indicates number of meetings held during the period the Director was a Member of the Board and/or Committee.
Column B – Indicates number of meetings attended during the period the Director was a Member of the Board and/or Committee.
The Chairman is an ex-officio member of all Board Committees.
1 Resident of New Zealand 2 Mr Toomey appointed 17/3/98 3 Mr Vaughan retired 31/12/97

In addition there were 36 meetings of the Shares Committee which were attended by those directors necessary and available to meet quorum
requirements, Mr Goode (23), Mr Harper (20), Mr McFarlane (6), Mr Dahlsen (6), Mr Scott (4), Mr Ellis (3), Ms Jackson (3) and Mr Ries (2) and7 meetings of the Committee of the Board which were attended by Mr Goode (5), Mr McFarlane (5), Mr Harper (3) and Mr Ries (2).
Sir Ronald Trotter retired 9/10/97. No meetings were held during the period from 1/10/97 – 9/10/97.

23

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Page 28

Board Conduct
Whilst there is no formal restriction on thenumber of external Board or charitablecommittee appointments a director may have,directors are required to seek Board approval
before accepting an appointment.
The Board has established a code of conduct
in the event of a conflict of interest.
To assist in the exercise of their responsibilities,
directors are entitled to seek independent
professional advice.With the Chairman’s priorapproval the advice can be obtained at theBank’s expense and is to be made available to
the whole Board.

Audit Compliance & Finance Committee(Chairman - J C Dahlsen)
Reviews the Group’s accounting policies and practices; financial
statements; due diligence processes in relation to capital raisings; andcompliance with the Group’s statutory responsibilities including thoserelating to Consumer Credit Legislation,Trade Practices Act andprivacy issues. Monitors compliance with approved policies andcontrols; liaises with internal and external auditors.Approves audit
plans and the audit fee of the external auditor.

Risk Management Committee(Chairman - C J Harper)

Directors are required to hold at least 2,000
shares in the Company. Details of theirholdings are shown on page 39. Except forparticipating in the shareholders’ Dividend
Reinvestment Plan and the shareholders’ Bonus
Option Plan, directors are not permitted todeal in the Company’s shares for their personal
benefit except in three four week periods;
following the announcement of half year andfull year results, and the Annual General
Meeting, and in each case the Chairman of theBoard must be informed prior to any trading.
The Company’s share trading policy also places
similar restrictions on senior management andthose staff in departments with access tomarket sensitive information, with notification
being required to the Chief Executive Officer.

Supervises all aspects of risk management.This includes approving andoverseeing the delegation policies, standards and reporting mechanisms
for credit risk, trading risk, balance sheet risk and operating risk.
Monitors the risks being assumed by the Group to ensure standards arebeing met. A description of the Group’s Risk Management proceduresis contained on pages 16 and 17 of this report.

The constitution provides an indemnity todirectors and employees for costs and liabilities
incurred in the execution of their duties.The
external auditor is not indemnified.

Strategic Issues Committee

ANZ has a number of controlled entities andaffiliated companies, some of which have
non-executive directors.
M A Jackson and B W Scott AO are directors of
ANZ Grindlays Bank Limited.
J G Todd and F H Wilde are directors of ANZ
Banking Group (New Zealand) Limited.
D P McDonald, C M William, andL J Willett AO are directors of companies
within ANZ Funds Management Group.
B W Scott AO is a member of the boards of themain Australian Staff Superannuation andPension companies.

24

Human Resources Committee(Chairman - Dr B W Scott AO)
Oversees major policies and guidelines relating to the managementof human resources, particularly as it relates to the major change
programmes under way (including productivity, staff morale andperformance).The committee oversees such matters as employment
guideposts, remuneration schemes, industrial relations strategies, staff
development programmes, and assessment of senior executives.

(Chairman - M A Jackson)
Oversees overall business strategy including proposed acquisitions,divestments and joint ventures.The committee also monitors the
progress of major projects.

Board Nominations Committee(Chairman - C B Goode)
Reviews and makes recommendations to the Board in respect of thecomposition of the Board to ensure that it has the appropriate mix ofexpertise and experience.

Donations Committee(Chairman - C B Goode)
Advises on donations policy and considers requests for corporate
contributions.

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Page 29

CONTENTS
9 Year Summary

26

Directors’ Report

27

Profit and Loss

31

Balance Sheet

32

Statement of Cash Flows

33

Notes to theConcise Financial Statements

34

Directors’ Declaration

37

Auditors’ Report38

Shareholder Information

38

Financial Highlights in Key Currencies

40

Exchange Rates

40

CONCISEFINANCIAL REPORTThe 1998 Concise Financial Report has been derived from the Group’s
1998 Financial Statements.This Concise Financial Report cannot be
expected to provide as full an understanding of the Group’s financial
performance, financial position and financing and investing activities as theGroup’s 1998 Financial Statements.
The Chief Financial Officer’s Review on pages 8 to 9 provides a discussion
and analysis of the financial statements.
1998 Financial Statements
A copy of the Group’s 1998 Financial Statements, including the independent
Audit Report, is available to all shareholders, and will be sent to shareholders
without charge upon request. The Financial Statements can be requested by
telephone (Australia: 1800 113 399 , Overseas: 61 3 9205 4892) and by internet
at investor.relations@anz.com
25

Nine Year Summary1
1998
$M

1997
$M

1996
$M

1995
$M

1994
$M

1993
$M

1992
$M

1991
$M

1990
$M

Net interest income
Other operating income
Operating expenses

3,547
2,099
(3,438)

3,437
2,110
(3,502)

3,327
1,839
(3,397)

3,084
1,754
(3,116)

2,794
1,793
(3,001)

2,539
1,730
(2,975)

2,427
1,990
(3,199)

2,587
1,964
(3,035)

2,456
1,675
(2,739)Operating profit before tax, debt
provision and abnormals
Debt provision
Income tax (expense) benefit
Outside equity interests

2,208
(487)
(537)
(9)

2,045
(400)
(466)
(8)

1,769
(175)
(469)
(9)

1,722
(237)
(442)
(10)

1,586
(388)
(388)
(7)

1,294
(637)
(190)
(7)

1,218
(2,127)
336
(5)

1,516
(1,062)
(184)
(4)

1,392
(796)
(183)
(1)

Operating profit (loss) after tax
before abnormals
Net abnormal (loss) profit

1,175
(69)

1,171
(147)

1,116
–

1,033
19

803
19

460
(213)

(578)
(1)

266
1

412
(191)

Operating profit (loss) after tax

1,106

1,024

1,116

1,052

822

247

(579)

267

221

149,720

138,241

127,604

112,587

103,874

103,045

101,138

98,21299,300

8,391

6,993

6,336

5,747

5,504

5,133

4,591

5,018

4,323

60.9%

63.1%

65.8%

64.4%

65.4%

69.7%

72.4%

66.7%

66.3%

14.6%
0.7%
7.2%

14.8%
0.7%
6.6%

18.3%
0.9%
6.7%

17.9%
0.9%
6.6%

15.6%
0.8%
6.8%

5.0%
0.2%
5.9%

–11.4%
–0.6%
4.8%

5.8%
0.3%
6.0%

5.4%
0.2%
5.1%

–15.6%
13,88552.0c
60%$11.88
$8.45
$9.02

62.4%
17,01748.0c
100%$11.58$7.10$11.2833.9%
10,687
42.0c
79%
$7.28
$5.41
$7.23

52.4%
8,199
33.0c
18%
$5.75
$3.55
$5.67

2.0%
5,293
25.0c
–
$5.68
$3.78
$3.91

47.2%
5,285
20.0c
–
$4.40
$2.53
$4.04

–19.6%
3,037
20.0c
50%
$4.88
$2.87
$2.88

2.3%
3,904
20.0c
100%
$4.20
$2.92
$3.83

–21.4%
3,884
38.0c
100%
$6.38
$3.95
$4.00

Profit and loss

Balance Sheet

AssetsNet Assets

Ratios (before abnormals)

Cost to income
Ratios (after abnormals)

Return on average equity
Return on average assets
Tier 1 capital

Shareholder value

Total return to shareholders(share price appreciation plus dividends)
Market value of shareholders’ equity
Dividend
Franked portion
Closing share price – high– low
– 30 Sep

Share information (per fully paid share)

Earnings before abnormals – basic
Earnings after abnormals – basic
Dividend payout ratio (before abnormals)
Ordinary
Net tangible assets

77.2c
72.6c

78.4c
68.6c

76.3c
76.3c

68.5c
69.9c

54.5c
55.9c

30.8c
13.5c

–60.1c–60.2c

26.7c
26.9c

45.0c
24.2c

67.8%
$4.98

61.6%
$4.59

55.5%
$4.24

49.1%
$3.94

46.4%
$3.58

65.6%
$3.43

n/a
$3.40

69.6%
$4.31

79.9%
$4.45

No. of ordinary shares issued (millions)
DRP issue price – interim– final1,539.4$10.64–

1,508.6
$9.77
$9.92

1,478.1
$5.59
$7.60

1,446.0
$4.40
$6.27

1,353.6
$3.78
$3.73

1,308.2
$3.42
$4.44

1,054.5
$3.58
$2.51

1,019.3
$3.42
$4.46

971.1
$4.35
$2.72

1,205

1,473

1,744

1,881

2,026

2,136

2,302

2,367

2,431

30,827
151,564

35,926
132,450

39,721
121,847

39,240114,829

39,642
121,070

40,277
115,000

43,977
112,036

46,261
101,188

48,182
92,606

Other information

Points of representation
No. of permanent employees(full time equivalents)
No. of shareholders
1

All years restated for impact of changes in accounting policies for leases and other expenses (refer page 34) and tax effecting of general provision for doubtful debts.
1997 has been restated for impact of measuring the annual debt provision charge using economic loss provisioning; prior year data has not been restated for thischange in measurement approach26

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Directors’ Report
The directors present their report for the year ended
30 September 1998. The information is provided inconformity with the Corporations Law.
Activities
The principal activities of the Group during the year
were general banking, mortgage and instalment lending,life insurance, leasing, hire purchase and general finance,international and investment banking, investment andportfolio management and advisory services, nominee
and custodian services, stockbroking and executor andtrustee services.
There has been no significant change in the nature of theprincipal activities of the Group during the financial year.
At 30 September 1998, the Group had 1,205 points ofrepresentation.
ResultConsolidated operating profit after income tax andabnormal items attributable to members of the Company
was $1,106 million. Further details are contained in the
Chief Executive Officer’s Review and the Chief Financial
Officer’s Review commencing on pages 4 and 8
respectively of the 1998 Annual Report and these pages
are incorporated in and form part of this report.
Dividends
The directors propose payment of a final dividend of 28
cents per ordinary fully paid share, partially franked to60%, to be formally declared on 23 November 1998 andto be paid on 21 December 1998. The proposed payment
amounts to $431 million.
During the financial year, the following dividends were
paid on fully paid ordinary shares (final dividend: fully
franked; interim: partially franked to 60%):
Type

Final
InterimCents pershare

Amount before
bonus option
$m

26
24

392
366

Date ofpayment

21 January 1998
6 July 1998

The final dividend paid on 21 January 1998 was detailed
in the directors’ report dated 28 November 1997.
Review of Operations
A review of the operations of the Group during thefinancial year and the results of those operations arecontained in the Chairman’s Report, Chief Executive
Officer’s Review and the Chief Financial Officer’s
Review, which are incorporated in and form part of thisreport.

State of Affairs
In the directors’ opinion, there have been no significant
changes in the state of affairs of the Group during thefinancial year, other than:Net loans and advances increased by 13% from$83,741 million to $94,457 million, primarily from growth
in mortgage lending and commercial lending in Australia
and New Zealand. Deposits and other borrowings
increased by 6% from $89,152 million to $94,599 million.
The charge for doubtful debts has been determined using
economic loss provisioning and is based on the Group’s
risk management models. The economic loss provision
increased from $400 million to $487 million, reflecting
asset growth and a deterioration in the risk profile of the
Asian portfolio. New and increased specific provisions
were $670 million and releases and recoveries were $158
million. Gross non–accrual loans increased to $1,662
million, or 1.8% of net loans and advances, from $872
million at 30 September 1997.
The Group’s aggregate Asian exposure reduced in US
dollar terms by 47% over the year, from US$ 11.5 billion
to US$ 6.1 billion, achieved mainly by contracting non–strategic lending principally in the interbank market. The
collapse in emerging markets led to significant losses frominvestment banking activities in London. The subsequentdecision to exit London capital markets operations and theinstitutional stockbroking business resulted in an abnormal
loss after tax of $69 million. All proprietary trading
activities have been terminated.
On 23 September 1998 the Company issued 64,016,000
fully paid non–converting, non–cumulative preference
shares for US$ 6.25 per share. The purpose of the issue ofpreference shares was for general banking purposes. We
look for opportunities to raise additional modest amounts
from this source when circumstances permit.
Following the Arbitration Award handed down in theGroup’s favour on 29 March 1997, the National Housing
Bank of India had the award reviewed by the Special
Court (Trial of Offences Relating to Transactions in
Securities) at Mumbai. On 4 February 1998 the Special
Court ordered that the award be set aside. The Group has
filed an appeal with the Supreme Court of India seeking
that the Special Court’s order be set aside. As the matter is
sub judice, comment by the parties is limited.
The Group has obtained firm legal advice from SeniorCounsel and based on that advice no provision has been
made in respect of this claim.

27

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27

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Directors’ Report
While the above matters are those considered to besignificant changes, reviews of matters affecting theGroup’s state of affairs are also contained in the
Chairman’s Report, the Chief Executive Officer’s
Review and the Chief Financial Officer’s Review.

The names of all persons who currently hold options
granted under the schemes are entered in the register
kept by the Company pursuant to section 170 of the
Corporations Law and the register may be inspected
free of charge.

Events since the End of the Financial YearIn October 1998, the Group announced its decision toexit its London capital markets operations (including
the writedown of the bond portfolio) and institutional
stockbroking business with a consequent abnormal loss
after tax of $69 million.

Directors, their Qualifications andExperience
The Board includes eight non–executive directors
who have a diversity of business and community
experience and two directors with executive
responsibilities who have extensive banking
experience. The names, qualifications and experienceof the directors who are in office at the date of thisreport are contained on page 20 of the 1998 Annual
Report and this page is incorporated in and forms
part of this report.

No other matter or circumstance has arisen between
30 September 1998 and the date of this report that has
significantly affected or may significantly affect theoperations of the Group in future financial years, theresults of those operations or the state of affairs of theGroup in future years.
Future Developments
Details of likely developments in the operations of theGroup in future financial years are contained in the
Chairman’s Report and the Chief Executive
Officer’s Review.
In the opinion of the directors, disclosure of any
further information would be likely to result in
unreasonable prejudice to the Group.
Rounding of Amounts
The Company is a company of the kind referred to in
the Australian Securities and Investments Commission
class order 98/100, dated on 10 July 1998 pursuant tosection 341(1) of the Corporations Law. As a result,amounts in this report and the accompanying financial
statements have been rounded to the nearest million
dollars except where otherwise indicated.
Shareholdings
The directors’ interests, beneficial and non–beneficial,in the shares of the Company are detailed on page 39of the Shareholder Information section of the 1998
Annual Report and this table is incorporated in andforms part of this report.
Share Options
Details of share options granted to directors, senior
executives and officers, and unissued shares underoption, are shown under Directors’ and Executive
Officers’ Emoluments in this report, and in note 43of the financial statements.
No person entitled to exercise any option has or had,by virtue of the option, a right to participate in any
share issue of any other body corporate.

Sir R R Trotter and Mr R B Vaughan retired as
directors on 9 October 1997 and 31 December 1997
respectively, having held office since before thecommencement of the financial year.
Special responsibilities and attendance at meetings,
are shown on pages 22 to 24 of the 1998 Annual
Report and these pages are incorporated in and form
part of this report.
Directors’ and Executive Officers’
Emoluments
The Human Resources Committee (the Committee)of the Board assists the Board in its oversight ofmajor policies and guidelines relating to the
management of human resources. The Committee
consists of the executive and non–executive directors
shown in the table on page 23.
The Committee’s responsibilities include the review
of all proposed remuneration and profit sharing
programmes. The Committee recommends these
programmes to the Board for approval and monitors
their ongoing operation. It also reviews all personnel
entitlements for senior executives, approving thesame or, in the case of Board appointees, making
remuneration recommendations to the Board.
Executive directors do not participate in discussions
and decisions relating to their own remuneration.
The Committee does not set fees for the Chairman
or other non–executive directors. These arerecommended by external advisors and approved by
the Board. Non–executive directors’ fees are within
the limit set by shareholders at the Annual General
Meeting of 21␣ January 1998, and are set at levels
which fairly represent the responsibilities of and timespent by the non–executive directors on Groupmatters. Regard is also had to the level of fees payable
to non–executive directors in comparable companies.

28

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28

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Directors’ Report
The Group’s remuneration policy is to ensure that
remuneration packages properly reflect the duties andresponsibilities of the senior executives and are sufficient
to attract, retain and motivate personnel of the requisite
quality.

Performance bonus payments are contingent on theachievement of agreed performance goals, assessed throughthe annual performance management process.
One third of the performance related bonus of senior
executives, other than executive directors, is paid asdeferred shares in the Company. The issue price ofdeferred shares is based on the average closing price of theCompany’s shares during the five days prior to the relevant
Annual General Meeting.

Remuneration packages are structured in such a way that asignificant part of the individual’s reward depends upon
the achievement of business objectives and the profitabilityof the Group as measured by the Economic Value
AddedTM Methodology.

These shares are held in trust and vest with the senior
executive after three years. If the senior executive resigns
during that period, the shares are forfeited.

All senior executives have performance objectives
including the achievement of key strategic milestones andoperating performance targets. These objectives areagreed at the beginning of the year.

Details of the emoluments of each director and of the five
most highly paid officers for the Group and the Company
are shown below.
Base
fee

Amounts in $Committee
fee

Retiring
allowance

Superannuation
contributions

Total

Non executive directors

C B GoodeJ C Dahlsen
Dr R S Deane
J K Ellis
C J Harper
M A Jackson
Dr B W Scott
G K Toomey1
R B Vaughan2
Sir R R Trotter3
1

2

Appointed 17 March 1998
Salaryor feesAmounts in $300,000––

18,750318,750

85,00010,000–5,937

100,937

85,000

–

–

5,312

90,31285,000

–

–

5,312

90,31285,00010,000–5,937

100,937

85,00012,500–6,094

103,594

85,00022,500–

6,719

114,219

42,500

–

–

2,762

45,262

15,0007,250

213,756

1,095

237,101

2,370–

177,162–

179,532

3

Retired 31 December 1997

Performance
related bonus1

Benefits

Superannuation
contributions

Other

2

Retired 9 October 1997

Total

Deferredshares issued(Number)3

Options(Number)4

Executive Management Committee

J McFarlane (executive director)
J F Ries (executive director)
P J O Hawkins

1,145,400

560,000–

54,600–1,760,000–

1,000,0005

601,892–

18,53329,575–650,000–

200,0006

543,264

400,000

29,43627,300–1,000,000–

200,0007

P R Marriott

522,375

250,000

2,600

25,025–800,000–

175,0007

L Crawford

313,399

400,000

1,717

15,021

736,3778

1,466,514

60,000100,0007

D L Boyles

372,442

320,000

16,681

18,549194,2959

921,967

50,506300,0007E Funke Kupper

571,565

75,000–190,009–

836,574–

150,0007

1,427,241–

156,917384,038

845,10910

2,813,305––

Other disclosable executives

Former executive

J Sunderland
1

One third of the performance related bonus of senior executives, other than executive directors, is paid as deferred shares in the Company and forfeitable upon
the recipient leaving the Group within three years for reasons other than retirement, retrenchment, death or disablement2
Benefits include the provision of housing, cars, private health insurance and subsidised loans
3
Deferred shares were issued at $9.90
4Each option entitles the holder to purchase one ordinary share in the Company
5500,000 options exercisable at $12.12 after 1 February 2000; 500,000 options exercisable at $11.40 after 1 June 2001
6
100,000 options exercisable at $10.65 after 1 February 2001; 100,000 exercisable at $11.40 after 1 February 2001
7
Options exercisable at $9.51 after 23 February 2001
8
Payment to compensate for forfeiture of options from previous employer
9
Sign on and relocation payments
10
Payment under contract
29

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Directors’ Report
Directors’ and Officers’ Indemnity
Article 143 provides that to the extent permitted by the
Corporations Law “every director, secretary or employeeof the Company shall be entitled to be indemnified by theCompany against all costs, charges, losses, expenses andliabilities incurred by him in the execution and dischargeof his duties or in relation thereto”. The Corporations
Law prohibits a company from indemnifying directors,
secretaries, executive officers and auditors for liabilities
except for a liability to a party, other than the Company
or a related body corporate, where the liability arises outof conduct involving good faith, and for costs andexpenses incurred in defending proceedings in which theofficer or auditor is successful. An indemnity for officers
or employees who are not directors, secretaries or
executive officers, is not expressly restricted by the
Corporations Law.
In addition to its obligations under Article 143, it is thepolicy of the Company to:(a) indemnify, in the same terms as Article 143, directors,
secretaries and executive officers of related bodies
corporate; and(b) indemnify other employees of related bodies
corporate for all liability incurred,
where they are acting in good faith in furtherance of theobjectives of the Company and its related bodies
corporate.
The directors, the secretaries of the Company,
P R Marriott, J L Slatter, K K Phillips and former
secretaries R T Jones and J E Clark, and executive officersof the Company have the benefit of the indemnity in
Article 143.
During the financial year, and again since the end of thefinancial year, the Company has paid a premium for an
insurance policy for the benefit of the directors, secretaries
as named above and executive officers of the Company,and directors, secretaries and executive officers of relatedbodies corporate of the Company. In accordance with
common commercial practice, the insurance policy
prohibits disclosure of the nature of the liability insured
against and the amount of the premium.

During the financial year, the Company entered into Deeds
of Indemnity in favour of the trustees and former trustees
of certain of the Company’s superannuation funds anddirectors, former directors, officers and former officers oftrustees of various Company sponsored superannuation
schemes in Australia. Under the Deeds, the Company must
indemnify each Indemnified Person if and to the extent
that the assets of the relevant fund are insufficient to cover
any loss, damage, liability or cost incurred by theIndemnified Person in connection with the fund, being
loss, damage, liability or costs for which the Indemnified
Person would have been entitled to be indemnified out of
the assets of the fund in accordance with the trust deed andthe Superannuation Industry (Supervision) Act 1993. This
indemnity survives the termination of the fund. Some of
the Indemnified Persons are or were directors or executive
officers of the Company.
During the financial year, the Company agreed toindemnify officers of the company being trustees andadministrators of a subsidiary entity, being a trust. Under
the agreement, the Company indemnifies these persons
from and against any loss, damage, liability, tax, penalty,
expense or claim of any kind or nature arising out of or inconnection with the creation, operation or dissolution of
the trust, where they are acting in good faith and in amanner that they reasonably believed to be within thescope of the authority conferred by the trust.
Except for the above, during the financial year and since
the end of it, no person has been indemnified nor has theCompany or a related body corporate of the Company
made an agreement for indemnifying any person who is or
has been an officer or auditor of the Company or of a
related body corporate.

Signed in accordance with a resolution of the directors.

Charles GoodeJohn McFarlane

Chairman

Chief Executive Officer

9 November 1998
30

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30

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Australia and New Zealand Banking Group Limited and Controlled Entities
Profit and Loss Account for the year ended 30 September 1998

Note

Interest income
Interest expense
Net interest income
Other operating income
Operating income
Operating expenses

1998
$M

Consolidated
1997
$M

1996
$M

9,499

9,455

9,298

(5,952)(6,018)(5,971)

3,547

3,437

3,327

2,099

2,110

1,839

5,646

5,547

5,166

(3,438)(3,502)(3,397)

Operating profit before debt provision and abnormal items
Provision for doubtful debts

2,208

2,045

1,769

(487)

(400)

(175)

Operating profit before abnormal items
Abnormal loss

1,721

1,645

1,594

(102)

(182)

–

Operating profit before tax

1,619

1,463

1,594

Income tax (expense) benefit
Operating profit
Abnormal loss

(537)

(466)

(469)

33

35

–

Income tax expense

(504)

(431)

(469)

Operating profit after income tax
Outside equity interests

1,115

1,032

1,125

(9)

(8)

(9)

Operating profit after income tax
attributable to members of the Company

1,106

1,024

1,116

Retained profits at start of year

1,830

1,583

1,106

Total available for appropriation
Transfers from (to) reserves
Ordinary share dividends provided for or paid

2,936

2,607

2,222

Retained profits at end of year

2

2

3

223

(82)

(55)

(747)

(695)

(584)

2,412

1,830

1,583

77.2

78.4

76.3

72.6

68.6

76.3

76.9

78.2

76.1

72.4

68.4

76.1

Earnings per ordinary share (cents)
Basic

Before abnormal items
After abnormal items
Diluted

Before abnormal items
After abnormal items

31

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31

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Australia and New Zealand Banking Group Limited and Controlled Entities
Balance Sheet as at 30 September 1998
Consolidated

Note

1998

1997

$M

$M

AssetsLiquid assets
Due from other financial institutions
Trading securities
Investment securities
Net loans and advances
Customers’ liabilities for acceptances
Regulatory deposits
Shares in associates
Other assets
Premises and equipment

7,527

6,974

4,158

10,912

5,973

7,266

3,979

3,139

94,457

83,741

15,64814,040

1,530

1,206

11

7

14,925

9,312

1,512

1,644

149,720

138,241

Due to other financial institutions
Deposits and other borrowings
Liability for acceptances
Income tax liability
Creditors and other liabilities
Provisions
Bonds and notes
Loan capital

10,758

10,874

94,59989,152

15,64814,040914

778

14,009

9,807

987

1,218

666

1,990

3,748

3,389

Total liabilities

141,329

131,248

8,391

6,993

4,581

4,335

645

–

Total assets
Liabilities

Net assets
Shareholders’ equity

Ordinary share capitalPreference share capital
Reserves
Retained profits

4

697

778

2,412

1,830

Share capital and reserves attributable to members of the Company
Outside equity interests

8,335

6,943

56

50

Total shareholders’ equity and outside equity interests

8,391

6,993

Contingent liabilities

532

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32

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Australia and New Zealand Banking Group Limited and Controlled Entities
Statement of Cash Flows for the year ended 30 September 1998
1998
$M

Consolidated
1997
$M

1996
$M

Inflows/(Outflows)
Cash flows from operating activities

Interest received
Dividends received
Fees and other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Income taxes paid
Net decrease (increase) in trading securities
Net cash provided by operating activities

9,403

9,389

169

327

9,470
111

1,797

1,664

1,689

(6,238)(5,996)(6,138)(2,001)(2,155)(1,850)

(291)

(315)

(351)

(1,085)

(759)

(887)

(423)

(426)

(353)

926

304

(1,595)

2,257

2,033

96

2,299

1,840

(171)

(308)

(14)

(28)

(9,680)(8,029)(8,435)(5,490)(3,140)(2,166)

5,279

2,803

2,381

(8)

(11)

13

–

41

14

(143)

(219)

(235)

75

47

43

1,483

1,389

(904)

(6,493)(5,293)(9,488)(2,047)(2,787)

2,094

2,131

7,861

10,109

(288)

425

879

802

973

1,427

(2,174)(1,434)(655)

Cash flows from investing activities

Net decrease (increase)
Due from other financial institutions
Regulatory deposits
Loans and advances
Investment securities
Purchases
Proceeds from sale or maturity
Controlled/associated entities and branches
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other
Net cash used in investing activities
Cash flows from financing activities

Net (decrease) increase
Due to other financial institutions
Deposits and other borrowings
Creditors and other liabilities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Decrease in outside equity interests
Dividends paid
Share capital issues

559

323

634

(273)

(851)

(110)

(3)

(3)

(8)

(491)

(478)

(354)

714

39

18

Net cash (used in) provided by financing activities(1,070)

4,068

14,034

Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities

2,257

2,033

96

(6,493)(5,293)(9,488)(1,070)

4,068

14,034

Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign currency translation on opening balances(5,306)

808

4,642

12,456

11,246

7,079

1,831

402

(475)

Cash and cash equivalents at end of year

8,981

12,456

11,24633

FPpg30.pm6.saog

33

20/11/98, 5:03 AM

Notes to the Concise Financial Statements
1: Accounting Policies
This concise financial report has been derived from theGroup’s 1998 Financial Statements which comply with the
Corporations Law, Australian Accounting Standards andUrgent Issues Group Consensus Views. A full description of
the accounting policies adopted by the Group is provided in
the 1998 Financial Statements. The accounting policies are
consistent with those of the previous financial year except forthe changes disclosed below.

Included in this category are card issuer reimbursement fees,co–branded loyalty payments and certain brokerage costs.
Prior period comparatives have been restated. The impact
on the profit and loss for the year ended 30 September 1998
is nil.

Leasing
Effective 1 October 1997, operating leases entered into by
the Group as lessor are treated as a financing transaction
Changes in Accounting Policy
with the assets recorded as part loan and part residual value,
Other expenses
the latter classified under Other assets. Income received is
Effective 1 October 1997, costs representing expenditure that is allocated between interest and principal repayments on thereimbursed under a contractual arrangement are netted against loan. Previously these assets were included within premises
the related revenue in accordance with the revisedand equipment. Prior period comparatives have been
International Accounting Standards IAS 1 “Presentation ofrestated. The impact on the profit and loss for the year
Financial Statements”.
ended 30 September 1998 is nil.
Consolidated
1997
$M

1996
$M

–

145

–

1998
$M

2: Abnormal Items
Profit before tax
Interest on National Housing Bank deposit(Loss) before tax
Restructuring costs
Costs of exiting businesses
Restructuring
Write down of residual emerging markets securities portfolio

–

(327)

–

(32)
(70)

–
–

–
–

Total abnormal loss before tax

(102)

(182)

–

Income tax (expense) benefit applicable toInterest on National Housing Bank deposit
Restructuring costs
Costs of exiting businesses
Restructuring
Write down of residual emerging markets securities portfolio

–
–

(80)
115

–
–

11
22

–
–

–
–

Total abnormal tax benefit

33

35

–

Total abnormal loss after tax

(69)

(147)

–

Ordinary dividends
Interim dividend
Proposed final dividend
Bonus option plan adjustment

366
431
(50)

329
392
(26)

264
355
(35)

Dividends on ordinary shares

747

695

584

3: Dividends

A final dividend of 28 cents partially franked to 60% is proposed to be paid on each fully paid ordinary share (1997: final
dividend of 26 cents per fully paid share, fully franked; 1996: final dividend of 24 cents per fully paid share, fully franked).
The 1998 interim dividend of 24 cents was partially franked to 60% (1997: interim dividend of 22 cents, fully franked; 1996:
interim dividend of 18 cents, partially franked to 50%). The unfranked portion will be sourced from the Company’s foreign
dividend account. As a result, non–resident shareholders will be exempt from dividend withholding tax.

Dividend Franking Account
The amount of franking credits available for the subsequent financial year is nil (1997: nil), after adjusting for franking creditsthat will arise from the payment of tax on Australian profits for the 1998 financial year, less franking credits which will beutilised in franking the proposed final dividend and franking credits that may not be accessable by the Company at present.
34

Notes to the Concise Financial Statements
4: Share Capital
On 23 September 1998, the Company issued 64,016,000
fully paid non–converting non–cumulative preference
shares for US$ 6.25 per share raising capital of US$
400 million for the Group via a Trust Securities issue.
The Trust Securities are mandatorily exchangeable for the
preference shares issued by the Company and carry anentitlement to a non–cumulative trust distribution of 8%
per annum payable quarterly in arrears.
The preference shares themselves carry no present
entitlement to dividends. Distributions to investors in the
Trust Securities are funded by income distributions madeby the Group.
Upon maturity of the Trust Securities in 2047, investors

5: Contingent Liabilities

will mandatorily exchange the Trust Securities for the
preference shares and thereupon the preference shares will
carry an entitlement to non–cumulative dividends of 8% perannum payable quarterly in arrears. The mandatoryexchange of Trust Securities for preference shares may
occur earlier at the Company’s option or in specified
circumstances.
With the prior consent of the Australian Prudential
Regulation Authority, the preference shares are redeemableat the Company’s option after 5 years, or within 5 years inlimited circumstances. The entitlement of investors to
distributions on the Trust Securities will cease on
redemption of the preference shares.

There are outstanding court proceedings, claims andpossible claims against the Group, the aggregate amountof which cannot readily be quantified. Where consideredappropriate, legal advice has been obtained and, in thelight of such advice, provisions as deemed necessary havebeen made.

Subsequently, NHB had the award reviewed by the Special
Court (Trial of Offences Relating to Transactions in
Securities) at Mumbai, which on 4 February 1998 ordered
the award be set aside. ANZ has filed an appeal with theSupreme Court of India seeking that the Special Court’sorder be set aside. As the matter is sub judice, comment by
the parties is limited. The Group has obtained firm legal
advice from Senior Counsel and based on that advice noprovision has been made in respect of the claim.

India – National Housing Bank

India – Foreign Exchange Regulation Act

In 1992 the branch of ANZ Grindlays Bank Limited inIndia (the Bank) received a claim, aggregating
approximately Indian Rupees 5.06 billion ($200 million)
from the National Housing Bank (NHB) in that country.
The claim arose out of certain cheques drawn by NHB in
favour of the Bank, the proceeds of which were credited
into the account of one of the customers of the Bank.

In 1991 certain amounts were transferred from non–convertible Indian Rupee accounts to convertible Rupee
accounts maintained with the Bank in India. In making
these transactions it would appear that the provisions of theForeign Exchange Regulation Act 1973 were inadvertently
not complied with. The Bank, on its own initiative,
brought these transactions to the attention of the Reserve
Bank of India.

GeneralOn 29 March 1997, pursuant to an Arbitration
Agreement entered into on 4 November 1992, theArbitrators made an award on this dispute in favour of theBank. NHB paid to the Bank the principal and interest(aggregating Indian Rupees 9.05 billion ($357 million))
due under the award.

The Indian authorities have served preliminary notices on
the Bank and certain of its officers in India which could leadto proceedings and possible penalties. The Group’s lawyers
in India have prepared responses to these notices, and theGroup considers that the outcome will have no material
adverse effect on the financial statements.

35

Notes to the Concise Financial Statements
6: Segment Analysis
The following analysis shows income, operating profit and total assets by geographic and industry segments.

$M%

Consolidated
1997
$M
%

6,403
2,008
800
868
572
419
458

56
17
7
7
5
4
4

6,390
1,917
1,163
863
655
362
360

55
16
10
7
6
3
3

6,480
1,802
990
822
433
323
287

58
16
9
7
4
3
3

11,528100

11,710100

11,137100

Australia
New Zealand
UK and Europe
Asia PacificSouth Asia
AmericasMiddle East

796
158
(56)
108
78
36
55

68
13
(5)
9
7
3
5

687
123
105
97
84
24
51

59
11
9
8
7
2
4

657
138
106
99
36
38
42

59
12
10
9
3
3
4

1,175
(69)

100

1,171
(147)

100

1,116
–

100

Abnormal loss

1998

1996
$M

%

Geographic
Income1

Australia
New Zealand
UK and Europe
Asia PacificSouth Asia
AmericasMiddle East

Operating profit after income tax

1,106

1,024

1,116

Total assets

Australia
New Zealand
UK and Europe
Asia PacificSouth Asia
AmericasMiddle East

94,194
20,15513,803
7,104
5,008
4,919
4,537

63
14
9
5
3
3
3

80,321
18,831
16,886
9,844
3,959
4,611
3,789

58
14
12
7
3
3
3

75,11017,46315,008
9,163
3,333
4,723
2,804

59
14
12
7
2
4
2

149,720100

138,241100

127,604

100

4,347
1,125
1,006
201
1,245

38
10
9
2
11

4,499
1,075
1,039
200
1,137

38
9
9
2
10

1,564
1,678
362

13
14
3

1,518
1,998
244

13
17
2

11,528100

11,710100

Industry
Income1

Domestic banking
Personal banking
Business banking
Asset financeFunds management
Investment banking
International markets
Commercial banking
Investment banking
Other

36

Notes to the Concise Financial Statements
6: Segment Analysis (continued)
Consolidated

1998

1997

$M

%

$M

%

462
223
77
61
192

39
19
7
5
16

359
183
82
47
163

31
16
7
4
14

160
(56)
56

14
(5)
5

159
139
39

13
12
3

1,175
(69)

100

1,171
(147)

100

Operating profit after income tax

Domestic banking
Personal banking
Business banking
Asset financeFunds management
Investment banking
International markets
Commercial banking
Investment banking
Other
Abnormal loss

1,106

1,024

Total assets

Domestic banking
Personal banking
Business banking
Asset financeFunds management
Investment banking
International markets
Commercial banking
Investment banking
Other1

46,88423,911
11,366225
27,703

31
16
8
–
19

43,806
18,364
11,212673
19,753

32
13
8
1
14

13,791
19,623
6,217

9
13
4

16,56822,300
5,565

12
16
4

149,720100

138,241

100

Includes abnormal items

7: Events Since the End of the Financial YearIn October 1998, the Group announced its decision to exit its London capital markets operations and institutional
stockbroking business with a consequent abnormal loss after tax of $69 million. There have been no other significant events
since 30 September 1998 to the date of this Report.

Directors' Declaration
The directors of Australia and New Zealand Banking Group
Limited declare that the accompanying concise financial
report of the consolidated Group is fairly presented as anabbreviation of the Group’s 30 September 1998
Financial Statements.
In our report on the Group’s 1998 Financial Statements wedeclared that(i) the financial statements and notes comply with applicable
Australian Accounting Standards and Urgent Issues
Group Consensus Views; and(ii) the financial statements and notes give a true and fair viewof the financial position and performance of the Company
and of the consolidated Group; and(iii) in our opinion, at the date of this declaration there arereasonable grounds to believe that the Company andconsolidated Group will be able to pay its debts as andwhen they become due and payable; and(iv) in our opinion, the financial statements and notes are inaccordance with the Corporations Law, including section
296 and section 297.
Signed in accordance with a resolution of the directors

Charles Goode
Chairman
9 November 1998

John McFarlane
Chief Executive Officer
37

Auditors' Report
To the members of Australia and New
Zealand Banking Group Limited.
Scope
We have audited the concise financial report of Australia and
New Zealand Banking Group Limited for the year ended
30 September 1998 as set out on pages 8 and 9 and pages 31 to
37 in accordance with Australian Auditing Standards. The concise
financial report has been extracted from the annual statutoryfinancial report. For a better understanding of the scope of ouraudit, this report should be read in conjunction with our audit
report on the annual statutory financial report.
Audit Opinion(i) We have audited the annual statutory financial report for
ANZ for the year ended 30 September 1998. Our audit
report on the annual statutory financial report, addressed tothe members and dated 9 November 1998, was unqualified.

(ii) In our opinion,(a) the information reported in the concise financial report
is consistent with the annual statutory financial reportfrom which it is derived;(b) the concise financial report complies with theAustralian Securities and Investments Commission
Order dated 24 September 1998 which enables ANZ
to issue concise financial statements in accordance with
Section 314(2) as if Australian Accounting Standards
Board exposure draft ED 94 “Concise Financial
Reports” were an accounting standard.

P S NashPartner

KPMG
Chartered Accountants
Melbourne
9 November 1998

Shareholder Information
Ordinary shares
At 9 October 1998 the twenty largest holders of ordinary shares held 849,083,506 ordinary shares, equal to 55.2 percent of the total issued ordinary capital.

Chase Manhattan Nominees Ltd
Westpac Custodian Nominees Limited
National Nominees Limited
ANZ Nominees Limited
Citicorp Nominees Pty Limited
BT Custodial Services Pty Ltd
MLC Limited
Permanent Trustee Australia Limited
Queensland Investment Corporation
AMP Life Limited
SAS Trustee Corporation
Perpetual Trustees Nominees Limited
Mercantile Mutual Life Insurance Company Limited
Perpetual Trustee Company Limited
Perpetual Trustees Victoria Limited
Commonwealth Custodial Services Limited
Permanent Trustee Company Limited
HKBA Nominees Limited
The National Mutual Life Association of Australasia Ltd
NRMA Investments Pty Ltd

Number of shares%

190,970,091
177,779,572
112,106,234
49,462,784
35,949,708
29,546,675
29,377,208
28,559,039
27,736,617
27,597,804
26,265,281
20,170,290
18,608,082
14,348,037
12,942,706
12,660,402
9,754,215
9,584,445
7,896,746
7,767,570

12.4
11.6
7.3
3.2
2.3
1.9
1.9
1.9
1.8
1.8
1.7
1.3
1.2
1.0
0.9
0.8
0.6
0.6
0.5
0.5

849,083,506

55.2

Preference Shares
At 9 October 1998 Hare and Co. (a nominee company of The Bank of New York) held 64,016,000 preference shares,
equal to 100 per cent of the total issued preference capital.
38

FPpg38.pm6.saog

38

20/11/98, 1:10 AM

Shareholder Information
Distribution of shareholdings
At 9 October 1998
Range

Number ofholders% ofholders

67,99764,123

1 to 1,000 shares
1,001 to 5,000 shares
5,001 to 10,000 shares
10,001 to 100,000 sharesOver 100,001 shares

Number ofshares% ofshares44.6

33,700,627

2.2

42.1

149,948,720

9.7

11,9507.9

85,077,528

5.5

7,748

5.1

168,463,877

11.0

511

0.3

1,102,252,925

71.6

At 9 October 1998, there were no entries recorded in the Register of Substantial Shareholdings. The average size ofordinary shareholding was 10,106 (1997: 11,432) shares. Shareholdings of less than a marketable parcel (market value less than$500) were 5,671 (1997: 6,519), which is 3.7% of the total holdings of ordinary shares.

Voting rights of ordinary shares
The Constitution provides for(i) on show of hands 1 vote;(ii) on a poll 1 vote for each ordinary share held; and(iii) 1 vote for every 10, 10 cent paid shares issued pursuant to the Company’s Group Share Purchase Scheme.
Voting rights of preference shares
The Constitution and terms of issue provide for holders of the preference shares to vote together with (and on the same basisas) holders of ordinary shares:(i) on a proposal to reduce ANZ’s share capital, any resolution to approve a share buy-back agreement, any proposal to wind
up ANZ, any proposal for the disposal of the whole of ANZ’s property, business and undertaking and any matter during
the winding up of ANZ;(ii) (if the preference shares become dividend paying) on all matters, during a period commencing when a quarterly dividend
payment or an optional special dividend payment is not paid by the prescribed date until the day before four consecutive
quarterly dividend payments have been made.
A voting right is also conferred on a proposal which affects the rights attaching to the preference shares.
Employee Shareholder Information
At the January 1994 Annual General Meeting, shareholders approved a limit of 7% of the issued share capital of the Company
on the number of shares and options which may be issued under the Group Employee Share Acquisition Scheme, the Group
Share Purchase Scheme, Group Share Option Scheme and the former Group Employee Share Purchase Scheme and theunissued shares to which options may be granted under any incentive schemes for employees and directors of the Group.
At 9 October 1998, participants in the above Schemes held 2.1% (1997: 1.6%) of the issued ordinary share capital. At
9 October 1998, 6,167,719 options to purchase ordinary shares, which have been granted under the Group Share Option
Schemes, had not been exercised.
Directors’ Shareholding Interests
SharesC B GoodeJ C Dahlsen
Dr R S Deane
J K Ellis
C J Harper
M A Jackson
J McFarlane
J F Ries
Dr B W Scott
G K Toomey

280,257
83,40075,00052,59355,50074,634
302,000
152,000
86,861
2,045
1,164,2901
2
3
4

Beneficially held
Options
Options

Deferred shares

Non-beneficially held
Shares

12,000310,710

310,71021,000,0001
200,0003

12,2434

1,200,000

12,243

12,000500,000 options exercisable at $12.12 after 1 February 2000; 500,000 options exercisable at $11.40 after 1 June 2001
300,000 options exercisable at $5.34 after 30 Jan 1997; 10,710 options exercisable at $8.76 after 30 Jan 2000
100,000 options exercisable at $10.65 after 1 February 2001; 100,000 options exercisable at $11.40 after 1 February 2001
Deferred ordinary shares issued under the Group Employee Share Acquisition Scheme, restricted until 21 January 2001 and forfeitable during that timeupon the recipient leaving the Group for reasons other than retirement, retrenchment, death or disablement39

FPpg38.pm6.saog

39

20/11/98, 1:10 AM

Financial Highlights in Key
Currencies
1998
AUD

Millions

1998
USD1

1998
GBP1

1998
NZD1

Profit and loss

Net income
Operating expenses

5,646

3,652

2,209

6,539

(3,438)(2,224)(1,345)(3,982)

Profit before tax, debt provision and abnormal items
Provision for doubtful debts

2,208

1,428

864

2,557

(487)

(315)

(191)

(564)

Profit before tax and abnormal items
Income tax expense
Outside equity interests

1,721

1,113

673

1,993

(537)

(347)

(210)

(622)

(9)

(6)

(4)

(10)

Profit before abnormal items

1,175

760

459

1,361

Net abnormal loss

(69)

(45)

(27)

(80)

Profit after tax and abnormal items

1,106

715

432

1,281

149,720

89,412

52,342

177,688

141,329

84,40149,409167,730

8,391

5,011

2,933

9,958

72.6c

47.0c

28.4p

84.1c

52.0c

33.6c

20.3p

60.2c

$4.98

$3.22

£1.95

$5.77

Balance Sheet

AssetsLiabilities
Shareholders’ equity2
Ratios

Earnings per share - after abnormal items (basic)
Dividends per share - declared rate
Net tangible assets per ordinary share
1

USD, GBP and NZD amounts - profit and loss converted at average rates for financial year 30 September 1998 and balance sheet items at closing rates at
30 September 1998
2
Includes outside equity interests

Exchange Rates
The exchange rates used in the translation of the results and the assets and liabilities of major overseas branches andcontrolled entities are
1998

Great Britain pound
United States dollar
New Zealand dollar

Closing

Average

Closing

1997
Average

Closing

Average0.3496

0.39130.44650.46940.50620.49630.59720.64680.71970.76790.79140.76851.18681.15811.1272

1.11911.1314

1.134040

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40

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1996

ME26987_54_H_annual report

20/11/98 3:03 AM

Page 30

Shareholder Information
Dividend

Registered Office

The final dividend of 28 cents per share will be paid on 21

Level 2, 100 Queen Street, Melbourne,

December 1998, 60% franked. Dividends may be paid direct-

Victoria 3000 Australia

ly to a bank account in Australia, New Zealand or the United

Phone: (03) 9273-6141

Kingdom. Shareholders who want their dividends paid thisFax: (03) 9273-6142

way should advise the relevant share registry in writing prior

Secretary: J Slatterto record date. Dividend Reinvestment and Bonus Option
plans are available to shareholders.The plans are detailed in a

Share Registry

booklet called ‘Shareholder Alternatives’, copies of which are

Australia

New Zealandavailable from the share registries at the addresses shown.

Perpetual Registrars Limited

Corporate Registry Services

Securities Registration Services

Private Bag 92119

Level 4, 333 Collins Street

Auckland

Melbourne,Victoria 3000

Phone: (09) 520-0022

Phone: (03) 9205-4999

Fax: (09) 522-0058

Stock Exchange Listings
The Group’s ordinary shares are listed on the Australian
Stock Exchange and the New Zealand Stock Exchange.
The Capital Securities offered in February 1993 are listed

Toll Free: 1800 331 721

on the New York Stock Exchange.The Trust Securities(outside metropolitan area)

relating to the Preference Shares issued in September 1998

Fax: (03) 9205-4900

are also listed on the New York Stock Exchange.

American Depositary Receipts
The Bank of New York sponsors an American Depositary

Telephone Numbers

Receipt (ADR) program in the United States of America.

Customer Banking Enquiries

13 13 14The ADRs were listed on the New York Stock Exchange on
6 December 1994. ADR holders should deal directly with

1800 678 273

International Services

the Depositary, Bank of New York, New York,Telephone(212) 815-2729, Fax (212) 571-3050 on all matters relating to

ANZ Stockbroking

13 13 70

Esanda Finance

13 23 73

their ADRs.

Credit Ratings (November 1998)
ANZ Funds Management

Short Term

Moody’s Investors Service

P-1

Standard & Poor’s Rating Group

A-1+

Long Term Debt

Moody’s Investors Service

Aa3 (outlook negative)

Standard & Poor’s Rating GroupAA- (outlook negative)

1800 022 893

Credit Card Enquiries

13 22 73

Lost or Stolen Cards

1800 033 844

Internet
ANZ product information is also available from1998 Financial Statements
A copy of the Group’s 1998 Financial Statements, including
the independent Audit Report, is available to all shareholders,
and will be sent to shareholders without charge uponrequest. The Financial Statements can be requested by
telephone (Australia: 1800 113 399 , Overseas: 61 3 9205 4892)
and by internet at investor.relations@anz.com

ANZ's internet site:www.anz.com

or by email throughretail.enquiry@anz.com

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